The Importance of Competitive Advantage in Strategic Management The company’s management team is responsible for making strategic decisions regarding the staff, resources, supply chain and marketing efforts. So do the knowledge workers working in these enterprises. It is what makes the brand, product, or service to be perceived as superior to the other competitors. Without it, the firm will decline. Specifically, it is your company's unique skills and resources working to implement strategies that competitors cannot implement as effectively. As this dialogue is pursued, strategy evolves. Learn more about competitive advantage, what it means, and why business owners should aim to identify what sets them apart from their opponents. This adds efficiency to your marketing efforts. When you establish a competitive advantage for your service or support, you can dictate your own pricing. It is the well thrashed out competitive strategy and the competitive advantage of the firm that is clearly understood by examining the various activities of the company by observing as to how differently and distinctively the firm performs these activities as compared to its open and hidden competitors. June 22, 2014 Competitive advantage has been defined as “something that the firm does better than its competitors that give it an edge in serving customers’ needs and/or maintaining mutually satisfying relationships with important stakeholders” (Ferrell, 2012, p.16). Strategic Management for Competitive Advantage For the better part of a decade, strategy has been a business buzzword. If you sell product along with your service, then you can ask for higher prices than the competition because your reputation as an industry leader creates the feeling among consumers that whatever you have to offer is worth the price. His publishing credits include a weekly column in the "Lockport Union Sun and Journal" along with the "Spectrum," the "Niagara Falls Gazette," "Tonawanda News," "Watertown Daily News" and the "Buffalo News." Competitive advantage provides multiplebenefits towards a brand or a product apart from the industry leadership factor.Some of the major ones are – While the balance is ploughed back with increased importance on newer customer need identification and effective and efficient means of consumer satisfaction. Report a Violation, Useful notes on Competitive Advantage (Explained With Examples), Competitive Advantage Strategies of Business, Value Analysis: Meaning, Phases, Merits and Limitations. They must use a S.W.O.T. Do the same with customer care issues – especially with competitors who aren’t quick to respond. Copyright 10. A company’s search for competitive advantage through information technology often also spreads to affect industry structure as competitors imitate the leader’s strategic innovations. Plagiarism Prevention 4. Developing the reputation of offering the best service or support in the industry allows your company to charge more for your offering. Developing a competitive advantage means that your brand name becomes recognized in the marketplace as being the best. … A reputation for being an industry leader creates demand in the markets where you are currently not offering products or services. Establishing such an advantage is one of the most important goals of any company.In today’s world, competitive advantage is essential to business success. Scoring over the competitors as well as defending against the competitors is founded on competitive advantage. higher profit margin, greater return on assets, valuable resource such as brand reputation or unique competence in producing jet engines. George N. Root III began writing professionally in 1985. Copyright 2021 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. It increases the options you have to select quality vendors that can help you improve your standing in the marketplace. It is, furthermore, important to create the perception via marketing in customers’ minds that they’re receiving greater value than offered by the competition. Competitive advantage is an advantage over competition gained by offering consumer greater value than competitors do (Kotler 2011). analysis to decide on the competitive advantage they will use in the marketplace. That’s Sustainable competitive advantage :) you can achieve and maintain a competitive position over a given period of time. Sustainable competitive advantages are required for a company to thrive in todays global environment. A competitive advantage may include access to natural resources, such as high-grade ores or a low-cost power source, highly skilled labor, geographic location, high entry barriers, and access to new technology. Understanding the essential principles of competitive advantage is important for creating an effective business strategy, investing successfully, … Companies must go through a number of steps to create an effective marketing plan and strategy. Disclaimer 9. Competitive advantage is a favourable position a business holds in the market which results in more customers and profits. Prohibited Content 3. Michael Porter introduced two basic types of competitive advantages which are cost advantage and differentiation advantage. A competitive advantage is a distinct advantage a business has over its competitors that allows it to generate greater profits or retain more customers than similar companies. Importance Of Competitive Advantage : It is the ability of a company to move information and ideas from the bottom to the top and back again in continuous dialogue that the Japanese value above all things. Thus, profit is the “by-product” and not the “end product”. Small Business Advice: Logistics and Competitive Strategy, Self-Growth: The Importance of Competitive Advantage Management; Greg Roworth, Kellogg School of Management: The