According to the Competitive Advantage model, a competitive strategy takes offensive or defensive action to create a defendable position in an industry, in order to cope successfully with competitive forces and generate a superior return on investment. The basis of above-average performance within an industry is sustainable competitive advantage.
Basic types of Competitive Advantage
- Cost Leadership
- Differentiated
- Focus
Competitive Advantage Type 1: Cost Leadership
- Achieving cost leadership means that a firm sets out to become the low cost producer in its industry.
- A cost leader must achieve parity or at least proximity in the bases of differentiation, even though it relies on cost leadership for its competitive advantage.
- If more than one company try to achieve cost leadership, this is usually disastrous.
- Often achieved by economies of scale.
Competitive Advantage Type 2: Differentiated
- Achieving of differentiation means that a firm seeks to be unique in its industry along some dimensions that are widely appreciated by buyers.
- A differentiator can not ignore its cost position. In all areas that do not affect its differentiated it should try to decrease cost; in the differentiated area the costs should at least be lower than the price premium it receives from the buyers.
- Areas of differentiated can be: product, distribution, sales, marketing, service, image, etc.
Competitive Advantage Type 3: Focus
- Achieving Focus means that a firm sets out to be best in a segment or group of segments.
- 2 variants: cost focus and differentiated focus.
