How to Identify Competitive Advantages

Below are some of the methods you can use to identify competitive advantages. First of all, what are competitive advantages? Competitive advantages are key to a company to make profit and earn returns that exceeds their cost of capital.

Types of competitive advantages

There are three types of generating competitive advantages.

• provide superior value to customer such as price, products, or the relationship with the customers or customer service
• lower costs
• utilizing capital more productively.

Identifying competitive advantages

Below are techniques for identifying competitive advantages for companies.

Customer segmentation analysis

This method allows you to identify why customers will choose one company's products over its competitors' then you can estimate the market share of that product or company. You can segment customers into

• customer (product attributes have different importance), or
• producer (different customers have different costs to serve)

Then you can compare the ability to satisfy customers relative to competitors and identify current and potential competitive advantages.

Competitive Business system analysis

Layout the business systems of major competitors and identify:

• product attributes each competitor provides
• costs of capital associated with providing attributes
• reasons for differences in performance between competitors

Alternatively, you can focus on core processes rather than functional orientation.

Industry Structure Analysis

The industry structure analysis looks at the forces outside the industry that will shape the industry's profitability. There are four key external forces:

• substitute products
• supplier bargaining power
• customer bargaining power
• entry and exit barriers