How to build competitive advantages for your business — this is a question every owner and leader needs to answer. Especially now, when markets are contracting and competition keeps intensifying. What should businesses actually do to survive under these conditions? This is a question that matters to a great many companies right now.

In strategy work, we frequently see the same pattern: the goals are clearly described and quantified, but the owners can’t actually say what gives their business an edge over its competitors.

Why are we discussing this now in particular? It’s clear to everyone that consumer demand is falling. As a result, companies are fighting over a shrinking slice of the pie. Businesses that built up strength during more favourable periods are now focused on growing their market share. The companies that win will be the ones with genuine advantages over their competitors. So what counts as an advantage here? Let’s say upfront: competing purely on «cheaper, and cheaper still» is genuinely risky in the current environment. Trying to stand out through lower prices alone is largely a dead end. But if a company can grow its client base through genuinely unique characteristics, or deliver extra value to its clients — that’s an entirely different proposition. That is exactly what we mean by competitive advantages.

So let’s start by defining the term.

A competitive advantage is a specific, genuine strength of the business that helps it attract and retain clients most effectively, and stand out from competitors. Ideally, this strength can be sustained over the long term.

Now let’s move on to how, in practice, to build competitive advantages.

What does a competitive advantage actually consist of? Here’s an analogy — think of an apple, or any other fruit. We know that different apples vary in appearance, colour, taste, and so on. Why? The first thing that shapes the fruit is its variety — its genetics. The second thing worth noticing is that even apples of the same variety are shaped by weather, soil conditions, and so on. And finally, it matters who actually grew the fruit.

In exactly the same way, companies can build their competitive advantages across three levels:

CORE

This is where the format of the business and its very essence are defined. An advantage at this level can seriously strengthen a company’s position, although it’s genuinely difficult to carry over when the business needs to diversify. This is where we answer the question of what exactly makes this business unique for its key clients. At this first level, the relevant advantages include: product design, its unique characteristics, price positioning, and the technology behind creating, producing, and ultimately servicing the product.

PULP

At this level, the advantages exist to support and reinforce the CORE. They are easier to carry over into new directions when diversifying. However, advantages at this level alone are not enough — relying on them exclusively is a genuine risk for the business. In this group, we can identify: internal operational efficiency, brand strength, access to financial resources, relationships with clients and suppliers, and proprietary know-how.

SHELL

Advantages at this level are interconnected with the first two. Here, the focus is on people. There are two main directions worth highlighting: individual personalities, and ideology.

Let’s go through each of these elements in turn.

If a business has even one or two genuine advantages at the CORE level, that’s already a significant plus. Let’s look at a few of them.

Unique product characteristics. When a product has genuinely unique properties, it means competitors simply cannot offer the same thing. How do you build this advantage? One way is for a company to develop and implement an innovative idea in production. Or a product might be given a quality that rivals never bothered to take seriously. Of course, what matters here is that the advantage actually matters to a specific client group. That group needs to be large enough, first of all, to push the business to a new level of profitability. And second, those clients need to be willing to pay more for what’s unique about the product. It’s not an easy thing to pull off — but advantages like these are genuinely hard to copy.

Price. Price is, of course, always an advantage for clients. If quality is comparable, a lower price is a strong argument in your company’s favour. But in reality, very few markets exist where price is genuinely the only thing that matters to the consumer. And price, for a buyer, isn’t just the number on the tag. It also includes rental terms, instalment plans, leasing options, the ability to reduce maintenance costs, a solid warranty that lowers post-sale risk, and so on.

Product design. Design can become a winning advantage for a company, and the reason is simple: most buyers genuinely dislike studying technical detail. So they make their choice based on emotional criteria instead. Design falls into that category — though the catch is that it’s easily copied — along with usability, meaning how comfortable the product is to use. Usability, incidentally, is frequently used as a competitive advantage in IT, and it’s gaining attention in other fields too.

The technology behind creating the product or service helps a business use its resources more efficiently. How? There are several components here: a thorough study of the target audience’s needs, a strong marketing team, shorter product development cycles, fast time-to-production, and so on. Together, these form a cohesive structure that competitors find genuinely difficult to copy.

Production technology can become a competitive advantage when a company has the right know-how, the necessary equipment, and a systematic approach to managing production. Together, these let the company maintain quality control while cutting production costs at the same time. In fact, this is exactly how unique product qualities get created in the first place.

Production technology can become a competitive advantage when a company has the right know-how, the necessary equipment, and a systematic approach to managing production. Together, these let the company maintain quality control while cutting production costs at the same time. In fact, this is exactly how unique product qualities get created in the first place.

Our next level is the PULP.

Brand strength. What is a brand, exactly? Here we’re talking about specific commitments a company has made to its clients. When can a brand be considered a genuine competitive advantage? When a client chooses this particular company precisely because of it.

Access to finance lets a company stand out from competitors when it’s able to raise significant capital at a relatively low cost. What does that get you? Faster development, an active pace of launching new products, and so on.

Access to suppliers works in much the same way as access to finance. One way to build this kind of advantage is to acquire a supplier company outright, or set up your own supply operation.

Access to clients becomes a serious competitive advantage when a company holds something close to a monopoly on a client base — government contracts, for example, are the clearest case of this. Similar examples exist among small and mid-sized businesses too — think of a café in an airport departure lounge, or a petrol station sitting far from any other. But as we know, this kind of advantage can disappear quickly. Relying on it alone is a genuine risk.

Internal efficiency is what allows a company to comfortably outpace its competitors. A business like this responds quickly to change, has well-built logistics, and maintains a genuinely high level of service. There are plenty of ways to raise internal efficiency, and which direction makes sense will largely depend on the stage of the company’s lifecycle.

Know-how is an opportunity to pull genuinely far ahead of competitors. But it’s important to keep patent protection in mind.

And now we’ve reached the SHELL level — people and ideology.

Here we’re not talking about staff in general, but about specific, exceptionally strong individuals. There are plenty of examples of such people single-handedly carrying a business to remarkable heights. If a person like that leaves the company, it can create serious problems for the business. That is precisely why those personal qualities need to be translated into ideology — used as the foundation for building a genuinely strong corporate culture. It’s a difficult task, but the result is worth it.

So, let’s draw a line under this. How should a business go about building its competitive advantages? Here’s the step-by-step approach we’d recommend: