Like a chef’s signature dish that keeps diners returning, a company’s competitive advantage—whether it’s exceptional service or innovative products—can captivate and retain customers. Here are some ways to establish a competitive advantage over your market rivals.
What is a competitive advantage?
A competitive advantage refers to the traits that distinguish a company from its competitors and allows it to make better or less expensive products or services. Maintaining a competitive advantage often results in higher sales, larger profit margins, or more customers.
A competitive advantage can come from advanced technology, cost efficiency, high product quality, or exceptional customer service, which competitors cannot easily replicate. This enables a company to deliver a superior value proposition or operate more efficiently, resulting in lower prices for the consumer.
A strong competitive advantage enables a business to secure market share, fueling sustainable growth and profitability.
Types of competitive advantage
Competitive advantages come in various forms, each of which can help you establish a stronghold in your marketplace. Here are a few to consider:
A cost leadership strategy focuses on being the industry’s lowest-cost producer for a certain level of quality. By minimizing production costs, a company can price its products below its rivals, attracting price-sensitive customers and increasing market share. The resulting cost advantage can also improve profit margins.
For instance, an online apparel retailer might secure cost leadership by adopting lean manufacturing, negotiating better terms with suppliers, and streamlining their production and supply chain to deliver high-quality fashion at lower prices than competitors.
A differentiation strategy focuses on offering products or services with unique attributes valued by customers. The company’s competitive advantage lies in its ability to charge a premium for this uniqueness.
For example, a specialty vegetarian jerky brand might be able to produce goods not found in a mainstream foods market. Catering to health-conscious shoppers seeking unique, dried snacks creates a niche market.
A focus strategy zeroes in on a specific market segment. A business might concentrate on serving a particular demographic, geographic, or target market, providing products or services uniquely suited to its preferences. For example, a clothing retailer might cater exclusively to tall individuals, offering apparel tailored to fit this group, securing its dominance within this niche.
“I always say niche down. If you think you’re too niche, I'll suggest you’re not niche enough,” says Ashwinn. “A lot of people have a fear of doing that with their brand. … [But] if you can actually find an aspirational niche or find one category, you can actually pull other people into that category.”
How to create a competitive advantage
- Leverage a SWOT analysis
- Unlock unique distribution
- Focus on product or service innovation
- Optimize the customer experience
- Streamline the supply chain
- Build strategic alliances and partnerships
- Prioritize branding and positioning
- Leverage intellectual property management
Creating a competitive advantage involves pinpointing and capitalizing on unique strengths to establish a distinctive and defensible market position that resonates with your target market’s needs. Here’s where to start:
Leverage a SWOT analysis
A SWOT analysis is a competitive advantage framework that involves scrutinizing your company’s strengths, weaknesses, opportunities, and threats (hence, SWOT) to understand its position relative to competitors.
Through a SWOT analysis, your company can pinpoint areas where it excels, such as proprietary technology or exceptional customer service, and leverage these as critical differentiators in the market. Simultaneously, you can strategically address any identified weaknesses or vulnerabilities, ensuring they don’t become footholds for competitors to gain the upper hand.
Unlock unique distribution
Crafting a distribution strategy is essential from the outset, as it directly influences your ability to engage with your market and expand your customer base.
Explore sales and marketing channels that can put your product in front of people—from wholesale partnerships and third-party ecommerce marketplaces to TikTok content and Instagram influencer partnerships.
“Distribution is make or break for the business. It's not just the idea and the brand, but the customer acquisition process,” says Ashwinn.
“It’s underappreciated because people always start with the idea first. But they need to understand, based on different categories, that distribution and capital models look really different.”
Focus on product or service innovation
Continually seeking to improve or create products and services can keep you ahead of the curve, ensuring your offerings remain relevant and appealing to your customers.
When you regularly introduce advanced features or groundbreaking technologies, you can command a premium price, reflecting the higher valuecustomers place on cutting-edge innovation.
Optimize the customer experience
Investing in the customer experience can transform satisfaction into a competitive lever. By analyzing and enhancing every touchpoint in your customer journey, you can ensure your customer interactions are consistently positive, efficient, and memorable.
Optimizing your customer experience can lead to increased customer loyalty and advocacy, which can drive sales and reduce the draw of competitors.
Streamline the supply chain
A lean supply chain can lower costs and produce greater efficiency by eliminating excess inventory, streamlining operations, and improving supplier relationships. This, in turn, minimizes waste, reduces lead times, and enables a faster response to market changes.
This efficiency can enable you to offer lower prices or improve profit margins, providing a solid competitive edge against larger companies and new entrants.
Build strategic alliances and partnerships
Strategic alliances and partnerships can unlock new competitive advantages by combining strengths, resources, and market presence. By collaborating with other businesses, you can access new customer bases, share the burden of research and development costs, and accelerate innovation.
You really have to build a unique brand identity, meaning you need to have a unique brand strategy.
Prioritize branding and positioning
Strong branding and positioning give a company’s products or services a recognizable identity and ensure they are perceived as unique and desirable within a well-defined market segment. By developing a brand that resonates with your target audience, you can differentiate your company and foster a sense of loyalty and trust.
This recognition can allow you to maintain higher margins as customers are often willing to pay more for brands they perceive as superior or closely aligned with their values.
“You really have to build a unique brand identity, meaning you need to have a unique brand strategy,” Ashwinn says. “You need to position in the market correctly, and you need to have a perspective and point of view.”
Leverage intellectual property management
Effective intellectual property management can help secure your innovations and create significant barriers to entry.
You can prevent other companies from replicating your success by patenting proprietary technologies or processes. This exclusivity allows for greater market control and pricing power and improves your appeal to investors and customers.
Competitive advantage FAQ
What is the difference between competitive advantage and comparative advantage?
A competitive advantage is a company’s ability to offer greater value through lower cost or higher quality. Comparative advantage generally refers to a country’s efficiency in producing a particular good or service at a lower opportunity cost than other countries.
How do you determine competitive advantage?
A company’s competitive advantage is determined by identifying its unique strengths, resources, and capabilities that enable it to outperform its competitors.
How do you gain and sustain competitive advantage?
To gain a competitive advantage, a company must develop a unique value proposition and leverage distinctive attributes that set it apart. To sustain a competitive advantage, prioritize ongoing innovation, adapt to market trends, and invest in the factors that provide the advantage.