Competitive advantage examples commonly seen in business

By Indeed Editorial Team

Published 13 April 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Most companies and organisations prioritise increasing profits, improving efficiencies and enhancing the overall performance of their teams and processes. Companies who accomplish these tasks effectively can often find enhanced success in their markets. Enjoying consistent high levels of performance can give companies a useful advantage over their competitors. In this article, we discuss what competitive advantage is and provide competitive advantage examples showing strategies organisations can use to outperform their competitors.

What is competitive advantage?

Competitive advantage is when a business or organisation has leverage over its competitors. Typically, organisations can achieve competitive advantage when they're able to supply their customers with better products or lower prices than their competitors can offer. When companies do this successfully, they can often achieve more brand loyalty and higher customer retention.

Being able to market and sell products and services that are of higher quality or advertised at lower prices can mean a company experiences increased success in gaining customers. This is because when customers shop for a product or service, they're often looking for the highest value for their money. Companies that offer higher value at lower cost can often more reliably keep customers rather than losing them to competing brands. Competitive advantage can make it easier for businesses to increase the availability of future relationships between their business and their target market.

Related: What is strategic management and why is it important?

Competitive advantage examples

There are many ways companies can establish an advantage over others within their industry. Here are some competitive advantage examples businesses can benefit from using:

Reputation

Business reputation can be fundamental to successful business interactions. As you build a positive reputation over time, the potential for business interactions with new clients can increase significantly. As others notice previous positive interactions of certain businesses within the market, they might be more willing to work with organisations with higher reputations. Below is an example of the difference reputation makes:

Example: ScanR is searching for an optical sensor company for a long-term contract. The two options are market newcomers with minimal marketing by the name of SensC, and LeefTech, a company of equal size with dozens of satisfied customers and positive reviews. ScanR uses LeefTech thanks to its higher reputation and demonstration of long-term reliability.

Longevity

A company's longevity can also be a competitive advantage. Like reputation, the longevity of a company often implies greater reliability and continued customer satisfaction. If a client is looking for a client for someone to help them with a long-term project, the reassurance a company with decades of operations offers is key to success on both sides of the agreement. Longevity isn't a manufacturable competitive advantage. Instead, it comes naturally through time and continued success.

Example: ScanR is looking for a client but desires a long-term partnership with a company that's understanding their needs. LeefTech's 45 years in the optical sensor industry reassure ScanR of their reliability. The two agree to enter into a 10-year contract with the option to renew the agreement in the future.

Technology

The technology companies have access to often makes a difference in the efficiency of their processes. Phones are a good example. Current models usually have increased abilities for messaging and media creation compared to the equivalent hardware from a decade ago. Other technologies can have similar effects. Companies with access to the newest technology often possess a competitive advantage because they can do more with what they have.

Example: BilbaoVFX works on special effects for the film industry. The BilbaoVFX team purchases a new bank of computers with improved graphic capabilities, producing better effects on the same budget as before because of minimal processing times. More studios turn to BilbaoVFX that to their competitors, because they have an increased capacity for completing high-volume workloads within tight deadlines.

Physical location

A business' physical location can offer them a substantial competitive advantage in some fields. Some industries centralise in specific areas, with specialised talent and conferences occurring in the place where most of the businesses are located. On a company's launch, locating a company in one of these spots can be beneficial. Similarly, businesses with storefronts in high populace areas might see more traffic than businesses located farther away.

Example: The Watercourse Restaurant is in the heart of a metropolitan area, close to many businesses, shops and homes. Many of the restaurant's customers stop at the restaurant while shopping, before and after work and while walking near their homes. Campfire Lounge, a restaurant that serves similar food at similar prices, is outside of town. Because it's farther away from other establishments, fewer people visit the Campfire Lounge.

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Supply chain

Supply chain efficiency is a competitive advantage for many companies. Logistics companies vary in their effectiveness because of differing focuses, and the efficiency of their processes can affect the businesses they supply. A successful supply chain usually leads to an increase in the reliability of resources and constant product availability for customers.

Example: Sunflower Gardening is searching for a logistics company that ships products from the warehouse to the shop floor. DriveCo supplies the bulk of the local industry and has delays in its supply chain on 23% of days. Few businesses use the alternative supplier, AlwaysEverywhere, despite their 100% success rate. Sunflower Gardening uses AlwaysEverywhere, gaining a logistical competitive advantage over the rest of the field.

Tax laws

Governments use tax and subsidy for more reasons than creating state revenue. Taxation can also be a tool for industry encouragement. A state reducing the tax burden on certain industries can provide a competitive advantage over the rest of the market and global competitors. Governments do this to not only improve the prospects of products with positive futures but as a tool in improving net export and import data.

Example: The government introduces a policy intending to increase the size of the electric car industry by 50% in the upcoming period. Encouraging further activity in the sector, they decrease taxation on materials used in electric car creation by half. Electric car companies have a competitive advantage over not only standard car companies in the same country, but electric car companies from around the world.

Related: How to become a tax manager: a step-by-step guide

Quality of staff

The quality and talents of staff in companies is a competitive advantage. If a company has a negotiator specialising in reducing costs in contract discussions or a builder that works 25% faster than all of their coworkers, they have a clear competitive advantage over their rivals. The company creates better products at cheaper prices, increasing profits and competing with opponents more effectively.

Example: Smith & Jones Legal Services focuses on hiring the best staff in the industry. Their rate of wins in legal cases remains at above 90%, thus their area regards them as the best legal team available. High-quality legal staff are the source of the victories, which clients are aware of and thus choose to use Smith & Jones Legal Services. In this sense, good recruitment is a competitive advantage with tangible effects.

Economies of scale

Economies of scale describe a situation where a company's size leads to lower costs per product. Large companies, therefore, create more at similar cost levels to their smaller competitors. This is a competitive advantage as the company profits are significantly larger with equivalent costs. Economies of scale are created over prolonged periods of time as companies develop efficiencies and structures.

Example: A large company buys a piece of equipment that produces ready meals. The machine costs £200 per day to operate, and small companies produce 100 meals a day using the machine. The cost per meal for a small company is £2. Large companies can produce 400 meals a day using the machine because of greater resource access, bringing their average cost to 50p per meal. The large company has a competitive advantage through economies of scale driving lower costs.

Company secrets and patents

Patents are concepts, designs and theories that only the company's with rights to the intellectual property can use. If a company's patent is helpful in the production, design or sales process, they might have a competitive advantage because their competitors can't use the same ideas or designs. The same applies to company secrets. Company secrets, however, often lack the protection of a patent.

Example: In motorsport, !Racing designs a new aerodynamic part working on the side of the car. They haven't patented the part because they don't want to expose the underlying concept of their design, but the part improves lap times by a full second every lap. This competitive advantage is clear, as the advantage has measurable effects on the team's performance compared to their rivals' efforts.

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