What is Competitive Advantage?

We have heard this term many times over in our lives, what is it?

Well... Competitive advantage, is defined as, an advantage of a business exert over competitors, either by means of lower prices, or by means of differentiating itself from others.

So how does one assert competitive advantage over competitors? Michael Porter, has suggested four strategies followed by businesses to exert competitive advantage.

Differentiation: ‍

This is more or less a buyer-centric strategy. A business usually identifies the buying criteria used by the market, and positioning the business uniquely to meet those criteria. This is not a cost-centric strategy. It is characterized by premium price, The differentiating factor gives the customer enough conviction to prefer the product more than other similar products in the market. Eg: Mercedes-Benz Cars, Apple iPhone

Cost Leadership:

‍The emphasis here, is to be the lowest-cost producer in the industry. Almost all markets segments are catered to and the stress is on minimizing costs. This strategy is generally employed by 'large-scale' manufacturers offering standard products with little to no differentiation. Eg: Retail Giant Walmart, introduced a concept known as Everyday low Prices, offering products at cheaper rates than other competitors. Food chain McDonalds, is also known to follow this strategy

Cost Focus:

‍This is similar to cost leadership strategy, but over a small segment of the market. The products will be very similar to the standard market leading products, but targeted only to a small portion of the market. The products may not even be known to the public at large. They are also known as "me-too" or "copycat" brands or products.

Differentiation Focus:

‍The differentiation focus strategy lays emphasis on differentiating, with one or a few select market segments. The primary basis for differentiation arises out of the special needs of the customer, which are not being addressed by the products of competitors. Eg: justeat.in provides localized information about restaurants and also allows viewers to place orders through their website, which is not being offered by other competitors like zomato.com, or burrp.com