How to Build a Sustainable Competitive Advantage
When Warren Buffet speaks, people listen.
Recently I happened to catch Warren Buffet on TV talking about how leaders should set business priorities.
Buffet was saying that you should run your business like it’s a family business–one that you are going to hold onto for 100 years, and the #1 thing you should think about is how to build a sustainable competitive advantage, like building “like a moat around your castle.”
If you look back to medieval times, moats were excavated around castles as part of the defensive system–an obstacle immediately outside the walls–and usually they were filled with water.
A good moat made it difficult for your enemy to access your walls with siege weapons, such as towers and battering rams, which needed to be brought up against a wall to work effectively. A water-filled moat made it impossible for your enemy to dig tunnels under your fortifications in order to effect a collapse of the defenses. A good moat protected your castle and everything in it.
The wider your moat, the longer you can protect your profits. The deeper your moat, the more profitable you are.
“Understanding your customers” is key to building a good moat
If you’ve followed him for any time, you also know that Warren Buffet invests primarily in companies that “understand their customers.” To me this means companies that make Marketing a priority in their strategic plan…, not just the 4 P’s (Product, Place, Price, and Promotion), but also RSPT (Research, Segmentation, Positioning, and Targeting).
In essence, applying the Fundamental Principles of Direct Marketing not just to your Marketing but to all your Operations.
One of the best ways to protect your profits and build higher margins, the key to a successful business, is to continally work to understand and serve your growing customer base. The way you do this is by mastering the Fundamentals of Acquiring and Managing Customers:
1. Find a suspect (on a good list or use of demographics)
2. Convert the suspect to a prospect (a lead),
3. Convert that prospect into a customer (an account),
4. Convert into a regular customer or multibuyer (someone who has purchased from you 3 times or more), and
5. Convert that regular customer into an advocate for your business who provides you a testimonial and a stream of referrals.
Literally all the things you can do to protect your profits and increase your margins derive from “understanding your customers, managing this fundamental process, and managing it well, i.e, all of the traditional methods of creating a competitive advantage: (1) Product Differentiation (2) Branding and Positioning (3) Pricing Strategies (4) Locking in customers, and (5) Locking out competitors derive from making great offers, establishing a real relationship with your customers, and being responsive.
“Understanding your customer” is the equivalent of protecting future revenue streams, and forms the basis of value. It’s the modern-day equivalent of building a good moat.
With this perspective, what are the competitive threats in your environment, i.e., the towers and battering rams that could impact your profitability? And what are you going today, this week, next month, next year to ”build your moat and protect your relationship with your customers?”
You might also like:
Filed under: Big Ideas • Business Strategy • Lead Generation and Nurturing • Marketing Strategy
Like this post? Subscribe to my RSS feed and get loads more!
Leave a Reply