A Guide to Sustainable Competitive Advantage in Business
By Indeed Editorial Team
Updated August 25, 2022 | Published November 30, 2021
Updated August 25, 2022
Published November 30, 2021
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Companies want to be unique in the market and provide a better product or service than the competition. An organization can create this difference by using a competitive advantage in several ways. Learning about business competitive advantages can help you use this information in strategic planning and marketing. In this article, we discuss the definition of sustainable competitive advantage, identify various types of advantages, highlight factors of consideration, and uncover the three steps to determining a sustainable competitive advantage.
What is a sustainable competitive advantage?
A sustainable competitive advantage is something that a company does better than its competition over a lengthy period. The edge can be a company's asset, value, quality, or characteristic that others find difficult to replicate. As a result, the advantage factor allows the company to stand out in the marketplace and rise above its competitors.
The benefits of having this competitive factor help a company increase sales, create better brand awareness or generate higher profit margins compared to other similar businesses. Several factors influence an organization's sustainable advantage, including product or service quality, variable cost structure, distribution network, customer service, and intellectual property.
What's the difference between competitive advantage and a sustainable advantage?
Both economic terms are similar in that the advantage is something an organization does better than its opposition. A competitive advantage is a quality or an attribute that the company uses to create this point of difference from other businesses. A sustainable advantage is one that the company perfects and operates over a long period to represent the difference of the organization. The difference between these two terms is the length of use of the advantage.
Types of competitive advantages
There are six primary types of competitive advantages that business leaders recognize, including:
Using a brand competitive advantage uses brand loyalty to its benefit when placing the products or services in the marketplace. This competitive advantage comes from having a superior or unique brand to the competition. Customers may pay higher prices for the prestige of owning or using the brand. The brand images, marketing strategies, and product positioning promote brand loyalty and may include a celebrity spokesperson to increase brand awareness. Companies that use this competitive advantage require constant product improvement by adding new features and benefits to encourage loyalty.
Cost leading advantage
A business that uses a cost-leading advantage focuses on providing the same quality product or service as its competitor but at a lower price. A cost-leading advantage directs all business activities from a customer cost perspective. This business approach requires analyzing production, manufacturing, and supply chain procedures to develop more cost-effective processes. A competitive advantage based on lower costs also requires management to establish operational methods that increase productivity and efficiency to maintain a healthy profit margin.
When a business focuses on unique differences in its products or services, it uses a differential competitive advantage. A company provides products or services that are different in some ways from the competition's offerings. A point of difference can include better quality, proprietary ingredients, faster service, or other specific characteristics. The marketing, advertising, and public relations team use the unique features of the product or service in all its materials and publications to bring customer attention to the point of difference. This competitive advantage requires constant monitoring of competitor response and continuous improvement or research and development.
Companies that use a market-focused competitive advantage determine specific niche markets to serve rather than offering products or services to a larger target audience. Within a market-focused advantage, the company aligns its business operations and strategies around its key demographic. By having a narrow target, the company can better customize its products and services to the audience's unique needs. In addition, the level of customization builds strong relationships with their customers by personalizing the purchasing experience.
A competitive network advantage focuses on what a larger collective of products or services can offer to a customer. For example, subscription-based services, such as video streaming companies, cable and satellite television providers, or internet services, often use a network advantage in marketing their organization. They focus on what their platforms can provide over the competition in the marketplace. They may offer subscribers specific incentives, bonuses, or member benefits that are unique to their company. For instance, a cable television provider can advertise all the channels that a subscription provides to customers when joining their network.
When a company uses a resource competitive advantage, it focuses on using limited resources or production materials. Because the company has access to these exclusive elements, it can use this to its advantage over the competition. For example, a company using an exclusive or proprietary ingredient in its product formulations uses a resource advantage. Another instance is a company that contracts its services to the government because of strict security clearances. In this example, the contracting company has a competitive advantage over others in the market because of its exclusive security clearance.
3 considerations for a competitive advantage
When determining a company's competitive advantage, there are three factors to consider:
1. What benefit does your product or service offer?
The first factor to consider when determining a company's competitive advantage is the benefit of the product or service to the customer. The item fulfills a need of the customer and provides perceived value to the intended audience. To determine this information, you can identify the product's features, the corresponding advantages over other products, and how this benefits the user. Staying current on marketplace trends, updated technology, and continuous product improvement can help maintain this advantage. Here are several questions you can ask:
How is this product different from the competition?
What customer need or want does the product fulfil?
Why does a customer need this product?
2. Who is your ideal target audience?
The second factor is identifying the ideal target audience for the product or service. You want to understand the customer intimately, including their demographic, needs, wants, and preferences. To create an effective strategy and advantage over competitors, you want customers to feel that the company understands what they're thinking. When a company can make this personalized relationship with a customer, they know the ideal target audience they serve. To understand your perfect audience, here are several questions to ask:
What is the specific demographic of the audience for this product?
Where does this customer shop, live, work, and play?
What product qualities are most important to this customer?
3. Who are your real competitors in the market?
The third factor is determining who your real competitors are in the market. Real competitors aren't just similar products or companies, but embrace the same mentality and focus as your company. A proper market competitor uses innovation, continuous improvement, and strategic planning to its advantage. Once you identify your strong competitors, assess their competitive advantages and how you can overcome them. Several questions to consider your competition include:
Who offers the same product or service, and what makes them different?
What does the competition do well?
Where does the competition need improvement?
How to determine a competitive advantage
When determining the competitive advantage of a company, follow these three steps:
1. Analyze the market
The first step to determining a competitive advantage is to analyze the market. Using the three factors of consideration above can provide a company with essential information on separating itself from the competition. For example, a health supplement producer may identify its target audience as middle-aged adults looking to add minerals to their diet. The company can then determine the key benefits that its products offer to consumers. Finally, analyzing the competition can provide insight into strategies already in use in the market. As a result, the supplement manufacturer can find a unique point of difference in its products.
2. Implement a strategy
Once a company analyzes the marketplace, it can choose and implement a competitive advantage strategy. With this information, an organization creates an approach based on what makes its product different. Using the example above, the health supplement producer decides to use a brand competitive advantage. Choosing this factor allows the company to develop marketing materials around celebrity endorsement regarding the quality of the product. They also focus on producing beautiful packaging, exclusive benefits for repeat customers, and a social media campaign to increase brand awareness.
3. Monitor the performance
Over time, a business wants to monitor its competitive advantage strategy to ensure the focus is practical. Evaluating performance from strategic planning can provide insight into elements that are working and areas of opportunity. Monitoring the progress of competitive advantage is critical to further development and success over the competition. For example, an internet service provider who focuses on a network advantage may monitor the number of new users referred to the company through existing subscribers. Through tracking this information, the company can design referral incentive programs or bonuses for new subscribers.
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