Five types of competitive advantage
Successful business strategies are those that use the capabilities and competencies of the business to address customer needs in a way that leads to sustainable competitive advantage. Competitive advantage has characteristics similar to the Holy Grail: it is highly desirable, hard to define or measure, and may even be imaginary.
Observations of most industries would suggest that clear-cut competitive advantage is the exception rather than the rule and strategic choices can rarely guarantee to deliver it. More often, within a group of competitors, there are one or two clear leaders and one or two clear stragglers.
In assessing whether the options and eventually the choices will deliver sustainable competitive advantage it is necessary to test the proposals against the different ways in which competitive advantage can be achieved for a time. These are
1. Cost-based advantage
This is the most obvious way of achieving competitive advantage. Customers are always aware of the price and will choose the lowest price if all else is equal. Low prices are only sustainable if costs are low.
2. Advantage from a differentiated product or service
If the offering is different in a way that customers value then it may offer a competitive advantage.
3. First mover advantage
The first player to adopt some new product or approach may derive competitive advantage just because it was first. Such advantage may occur if the first mover is able to grab a larger share of the available market while its offering is still unique. By the time that competitors have imitated the offering, the first mover may have achieved economies of scale, or brand recognition which sustain its advantage.
Unfortunately while it is easy to find examples of companies who have done well by being first into a new market, there are also many examples of fast followers who have been able to grab the lead even after a late start. Later starters can avoid the mistakes of the leaders and so save time and money in their launch
4. Time-based advantage
There are other occasions in which time can be a source of competitive advantage. Time can often be as important as price in a modern business. For instance, the time to bring new products to market can be critical in high technology and fashion markets where product lives are short.
In other circumstances the ability to deliver quickly or within very tight timescales may be as important as price. Many customers will pay more for fast or reliable delivery.
5. Technology-based advantage
Rapid advances in technology can have important effects on the basis of competition. The overall lessons on technology-based advantage are that innovation may be a source of business advantage and that innovation may be based on technology. The trick of achieving competitive advantage from technology is to harness the technology to create business innovation rather than exploit technology for its own sake.
Any of the above means of achieving competitive advantage may be relevant in a particular context. The basis of competition is likely to be changing and the winners will be those who understand the present rules of competition and how the rules will change in the future. Thinking outside the box seems to be the prime means of achieving competitive advantage.