what is a competitive advantage 
competitive advantage refers to factors that allow a company to produce goods or services better or more cheaply than its rivals these factors allow the productive entity to generate more sales or superior margins compared to its market rivals competitive advantages are attributed to a variety of factors including cost structure branding the quality of product offerings the distribution network intellectual property and customer service investopedia michela buttignolunderstanding competitive advantagecompetitive advantages generate greater value for a firm and its shareholders because of certain strengths or conditions the more sustainable the competitive advantage the more difficult it is for competitors to neutralize the advantage the two main types of competitive advantages are comparative advantage and differential advantage a comparative advantage is when a firm can produce products more efficiently and at a lower cost than its competitors a differential advantage is when a firm s products or services differ from its competitors offerings and are seen as superior advanced technology patent protected products or processes superior personnel and strong brand identity are all drivers of differential advantage these factors support wide margins and large market shares for example apple is famous for creating innovative products such as the iphone and supporting its market leadership with savvy marketing campaigns to build an elite brand another example is major drug companies they can market branded drugs at high price points because they are protected by patents competing on price can be effective but if you slash prices too much you risk decreasing profit margins to an untenable level many firms opt instead to differentiate themselves in other ways which helps preserve or expand their profit margin the term competitive advantage traditionally refers to the business world but can also be applied to a country organization or even a person who is competing for something competitive advantage areasto build a competitive advantage a company can use one of three main methods 