I’ve been guilty of using the phrases “competitive edge” and “competitive advantage” as synonyms for each other and to a large extent I think that’s valid.
Both can relate to a benefit one business has over a particular competitor or all the other competitors in the practical market.
But I’ve been forced to have a little rethink when a prospective client asked me “Paul what’s the difference between a competitive edge and a competitive advantage?”
He didn’t know the answer, so he wasn’t testing me but he wanted to understand the subtle distinction.
That got me thinking. Is there a difference between competitive edge and competitive advantage? It was the business strategy guru and Harvard professor Michael Porter who popularised the term competitive advantage in his two classic books Competitive Strategy and Competitive Advantage.
Porter argues that there are two basic forms of competitive advantage:
- cost leadership – which gives the business the choice of selling at lower prices or making higher profits
- differentiation – which creates buyer preference
These advantages can be applied to the broad market or to a focused niche market.
I don’t associate the phrase competitive edge with any particular business thinker but a quick search on the internet came up with two very different definitions.
Competitive edge “is the ability of an organization to produce goods and services more effectively than competitors do, thereby outperforming them. This means they must stay ahead in four areas: being responsive to customers, innovation, quality, and efficiency.” (Answers.com)
“Competitive Edge is having a clear advantage over the competition in terms of one or more elements of the market mix that is valued by potential customers.” (The market mix is the seven P’s of marketing – Product, Price, Place, Promotion, People, Process & Physical evidence) (Coursework.biz)
It’s this second answer which I think is closer to the mark.
For me, a competitive edge is establishing a buying preference with the customer in comparison to the other options available.
I see competitive edge as a sub-set of competitive advantage more closely related to differentiation than to cost advantage.
A lower selling price can give you a competitive edge (since it influences buyer preference) even if the business doesn’t have a cost advantage over its competitors but instead accepts a lower margin.
But I don’t want you to focus on price. Far from it.
I want you to develop competitive edges which are strong enough to justify preference at the same or higher prices than competitors. This is where you need to be thinking about the 7 Big Questions of Business Success.
For most people, I don’t think there is a difference between competitive advantage and competitive edge.
But, if I’m asked again, at least I’ve thought through an answer.