Competitive Advantage for Franchises

Many organisations, including franchises, strive to attain a competitive advantage, but few truly understand what it is, how to achieve it and, perhaps most importantly, how to keep it.

- Dr Gerhard Van Wyk

A COMPETITIVE ADVANTAGE is a condition or circumstance that creates superior value for a company above its rivals. Such an advantage can be gained by, over a sustainable period, offering consumers greater value than your competitors, whether by offering lower prices for providing quality services or benefits that justify a higher price. The strongest competitive advantage, however, is a strategy that cannot be imitated by other companies.

American academic and economist, Michael Porte, defines three generic strategies that companies may use to gain competitive advantage:

Cost leadership strategy — to achieve the lowest cost of operation in the industry.

Differentiation strategy — developing products or services that offer unique attributes that customers perceive as better than other similar products.

Focus strategy — concentrates on achieving differentiation within a narrow segment, be it product lines, buyer segments or geographic markets.

COST ADVANTAGE RESULTING FROM EFFICIENCY  

Efficiency is the ratio of inputs to outputs. Inputs being any materials, overheads or labour assigned to the product or service, while outputs are measured as the number of products produced or services performed. Efficiency can be improved either by maintaining constant outputs while reducing inputs, or maintaining constant inputs while increasing outputs. The company that achieves the highest efficiency for a service or product will widen the gap between cost and perceived value, effectively increasing their profit margin.

PRODUCT DIFFERENTIATION