Competitive advantage - What is it? Characteristics, types, and examples

Competitive advantage

The superiority of a company with respect to its competition.

What is a competitive advantage?

Competitive advantage is the capacity of superiority that a company presents with respect to its competition. Through this, a company manages to position itself better in the market, in relation to its competitor.

Competitive advantage in companies is usually due to better cost management or product differentiation, that is, by offering a better product. For example, a lower cost of labor will reduce the final price of the product, which will mean competitive advantage.

A company is considered to have a competitive advantage when it has a unique and sustainable differentiation with respect to its competition in the market. This differentiation allows it to have a superior position in the sector where it competes.

Characteristics of competitive advantage

The main characteristics of competitive advantage are the following:

• Without good management, it is not possible to maintain it in the long term.
• It must be a quality that suggests product superiority.
• They are customer-oriented and generate value for them.
• They are usually due to lower costs than the competition or product differentiation.

Types of competitive advantage

The possibility of achieving competitive advantages over the competition can be achieved mainly in 2 ways: by cost and by differentiation.

for costs

When a company manages to considerably reduce the cost of its production process, it can offer the product at a lower price and with sufficient quality.

This competitive advantage, of being able to offer the same product at a lower price, allows companies to better position themselves with respect to their competitors.

By differentiation

This condition is achieved when the good produced generates confidence and prestige in the consumer.  Therefore, it allows companies to have an advantage over their competitors.

This advantage occurs a lot with already recognized commercial brands, which do not necessarily have affordable prices. Rather, if the product is expensive, it will be more popular with consumers. For example,  Starbucks or Apple.

Examples of competitive advantage

Here are some examples to better understand competitive advantage:

• Japanese automakers: In the 1980s, there was a fierce struggle in the car market between American and Japanese car brands. This happened because the Japanese brands could offer the same quality of vehicles at a lower price, due to their low labor cost, a fact that offered them a competitive advantage.
• Apple– This electronic equipment company is synonymous with quality and excellence. Its clients choose it over its competitors due to its differentiation, since its products usually produce prestige in the client.
• Starbucks: Another example of competitive advantage by differentiation is Starbucks coffee, as it gives prestige to the user who consumes it, which allows its customers to prefer it over other coffee shops.

 

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