What is Competitive Advantage?

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competitive analysis

What Is Competitive Advantage?

Competitive Advantage Definition

“A company has a competitive advantage when certain factors help it produce affordable, satisfactory, yet higher quality products than its competitors. Competitive advantage can increase a company’s market share too.”

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

A company shall determine its advantages in any aspect of product management. Then, it scores those advantages to deliver a better product or a better price to attract customers. Such a process helps to capture better market share or improve profit margins. 

The competitive advantage factor is not limited to business firms or companies. Its benefits extend to countries, organizations, or at the individual level. 

Competitive Advantage Examples 

  • Having access to some unique resources, 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.

What Are the Competitive Advantage Components?

Cost Leadership 

To gain a comparative competitive advantage in pricing, producing at a lower cost to offer lower prices than the rival brands is a good strategy. You can achieve this 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 unique features in a high-value product 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. 

Competitive Advantage Components

What Are the Factors of Competitive Advantage?

The factors of competitive advantage are essential to any organization because the primary goal of any firm is to get customers and satisfy their needs so that they keep coming back to your business. 

The six factors of competitive advantage are:

Prices:

The main concern in bringing products to the market is pricing. It would be best to set pricing that is affordable for everyone. Quality remains the same. 

Quality:

Your customers must be satisfied with your product because of the pricing and the quality. Having a strategy to provide quality products to your customers is key to the success of your business. 

Selection:

Keeping a competitive advantage in mind, you must select the products that will do well in the market. With the help of market research, get to know which issues need to be solved and how your products can make a difference. This way, you see the profit margin is high, and you can start selling your products. 

Location:

The location of your business is a significant factor that can make a difference in your business’s success. Hence selecting an area that will open up a vast market or where your customers can avail of your services quickly is a must. 

Speed:

Another factor of competitive advantage is that the production of your products must match the speed at which your products go ahead in the marketplace. 

Services:

You must provide services to your customers so that it appeals to them. 

How Does Competitive Advantage Work?

  • Firstly, if you are planning to create a competitive advantage in your business, you must establish in the market that your products and services are the best of that of your competitors. 
  • Understand and evaluate your products. Are your products and services offering real value to your customers?
  • Stay up to date with the latest trends and technology. That will benefit and also significantly affect your sales of the products.

To understand this point better, let’s take up an example. When the online news apps started picking up, the daily offline newspaper sellers still thought people would pay and buy the paper. They didn’t stay updated with the internet and lost their competitive advantage. 

  • Creating demand is an accelerator of growth economically. You need to contact your target market and customers and discuss how you can pride the best services and products to make your customers’ lives much better. 

Considering the above example, the local newspaper sellers who didn’t switch to the online medium did find the demand in the older people. Older people who aren’t comfortable with online reading automatically go to the local sellers.

  • Finally, to have a competitive advantage in the market, you must be well aware of your competitors. When you say competitors, what immediately comes to mind are the companies and businesses that sell similar products. But competitors can also be anything other than the business that your customers can avail themselves of. 

Considering the previous example, local newspapers thought that their competitors were the other newspaper sellers. Until the intent and online services popped in, they weren’t aware of it.

It is necessary to know that you need to put your competitive advantage there. You can let your customers know your competitive edge through different mediums such as advertisements, public relations, and sales. 

Types of Competitive Advantages

Comparative Advantage 

The company can produce a product or service at a lesser cost or with better and unique features. 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 functionality, pricing, performance, and features that make it stand out from the other competitors’ products are differential advantages. 

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

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 time as the advantage won’t die out soon. 

It is very beneficial to identify and score on all the competitive advantage opportunities from marketing. It can be equally harmful to the business if you ignore these advantages.

Business success is very much relative or comparative. That means you cannot measure the success of a business by the profit margins it gains. In addition, you also need to track its ranks in the market when compared to other companies. 

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

How Does Competitive Advantage Different From Comparative Advantage?

Competitive advantage is more on the business side. In contrast, comparative advantage is a larger term that fits into the economy and refers to superior features in a nation or a country. 

In a comparative advantage, nations sell resources that they are better at producing, which they get from their natural resources. 

For example, countries like New Zealand and Switzerland have a comparative advantage because of their natural endowments. They attract tourists to their exotic place and do business out of it.

On the other hand, competitive advantage is when a company or a firm has an advantage over its competitors. 

For example, Apple has a competitive advantage over its competitors due to its design styles, quality, and services. 

The company has this advantage only if it can produce something at lower costs in comparative advantage. To find the comparative advantage, you need to compare the opportunity costs and not the absolute benefits. 

In a competitive advantage, a company makes products better than anybody else. Competitive advantage strategies are cost leadership, focus, and product differentiation. 

FAQs

What factors influence the competitive advantage?

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

How can competitive advantages be identified?

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

What is a competitive advantage in business?

Having a competitive advantage in your business will set you apart from the competition in the market. It includes the benefits your customer enjoys when they do business with you. The benefits could be your products, services, position, or even the location of your business. To understand your competitive advantage, you need to know your customers and competitors very well. Market research will guide you in knowing your differentiator in the market.

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