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What is Competitive Advantage?

What is Competitive Advantage?

Traditionally, Competitive Advantage is described as the trait of allowing an organization to outperform its rivals on the same market platform. Competitive advantages depend upon a variety of factors including structuring of costs, the product quality, branding, the distribution network, intellectual property, and customer service.

In a more simple way,  Competitive Advantages are conditions which allow the productive entity to generate more sales or superior margins compared to its market competitors. When the competitive advantages are sustainable, it is difficult for the rivals to neutralize the advantage.

To create a competitive advantage, you’ve got to be clear about, firstly, What is the real benefit your product provide? You must know not only your product’s features but also its advantages how they benefit your customers. Secondly, Who are your customers? What are their needs? You’ve got to know exactly who buys from you, and how you can make their life better. Thirdly, Have you recognized your real competitors? That’s more than just similar companies or products. It includes anything else your customer could do to meet the need you can fulfill. These three determinants got to be cleared by an organization to create a competitive advantage.

The two main types of competitive advantages are comparative advantage and differential advantage.
A firm’s ability to produce a good or service more efficiently than its competitors, which leads to greater profit margins, creates a Comparative advantage.  And, a Differential Advantage is when a firm’s products or services differ from its competitors’ offerings and are seen as superior.

A country can also create competitive advantage.

Why Chinese products are so cheap and at a reasonable quality level? It can do this because its standard of living is lower, so it can pay its workers less. It also fixes the value of its currency, the yuan, at a value lower than the dollar. China uses cost leadership. It’s called national competitive advantage or comparative advantage.

Data Source: Investopedia

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