3 Biggest Reasons Why Companies Lose Their Competitive Advantage

September 10, 2010 at 9:39 am | Blog

Competitive advantages are not permanent. You need to continually adjust, adapt and evolve your competitive advantages and positioning to respond to changes in customer preference, challenges from competitors, and changes within the company itself.

3 Biggest Reasons Why Companies Lose Their Competitive Advantage – and What to do to Fix it.

1) Changes in Customer Preference

Too many companies don’t do a good enough job of connecting with or listening to their customers. Your customers might be drifting away from you, and you might not realize it until it’s too late. After all, most customers don’t announce their plans – even if you’re in a relationship business like hairstyling, consulting or sales; your customers might decide to switch to a competitor even though everything seemed fine to you.

How to keep your competitive advantage: Focus on your customers. Conduct double-blind market research to find out what truly matters to your customers about the product or service you provide – make sure you understand what your customers value. What are the “pain points” and problem areas? Is there anything that your customers would like to see you do differently? Is there anything that your competitors are doing that might tempt your customers to switch? Also, make sure your customer research stays up-to-date with the market conditions – people’s buying decisions were different during 2006 (at the peak of the housing bubble) than they were in February 2009 (after the stock market and real estate crash).

2) Challenges From Competitors

10 years ago, Blockbuster Video was one of America’s favorite sources of weekend entertainment – “make it a Blockbuster night!” That was back before Netflix upended the video rental market with their mail order service – no more late fees, which wrecked Blockbuster’s business model. Today, Blockbuster is on the brink of bankruptcy, and Red Box rental kiosks, video on demand and online streaming video are putting the final nails in the coffin. No competitive advantage is safe for long; often, just when a company figures out its competitive advantage, a competitor swoops in to change the game. Technological improvements, new marketing strategies, new ways of identifying underserved niches within the existing market – all of these are ways that competitors are constantly dueling to undermine each other’s competitive advantages.  

How to keep your competitive advantage: Focus on what you do best – better than any of your new (and current) competitors. Blockbuster made a few strategic miscues over the years, but now they are focused on promoting their stores as the best place to get the largest selection of new release videos. Time will tell if that will be enough to keep Blockbuster from going bust, but it’s a start. Every company, no matter what size, industry or financial position, needs to take the time to uncover what truly makes them unique from their competitors – because even the biggest companies can crumble under the competition if they don’t keep up.

3) Internal Changes

Sometimes companies themselves are the ones who cause their competitive advantages to go away. It can be something as straightforward as new ownership or a new CEO who changes the focus or direction of the company, or it can be more subtle and slow, like a company culture that shifts from a service-oriented, idealistic start-up to a larger, richer, more complacent established firm. Companies change in ways that are often imperceptible, and this influences their competitive advantages as well.

How to keep your competitive advantage: No matter what internal changes happen to a company, continuing to conduct market research is one of the best ways to weather the changes. If a company decides to pursue a new target market, or if new company leadership wants to completely change the focus of the company, then the leaders need to ensure that those changes are supported by market research. This is an important way to ensure that your consumers and target market value the things you are selling. Don’t make a shift unless you know the shift is something your consumers will value.

Wrap Up

Change is inevitable, and the business world is changing faster than ever. Technology keeps getting cheaper and faster; the world is becoming ever more interconnected, and new ideas can disrupt your industry at any time. You need to stay vigilant to keep your company ahead of the curve. Staying with what worked in the past doesn’t cut it anymore, especially if you are seeing a drop in sales.

One of the main answers to this problem is research!  Market research can help you understand what your company does better than anyone else, and will give you key insights into what your customers value most when they’re making a buying decision.

Interested in seeing if you company is effectively communicating its competitive advantages?  Take a FREE Competitive Advantage Quiz to find out!