How do companies use Competitive Advantage Strategies?

What is a Competitive Advantage? Theoretically, it is an advantage gained over competitors by being distinct and offering customers greater value for the product or service.

Mumbai, India (prHWY.com) September 5, 2012 - What is a Competitive Advantage? Theoretically, it is an advantage gained over competitors by being distinct and offering customers greater value for the product or service. It can be achieved either through lower prices or by providing additional benefits and service that justify similar, or possibly higher, prices. Essentially a competitive advantage answers a vital question -

"Why should the customer purchase from this operation rather than the competition?"

Some of the most commonly used Competitive Strategies by companies are -

Differentiation - A business house uses this strategy to differentiate its goods or services from others in the industry. Differentiation may be actual or perceived. Actual differentiation involves producing products and services which are not available in the economic marketplace. Perceived differentiation, on the other hand, takes a little more work on the part of companies. Companies typically use advertising messages that describe a product similar to those in the market with a few subtle differences. This strategy encourages consumers to differentiate the product in their minds.

Cost Leadership - This business strategy allows a company to become the lowest cost production company in an industry. For any business to sustain, profits are generated mainly through: increasing sales or decreasing costs. Cost leadership strategies focus on acquiring raw materials that are the highest quality at the lowest price. Companies must also use the best labor to transform raw materials into valuable consumer goods. Low-cost leadership usually translates into high-quality goods at low consumer prices.

Price Strategy - Many businesses develop pricing strategies to maintain a competitive advantage. These include penetration, economy, skimming, bundle and promotional strategies. Penetration pricing uses low initial prices to gain market share and slowly increases the price to its normal level. Economy pricing offers basic products that have the lowest customer price possible. Skimming is a price strategy in which companies set high initial product prices that decrease to match lower prices from new competitors. Bundle pricing is a strategy where companies include several different products under one price. This allows a business to provide more products to consumers at a slightly lower price. Promotional pricing strategies may allow businesses to offer additional benefits to consumers, such as a buy-one-get-one-free business strategy.

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Tag Words: case study advantage, competitive advantage

Categories: Business

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