Discuss the three types of competitive advantages.

Question

What will be an ideal response?

Answer 1

(Answers will vary). The three types of competitive advantages are: cost, product/service differentiation, and niche.Having a cost competitive advantage means being the low-cost competitor in an industry while maintaining satisfactory profit margins. Cost leadership can result from obtaining inexpensive raw materials, creating an efficient scale of plant operations, designing products for ease of manufacture, controlling overhead costs, and avoiding marginal customers.Because cost competitive advantages are subject to continual erosion, product/service differentiation tends to provide a longer-lasting competitive advantage. The durability of this strategy tends to make it more attractive to many top managers. A product/service differentiation competitive advantage exists when a firm provides something that is unique and valuable to buyers beyond simply offering a lower price than that of the competition.A niche competitive advantage seeks to target and effectively serve a single segment of the market. For small companies with limited resources that potentially face giant competitors, niche targeting may be the only viable option. A market segment that has good growth potential but is not crucial to the success of major competitors is a good candidate for developing a niche strategy.