Why Is It Important for a Firm to Gain Competitive Advantage in a Marketplace?

by Neil Kokemuller; Updated September 26, 2017
Two friends looking at shirts in clothes store

A competitive advantage in a marketplace is a distinguishing factor that drives a company's profit. Building and maintaining competitive advantages attracts customers, contributes to fair prices and generates loyalty.

Price versus Quality

Quick MBA indicates that a business can create a competitive advantage through low prices or differentiation. While low prices attract a large percentage of a typical target market, only one company in an industry succeeds in the long run with a profitable lowest-price strategy. Most companies must come up with differentiation in their products or services. These points of difference cause more discerning buyers to pay more money for a better overall solution.

Offering Superior Value

Competitive advantages present your business from engaging in a very arbitrary and expensive battle for customers. If you can't clearly state to customers why your brand is superior, you leave revenue to chance. A customer analyzing a shelf with 10 brands would have no compelling reason to buy yours. When you do establish excellence in product quality, organic production or consistent experiences, you help a customer recognize the superior value. Fans of Apple technology typically desire their innovative, cutting edge and cool technology solutions.

Generating Repeat Business and Loyalty

Your competitive advantage keeps customers coming back over and over again. A customer who perceives that a certain restaurant offers the best mix of food, ambiance and value would likely return often for meals. Eventually, repeat customers develop a loyal relationship when they have several positive experiences in a row. This loyalty not only strengthens your revenue potential with those customers, but it is more likely that they will recommend your company to friends who want the same benefits.

Economies of Scale

When you have clear, sustainable competitive advantages, you gain the benefits of economies of scale. You don't have to invest as much in developing short-term advantages to get customers in the door. A sustainable advantage becomes your company's cash cow. You can fine tune advantages or add to them over time, but you don't have to consistently throw money at research and development and promotion. As your initial marketing succeeds in communicating distinct benefits, the customers you attract will help spread the word through social media and word-of-mouth.

About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.

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