January 31st 2018

5 Sources of competitive advantage

5 Sources of competitive advantage

Competitive advantage is a set of circumstances or conditions (such as being first to take a product to market) that puts one company in a more favourable position than the other. Here are the 5 sources of competitive advantage that you can identify and build upon in your company every day. 

Sources of Competitive Advantage:

1. Superior Skills

“The distinctive capabilities of key personnel that set them apart from the personnel of competing firms” 
“The benefit of superior skills is the resulting ability to perform functions more effectively than other firms” - Chadwick and Jobber

By having the right personnel with the same values, with the right skills and drive will completely separate you from the competition. It may be that some of you don't have Masters Degrees but have the flare and creativity to make things happen.

2. Superior Resources

Having superior resources can help massively. “The tangible requirements for the advantage that enable a firm to exercise its skills” Such as;

  • The number of salespeople in a market
  • Expenditure on advertisement and sales promotion
  • Distribution infrastructure
  • Expenditure on R&D
  • Scale and type of production facilities
  • Brand equity
  • Knowledge

3. Core Competencies

The distinctive nature of these skills and resources make up a company's core competencies. Capabilities that are critical to a business achieving competitive advantage. “Core competencies are the most important sources of uniqueness” 1990 Prahalad and Hamel. They are a “harmonised combination of multiple resources and skills that distinguish a firm in the marketplace”.

Are they Core Competencies?

  1. Relevance; they must give something that strongly influences the consumer to choose the product/ service.
  2. Difficult to imitate; the competence must be difficult to imitate
  3. The breadth of Application; Something that opens new markets. If it only opens a few small niche markets then success in these markets will not be enough to sustain significant growth.
  4. Value Chain

The value chain is a high-level model developed by Porter. It is used to describe the process by which businesses receive raw materials, and add value through various processes to create a finished product, ready to sell to customers. The overall goal of the value chain is to deliver maximum value for the least possible cost to create a competitive advantage.

5. Differential Advantage

Unique benefits/ selling points/ characteristics that set the product/ service apart and above its competitors in the customer's viewpoint.

Avoid the ‘me too’, syndrome otherwise price is the only thing you can be different about and the market is damaged. e.g. TkMaxx ‘big labels small prices’

  • Promotion
  • Price
  • Distribution
  • Product

Read more: The extended marketing 3ps 

Apply this model when drawing up competitive strategies for the market and explore what your company's sources of competitive advantage are and how you can leverage them in marketing plans.

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