Competitive Advantage – Principles of Marketing


Competitive advantage

A competitive advantage is an advantage over competitors gained by offering consumers greater value than competitors do. Competitive marketing strategies exist of competitor analysis and developing competitive marketing strategies.

Competitive marketing strategies are strategies that strongly position the company against competitors and give the company the strongest possible strategic advantage.

Competitor analysis is the process of identifying key competitors, assessing their objectives, strategies, strengths and weaknesses and reaction patterns, and selecting which competitors to attack or avoid.

It consists of three steps.

  • Identifying competitors. This might seem easy, but companies face a lot more competitors than can be identified at first sight. Competitors can be identified from an industry point or a market point of view.
  • Assessing competitors. When doing so, firms need to look at the competitor’s objectives and identify competitor’s strategies. A strategic group is a group of firms in an industry following the same or a similar strategy. It is also important to assess the strengths and weakness of competitors. This way, the firm can benchmark. Benchmarking is the process of comparing one company’s products and processes to those of competitors or leading firms in other industries to identify best practices and find ways to improve quality and performance. Finally, the firm can estimate how competitors will react to changes and anticipate their moves.
  • Selecting which competitors to attack and avoid. A useful tool for assessing competitor’s strengths and weaknesses is the customer value analysis: an analysis conducted to determine what benefits target customer’s value and how they rate the relative value of various competitors’ offers. The key to gaining competitive advantage is to take each segment and examine how the company’s offer compares to that of competitors. Most companies compete with close competitors, but they will also have distant competitors. Firms also benefit from having competitors, they share the costs of market development and competitors may increase total demand.

When the competitors are identified and evaluated, the firm must design a competitive strategy. Strategies differ for every company. Approaches to marketing strategy often pass through three stages: entrepreneurial marketing, formulated marketing and intrepreneurial marketing.

Entrepreneurial marketing: most companies are started by individuals who have no explicit strategy. Formulated marketing: as small companies are more successful, they move to more formulated strategies.

Intrepreneurial marketing: many large companies get stuck in formulated marketing and should re-establish their entrepreneurial spirit.

Porter’s strategies

Porter is famous for his competitive positioning strategies: three winning ones and one losing one. The three winning strategies are:

  • Cost leadership: the firm has the lowest production costs and can therefore ask the lowest prices.
  • Differentiation: the firm creates a highly differentiated product.
  • Focus strategy: the firm focuses on a small niche market segment.

The losing strategy is the “middle of the roaders” and applies to firms with no clear strategy.

Companies can pursue any of three value discipline for delivering superior customer value:

  • Operational excellence: the firm has leads in the industry by price and convenience.
  • Customer intimacy: the firm provides superior value by precisely tailoring its products to match the needs of their customers.
  • Product leadership: the firm provides superior value by offering a continuous stream of superior products.

There are multiple competitive positions in a given market.

  1. Market leader: the firm in an industry with the largest market share. The leader has the largest market share and usually sets the pace in the market. Market leaders can encourage users to usage their products more. Leaders must be constantly prepared for other firms challenging its strengths. Sometimes attack is the best defence, and market leaders should continuously innovate.
  2. Market challenger: a runner-up firm that is fighting hard to increase market share in an industry. The runner-up can either challenge the market leader or play along with competitors and not “rock the boat”. Challengers often become leaders by imitating and improving the ideas of previous leaders. It can attack the leader by a full frontal attack, by attacking the leader’s strengths but also by an indirect attack by attacking the leader’s weaknesses.
  3. Market follower: a runner-up firm that wants to hold its share in an industry without rocking the boat. Followers can learn from the leader (who pays for the cost of innovation). A follower must know how to current customers and win new ones.
  4. Market nicher: a firm that serves small segments that the other firms in an industry overlook or ignore. By focusing on such a specific segment, the firms are often good in exactly matching the product to customer needs.

However, a company can also focus too much on its competitors. A competitor-centred company is a company whose moves are mainly based on competitor’s actions and reactions. A customer-centred company is a company that focuses on customer developments in designing its marketing strategies and delivering superior value to its target customers. A market-centred company is a company that pays balanced attention to both customers and competitors in designing its marketing strategies.

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