Differential advantage

From CEOpedia | Management online
Differential advantage
See also

Differential advantage means simply that customers have a reason for preferring that brand to competitors' brand. Sustainable means an advantage that is not easily copied by competitors. That is, the business creates barriers to entry, for example by developing in outstanding reputation or image for quality, service or reliability. Brands like Coca-Cola, Apple are successful brands because they have such sustainable differential advantages invariably result in superior profit and market performance. Successful brands are always brand leaders in their segments.

Two implications of this definition can be noted[1]:

  1. First, brands are only assets if they have sustainable differential advantages. If they are negative or neutral brands like Woolworth's, or the Austin Maestro, they should not appear on the balance sheet, however much is spent on advertising. Any profit these brands achieve is trough the brand's differential advantage.
  2. Second, like most other assets, brands depreciate without further investment. If management fails to reinvest in enhancing quality, service and brand image then the brand will decline. Hoover, Singer are examples of brands which were once successful as to be almost generic names for the product, but which have since declined or disappeared due to lack of investment.

Sources of differential advantages

There are three areas in which an organization can seek a differential advantage[2]:

  • Product

Product- based differential advantage is one in which the company has a unique technological capability or clinical expertise that allows it to establish a competitive position. In health care, the establishment of a product-based differential advantage is difficult. The pace of technological change is such that the advantage goes to competitors who have the resources to acquire a new technology.

  • Market

A market-based differential advantage is available to those who focus on a particular market segment. For example, in th Cleveland, Ohio metropolitan area, Rainbow Children is recognized as a leader in pediatric care. While other competitors also provide pediatric service, the differential advantage rests with Rainbow Children and their narrow market focus.

An organization that is highly efficient, either through the use of technology or with tight management control of expenses, can achieve this advantage. Increasingly in health care, as the marketplace focuses on the cost of care, a cost differential advantage is becoming a strong competitive position[3].

Competitive forces and advantages

Effective competitive analysis will take into consideration the search for and need for differential advantages. Differential advantages are those factors in which a particular organization excels or has the potential to excel over competitive organizations. A differential advantage is different from a competitive advantage in that a differential advantage does not have to meet the four conditions required for having a competitive advantage. A differential advantage exists whenever one firm's strength exceeds that of its competitors along some dimension. Differential advantages may be found in the following areas[4]:


  1. L. Butterfield 2009, p.3-6
  2. E.N. Berkowitz 2004, p.47-48
  3. S.G. Hillestad, E.N. Berkowitz 2013, p.27-28
  4. B. Wrenn, P.M.Mansfield 2014, p.112-113


Author: Karina Stefańska