Competitive Advantage definition

Companies with a competitive advantage have an identifiable part of their proposition that allows them to achieve a greater degree of success than similar businesses in their industry. There are many different types of competitive advantage, such as pricing structures, manufacturing capacity, access to contacts and superior customer service.

Competitors will attempt to mitigate or neutralise a competitive advantage so the most valued competitive advantages are those that are sustainable and strong enough to withstand external pressures.

Competitive advantages are commonly split into comparative and differential advantages. Comparative advantages are financial – a lower cost of manufacture, for example, or their own distribution network. Differential advantages are product-based differences that lead customer perceptions over quality.

HR can help create a strong competitive advantage through their personnel management policies – productivity and employee happiness is an advantage that often results in superior customer service, which can help drive sales and repeat customers faster than in companies that do not provide the same service.

Strong competitive advantages, particularly those that are innovative, are frequently referred to as unique selling points (USP).