What Is a Competitive Advantage?
|What Is a Competitive Advantage – Learn How a Competitive Advantage Works|
A competitive advantage is an advantage in some aspect that a company has before other companies of the same sector or market, and that allows it to have a better performance than these companies and, therefore, a competitive position in that sector or market.
Some aspects in which a company could have a competitive advantage are the product, the brand, the customer service, the production process, technology, personnel, infrastructure, location, distribution, etc.
A company could have a competitive advantage in the following cases:
- To have a unique and innovative product difficult to imitate by the competition, which allows you to differentiate or distinguish yourself from it.
- To have a brand of great value that allows any product that launches into the market has a good reception.
- By having an efficient production process that allows you to produce the same products from the competition, but at a lower cost.
- To have a type of technology that allows you to produce products with better performance than those of the competition.
- By having highly qualified staff that allows you to have a high productivity or provide excellent customer service.
- By having a patent that allows you to exploit a certain product without worrying because the competition does too.
- By having an information system that allows you to quickly take and process customer orders, and thus provide quick attention.
- By having a modern infrastructure that allows its employees to work and their clients to be served in a comfortable and welcoming environment.
- By having a strategic location that allows its customers to locate and visit them easily, or that their suppliers can supply them in a timely manner.
- By having an efficient distribution system that allows your products to reach several points of sale, in optimal conditions and at the right time.
Competitive Advantage Requirements
|Competitive Advantage Requirements|
A company could have different advantages in different aspects from other competing companies, but for an advantage to be considered competitive, it must meet the following requirements:
- Allow a better performance: it should allow the company to perform better than the competition; for example, higher sales, a higher profit margin, a greater number of loyal customers, etc.
- Allow an increase in profitability: it must allow the company to have an increase in profitability that at least reaches a position above the average profitability of the sector or market.
- Be sustainable over time: must be able to stay in the medium or long term; for example, a technology capable of adapting to changes in the market and not one that is quickly out-of-date.
- Be difficult to reach: it must be difficult to reach by competition; for example, a product difficult to reproduce because of its unique components.
The idea of the concept of competitive advantage is that a company must constantly seek to obtain one, maintain one or those that it already has, and make the most of it, if it wants to achieve a better performance than the other competing companies, and thus have a position competitive in the sector or market.
The Different Ways to Obtain a Competitive Advantage
There are different ways to obtain a competitive advantage, but the two main ones are to look for a leadership in costs (a comparative advantage or cost advantage) and look for a differentiation (a differential advantage):
- To look for a cost leadership: it consists of seeking to have the lowest costs of the market (for example, creating more efficient processes or simplifying the design of the product), in order to be able to offer lower prices than those of the competition.
- Find a differentiation: it consists of seeking to offer something unique, original and novel (for example, a product with better performance or greater durability than others), in order to differentiate or distinguish itself from the competition.
To be and stay competitive, a company must constantly seek to obtain a competitive advantage, even when it already has one or more than one; but also be aware of that or those competitive advantages you already have, strive to maintain it and make the most of it.
Maintaining a competitive advantage could mean strengthening that advantage until it becomes more permanent and significant; For example, if a company has a competitive advantage to its sales force, maintaining it could mean looking for new and better ways to train it.
While taking full advantage of a competitive advantage could mean trying to get the most out of it; For example, if a company has a competitive advantage as an alliance with a strategic partner, making the most of it could mean seeking new agreements with that partner; or if you have a competitive advantage to your distribution system, making the most of it could mean using that system to sell other complementary products to those you already sell.
Finally, taking advantage of a competitive advantage could also mean turning that advantage into a business opportunity; For example, if a company has as a competitive advantage the knowledge and technology necessary to develop a product that already exists in the market, but with a higher quality, take advantage of this advantage could mean launching related product to the market.