SWOT ANALYSIS

Strategic Position

What Kinds of Strategic Positions Are There?

What makes a company different? Is it the nature of its products or services? The quality or cost? The geographic area or type of customers served? Perhaps the company has proprietary products customers can’t find elsewhere.

There are many ways to distinguish yourself from your competitors, including:

■	Customer Perception Factors
■	Market Segment
■	Market Share
■	Operational and/or Technological Advantages
■	Proprietary Products, Technology, Abilities, or Relationships
■	Sales Channels
■	Business Model
■	First-Mover Advantage
■	Lean Start-Up
■	Branding

Each of these strategic approaches offers opportunities but also poses pitfalls. And they may be related: If you are positioning your company on the basis of low price, you’ll also need operational efficiencies to reduce costs or else you won’t be able to survive against competitors with higher profit margins.

Customer Perception Factors

This is the “better, faster, cheaper” approach, based on how customers distinguish your company and its products and services from the competition. Some key customer perception factors are below:

WHAT SETS YOU APART?

1. Price

2. Features

3. Societal Impact

4. Quality

5. Customer Service

6. Convenience

Concentrating on customer perception factors is the most typical method of attempting to differentiate yourself from the competition. They seem the simplest, most straightforward way to compete. Surprisingly, they may be the most difficult to achieve and maintain. For instance, competing on the basis of price is often perilous. While it is easy — in the short run — to attract customers on the basis of low price, highly price-sensitive customers are the most fickle, quickly tempted away by the next company offering a lower price. Once you appear to be attracting a significant portion of the market, well-funded established competitors can lower prices (even if they have to take a loss) to compete temporarily until you are no longer able to sustain your losses.

Other perception factors may be harder to “prove” to the market. You may have to spend a lot of money on marketing and advertising to get customers to realize that you offer additional features, more convenience, or higher quality. Once you do, however, you may be able to build a loyal and committed customer base that appreciates the differences between you and your competition.

“You have to understand the consumers’ need. What’s their pain? Why do they need to change? Solve that pain, and then get that message out.”

Andrew Anker

Venture Capitalist

Market Segment

This strategy is based on targeting a specific portion of the total market.

Some possible ways of segmenting the market are:

■	Geographic location
■	Age, income, interests, family size, and so on, of consumer served (in business-to-consumer companies)
■	Age, size, and/or industry of business served (in business-to-business companies)
■	Customers’ specialized need

Deciding to aim at a particular market segment or “niche” offers many competitive advantages, especially for newer or smaller companies. While you trade having a larger total market from which to attract customers, you can more easily (and often less expensively) gain visibility and credibility with a smaller, more focused market. Targeting a small market also gives you the opportunity to develop special expertise and experience, giving you an edge when competing head-to-head with others. For instance, a human resources consultant who specializes in serving hospitals will have a far easier time attracting additional hospitals as clients than a general human resources consultant.

The pitfalls in targeting a market segment are that the market size may not be big enough to sustain or grow your company, the target market may already be saturated with specialists, or, once you’ve proven that the target market is big enough and rich enough, larger companies will come in and compete with you.

Thinking globally, you may want to target a specific region, perhaps one that is underserved, and in which you can become a market leader. For instance, you may be in a highly competitive environment in the United States, but even though Australia and New Zealand are far smaller markets, there may be far fewer competitors and greater potential to be a market share leader, at far lower cost.

Market Share

This strategy is based on establishing and commanding such a dominant portion of the total customer base that it becomes difficult for others to compete. The goal is to become the “800-pound gorilla” of a market.

It’s almost impossible — and very expensive — to displace entrenched market leaders in established market segments. In the soft drink market, for instance, it’s forbidding to try to compete against Coke and Pepsi. Even well-funded competitors have difficulty gaining a few percentage points of market share. Newcomers in mature markets typically must pursue niche market strategies (or even create new market categories, such as Red Bull did with energy drinks, or VitaminWater did with flavored and fortified water products).

But when factors allow new markets to open — as has happened with the Internet or with falling trade barriers that let foreign competitors enter a nation’s market — tremendous opportunities become available. Then, there’s a rush to capture customers’ awareness — or mind share by companies hoping to translate that to market share. In such instances, entrepreneurs try to get their companies, products, or services established before the competition. In technology, there’s typically a particular urgency to gain a “first-mover advantage” (see below).

Operational and/or Technological Advantages

Another strategy is to gain significant competitive advantages through instituting better internal procedures, operations, or technology, giving you substantial benefits — such as higher profit margins — over the competition. Because these advantages are often unseen (directly) by customers, their significance is often unrealized. However, many companies have succeeded not by clever market strategies but by running their business better than the competition. For instance, See’s Candies’ inventory management system results in very fresh candy at its stores with minimal waste; this results in better-tasting candy and higher profit margins.

Proprietary Products, Technology, Abilities, or Relationships

Yet another strategic position is to develop or secure exclusive assets that will be difficult or impossible for competitors to replicate. For manufacturing and technology companies, these may be patents, processes, or copyrights. For others, proprietary assets might include distribution agreements, licenses, strategic partnerships, even hiring certain employees with exceptional talents. The key to this being an effective strategy is that you have to identify those aspects of your business where proprietary assets make a real difference, and then you must secure those assets in such a way that your competitors can’t easily replicate or circumvent them.

“The fact that we were first meant that we had to fight the least to get attention. That gave us a period of five or six months of being one of the very few games in town, and that enabled us to build the customers’ sense of habit that you need. By the time we had to market ourselves against the competition, we had built customers’ habits.”

