Product Development and Competitive Advantage

Question

How are products developed to sustain competitive advantages?

Answer

Sustainable competitive advantage is the focal point of a corporate strategy. It allows the maintenance and improvement of an enterprise’s competitive position in the market. It is an advantage that enables business to survive against its competition over a long period of time. A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. When a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rivals. The goal of much of business strategy is to achieve a sustainable competitive advantage.

Michael Porter (1985) identified two basic types of competitive advantage; cost advantage and differentiation advantage.

A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of competing products (differentiation advantage). Thus, a competitive advantage enables the firm to create superior value for its customers and superior profits for itself.

Cost and differentiation advantages are known as positional advantages since they describe the firm’s position in the industry as a leader in either cost or differentiation. A resource-based view emphasizes that a firm utilizes its resources and capabilities to create a competitive advantage that ultimately results in superior value creation.

References

Porter, M (1985). Competitive Advantage: Creating and Sustaining Superior Performance. London: Free Press