A guide to what a company's competitive advantage is

Read our introductory guide to the different types of competitive advantage and how to gain it for your business.

Helen Cockle

Competitive advantage in business means that a company is moving and staying ahead of its competitors. Of course, as a small business owner, to gain competitive advantage is a crucial goal. This is why we've compiled this short guide to the different types of competitive advantage and gaining it yourself.

Competitive advantage - explained

Competitive advantage refers to several different types of advantages:

Firstly, there is comparative advantage. This describes a business's ability to provide the most efficient or cost-efficient product or service amongst all competitors. This is also called a competitive pricing advantage.

Secondly, there is what is called a differential advantage. This refers to a business's products or services being markedly superior to their competitors' offers. To achieve competitive advantage in terms of quality is the most lucrative business strategy, however, also the most difficult to achieve.

Improving your internal efficiency through eg simplifying invoicing or payments can help gain a competitive advantage through streamlining processes and saving time and resources.

Prosecco flutes
Comparative advantage describes a business's ability to provide the most efficient or cost-efficient product or service amongst all competitors.

Comparative advantage

Having a significant cost advantage can make your product appealing to a large customer base. Potential clients will often decide on the less expensive of two comparable products or services. Comparative advantage can also stem from the location of your business - being located in a good location can make your organization attractive for clients. Competitive advantage theory also refers to efficiency in internal systems. If your daily operations are streamlined, they are likely to be less costly which can allow you to gain a competitive edge.

Shop window with discounts
Having a significant cost advantage can make your product appealing to a large customer base.

Differential advantage

Brand identity is one of the key constituents of a differential advantage. A well-known and trusted brand is likely to attract a larger market share than an independent local business. However, if you are a small business, you can compete with bigger chains through eg superior ingredients, products, or craftsmanship. To create a competitive advantage, you can also use more advanced technology than your competitors or hire superior talent that makes your services or products stand out.

Man walking past Apple store
Brand identity is one of the key constituents of a differential advantage.

Innovation and competitive advantage

Innovation can create competitive advantage. By making your products stand out and doing something differently (and better), you can gain an edge in your target market. Of course, the innovation has to provide the potential client with so-far unseen benefits to cause sustainable competitive advantage. Should you succeed at this, your competitors will likely try and copy what you are doing - this is how an industry landscape changes.

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