Chapter8: Strategic Analysis: Understanding A Firm’s Competitive Environment
Section8.6: Competition, Strategy, And Competitive Advantage
Problem 2CC: When does a firm have a competitive advantage over its rivals?
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Which are the three types of competitive advantage?
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Step 1
In business, competition is one of the major problems that entrepreneurs face when trying to make a profit. The competitive advantage that a business occupies in the market is that it leads to more users and profit. This is what makes a brand or product or service better than other competitors.
Step 2
Following are the three types of competitive advantage:
- Cost leadership: It is a strategy that produces the same quality as a business competitor but trades at a lower price. This can be achieved by continuously improving operational efficiency and reaping the benefits of the economy.
- Differentiation: A differential advantage is when the product or service provided by the business offers diverse assistance than the products offered by the competitors. This includes defining the offer's unique position in the market by describing the unique benefits it offers to the target group. This unique position can be attributed to high quality, excellent delivery, additional features or any particular attribute of the product or service.
- Focus: This is also called the segmentation strategy, which focuses on the pre-defined segment of the focus strategy. This includes a better understanding of the target market and using the data for the best offer tailored to the needs of the target market. This strategy was initially used by small businesses to compete with big companies. With the advent of the Internet and micro-targeting, even big businesses such as Amazon, Facebook, and Google are using the focus strategy to differentiate themselves from others.
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