In this modern hypercompetitive marketplace, a company must be a powerful competitor to survive. A company must possess a powerful strategy in order to become a powerful competitor. But what makes a good strategy for the company?
A good business strategy would be that to attain a competitive advantage over other competitors. So what is a competitive advantage? And how company can be able to have a competitive advantage over other competitors? This essay would now discuss what a competitive advantage is and how a company can build a competitive advantage over other competitors in the same industry by using two furnishing stores, Ikea and Courts as examples.
A company is said have competitive advantage over its competitors when the company earns profits that are above the normal average in the industry where it competes.
Types of competitive advantages
According to Michael Porter, there are two basic types of competitive advantage, namely:
Cost Advantage- A cost advantage is the ability of the firm to deliver the same product or services at lower cost than competitors. This can be achieved through using economies of scale, production efficiencies, low labor cost or better access to raw material and etc.
Differentiation advantage- A differentiation advantage is the ability of the firm to deliver products or services that are different from the product mix of competitors. Due to the added costs in achieving differentiation for the product or services, differentiated products or services are often marketed at premium prices.
Model of Competitive Advantage
Competitive advantage derives out of value a firm is able to create for its buyers that exceeds the firm's cost of creating it. Value is what buyers are willing to pay, and superior value stems from offering lower prices than competitors for equivalent benefits or providing unique benefits that reduce the price sensitivity of the buyer. Value can be achieved though utilizing the firm resources and capabilities that would then become core competencies of the particular firm. The core competencies created will allow the firm to position either as a cost leader or differentiation leader in the industry and this will in turn create value for the buyers which will become the firm competitive advantage in the industry.
Resources and capabilities
A firm needs to possess resources and capabilities that are better than its competitors in order to develop a competitive advantage over them. Any competitive advantage will disappear if the competitors can easily imitate what the firm was doing.
Resources are assets of the company that its competitors cannot easily acquire. Some examples of a firm resource include the firm's reputation, loyal customer base, patent and trademarks and strong branding.
Capabilities refer to the ability of the firm to make the most of its resources. One good example of the capabilities of a firm is the ability to carry out a successful marketing campaign.
The combination of both capabilities and resource will become the distinctive competencies of the firm. The competencies will allow the firm to achieve innovation, efficiency, quality and customer responsiveness. The core competencies created will allowed the firm to position either as a cost leader or differentiation leader in the industry
Cost advantage and differentiation advantage
A firm will position itself as a cost leader or differentiation leader in the industry based on the distinctive competencies formed using its resources and capabilities which become the firm competitive advantage against other competitors.
Value is created by firm through performing a series of value creating activities that Porter identified as the value chain. The value chain comprises 4 supporting activities (procurement, technology development, human resource and firm...