Competitive Advantages of Diversity; Aaron Mays; March 5, 2010. Those that did not learn the distinction had to experience the inevitable hard way through lost- customers and lost market share, finally leading to downing the shutters of business and business houses. Before publishing your articles on this site, please read the following pages: 1. It contributes to higher prices, more customers, and brand loyalty. S.W.O.T. Root has a Bachelor of Arts in English from the State University of New York, Buffalo. Organisations develop several restraining forces as they grow, and therefore, they need to be watchful and continuously manage themselves to remain competitive. The Importance of Competitive Advantage Marketing. if firms lack competitive advantages simply the customers are not convinced to buy products or services from those marketers. What is Competitive Advantage? It can be measured by looking at the profits of the company with the advantage which should be more than its competitors in the market. Consumers will be interested in hearing about your new product because they recognize your company as an industry leader. Value investors search for companies that are bargains. Put in other words, competitive strategy should give sustainable competitive advantage. They first must conduct a S.W.O.T. The importance of a competitive advantage is what makes it worth the investment of your organization's time and resources. Every organisation wants to grow. COMPETITIVE ADVANTAGE . Actions to create competitive advantage often have important conse­ quences for industry structure and competitive reaction, however, and thus I will return to these subjects frequently. This needs competitive analysis that consists of: (b) The company’s competitive position – the strengths and weaknesses. The next step is that companies must decide on which strategic alternative they will use to market their prod… Any successful strategy is fabric of competitive advantage. Without a competitive advantage, a firm has limited economic reason to exist-- its competitive advantage is its reason of life. There is no one answer about what is competitive advantage or one way to measure it, and for the right reason.Nearly everything can be considered as competitive edge, e.g. As it grows, it is natural that its structure becomes more fragile, shape becomes less flexible, and the nerve system tends to be more rigid. First, advances in information technology are changing the industry structure. The real need for acquiring the competitive advantage is as clear as crystal that the companies have failed to acquire competitive advantage needed to make the strategy to work in favour of the company. Scoring over the competitors as … It is important to plan your company's growth and monitor the marketplace to make sure that you are not expanding too quickly. Good many organisation are increasingly learning where to draw the line of difference. Therefore, “profit” is no longer considered a bad word though “profiteering” is. Customer Service and Crises. ADVERTISEMENTS: Cost advantage exits when company can give same benefits as competitor with lower cost. But again, brand name is just one of the many competitive advantages that the company can have. The competitive advantage causes developers and vendors to come to your company and express an interest in doing business with you. There are many different types of sustainable competitive advantages which are listed as below: In order to avoid purchasing a value trap one of the factors we search for is sustainable competitive advantages. Profits are important because they provide much needed basic energy Profit is something that an organisation generates in the process of transforming its resources into customer satisfaction; part of it is utilized for survival. Thus in business, a sustainable competitive advantage is an element of business or marketing strategy that provides a meaningful advantage … New research on competitive advantage from Harvard Business School faculty on issues including the economic damage caused by America's political dysfunction, the importance of a strong manufacturing sector, and how collaboration serves as a new and important source of competitive advantage. analysis. Content Guidelines 2. Second, information technology is an increasingly important lever that companies can use to create competitive advantage. A competitive advantage is the recognition that a company either delivers quality products at a lower cost than the competition or offers support and services at a greater value than the competition, according to the Quick MBA website. If a company can’t identify one or just doesn’t possess it, competitors soon outperform it and force the business to le… The competitive actions are bound to evoke a response from competition. Competitive Advantages Of Competitive Advantage 924 Words | 4 Pages “Competitive advantage literally is the ability to sustain profits that exceed the average for the industry through developing distinctive competencies: distinctive, because the competitors don’t have them and because they are fundamentally difficult to replicate” (Berry, 2012). Moreover, in the high-tech world, those niches are often made obsolete by some new breakthrough — or replication by a larger competitor — which normalizes the competitive advantages … Image Guidelines 5. Instead, they continuously struggle to use the resources optimally towards consumer delight. Effective organisations do not exist and grow for making profits; they never work for maximisation of profits. The advantage of that is the potency that your brand name adds to your marketing effort. A brand can create a competitive advantage if it is clear about these three determinants: 1. Solution for Creating a sustainable competitive advantage may be the most