Competitiveness determines the success or failure of companies. In order for a company to survive in any competitive market, it must outperform its competitors, and for this it is absolutely necessary that it create and develop a sustainable competitive advantage . The concept was developed in 1980 by Michael Porter, considered the father of corporate strategy.
What is a competitive advantage?
A company has a competitive advantage when it has a unique and sustainable advantage over its competitors, and this advantage allows it to obtain better results and, therefore, to have a superior competitive position in the market.
There are many sources to generate this type of advantage, such as the location of our company, quality, innovations in the products we manufacture, the service we offer or lower production costs, among others.
Companies may have certain advantages over other companies, but for an advantage to be considered a competitive advantage, it must meet the following requirements:
To know that we are really facing a true competitive advantage, it is necessary that it allows the company to obtain better results (sales, profitability, customers …) than its competitors.
It is of utmost importance that it is sustainable, that is, that it can be maintained for a certain time. For this to happen, our advantage must be built on a true strength of the company, and not on some specific circumstance.
Hard to imitate
If our advantage is supported by features that are easily imitated by our competition, they will be copied in the short term and we will no longer have an advantage over them.
As we well know, markets are not static and are in a continuous process of transformation, therefore, the conditions that allowed a company to have a competitive advantage can change. Furthermore, these continuous changes in the market may cause our competitors to have a greater capacity to imitate our advantage. If this were the case, and this usually happens very frequently, as I mentioned earlier, markets are dynamic, we would have lost our privileged situation.
Therefore, we must always work to maintain our advantage, and obtain the highest possible return. In addition, we must always be in search of new advantages, to prevent our competitors from overtaking us, and losing our competitive position. It is a process that must have continuity in time and must never stop.
Types of competitive advantages
There are many characteristics on which to build competitive advantages, but all of them can be classified into two main groups:
-Cost leadership: The objective is to follow a strategy that allows you to reduce costs without compromising the quality of the product offered. In this case, the company manages to obtain the lowest production costs than its competitors, in order to offer the lowest price on the market. There are always and will be customers, whose main purchasing decision variable is the cheapest price, ignoring other attributes such as quality or service.
-Differentiation: Having features that competing products do not have allows you to raise the sale price, obviously as long as they are appreciated and valued by customers. It is useless to add unique features to our products if there are no customers willing to pay for them.
As you have seen, in short, you are either different or you are the cheapest.
Examples of competitive advantages
There are many examples of competitive advantages, such as: having better products than those of the competition, producing products at a lower cost, having a value brand, offering impeccable customer service, technological innovation that streamlines processes, having patents, a talented team, etc. Below you can see two real examples:
We could say that one of the main elements of Harley Davidson’s competitive advantage is its brand image and the differential experience it offers its customers through the HD experience (Harley Davidson experience). The American motorcycle manufacturer manages to create an emotional bond with its customers, since they not only look for good motorcycles, but also look for a 360 ° brand experience. This aspirational brand experience makes its clients identify with values of freedom, adventure and individual independence; And all this, they have managed to make it tangible in one product: their motorcycles.
In the article I mentioned that all competitive advantages can be grouped into two types: the advantages based on differentiation, such as the case of Harley Davidson that we have just seen and, the advantages based on costs. In the following example, we are going to see a company whose competitive advantage is sustained by following a cost leadership strategy. And it is none other than the Swedish multinational furniture company Ikea.
Ikea bases its competitive advantage on a cost leadership strategy against its competitors. This allows you to produce your products much more economically than other furniture companies. How does Ikea do it? The main and best known is that the consumer himself is the one who assembles and transports his articles. He also works impeccably planning and analyzing manufacturing costs and supplier prices.
Ikea optimizes the packaging of your furniture, always saving space for your logistics. Another of its measures is to locate its points of sale on the outskirts of cities, where prices are lower. On the other hand, sustainability also helps you become a cost leader, uses recyclable materials and promotes the recovery of your products.