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Competitive Advantage

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What is competitive advantage

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Definition of a competitive advantage

Competitive advantage is what makes a customer choose your business over another one. By understanding, and promoting such advantage, companies can win a greater amount of market share.

A competitive advantage may stem from the user experience — that is, a better, more affordable or more enjoyable product — or it may be another tangible or intangible asset, such as the intellectual property or the customer service team.

Examples of competitive advantage

Competitive advantage separates a surviving business from a thriving one, but the source can change from sector to sector and company to company.

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Some common examples of competitive advantage include:

  • The team

  • Unique access to technology or production methods

  • A product that no-one else can offer (protected by IP law or patents, etc.)

  • Ability to produce and sell at a lower cost (known as cost leadership)

  • Brand and reputation

Whilst you may launch into the market with a totally novel idea, it may not be long until rivals catch up. That’s when you may need to revisit what your competitive advantage can be.

In the case of sectors with many copycat brands, such as soft drinks, brand and reputation may be the most powerful advantage to harness.

How to identify your business’s competitive advantage

What can you offer to your audience, that none of your rivals can claim to?

To identify your advantage, you must map out:

  • How you deliver value or benefits to customers

  • Who your target market is

  • Who else is operating in the same, or similar, space to you

Your competitive advantage lies in unlocking the most engaging benefit, for your target audience, and delivering it in a way that no other business can.

It’s possible you’ll have several possible competitive advantages, the one you choose to promote in your marketing and brand communication should be the one with the greatest differentiation and potential to engage. This will help you to get a bigger market share.

What is sustainable competitive advantage?

Sustainable competitive advantage helps businesses rise above the competition over a long period of time. It helps influence consumer decision making and often results in higher profits.

Sustainable competitive advantage refers to assets, characteristics, or capabilities that are unique to a business. They are difficult to replicate and allow a business to meet customer demands better than its competitors. Without a sustainable competitive advantage, you risk your business just being another drop in the ocean.

There are three main types of sustainable competitive advantage: differentiation, cost leadership, and focus advantage.

What is differentiation as sustainable competitive advantage?

Differentiation refers to how a business tailors its strategies to help clearly set them apart from its competitors. This could come in the form of high-quality products, strategic assets, intellectual property, brand identity, and so on.

What is cost leadership as sustainable competitive advantage?

Companies that can bring down their costs and pass those savings down to the customer have what we call pricing power. This competitive advantage allows businesses to price lower than their competitors so consumers choose their products on the basis of financial value.

What is focus advantage as sustainable competitive advantage?

Focus advantage is when businesses target a specific section of their target audience to build greater customer satisfaction and loyalty. 

Sustainable competitive advantage is one of the most valuable things a business can have.

It’s a major driver of long-term business and is often the most sought after part of any business acquisition.

Competitive advantage framework

The most common competitive advantage framework is the VRIO framework.

VRIO is an internal analysis tool that can be used to categorize resources based on whether they hold certain traits that are outlined within the framework.

This categorization allows organizations to identify which company resources are actually competitive advantages.

There are four stages to the VRIO competitive advantage framework, each resource goes through the four stages to help identify if that resource is a competitive advantage.

  • Valuable - Does this resource offer a tangible benefit? 

  • Rare - Is this resource found within other organizations, or is it unique?

  • Inimitable - Is this resource difficult to reproduce or copyrighted? 

  • Organized - Is this resource organized in a way that captures value?

A resource that is valuable, rare, hard to imitate, and organized to capture value is a long-term competitive advantage. It’s worth keeping in mind that a single resource that offers a competitive advantage is not a guarantee of value or success, and it may only be a temporary situation. The best companies know this and always have an eye on the future.

What is the best competitive advantage book?

For those looking to learn everything there is to know about sustainable competitive advantage, here are some great books to add to your list.

Picking just one is hard!

  • The Hawke Method by Erik Huberman - Packed full of real-world examples of successful business strategies. 

  • Rare Breed: A Guide to Success for the Defiant, Dangerous, and Different by Sunny Bonnell and Ashleigh Hansberger - Great for those who love to think outside the box.

  • The Lucky Formula by Mark Lachance - A brilliant tale of how Lachance turned his luck around.

  • The Trap of Success by Gene Hammett - Hammett gives you the knowledge you need to break out of your comfort zone.

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What Is Competitive Advantage

General FAQ

When does a company achieve a sustainable competitive advantage?
A company achieves sustainable competitive advantage when it meets one (or more) of the following three criteria, as outlined by a professor at Harvard Business School in 1985: Cost leadership — offering reasonable value at a lower rate than competitors Differentiation — delivering better (or unique) products and service than others Focus — recognizing, understanding, and committing to a target market in a way no other company is.
What are some common strategies for achieving a competitive advantage?
A business may be able to create a competitive advantage by charging a higher price than competitors. True, this appears to fly in the face of Porter’s cost leadership concept. But hear us out… By setting a higher price point for products, a company can establish itself as a luxury brand and create an air of exclusivity. However, the product and service have to justify the inflated cost. Another effective strategy is to take advantage of cutting-edge technology and embrace innovation, particularly if your main competitors have yet to do so at the same level. This must be done in a way that other businesses will be unable to duplicate exactly, or at least, find doing so very difficult. This ties in with another strategy, which is to deliver such a high standard of dedicated, personalized customer service, that no other business can compete. Implementing the latest technologies can provide customers with a better experience overall when used right.
Why is having a competitive advantage important?
A competitive advantage helps a business to distinguish itself from competitors, and allows it to charge higher prices, build brand loyalty, and attract a wider audience.

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