Sustainable competitive advantage
Companies that compete by selling similar products (or even substitutes) to the same group of customers constitute an industry. A company that is more profitable than its rivals is exploiting some form of advantage. Often profitability is compared to the average within the industry.
Some advantages are temporary (first mover in a new market for example). These are, by definition, non sustainable. Given time the entry of competitors will erode profit margins, unless a company has a sustainable advantage over its competition.
Hence a sustainable competitive advantage is one that can be maintained for a significant amount of time even in the presence of competition. Analysis of the factors of profitability is the subject of numerous theories of strategy including the five forces model pioneered by Michael Porter.
In marketing and strategic management, sustainable competitive advantage is an advantage that one firm has relative to competing firms. It usually originates in a core competency. To be really effective, the advantage must be:
Examples of company characteristics that could constitute a sustainable competitive advantage include:
- customer focus, customer lifetime value
- superior product quality
- extensive distribution contracts
- accumulated brand equity and positive company reputation
- low cost production techniques
- patents and copyrights
- government protected monopoly
- superior employees and management team
The list of potential sustainable competitive advantage characteristics is very long. However there are some commentators that claim that in a fast changing competitive world, none of these advantages can be sustained in the long run. They claim that the only truly sustainable competitive advantage is to build an organization that is so alert and so agile that it will always be able to find an advantage, no matter what changes occur.
- barriers to entry
- strategic management
- marketing management
- core competency
- marketing mix
- marketing plan
- Michael Porter
- strategic planning
- Porter 5 forces analysis
- value chain