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How to identify a competitive advantage

While a competitive advantage allows a company to distinguish itself from other players in its line of business, it must also be difficult to replicate.

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Identifying your competitive advantages is a crucial step in strategic planning. They are necessary for the growth of the company, so they must be extremely solid.

“A competitive advantage must allow a company to distinguish itself from others in its field of business, but it must also be difficult to replicate quickly," explains Lucie Chouinard, Senior Business Advisor and Strategic Planning Solution Lead, BDC Advisory Services.

A competitive advantage must allow a company to distinguish itself from others in its field of business, but it must also be difficult to replicate quickly.

An advantage that can’t be replicated will give the company a head start. “A competitor needs to invest a lot of time and money to get things done the same way,” Chouinard says. “Something as simple as offering a quality product is not enough to be considered a competitive advantage.”

An expert in strategic planning, Chouinard gives three examples of what a competitive advantage can be.

1. Technologies

Technologies used by the company to produce a good, to manage customer relations or to improve internal relationships can be considered a competitive advantage.

“It's obvious that technology is always evolving rapidly, but a company that is first to do something will be well ahead of others trying to do the same thing,” Chouinard says.

While world-renowned companies, such as Amazon, Airbnb and Uber, are banking on technologies, Chouinard also sees local examples. “Lufa Farms, for example, have exceptional technologies for managing their customer relations in terms of order taking and management. They always know where an order is.”

2. Brand awareness

Brand awareness is another type of competitive advantage that can give you an edge. “There are certain products that are called by the name of a brand," Chouinard says. “For example, the iPad is often referred to as an iPad instead of an electronic tablet. That says a lot about the popularity that Apple has managed to create for its product!”

She also mentions IKEA. "Others have tried to do the same, but IKEA has always been at the forefront with its concept, design and reliability. It certainly takes time to reach this level of popularity, and that's why it's hard to catch up.”

3. Customer service

Distinctive customer service can also be a competitive advantage. Chouinard mentions PMCtire, an SME in Sherbrooke, Quebec, as an example.

“The company sells tires on its Web site with experts at the end of the line who give advice, and the order is shipped very quickly," Chouinard says. “This company is taking the Canadian market by storm with its concept where customer service supported by efficient technologies is extremely powerful.”

A punchy competitive advantage

While companies will generally rely on a few competitive advantages along the value chain, sometimes only one is enough to stand out. “Think of a company that holds the only licence in North America to sell a type of specialized equipment,” Chouinard says.

She also mentions a company with a presence in 3,500 stores across Canada. “Being everywhere when you are able to meet your obligations can also be a great competitive advantage.”

An ongoing quest

While a competitive advantage must be difficult for the competition to replicate, this does not mean that it is impossible to achieve. Thus, companies must continually work to strengthen their competitive advantages.

“For example, companies must always keep a close eye on the market and adapt in order to continue to meet demand," explains Chouinard. “A competitive advantage may have to be dropped at some point. For example, let's say a company offers exceptional product quality, but customers are no longer willing to pay the price for that quality. It'll have to bet on something else.”

Survey customers and industry specialists

To analyze a company's competitive advantages, Ms. Chouinard looks at various data and surveys clients as well as industry specialists. “This exercise requires that the company's leader be open-minded," she says. “They must be ready to hear the good news and the bad news.”

She notes, however, that many executives underestimate the importance of continually thinking about the company's competitive advantages and ways to strengthen them.

You always have to ask whether the company will be able to keep its market share or increase it, because, if not, it will fall into decline.

"Executives of established companies often tend not to question their ways, because their business is doing well and they don't see the point of changing. However, the market is changing, customers are changing, and the question is always whether the company will be able to keep its market share or increase it, because if it doesn't, it will go into decline.”

A matter of survival

Identifying a company's competitive advantages is therefore a crucial step in the development of a strategic plan. “That's what will make it possible to define what you can rely on fairly easily, what you need to improve and what you need to put in place to achieve your goals," Chouinard says.

This is ultimately what represents the value of the company. “If the entrepreneur decides to sell it, its strong competitive advantages will help add value," she adds. “Competitive advantages allow the company to stand out and to last.”

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