Differential advantage

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. 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:

• 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.

• Cost

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.

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:

• production
• technology
• natural resources
• marketing
• management

Examples of Differential advantage

• Superior Quality: Many brands are known for their superior quality products, such as Apple and Mercedes Benz. Apple products are known for their innovative design and reliability, while Mercedes Benz is known for their luxury vehicles.
• Unique Features: Some brands are known for having unique features not seen in competitors’ products. For example, Samsung is known for its curved displays, while Tesla is known for its electric cars and autopilot features.
• Reputation: Brands that have built a strong reputation for quality, service, or reliability can be said to have a differential advantage. For example, Nike is known for its high-quality shoes and apparel, while Amazon is known for its excellent customer service.
• Brand Loyalty: Brands that have been able to develop a loyal customer base can be said to have a differential advantage. For example, Coca-Cola has been able to maintain its brand loyalty over the years due to its iconic taste and brand identity.
• Cost: Some brands are able to offer their products at a lower cost than their competitors, giving them a differential advantage. For example, Walmart is able to offer its products at a lower cost than many of its competitors, allowing them to attract more customers.

Limitations of Differential advantage

Differential advantage has some limitations. These include:

• High cost of maintaining a differential advantage: Establishing and sustaining a differential advantage can be expensive. It requires considerable resources and effort to continuously create and maintain a unique reputation and position in the market.
• Limited appeal to the public: Differential advantage is based on the idea that a product or service is unique and different from competitors. However, this may not always appeal to the public and may not be the right approach for certain types of markets or customers.
• Difficult to copy: Differential advantage is a difficult strategy to copy. Competitors may try to imitate a company’s strategies, but it is often difficult to recreate the same appeal and success of the original brand.
• Time consuming: It takes time to build a successful brand and differential advantage. Companies must invest in resources and effort to create a unique identity and presence in the market.

Other approaches related to Differential advantage

• Differentiating price: By offering a product or service at a lower price than competitors, businesses can create a differentiating advantage, making them attractive to customers.
• Differentiating quality: A business can create a differentiating advantage by offering superior quality products or services. This could be through better materials, higher customer service levels or more efficient processes.
• Differentiating customer service: By offering superior customer service, businesses can create a differentiating advantage. This could include providing more tailored services for customers, faster response times or improved after-sales support.
• Differentiating design: Businesses can create a differentiating advantage through the design of their products or services. This could include innovative features, improved ergonomics or a more aesthetically pleasing design.
• Differentiating brand: Creating a unique and recognizable brand can provide businesses with a differentiating advantage. This could include using a memorable logo, slogan or color scheme.

In summary, businesses can create a differentiating advantage through a variety of approaches, such as differentiating price, quality, customer service, design and brand. These approaches can help businesses to stand out from the competition and attract more customers.

Footnotes

Differential advantage — recommended articles

Imitator strategy — Sustained competitive advantage — Market follower — Competitive rivalry — Basic product — Competitive product — Flanker brand — Market niche strategy — Brand leader

References

• Berkowitz E.N. (2004), Essentials of Health Care Marketing "Jones & Bartlett Learning", Toronto.
• Butterfield L. (2009), Excellence in Advertising "Routledge", London.
• Hillestad S.G., Berkowitz E.N. (2013), Health Care Market Strategy: From Planning to Action "Jones & Bartlett Publishers", New Yersey.
• Wrenn B., Mansfield P.M. (2014), Marketing Planning Guide, "Routledge", New York.

Author: Karina Stefańska