Every business must have at least one competitive advantage in the market that allows it to create greater sales, profit margins and satisfy more customers than its competitors.
Michael Porter defines two main types of competitive advantage: comparative (cost) advantage a similar products at a lower cost and differential advantage a unique product at a premium price.
A compelling competitive advantage is sustainable when the advantage a company has over its competitors is on-going due to continuous innovation, the more difficult it is for competitors to compete, the more sustainable the competitive advantage.
Competitive advantages take many forms including the companies cost structure, product offerings, distribution network, strategic relationships and customer support.
A competitive advantage objective requires a firm commitment from senior management to ensure the necessary corporate and organisational shift has time to germinate within the organisational culture.
Three Strategies to Gain Competitive Advantage
- Differentiated Business Model: As products have become increasingly commoditized and undifferentiated; business models have become a critical source of differentiation and competitive advantage. The internet itself is a disruptive technology, and its affects consumer behaviour and the competitive landscape. Technology created opportunities for budget airlines to re-engineer the costs and created a competitive position in which legacy carriers could not compete. Free newspapers, such as the Metro, did the same to the traditional paid-for newspaper industry.
- Differentiation by Uniqueness: Something that is unique is untested. The organisation gains competitive advantage through testing and proving the product viability and profitability when the product becomes established it is no longer unique for its customers and therefore, other competitors cannot different by uniqueness. Apple CEO Tim Cook said “Apple has the ability … to innovate like crazy and cause magic. People are trying desperately to catch up, and they are finding it is not so easy to do.” Apple owns chip manufacturers, controls manufacturing and operates in a nearly closed ecosystem of proprietary retail stores; this vertical integration has given Apple a competitive advantage. Competitors, Google and Microsoft, have acquired Motorola and Nokia respectively, with the objective of pursuing a vertical integration strategy this has until now only worked for Apple.
- Differentiate by Strategic Intent: This challenges and guides the organisation to achieve seemingly unachievable goals. Having a targeted even outlandish objective requires the development of new capabilities. Virgin Galactic, the world’s first spaceline, is futuristic by nature. Although focused on getting SpaceShips into commercial service, the project is a start towards even greater possibilities.
How high are your Competitive Barriers?
Companies that create and sustain competitive advantage have a capacity to continuously improve, innovate, and upgrade their competitive advantages over time. Apple is one of the few companies to gain a sustainable competitive advantage using both differentiation and cost advantage strategy. Tim Cook said, “We never had an objective to sell a low-cost phone. Our primary objective is to sell a great phone and provide a great experience, and we figured out a way to do it at a lower cost.”
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