I love talking to smart people. If I am willing to listen, they teach me so mucheven in subjects I think I know.

I shared a taxi to the airport with the amazing C. K. Prahalad many years ago. He taught me a terrific way to quickly and simply tell whether an innovation, a product, a brand, has COMPETITIVE ADVANTAGE.

1) Is it clearly, obviously DIFFERENT?

Being different is the first thing. It’s not so good if you have to work really hard to explain to customers why you are different. You must stand out on a shelf, look different, in ways that are obvious to your customers. this could be about color, design, shape, fragrance – anything that a human sense can quickly and simply notice. Design noticeable differences.

2) Does this difference make it BETTER/faster/cheaper?

Customers, being smart, can tell when a difference doesn’t really mean you have an advantage. Does your “difference” result in you being BETTER, FASTER, or CHEAPER than your competition? Can you prove it? Will you put skin the game and provide a money back guarantee that your customer will get the advantage?Be measurably better in something that really matters.

3) Can you SUSTAIN the difference?

Assume you pass the first two tests with ease. If your competitor can imitate you quickly and easily, you have a problem. Figure out how to sustain your advantage. Lock up privileged access to a key raw material or asset (DeBeers). Get a patent (IBM). Maintain a secret method (Coca Cola). Build an unrivaled capability (Apple)…there are many ways.

4) Will customers care enough to buy more, give you VOLUME growth?

There is a difference between having something better and having some better that customers care enough about. To know which one of these you have, don’t ask your team. Ask your customers to buy more at one time, or to buy the same amount more frequently. If they refuse to turn the volume dial up, they don’t care enough. So go back to Step 1 above.

5) Will customers care even more and pay a PRICE premium?

This is the toughest test, the one that wins the Gold Star. Will your customer pay a premium price for the “different + better” in your product or service? Ask them, they will tell you. Better, charge a premium and see if they go for it. If you invest a lot in getting the first questions right, and fail this one, you just did a lot of hard, expensive work to reduce your margins. If they pay a premium, you have competitive advantage.

The way to short circuit these 5 tests is to charge a price premium.

If your customer accept your premium price, and not buy less, less frequently, you have a winner with competitive advantage. If they refuse, start at step 1.

This stuff may not be clearly stated. That’s my fault. Ask me a question, I will try to answer it…

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