Competitive Advantage Definition

Learn more about what competitive advantage means in business.

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Learn about the definition of competitive advantage and how to develop it in business.

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What is the definition of competitive advantage?

Competitive advantage is where a business’s goods or services are superior to or outperform the competition’s. Companies with a competitive advantage may have it because of:

Price. They have the best price around, and the competition can’t keep up.
Quality. The goods or services are unique and high-quality.
Customer service. The company provides stellar customer service.

These qualities don’t guarantee a competitive advantage, but they can help businesses get an edge over the competition.

Think of McDonald’s dollar menu. Everyone can make a burger. Not everyone can make a burger, sell it for a dollar, and have it ready for you in less than 5 minutes. That’s what gives McDonald’s its competitive advantage over the other fast-food restaurants out there.

Competitive Advantage Benefits

Competitive advantage increases a business’s profits and brand loyalty. If you have customers with brand loyalty, then you can use excess funds to reinvest in the business. For creative companies, having a competitive advantage means that you can try out that new project.

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How to Develop a Competitive Advantage

Having a competitive advantage is the sweet spot for businesses. It’s where all your hard work pays off, and you can finally take a breath. It’s also a chance for you to flex your creative muscles. Or batten down the hatches for the slow season.

But how do you achieve a competitive advantage? Like with most things, there’s no magic bullet. Here are some tips for developing a competitive advantage:

Start off strong. Having a solid business plan and focus from the beginning helps set you up for success in the long term.
Know your audience. Get people to buy what you’re selling by knowing your base audience. Better serve your customer base by understanding who they are and what they want.
Understand (and crush) the competition. Knowing what the competition offers is essential information. Ask yourself why customers might choose them over you.
Track the numbers. Take time each month and quarter to take the pulse of your business. See where your business is thriving and where it’s just surviving.

These are just a few tips for any limited liability company or corporation.

Summary

Competitive advantage is where a business consistently outperforms the competition. What drives a competitive advantage is usually unbeatable price, customer service, or quality.

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Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.