How to Identify a Business’s Competitive Advantage

Revenue and profit are life-or-death questions for any business. Managers always need to find ways to raise revenue and plan costs. One way to do this is to make the company's competitive advantages clear. So in practice, what is competitive advantage? What types of competitive advantage are there, and how do you identify yours? Find out in the article below from Mona Media today.

The concept of competitive advantage

Competitive advantage is one of the most-used terms in strategic management. To understand it properly, let's first look at what competition means.

What is competition?

Competition shows up not only in business but across life. It is the rivalry between two or more individuals or organizations. The purpose of competing is to establish your position against rivals. Fair competition is generally encouraged because it raises value and pushes both sides to improve.

What is competitive advantage?

Competitive advantage is the standout strength a company has that other organizations don't. It leaves an impression on target customers and the public, making it easier for the company to reach more of its business goals.

Competitive advantage can be built through research, learning and effort. It creates advantages in cost and differentiation, bringing long-term and short-term benefits to the company or organization.

Types of competitive advantage

Competitive advantage can be classified in several ways, such as brand advantage, switching costs and network effects. But the most common classification is the following:

Low-cost advantage

The low-cost advantage is known in English as Cost Advantage. Put simply, the company works to offer customers products and services at a lower cost than its competitors.

This competitive advantage usually works well with price-sensitive customers. It is also quite effective for budget or low-priced goods.

Differentiation advantage

In English, Differentiation Advantage is the term for this kind of advantage. Here the company works to offer products and services with special benefits that impress customers and delight them, which competitors don't have.

Ways to identify competitive advantage

Do you see the importance and meaning of competitive advantage? So how do you identify it precisely? Many sources describe different competitive models. Still, managers should identify their company's advantage using 3 bases: the company, the competitors and the market.

Based on the company

Analyzing the company is the basis for managers to establish their current position in the market. It also means assessing current potential and capabilities, and the opportunities in the near future.

The urgent task here is to assess the company's current capabilities accurately. To do this, build a 4-column SWOT table covering strengths, weaknesses, opportunities and threats. See the detailed guide to each part of the company analysis table below.

Creativity is also a basis you shouldn't skip when identifying competitive advantage. It means doing new things and giving customers special experiences. This makes it easy to excite consumers and win their affection.

Based on competitors

A very effective way to pin down your competitive advantage is to analyze your competitors' weaknesses. Gather information about their business, finances, marketing and how customers feel about them. From that, managers can see clearly the weaknesses and limits competitors haven't overcome.

Based on market demand

Market demand is the key factor that decides whether a company survives. Business exists to serve customers' needs as well as possible. So every change or choice of competitive advantage needs to follow customers' wishes, traits and requirements.

Some useful suggestions for identifying competitive advantage from market demand are:

• Pin down the needs, wants and insights of the target customers who come to the products and services your company sells.
• Understand customer behavior, shopping habits and spending ability in each buying situation.
• Work to deliver a better user experience. In particular, make an effort so customers clearly see how you differ from competitors.

Tips to strengthen your company's competitive advantage

To help companies and organizations operate effectively, Mona offers some tips for strengthening competitive advantage. Managers should stay close to the product, the customer, differentiation and user experience.

Work to improve product and service quality

Your company may sell products or provide services. Either way, revenue and profit depend heavily on the value you deliver to customers. So the way to strengthen competitive advantage is to keep improving the quality of the services and products you provide.

Suggestions for improving product and service quality include:

• Always care about the uses and features your product gives customers.
• Work on packaging and labels so they match changing customer trends.
• Offer shopping experiences through discount vouchers, promotions or combo deals.
• For services, keep creating new experiences so customers feel the organization's effort.

Create valuable ways to reach customers

Instead of relentless ads and invitations to try your products or services, choose more creative approaches. These are meaningful activities that show you care about customers. It could be a small birthday gift, a card or even a discount voucher.

Look for strategic alliance partners

A company can team up with other organizations or businesses to build partnerships. The two sides can exchange customers. Combo service packages also give customers a better experience. For example, if you offer travel and resort services, partner with shuttle services or restaurants.

This article covers an interesting topic, competitive advantage. With this knowledge, Mona Media believes you now understand clearly what is competitive advantage as well as the traits and value they bring to a business. At the end of the article, there are also tips for strengthening your company's competitive advantage.

See more: 

• 7 steps to analyze competitors in business
• The market analysis process you need to know