3 strategies for a sustainable competitive advantage

Here’s what they’ll teach you at any business school. Successful companies use three types of strategies to develop a sustainable competitive advantage: differentiation, cost dominance and blocking (or protection). Think about this when you create your company.

Differentiation

The product or service offered differs from the competition by one or more of its characteristics. The value perceived by the consumer then increases.

How to make it sustainable?

Limit the possibility of imitating the product or service by making it difficult (production process, company organisation, partnerships or key functions).

Create a situation of imperfect mobility of differentiation factors (via intangibles such as brand or reputation, a risky cost of changing supplier for your customers, etc.).

Carry out a low cost policy to increase margins and reinvest in the brand, product design or other differentiating factors.

How to make it sustainable?

Reduce its margins by selling more than the competition or by compensating for the loss of income through the results of other company activities.

Reduce its costs through an exclusive low-cost distribution system, a supply of raw materials and/or cheaper labour.

Focusing on market segments for which price is the most important characteristic (e.g. Leclerc, which sells its own food products at a lower price than the major brands).

Potential dangers

If competitors are able to do the same, then this strategy is ineffective.

Consumers may associate a low price with low quality or added value.

By reducing prices, one reduces one’s margin and thus one’s ability to finance a policy of differentiation in the future.

Blocking or protection

This is the situation where a company’s position in its industry is such that it becomes the standard.

What are the success factors?

Size or market dominance. Competing companies will tend to conform to the standards of the organization they perceive as dominant in the market.

The advantage of the first entrant, which can set its standards very early in the life cycle of the market.

The strengthening of standard status, due to the effect that the more companies follow a standard, the more others will follow.

Company example

Microsoft has not imposed itself by the performance of its products. Microsoft has become a standard by managing to make the IT industry develop around its products, and thus become dependent on them.