Competitive advantage definition
/What is Competitive Advantage?
Competitive advantage is the ability of an organization to gain a material edge over its competitors. Having such an advantage can result in above-average profits or high levels of customer loyalty. One of the key goals of strategy is to develop a set of competitive advantages. There are many types of competitive advantage that a business can take advantage of, as noted below. It is essential to maintain a competitive advantage in order to sustain long-term profitability. This means that management must be aware of the advantage and continually reinforce it with ongoing investments in the targeted area.
Low-Cost Supplies Advantage
A company may have a supply of unusually inexpensive raw materials. This could be due to a highly favorable purchase contract, or because it owns the source of supply.
Low-Cost Labor Advantage
A company may have access to a low-cost labor force. A business may have to move to a low-cost region, perhaps another country, to obtain access to such low-cost labor.
Patent Ownership Advantage
A company may own a patent that is key to a product category. This patent will have a certain duration before it expires, so the firm will need to either work on extending the patent term or preparing for the time after patent protection expires.
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Field Service Advantage
A company may have a large field servicing operation that can maintain products on short notice. When products are unusually complex and in need of ongoing maintenance, this can be a major driver of repeat business with customers.
Retail Store Advantage
A business may have a large chain of retail stores through which goods can be sold. This can allow a firm to sell into geographic regions in depth, which competitors with fewer stores cannot match.
Website Advantage
A business may have a highly-regarded Internet store that experiences a large number of return visits. While it can be quite difficult to maintain a market-leading website, having such an Internet location can drive a substantial amount of business.
Product Design Advantage
A company may have a design team that routinely produces leading-edge designs. Customers may be willing to pay substantially more for these designs, resulting in outsized profits for the business.
Development Cycle Advantage
A company may have a short product development cycle that pushes new products into the marketplace faster than what competitors can achieve. This allows a business better access to fashion-forward customers.
Unethical Advantage
A competitive advantage can even be achieved by unethical means, such as by offering bribes to the purchasing manager of a customer. Since other sellers are presumably not willing to engage in unethical behavior, the use of bribes can be seen as a competitive advantage.
Example of Competitive Advantage
An example of how a core competency is used is to leverage a strong field service operation by noting the company's 24-hour response time when pitching a prospective sale to a customer. Another example is being able to offer a commodity product to a customer at an unusually low price, since the seller's workforce is located overseas, where labor costs are reduced by more than half.
How to Take Away a Competitive Advantage
Competitive advantage can be taken away by a determined competitor in one of two ways. One option is to match and then exceed the advantage offered by the company. The other option is to undermine the company's position by developing an entirely new competitive advantage that is highly prized by customers.