Written by JENELLE DEMARCO 06/21/2022

A successful product or service must have a compelling x-factor that grabs the attention of potential customers. Something unique that helps it to stand out from the competition and keeps competitors at a distance. With a powerful competitive advantage, your business can dominate your market, regardless of whether the market is large or a small niche.

A competitive advantage is a powerful tool that enables you to present your product or service compellingly to your potential customers. There is such a large variety of products to choose from nowadays in the marketplace, each serving a specific function. Sometimes many products do the same thing and have no competitive advantage, which is not what you want.

In this section, we'll talk about a competitive advantage, how it works, and some common ways a business can obtain a decisive competitive advantage. We'll also explore the steps needed to identify and implement your own competitive advantage.

What is competitive advantage?

A competitive advantage, or a moat, as Warren Buffett likes to refer to it, is a feature or characteristic of your brand, company, or product that separates you from the rest of the industry. There needs to be something different and unique about your company versus the rest and should be something hard to replicate that prevents any competitors from gobbling you up.

A company's competitive advantage may be realized by the variety of products and services the market offers. For instance, if you're a software company, and your software has features that none of your competitors have developed or are capable of developing. Likewise, if you're a car manufacturer, your cars are electrically powered and offer driverless artificial intelligence software.

A competitive advantage is a strategy that a company can use to improve its market position or performance. There are a number of clever ways that a company can implement this strategy. We'll lay out a few below to help you identify ideas to build your competitive advantage.

Low Cost Advantage

One of the most common types of competitive advantages that a company can achieve is a low-cost advantage. This advantage is obvious and occurs when a company can offer a lower price than its competitors. Usually, this type of advantage is gained through high volume production and is most commonly observed in large organizations that purchase or manufacture goods at such a large volume that they can receive lower costs by purchasing their goods in bulk or locking in tiered pricing from their vendors.

A good example of this is Tesla Motors; the original car the company offered was priced very high and was very expensive to manufacture. The business plan that Elon Musk put out showed that they began with a high-end luxury type car to be able to scale up production as a roadmap to reach economies at scale.

Sometimes, you will find the inverted scenario, when a business is overpriced for the market, and they get away with it because they are the dominant player in their market. We see this in the CRM software space, as an example Salesforce can cost five times the cost of their smaller competitors, like Snapforce.

Quality Advantage

A company's low-cost advantage is focused on price, but it can also differentiate itself by delivering a better-quality product or service. This is because a better-quality product or service is perceived as more innovative and superior than the offerings of similar companies.

Building a better quality product may sound easy, but it takes time and finesse. Companies that rely on a quality advantage will also normally charge a higher price for their products or services, due to the higher expenses the company normally has by having to employ better and more qualified engineers, and developers.

An exception to this rule is often small businesses that begin as startups. They can gain a quality competitive advantage over their competitors because they have lower expenses by doing the engineering themselves. This eliminates the added expense and difficulty in contracting top talent. This is rare but sometimes possible when a startup's founder is a top-tier engineer; for example, we saw this with the early days of Facebook.

Another benefit to having a quality advantage is word of mouth. Often times your existing customers will spread the word about your product naturally, providing your business with organic lead generation. Word of mouth is thought to be the best form of advertising.

First-to-market Advantage

A company's first-to-market advantage can help it establish a significant share of the market, sometimes even creating the market and owning one hundred percent of it from the start. In business, this is one of the better competitive advantage's to have.

Some businesses that offer original products and services can gain credibility by offering the original idea. The downside to the first-to-market advantage is that a large and established brand follows up with a product of their own in the same space and overshadows the first-to-market company before they have a chance to get moving and build their brand. This is usually the largest risk with the first-to-market advantage and often leaves the first-to-market company appearing as the copycat product instead of the original innovator.

How to obtain your competitive advantage

Research Your Competitors

Without a good understanding of what sets your company's product apart from your competitors, you will have a lot of trouble competing in the market effectively. Understanding what your competitors already offer and how much they charge will provide you the feedback needed to begin planning how to find your niche in the market.

The other way to gain your competitive advantage is price, which we covered earlier in this article. It is normally associated with larger companies who gain a lower cost advantage, but not always. If you are in the software or SaaS industry, it is possible to undercut competitors on price much easier than when you are building a tangible or physical product.

Authentic Customer Feedback

Having a good understanding of what sets you apart from your competitors is very important for all aspects of your company. With regard to sales and marketing, it can help make informed decisions and improve the message your team is putting out. Providing your marketing team a niche or competitve advantage can make a world of difference in the success of their campaigns, and how they present your product to the world.

One of the most effective ways to do this is to find out why your customers are loyal to you. Sometimes if you have a good relationship with your customers, they may not want to hurt your feelings, so it may be better to be less personal. One good way is by conducting surveys and by doing random customer check-in calls to ask if everything is working well. Having a good understanding of why your customers are loyal to you can help you determine the value of your product or service.


Having a competitive advantage is very important to ensure that you can make informed decisions and improve the efficiency of your business. Once you have found it, use it to build your brand and integrate it into your sales and marketing outreach. Even if it takes time to build ways to demonstrate it effectively, it is worth it. Having a competitive advantage is one of the most beneficial growth tools a company can ask for. If you have one, use it, and nurture it.

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