Competitive Advantage

• Competitive advantage is where a firm has an advantage over competitors gained by either offering consumers greater value, with lower prices or greater product benefits that justify higher prices
• Porter suggested two overall business strategies in order to gain competitive advantage: Differentiation and low cost
• Low Cost Strategy, the business objective is to become the lowest cost operator.
• Low cost strategy often involves large scale production in order to benefit from economies of scale
• Benefit of Low Cost: If selling prices are similar, lowers t cost operator will enjoy the highest profits
• Benefit of Low Cost: Lowest cost operators can gain market share
• Suitable markets for Low Cost strategy: Little product differentiation, low branding importance
• Examples of low cost strategy: Aldi, Poundland and Ryanair
• Differentiation Strategy aims to offer a product that is distinctively different from competition.
• Differentiation can be achieved by: Superior product quality, Strong Branding, Wide distribution and Sustained promotion.
• Porters Generic Strategy identifies four strategies to achieve competitive advantage: Cost Leadership, Cost Focus, Differentiation, and Differentiation Focus.
• Cost Leadership = Mass Market, Low Cost
• Cost Leadership objective is to become the lowest cost operator in market. Often involves large scale production.
• Cost Focus = Niche Market, Low cost
• Strategic positioning is where a business wants to be in the market relative to other businesses