What is Competitive Advantage? Competitive advantage types, importance, components, and FAQs

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What is Competitive Advantage? 

Competitive advantage is the set of unique market factors that supports the sales of a company’s product over the competing brands. It is the advantage or the lead one brand has over the other in terms of production and sales. 

A company shall figure out what advantages it has in any aspect of product management, then score on those advantages to deliver a better product or a better price to attract customers and capture better market share or raise profit margins. 

The competitive advantage factor is not limited to business firms or companies, but can also be seen in the case of countries, organizations, or even at the individual level. 

Competitive Advantage examples 

  • Having access to some unique resources or technology or methods that the competitors don’t have. 
  • Having more skilled labor. 
  • Location advantage.
  • More cost effective production and cheap pricing. 
  • A unique product. 
  • Brand name and image.

Types of Competitive Advantages

Comparative Advantage 

It is the company’s ability to produce a product or service at a lesser cost or with better and unique features. Basically, offering a better value for the product makes the customer select your brand after comparing it with other brands.

Access to location and unique resources are some of the comparative advantages.

For example, a country that produces oil will have a competitive advantage in the chemical industry. 

Differential Advantage 

The unique features or characteristics of a product in terms of aspects such as functionality, pricing, performance, and features that make it stand out from the other lot of competitor’s products are differential advantages. 

Examples: iPhone has a differential advantage over the other mobile phone brands for its unique features of data protection and camera. 

Importance of Competitive Advantage

The real advantage for a business gained from its competitive advantage is the lead in value generation, which translates to better sales and profits. A sustainable advantage means a better hold over the market for a healthy period of time as the advantage won’t die out soon. 

From the marketing perspective, it is very beneficial to identify and score on all the competitive advantage opportunities, and it can prove to be equally harmful to the business if these advantages are left ignored.

Business success is very much relative or comparative, which means the success of a business is not just measured by the profit margins it gains, but also where it ranks in the market when compared to other businesses. 

So for competitive success, it is necessary to sustain, develop and exploit the advantages that are at hand. 

Strategic components of Competitive Advantage

Cost leadership 

To gain a comparative competitive advantage in terms of pricing, producing at a lower cost to offer cheaper prices than the rival brands is a good strategy. This can be achieved by utilizing economies of scale, large-scale production, and striking off better deals for raw materials. 

Differentiation 

This strategy targets differential competitive advantages. The focus is to boost, enhance, and promote certain features that are unique in a product and are of high value to the customer. 

Focus 

In this strategy, the company focuses on the balance between the factors of cost leadership and differential product features to target niche market segments. 

FAQs 

Q: What factors influence the competitive advantage?

A: Pricing, location, features, service, uniqueness are some of the factors of competitive advantage. 

Q: How can competitive advantages be identified? 

A: Figure out the target market, competitor analysis, product analysis, location, and resources that are available. Compare these with the competitors and find out on what fronts your company has an edge over them. 

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