How To Find A Sustainable Competitive Advantage

One-click subscribe for video updates

What is a Sustainable Competitive Advantage?

The essence is this: some companies have worked out that they can meet their customers’ needs better than their competition.

The result – they perform better.

If they do this consistently over a long time period, they are said to have a sustainable competitive advantage.

The reasons a company succeeds in this way vary. There are different types of competitive advantages based on things like

customer loyalty,

core competencies, 

pricing power,

and market research, to name a few.

Let’s explore these and more with some top brand examples and see if we can explain why Apple, Starbucks, Amazon, and other profit kings dominate their markets.

Types of Competitive Advantages

A sustainable competitive advantage can be achieved through various means, each offering a unique way to stand out in the market.

Here are some of the most effective types:

Product Differentiation: Creating a unique product or service that sets a company apart from its competitors. This could be through innovative features, superior quality, or exceptional design. For example, Apple’s sleek and user-friendly products have set it apart in the tech industry.

Cost Leadership: Achieving a lower cost structure than competitors, allowing for lower prices or higher profit margins. Companies like Walmart excel in this area by offering a wide range of products at unbeatable prices, attracting cost-conscious consumers.

Focus: Concentrating on a specific market segment or niche, allowing for a deeper understanding of customer needs and preferences. For instance, Tesla focuses on the electric vehicle market, catering to environmentally conscious consumers with high-performance electric cars.

Innovation: Continuously developing new products, services, or processes that create value for customers and stay ahead of competitors. Amazon’s constant innovation in logistics and delivery services has kept it at the forefront of the e-commerce industry.

Brand Loyalty: Building a strong brand reputation and customer loyalty, making it difficult for competitors to attract customers away. Starbucks has cultivated a loyal customer base by consistently delivering high-quality coffee and a unique in-store experience.

Benefits of a Sustainable Competitive Advantage

A sustainable competitive advantage provides numerous benefits that can significantly impact a company’s success.

Here are some of the key advantages:

Increased Market Share: Companies with a sustainable competitive advantage often see increased market share, as customers prefer to do business with a company that offers unique value. This can lead to a dominant position in the market.

Higher Profit Margins: A sustainable competitive advantage can result in higher profit margins, as companies can charge premium prices for their unique products or services. This is evident in Apple’s ability to command higher prices for its products.

Improved Customer Loyalty: Companies that consistently deliver value can build strong customer loyalty. Loyal customers are more likely to make repeat purchases and recommend the company to others, driving long-term success.

Increased Brand Recognition: A sustainable competitive advantage can lead to increased brand recognition. When a company’s unique value proposition becomes well-known in the market, it can attract new customers and strengthen its brand presence.

Key Factors to Create a Sustainable Competitive Advantage

Creating a sustainable competitive advantage requires several key factors.

Here are some essential elements to consider:

Unique Value Proposition: A company must offer a unique value proposition that sets it apart from competitors. This could be through innovative products, exceptional service, or a distinctive brand identity.

Excellent Customer Service: Providing excellent customer service is crucial for building customer loyalty and retention. Companies like Zappos have built their reputation on outstanding customer service, leading to a loyal customer base.

Steady Cash Flow: A steady cash flow is essential for investing in innovation and staying ahead of competitors. Companies with strong financial health can afford to take risks and invest in new opportunities.

Market Research: Conducting thorough market research helps companies understand customer needs and preferences. This knowledge allows them to tailor their offerings and stay ahead of competitors. For example, Netflix uses data-driven insights to create content that resonates with its audience.

Innovation: Continuous innovation is key to maintaining a unique value proposition. Companies that invest in research and development can introduce new products and services that keep them ahead of the competition.

Apple

In 2018, Apple became the first public company to reach $1 trillion in value.

That was an increase in value of over 50,000% since the company was first listed in 1980.

Apple’s brand is immediately recognizable and celebrated for its sleek simplicity.

Its founders are worshipped as forward-thinking geniuses, and its release events are watched and commented on by millions worldwide.

So, how can we explain Apple’s continued sustainable advantage over its competitors?