important goal of any organisation and may be the most important single attribute on… Competitive advantage is essential to stay profitable. Having given the competitive advantage, the strategy should also be able to sustain the advantage. Every company must have at least one advantage to successfully compete in the market. When talking about business, competitive advantage refers to the factors or attributes that allow a given company to produce more affordable or higher quality services or products than its competitors. Top executives ponder strategic objectives and missions. Competitive strategy has to be one that is sure to give competitive advantage. TOS 7. Competitive advantages generate greater value for a firm and its shareholders because of certain strengths or conditions. This article describes the importance of competitive advantage management in today’s highly competitive world. Here profit means an advantage or a benefit or the excess of returns over the expenditures. stands for strengths, weaknesses, opportunities, and threats. In 1985 professor Michael Poter state competitive advantage as the essential… With so many people turning to social when the customer experience is lacking, you have a lot of opportunity to be the hero with competitors who aren’t paying enough attention to their customers.. Be cautious when things ramp up into crisis mode, however. In business, a competitive advantage is the attribute that allows an organization to outperform its competitors. Reframing Knowledge Management as a Competitive Advantage In a global economy, organizational performance hinges on the ability to leverage collective smarts at will. It is competitive advantage that takes the company to its preset objectives for objectives remain elusive and the strategies naturally hollow. It is the antidote for competitor’s superiority: As a company's reputation grows as an industry leader, other companies will express an interest in creating... Pricing. Establishing a competitive advantage takes planning and coordination among your departments. And differentiation advantage exits when the company can make different benefits or the value to the customer from their products. It is what you do best that draws customers to buy your product/service instead of your competitor's. The opening up of borders has really shaken up the existing protected industries. The practice of gaining an ‘edge’ over competitors by offering consumers greater value — either through lower costing products or services or offering higher quality services or products which justify higher prices — is known as a competitive advantage. The source or sources can be intra-industry, inter-industry, globalisation, liberalisation, buyers and suppliers and even cheaper and substitute products. After surveying a wide range of industries, we find that information technology is changing the rules of competition in three ways. In today’s competitive environment it is very important to have a sustainable competitive advantage to sustain. Conclusions: The concept of competitive advantages is commonly used for the purposes of analysing above-average results of enterprises in a competitive market. Cost advantage means … Understanding your competitive advantage is critical. For example, another one, if you look at Pfizer, for example, which is a company that makes or research and develops medicine, medications, and new drugs, and whatever, so they have patents. To grasp the implications of the phrase “profit opportunity” it is inescapable to have knowledge of the market, knowledge of the government policies and clear-cut idea about expected for projected growth rates in the markets; to understand the real meaning of phrase “competitive position’, one should know the source or sources of competition. Therefore, a time has come to have a look at what competitive marketing strategies one needs to follow to counteract the likely competition from global players of this global village. As a company's reputation grows as an industry leader, other companies will express an interest in creating valuable partnerships that can improve both companies' standing in the marketplace. Its importance can be well explained by the following points: Successful companies normally bring into shape those strategies which revolve around an area of distinctive competence to the firm. This book can be read independently of Competitive Strategy, Within each of these divisions, managers can save the company considerable amounts of money by getting an edge over its competitors. Target Market:The perfect knowledge of who buys from the brand, what they desire from the brand, and who could start buying from the brand if certain strategies are executed is essential for t… Without it, companies will find it difficult to survive. Competitive advantage management is a set of methods and strategies that work to not only position your company or business but also make it stand out in the market. Privacy Policy 8. Competitive means an attempt or a struggle to strive for the number one position in parameters of COST – QUALITY DESIGN and MARKETING – a multi-dimensional process, the management of which is difficult but not impossible. In some cases, the consumer does not know why you are an industry leader but is familiar with your reputation. Content Filtrations 6. But it can be a great help to your company's growth efforts when your competitive advantage creates a customer base for you in areas where you are not currently involved. Developing a competitive advantage means that your brand name becomes recognized in the marketplace as being... Resources. A competitive advantage distinguishes a company from its competitors. There are two types of competitive advantage — cost advantage and differentiation advantage. It is the reason you are in business.