Competitive advantage

Competitive Advantage
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Competitive Advantage
The main determinant of a firm’s success or failure is competition. Competition defines the suitability of a company’s operations that can impart to its operation, such as innovations, an interconnected culture, or good execution. Competitive advantages are recognized to an assortment of elements, including cost structure, trademark, quality of product provided, intellectual property, well-connected distribution system, and customer support (Porter, 2008). Before describing one’s competitive edge, a firm should understand the following three determinants. One is benefit. The firm must be clear to the benefit the product will offer whether it is a good or service. Two, the target market. The firm must identify who the buyers are and how they can make the clients’ lives better. Demand is the driver of all economic growth, and this is how the business will create it. Three, the competition in the market.
Porter defined the three types of competitive advantages that firms can utilize to attain a sustainable benefit (Porter, 2008). They include differentiation, cost leadership, and focus. First cost leadership means that a firm provides realistic value at an affordable price (Clegg, 2011). Companies accomplish this by constantly improving performance effectiveness. That normally means less salary to their workers though some compensate it by giving intangible benefits like stock options or promotional opportunities.

As these companies develop, they can utilize economies of scale and purchase in large quantities (Porter, 2008). For example, Wal-Mart and Costco frequently use cost leadership. However, higher minimum wage policies pressurize their advantage.
Next is differentiation, which means a firm delivers better benefits than anyone other competitors. Companies can attain differentiation by offering a distinctive product, faster delivery, and better marketing techniques (Wit, & Meyer, 2010). A firm with a differentiation approach can charge the best price. That means it regularly has a high-profit margin. Businesses normally attain differentiation with quality, originality or customer service. Innovation is a way firms can meet similar customer needs in a different way (Clegg, 2011). For example, Apple introduced the iPod, which was original since it allows customers to play the music they need, in any setup. Companies must offer better customer services by reaching out to delight buyers, for example by allowing returns with no strict restrictions.
Lastly, focus means that a company realizes and service their target market better than their rivals. Either differentiation or cost leadership can achieve this. Focusing essentially needs the company to choose one particular target market (Wit, & Meyer, 2010). Regularly larger firms do not serve a small niche. For instance, community banks utilize this approach to achieve a sustainable competitive advantage by targeting small businesses. Their target customers benefit from the personal contact that big banks might not offer. They are eager to give more in charges for this service. These community banks are utilizing a differentiation type of the focus approach.
Small businesses and their market position are affected by competitive advantage in several ways. Firstly, it cuts them off to clearly define and understand their market, customers and their customers’ purchasing habits. Large companies with their big marketing budgets have easily overshadowed the small businesses. Competitive advantage has denied small business to define their customers (potential ones). They are not able to retain their customers since the customers consider them as a second option even if they have the same products. This is mainly due to the pricing of their products. Their pricing strategy is inconstant. They usually do not have a constant pricing method, and the large companies take advantage of this by offering constant low prices to their customers. Large customers would retain and attract more buyers easily.
Competitive advantage is essential in market identification. Small businesses may not be able to define and understand their market. Therefore, they cannot afford a variety of products for every customer at a time like large companies. Lack of this strategy hinders the progress small business, as they will have very few regular customers’ hence low returns and no business expansion.
It is very difficult for small business to provide constant quality products for the customers. Small businesses usually do not utilize the differentiation approach by providing unique products, faster delivery and good advertising. They operate on a strict budget that does not allow them to gain a competitive advantage over large firms. Moreover, they do not charge the best prices. Providing quality products is the main difference between small and large businesses in fulfilling their customers’ needs (Porter, 2008). Therefore, small firms cannot maintain an offering quality product, which makes it difficult for them to gain a competitive advantage.
A firm can attain an edge over its rivals in the following ways. Firstly through external changes. When the political, economical, socio-cultural and technological (PEST) elements alter, several chances can materialize that could offer many advantages for business. A firm can also benefit from its rivals when it is competent to react to external changes more rapidly than other companies can. Secondly, a business that has VRIO (valuable, rare, hard to imitate and organized) assets has a competitive advantage over its rivals due to the dominance of such resources. Through this, a firm can attain cost or differentiation advantage through unique competences or originality (Porter, 2008). Competence is a capacity to execute responsibilities productively and is a group of connected skills, understanding, capabilities and procedures. For example, a firm that has gained competence in making miniaturized electronics would find an advantage as it would be difficult for the rivals to replicate the procedures, skills, understanding and capabilities required for that competence. Moreover, most companies achieve competitive advantage through originality. Innovative goods, procedures or new business frameworks offer strong business edge because of the first mover advantage.
References
Clegg, S. (2011). Strategy: Theory & practice. London : SAGE Publications Ltd
Porter, M. E. (2008). Competitive advantage: Creating and sustaining superior performance : with a new introduction. New York: Free Press.
Wit, B., & Meyer, R. (2010). Strategy synthesis: Resolving strategy paradoxes to create competitive advantage. Australia: South-Western/Cengage Learning.