Blog 62: Identify competitive advantage and business moat.

Imagine a scenario…our product has a great user experience and addresses customers’ pain points. But so does our competitors’. Unless our product is one of a kind, most of the competition would be doing similar things.

So, what can we do to withstand the test of time? What is our competitive advantage? What is our business moat?

A short-term advantage that our business holds is a competitive advantage while a long-term advantage (~10-20 years or more) is a business moat. A short-term advantage can be quickly replicated by the competition. A long-term advantage cannot.

To protect our long-term profits and market share from competition we must have a business moat.

"In business, I look for economic castles protected by unbreachable moats" - Warren Buffett

We may not have a business moat immediately but once we dive deeper into our competition, we will be able to understand how we can set ourselves apart. Thus, have a business moat.

A. Perform a detailed competitive analysis.

Objective of this entire exercise is to create a detailed competition analysis report for our product versus its competition. We will rely on a combination of primary and secondary research. In addition, if possible, try to use different products first hand.

First step is to identify top 5 competitors. Many a times, our product may cut across two-or-more business segments. Dynamics of different business segments may vary. If it does, it’s a good idea to identify top 5 competitors for each business segment.

Second step is to do an ‘As-is-Analysis’ for each business segment. Capture data points and facts about each competitor as-is. Without any opinions and judgements.

-        Number of years since inception.

-        Vision and mission.

-        Key value proposition.

-        Features offered.

-        Most used features.

-        Claimed benefits.

-        Value chain of the product/business.

-        Forward or backward integrations with other platforms/products.

-        Price structure.

-        Number of downloads

-        Number of active users

-        Tech used (whatever available across sources).

-        Etc.

Third step is to analyse how well each competitor is doing on different parameters. There are two types of parameters, qualitative and quantitative. This part will be based on our judgements and analysis. We will capture the Good and the Bad. Refer blog 13 for what is the SWOT framework.

Qualitative parameters:

-        Design

-        User interface (refer blog 28 for UI best practices; it can act as a guide/checklist)

-        User experience (refer blog 29, 30 for UX best practices; it can act as a guide/checklist)

-        Best executed features/ease of use

-        Analyse product flow & customer’s journey

-        Quality of social media assets

-        Quality of content & text across digital assets (website, blogs, etc.)

- SEO and/or SEM performance

-        USP (unique selling propositions)

-        Brand value (for e.g. premium, mass-market etc.)

-        Analyse the value chain of each product. Identify what’s working and what’s not.

-        Who are the suppliers and how much bargaining power they hold (refer blog 12 for Porter’s 5 forces framework).

Quantitative parameters

-        Compute market share (if not directly available, use metrics such as number of users, downloads, total revenue, profitability etc. to arrive at an approximate market share)

-        Financials and calculate related ratios (if available/possible).

-        Pricing strategy in relation to competition.

Fourth step: Analyse our product’s threats and opportunities mainly with respect to

-        Substitute products and new entrants (refer blog 12 for Porter’s 5 forces framework).

-        Gaps in the value chain (performed in step 2)

-        Gaps in the features offered.

-        Tech disruptions, etc.

B. Prepare the detailed competition analysis report. After which we can choose our appropriate play with respect to our business moat. As we now fully understand our competitive advantage versus our competition.

The different types of business moats are:

Patents and other intangible assets: Patents, regulatory licenses, etc. can prevent competition from replicating the company’s products. One can charge higher for the licenses they issue.

Branding & Cultural: Google's brand is synonymous with internet search and is widely recognized as a trusted source. Thus, it’s easier for Google to attract and retain users and advertisers.

Switching costs: i.e., the cost to switch to another product. If its high, then it acts as a barrier. For e.g., firms might decide to retain their payroll processing company. As a change would require significant time and effort such as vendor selection, training of employees, etc.

Network effect: This occurs when the value of a company’s service increases for both new and existing users as more people use the service. For e.g., when people use social media platforms, the more attractive they become for advertisers/investors, which in turn makes it more attractive for consumers, and so on.

Economies of scale: A company can create an economic moat through advantages like scale and lowered costs. Optimizing processes, manufacturing, distribution, and operations leads to a significant edge. For example, Amazon Web Services (AWS).

Jump to blog 100 to refer to the overall product management mind map.

I wish you the best for your journey. 😊