Types of competitive advantages
We can classify competitive advantages into four main classes. We must identify what kind of advantage is feasible to develop in the long term in our company in order to be effective. Not all classes are likely to fit our business, nor is it applicable. And we won’t be able to apply what we want either. Let’s look at the examples.
Intangible assets as a competitive advantage
In this type of advantage we include: brands, franchises, reputation, patents,… A brand well known or valued for its history, trajectory or reputation sells simply for the fact of “BE” that brand. A white-label product of equal or superior quality can do little to that competitive advantage.
This type of advantage is usually not voluntary, as it is not up to the companies to decide to have this competitive advantage.
It is the most classic advantage. It is a question of producing at a lower cost because mass production reduces the unit production cost price. It does not mean that the product is worse, it simply means that we have a more efficient production system that reduces the cost per unit. Sometimes companies choose to reduce wages, work with low quality materials, etc. that make the product worse. It will be difficult to maintain this advantage over time, as the consumer may ultimately not accept this decline in quality.
Network Economies or Net Effect
This advantage usually occurs when the value of a product (or service) increases as its users or customers increase. This is a competitive advantage that occurs when the brand or company strengthens its position in the market by an increase in sales. In addition, its advantage is precisely the great presence in the market.
The RSS are a clear example of this advantage. Who is going to join a social network that does not have users? The hook is precisely that you are going to find thousands (or millions) of users within.
This advantage occurs when the shift to competition is so complicated that the benefit is not worth it. It’s a way of building customer loyalty. But it can also be a double-edged sword.
“I found it so difficult to get out of that company that I would not return now”
Above all we see this advantage in services (banks, telephone companies, supplies,…). The effort that the customer must make when switching to competition may sometimes not be worth it. That’s why many companies offer to manage and help the customer with the change.