One of the most important goals of any business’s marketing strategy is to stand out when compared to its competitors.
We see this all the time, equally good products being preferred differently. What makes people choose one product instead of another if they have the same quality, or the same price, or the same function?
Usually, the answer to this question is that they have something to offer more than the competitors and this doesn’t need to be in terms of a price, or quality although it might.
That is why many businesses showcase their UPSs or unique selling points to make their case as to how they are different from all the other competitors out there.
But then the question is, if all the businesses have their USP, then they’re not that unique, huh?
If all of them broadcast what’s so special about them, then at some point the customers get desensitized in a big portion.
That’s why the differentiating has to be taken to a whole new level. That’s where competitive advantages come into play.
Figuring out what your competitive advantages are as a business or a brand can mean so much because then you can use those advantages to your leverage.
Boosting your marketing efforts and the reputation of your brand which will influence the customers’ opinion in the end is a good way to go about this.
In this post, I will talk about what competitive advantage is, which types are there, and share some examples of competitive advantages with you.
What is a competitive advantage?
Competitive advantage is a certain attribute of a company that gives the company a favorable position on the market in comparison to the competitors.
This favorable position eventually results in more customers, and with that higher profits.
In other words, it’s something that makes your brand superior in the eyes of the customers when compared to all the other competitors.
To create this type of a competitive advantage you need:
- Deep knowledge of your target market: you need to know how your target customers think of, feel about, and need from your brand. Also, potential customers that would start buying if you offered them a good competitive advantage.
- Deep knowledge of the competition: you have to know who is your present competition and who is an upcoming competition in the future. Then, analyze their products, prices, strategies, etc.
- Unique Selling Propositions: these are usually the base for competitive advantage as I previously mentioned. They should be clearly defined and understandable to customers.
Types of Competitive Advantage
Different kinds of literature give a different number of types of competitive advantage. One of the most famous differentiations of competitive advantage is the one done by Michael Porter.
According to him, there are three types of competitive advantage strategies and those are:
- Cost leadership: this means that a firm creates competitive advantage by creating economies of scale with very efficient operations, and producing large quantities of product. As a result of that, the prices for the products are low compared to the competitors due to the relatively low production costs.
- Differentiation: is an extremely effective strategy when executed the right way, even though it is a less tangible and easily defined one. It refers to the ability of a business to create a good or service, that is very difficult to replicate and fulfills needs. It’s about creating a strong brand image and selling products or services as premium goods.
- Market segmentation: is basically a combination or a cross between these two previous strategies. It basically targets specific segments of the market that are not yet tapped by other larger firms.
Besides these ones, there are a lot of different strategies that a company can use to create a competitive advantage.
- Brand: one of the biggest competitive advantage strategies out there can be said to be the brand. Businesses can capitalize big time on their brand. Effective brand strategies lead to customer loyalty which means that they are ready to pay more than needed to purchase the branded product.
- Money: money always means power. There are companies that come on the market with very high fundings and disrupt the ecosystem with products and offers that competitors can’t offer at prices that low as a big cost-effective giant. Even though it’s just money, it is a very strong competitive advantage because other companies can’t respond with it.
- Network effect: this is a strategy that when more people use a certain product it becomes more valuable to the people. For example, Whatsapp users don’t want to try other similar apps because most of their contacts use Whatsapp.
- Barriers to entry: there are many barriers to entry that are imposed to the entering businesses by the old businesses like access to suppliers, trademarks and patents, etc. This means that putting a barrier to entry to other companies is also a competitive advantage because they can’t react in a very effective way.
- Variety of products: if a certain company offers a wide variety of products then they can achieve efficiencies like reduced costs. This means that they can sell the same products as competitors for a lower price. Also, offering a variety of products can be a competitive advantage by itself.
- Know-how: some special knowledge or abilities of the people that work with one company can also be a great competitive advantage for that company
- Operational processes: effective operational processes that a certain company has can make it more effective and in the end produce more cost-effective products compared to the competitors
- Risk Management: a competitive advantage can be also the ability to do great risk management which means identifying and eliminating the potential risks better than the competitors.
