Competitive advantageIf you have one, it is important to make a big thing of yourcompetitive advantage. That is the ingredient or ingredients thatare fundamental to your product or service and that make you awinnerThe obvious advantage is cost. If you can produce somethingmore cheaply than anyone else then you have a clear advantagever your competitors.

You can charge the customer less or payintermediaries more and still make bigger profit margins thanyour competitors.Another competitive advantage is technological advance. TheDyson vacuum cleaner, for example, produces more suction thans competitors and has, as a result, won a UK market share ofver so per cent.Most competitive advantages have a limited life: patentsexpire, cost advantages erode as competitors find ways to matchyour low-cost methods Always address this in your plan alsobecause the reader will ask about it if it is missing. Estimate howlong you will have an advantage. You may be able to claim thatyou will establish other competitive advantages over time as theinitial one erodes. For example, you may build strong brandawareness that will maintain your market leadership even afteryour patents have expired and competitors can copy yourproduct.Your business may be of a smaller scale. You may be openingthe largest childrens wear shop in a locality. You may argue thatyour advantage over other traders in the area is the extent of yourrange of products and that it cannot be commercially viable forany competitor to open a store of equal size once you haveestablished yourself.Examples of sources of competitive advantage are:costtechnology:brand:local monopoly (eg the only bookstore in a shoppingcentre);location(eg the hotel with the best view or the fillingstation nearest the motorway entrance)distribution(eg an exclusive distribution agreementwith a key retail chain);buying(eg an exclusive purchasing arrangement withthe only manufacturerTo provide competitive advantage, your ingredient must beunique and something that cannot be copied by a competitorimmediately. Ideally your differences will reinforce eachother so that, taken together, it is very hard for competitors toreplicate your entire system. A classic example of this is a low.cost airline which has many elements of its operation that allcombine to produce a low cost base. The full-service airlines,in contrast, cant copy these elements in their entirety withoutcompromising the rest of their business. If they try to set up theirown separate low-cost division they find it is just like anothercompetitor, competing with and taking business from the fullservice divisionYour competitive advantage provides you with your UniqueSelling Proposition (USP). If you have points of uniqueness thenthis gives you an opportunity to make higher profits, to offer abank greater security and to offer investors a higher return

Market segmentationMarkets often fall into different segments or niches. You maybe trading in a segment that has its own characteristics. Forexample, you may be in the garage repair business but it issignificant if you specialise in, say, Alfa Romeo cars. You plan todominate this small niche of a large market and it is not materialto you that the overall market is very competitive if, in yoursegment, you have few competitors, none in the locality, and cancharge premium prices as a result.If you are trading in a market segment it is very importanthat you bring out its particular characteristics.

DifferentiatiIs your product or service different from those of competitorsMany businesses succeed despite trading in commoditymarkets. They can only do so by selling more cheaply thancompetitors, whose products are indistinguishable. Or they doso by controlling distribution more effectively than competitors. But most businesses try to make their products or servicesdifferent in some way, such as:benefits/characteristics/features:product quality;service quality;after sales support;appearance,ImageExplain what your differences are, because they are crucialto explaining why you will succeed. They are also crucial toexplaining why your competitors won't simply copy whateveryou can provide. Maybe they will but not quickly enough.For a long time, the McDonald's corporation was happy toshow its restaurants to all and sundry, even to competitors. Theybelieved that the whole way they organised to do what they didwas unique and that even if the surface appearance could becopied nobody would succeed in copying every aspect of theirorganisation. This in itself was a more crucial difference thanniceties of market positioning or short-term design features.PricingPricing strategy is crucial to most businesses and a book couldbe written on that subject alone. Indeed pricing and businessstrategy are intimately entwined. Whilst pricing per se may notmerit a specific section in your plan it must be covered; perhapsin your description of your market, perhaps in your proposal,perhaps in your description of what makes you special. If pricingincludes discounting or give-aways then the value of discountsshould be shown in the financial section of the planEven a bookseller who sells items with marked prices will usediscounts, buy one get one free offers, loyalty cards and so onwhich are all part of a pricing strategy. A manufacturer ofcomputers may use price differently, perhaps pricing a basicmodel aggressively but charging a premium for upgrades, repairsor spare parts. They may price differently in differentgeographical markets or to different types of customers, such asupplying a lower-priced model to the public sector. Theseconsiderations apply equally to service industries; an accountantmay provide cheap provision of tax returns but charge muchmore for more complex advice that arises from tax work.Since pricing strategy is a critical competitive tool inbusinesses and is crucial to their success, you must explain yourstrategy. Are you aiming for the top or bottom of the market,segmenting the market, differentiating your product or servicefrom those of competitors, producing a range of differentlypriced products? High price and service strategies are notuncommon. The issues to be covered in your consideration ofpricing will include discounting but also issues such as pack size,loyalty schemes, the provision of free 'extras or the opposite, theemoval of part of a product to be sold separately. An example ofthis last item would be separate charging for service or support.Remember that the only way you can undercut competitorsover the long term -unless you can afford short-term losses-isto have lower costs, otherwise the lower-cost competitor willkeep undercutting you. Even with a low cost base, price cuttingcan be a risky strategy if the competitor has 'deeper pockets andcan cut prices in response, regardless of losing money. In the UKVirgin Trains stopped providing services on a particular routeand so a regional competitor stepped in with a low-price offer, instark contrast to the much higher prices being charged by virginon a slightly longer segment. Virgin Trains, a large company,mmediately responded by reintroducing services and matchingpnces