1.5. Competitive Advantage and Differentiation

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Competitive advantage occurs when the target market perceives one firm's marketing mix as more valuable than a competitor’s. This perceived value may be the result of

• production cost-cutting,
• innovative R&D,
• effective purchasing of necessary components,
• financing for a new distribution facility, or
• a strong brand name.

Whatever the source, the crucial test of an advantage is whether it allows the firm to provide value and satisfy customers better than its competitors do (while still making a profit).

Positioning is also important for establishing a competitive advantage. You position your product advantageously when you present it in a way that lets you occupy a clear and distinctive place in customers’ minds, especially in comparison with competing products. (For example, in comparing BMW and Ford, many consumers associate the former with luxury.) An effective positioning strategy begins with differentiation.

Perreault, Cannon, and McCarthy introduce us to the idea of differentiation as follows (2008, p. 50):

A marketing mix must meet the needs of target customers, but a firm isn't likely to get a competitive advantage if it just meets needs in the same way as some other firm. So, in evaluating possible strategies, the marketing manager should think about whether there is a way to differentiate the marketing mix.

Differentiation means offering a marketing mix that is distinct from and (perceived as) better than what is available from a competitor. Differentiation often requires that the firm fine-tune all of the elements of its marketing mix to the specific needs of a distinctive target market....Sometimes, the difference is based mainly on one important element of the marketing mix.

Differentiation, for example, could occur via an improved product (like a built-in safety feature) or faster delivery (like Amazon Prime’s free two-day delivery).

Sometimes, defining your competitive advantage can be difficult. Marketers do not want their products perceived as commodities, but sometimes, in the eyes of consumers, there is no difference between their product and their competitor's. In these situations, price may become the only differentiator for the consumer.