Competitive Advantage
Many firms strive for a competitive advantage, but few truly understand what it is or how to achieve and keep it. A competitive advantage can be gained by offering the consumer a greater value than the competitors, such as by offering lower prices or providing quality services or other benefits that justify a higher price. The strongest competitive advantage is a strategy that that cannot be imitated by other companies.
Competitive advantage can be also viewed as any activity that creates superior value above its rivals. A company wants the gap between perceived value and cost of the product to be greater than the competition.
Michael Porter defines three generic strategies that firm's may use to gain competitive advantage: cost leadership, differentiation, and focus. A firm utilizing a cost leadership strategy seeks to be the low-cost producer relative to its competitors. A differentiation strategy requires that the firm possess a "non-price" attribute that distinguishes the firm as superior to its peers. Firms following a focus approach direct their attention to narrow product lines, buyer segments, or geographic markets. "Focused" firms will use cost or differentiation to gain advantage, but only within a narrow target market.
Cost Advantage Resultingfrom Efficiency
Efficiency is the ratio of inputs to outputs.
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