Beating the competition Featured

8:00pm EDT July 26, 2007

If your company invented the credit card, would you be looking to share it with some of your competitors?

Visa was.

Most companies would see it as too good to give up, and the first-to-market advantage would put them in a clear leadership role as the competition played catch-up. But what then? They’d fight to stay in front, margins would shrink as everyone jumped into the business, and then they would have a commodity on their hands. It might take years or even a decade or two, but if it’s a good idea, it’s going to attract imitators.

A branch manager at Bank of America invented the credit card as a way of streamlining bill processing at the bank. The BankAmericard program was an instant hit, and Bank of America began licensing it to other banks.

Dee Hock, one of the leaders of a group of BankAmericard licensee banks, proposed that the banks form an association — a joint venture that would allow members to enjoy the benefits of a centralized payments system while competing fairly for their own interests. Hock became the new group’s first president. In 1970, Bank of America transferred control and ownership of BankAmericard to the newly incorporated National BankAmericard Inc., which changed its name to Visa in 1976.

Instead of fighting it out with a bunch of redundant systems, Hock’s organization allowed the banks to keep their own brands within an efficient, centralized system. The end result was that all of them benefited from the credit card revolution.

Hock’s example doesn’t mean you have to run out and share your latest invention with the competition, but it does show that you have to understand your market. You have to find a way to maximize the value of your products and services, and it starts with differentiation. You have to make your product unique from that of your competitors.

When you do that, it gives you a couple of advantages. First, there’s the obvious value-added that everyone always talks about. You can give them something others can’t, making your product more desirable. Second, it gives you a means to be able to avoid the squeeze of customers who are looking for exclusivity.

A company might be very interested in doing business with you because it sees how your product can benefit it, but at the same time, it doesn’t want you doing business with its competitors. It wants exclusivity with you, but it’s going to cost you business with someone else.

That’s where the differentiation comes in. By creating differentiated product lines, services, programs or whatever it takes, you can offer exclusivity in that category to one business and exclusivity in another category to someone else — in addition to perhaps a “generic” product to everyone else.

People want products that offer them unique value, so you need to solve their problems by creating a supply for their demand. By differentiating yourself and your products, you will not only create happier customers, you can also command higher margins because you have something unique that the competition doesn’t.

Listen to your customers for clues on what they need. What are they asking for? What are they complaining about? Don’t make the mistake of settling for the status quo because that makes you just like everyone else.

Every business can find a way to differentiate itself. Sometimes, it’s as simple as packaging. For instance, soda companies now offer 6-ounce cans, 12-ounce cans, 16-ounce bottles, 20-ounce bottles and 2-liter bottles. Candy bar companies are doing the same thing. Their sweets now come in bite, miniature, standard and giant sizes.

Some food companies listened to their customers’ needs and are now private-labeling for supermarkets rather than trying to fight their way onto the shelves using their own brand, making them more of a packaging business — and a business that can provide products to multiple supermarkets using their brands, creating a different kind of exclusivity.

The point is, you have to find a way to be different, and the best way to do that is to listen to your customers. When you do that, you’ll find ways to make your company better than the competition.

FRED KOURY is president and CEO of Smart Business Network Inc. Reach him with your comments at (800) 988-4726 or fkoury@sbnonline.com.