PhilCST

PHILIPPINE COLLEGE OF SCIENCE & TECHNOLOGY

OLD NALSIAN ROAD, BRGY. NALSIAN, CALASIAO, PANGASINAN

CREATING COMPETITIVE ADVANTAGE

❑ Competitive Advantage refers to factors that allow a
company to produce goods or services better or more
cheaply than its rivals. These factors allow the
productive entity to generate more sales or superior
margins compared to its market rivals.
❑ Competitive advantages are attributed to a variety of
factors including cost structure, branding, the quality of
product offerings, the distribution network, intellectual
property, and customer service.
 PhilCST
PHILIPPINE COLLEGE OF SCIENCE & TECHNOLOGY
OLD NALSIAN ROAD, BRGY. NALSIAN, CALASIAO, PANGASINAN

CREATING COMPETITIVE ADVANTAGE

❑ Competitive advantage is what makes an entity’s
products or services more desirable to customers than
that of any other rival.
❑ Competitive advantages can be broken down into
comparative advantages and differential advantages.
❑ Comparative advantage is a company’s ability to
produce something more efficiently than a rival, which
leads to greater profit margins.
❑ A differential advantage is when a company’s products
are seen as both unique and of higher quality, relative to
those of a competitor.
 PhilCST
PHILIPPINE COLLEGE OF SCIENCE & TECHNOLOGY
OLD NALSIAN ROAD, BRGY. NALSIAN, CALASIAO, PANGASINAN

UNDERSTANDING COMPETITIVE
ADVANTAGE
❑ Competitive advantages generate greater value for a firm and
its shareholders because of certain strengths or conditions. The
more sustainable the competitive advantage, the more difficult
it is for competitors to neutralize the advantage.
❑ The two main types of competitive advantages are comparative
advantage and differential advantage.
❑ The term “competitive advantage” traditionally refers to the
business world, but can also be applied to a country,
organization, or even a person who is competing for something.
 PhilCST
PHILIPPINE COLLEGE OF SCIENCE & TECHNOLOGY
OLD NALSIAN ROAD, BRGY. NALSIAN, CALASIAO, PANGASINAN

Competitive Advantage vs. Comparative Advantage

❑ A firm’s ability to produce a good or service more efficiently
than its competitors, which leads to greater profit margins,
creates a comparative advantage. Rational consumers will
choose the cheaper of any two perfect substitutes offered.
❑ For example, a car owner will buy gasoline from a gas station
that is cheaper than the other stations in the area.
❑ For imperfect substitutes, like Pepsi versus Coke, higher
margins for the lowest-cost producers can eventually bring
superior returns.
 PhilCST
PHILIPPINE COLLEGE OF SCIENCE & TECHNOLOGY
OLD NALSIAN ROAD, BRGY. NALSIAN, CALASIAO, PANGASINAN

Competitive Advantage vs. Comparative Advantage

❑ Economies of scale, efficient internal systems, and
geographic location can also create a comparative
advantage. Comparative advantage does not imply a better
product or service, though. It only shows the firm can offer a
product or service of same value at a lower price.
❑ For example, a firm that manufactures a product in China
may have lower labor costs than a company that
manufactures in the U.S., so it can offer an equal product at
a lower price. In the context of international trade
economics, opportunity cost determines comparative
advantages.
 PhilCST
PHILIPPINE COLLEGE OF SCIENCE & TECHNOLOGY
OLD NALSIAN ROAD, BRGY. NALSIAN, CALASIAO, PANGASINAN

Competitive Advantage vs. Differential Advantage

❑ A differential advantage is when a firm’s products or services
differ from its competitors’ offerings and are seen as superior.
Advanced technology, patent-protected products or processes,
superior personnel, and strong brand identity drivers of
differential advantage. These factors support wide margins
and large market shares.
❑ Apple is famous for creating innovative products, such as the
iPhone, and support its market leadership with savvy
marketing campaigns to build an elite brand.
 PhilCST
PHILIPPINE COLLEGE OF SCIENCE & TECHNOLOGY
OLD NALSIAN ROAD, BRGY. NALSIAN, CALASIAO, PANGASINAN

❑ How do I know if a company has a competitive

advantage?
▪ If a business can increase its market share through
increased efficiency or productivity, it would have a
competitive advantage over its competitors.
❑ How can over increase their competitive advantage?
▪ Lasting competitive advantages tend to be things
competitors cannot easily replicate or imitate.
 PhilCST
PHILIPPINE COLLEGE OF SCIENCE & TECHNOLOGY
OLD NALSIAN ROAD, BRGY. NALSIAN, CALASIAO, PANGASINAN

