What is a Competitive Advantage?

Explained
with examples
BY AAYUSHI MISTRY |
Updated January 20, 2022

Competitive advantages are the strengths and opportunities that you have over your competition.

It includes all the factors that help you stand out from your competition. It is also the factor of seeing which your
target audiences may decide to go with your product/service over your competitors. 

Depending upon your industry, there can be many other advantages. However, eventually, it is the factor that
earns you more sales and gives you a surplus in profit. 

→ Download Now: Competitive Analysis Kit

What is a Competitive Advantage?

Competitive advantages are the strengths and opportunities that you have over your competition. It is an
attribute that allows a company to achieve superior profits compared to its rivals and generates more value
for the company, customers, and its shareholders.

11 Common Competitive Advantage Examples

1. Brand 

Strong Branding is one of the strongest sustainable competitive advantages. A lot goes into making a brand like
building customer relationships, quality service/product, time, and money. 

But when the company is identified as a brand in the market, it brings you a positional advantage. And at the same
time, your sales become easier and wider. 

2. Network Effect 

The network effect happens when the value of a product or service depends on the number of its users. 

In a positive network effect, the more people use it, the more valuable the product becomes. Once the user base
reaches a critical mass, it's extremely hard for anyone else to achieve the same position.

3. Scale 

Scale can give companies a sustainable advantage in several ways. For example, in the retail industry, large chains
can use their scale to buy merchandise at low prices unavailable to their smaller competitors.

4. Customer Lock-in

Some businesses make products or services that have very high switching costs for customers. For example,
enterprise automation software such as ERP systems is so tightly integrated with the critical customer functions
that changing an ERP vendor is unthinkable.

5. Patents/Intellectual Property 

Patents are essentially a temporary monopoly granted by the governments to stimulate risky R&D. Example:
biotech and pharmaceutical companies.

6. Know-how/Monopolies 

If a critical enabling element can be kept secret, it can become a source of sustainable advantage.
7. Economies of Scale 

The basic tenet of economies of scale is that the cost per unit declines as output increases. The lower cost per unit
is largely driven by the presence of fixed costs within the business’s cost curve.

8. Exclusive Access to a resource 

Exclusive or near-exclusive access to valuable resources can give a sustainable advantage. For example, China
currently provides nearly 95% of the world's rare earth metals.

9. Exclusive License 

Sometimes governments grant exclusive licenses to businesses. For example, Stepan is the only company in the
US that is legally allowed to import coca leaves and extract cocaine from them.

10. Cost Advantage 

Cost advantage can be achieved through economies of scale. This makes it difficult for competitors to match the
low prices.

11. Adapting Product Lines 

Products that continuously evolve, many tech companies could fit in this category.
How do I know if a company has a Competitive Advantage?
During competitive analysis, you must have come across a few factors where you stand out from your competitors.
If these unique factors bring you any strength or opportunity, then those advantages are valuable. And only then,
they can help you thrive. 

For example, if you have a larger team than your competitor then it is a competitive advantage. But you also need
to look closer and see how this is bringing you any profit. Is this advantage helping you bring more business? Is this
advantage helping you serve more customers/clientele? Is this advantage making a positive impact on your
branding? If yes, then it is bringing you value. Hence, it is valuable.

Other than that, there are a few different perceptions to look at your competitive advantage:

Is your Competitive Advantage Sustainable?

Sustainable competitive advantages are company assets, attributes, or abilities that are difficult to duplicate or
exceed; and provide a superior or favorable long-term position over competitors.

In this case, you have an advantage that your competition can not easily catch up with. It can include having new
features to your service/products, initiating new marketing and sales strategies, or introducing new technology.
This advantage is simply intuitive. It is so much like a race- Looking at the current situation, the industry knows
what is the next step. But whoever implements it first has an advantage. 

For example, Apple. Inc had this advantage when they released AirPods. That step was intuitive and
groundbreaking and sustainable until their competitors had a similar product. 

Is your Competitive Advantage Replaceable?

You may have a great advantage. But you need to know if that is replaceable. For example, people who still don’t
use AirPods, still have the traditional earphones that work equally well. In fact, you will find a lot of people who
would prefer earphones over air pods. In that case, having air pods as an advantage is a replaceable advantage. 

Similarly, you may have a large team to cater to your target market and your company. But at the same time, if
your competitor can invest in heavy technology and innovation to do the same work, then they have a replaceable
advantage. 
Is your Competitive Advantage Strategic?

Such an advantage is mostly seen in the R&D department, sales, and marketing as well as in operations. 

Is your Competitive Advantage Rare? 

In these cases, your competition will not have this feature in their product/service or business. A lot of times, such
advantage lies in the way you operate. It can include having unique raw materials, a unique team management
system, quicker transportation, a better developing team, and so on and so forth. Having a rare advantage can
help you become superior sooner. And usually, having a rare advantage is like having that secret ingredient in the
recipe- Something, that no one can get a hack of. 

You can learn these different perspectives by studying your competition analysis with a detailed overview, gaining
better knowledge of the market, brainstorming with your team, and being intuitive with respect to your business.

Steps to derive Competitive Advantages

1. Determine the right competition 

2. Understand your market situation and your position in it 
3. Perform competitor analysis through different frameworks to identify your strengths, weakness,
opportunities, and threats. 

There are five such frameworks that you can implement: 

SWOT Analysis
Porter’s Five Forces
Strategic Group Analysis
Growth-Share Matrix
Perceptual Mapping

4. Figure out the points where you stand out from your competition. 
5. Those stand-alone points are your competitive advantages. 
6. Leverage!

A table for listing your Competitive Advantages:

Your business name + What you are best at + Why

     

Add Competitive Advantage to your business plan

Your competitive advantage section will come after you have explained your competition. 

In the beginning, you have to explain the competitive environment. If you are going to put it next to the section of
competitive analysis, you will not have to go into details. Because you will already have explained those details.
However, if you are to present this section only, you will have to explain your competition. Along with that, you will
also have to share analytic comparisons. For this, you can use pie charts, graphs, matrics, and other such
diagrams.

And then finally, you have to start explaining your competitive advantage over your competitors. Note that you
have to write this section in the most convincing way. So, your prospects understand your dynamics well and
invest in your business. Moreover, it is important for them to know if you have a clear strategic plan to run your
business successfully.

Important of Competitive Advantages

You get a chance to highlight your business’s strengths and opportunities

Your investors can have an idea that you have crystal clear ways to thrive your business
You restore your investors’ faith in you.
You explain why your business would be their best choice to invest in

A lot of people may want to skip this section of your business plan. But in our opinion, you must never make that
mistake. For it is your chance to tell your investors of the ways you stand out from your competitors in your
industry.

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Aayushi Mistry
 Since childhood, I was in awe of the magic that words bring. But while studying computer science in college, my world
turned upside down. I found my calling in being a copywriter and I plunged into a world of words. Since then, there is no
looking back. Even today, nothing excites me to find out the wonders the words can bring!

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