Your competitive advantage must be sustainable, allowing you to survive for a longer time. You must recognize this as an act, not only on paper, in your marketing plan.

Maybe you think your competitive advantage is because you sell your products and services at a lower price. However, this is not an advantage if it is a temporary solution to attract new customers because your business can’t continue to sell at that price.

However, suppose you have an innovative manufacturing process and appropriate cost management. In that case, you can have a lower cost than the competition, and therefore, you can sell your products at a lower price. That is a competitive advantage for your business.

What is Competitive Advantage?

You probably already know what competitive advantage is, but it is not too much to look again through different viewpoints.

Competitive Advantage Definition and Examples

Competitive advantage refers to the unique attributes, capabilities and resources a company has or develops to be different to the competition and outperform the market. So competitive advantage is the factors that allow a company to produce better products and services, with more features or cheaper than the competition. Those factors generate more sales or better margins for your company.

In other words, it makes a business stand out and be more successful than the competition. It can come from innovation, cost management, quality products or services, strong branding, customer loyalty, etc.

Competitive Advantage Examples

For example, let’s look at two companies in the same industry: Company A and Company B. Both offer similar products and services at similar prices. However, Company A has implemented an innovative manufacturing process that allows it to produce its products cheaply. So, it has a cost leadership and cost advantage over Company B because it can sell its products cheaper because of higher profit margins and more attractive to customers.

On the other hand, Company B has focused on building a strong brand image and customer loyalty. They have invested in advertising and marketing campaigns that show their products as high quality and reliable. So, they have a loyal customer base that is willing to pay a premium for their products.

As you can see, both companies have found ways to differentiate themselves from the competition and gain a competitive advantage. This is key in today’s competitive market, where businesses are fighting for the consumer’s attention. Without a clear differentiator, businesses can get lost in the noise of the competition.

Competitive advantages are cost leadership, branding, quality of product offerings, distribution network, intellectual property, customer service, etc.

How Does Competitive Advantage Work?

At its core, competitive advantage works by making an organization better than its competition in delivering value to customers. Here’s how does competitive advantage work:

1. Differentiate yourself:
   • Offering unique products that are different from anything else on the market.
   • Building a strong brand identity that resonates with customers.
   • Providing exceptional customer service that enhances the customer experience.
2. Cost Leadership:
   • Reducing operational costs to offer products at lower price rates without compromising quality.
   • Streamlining processes and improving efficiency.
3. Focus Strategy
   • Targeting specific market segments and catering to their unique needs.
   • Developing niche products or services that appeal to a particular audience.

Sustaining Competitive Advantage

To keep the advantage long term and achieve market leadership, your business must innovate and adapt. Here’s how to do it for competitive advantage:

1. Know Your Customer:
   • What do your customers really want from your products or services?
   • Do market research to find out what they like and dislike.
2. Fix the Problem:
   • Design solutions to the problems your target market faces.
   • Make sure your offerings meet customer needs and deliver tangible value.
3. Deliver More Value:
   • Keep improving products and services.
   • Add more features or benefits to the customer experience.

Types of Competitive Advantage

There are different types of competitive advantages that you can use to stand out in their market. They are related to the focus where you want to achieve an advantage over your competitors. Let’s look at them.

For example, Porter’s generic strategies are a popular framework used to develop competitive strategies. These include three strategies cost leadership, differentiation, and focus. Each of these strategies requires different tactics to be implemented successfully.

Cost Leadership Strategy (Cost Leadership Differentiation)

Cost leadership strategy is a specific type of competitive advantage that is achieved by offering products or services at a lower cost than competitors. This can be through economies of scale, efficient production processes, or strategic partnerships with suppliers. Walmart is a prime example of a company that has leveraged cost advantage to become the world’s largest retailer.

Simply cost leadership competitive advantage refers to your business’s ability to produce a product or service at a lower cost, ultimately higher profit margins than competitors. In such a way, your business has a competitive advantage, providing a better price for the same or better value to customers.

Remember that cost leadership differentiation bring you lower costs that result in higher profits, as businesses are still making a reasonable profit on each good or service sold.

Differentiation Advantage

You will gain a differentiation advantage, or differential advantage when your business’s products differ from those of its competitors and are seen as superior. This differential advantage can be achieved through strong research, development, and design thinking to create innovative ideas.

So, differentiation advantage can be achieved through superior product design, intellectual property rights, features, quality, access to natural resources not available for competitors or branding. For example, luxury brands like Louis Vuitton and Ferrari differentiate themselves through their high-end designs and premium quality.

Customers are always willing to pay more for superior products that differ from others.

Focus strategy

Focus advantage strategy involves targeting a few specific markets rather than targeting everyone. This strategy benefits businesses focusing on niche markets or specializing in a specific product or service.

Smaller businesses often focus advantage strategy, as they may not have the resources to target everyone and can only meet the consumer’s needs by narrowing the market down to smaller segments.

