A central goal of marketing strategy is to get an advantage over the competition. But how do you do that?
Well, one way is to try to keep competitors from entering your business territory in the first place via barriers to entry. Unfortunately, though, many businesses already have competitors in their market. But read on and we'll pick up on what do—even in a commodity market.
The classic barrier for keeping competitors out is trademarks and patents. In some situations, government policy may work—for example, government policy over territories, distribution channels, etc. New drugs and technologies protected by patents have little to no competition. But patents are for specified periods of time, so they are temporary ways of keeping competitors out of your market.
Another barrier is economies of scale, which simply refers to a learning curve. The classic learning curve is lowering cost of production with increased production volume. The idea is that the more you produce, the more you can learn how to lower costs. Some companies, such as Walmart, have made economies of scale central to their way of keeping prices low.
But anything you can do that incorporates a learning curve is a way to keep competitors from copying you. For example, if creating your product requires a highly specialized skill set that takes a long time to develop, that can keep competitors out through the process of a steep learning curve.
A surprising barrier to entry is customer delight. That's right: If you can delight customers, that alone can keep competitors out. However, you must delight customers throughout their customer journey. If that sounds easy... it's not.
You need to start by creating a customer journey map and including on it all the touchpoints with your company. Then, evaluate how well each touchpoint is creating (or not) delight for your customers.
Beyond those barriers to entry are other ways to attain eminence even in the face of competition. Today, I'm going to focus on your organization's core competencies.
What are the tests of core competencies?
As usual, there is a lot of misunderstanding about core competencies. To understand them, we need to go back to the seminal article on this subject, "The Core Competence of the Corporation," by C.K. Prahalad and Gary Hamel (May-June 1990, Harvard Business Review).
Core competencies assist an organization to distinguish its brands from its competitors and to reduce costs more than competitors, thereby attaining a competitive advantage. That is the key: You can have competitors, but having core competencies gives you an advantage over them.
One crucial test of an organization's core competence, according to the original article, is that it "makes a significant contribution to the perceived customer benefits of the end product." That's why the main article in Issue 1 of our Strategic B2B newsletter (click to opt in) was important: It focused on benefits.
The second test of a core competence is that it also provides potential access to a wide variety of markets. That access is made possible, once again, through a focus on customer benefits. Here is one example:
Arm & Hammer started off making baking soda. If they focused on features, they would have spent these years making better baking soda. But they understood the benefit of odor reduction. Now, if you go to Arm & Hammer's website, you will see the company has entered the cat litter, oral care, laundry, personal care, auto care, baby care... and many other markets as well.
How did Arm & Hammer do that? By focusing on benefits and building up the core competencies that gave them access to all those different markets.
Similarly, as Theodore Levitt points out in "Marketing Myopia" (July-August 2004, Harvard Business Review), if Dupont had found more uses for its flagship product, nylon, it might not be around these days. But it kept a close eye on customer benefits to expand its know-how into a wide array of products that appealed to customers.
The last test of a core competency is that it does not depreciate quickly: It can't be erased by another competency, and it is essentially hard for competitors to copy.
And, finally, note that all core competencies are strengths, but not all strengths are core competencies. They need to pass the three tests to qualify.
Core competencies and benefits work together
Now, you might be reading this and thinking that companies like Dupont and Arm & Hammer have little to do with your business. But consider that they are simply examples of capabilities that all companies, in any industry, can have. All that those HBR authors did was look at why some companies succeeded while others faded away.
So, considering the above components of the definition of core competency, does your company have core competencies?
That's an important question to answer. Why? Because to have a real differential advantage over your competition, you need to first identify the benefits that your customers care the most about, and then you need to identify any core competencies that directly match with one or more of those benefits.
When you have core competencies that match directly with benefits, you've matched the critical test we mentioned before: "an organization's core competence makes a significant contribution to the perceived customer benefits of the end product."
That combination of core competence and product benefit is what gives you a differential advantage over the competition. And bringing about, then sustaining, that differential advantage is the heart of strategy.
More Resources on Differential Advantage and Core Competencies
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