What is competitive advantage, and how does it relate to a company’s business model?

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12th Jun 2020 Business Question Reference this

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Question:

What is competitive advantage, and how does it relate to a company’s business model?

Answer:

Competitive advantage occurs when a company’s profit growth and profitability is higher than the average of other companies under same categories who has similar Customers. It is a performance of different activities/strategies then rivals in order to achieve desire goal. 

A business model is combination of various strategies to achieve above average profit growth and profitability to make a company unique and able to consistently outperform them.

Competitive advantage is related to a company’s business model as competitive advantage is benefit/advantage over competitors gain by low cost, greater values, benefits and services which justifies the higher prices of product. The low-cost business model such as IKEA, for example, it offers a wide range and low-cost furniture which is well designed and low cost. It is based on cost leadership involving low resource cost, gather source components from widely spread suppliers located in different countries, low cost manufacturing techniques, minimize the cost of inventories, wider selection and easy to fix disassembled furniture parts etc. IKEA use its business strategies to turn customer as free laborers by designing dissemble and easy to fix furniture techniques making them much more valuable and profitable. These savings are passed on to the customer in form of low prices and well-designed furniture. They ensure capability to meet customers demand. Low costs in all operations are prerequisites for the lowest prices. It gives big volumes in sales and long-term profits for IKEA.

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