Question

Define competitive advantage and describe the two approaches used to estimate a firm's competitive advantages

Answer 1

• Competitive advantage is a condition in which any firm or an organisation is said to be in a superior position than any other firm in every aspects like higher profit, valuable resources, greater return on assets etc.
• There are many different ways to estimate competitive advantage, but the two most important ones are :-

1. Cost leadership.
2. Differentiation.

1. Cost leadership :- a firm is able to achieve a cost advantage if it is able to produce same quality goods at a lower price than the other firms by the efficient use of raw materials.

2. Differentiation :- it is a strategy used by firms inorder to achieve competitive advantage in which they produce products that are different from their competitors in terms of attributes.