By definition, competitive advantages are advantages that a company has over its competitors, allowing it to generate greater sales or margins and/or retain more customers than its rivals. The more sustainable the competitive advantage, the more difficult it is for competitors to neutralize that advantage.
The main methods of competitive advantage boil down to comparative (cost) advantage, differential advantage, defensive strategies and alliances.
Comparative advantage – The ability to produce the same quality of good or service at a lower cost than competitors.
Differential advantage - When a firm's products or services differ from its competitors and are viewed as superior by customers.
Defensive strategies – Allows business to further distance itself from competition by maintaining the competitive advantage it has created.
Alliances – Competitive advantages can be gained through strategic alliances with other businesses at the expense of other competitors.
Given the standard and widely-recognized methods of competitive advantage in the marketplace, there are still many different ways in which companies can get a leg up on the competition. Here’s a look at some of the keys to a competitive advantage for modern businesses:
Extend your competitive advantage by predicting future trends, adapting to your industry, utilizing technology, driving product innovation and new ways to outperform rivals.
Learn from competition and customers.
Use your competition as a resource and learning tool to assess their business model and strategies. Gain and measure in-depth customer knowledge and insight via social media tools and other information resources.
Create a dynamic product line.
If your product or service is a single item with no planned follow up or extension, you have created a weak position.
Look for a dramatic cost improvement.
A breakthrough in technology, manufacturing or a new revenue model can create dramatic advantages.
Proven leadership with inside relationships.
Great people are always a competitive advantage, which is especially true if your leadership has proven industry connections and insider information. Build a team that is difficult for competitors to duplicate.
Create market authority.
If what your business does is difficult to achieve, it’s a true advantage. Build industry authority by being great at what you do over a long period of time.
Always be active with existing customers.
It’s one thing to say your listen to your customers and strive for retention. But if your company actively learns from customers and never stops developing, creating and adapting along with them, you would be ahead of most other companies in the world.
Brand identity and the ‘right’ endorsement.
Even if you have comparable products or services as a competitor, your brand identity in the marketplace and the right celebrity or expert endorsement creates an advantage that can’t be duplicated.