Module 3: The Environment in which Businesses Operate
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Factors influencing competitive advantage

 

Put simply, competitive advantage is being better than the competition. In other words, this is the ability to produce goods or services that offer a better service or at a more competitive price compared to competitors. There are a number of factors that affect competitive advantage. Click on the box to learn more.

Differentiation

Differentiation relates to how different their product or service is compared to their competitors. Goods or services that are different from the norm or products that are new to the market will have less competition than mainstream goods or services within the marketplace. Businesses with a unique selling point (USP) can enjoy a keen competitive advantage and often protect that unique selling advantage by protecting their products with a patent or trade mark.

Pricing policies

Different pricing policies can be used to give a business a competitive advantage. Obviously, a business can set its price lower than its competitors but there are other pricing policies that a business can use such as cost plus pricing to ensure it can cover its costs but also strategies such as 'loss leaders', where a commodity or service is priced below the production cost in order to attract additional customers.

Market leader

The market leader usually has the largest market share.

Market share is the percentage of the market a business owns. Having high market share ensures that you are well-known in the market and that customers recognise you.

Reputation

Reputation is especially important to businesses and having a good reputation can lead to being more competitive. Customers like to buy goods and services from businesses they trust. Having a good reputation builds that trust and leads to greater sales.

Cost Control

Cost control is important in order to gain a competitive advantage, as by controlling costs a business can be more profitable.

Technology
Technology can bring a competitive advantage as it may mean that a business can innovate. For example, Lion Laboratories in Barry was the first to create breathalysers, invented by its founder in 1979. The company now exports worldwide. Watch the video to learn more:

Lion Laboratories

Relationship with customers

As already mentioned, customers prefer engaging with businesses they trust and who treats them responsibly. It is much easier for businesses to retain customers than to attract new customers so having a good relationship with their customers can lead to a competitive advantage.

Employees

Employees are an important asset to a business and can be instrumental in giving a business a competitive edge. This is particularly true in the service industries. In these industries, the company interacts with the customer on a daily basis in order to influence how the customer views the company.