- Reputation and Quality: if the customers, partners, the general public has a high opinion of your products and perceives them as high-quality products than that is also a competitive advantage
- Customer satisfaction: if your customers are all the time satisfied and pleased by how they are treated by your company then they will always prefer you over your competitors.
- Trade secrets: these are secrets that only your company knows and the competitors have no idea of them. They are not protected by law, but they are kept a secret. For example, a non-disclosure agreement for the employees to not disclose the franchisee recipe.
- Intellectual property: these are the trademarks, patents, industrial designs that your company has and are protected by law and that stops other companies from using them giving you the ultimate competitive advantage
- Business connection: sometimes the connections and collaborations that a company has make that company unique compared to the competition and that can be a competitive advantage too.
- Location: sometimes having a superior location in comparison to your competitors can be a competitive advantage like for example the only restaurant at a city center’s square.
- Sustainability: implementing social and environmental practices and goals in your working as a company can grant you an advantage and bigger reputation as well as access to capital in sustainable projects
There are probably many more things that can be counted as competitive advantages, as long as they are something unique for a company that the competition doesn’t have.
Competitive Advantage Examples
All of this so far has been theoretical with few small examples here and there.
In order to connect the theoretical knowledge with a real understanding of what competitive advantage is and how powerful it can be for a company, I will dig into some examples next.
The major player in the shipping industry is Amazon for some time now, and that’s for a reason.
They have an enormous amount of shipments per day which makes them one of the top valuable companies in the world.
What they offer to their customers is a high efficiency, accuracy, and the biggest perk of all- speed.
That is exactly the competitive advantage that Amazon has and that made the company one of the richest ones in the world.
The product that offers top speed is their Amazon Prime membership which guarantees people two-day shipping on all the products that are eligible for the Prime membership.
With this offering, Amazon did two things.
Firstly, they condition the customers in a way in which even if they intend to try the Prime membership only once after receiving their products in two days they will not be willing to wait again five to seven days for standard shipping.
This will make them more inclined to continue paying the premium membership.
Secondly, in this way more purchases are encouraged since the shipping time is actually one of the main reasons why people decide not to purchase something online.
Relevant: Read about some of the top competitors of Amazon here
Facebook is the largest and most used social media platform in the world. As such, it enjoys a strong competitive advantage over the competitors.
One of the strongest competitive advantages is the network effect which I explained earlier.
It’s simple, all the people, events, institutions, businesses- are on Facebook. That is why many people still have a profile because they are afraid of missing out.
Another big competitive advantage is the deep pockets of the company which I also explained previously. This gives them power over their competitors and imposes some barriers to entry for smaller companies.
Apple is also one of the richest companies in the world and one of the most famous brands.
As a company, it experiences very strong loyalty from its customers and the way they created that can be considered of their competitive advantages.
They created a brand that connects intimately with the customers forming emotional attachment so customers want to have it no matter the cost.
This is one of the highest forms of competitive advantage and can bring obviously a very big profit to the company.
Everything about the apple products is a unique experience, a sensory pleasure. From the weights of the products to the boxes they come in.
That is how paying attention to the customers and the design to affect the user experience and construct loyal relationships is playing out for Apple.
Even though there are several official types of competitive advantage, anything can become a company’s advantage as long as it’s unique as I previously stated.
Your strategy can consist of one competitive advantage, or it can consist of multiple mixed strategies.
Anyhow, you have to think deeply about why your offering is special and why would the customers choose your product over the others on the market.
Put yourself in their shoes and try to look at this from their perspective. That is how you can define your points of differentiation and start creating a successful competitive advantage strategy.
Did you learn some new things about competitive advantages? Next, check out these other posts:
- Understanding land and expand strategy and how to implement it?
- 3 psychology tricks you need to implement in your marketing strategy
- The top growth hacking stories you need to know for 2020
Which type of competitive advantage do you think is the easiest to achieve? Leave a comment letting me know.