Your competitive advantage is the thing you do better than everyone else that keeps customers coming back.
In practice, a competitive advantage is a specific business strength that competitors struggle to copy and that customers notice. This strength is apparent through either price, experience, or outcomes.
Ahead, we’ll show you how to build your own competitive advantage and how to judge whether your current position will still hold in a few months.
What is a competitive advantage?
A competitive advantage refers to a specific capability or position that allows a business to generate stronger sales, higher margins, or better customer retention than competitors facing the same market conditions.
Think of competitive advantage as a competitive moat: the deeper it is, the harder it is for competitors to copy what you do. A common way to evaluate its strength is the VRIO framework, which tests whether an advantage is Valuable, Rare, Inimitable, and Non-substitutable.
In other words, you can use this framework to measure whether your competitive advantage can deliver results now and resist erosion as competitors catch up.
Temporary vs. sustainable competitive advantage
A temporary competitive advantage delivers results quickly but fades once competitors respond. Price discounts, a viral campaign, a feature launch, or early access to a new channel can all create a spike in sales or attention—but they’re easy to copy or neutralize.
A sustainable competitive advantage persists because it’s difficult to replicate; usually rooted in structural factors like cost advantages, strong customer relationships, or operational excellence.
Take Costco: its advantage is a long-standing cost structure, supplier relationships, and a membership model that competitors struggle to reproduce at scale. That advantage compounds over time—in December 2025, Costco exceeded Wall Street’s quarterly expectations by achieving 8.2% year-over-year sales growth, driven by increased digital sales and the opening of new locations.
What isn’t a competitive advantage?
Mistaking table stakes for true sources of competitive advantage is a common error.
Here’s what doesn’t count as competitive advantage:
- Industry standards and baseline requirements. Your business needs GDPR compliance, PCI-DSS if you process payments, or whatever your industry demands. But so does everyone else. Following the rules keeps you in the game—it doesn’t win it.
- Things your competitors already dominate. If Amazon owns fast shipping, don’t try to out-Amazon Amazon. If a competitor has deeper industry relationships or a larger sales team, that’s their game. You’ll burn resources chasing their strength instead of building your own.
- Trendy tools everyone’s adopting. If your competitor can subscribe to, or build, the same tool tomorrow, it’s not an advantage, but simply the cost of staying current.
- Claims every company makes. “We have excellent customer service.” “Our products are high quality.” “We ship fast.” Customers hear claims like these from businesses all the time, so unless you’re measurably, consistently different, it doesn’t matter.
If competitors can copy it quickly, or customers don’t choose you because of it, it’s not a competitive advantage.
Importance of competitive advantage
Whether it’s a unique service, specific expertise, or a brand customers trust, when you don’t have something that sets you apart, you’re left with one lever: lower your prices.
But if your competitor undercuts you, then you undercut them. Everyone’s margin shrinks. Nobody wins except the customer buying at a discount.
This is especially brutal in online retail. For example, Amazon sellers face margins ranging from 5% to 15% largely due to higher fees and operational costs. Shopify merchants typically achieve net margins of around 10%, with top performers reaching 20%.
In that context, even small differences in retention, brand value, or cost structure can mean the difference between compounding profit and perpetual discounting.
Types of competitive advantage
Much of how we understand competitive advantage today comes from the work of Harvard Business School professor Michael Porter, particularly his book Competitive Advantage.
Michael introduced the value chain to show how competitive advantage is built at the activity level—through the specific ways a company designs, produces, markets, delivers, and supports its products.
True advantage emerges from how those activities fit together and reinforce each other. Namely, three types: cost leadership, differentiation, and focus.
Cost leadership
A cost leadership strategy focuses on being the industry’s lowest-cost producer for a certain level of quality. By minimizing production costs, a company can price its products below its rivals, attracting price-sensitive customers and increasing market share. The resulting cost advantage can also improve profit margins.
For instance, an online apparel retailer might secure cost leadership by adopting lean manufacturing, negotiating better terms with suppliers, and streamlining their production and supply chain to deliver high-quality fashion at lower prices than competitors.
