Competitive advantage is when a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rivals. The goal of much of business strategy is to achieve a sustainable competitive advantage.
There are two main types of competitive advantage. Cost advantage and differentiation advantage. A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost(cost advantage), or deliver benefits that exceed those of competing products (differentiation advantage). Therefor a competitive advantage enables the firm to create superior value for its customers and superior profits for its self.
Cost and differentiation advantages are known as positional advantages since they describe the firm position in the industry as a leader in either cost or differentiation.
A resource-based view emphasises that a firm utilises its resources and capabilities to create a competitive advantage that ultimately results in superior value creation.
The following diagram combines the resource based and positioning views to illustrate the concept of competitive advantage.
Resources and capabilities
According to the resource-based view in order to develop a competitive advantage the firm must have resources and capabilities that are superior to those of its competitors. Without this superiority, the competitors simply could replicate what the firm was doing and any advantage quickly would disappear.
Resources are the firm specific assets useful for creating a cost or differentiation advantage and that few competitors can acquire easily. The following are some examples of such resources.
Patents and trademarks
There are a high number of apples own private patents and innovative designs that licences out to obtain extra profit/ Installed customer base
Apple has a wide customer base and a very well established brand Reputation of the firm
Apples reputation is of a high quality product that is very reliable which offers superior usability as opposed to windows and other competitors.
Capabilities refer to the firm's ability to utilise its resources effectively. An example of capability is the ability to bring a product to market faster than its competitors. Such capabilities are embedded in the routines of organisation and are not easily documented as procedures and thus are difficult for companies to replicate.
The firm's resources and capabilities together form its distinctive competencies. These competencies enable innovation, efficiency, quality and customer responsiveness, all of which can be leveraged to create a cost advantage or a differentiation advantage.
Apple uses a differentiation strategy that tells the company development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition. The value added by the uniqueness of the product may allow the firm to charge a premium price for it. The firm hopes that the higher price will more than cover the extra costs incurred in offering the unique product. Because of the product's unique attributes, if suppliers increase their prices the firm may be able to pass along the costs to its customers who cannot find substitute products easily.
Apple has used this matrix to identify the strategy needed. Apple have a product that is unique in its style and concept but still aim at a broad target this means that apple have employed the use of the differentiation strategy. However using this strategy may also have drawbacks for apple, The risk is with a differentiation strategy may include imitation by competitors and changes in customer tastes. Additionally, various firms pursuing focus strategies may...