Reviewed by Aug 27, 2020| Updated on
What is meant by Competitive Advantage?
Competitive advantages refer to the conditions that allow an organisation or a country to produce a product or render a service of similar value at a lower price or in a more acceptable manner. These conditions provide a productive entity to make more sales or higher profit margins compared to its competitors in the market.
Competitive advantages are associated with a variety of factors, including branding, cost structure, product quality, logistics, customer service, and intellectual property.
Primary Factors to Achieve Competitive Advantage
There are some internal factors of an organisation which contributes to gaining a competitive advantage over its competitors.
The corporate identity, communication, image, and reputation are some of the fundamental components for creating competitive advantage. Corporate identity by corporate communication builds a corporate image and reputation, resulting in a competitive advantage.
Corporate identity refers to the distinct characteristics or core competencies of the company. It is the intellectual picture of the company held by its end-users.
Corporate communication means formal and informal communication through a variety of media. Through these channels, the company publicises its identity to its end-users or stakeholders. Corporate communication is the connection between corporate identity and corporate image or reputation.
Core competencies form part of the corporate identity, forming the foundation of corporate competitiveness. A company's competitiveness is its ability to improve core competencies. A core competency is, for instance, a specialised knowledge, technique, or skill.
To maintain leadership in a particular core competency area, companies must seek to maximise their competency factors in the core products. These include value positioning to make the company distinctive, superior, visible, unique, affordable, and profitable. When a company attains this goal, it allows the growth of an end market.
Types of Competitive Advantage with Examples
Competitive advantages create higher value for an entity and its stakeholders because of certain conditions or strengths. It becomes more challenging for the competitors to neutralise the advantage if the competitive advantage is sustainable in a company.
Two types of competitive advantages are:
- Comparative Advantage
Comparative advantage is the ability of the firm to produce a product or service more efficiently than its competitors, which results in higher profit margins. Responsible consumers will pick the cheaper of any two perfect substitutes proposed.
In the case of imperfect substitutes, such as Pepsi v/s Coke, higher profit margins for the most low-cost producers can ultimately bring higher returns.
Amazon, the e-commerce platform is an illustration of a company focused on developing and maintaining a comparative advantage. The e-commerce platform has efficiency and a level of scale that is hard for retail competitors to reproduce, allowing it to grow prominently through price competition.
- Differential Advantage
A differential advantage occurs when an entity's products or services differ from its competitors' offerings usually seen as superior. Patent-protected products or methods, advanced technology, superior personnel, and reliable brand identity are all factors for differential advantage. These support broad margins and significant market shares.
For instance, Apple is known for innovative products such as the iPhone. It achieves the market leadership wite tech-savvy campaigns building an elite brand.