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Guide on How to Write University Essays, Courseworks, Assignments and Dissertations

In Business, a Competitive Advantage Requires Differentiation

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When a business seeks to gain a market share over competitors, it must do so by providing customers with greater value, either by offering a lower price, additional benefits or exceptional service. This general rule applies to all business organisations regardless of whether they manufacture a product or provide a service. If the company succeeds, it is almost always because they offered something that differentiated them from their competitors and thus earned them a competitive advantage. (tutor2u.net, 2007).

 

Organisations develop differentiation tactics and strategies through various forms of market research that, when properly analysed, indicate opportunities to provide something that is more beneficial to their customers than their competitors do. When the company can deliver the same benefits as their competitors, but at a lower price, this is a cost advantage. If they can deliver additional benefits that their competitors do not offer, this is a differentiation advantage. In either case, the organisation is able to create better value for its customers and increased profits for itself through having a competitive advantage. (QuickMBA.com, 2006).

 

Differentiation Strategy & Focus

 

The strategy required to differentiate a product or service and create a competitive advantage necessitates determining one or several criteria used by customers and then uniquely positioning the business organisation to meet or exceed them. This strategy is often associated with charging a higher price for the product or service to reflect extra value-added features for the customer. Higher price both accommodates higher costs and provides good reasons for the customer to select the company’s products or services over competitors. A good example of this can be seen by considering how premium automobile companies like Porsche, Mercedes-Benz and Ferrari justify their pricing.

 

The focus of differentiation strategy is on a single or limited number of targets or ‘niches’. Generally, these ‘niches’ have been determined by market research that showed there were unfulfilled market needs among the customers and prospects that make up the niche’s buyer population. The key, here, is to be absolutely certain that these customer needs really exist within the niche, and that there is a valid need for differentiation.

 

It is also reasonable for a business to seek a competitive advantage by offering a lower cost to a targeted market niche. This generally applies to a smaller number of customers who consider cost of the essence and thus select an organization’s product or service over the same product or service offered by leading competitors at a higher price. An example of this would be a retailer offering his own label or discounted label products. Both cost and differentiation types of competitive advantages are actually positional advantages because they position the organisation as a leader in either price or differentiation by features and benefits.

 

A company can also utilise its resources and capabilities toward creating a competitive advantage of better value. In this view, an organisation promotes its superior resources and capabilities compared to those of its competitors. These resources would typically include proprietary technologies and capabilities, unique patents, a more solid, well-established customer base, brand equity and even its established reputation. In this case, the firm’s capabilities are its ability to bring these resources to bear for the customer’s eventual benefit. (QuickMBA.com) 2006.

 

References

  

QuickMBA.com (2006) “Competitive Advantage”

Available from: http://www.quickmba.com/ strategy/competitive_advantage

Accessed: 10-23-07

 

Tutor2u.net (2007) “Strategy-Competitive Advantage”

Available from: http://www.tutor2u.net/default.asp

Accessed: 10-23-07

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