What is a competitive advantage?
Definition of a Competitive Advantage
A company’s competitive advantage persuades customers to choose it over competitors. For example, a company can get a larger market share by recognizing and publicizing its competitive advantages. Customer service professionals who are well-trained and knowledgeable about the product can be a source of competitive advantage and a superior user experience, either tangible or intangible. It is the distinguishing feature of a business that survives and thrives, yet the source of competitive advantage differs from industry to industry and company to company.
Commonly Used Instances Of Competitive Advantage:
● The group has devised a strategy.
● Non-accessible cutting-edge production methods or advanced technology
● No one else can deliver this product (protected by IP law or patents, etc.)
● Making and selling products at a lower cost (known as cost leadership)
Even if you come into the market with a brand new idea, your competition may catch up with you quickly. Think about what your competitive advantage is and how to acquire it at this point. The capacity to leverage one’s brand and reputation may be the most significant advantage in businesses with many copycat brands, such as soft drinks.
A competitive advantage is achieved through cost leadership, differentiation, or focus (Cost-focus and Differentiation-focus).
Cost Leadership: A cost-leadership strategy aims to become the most cost-effective producer. Large-scale production enables businesses to benefit from economies of scale. Because of economies of scale and the ability to make items at a cheaper cost than its rivals, an organization can set its selling price unachievable by others. You can realize profits because of the huge cost advantage that a company pursuing a cost leadership strategy enjoys over its competitors.
Differentiation: A company has products or services differentiated from its competitors through a differentiation strategy. Delivering high-quality products and services to clients is one way to accomplish this by creating new products and services. This would allow the company to charge higher prices for its products and services if it had successfully differentiated itself.
Focus: As part of the focus strategy, a corporation narrows its attention to a specific group of potential customers. If the organization can offer products and services that meet the needs of these clients, this strategy will be a success. The focus method offers two options:
Cost-focus: It is the lowest-cost producer in a small market niche.
Differentiation- focus: Products and services with a clear focus on how they differ in a particular market.
Competitive Advantage vs. Comparative Advantage
When a company can produce a product or service more efficiently than its competitors, it gains a comparative advantage. The cheaper of any two perfect alternatives given will be chosen rationally by customers.
An advantage can be gained by economies of scale, effective internal procedures, or even a favorable geographic position. However, a superior product or service is not necessarily implied by comparative advantage. It demonstrates that the company can offer the same product or service at a lesser price.
It is possible that, for example, a firm that manufactures a product in China has lower labor expenses than a firm that manufactures in the United States. Thus it may offer a similar product at a lower price. When it comes to international trade economics, opportunity cost is crucial.
Competitive Advantage vs. Differential Advantage
For example, one company’s products or services may be perceived as superior because they are different from its competitors. A differential advantage is fueled by a company’s cutting-edge technology, proprietary processes and products, skilled workers, and a well-established brand. These variables contribute to high-profit margins and a significant market share.
How Can You Determine Your Company’s Competitive Advantage?
What you can offer your audience that no one else can is important to consider.
The first step in determining your competitive advantage is establishing a map:
- A method by which you provide clients with perks or value
- What demographics do you want to focus on?
- Is the competition stiff for your position?
- You have a competitive advantage when you find the most compelling value for your target audience and deliver it innovatively.
- Even if you have a slew of competitive advantages, you should focus on the one that has the most significant potential for differentiation and engagement in your marketing and brand communication.