Competitive Advantage: A Meditation

I've heard the term "competitive advantage" tossed about lately with little regard to its definition - while innovative use of language has its merits, it is irksome when a word is cheapened by misuses, and especially so when the word pertains to a concept that is critical and the way in which it is used strips it of its value. But rather than ranting about the examples of misuse, it's probably more productive to meditate on it proper use, and consider my own understanding of definition of the term "competitive advantage" that I believe ought to be preserved:

Competitive advantage pertains to the regular practice(s) of a firm that promise to deliver unique and exceptional value to prospective customers, leading them to select its products in lieu of other options.

I think it can be said as simply as that, but with some consideration of each component:

... regular practices ...

The first critical distinction in this phrase is that competitive advantage comes from regular practices - the things that a firm does as a matter of course, rather than special treatment in a specific situation. It's entirely possible (and widely practiced) that a firm will act in an unusual manner in specific situations where they recognize a customer may choose a competitor - when wooing a reluctant new customer or appeasing a disgruntled one that is on the verge of leaving. While it may be argued that unusual or irregular actions are the reasons the customer chooses the firm at that moment, it is not a competitive advantage, but a recognition that the firm does not have a competitive advantage in its regular practices and must offer something "more" to win or retain the customer.

The second distinction is that competitive advantage arises from the practices of a firm. Perhaps that's splitting hairs, but a product does not have a competitive advantage in and of itself - it may be argued to have better qualities than others of its kind (it is better suited to a specific need, it is more durable, etc.), but quality itself is the result of the firm's practices. That is, a product is not something that exists in nature, but results from actions purposefully undertaken by its creator - design, manufacture, and the like. And while the customer may consider the product as a thing unto itself, and be wholly uninterested in the process that brought the product into existence, the producer of the product should be intently focused on that process, as the sole means by which he has the capability to offer product quality are the practices of its production. A good product is the result of good process, and only the latter can be managed.

... that promise to deliver ...

The notion of promise is an important distinction. It is an expectation on the part of another party - that is, what the customer believes rather than what the firm believes, and especially distinguished from what the firm wants the customer to believe.

Ideally, the promise is kept and the customer expectation is met, but the meeting of expectations is something that the customer will not discover until later, after the sale has been made, the product used or the service experienced, and the customer then makes the evaluation of whether the promises made in advance were actually kept.

However, at the time the customer makes the selection, he can consider only what is promised, not what will actually be delivered. I would argue that keeping this promise is a core component of business ethics and essential to maintaining the reputation of a firm, hence setting and reinforcing customer expectations, but the degree to which businesses fail to act in accordance with ethics and yet succeed in winning customers is a disheartening reminder that things are not always thus.

... unique and exceptional value ...

Arguably, I'm packing on adjectives here, but I have the sense that both are necessary: to have a competitive advantage, the value delivered by a firm must be unique (different from the value offered by competitors) as well as exceptional (outstanding in some critical way). That is, a firm can offer a value that is unique but not exceptional, or one that is exceptional but not unique, but it's only a firm that meets both qualities that has a true competitive advantage.

Even so, this could likely use some refinement - when it's necessary to use multiple words to describe a single concept, likely the writer has not found quite the right word to express his intended meaning. But I won't belabor it further at present and will accept this as a point where improvement can be made in future.

It seems worth considering the nature of value, though much can be said, and has been said, on that notion. In general parlance, value is misused as a synonym for price - and a value product is simply one that is cheap. However, I mean value in its original and unadulterated sense: not that it is cheap, but that the benefits derived from ownership are well worth the price of obtaining it. A product may be terribly expensive but still be a value if the benefits it delivers exceed the cost of ownership.

And while the rational consumer would not even consider purchasing a product that had negative value (a lack of benefits to justify its cost), not all customers are rational creatures. Or perhaps it's more reasonable to state that not all people, at all times, act in a perfectly rational manner, as even otherwise rational individuals will act irrationally at times. But neither do I think that a firm would be wise to consider its competitive advantage to be the result of consistently irrational behavior on the part of the customer, but must seek to appeal to the "better angels" of their nature, which will eventually hold sway.

... to prospective customers ...

This is perhaps unnecessary, except that there is a widespread misconception that a firm may distinguish between prospective customers and regular customers - and my sense is that firms that succeed at sustaining competitive advantage make no such distinction and harbor no notion that anyone is regular customer whose future patronage is to be taken for granted simply because they have purchased in the past. It's a goose that wants chasing, but I will try to stay on the path of the present thesis.

Just as competitive advantage pertains to the expected value of something that has not yet been contained, so does it pertain to the perspective of an individual who has not yet obtained it - the prospective customer, or the future customer, even if this very same person has purchased the very same item in the past. The tendency among consumers may well be to repurchase unless there is reason to reconsider, but sustaining competitive advantage means winning repeat business by addressing expectations of prospective customers.

And again, product quality and service experience are critical matters in retaining a customer and winning their next purchase, but even such a person should be regarded as a prospect rather than a regular unless this critical point is to be forgotten.

... leading them to select its products in lieu of other options.

Likely this much is self-evident and needs no explanation, except inasmuch as is necessary to indicate that this phrase is the sum and total of the notion of competitive advantage as it is mangled in the mouths of those who would bastardize it.

Ultimately, competitive advantage is about getting prospective customers to buy your firm's product instead of something offered by another firm. But "ultimately" is not "completely," and if your perspective is limited merely to this fragment, much meaning is lost.

And that, I believe, is the point and purpose of this meditation.