When it comes to business management, the aspect of competitive advantage always appears in the discussion. According to Kotler and Keller (2015), competitive advantage (CA) is a “company’s ability to perform in one or more ways that competitors cannot or will not match” (p. 304). In other words, it is an advantage that is gained by competitors through the means of providing customers with products or services of higher value. The aim of this paper is to describe and compare competitive advantage and competitive differentiation.
Maintaining a sustainable competitive advantage is essential for building a successful organization that is capable of surviving in the market. For example, Google has a significant advantage in comparison with other search engines. Disney also presents a perfect example since it is the most influential company in terms of entertainment. It is worth noting that competitive advantage is effective when it has the means to overcome the success of rivals while competing for the favours of customers. However, the company will not succeed in the competition if the customers are not interested in products or services. For this reason, companies must concentrate on building strategic advantages that will attract customers. There are several factors that businesses have to consider while working on strategies, including understanding their target market, competition and ways to create a unique selling proposition. The last factor is especially important since a unique selling proposition differentiates product of the company from those of its competitors.
In order to succeed in the market, organizations must develop and implement different strategies. They include cost leadership, understanding a target market and providing a differential advantage. Cost leadership is a strategy when the company reduces the price of products while maintaining the same quality as of the competitors. Walmart presents an example of the effectiveness of this strategy since it offers everyday products for low prices through economies of scale. However, this method will not be efficient if competitors decide to lower costs as well. Moreover, in the long run, it could lead to undervaluation of prices and financial loses. Understanding the target market is another useful strategy because it addresses to the target market’s needs. However, the most effective method for getting a competitive advantage is building a competitive differentiation. It means that the product or service offered by the company provides more excellent benefits than are different from the others.
The subject of competitive differentiation has been thoroughly studied by researchers. For instance, Mitroulis and Kitsios (2017) note that “while building a differentiation-based advantage, firms try to provide a unique product or service that create high value for their customers” (p. 99). One of the examples that successfully maintain competitive differentiation is Lush with its handmade products. Moreover, Lush promotes ethical buying and presents the company’s products as pure and natural.
However, creating competitive differentiation could also result in the company’s drawbacks. First of all, it is difficult to support a product of premium quality at a reasonable price. Whenever a company makes a product or service of higher quality, customers later tend to claim more demands. Researchers point out that “differentiation leaves a firm vulnerable to its product/service offering or value concept when new competitors enter the market or when customers become more well-informed” (Mitroulis & Kitsios, 2017, p. 99). Another drawback of differentiation is that other companies might try to copy those products, while at the same time trying to create the same product with better features.
In conclusion it would appear that although competitive advantage and competitive differentiation are significant factors in maintaining businesses’ ability to compete in the market, they are different. While competitive advantage is a capability to gain more revenue that the competitors, competitive differentiation is a strategic tactic. Its goal is to make company’s products to stand out. Nevertheless, both factors are connected to each other since competitive differentiation provides an opportunity for the firm to gain competitive advantage.
References
Kotler, P., & Keller, K. (2015). Marketing management, 15th global edition. Harlow.
Mitroulis, D., & Kitsios, F. (2017). Fostering a competitive differentiation strategy for sustainable organizational performance. Operational Research in Business and Economics, 85-112.