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Why is competitive advantage in business important?

Each business is unique. Although many operate in similar industries or offer similar products and services. Achieving a competitive advantage is therefore one of the keys to a business’s success. A competitive advantage in business is the ability to perform better or differently than your competitors. Essentially it is the leading edge one business has over another. 

A competitive advantage in business could be the ability to obtain natural resources that are not available to competitors, having a team of skilled specialists, innovative technology, or the ability to offer a lower cost than competitors. It can also refer to the quality of products and services in relation to its price and value for money. A business’s competitive advantage can also be improved by the speed, production, and the efficiency of the business to operate as a whole.

As a business owner you might pride yourself on the impeccable quality of customer service and the speed at which you can respond to a customer. Or you could have a number of top performing team members who are outstanding and you are able to provide better service than any of your competitors. The strategy you choose can help define your competitive advantage in business.

Types of Competitive Advantage Strategies

By having a strategy for your business you will be able to narrow your focus and target your preferred audience. There are generally 3 main strategies that a business can choose. These include the cost leadership model, the differentiation strategy and the focus strategy.

Cost Leadership Strategy

A cost leadership strategy is in a sense ‘the race to the bottom’. A business’s ability to become the lowest cost producer. A business may have the ability to produce a lot of material and products. So their strategy could be to drive out similar businesses by offering the lowest cost whilst still maintaining the quality. If a business is able to produce products with economies of scale, it can potentially outperform other competitors. 

If a business was service based, they could offer services at a cheaper rate than their competitors. This is one way they could gain a competitive advantage in business. A great example of this strategy would be Aldi, they keep the costs of their products low, however the quality high. Aldi have low labour costs by designing their stores to be a flat pack drop of products, meaning their team members will very rarely have to pack shelves. The customers pack their own bags at checkout, making a mostly faster checkout process. Aldi have created their own version of popular food and drink items, achieving economies of scale across all of their stores. They are then able to pass those discounts onto their customers and offer a better value for money. 

Differentiation Strategy

This type of business strategy is when a business aims to stand out amongst their competitors by offering high quality service and unique products to their customers. When a company is able to differentiate well, they can charge a premium price.

For example the company Apple offer prestigious products, they rarely hold a sale on their products and they have processes in place to stand out in the market. They offer a unique approach to service, with an open plan store and technical experts who assist quickly. They are also market leaders in what they provide. Streamlined devices that improve with every new model that gets released. Apple also rely on their branding to help them differentiate in the market and gain a competitive advantage. 

Focus Strategy

When a business chooses a focus strategy, they are developing, marketing and providing products and services to a niche market. This could be a particular kind of customer or a unique location for example. This strategy can be very successful if the business can create products and services that target this narrow segment of the market.

An example of a focus strategy could be a construction company that specialises in making houses that are designed to withstand bushfires. They can then market themselves as the leading business in providing safe homes to customers that live in those affected locations. This business may choose to only use materials that are mostly fire resistant and build the homes in a style that reduces risk of fires approaching.  

How to achieve a competitive advantage in business?

Once you have chosen your business’s strategy you might be wondering how to achieve a competitive advantage over your competitors.

First Mover Advantage:

One of the ways a business can achieve a competitive advantage is by being the first to market with a novel product or way of offering a service. Apple really excels in this approach. Introducing the Ipod, for example, as the first to market. Following this many other businesses attempted to create their own versions. However, Apple still maintained the market leader position. To achieve the first mover advantage and promote your products and services you may need extra capital to get started. If you are planning to launch new products or want to expand into different markets, check out our Lumi small business loans as an option for business funding. 


This refers to physical assets and team members in the business. Physical assets could be machinery, equipment, office spaces, tools and the maintenance of these physical resources. Having the right team in place can make or break a business’s success. Therefore hiring the right amount and type of staff is key. The Australian Government provides assistance with the hiring process and some helpful tips. You could also benefit from the services of a recruitment agency who specialises in your industry. 

If your business is in a growth period, you may benefit from a business loan or a business line of credit to fund relevant resources that can help your business expand. 


There are so many different online tools and technologies that can really help achieve a competitive advantage in business. There are a number of online marketing platforms available that can help you market to your customers more efficiently. Most businesses nowadays understand the power of paid performance marketing.  Paid performance marketing includes Facebook Ads, Google Ads and any other social media or digital platforms. Using a small business loan could be one option to fund your next marketing campaign. For further tips, check out our article “How to grow your small business with marketing.”


This is crucial when wanting to differentiate in the market and can also help you gain a competitive advantage in business. Branding refers to how your business looks and feels to the customer. It allows your audience to identify with your business whenever they see the logo, slogan, physical or online store. Or when a consumer comes into contact with your business in any way. 

Take Coca Cola for example. This brand is one of the most highly recognised logos in the world. Billions of people associate the Coca Cola logo with the experience of the beverage. It’s because of the way they market themselves. Coca Cola invests heavily in PR, marketing and branding strategies. If you watch a Coca Cola advertisement, it normally involves a group of people gathering and having a truly fantastic time. This helps the consumer associate their brand with the feeling of the product – happiness.

To adequately define the look and feel of your business you may benefit from hiring a creative agency. These are experts in helping you achieve a competitive advantage in business trough branding. They can work with the individual business to determine what their differentiating qualities are and then market to this.

Overall gaining a competitive advantage in business helps generate sales, gain market share from other competitors and ultimately helps your business grow. Having a well defined strategy in place will guide all business decisions in that direction. Obtaining a small business loan or some other type of business funding could enable your business to grow and help you gain and maintain a competitive advantage.

Feel free to get in touch with our team of business loan experts here at Lumi via support@lumi.com.au or give us a call on 1300 00 5864. 

Your Lumi team

Post Author: Vanessa Muller

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