WHAT IS COMPETITIVE ADVANTAGE MICHAEL PORTER? - JOB - 2025

The Competitive Advantage of Michael Porter states that there are three main ways to position itself in the market over competitors: for the lowest prices, differentiation and focus.

Michael Porter is an American economist, professor, and researcher at Harvard University. Porter has published a series of works framed in the field of business strategy, considered very influential in current corporate models.

Michael porter

In 1985 he published the book Competitive Advantage, dedicated especially to senior executives, but which has been an important influence on many people at different business levels, interested in knowing the most efficient ways to be successful in business.

Porter states that every company must have a clear strategy, because only through it will it be possible to outperform the competition.

According to Porter, a fundamental part of the strategy is to establish what the competitive advantage of a company is, an advantage that will be sustainable during the life of said company and will allow it to face the competitors in the sector.

Another fundamental idea of ​​Porter's thinking is the notion of the value chain, which is generated as a consequence of adding value to each of the activities that are part of a company.

Michael Porter's concept of competitive advantage implied a change in the structuring of corporate strategies and encouraged many entrepreneurs, large and small, to put into practice these ideas that he presented in a simplified way.

You may be interested Porter's Diamond: Definition and its 4 Pillars.

Types of competitive advantage according to Porter

For low prices

This type of competitive advantage has to do with the ability of a company to offer a product or service at the lowest price on the market.

A company will be able to offer lower prices than its competitors if it is able to produce these products or services at a low cost.

This notion is based on the following: if a consumer is presented with two products that are substitutes, and one is cheaper than the other, that consumer will tend to choose the least expensive product.

Low price leadership does not necessarily consider that the manufactured product is of better or worse quality than those of the competition.

It refers exclusively to the positioning generated by offering products or services at prices lower than those of competing companies.

Among the factors that can influence generating leadership due to low costs, economies of scale stand out.

This term refers to the low cost of production that a company can achieve when its production level is high: the higher the production level, the lower the cost. Any large-scale production company is an example of an economy of scale.

Another factor that can influence the generation of a competitive advantage due to low prices can be the location of productive industries in geographical areas that imply less investment in aspects such as labor, payment of services or maintenance of the physical space.

By differentiation

In the case of competitive advantage by differentiation, a company offers a product or service, which is perceived by the public as superior to substitute products or services offered by other companies in the market.

Although all production processes will always seek to generate products or services in the most productive way possible (that is, generate the highest quality while investing the least amount of resources), in competitive advantage by differentiation, no more importance is given to offering a lower price than that offered by competing companies.

The differentiation can be based on different aspects that respond to what are the benefits that a company can offer, that add value to the product or service, and that are so relevant for the consumer that he may be willing to invest more money to receive what he will consider a better product than what the competition can offer.

From this perspective, innovation plays a key role, because it is about offering one or several really remarkable characteristics so that the product or service is very valuable to the consumer.

One of the most characteristic examples of competitive advantage by differentiation is the Apple company, which constantly offers products that offer some innovation and, although its offer does not include prices lower than its competitors, it is one of the best-selling technology product industries..

By focus

This competitive advantage is related to the absolute dedication to fully understand the characteristics and needs of the public or target to which a company offers a certain product or service.

Given that focusing on a specific target will imply almost absolute dedication to that audience, this competitive advantage generally arises in small markets. The emphasis is on creating the most personalized experience possible.

The focus can be generated by applying a low price or differentiation perspective. In any case, the ultimate goal is for the consumer to feel cared for directly and personally.

Generally, very large industries that are dedicated to handling fairly large markets do not have this type of competitive advantage.

Smaller companies, with a greater possibility of personalized outreach to customers, may have the ability to effectively target their customers.

Detractors of Porter's vision

In 2014, economist Rita Gunther McGrath published a book called The End of Competitive Advantage.

In this work, he argues that, given the current conditions of society, the concept of competitive advantage is no longer the most accurate, and raises another type of advantage: the transitory advantage.

This vision is based on the fact that consumers today are not as easy to study and predict as in past times, and this implies that the competitive advantages that can be identified are not maintained over time, due to the wide variability of the consumer behavior.

The vision behind the transitory advantage model indicates that a company will have better results if it works on several advantages at the same time, and these advantages will be temporary because they can vary, always subject to market movement.

References

1. "Comparative Advantage" in Investopedia. Retrieved on September 8, 2017 from Investopedia: investopedia.com.
2. Satell, G. "Why The Ability To Collaborate Is The New Competitive Advantage" (December 4, 2017) in Forbes. Retrieved on September 8, 2017 from Forbes: forbes.com
3. Gunther, R. "Transient Advantage" (June 2013) in Harvard Business Review. Retrieved on September 8, 2017 from Harvard Business Review: hbr.org.
4. "Michael Porter" (August 1, 2008) in The Economist. Retrieved on September 8, 2017 from The Economist: economist.com.
5. Amadeo, K. “What Is Competitive Advantage? 3 Strategies That Work ”(May 11, 2017) in The balance. Retrieved on September 8, 2017 from The balance: thebalance.com.
6. "Apple reduced profits but increased iPhone sales" (January 31, 2017) in El Informador. Retrieved on September 8, 2017 from El Informador: informador.com.mx.
7. "Michael E. Porter" at Harvard Business School. Retrieved on September 8, 2017 from Harvard Business School: hbs.edu.
8. "Competitive advantage" (August 4, 2008) in The Economist. Retrieved on September 8, 2017 from The Economist: economist.com.