Definition
- Competitive advantage
- means superior performance relative to other competitors in the same industry or superior performance relative to the industry average.
What is competitive advantage?
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. higher profit margin, greater return on assets, valuable resource such as brand reputation or unique competence in producing jet engines. Every company must have at least one advantage to successfully compete in the market. If a company can’t identify one or just doesn’t possess it, competitors soon outperform it and force the business to leave the market.
There are many ways to achieve the advantage but only two basic types of it: cost or differentiation advantage. A company that is able to achieve superiority in cost or differentiation is able to offer consumers the products at lower costs or with higher degree of differentiation and most importantly, is able to compete with its rivals.
An organization that is capable of outperforming its competitors over a long period of time has sustainable competitive advantage.
The following diagram illustrates the basic competitive advantage model, which is explained below in the article:
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