Warren Buffett is famous for investing in companies with a protective ‘moat’ around them. The deeper and wider the moat, the harder it is for competitors to compete. In addition, an enduring competitive advantage also gives an owner more control over pricing, which increases both profitability and cash flow.
Watch this video in which John Warrillow explains how the more different you are the more you can control your pricing.
Which one of the following best describes the exclusivity of your business to your customers:
– Lots of suppliers sell our products / services
– Few suppliers sell our products / services
– Hard to find another supplier for our products / services
– Monopoly on our product / service
Virtually all businesses become commoditised at some point. For example, the supermarket industry in the U.K. is dominated by a few major players.
In the early 1990s after Aldi, Netto and Lidl entered the market, Tesco decided to combat commoditization in the U.K. supermarket industry. They developed a number of strategies, introducing a range of ‘No-Frills’ products, a ‘one in front’ policy (to reduce queues at checkouts) and they began to open smaller than traditional stores conveniently located in petrol station forecourts, smaller shopping areas and city centres. However the most important point of differentiation was the introduction of the ‘Clubcard’, the Tesco loyalty card.
The Clubcard rewarded customers for their loyalty and encouraged them to purchase more products more often, but it also provided Tesco with invaluable data about their customers shopping and spending habits. They could now effectively target their mailings of cash back vouchers and coupons, which led to the creation of the Baby Club, the Toddlers Club, the Kids Club, etc. Using this data intelligently helped to increase Tesco´s market share of non-food products.
As a result of these strategies the number of loyal Tesco customers and their average weekly spending doubled between 1996 and 2005. Since then Tesco has supplemented its offerings with a wide variety of non-food items, credit cards, personal finance options and internet shopping, and by 2008 Tesco controlled about 30% of the grocery market and over 12% of the retail market in the U.K.
Differentiation = unique and meaningful
Think less about how to compete on price and more about what differentiates your business from its competitors. If you’re not sure what your point of differentiation could be, focus on finding something that is both unique and meaningful to customers, and stake a claim to it.
For example, when Panasonic wanted to enter the crowded laptop market, it surveyed the landscape and saw Apple owned ‘sexy’, Dell owned ‘direct’, and HP owned ‘innovation’. These companies had already staked claims to the big things customers looked for when buying a laptop.
However, a small segment of customers wanted a laptop to be rugged above all else. Police forces wanted their officers to have laptops that could stand up to the rigours of the inside of a squad car. Travelling salespeople needed their laptops to withstand the punishment of airport security. So Panasonic found a small but profitable niche in developing ToughBook – the most durable laptop on the market. Durability was both something unique in the market and something a segment of the market cared about deeply.
Consider the following questions with your Business Doctor:
– Is there a layer of service you could add to differentiate your offering?
– How can you better brand your products and services?
– What is the one thing that customers care most about?
– What is unique about your business? How can you capitalise on that quality?
– If you can’t identify something unique about your offering, examine what your competitors are doing and what consumers aren’t yet getting from any source, and weigh the benefits of offering it.
What is the next step?
There are 8 factors that drive that value of a business.
Complete the Value Builder Survey now to find out your overall score.
Set aside 15 minutes to complete the Value Builder Survey.
Why you should do the Value Builder Survey:
Watch this quick video to find out why your Value Builder Score matters.