Industry Data & Market Research

Strategic Planning with the Competitive Advantage Framework

Competitive Advantage is a technique that enables better strategic planning in business.

The three approaches to sustainable competitive advantage are:

  • Cost leadership - Cost advantage occurs when a firm delivers the same services as its competitors but at a lower cost

  • Differentiation - Differentiation advantage occurs when a firm delivers greater services for the same price of its competitors. They are collectively known as positional advantages because they denote the firm's position in its industry as a leader in either superior services or cost

  • Focus - A focused approach requires the firm to concentrate on a narrow, exclusive competitive segment (market niche), hoping to achieve a local rather than industry wide competitive advantage. There are cost focus seekers, who aim to obtain a local cost advantage over competition and differentiation focuser, who are looking for a local difference.

When more than one large company strives for a cost-leadership position, the result is a price war with declining profit margins for both businesses.

Whichever strategy is chosen, the company cannot ignore the other elements. (E.g., a company competing on differentiation must still be cognizant of cost.)

Other Strategic Planning Frameworks

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