Andrew Anker

Venture Capitalist

Sales Channels

In some instances, you may be able to differentiate your company by the manner in which you reach and sell to customers. For instance, some computer companies, such as Dell, distinguished themselves early on by selling directly to consumers rather than through retail computer outlets. Later, the Internet opened up the opportunity for many other companies to circumvent existing sales channels and sell directly to customers. But using various sales channels as a key strategy doesn’t necessarily require a hightech approach — Tupperware successfully uses house parties instead of retail outlets to compete against Rubbermaid.

Business Model

The term “business model” describes what your company does and the structure you put into place to make money. For example, you may design a product, outsource its manufacture, and then sell it to wholesalers. Or you may sell a service for a flat fee or on an hourly basis.

There are many types of business models to choose from, and picking the right one can give you a strategic advantage. For example, some cloud-based software companies use a “freemium” business model, offering a “free” version and a “premium” version of their applications. The free version typically has fewer features than the full-scale, premium version, making it attractive to new or small companies that don’t want to invest a large amount of cash for software. It also attracts customers willing to test drive a product for free. Once the customer’s software needs grow, they can then move up to the premium version, usually sold at a recurring, monthly subscription price. They are less likely to make the time-consuming and costly switch to the competition after they have grown accustomed to the product.

First-Mover Advantage?

“No one’s ever done anything like this before.” Many entrepreneurs believe their key strategic position is that they’ve developed a new concept — product, service, technology, Internet business, app — before anyone else. They recognize that there’s a big advantage in being first; the fear of others beating them to market keeps many entrepreneurs working around the clock.

If you can get your company, product, service, or website established before the competition, you gain what is called the “first-mover advantage.” Being first potentially enables you to capture so many customers that it becomes difficult for a significant portion of the market (in technology terms, the “installed user base”) to change.

As the graphic below illlustrates, being first to market brings many benefits.

THE ADVANTAGES OF BEING FIRST

1. Capture significant market share before competitors enter the market

2. Secure key strategic partners, making fewer opportunities available to later competitors

3. Attract outstanding employees and management

4. Capture media attention

5. Lock in financing sources, such as venture capitalists

Going after a “first-mover advantage” carries its own risks as well as rewards. In most businesses, there are few truly effective barriers-to-entry. Will you end up merely serving as the research-and-development arm of copy-cat companies? There’s also the very real risk that if you’re doing something truly new, the market (and financing sources) may not be ready for you. In fact, many second- or third-to-market companies benefit from avoiding the costs of educating the market, conducting extensive research and development, and hiring highly creative people.

If gaining the first-mover advantage is part of your key business strategy, ask yourself, “How defensible is this position? What will I need to make it defensible?” Remember, patents, copyrights, and other proprietary information only go so far. Can you develop strategic alliances or lock in customers, distributors, and financing sources to make it difficult for future competitors to take you on?

With a first-mover strategy, there is also the risk of doing something fast but not well, allowing your inevitable competition to honestly tout itself as a much-improved version. So continually work on improving your products, services, marketing, and operations. Look for ways to leverage being first into being best.

Lean Start-Up

Like the process of gaining a first-mover advantage, the lean start-up method, advocated by Eric Ries in his best-selling book, The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses (Crown Business, 2011), advocates launching a product or service as quickly as possible. Companies then see how real customers use the product or service and continually revise it. Ries calls this technique “build–measure–learn.” Nimble companies that can quickly create, evaluate, and respond gain a significant competitive advantage.

The key tenets of a lean start-up include the following:

■	Create a minimally viable product. You don’t need to go to market with a fully developed product or service. Indeed, it’s not even advisable. Build only to a level that enables you to go out and get your first customers.
■	Test and measure. Continually learn from customers. Analyze exactly how they are dealing with your product or service.
■	Pivot. Be able to swivel away from your original vision to adapt to new realities, but stay grounded in what you’ve learned.

This approach has been particularly popular in the technology world, especially for mobile apps and cloud-based software. It is also well suited to an industry with lots of competition and quickly changing technology, in which users have a relatively high tolerance for glitches.

The lean start-up method applies to more than just technology companies and start-ups. Many businesses can succeed by getting their minimal viable products and services to market quickly. Other critical business tasks — launching a website, exhibiting at a trade show, developing another channel — also benefit from the lean start-up approach. You don’t have to do everything in your business perfectly right out of the gate.

“It’s all about brand — being in front of the customer. On the Net or in media in general, everything is about brand and creating habits.”

Andrew Anker

Venture Capitalist

Branding

One increasingly important strategy that many companies pursue is intentionally trying to build a brand. When you become a brand name, customers can develop such a strong relationship with your company that it is difficult for others to compete.

There are, obviously, many advantages to being a brand name, but it is not easy to achieve. First, it is usually expensive. You must spend a great deal of money on marketing and advertising simply to get your name well-known. And, although it seems like some brand names develop overnight, building a brand is hard to achieve quickly.

Building a truly strong brand is more than just a matter of name recognition. A real brand gives customers trust in your products and services because you are consistent in quality, price, service, or convenience — over time. This doesn’t mean you have to promise the highest quality or the lowest price — it only means being consistent, so the customer can depend on what they’ll get from that brand. McDonald’s doesn’t have to promise gourmet food to be a reliable brand. It built its brand by giving customers the same experience, the same type and quality of food, the same cleanliness, at every one of its restaurants.

If your goal is to build a brand name, you have to look at those factors that you are able to offer and deliver to your customers consistently and repeatedly over time, making certain you put sufficient company resources into supporting those factors.