Competitive advantage emerges in the market through customers’ decisions as they evaluate offerings and make choices. When a company can create value more effectively than its competitors based on the value drivers important to customers, the company’s services and products
1. Are chosen more frequently for this reason
2. Can be priced at a higher rate
3. Foster longer-lasting customer relationships.
Or ideally, all of the above!
This is why a company must identify customer value drivers and understand
1. How customers’ experience of value is evolving?
2. How different markets differ from each other?
3. How customer segments differ in value drivers?
Evolution of value drivers in B2B industries
It is important to understand that value drivers are industry-specific, and the pace of change in these drivers has accelerated significantly. According to our data, in the last 10 years, 80% of value drivers have changed. Sometimes, the change means that customers are talking about things they value in a different way. Often, there is a deeper shift in customers´needs and values.
Broadly speaking, the importance and role of service-related value drivers have increased, while those related to technology have diminished. How can this be when technological disruptions like AI seem to be guiding major industries, markets, and world-changing transformations?
One explanation can be found by examining value drivers in various B2B industries more closely. For customers, technology is an enabler, not an end in itself. The customer does not want a more efficient air conditioner but better conditions in the office building’s meeting rooms. The customer hopes to handle their matters with a single contact, not a new application.
Markets differ from each other
In B2B industries, customers’ value drivers are usually the same regardless of the industry. The biggest differences lie in the weights assigned to these value drivers. This is important to recognize when a company operates in multiple markets.
Developing a competitive advantage is always an investment. For a company, it is important to find and choose markets where it can gain a competitive advantage by investing in the same value drivers that provide value to customers.
Not everything for everyone – There can be significant differences between customer segments.
As important as identifying the weights of value drivers in different markets is recognizing the differences in value drivers among different customer segments. The old truth that by trying to be everything for everyone, one cannot be special to anyone is the essence of building a competitive advantage.
A company should carefully choose its customer segments when aiming to create sustainable competitive advantage.
Does sustainable competitive advantage exist?
Customers evaluate a company’s competitive advantage in the market every day.
In companies people often make the mistake of believing that competitiveness automatically translates to a competitive advantage. However, an advantage only arises from capability when customers in the market recognize it and are willing to pay for it or choose the company’s product or services because of this capability over competitors’ offerings.
According to our measurements, very few B2B companies have competitive advantages. A strong and sustainable competitive advantage is even harder to come by. A company’s large market share also does not necessarily indicate its competitive advantage. Sometimes, a large market share is explained by the company’s historical strengths. The company has been able to defend its market share because there hasn’t been a strong enough competitor in the market.
Since the change in customers’ value drivers has accelerated, it is natural that a competitive advantage can be lost much more easily than before. On the other hand, building a sustainable competitive advantage is more challenging than ever. However, almost every B2B industry could create a competitive advantage by investing in superiority in the prerequisites of the industry. For companies, this is good news because investing in fundamentals pays off in the long run.