From the Macintosh to iPods to the all-conquering iPhone – what is Apple doing right?

Apple's innovative products and strong brand identity provide it with a competitive edge that is difficult for competitors to replicate.

Let’s focus on just two elements.

The Apple Ecosystem

Only Apple devices run iOS – its operating system. By comparison, most of Apple’s competitors use the Android operating system.

This means that you have to stay within the Apple ecosystem to keep your digital purchases – you have to keep buying iOS devices.

By hook or by crook, this essentially creates a hitherto unforeseen level of brand loyalty in which many iPhone users simply can’t imagine making the switch away from their beloved iOS.

As iPhone sales continue to increase, this means more and more customers fall into Apple’s walled garden.

As a business model, this binding of the customer to the product ensures higher and higher profits for Apple.

In addition, Apple has sole ownership over this commodity – their operating system is their intellectual property and it’s not for sale!

This is one of their biggest strategic assets. That’s because many of their competing manufacturers – Samsung, HTC, Sony – all use Android.

Therefore, these manufacturers are always competing for market share, losing ground to lower cost, lower price competitors using the same open-source OS.

Brand Appeal

Apple’s brand appeal comes from its marketing magic.

They have firmly established their reputation as innovative – they invest in product development and new technology, always placing the user experience as a priority, and this is communicated expertly in their sleek advertising and wrapped up with a bow with their simple yet elegant designs.

It is marketing wizardry because their phones are more expensive than their competitors, yet the software and technology are not actually more advanced or particularly high quality.

As such, Apple has created phones that are premium, luxury products – over-inflated prices for an average quality product.

As new products get announced, people keep rushing to upgrade – reinforcing the notion that the latest iPhone is as much a fashion statement as a technological upgrade.

As a business strategy, it’s an incredible success story.

The combination of brand appeal and the reinforcing loop nature of the Apple ecosystem should ensure that Apple retains its sustainable competitive advantage for the foreseeable future.

Amazon

Who knew that selling books online could lead to enough revenue to fund a space program?

Of course, Amazon is now a vast behemoth that has propelled Jeff Bezos into the no.1 spot on the world’s rich list.

Amazon is now the undisputed leader in the world of online retailing, completely redefining the way the world shops. There’s no sign of its grip on commerce loosening.

Amazon's efficient supply chain and customer-centric approach provide it with a competitive edge in the online retail market.

So how did the online bookselling company get here and why can’t its competitors get anywhere near?

Well, let’s start with that bookselling foundation – this was Jeff Bezos finding a niche with which to approach the relatively new world of online stores back in 1994.

Finding a niche is a common method for finding a sustainable competitive advantage.

There are several reasons he chose books as his first step in building an “everything store”. In a Business Insider magazine piece spotlighting a resurfaced interview from 1997, Bezos explains:

Books were great as the first best product because books are incredibly unusual in one respect, that is that there are more items in the book category than there are items in any other category by far.

So when you have that many items you can literally build a store online that couldn’t exist any other way.

He identified a niche that suited the new online platform.

However, what’s important is the next step, and that’s a positioning strategy that sets you apart.

The Difference

Jeff Bezos decided that Amazon’s value proposition to customers, and this would set them apart, was that they would provide greater value to customers through a combination of extraordinary convenience, instant access, and comprehensive selection.

And, as if this wasn’t enough, it would also be cheap, giving them a cost advantage!

This was initially applied to the niche of books, later expanded to the vast selection of everything you buy on Amazon today.

They built Amazon on the strategy that prices should be kept as low as possible to attract as many customers as possible rather than charging high prices to maximize profit.

The prices were backed up with a great review system ensuring that consumer trust was built around the brand.

The Major Upgrade

This is the recipe for a successful business but doesn’t explain Amazon’s meteoric rise.

The rise was due to some fantastic decision-making – choosing to invest in the supply chain to create a whole new distribution system.

Short-term thinking this was not.

The innovative and efficiently controlled distribution enabled

Amazon to provide quicker deliveries, assure the exact delivery date, and keep its promises on product quality and delivery.

