What is competitive advantage?
Competitive advantage is a set of unique features or qualities that allow a company to gain an edge over its competitors. This includes the factors that set a business apart from its rivals, enabling it to attract and retain customers more effectively than others.
Competitive advantages can come in many forms, such as access to resources, cost efficiency, expertise, competitive pricing or superior product features. Businesses must continually strive to develop and leverage their competitive advantages in the marketplace to get ahead in their industry and reach goals more effectively. One way in which they might do this is through their marketing strategies and efforts.
5 reasons why competitive advantage is important for businesses
There are many reasons why businesses should pay attention to building competitive advantage in their market. Here are five important ones to consider:
1. Improved profitability
Having a competitive advantage helps businesses achieve higher levels of profitability. It means they can charge more competitive prices, increasing profits as a result. A competitive advantage also leads to customer satisfaction, and audiences will be willing to pay more for quality products or services. A prime example of this is Apple, whose iPhones are priced among the highest in the market, and yet always manage to create a buzz in sales records when new products are released.
2. Increased market share
Companies with high competitive advantage gain a larger market share over their rivals. In turn, this creates a situation where it’s easier to reach new customers, generate sales and increase brand awareness.
3. Brand recognition
Businesses with a competitive advantage have an easier time getting noticed by customers. By making the brand more recognizable, this sets the stage for being a trusted leader in their industry and marketplace. It can also create a situation where a brand name becomes a commonly used name for a product. For example, in the UK vacuums are often referred to as Hoovers, even if they’re produced by a different brand.
4. Long-term sustainability
Having competitive advantage allows businesses to stay successful in the market for longer periods of time, giving them an even greater chance of long-term growth. Companies that have competitive advantage are more likely to survive in time of high pressure, since they’ll already have the foundations necessary to stay on top.
5. Cost savings
Competitive advantage can also result in reduced costs, since businesses can leverage it to negotiate better prices with suppliers or develop more efficient operations. This allows them to keep costs down while still providing competitive products or services at competitive prices. It also makes it harder for other businesses to stand against them.
Competitive advantage versus marketing
Competitive advantage is distinct from marketing because it focuses on the unique features of a business that make it favored over its competitors. Whereas competitive advantage is a long-term business strategy to gain and maintain a competitive market position, marketing strategies focus on short-term tactics such as advertising or promotions to drive immediate sales.
Businesses should use competitive advantage and marketing techniques together to achieve growth and success in the long run. Competitive advantage enables businesses to maintain a strong place in the market—but evolving marketing strategies are needed to target customers and attract new ones. By leveraging competitive advantages alongside effective marketing tactics, businesses can reach their goals more effectively.
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Competitive advantage strategies and examples
Some of the most famous brands can be said to have succeeded thanks to their competitive advantage. Here, we’ll look at some specific examples and show how they used their competitive advantage to stay ahead in the market:
Amazon has long held a competitive lead in the eCommerce industry, and the brand has used this advantage to branch out into other business areas—including streaming, content creation, AI and cloud computing. They first gained their competitive advantage with their wide selection of products and convenient delivery options, with stellar customer service to top it off. Unique options such as same-day and one-day delivery are what made them stand out and attract millions of customers.
A well-known leader in the coffee shop and takeaway industries, Starbucks knows how to create a competitive advantage and turn it into long-term success. They’ve done this by delivering consistent quality with their products across all branches, alongside curating a comfortable and friendly vibe in their shops. This has helped Starbucks establish an impressive reputation, a loyal customer base and a premium charge for its products.
Walmart gained their competitive advantage through their large store network, which helped them gain country-wide visibility as a family friendly one-stop shopping center. On top of becoming a household name, their everyday low prices ensure a steady stream of new and returning customers.