One of the interesting subjects we had at the University of Tartu was Business Growth Strategies. In the post №8, I want to share one of the answers to the final exams we had. It is about the strategy of Achieving and Sustaining Competitive Advantage.
All living organisms attempt to gain survival advantage in nature. That phenomenon is also applicable to the business environment. Companies compete with each other to reach higher profitability. Demand to achieve competitive advantage is a vital factor in determining the growth of companies, industries, and even countries growth.
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In some cases, competition may seem irrelevant. For instance, let’s think of a restaurant it operated for almost 50 years but did not grow. They chose to stay on a small business scale and serve loyal customers. Because during competition, there is a risk factor. The game can be lost or won. However, after the years, this street formed a street of restaurants. New entrants came to the market. That means competition is inevitable if there is a demand, and not competing is also risky.
As we see, gaining a competitive advantage is necessary for growth and increasing profit. Then how to achieve it? There is not one correct answer, and dozens of books and articles are written on this topic. But there are three more obvious paths:
- Consistently lowering costs than rivals
- Differentiate products or services
- Positioning company in terms of scope
In order to sustain competitive advantage, companies should consider how to approach these three strategies.
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By lowering costs, the business will be able to sell cheaper or earn more profit than rivals. To achieve low cost, there are some techniques:
Improve technology – That is a good way to gain a sustainable competitive advantage, especially for the long term. Reducing production costs via automation in manufacturing businesses can be a good example.
Use inferior raw material – The cheap price may seem good in the short term. However, the reverse effect may emerge from the customers’ side in the long run. It is an advantage but not sustainable.
Build an effective value chain – Another powerful way is to build an efficient production chain and organizational structure. For instance, a carrier company’s strength is how the distribution network operates.
Only healthy competition will last and will make you feel better while breathing.
Mecnun
Differentiating products or services allows companies to command a premium price that leads to superior returns and high margins. For some deep tech companies, even if there are patent and trademark systems encourage businesses to differentiate. Positioning the company in terms of the value they bring to customers is also a strategy for gaining a competitive advantage. Let’s think about brands, the difference between Rolex versus Casio, Lamborgini vs. Toyota, Prada vs. Nike and etc. Their segments are different. Therefore they can gain long-term competitive advantage based on price sensitivity and choices of customers.
Congratulations! You nailed it! I hope you find it useful. Have a pleasant day🌻
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2 replies on “How to achieve a competitive advantage”
Well done 👌
Hey, I am happy you enjoyed it, Nino! Thanks😊