Competitive Advantage

Meaning of Competitive Advantage


There is hardly a company that does not want him. If the company owns it, it will be defended by all possible legal means. We are talking about competitive advantage. For any profitability that is above average, the competitive advantage is the best prerequisite for a company’s long-term success in the market. Every company therefore endeavors to create and above all maintain a stable competitive advantage.

Definition: competitive advantage

For every company, the competitive advantage is the key that leads to sustainable corporate success. A company is only able to generate a profit surplus in the long term if it has a qualitative advantage over its competitors. With the supplier advantage, a company strives to provide a product or service that a competitor cannot provide in this form. In this way, an offer on the market always remains in a very narrow form and the company cannot easily be ousted by the competition. A patent is an excellent example here. The competitive advantage of a patent ensures a limited advantage at least for a certain period of time.

The second type of competitive advantage is determined by demand. This demand always comes from a customer. Experience shows that once consumers get used to a product or service, they remain loyal customers. Together with habit, brand also plays an important role in this type of competitive advantage. If a company manages to build a real brand, it will benefit from this competitive advantage for decades.

What is a competitive advantage?

Competitive advantage means, based on an economic perspective, to have an advantage over the competition in the market. The competitive advantage can be divided into a provider advantage and a customer advantage. For a company, a competitive advantage means that it is always at least one step ahead of its competition.

How does a competitive advantage arise?

A competitive advantage for a company arises from entrepreneurial and strategic action. These can be factors such as the structure of prices, special characteristics of sales or flexible production models. But competitive advantages can also arise in special market niches. But of course they do not arise by themselves, because there is no uniform procedure for doing this.

Characteristics of a competitive advantage

There can be a multitude of potential competitive advantages for any business. They all have their own special properties. Below are a number of common benefits and what properties they have:

Competitive advantage properties
Pricing Companies not only have to set prices, but also develop them skillfully . For this a tactical application of discounts, offers and conditions is necessary. When it comes to the final phase of customer acquisition , these properties prove to be an advantage over the competition.
Planning the company Potential future capital flows can be seen when a company focuses on solid planning. With this planning, the company’s liquidity is always in view and allows for early action.
vision Very few entrepreneurs are successful without a vision, at least in terms of long-term success. Vision as a competitive advantage has the characteristic of knowing where the benefits for the customer for a product or service will later be.
Portfolio The competitive advantage of the portfolio is that everything is precisely tailored to the needs and wishes of customers. This also opens the door for a company to make combined sales with other products much easier.
logistics Logistics plays a crucial role. The ability to get to the customer quickly or to be able to deliver quickly helps to leave the competition behind. It is not for nothing that the statement “to be in the right place at the right time” still applies today.

Why is competitive advantage important?

Competitive advantages are important because they are a crucial factor in increasing the profit of a company. If a company builds sustainable competitive advantages, it helps both in customer acquisition and in customer loyalty . Competitive advantages can help a company to recover in the short term. However, if these advantages are not secured in the long term, long-term corporate success is also unlikely.

Market structure analysis according to Porter

In order to create or maintain competitive advantages, a competitive strategy is essential. From Michael E. Porter’s point of view, competitive strategies differ in three ways.

  • 1. Strategy of cost leadership
  • 2. Focus concentration strategy
  • 3. Strategy of differentiation

Each of these three strategies is used to improve your position in competition with competitors.

Graphic of the matrix according to Porter

Michael E. Porter created a matrix for his approach. This matrix shows at a glance how the three types of competitive strategies are to be understood.

How do you develop a strategic competitive advantage?

You absolutely need strategic competitive advantages in order to have long-term and sustainable success as an entrepreneur. But this also means that the strategic competitive advantages have to be reconsidered again and again. For a unique market position, you need products or services that are on the one hand very high quality and on the other hand offer great benefits.

Competitive Advantage