Competitive advantage is achieved when company acquires leading position on the market in relation to competitors. It is a relative measure of success on the market. It allows managers to offer customers better products or services corresponding to their needs and expectations. This is reflected in higher product quality, lower price and better service for customers than can be offered by competitors.
Types of advantage
Achieving this advantage allows to increase the degree of operational independence from its competitors. This in turn means the extension of freedom to manipulate the various instruments in such a way that allows the company to increase the financial effects of activity on the market. There are three basic types of competitive advantage:
- Qualitative superiority
- Price advantage
- Information advantage
Includes the operation and marketing tools: product quality, packaging, distribution, services and selling conditions. By providing higher or different quality than the competitors, and adapting it to the preferences of customers the company can achieve superior quality (and in consequence high bargaining power).
Basis for achieving this advantage are the marketing tools that are directly related to the financial interest of buyers. This requires that the price is formulated on the lower level. Other instruments (e.g. promotion) should also be better than used by competitors.
It is associated with the processes of creating of information. It has two functions:
- it is connected with the company informing the buyers of higher (different) level of quality of its products and activities such as customer service, and also lower prices and larger benefits than their competitors,
- it is aimed at shaping the preferences of buyers more effectively than their competitors at a given level of quality and price of products or services - which tends to induce buyers acceptance of the offer at a given quality and price.
The role of competitive advantage
If the company reaches a quality advantage it has increased freedom to manipulate prices in the market. By obtaining a price advantage is has increased freedom in the handling of instruments not directly connected with price. Obtaining information gives company instrument to effectively shape the preferences of buyers and to obtain their approval for company offer.
The company after reaching a competitive advantage usually seeks to increase its size. With the increase of competitive advantage increase independence in the handling of instruments whose are important in enlargement of the financial effects of activity on the market.The type and size of the competitive advantage determines the degree of company and its management permanence. Reached by the company this advantage promotes the use of an integrated set of marketing instruments.
The purpose of any business is to obtain and maintain a competitive advantage because it allows to achieve more profit than the average in the industry.
- Porter, M. E., & Millar, V. E. (1985). How information gives you competitive advantage
- Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of management, 17(1), 99-120.
- Argote, L., & Ingram, P. (2000). Knowledge transfer: A basis for competitive advantage in firms. Organizational behavior and human decision processes, 82(1), 150-169.