Business Strategies

What is a competitive advantage and what effect does it have on businesses?

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Competitive advantage means gaining the desired position in the market, which results in more customer acquisition and profitability. Competitive advantage makes a company’s brand or products differentiate from competitors’. 

A simple example to better understand the competitive advantage 

To better understand the importance of competitive advantage, suppose 3 fruit sellers have set up their business near your place of residence and sell fruits with similar quality. While each of these fruit shops is expected to have 33 percent of the local market, you can see that one of them actually owns 50 percent of the market share. 

It is easy to conclude that one of these fruit shops has a comparative advantage and therefore has been able to attract more customers. Simply put, this concept is the same as the competitive advantage. For example, if all three fruit sellers start their business at the same time, the one who sells its fruit at a lower price will attract more customers. 

Three issues for a brand’s competitive advantage 

A brand can create a competitive advantage when it considers these three issues: 

First: knowing the target market 

That is enough knowledge of the market and those who are going to use our products or services. With a good understanding of the target market, it becomes clear what features customers expect from our product or service. Using a strategy that responds well to this customer’s need or expectation will lead to a competitive advantage. 

Second: competition 

Every business has to answer these two important questions: The first question: who is currently in the market and is among the competitors, who will be added to this competition in the near future? And the second question: what is the branding strategy and marketing of competitors? what is their product and how much is their price? 

Third: special sales offer 

Special sales offer is usually the main tool to create a competitive advantage and differentiate a business from similar businesses. Usually, a special sale offer selects one product from another for the customer. The special sales offer must be fully recognizable to both the business and the customer in order to be able to create a competitive advantage. 

Types of competitive advantages 

Although the concept of competitive advantage is generally the same, it is possible to achieve it through different strategies in different industries. In general, we can define three types of strategies that businesses can use to achieve a stable and sustainable competitive advantage. 

Three strategies to achieve sustainable competitive advantage 

Cost Leadership: This strategy seeks to reduce costs as much as possible by maintaining product quality at a level that can beat their competition. 

Costs leadership is achieved by continuously improving operational efficiency (increasing employee productivity or outsourcing work to a place where costs are lower) or using the advantage of expanding the business scale (the wider the business, the lower the costs). 

Differentiation: The advantage of differentiation arises when a product or service differs from the product or service of competing companies and has more benefits for the customer. Differentiation makes the business provide a special offer and achieve a better position in the market. The special advantage of products or services can include better quality, faster and better delivery, better features. Differentiation is usually achieved through innovation. 

Focus: Focus strategy, also known as segmentation strategy, means targeting a specific group of customers instead of targeting everyone. This strategy can only be applied when a correct understanding of the target market has been established and sufficient data and information on customer behavior and needs have been obtained. 

In the past, this strategy was used by smaller companies to compete with large companies. However, now with the expansion of businesses and especially the creation of new ways of finding and connecting with customers by the Internet, even large companies can use this strategy. Amazon, Facebook, and Google, for example, use the same method to differentiate between their products and services. 

In the real world, competitive strategies are not limited to these three. Strong brand, much capital, extensive network, ideas and innovations, etc. are all strategies that today’s businesses use to create a competitive advantage. 

The effect of  brand, financial backing, and network effect on competitive advantage 

Branding 

Branding is about keeping customers loyal to the company’s services and products. Brand is one of the most important competitive advantages for any business. An effective brand image strategy makes customers feel loyal to the brand of a business and even pay more to use that brand. One of the best examples of this is Apple, which has gained a significant competitive advantage by branding. 

Financial backing 

Some companies enter the market with huge capital and strong financial backing, and by offering special offers or low prices of their products and services, they upset the market balance. This strategy can lead to a competitive advantage because in such a situation, competing companies will not be able to present the same offer, and as a result, part of their equity will inevitably belong to the new company. 

Network effect 

This strategy is usually applied to goods or services that are directly affected by the number of consumers. For example, the most competitive advantage of successful social networks is the use of a wide range of users. The reason is that many people and their friends are on a particular social network. 

Creating barriers to competitors and achieving competitive advantage 

Difficult entry and tough competition; companies operating in a field usually try to use even intensify the natural and artificial barriers on the newcomers’ way to further stabilize their position. For example, these companies usually, through governments, suppliers, royalties, and so on try to prevent new competitors’ entry 

Investigate the competitive advantage in several large companies 

For example, Google’s most important competitive advantage is its search engine. Google’s search engine has provided it access to a wide range of special information, and it can gradually expand its business, market position, and, with the help of innovation and networking, become one of the most powerful companies in their field. 

Facebook: Facebook’s biggest competitor was probably Google Plus, but its popularity and number of users were by no means comparable to Facebook. Facebook’s most important competitive advantage is its billions of users, which has been achieved with the help of innovation, advertising, the right business model, and personalized content. 

LinkedIn: LinkedIn is very different from social media, and instead of targeting all people, It targets working people and its competitive advantage is achieved through its easy and effective consensus network. 

Last word 

Smart pricing strategy, differentiation, branding, marketing, asset all serve to create a brand or produce a different product or service that is superior to other competitors. The goal of all of these strategies is to ultimately achieve a competitive advantage that will give access to a wider range of customers and thus achieve greater profits than the average market profit. 

Why should all businesses have a strategy? A business that lacks a realistic strategy to achieve the goal is actually based on dreams and aspirations! This means that the entrepreneur will probably start moving by considering the final position of his company and hopes that things will proceed naturally without having a clear plan to reach that position. read more in this article ” What is a business strategy and why should it be given special attention? “

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