Why do your customers buy from you?

Why do your customers buy from you? I’m sure we all have our own ideas of how we are better, faster, cheaper and just an overall better choice than our competitors; but sooner or later we all pause and wonder if those are the real reasons why our customers are…well, our customers.

You’ve probably heard it said that customers buy from us because they are drawn by our Unique Selling Proposition (USP). True enough. To take that further, they actually formulate a Unique Value Proposition of their own based upon our expressed USP. But enough of the marketing jargon, how do we even create our USP in the first place?

We don’t start our businesses just thinking of what we can do to attract customers, although that is important. More important to us, at least initially, is how are we going to make money. And that brings us to the heart of most businesses…profit! This is where we concentrate much of our planning if the company we run is actually going to sustain itself, sustain growth, and sustain an acceptable return on invested capital (ROIC) over time. Now we are really getting to the heart of most businesses and “what makes them tick”.

So what is the key ingredient to the recipe which allows an acceptable ROIC, make a profit, attract customers and create a highly valued USP? Why do they come to us? The foundation for all of the above rests within our distinctive competencies.

Distinct competencies form the basis upon which companies earn above average profits and are usually those capabilities which competitors are either unwilling or unable to imitate. If a company has distinctive competencies it will earn above average profits. Competitors will notice and will naturally wish to imitate whatever competency they see as the basis upon which you’re earning these higher that average profits. Their ability to imitate these competencies will determine how quickly they can erode your higher than average profits, so the level to which they are distinctive is very important.

By erecting barriers to imitation, you increase the distinctiveness of these competencies and therefore your competitive advantage. These barriers can be a patent or trademark, technological know how, a secret recipe, or some particular skill not easily replicated. They could even be composed of special access to a particular market or sales channel. The degree to which a business develops or nurtures these competencies determines the ultimate formula used to create their sustainable competitive advantage. This is the fundamental reason that some companies seem to flourish and other struggle against seemingly insurmountable hurdles. Luck works too…just not very often. I’d much rather have a plan to follow than rely on the goodness of lady luck, the weather, or the much awaited economic upturn to help a new or underperforming company.

So how do we craft this formula for a sustainable competitive advantage? There are four keys you can dial into in varying degrees comprised of Price (efficiency), Innovation, Quality, and Customer Responsiveness. (Hill, C., Jones, G. 2008 Strategic Management) Through these keys you will determine whether your competitive advantage leans toward low cost (low price to customer) or differentiation (high margin). The goal with either scenario is to achieve a sustainable advantage which means that there must be enough ROIC to be able to also continue feeding the needs of the four keys to achieve growth and maintain barriers to imitation.

Competitive advantage is not about a willingness to accept less profits, it is about a drive to sustain and improve those keys which fuel growth over time.

© 2009 Best Business Associates – May not be reproduced in whole or in part without written permission and attribution.