The concept of competitive advantage is changing - it is no longer effective to have unique technology, low competition or price advantage. And simply saying our customer service is better than others is not always a clear cut path to a competitive advantage.
In our valuations we see a matrix of factors that come together - and the long term outcome of these should lead to above-average industry returns in order to say you have achieved a competitive advantage. We will release our theory on how SMEs can create value through a matrix approach to competitive advantage in the coming months (probably during June/July as we are often stuck inside next to the fire needing to write!!!).
A recent article on the Axial Forum highlighted what is needed to compete in the retail sector with the likes of Amazon. I took away some key points:
Compete head on - but that requires deep pockets - something SMEs rarely have
M&A from the disruption caused by a competitor - industry rationalisation often provides SMEs with acquisition opportunities that give scale and cost competitiveness
Use technology to market to your clients and prospects
Gather data and use it to better market and sell to your customers
Increase your niche away from the competitor - go more niche than before but do it in several market segments.
Aaron Cheris, head of Americas Retail with Bain Consulting concluded that “Companies can compete, but they have to have something unique to break the flywheel. You have to have a unique selection, a compelling category tailored experience or lower prices. ...You can no longer say, the company is growing and the market is growing and draw a straight line up and to the right. You have to have a unique assortment, customer experience, value proposition and the ability to drive traffic to compete today.”
Getting a good handle on your competitive advantage and how the industry and market trends affect your business valuation is critical in getting your business plan right.