Your new competitive advantage

Far too often we are advised that the only way we can create substantial competitive advantage is to build some unique intellectual property and have it registered as a patent or trademark.

Unfortunately, this option is not open to most businesses and in fact, by itself, it is no guarantee of success. Most businesses don’t have the uniqueness in their products or processes to go down that path; they need to find other forms of competitive advantage to drive their growth strategies.

Once you move away from IP, you need to look very closely at how customer value is created to build a resilient customer connection. One method of creating a sustainable connection, which can be very successful, is customer entanglement.

We tend to forget that customers have multiple dimensions in how they see value. Too often we concentrate on utility or what a product or process does as the determinant of what the customer wants.

Products which have close substitutes or competitors need to move beyond utility to find a competitive difference. Within the buyer experience there are many points where value can be created, including product information, availability, warranty, maintenance, customer services, disposal and so on. Even where commodity products are sold, a supplier can make a difference with a different approach to the market.

When we start to connect to the customer, we tap into forms of value which relate to comfort and risk. A service which has less risk in shopping, delivery or use will find a market for those customers for whom risk reduction is important. When it comes to comfort, there are many elements relating to ease of use, empathy and personal relationships which may be important.

Perhaps the most significant of these psychological benefits relates to what is called ‘switching costs’. Switching costs relate to the costs, delays, effort and stress associated with moving from one product to the next. In some cases these costs are real, such as the costs related to getting off one product and onto the next, such as moving data from one application to another and retraining staff. In other cases, it is the fear associated with making the wrong decision. Thus consumers stick to the same toothpaste, dentist and doctor.

We can build a switching cost effect through working closely with a customer across a complex product or process use. A vendor who understands how the customer works, what they prefer and adapts their products or services to make it easier for the customer to use the product or service is building a switching cost into their relationship. Where products are somewhat similar, the customer will generally stay with the supplier who understands their needs best or is easiest to work with. Established relationships are hard to compete against.

Where this is B2B and relationships exist at multiple points between the organisations, moving to another supplier can be disruptive, stressful and time-consuming.

The vendor who adapts their product or service to use the customer’s part numbers, processes or interfaces is building entanglement. The vendor who puts a representative on the customer site is doing the same. The concept of entanglement can be very powerful as a way of building customer loyalty, driving additional sales and creating reluctance to switch.

Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the former Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia.