Competitive Advantage In Business | 2 mins read

Competitive Advantage in Business- Techniques and Examples

competitive advantage in business techniques and examples
Chloe Henderson

By Chloe Henderson

Some businesses find it challenging to stand apart from surrounding companies with similar models and products. However, by evaluating their strengths, organizations can offer consumers exclusive benefits that competitors can't duplicate.

Competitive advantage in business relies on a company's ability to increase the exposure of their unique qualities to attract shoppers. If done successfully, organizations can boost their longevity, client base, and profitability.

What is Competitive Advantage?

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Competitive advantage refers to how a company can manufacture and offer their goods or services for higher quality or at lower price points than competitors. This enables a business to drive sales and revenue, generating more profits than its rivals.

Many organizations' competitive advantage comes from a unique cost structure, distribution network, customer experience, or product lines that consumers can't find elsewhere. This drives a company's overall value among not only its customers but stakeholders as well.

In order to create a competitive advantage, businesses need to determine-

1. What Benefits Does the Company Provide?

Management needs to identify what the company offers that customers cannot get from competitors. However, it must be something of value that consumers actually need.

Some businesses may carry exclusive product lines, while others provide economical pricing. Whatever it may be, the company needs to define the advantage and understand how to market it.

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2. What is the Target Market?

Then, companies must find their target market. This includes discovering customer demographics and how the business's competitive advantage improves their lives. Establishing this foundation enables organizations to target consumers to drive demand and sales.

3. Who are the Competitors?

Once the market is chosen, companies need to research their biggest competition. However, it is important to note that competitors can range from other businesses to specific product brands. If something else is able to fulfill the need that consumers could patronize the company for, it is considered to be a competition.

A Sustainable Competitive Advantage

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In 1985, Professor Michael Porter of Harvard Business School explained that a business needs to set objectives, methods, and adequate systems to develop a sustainable competitive advantage.

The company then needs to ensure its operations and employees align and work in unison to achieve the goals. Porter also studied hundreds of organizations to determine the primary ways successful companies maintain a sustainable advantage-

  • Cost Leadership
Cost leadership is another term that refers to companies that are able to offer products of reasonable quality at lower prices than competitors. This is done by improving efficiency, which lowers operational and labor costs.

However, this often means that companies lower their workers' pay. Some businesses compensate for pay cuts by improving benefits, such as opportunities for promotion, insurance, and even stocks.

  • Differentiation
Differentiation sets a business apart from others through exclusive benefits. For example, a company can provide high-quality products, unique customer service, or faster delivery.

It can also refer to an advantage that benefits the business more than the consumer, such as broader customer reach, extensive marketing campaigns, or business intelligence.

Businesses that use a differentiation strategy can charge higher prices, promoting their profit margins and bottom line.

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  • Innovation
Innovation is a company's ability to find new, efficient ways to meet the same needs. For example, Apple capitalized on the consumers of the music industry by inventing the iPod. This product allowed people to listen to whatever songs they wanted on a single device, rather than carrying CDs.

Innovative products are harder for competitors to duplicate and allow companies to raise their prices.

  • Cost Focus
Cost focus means a business is completely aware of their competitive advantage and target market, making them a threat to competitors. Companies often use cost leadership or differentiation to achieve cost focus.

The key to the cost focus method is choosing a specific target market. For example, small banks target local residents and businesses, rather than advertising nationwide.

Their clients typically prefer the familiarity that smaller institutions offer that large banks are unable to provide. Therefore, patrons are often willing to pay a little more for services to receive this benefit.

Examples of Competitive Advantage

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There is an unlimited amount of ways that businesses can gain a competitive advantage. The most common elements that companies focus on include-

  • Technology
Technology is very broad and can be used to improve front and back-office operations.

For example, businesses can use management software, such as inventory and forecasting systems to improve their business intelligence. Companies can also implement customer service technology, such as self-checkout kiosks, to streamline transactions.

  • Ease of Use
As sophisticated as modern technology is, it needs to be user-friendly in order to benefit customers. Many businesses tend to overcomplicate their products, confusing shoppers rather than intriguing them.

Therefore, companies need to prioritize the ease of use when developing new products. The item should be simple, yet effective, providing some sort of value to the buyer.

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  • Experience
Modern businesses do not necessarily need a lot of experience themselves but need to provide a unique customer experience.

Customers don't just want shopping to be a matter of gathering products, they want it to be a unique journey. Companies can offer unique experiences through their service, environment, and aesthetics.

For example, Starbucks is more than just a coffee shop, it is often a place where students do their homework, read, and work from their laptops.

  • Customization
Another way to provide a memorable customer experience is through customization, whether through products or marketing campaigns.

Many businesses use programs to gather customer information and develop personalized email marketing campaigns. This information enables management to send exclusive promotions based on customers' purchase histories.

  • Variety
Another significant advantage that companies can offer is product variety, including sizes, colors, features, and limited versions.

Supermarkets often provide multiple brands of the same food items, while other retailers offer product variances. For example, IKEA offers the widest variety of home products, such as decor and furniture.

Some competitive advantage strategies are ideal for larger businesses or specific industries. Therefore, owners should consider which method accentuates their model's strengths.