As the firm grew, it also benefitted from economies of scale. Small businesses selling the same things simply couldn’t compete with the advantage that Amazon held with its vast infrastructure.

Who doesn’t love low-cost products delivered with industry-leading convenience?

Just like Apple, it’s difficult to see any competitor changing the Amazon-dominated landscape any time soon.

Explore Brand Strategy
Programs & Tools

Starbucks

Between 1998 and 2008, Starbucks grew from 1,886 stores to 16,680.

Now by far the largest coffee chain in the world, Starbucks’s famed CEO, Howard Schulz, made the most of product differentiation and clever marketing strategies to set itself apart from other coffee chains.

Starbucks' focus on high-quality products and a unique customer experience provides it with a competitive edge in the coffee industry.

When he acquired the brand, there were 17 stores, but he had grand ambitions – to be premium yet ubiquitous

The Third Place

Part of Starbucks’ branding was to establish itself as a ‘third place’ –

somewhere between work and home where people could meet socially, study, work, or relax in a warm and welcoming environment.

They nailed this aesthetic and it set them apart from their competition – other companies like McCafe and Dunkin were focused on a fast-food vibe.

Starbucks didn’t want you to get your coffee and go, they wanted you to stick around and chill in their environment.

People liked it.

The Right Products

Since Starbucks had created a slightly more upscale vibe than its competitors, it needed to have the products to match.

Starbucks firmly established its reputation for high-quality coffee products, using only the finest Arabica beans and the best Swiss coffee-making equipment.

Starbucks played up its exotic nature in everything it did, down to its sizes, with “grande” and “venti” providing a connection to the Italian coffee culture

This endeared the coffee chain to its target market – those city workers heading to strategically located cafes who are willing to pay higher prices for a premium product.

Besides the high-quality coffee, all the products, including tea, chocolate drinks, fruit juices, and food items at Starbucks use high quality and ethically sourced ingredients.

This last point is especially pertinent to Starbucks branding – the notion that they believe in principles of sustainability and ethical initiatives – and will not compromise on this for lower-cost products.

They banked on customers being willing to pay extra, knowing that the ingredients were ethically sourced – and it has paid off.

In fact, Starbucks has actually taken control of its supply chain, buying up coffee plantations and other sources of ingredients to create a vertically integrated farm-to-store supply chain.

This ensures a competitive advantage as Starbucks isn’t affected by fluctuations in the price of ingredients such as coffee, cocoa, and tea.

A final point on Starbucks’ products as their strength – go in and look at the Starbucks menu – it is constantly changing.

They are market leaders in innovating ways that people can get their caffeine fix.

With seasonal promotions and new, exciting combinations always freshening up the menu, this keeps customers coming in to try their latest creations.

So, What Can You Learn From These Examples?

While we’re not promising Amazon-level success stories, we think it’s useful to learn from successful brand examples and apply their strategies to your business, if relevant.

These examples of companies with a sustainable competitive advantage all entail competitive positioning.

Now, many of these articles use some of these terms interchangeably –

competitive positioning,

market edge,

differentiation strategy.

They amount to the same thing, but there are subtle differences to explore.

Competitive Positioning

Boiled down to its most simple notion, competitive positioning asks: Why would your audience choose you over your competitors?

It’s a fundamental question that the marketing departments of Apple, Amazon, and Starbucks can easily answer – we went through what sets them apart in the minds of their target market already.

For you, this then poses several other questions:

What are my competitors doing?

How do I know the mind of my audience?

How can I define a position for my brand?

Starting with these questions is actually the beginning of a long process that will involve a whole load of market research before you can make any meaningful decisions.

How Do I Find my Sustainable Competitive Advantage?

First, I’m not going to beat around the bush – there is no silver bullet or quick fix that guarantees success.

That being said, there are proven processes that can help you find a competitive position.

This, in turn, gives you a great chance of finding a competitive advantage for your business!

#1. Segment Your Audience

As the old saying goes, you can’t please everybody. Your product cannot have ‘everybody’ as its target market.

