Competitive
Advantage
Competitive advantage sustainable or not,
exists when a company makes economic rents, that is, their earnings
exceed their costs.
That means that normal competitive pressures are not able to drive down
the firm's earnings to the point where they cover all costs and just
provide minimum sufficient additional return to keep capital invested.
Most forms of competitive advantage cannot be sustained for any length
of time because the promise of economic rents drives competitors to
duplicate the competitive advantage held by any one firm.
A firm possesses a Sustainable Competitive Advantage when it has value-creating
processes and positions that cannot be duplicated or imitated by other
firms that lead to the production of above normal rents. An Sustainable
Competitive Advantage is different from a competitive advantage in that
it provides a long-term advantage that is not easily replicated. But
these above-normal rents can attract new entrants who drive down economic
rents. A competitive advantage is a position a firm attains that lead
to above-normal rents or a superior financial performance. The processes
and positions that engender such a position is not necessarily non-duplicable
or inimitable.
In marketing and strategic
management, sustainable competitive advantage is an advantage that one
firm has relative to competing firms. The source of the competitive
advantage can be something the company does that is distinctive and
difficult to replicate, also known as a core competency -- for example
Procter & Gamble's ability to derive superior consumer insights and
implement them in managing its brand portfolio.
The book Creating Competitive
Advantage outlines how companies fail to understand their own existing
competitive advantages and use them in sales/marketing. It provides
a framework for how companies can evaluate their own operations and
develop competitive advantage/competitive positioning statements to
better hone their sales/marketing messages.
Competitive advantage statements
help distinguish companies by highlighting what they offer to the customer
using tangible terms and concepts. The next step is to test those Competitive
Advantage statements through independent market research. This allows
a company to understand their customers' hierarchy of buying criteria
in an objective independent context. From there, companies can tailor
their Competitive Advantage statements to speak directly to the buying
interests of the customer.
Competitive Advantage:
a company is said to have a competitive advantage over its rivals when
its profitability is greater than the average profitability of all other
companies competing for the same set of customers.
Sustainable Competitive
Advantage: a company has a sustained competitive advantage when its
strategies enable it to maintain above-average profitability for a number
of years.
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