Competitive advantage is a term that has been studied exhaustively for real world businesses, and some of the insights are very relevant for gold making.
Competitive advantage basics
In real world business competitive advantage can usually only be obtained by having a product that is uniquely better than your competitors in some fashion or by having the ability to create your product at a lower cost.
Most items in WoW are perfect commodities. What does that mean?
It means that 1 stringy loins is exactly the same as any other piece of stringy loins. The same goes for gir and enchants. Every quick navigation enchant is exactly the same.
Cost structure is the only way to win
The implication of this is of course that having a lower cost structure than your competition is the only way to sustain a competitive advantage.
One obvious example of this is having the higher rank recipes. Without rank 3 recipes you can never make gold with alchemy.
How important rank 3 is varies with how much competition you face. The stiffer the competition, the more important sustaining some form of competitive advantage becomes.
Increasing the value to increase your price
Even if cost advantages are the main way you can get competitive advantage, there are some ways you can get an advantage by increasing the value of what you are offering.
One way is to post your items in the right stack size to make it more convenient. Stacks of 200 can be posted for more per unit than stacks of 1.
Another way is to actually increase the value of your item. You could do this by leveling your battle pets to 25 for instance. At the end of the day this will really only move you from a lower price commodity to a higher price commodity.
There is nothing stopping other players from competing with you with the exact same offerings in these category.
So let’s turn our attention to costs instead.
Ways of decreasing your costs
Let’s look at how you can decrease your cost structure. This will be slightly different depending on whether it is a crafting market or a flipping market, but the general principle is the same.
For crafting there are two things you want to focus one. One is exceedingly obvious and that is to reduce the price you pay for materials. The best way to do this is to make direct deals with farmers to circumvent the AH. The AH takes a 5% cut so you can easily strike a deal where you are both better off.
You can also look up the materials you need on the undermine journal to figure out which days of the week they are typically cheapest and focus on shopping for them on those days. Decreasing your maximum shopping price will increase your profit margins, but it will also limit your volume.
The other thing you can do with crafting is to find ways to increase your time efficiency. Spending less time crafting or buying materials may not translate to a direct competitive advantage for that market.
For flipping markets the only thing that matters is the cost of the item. You want to acquire the items you are selling as cheaply as possible. Generally speaking the methods you use will be the same as for materials. You want to figure out which day of the week the items are cheap, and focus your buying then.
You can also advertise in trade chat. This will serve two purposes: it will get you in contact with people who have the items you want for sale and it will decrease the percieved value of the item in question. This last point can be a double-edged sword, but hopefully there are players on your realm that really want the item you are flipping.
Activity is king
One way to guarantee you get a lower cost basis than your competition is if you are more active. If you are running more shopping scans then you will get more of the cheapest materials or cheapest deals. This will potentially allow you to dump prices to drive someone out.
Either way you should always focus on decreasing your costs as this is the main way you can increase your profit margins.