What Is a Competitive Advantage?

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A company's ability to produce goods or services faster, more efficiently, or more affordably than its competitors is referred to as having a competitive advantage

These elements enable the producing unit to outperform its competitors in terms of sales or margins. Cost structure, branding, the standard of the product offers, the distribution system, intellectual property, and customer service are just a few examples of the variables that are thought to contribute to competitive advantages.

Comparative and differentiated advantages are two types of competitive advantages.

• A corporation has a comparative advantage if it can create a product more effectively than a competitor, which increases profit margins.
• When a company's products are regarded as both distinctive and of greater quality than those of a competitor, this is known as having a differential advantage.

Recognition of Competitive Advantage

Due to certain advantages or circumstances, a company and its shareholders can benefit more from competitive advantages. The more resilient the competitive advantage, the more challenging it is for rivals to counter it.

Although "competitive advantage" is typically associated with the corporate sector, it can also relate to a nation, an organization, or even an individual who is in competition. (markides, C. and Williamson, P.J. 1994)

Competitive Advantage Example

Natural resources that are not available to rivals.

High caliber labor.                                                 

Strong brand recognition

Access to innovative or exclusive technology

Price management.

Competitive Advantage Components

In order to develop a competitive advantage, it is crucial to understand the following:

• Value Proposition: A business must expressly state the aspects of its products or services customers find appealing. To pique curiosity, it must provide genuine value..
• Target Market: In order to further ingrain best practices that will uphold competitiveness, a company must identify its target market.
• Competitors - A business must identify its rivals in the market and investigate the benefits they provide; this covers both established rivals and new, non-established rivals.

Construction of a Competitive Advantage

The renowned Harvard Business School professor Michael Porter suggested three methods for creating a competitive advantage: Focus, Differentiation, and Cost Leadership (which includes both Cost Focus and Differentiation Focus)

Marketplace Competitive Advantage

Prominent instances are:

• Walmart is a cost leadership strategy expert. The business provides "Always Low Prices" by utilizing economies of scale and the greatest product prices.
• Apple: To attract customers, Apple employs a differentiation strategy. Because it offers recognizable designs, cutting-edge technologies, and in-demand goods, consumers are more likely to be willing to spend more for Apple products.

Competitive Advantage's Importance

What distinguishes a business from its rivals is its competitive advantage. It is necessary for a firm to prosper, whether it is by guaranteeing larger margins, luring in more clients, or increasing brand loyalty among current clients.

For businesses that are able to sustain a significant competitive advantage over their competitors, capital is more easily available (and less expensive) due to factors like higher margins, a stronger growth profile, and lower customer churn.

Global competitive advantages

·        extending the life of a product's or service's sales through new markets

·        chance to use business expertise and technology.

·        It will be prepared to compete with foreign businesses when you enter a foreign market because you will understand how they operate there.

How does the business determine whether it is having a competitive advantage ?

A business would have a competitive edge over its rivals if it could grow its market share through improved productivity or efficiency.

What Are Some Ways a Business Can Strengthen Its Competitive Advantage?

Things that competitors find difficult to duplicate or copy typically have long-lasting competitive advantages. Businesses can figuratively dig moats around themselves to enclose competitive advantages, which Warren Buffet refers to as economic moats. This can involve enhancing one's brand, erecting hurdles for potential competitors (by way of rules, for example), and protecting intellectual property.

Result

Through innovation, creativity, and effectively protecting the human resource, the organization will undoubtedly accomplish its set goals on schedule after winning the competition

 

   

References :

Investopedia, (2022)Advantage Definition with Types and Examples(2022) [Online]. Available at https://www.investopedia.com/terms/c/competitive_advantage.asp  Accessed on 30th November 2022

Kyle.p.,(2022) The ability of a company to outperform its competitors[Online].  Available at https://www.corporatefinanceinstitute.com/resources/management/competitive-advantage   Accessed on 30th November 2022

Marki des, C. & Williamson. P. J. (1994)."Related diversification, core competencies, and corporate performance," Strategic Management Journal. 15: 149-165