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HomeBusiness TheoryStrategyCompetitive advantage

Competitive advantage

Business strategies are a way for companies to gain a competitive advantage over the market or business rivals. Competitive advantage can be considered in multiple ways; business strategy can often centre around; product design and development; pricing; promotion; place in the marketing mix; economies of scale; quality of production; delivery times; the skill and motivation of the workforce; a low cost labour force; the flexibility of workers and an ethical stance for the business.

There are three key ways of analysing strategies that gain advantages; these are cost leadership, differentiation and focus.

Cost Leadership

One of the most effective ways for businesses to gain a competitive advantage is to become the cost leader in any given market. This means offering the lowest cost for a given quality of product, ASDA, for example, have gained market share over time by offering lower prices to that of its supermarket competitors.


Another effective way for businesses to gain an edge is by differentiating their product from rivals. This means making a product within a product range different from competitors by giving it a unique selling point (USP). Simply differentiating a product is not enough to gain an advantage on its own, as customers need to want to buy it.


Another way for businesses to succeed in the market is to focus on one particular sector of the market. Focus comes in two forms: cost focus, which is when a business drives down its costs in the market segment to undercut competitor prices, and differentiation focus, which is when a business sells a unique product within the market segment. Businesses that utilise a focus strategy will, in many cases, see their main competitors as larger businesses that are catering for the mass market rather than individual niche markets. This allows businesses who do wish to target niche markets to become more competitive than larger rivals. There may also be highly competitive businesses targeting niche markets, so a focus strategy doesn’t always guarantee success.

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