Competitive Advantage (AQA A Level Business): Revision Note

The value of having a competitive advantage

• Competitive advantage is when a business has something special, such as lower costs, unique products, better service or stronger brands, that lets it perform better than its competitors

Examples of competitive advantage

Benefits of having a competitive advantage

• Its competitive advantage should mean a business can earn higher profits or win more customers than its rivals

  • A unique product or lower costs lets a business either charge premium prices or maintain healthy profits even if it cuts prices

  • When a company offers something better or cheaper than rivals, more customers choose it, boosting its share of total sales in the industry

• Distinctive features or better service build customer trust and encourage repeat purchases, making it harder for competitors to tempt those customers away

• A competitive advantage creates a strong barrier to new entrants

  • Resources, like patented technology , make it expensive or difficult for newcomers to compete, protecting the business's market position

• Steady profits and market leadership attract investors and lenders more easily, giving the business extra funds to grow, innovate and respond to market changes

Difficulties of maintaining a competitive advantage

• Several challenges can make it hard for a company to keep its competitive edge

1. Fast-moving technology

   • When a new technology arrives, even the most beloved brands can become obsolete

     • Kodak once led the world in film and cameras but missed the shift to digital photography

     • As consumers moved to digital cameras, its film-based competitive advantage disappeared

2. Rivals copy ideas

   • If a competitive advantage is easy to imitate, like a low-cost business model or a popular product, other firms are likely to copy it

     • Primark’s success at selling ultra-cheap fashion has inspired dozens of copycats, limiting Primark’s ability to raise prices or stand out

3. Changing customer tastes and habits

   • A strong competitive advantage can vanish if consumers change how they shop or what they want

     • HMV’s music and DVD stores suffered when customers moved to streaming services like Spotify and Netflix

     • Its high-street advantage couldn’t survive new habits of music and film consumers

4. Regulations and economic shocks

   • New laws or sudden events can remove barriers that once protected a firm

     • Traditional black-cab drivers in London had exclusive rights and controlled fares for decades

     • When Uber entered and regulations relaxed, taxi firms lost that protected status and faced fierce price competition

5. Complacency

   • Companies can sometimes lose touch with markets and underinvest in people and processes

     • Nokia dominated mobile phones in the early 2000s but cut back on innovation

     • Competitors like Apple and Samsung surged ahead with smartphones, leaving Nokia behind