Network Effect

A network effect occurs when a product or service becomes more valuable as more people use it. This creates a competitive advantage for companies with a large user base. Social media platforms such as Facebook and Instagram have strong network effects, making it difficult for new competitors to enter the market.

Brand Reputation

A strong brand reputation can also be a source of your competitive advantage if you already build a strong and recognizable brand identity. Companies with a positive brand image and loyal customer can charge premium prices and attract new customers through word-of-mouth recommendations.

Customer Service

Providing exceptional customer service can also be a source of competitive advantage. Companies that prioritize their customers’ needs and go above and beyond to ensure their satisfaction are likely to gain a loyal customer base.

Strategy, Tactics, and Actions

As an entrepreneur, you must have a business strategy that will enable you to beat your competitors and tactics that will ensure the execution of this strategy.

Competitive Advantages Strategy

In the post titled The Quickest Way to Transform Your Small Business Results, we conclude that:

Business strategy is a plan of actions for achieving the set of goals that our business have. To implement a strategy it is necessary to have more tactics. For example, if your strategy is to build long-term business relationships with your customers, the tactics that you can use for implementing them can be to provide additional services to regular customers, training, long-term contracts with lower prices, etc. Each tactic has specific activities that must be completed in a specific period of time, and responsible persons for the completion of those activities.

So, you must prepare a strategy for achieving that competitive advantage. This strategy will have tactics that you will use to execute the strategy. Each tactic will contain all the necessary actions that you must take.

Related: Why Strategic Marketing Choices Matter for Business Performance and Profitability

Define Tactics to Achieve Competitive Advantage

For example, each business sells some value to its customers. You will have to find out how that value will be better than the competitors and how to distribute that value in a better way than them. It will be your competitive advantage. For example, your tactics can be:

• Offer value at a lower price,
• Provide a faster delivery time,
• Provide superior quality,
• Or provide better service.

Related: Learn The Basic Principles of Achievements to Achieve More Things

Define Activities for Each Tactic to Gain Competitive Advantage

For each tactic, you must define and delegate activities that you must implement for those tactics, and through them, you will enable the execution of the strategy. For example, if we take faster delivery tactics, activities could be:

• Analysis of the production process,
• Analysis of the supply chain,
• Also, an analysis of distribution channels,
• Detection of all time that doesn’t add value,
• Elimination of all time that doesn’t add value…

This is just an example. In reality, the list will be much longer and more comprehensive.

Know Your Competitors to Gain Competitive Advantage

When building a competitive advantage, the competition would be your milestone in building such an advantage.

Entrepreneurs must always look at the competitors. It would help if you answered the following questions:

Related: 5 Killer Growth Strategies That Helped Me To Grow My Business

• What are the key competitors?
• What is the value that they offer?
• Or, what is their behavior?
• What do they do?
• How do they do what they do?
• How do their customers accept their offers?
• Is there something that is lacking in their offer?
• Can you add in your offer everything that was missing in their offers?
• What is the comparison between you and them?

This will help you discover whether your competitive advantages are strong enough to overcome the competition and benefit your business.

When it comes to competition, you must prepare yourself so that the competition will respond with their strategy, tactics, and actions for your strategy. Their purpose will be to begin reducing your competitive advantage. Because of that, the competition will require constant modification of your strategies, tactics, and activities to ensure your competitive advantage.

Is your competitive advantage strong enough? You will know when you make the analysis. Do you have a strategy for achieving a competitive advantage?

How to Build Sustainable Competitive Advantage?

4 Key Criteria to Build Sustainable Competitive Advantage

One common sustainable competitive advantage framework is the VRIO framework, as an internal analysis technique to analyze your industry and understand its competitive dynamics to use your unique resources for building long-term competitive advantage.

Jay Barney developed this framework in 1991. The author identified four attributes that firm’s resources must possess for sustained competitive advantage and called his original framework VRIN. In 1995, in his later work, he introduced the VRIO framework as an improvement of the VRIN model. The difference is in organization (O) instead of non-substitutable (N).

This competitive advantage framework is acronym from:

• V – Valuable: offering tangible benefits and real value to customers.
• R – Rare: being one-of-a-kind or challenging to replicate.
• I – Inimitable: being virtually impossible to imitate or replicate.
• O – Organization: organization, along with its processes and systems, should align to optimize resources for highest productivity.

5 Steps to Create a Sustainable Competitive Advantage

1. The first step is to identify and define your target market and customer base. It is important for you to know your target market and who is in the central of competitive battle for market share.
2. Next, conduct a competitive analysis and identify your competitors’ strengths and weaknesses. In such a way you will know where you need to improve and where to attack your competitors.
3. Now, you can conduct SWOT analysis to identify your strengths, weaknesses, opportunities, and threats on which you can base your competitive advantages strategy.
4. Identify and develop a clear and compelling value proposition. You competitive advantage must base on strong value proposition.
5. Leverage customer feedback to identify what your customers like and value most about your business. In such a way you can improve your value proposition.