Types of Competitive Advantage: Cost, Product, Niche & Sustainable Advantages

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  • 0:06 Competitive Advantage
  • 0:45 Cost Competitive Advantage
  • 3:07 Product/Service…
  • 4:15 Niche Competitive Advantage
  • 5:54 Lesson Summary
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Lesson Transcript
Instructor: Jennifer Lombardo
Companies need that special something to draw in new customers and keep them coming back. Learn about competitive advantage and the different ways a company can have it.

Competitive Advantage

Why do you buy Coke over Pepsi? Why will you spend $80 on a pair of a certain brand of sneakers? The answer lies in the term competitive advantage. Competitive advantage is a set of unique features of a company and its products that are perceived by the target market as significant and superior to the competition. It is the reason behind brand loyalty, and why you prefer one product or service over another. There are three different types of competitive advantages that companies can actually use. They are cost, product/service differentiation, and niche strategies.

Cost Competitive Advantage

Cost competitive advantage is when a company is able to utilize its skilled workforce, inexpensive raw materials, controlled costs, and efficient operations to create maximum value to consumers. Walmart uses the cost advantage strategy by providing a very large selection and low prices via its retailer strength and size. Costs can be kept at a minimum in many different ways. Some companies, like Nissan, have years of experience producing cars in a very cost-effective manner. Other companies, use offshore manufacturing to keep the costs of their products down. The current trend is for companies to cut down on the extras they offer to customers. For example, the airline company Ryanair is removing two of its three toilets in each airplane to increase the number of seats and drive down ticket costs. This might be an extreme way of cost cutting, but companies need to survive in a recession. Companies may also receive government subsidies, which help to pass on lower costs on to their customers. One prime example is your local farm.

There are a few other important ways that costs can be kept lower in order for a company to use a cost competitive advantage. Technical companies such as BMW, Lexus, and Boeing use product design and reengineering to create efficient cost-effective products. Product design is important to companies that use cutting-edge technology. Intel is able to keep microchip processor prices down by continually improving product design that utilizes advancements in the field. Reengineering is used by companies that are able to cut costs by redesigning and creating improvements to their products, such as Apple. A company that finds ways to make its technology better and more affordable will find success. Finally, some companies create a new delivery method for their product or service, resulting in large cost savings that they can share with their customers. Many airline companies have installed self-check-in kiosks and supermarkets now offer self-checkout lanes.

Product/Service Differentiation

Another way that companies can have a competitive advantage in the marketplace is through product/service differentiation. If a company's product or service has a valuable, unique offering for its consumers, then loyalty and product/service differentiation can occur. Cost competitive advantages can easily disappear with the introduction of a new competitor or new technology. If a company offers a unique product or service, it is harder to maintain an edge in the market based on price alone. The company must offer something to the consumer besides just a low price.

Offering kiosks and self-checkout lanes are methods companies use to keep costs down
New Delivery Methods

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