Key Takeaways Competitive advantage is what makes an entity's products or services more desirable to customers than that of any other rival. Competitive advantages can be broken down into comparative advantages and differential advantages. Comparative advantage is a company's ability to produce something more efficiently than a rival, which leads to greater profit margins. A differential advantage is when a company's products are seen as both unique and of higher quality, relative to those of a competitor.
How do I know if a company has a competitive advantage? How can over increase their competitive advantage? Why do larger companies tend to have competitive advantages? How is competitive advantage different from comparative advantage? Compare Accounts.
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Terms Comparative Advantage Comparative advantage is an economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners.
What Is the Absolute Advantage? Absolute advantage allows an entity to produce a greater quantity of the same good or service with the same constraints than another entity. Generic Brand A generic brand is a type of consumer product that lacks a widely recognized name or logo because it typically isn't advertised.
What Is a Price Maker? A price maker is an entity that has the power to dictate the price it charges because there are no perfect substitutes for the goods it sells. Monopolistic Competition Definition Monopolistic competition characterizes an industry in which many firms offer products or services that are similar, but not perfect, substitutes.
What Is a Monopoly? A monopoly is the domination of an industry by a single company, to the point of excluding all other viable competitors. Listed below are some pertinent questions regarding financial strength that may be addressed: Is there an inverse or direct relationship between per unit cost and production? What is your current debt? Long-term debt? Plan for future major expenditures? What is your expected rate of return? What credit terms do you offer?
Are they too generous? Some pertinent questions may be: What is the cost of materials? Is your source of suppliers dependable? Does the quantity of supplies available fluctuate? If so, do prices fluctuate? Can you use substitute materials?
Questions you may want to address are: Is your plant or office size adequate? Is your equipment critical? Does it need to be replaced? Is it flexible? Do your employees have the education and training they need? How do your compensation and benefits compare to the industry norm? Do you reward exceptional performance? How does your turnover rate compare to the industry norm? How important to you is growth? Market share? Maximizing profits?
How much do you want market share to grow in the short run? In the long run? And profits? Eliminate those opportunities that are mismatches. Analyze the remaining opportunities using one or more of the following approaches: Total profit approach Return on Investment approach Expected value approach Boston Consulting Group approach The measurement criteria used to evaluate each of these opportunities should include both quantitative and qualitative components.
Quantitative components would summarize the objectives of the firm and include items like sales, return on investment and profit targets. Qualitative components would consist of issues summarized to address the following types of questions: What kind of business does my firm want to be in? What business should I exclude? What weaknesses should I avoid? What strengths and trends should I build in? Defining the Process In simple terms, the process of gaining a competitive edge consists of several steps: Discovering what your capabilities and resources are in your target market.
Finding a place in the market where you will be able to position those capabilities. Developing a strategy to capture and maintain your position. Implementing and fine tuning your strategy. To improve the odds that successful competitive strategies are developed and implemented, the following factors should be considered: Personal Strengths. Company Strengths. Market Position Competition Market Trends There is no single factor which dictates what your firm needs to do in the market.
Factors you may wish to consider in improving your operational efficiency would include the following: Try to match all your business activities with real and distinct customer needs. You will need to identify all of your customers needs and align or adjust all of your activities to ensure customer satisfaction.
If you are currently expending time and resources for activities which do not correspond to specific customer needs, reduce or eliminate these activities entirely. This reduction may involve outsourcing and worker elimination, an investment in more state-of-the-art products to improve efficiency, or a conversion from manual to automated systems for inventory or billing.
Develop job descriptions providing for cross-functional responsibilities which requires everyone to be responsible for customer service. Suppose you wanted to lower production costs. Each of your departments would need to work with one other as a team to identify ways to simplify processes and lower costs. Develop a screening process for suppliers, distributors and other vendors that ensures cost efficiency and timely transfer of products or services to your customer. It requires that you outperform your competition as follows: Respond rapidly to changes in market demand by adjusting your product or service.
Ensure that each customer is provided with a quality product that has the reliability and consistency to satisfy their needs. Control production costs to provide your customers with your product or service at a competitive price. If your firm wishes to gain a competitive edge through customer service, the following factors should be considered: Flexibility. Try to be flexible in delivering your products or services to your customer. Can you deliver different assortments to different shoppers?
Relationship selling building long term relationships with your customers should be encouraged. Ensure that an infrastructure exists to provide a customer service information system capable of collecting and analyzing customer data to be used by both management and employees for making intelligent customer service decisions.
If you want to gain your competitive edge through customer service, you must outperform your competition in the following areas: Make sure your product is tailored to the individual needs of your customers.
At the same time, these companies can attract the best talent. Do you have another strategy to add to this list? Leave your suggestions in the comments below. Co-Founder, Web Profits Sujan is a leading expert in digital marketing. He is a hard working and high-energy individual fueled by his passion to help people and solve problems. He is the co-founder of Web Profits , a growth marketing agency, and a partner in a handful of software companies including Mailshake, Narrow. Blog Marketing Small Business Resources.
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