Way to identify sustainability in competitive advantage
A simple and easy rule. Not the only one.
Having a competitive advantage is a necessity in many industries. Companies which does not own a competitive advantage would most likely end up with moderate or poor financial results. In some industries there are companies which has a ‘sustainable’ competitive advantage which keeps them at a far higher position in competition.
With a few simple steps/questions we can identify if a company really posses it or not. And, it has ‘sustainability’ in its competitive advantage.
Step 1: Identify the value(V) & price(P) of products offered by all competitors in an industry.
Example: Lets consider this hypothetical case for this step.
To buy a basic 4GB ram & 32 GB memory phone in a specific country/locality from the existing top Products. In this case, value(V) is same for all products. But, price(P) could be different. So, for simplicity sake, we can consider V to be 1. Product-1 phone of this value(V) is priced 2 times more than Product-2. Hence, P value is ‘2P’ for Product-1and ‘P’ for Product-2.
Step 2: Compare V/P as a ratio for all the companies in this market.
Example: In the above case V/P is 1 for Brand-2 and 0.5 for Product-1. In this case it means that Product-2 provides more value for the same price. Hence it is having a competitive advantage. (Product-2)
Check for sustainability!
Step 3: Check for sustainability with a question below!
If your product disappears from the market tomorrow morning, how does it impact your current customers?
Example: Extending the above example, lets consider there is another product now in this market. Apple.
- If Apple disappears tomorrow from the marketplace, how does that impact its current customers?
- Does this event favor Product-1 & Product-2?
- Can product-1 and product-2 provide the same value that Apple offers in short term or long term?
- Is it easy for other product lets say Product-3 to emerge in market to do what Apple has delivered?
- Would both product-1 and product-2 have to convince apple customers to buy their product as a replacement?
We can ask these questions to ourselves to determine how this event impacts the market & competitors.
If this hypothetical event leads to major changes in the market and competitors, it means that this product has most likely possessed ‘Sustainable competitive Advantage’
There are many products/platforms like Apple which can be discussed to see if there is a competitive advantage or its just another player. And, when they have competitive advantage, is it ‘Sustainable’ in long run.
Some examples are below:
Phones: Apple, Xiomi (Both has sustainable competitive advantage)
Auto: Tesla, Maruti-Suzuki (Both has sustainable competitive advantage)
Commodities: Gold, wheat (Both has sustainable competitive advantage)
Gaming consoles: Nintendo, Xbox, Sony (One of them has sustainable competitive advantage)
Pharma: Pfizer, Actavis, Sun Pharma (One of them has sustainable competitive advantage)
Social media: Twitter, Facebook, Insta (One of them has sustainable competitive advantage)
