Determining factors of competitive advantage
Types of competitive advantage
In business, competitive advantage is the leverage that your business has over its competitors. This is what makes you better than the competition in your customers' minds.
Competitive Advantage is gained by offering customers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices.
DETERMINANTS OF COMPETITIVE ADVANTAGE
1. Benefits: For a new business trying to gain competitive advantage, you must be clear on the benefits your product provides to the customer. Customers want products that satisfy their needs, and offer them real value. When your product fulfills customers needs, it increases sales, and positions your product ahead of competitors.
2. Target Market: As a business owner, by identifying who your customer is, their age, purchasing power, and what their needs are, you are able to meet their demands and serve them better. You gain competitive advantage, as your products meet customer demands. You’ll need to keep up with market trends to be aware of market trends and how it affects your target customer.
3. Competition: Besides having other businesses that offer similar products or service to yours, as competitors, (i.e. direct competition) you also need to consider other activities your customer could do to meet the need you fulfill. For example, newspapers competed with other newspapers and magazines, not realizing the internet would eventually make news free and instant.
TYPES OF COMPETITIVE ADVANTAGE
Competitive advantages allow your business to produce a good or service at a lower price or better benefit for customers. These conditions allows your business to generate more sales than the competition. Competitive advantages are attributed to a variety of factors, including cost, brand, quality of product, team, distribution network, intellectual property and customer support. For any business, the more sustainable your competitive advantage is, the harder it becomes for competitors to compete with your business.
There are 2 notable types of competitive advantage namely:
1. Comparative Advantage; and
2. Differential Advantage
The ability of your business to produce a product, or provide a service, at a lower cost than your competitors is your comparative advantage. This comparative advantage gives your product a margin, when consumers need to rationally choose the cheaper of any two substitutes.
An example of comparative advantage was between Cocacola and Bigi soft drink, which had a bigger size and lesser price, when it was introduced into the market. This favorably positioned Bigi as a customer favorite for a while. To achieve comparative advantage in your business by producing low cost products, you need to apply any of the following strategies:
1. Maintain high levels of productivity.
2. Negotiating the lowest prices on resources & materials used in your day-to-day production.
3. Effective implementation of technology in your production process.
4. Lean production processes
5. Access to effective distribution channels
Differential advantage requires your business being able to provide a unique high quality product with better benefits to customers. It can also be achieved by developing and delivering your products faster (speed), and identifying ways to reach the customer better. With a clear cut differential advantage you can charge a premium price for your product. An example of differential advantage is Shoprite and Oshodi market. Even though goods in Shoprite are more expensive than Oshodi market, some customers would choose the convenience of Shoprite over Oshodi market.
Earning differential advantage for your products would require sustainable & sufficient marketing. The following means can facilitate your differential advantage:
1. Superior product quality (features, benefits, durability, e.t.c.)
2. Strong brand identity (brand loyalty)
3. Consistent marketing (advertising & sponsorship)
4. Advanced technology - Patents (products & processes)
5. Qualified team
To objectively state your competitive advantage, you need to be able to articulate the benefit you provide to your target market that's better than the competition. This competitive advantage must be reinforced each time you communicate to customers via advertising, sales, e.t.c.