❑ Why do larger companies tend to have competitive

advantages?
▪ Competitive advantages that accrue from economies of
scale typically refer to supply-side advantages, such as
purchasing power of a large restaurant or retail chain.
But advantages of scale also exist on the demand side-
they are commonly referred to as network effects. This
happens when a service becomes more valuable to all of
its users as the service adds more users. The result can
often be a winner-take all dynasty in the industry.
 PhilCST
PHILIPPINE COLLEGE OF SCIENCE & TECHNOLOGY
OLD NALSIAN ROAD, BRGY. NALSIAN, CALASIAO, PANGASINAN

❑ How is competitive advantage different from

comparative advantage?
▪ Comparative advantage mostly refers to international
trade. It posits that a country should focus on what it
can produce and export relatively the cheapest – thus if
one country has a competitive advantage in producing
both products A & B, it should only produce product A if
it can do better than B and import B from some other
country.
 PhilCST
PHILIPPINE COLLEGE OF SCIENCE & TECHNOLOGY
OLD NALSIAN ROAD, BRGY. NALSIAN, CALASIAO, PANGASINAN

GAINING A COMPETITIVE ADVANTAGE

❑ The four primary methods of gaining a competitive
advantage are:
1. Cost leader
2. Differentiation
3. Defensive strategies
4. Strategic alliances.
 PhilCST
PHILIPPINE COLLEGE OF SCIENCE & TECHNOLOGY
OLD NALSIAN ROAD, BRGY. NALSIAN, CALASIAO, PANGASINAN

GAINING A COMPETITIVE ADVANTAGE

❑ Same Product, Lower Price
▪ Cost Leadership is the first competitive advantage businesses often
attempt to gain. Cost leadership ass an advantage occurs when a
business is able to offer the same quality product as its competitors, but
at a lower price. To use this strategy, a company must find ways to
produce goods at a lower cost through the perfection methods or by the
utilization of resources in a more efficient manner than competitors.
▪ Other factors, such as proprietary technology, can also factor into this
type of advantage. Cost leadership may be classified as an offensive
strategy, whereby businesses attempt to drive competitors out of the
market by consistently using price strategies designed to win over
consumers.
 PhilCST
PHILIPPINE COLLEGE OF SCIENCE & TECHNOLOGY
OLD NALSIAN ROAD, BRGY. NALSIAN, CALASIAO, PANGASINAN

GAINING A COMPETITIVE ADVANTAGE

❑ Different Products with Different Attributes
▪ Differentiation is a second strategy that businesses often use to set
themselves apart from competitors. In a differentiation strategy, low
cost is only one of many possible factors that may set aside a business
from others. Business that differentiate themselves typically look for
one or more marketable attributes that they have that can set them
apart from their competitors. They then find the segment of the market
that finds those attributes important and market to them.
▪ The process can also work in the other direction with businesses
conducting research to determine which things consumers find most
important and then developing a niche market for those products or
characteristics.
 PhilCST
PHILIPPINE COLLEGE OF SCIENCE & TECHNOLOGY
OLD NALSIAN ROAD, BRGY. NALSIAN, CALASIAO, PANGASINAN

GAINING A COMPETITIVE ADVANTAGE

❑ Hold Your Positions Through Defensive Strategies
▪ Another way for a business to gain a competitive advantage is to utilize
a defensive strategy. The advantage gained by this type of strategy is
that it allows the business to further distance itself from its competition
by, in some sense, maintaining a competitive advantage it has gained.
Therefore, this strategy is closely related to differentiation and cost
leadership because it is a method used by businesses to keep those
advantages in place once they have been attained.
▪ Whereas the other two strategies are more offensive in nature, this
strategy becomes increasingly difficult for so-called competitors to offer
any real opposition to the business.
 PhilCST
PHILIPPINE COLLEGE OF SCIENCE & TECHNOLOGY
OLD NALSIAN ROAD, BRGY. NALSIAN, CALASIAO, PANGASINAN

GAINING A COMPETITIVE ADVANTAGE

❑ Pool Resources Through Strategic Alliances
▪ Competitive advantages can also be gained by businesses that seek
strategic alliances with other businesses in related industries or within
the same industry. Businesses have to be careful not to cross the line
between alliances and collusion, though. Collusion occurs when
businesses within the same industry work together to artificially control
prices. Strategic alliances, on the other hand, are more along the lines
of joint ventures that businesses use to pool resources and gain
themselves exposure at the expense of other competitors not in the
alliance.