Get specific, segment your audience so that it’s more narrow than vague.

For instance, instead of targeting “men”, narrow that down to “stylish, single men in their mid-twenties”.

#2. Establish A Buyer Persona

Building on this, your buyer persona is a fictional character that represents a specific potential customer segment. You may have more than one, but get each one as specific as you can.

You need to know their likes/dislikes, their hopes and dreams and their biggest fears…

As part of this process, you need to uncover their market demographics and their market psychographics.

The demographics you aim to uncover include information such as

age,

gender,

ethnicity,

geographic location,

marital status,

and income, to name a few.

Knowing these for your buyer persona will help to build a picture of what their life looks like.

The psychographics are what really make your buyer persona tick (we weren’t joking about delving into their deepest insecurities).

You need to build an idea of their

hobbies and interests,

their lifestyle choices,

their core beliefs and values,

and what they like to eat, read, and listen to.

All of these insights will help you better target them.

#3. Evaluate Your Competition

Researching your competitors is certainly about understanding what they’re doing well, but more importantly, it’s about uncovering where they’re leaving gaps in the market.

One way to do this is through a positioning matrix, sometimes called market mapping.

A market map essentially looks at how competitors fit within two variables, shown through four quadrants on a graph.

So, for instance, Starbucks may have used a market map as a positioning tool to find a market gap. With the variables, fast-slow and premium-cheap, they would have placed most of their competitors toward the cheap fast-food end of service.

They would have identified on their market map a huge gap to sell more premium coffee that didn’t emphasize a speedy service.

This is a relatively simplistic example, but market maps can really help to visualise a gap in the market.

If you want to position your brand well, you need to uncover opportunities that you can exploit to draw your buyer personas away from your competitors.

#4. Evolve Those Gaps Into Ideas

Spotting a gap is one thing, exploiting it to find your competitive advantage is a different kettle of fish entirely.

Using creative and strategic thinking, you need to work out a way of crafting an industry-defining proposition for your buyer persona.

That’s a big old step – and way beyond the scope of this article.

#5. Define Your Competitive Advantage

If, and it’s a big if, you’ve evolved your opportunity into a fully formed idea that you know is a winner, then the hard work really begins!

Just because you think you have a winning idea, it doesn’t mean your target buyer persona is going to go for it.

You need to put in a lot of effort to communicate the idea and make it sit within their mind exactly as you want it to. You need to make sure that your defined position needs to make sense and run through every touchpoint that your customer has with the business and the product – no mean feat!

If we return briefly to our examples of top brands with sustainable competitive advantages, we see Apple, Amazon, and Starbucks express their competitive advantage in everything they do.

This is where the positioning statement comes into play.

Having a positioning statement distills exactly what you do, who you do it for, the way you do it, and why that trumps the alternative. Check out Amazon’s:

For consumers who want to purchase a wide range of products online with quick delivery, Amazon provides a one-stop online shopping site. Amazon sets itself apart from other online retailers with its customer obsession, passion for innovation, and commitment to operational excellence.

It is a clear defining paragraph that wraps up Amazon’s value proposition while also taking the time to explicitly separate Amazon from its competitors in the mind of the consumer.

A positioning statement is often misunderstood as a piece of external communication that a brand might put on its website. In reality, it’s an internal guide that offers the leadership team and personnel clarity on

its audience (buyer personas)

their challenge/pain point/gap in the market

the key benefit (of your company/product)

your unique point of difference from your competition

The truth is, if you can’t lay these out simply, you won’t be obtaining that sweet spot toward a sustainable competitive advantage.

Over To You

Well, it’s certainly a long and painful journey. You’re going to need to do market analysis, set up some competitive positioning maps, and develop those buyer personas.

Developing your brand based on finding your difference is key to realizing a sustainable competitive advantage in your market. 

But, the truth is, it’s an immense challenge to find a competitive advantage, never mind a sustainable competitive advantage. The companies that have managed it are few and far between.

Nevertheless, finding your competitive position within the market, with the steps laid out above, is a fantastic first step.

Over to you!