Competitive advantage

Cost leadership is a business's ability to produce a product or service that will be at a lower cost than other competitors. If the business is able to produce the same quality product but sell it for less, this gives them a competitive advantage over other businesses. Therefore, this provides a price value to the customers. Lower costs will result in higher profits as businesses are still making a reasonable profit on each good or service sold. If businesses are not making a large enough profit, Porter recommends finding a lower-cost base such as labor, materials, and facilities. This gives businesses a lower manufacturing cost over those of other competitors. The company can add value to the customer via transfer of the cost benefit to them.

A differentiation advantage is gained when a business's products or services are different from its competitors. In his book, Michael Porter recommended making those goods or services attractive to stand out from their competitors. The business will need strong research, development, and design thinking to create innovative ideas. These improvements to the goods or service could include delivering high quality to customers. If customers see a product or service as being different from other products, consumers are willing to pay more to receive these benefits.

Focus strategy ideally tries to get businesses to aim at a few target markets rather than trying to target everyone. This strategy is often used for smaller businesses since they may not have the appropriate resources or ability to target everyone. Businesses that use this method usually focus on the needs of the customer and how their products or services could improve their daily lives. In this method, some firms may even let consumers give their inputs for their product or service.

This strategy can also be called the segmentation strategy, which includes geographic, demographic, behavioral, and physical segmentation. By narrowing the market down to smaller segments, businesses are able to meet the needs of the consumer. Porter believes that once businesses have decided what groups they will target, it is essential to decide if they will take the cost leadership approach or differentiation approach. Focus strategy will not make a business successful. Porter mentions that it is important to not use all 3 generic strategies because there is a high chance that companies will come out achieving no strategies instead of achieving success. This can be called "stuck in the middle", and the business will not be able to have a competitive advantage.[11]

When businesses can find the perfect balance between price and quality, it usually leads to a successful product or service. A product or service must offer value through price or quality to ensure the business is successful in the market. To succeed, it is not enough to be "just as good as" another business. Success comes to firms that can deliver a product or service in a manner that is different, meaningful, and based on their customers' needs and desires. Deciding on the appropriate price and quality depends on the business's brand image and what they hope to achieve in relation to their competition.[12]

The operational model for managing corporate reputation and image of Gray and Balmer (1998) proposes that corporate identity, communication, image, and reputation are the fundamental components of the process of creating competitive advantage. Corporate identity through corporate communication creates corporate image and reputation, with an end result of competitive advantage.[15]

Corporate identity is the reality of an organization. It refers to the distinct characteristics or core competencies of the organization. It is the mental picture of the company held by its audiences. Corporate communication refers to all the official and informal communication sources, through a variety of media, by which the company outsources its identity to its audiences or stakeholders. Corporate communication is the bridge between corporate identity and corporate image or reputation.[15]

The above-stated process has two main objectives, namely to create the intended image in the minds of the company's principal constituents and managing the process to create a favourable reputation in the minds of the important stakeholders.[15] Gray and Balmer (1998) say that a strong image can be built through a coordinated image-building campaign and reputation, on the other hand, requires a praiseworthy identity that can only be shaped through consistent performance.

A core competency is a concept introduced by Prahalad and Hamel (1990). Core competencies are part of the corporate identity; they form the foundation of corporate competitiveness. Core competencies fit within the "resource-based view of the firm"[16][17] Resources can be tangible or intangible.

A firm's knowledge assets are an important intangible source of competitive advantage. For firm knowledge to provide a competitive advantage, it must be generated, codified, and diffused to others inside of the organization. Many different types of knowledge can serve as a resource-based advantage: manufacturing processes, technology, or market-based assets such as knowledge of customers or processes for new product development.[18] Firms with a knowledge-based core competency can increase their advantage by learning from "contingent workers" such as technical experts, consultants, or temporary employees. Those outsiders bring knowledge inside of a firm—e.g., understanding of competing technologies. Moreover, interactions with contingent workers can provoke the firm to codify knowledge that was tacit in order to communicate with the temporary employees.[19] The benefits of these interactions with outsiders increases with the "absorptive capacity" of the firm.[20] However, there is some risk that these interactions cause leakage or dilution of knowledge assets to others who later hire the same temporary employees.[21] Modern knowledge management theory now suggests that serendipity can be tapped as a strategic advantage for building a core competency. [22]

The competitiveness of a company is based on the ability to develop core competencies.[23] A core competency is, for example, a specialised knowledge, technique, or skill.[24] Yang (2015) concluded, with the examination of a long-term development model, that developing core competencies and effectively implementing core capabilities are important strategic actions for any enterprise in order to pursue high long-term profits. In the end, real advantage can be created by the management's ability to unify corporate-wide technologies and production skills into competencies that capacitate individual businesses to adapt quickly to changing opportunities.[25]

To sustain leadership in a chosen core competency area, companies should seek to maximize their competency factors in the core products like being important in positioning its values, distinctive (differentiated), superior, communicable (visibility), unique, affordable, and profitable. When a company achieves this goal, it allows it to shape the evolution of an end market.[25]