Competitive advantage is one of the most common business terms that you’ll hear every now and then. Many of us have a brief idea about this term but this means more than gaining a competitive edge. Here’s everything you need to know about competitive advantage.
What is a Competitive Advantage?
In simple words, a corporation has a competitive advantage if it can produce goods or services at a lower cost or with higher quality than its competitors. As a result of these characteristics, the production unit is able to outperform its rivals in terms of sales or profit margins. Some of the many variables that contribute to a company’s competitive advantage are its low prices, strong brand recognition, high-quality products and services, extensive distribution channels, proprietary intellectual property, and attentive customer service.
Elaboration of Competitive Advantages with Examples
A company has a competitive advantage if its strengths or conditions allow it to produce more value for its shareholders than its rivals. The longer a competitive advantage can be maintained, the more challenging it is for rivals to overcome. Here are a few typical forms of competitive advantage:
- Specialized access to resources for manufacturing
- A unique product that can’t be found anywhere else (protected by IP law or patents, etc.)
- Capacity for less expensive production and retail (known as cost leadership)
- Identify and standing
Even if you get into the market with an original concept, your competitors may quickly catch on and outdo you. When that happens, you might want to think again about how to give yourself an edge.
Soft drink manufacturing is a good example of an industry where brand and reputation can be the most potent competitive advantage.
Here are Some of the Other Examples.
So far, we have discussed what competitive advantage is. But, in business world, nothing is easy to understand without some proper examples. In the rest of the part of the article, we will discuss the competitive advantages with examples.
Brand Identity
The trust that customers have in a firm is reflected in its brand. If people have a negative association with your brand, it’s probably because they don’t think you’ll deliver a good product. Like when the Galaxy Note 7’s lithium-ion battery exploded while being charged, causing Samsung a major headache and forcing the company to recall millions of units. Volkswagen’s fabrication of emissions testing to meet government regulations also contributed to the company’s public disgrace.
A decline in sales occurred in both instances due to negative publicity around the companies. On the other hand, there are companies like Sony and Nintendo that have built successful brands. Customers are so dedicated to the brands that they will buy either one no matter what the price is.
Customer Service
Returns for defective or otherwise unsatisfactory products must be processed through customer service after the purchase. Customers might never return after such an ordeal. But if it goes smoothly and clients get their money back swiftly and reliably, it may be good for business.
In consumer-facing jobs, you may also provide general customer service. This could be an office for any kind of service, like a phone center or a restaurant or a store. Businesses that focus on their customer’s needs above all else stand a better chance of succeeding in these arenas. Amazon, for instance, has remained dominant for so long because of its convenient return policy and prompt response to customer complaints.
Business Administration
In addition to a high-quality end result, the dedicated and well-organized staff is crucial. Every day, CEOs make decisions that can have a significant impact on the company’s bottom line. Meanwhile, the rest of the management will make similarly scaled but less consequential financial choices. These expenses will be passed down to customers if management is sloppy.
The effect that management has on employees should also be taken into account. Not motivating employees, for instance, can result in sloppier work, less productive employees, and more frequent staff turnover. As a result, this has an effect on the company’s bottom line and the satisfaction of the company’s customers.
Companies with excellent corporate management, like Apple, Microsoft, and Google, have a leg up on the competition.
Related Reading: Competitive Advantages of Apple
Channel of Distribution
The company’s timely delivery of items to suppliers and customers is made possible through a well-developed distribution network. This is especially important for perishable items like fresh food. Companies can get an edge over rivals in the market by delivering items to suppliers and customers quickly.
For instance, Amazon’s next-day delivery option via Amazon Prime completely changed the online buying landscape. As a result of Amazon’s well-oiled distribution machine, millions of consumers around the world now pay an annual fee to access the perk. Amazon’s network has developed into one of the company’s most valuable assets. Few others could duplicate it, especially in a short amount of time.
Economies of Scale
An organization’s unit expenses can be reduced as it expands, thanks to the scale economies it gains. Because of this, it may be able to provide cheaper costs to customers. Additionally, the company’s growing size could help it gain more brand recognition.
Gaining a competitive advantage through economies of scale can be done on a large scale. Supermarket retail is a market in which huge companies like Wal-Mart, Kroger, and Publix have a significant edge over their smaller rivals. The leading players enjoy cheaper costs, which effectively creates something of a closed market. Companies at the forefront of their industries can set prices so low that their smaller rivals just can’t compete. Therefore, many sectors have an oligopoly since the competitive advantage is shared among the major players.
Geography
If a company can locate near a supplier, they can save money on transportation. As a result of decreased breakage and travel costs, it can assist shorten lead times and boosting efficiency. Similarly, businesses could strategically place themselves to be the sole nearby provider. Take, for example, the hotel’s dining options or the convenience store at the trailhead.
Invented-In-House Methods
Patents, particular recipes/formulas, and business processes are all examples of the kinds of proprietary technology that can be protected. This includes everything from the iPhone’s patented design to the formula for Coca-Cola. In any industry, having access to patented technology gives its owner a distinct advantage.
Importance of Competitive Advantages for a Business
A company’s competitive edge is what distinguishes it from rivals. This could be due to the fact that its product or service is of higher quality than its competitors, or because of the way it handles its costs. As a result of this competitive edge, demand for its wares has increased.
With the globalization of economies, it is crucial for businesses to differentiate themselves from rivals. There is competition not only from other domestic companies but also from international ones. Due to rising levels of competition, it is more crucial than ever before for businesses to differentiate themselves from the competition.
Competitive advantage can come from more than just low prices, though. There is a shift away from price as a deciding factor in consumer spending as economies improve. Quality, dependability, service, and other such intangibles are given more weight. This means that in order to get an edge in today’s market, businesses must embrace innovation and creativity.
Bottom Line
This is how brands get a competitive edge. Even if you’re someone who’s not into business, learning about competitive advantage will help you understand how companies work. As a consumer, you will be more aware of your future purchases.
Reference
- https://airfocus.com/glossary/what-is-competitive-advantage/
- https://corporatefinanceinstitute.com/resources/knowledge/strategy/competitive-advantage/
- https://www.thebalance.com/what-is-competitive-advantage-3-strategies-that-work-3305828
- https://study.com/learn/lesson/competitive-advantage-types-strategy-what-is-competitive-advantage.html
Nishat Tarannum Mridula is a contributing writer at The Strategy Watch. She has been contributing for last two years.
Nishat is currently studying at the University of Dhaka. Even though her major is in Banking, she enjoys writing on diverse topics, starting from appliances to blogposts. She is in the middle of completing her BBA from University of Dhaka. Alongside that, she writes different types of business articles for The Strategy Watch.