Differentiation
A differentiation strategy focuses on offering products or services with unique attributes valued by customers. The company’s competitive advantage lies in its ability to charge a premium for this uniqueness.
For example, a specialty vegetarian jerky brand might be able to produce goods not found in a mainstream foods market. Catering to health-conscious shoppers seeking unique, dried snacks creates a niche market.
Focus
A focus strategy zeroes in on a specific market segment. A business might concentrate on serving a particular demographic, geographic, or target market, providing products or services uniquely suited to its preferences. For example, a clothing retailer might cater exclusively to tall individuals by offering apparel tailored to fit them, securing the brand’s dominance within this niche.
Ashwinn Krishnaswamy, founder of Forge, a New York–based branding and digital strategy agency, advises:
“Niche down. If you think you’re too niche, I’ll suggest you’re not niche enough,” says Ashwinn. “A lot of people have a fear of doing that with their brand. … [But] if you can actually find an aspirational niche or find one category, you can actually pull other people into that category.”
📚Recommended reading: Porter’s Five Forces: How To Apply Them to Your Business
3 real-world competitive advantage examples
Competitive advantage is easiest to observe at the margins; when demand softens or competitors move first. Some businesses bend; others hold.
Here are great examples of brands holding on:
1. Guru Energy
The energy drink category is crowded, and many products share the same trade-off: performance at the expense of synthetic ingredients. Guru Energy took a different approach by offering a natural energy drink made with a short list of plant-based active ingredients and zero sucralose or aspartame. That focus has supported more than 25 years of sustained growth, even as new competitors entered the space.
The brand has continued to grow in both recognition and revenue by deeply understanding its customers and using those insights to shape product development and messaging.
“I personally read through almost every single review on the brand … direct messaging, along with Shopify’s platform on more of the demographic and behavioral data,” says Shingly Lee, vice president of marketing.
And that continues to pay off. During a key 12-day promotional period from Nov. 20 to Dec. 1, 2025, Guru saw unit sales increase by 94% in Canada and 73% in the US compared to the same period the previous year.
2. Glossier
Glossier’s competitive advantage is harder to see at first. Its products aren’t cheaper than competitors, and it doesn’t have secret technology or exclusive ingredients. Their advantage is built on something more durable: community.
By analyzing thousands of comments on its Into The Gloss blog and later on social media, Glossier identifies pain points and develops products that directly address their community’s needs. For example, after noticing countless comments about the desire for a product that would give brows a natural, fluffy look without the stiffness of traditional gels, Glossier developed Boy Brow, which became its hero product.
Glossier’s annual sales on its online store glossier.com amounted to $100 million in 2024.
3. JOOLA
When Richard Lee took over JOOLA, a German table tennis brand founded in 1952, the challenge was focus. The brand had heritage, but growth depended on identifying where that expertise could travel next.
The team immersed itself in the sport, playing locally and studying performance gaps.
On a nearby court, the team watched Ben and Collin Johns, two of the top professional pickleball players in the world. JOOLA decided to design a paddle specifically for elite play and brought early prototypes to the players for testing.
“Ben tried it for the first time and said, ‘Hey, I think you got something going here,’” Richard recalls.
In November 2025, the company opened its signature retail store at Pike & Rose in North Bethesda, Maryland. This marked its first flagship location and a milestone for the brand’s expansion beyond wholesale and ecommerce. The store launched on Black Friday, with the world’s number one pickleball player, Ben Johns, appearing in person for a meet-and-greet.
How to create a competitive advantage
Creating a competitive advantage involves pinpointing and capitalizing on unique strengths to establish a distinctive and defensible market position that resonates with your target market’s needs.
Here’s where to start:
Leverage a SWOT analysis
A SWOT analysis (strengths, weakness, opportunities, threats) identifies which of your strengths genuinely influence customer choice or cost structure, and which weaknesses actively limit your ability to compete.
The goal is to isolate advantages that can be reinforced and defended in the market.
Unlock unique distribution
A distribution strategy focuses on how your product reaches customers, and whether that access is easier, cheaper, or more reliable for you than for competitors. When distribution is difficult to copy, slow to replicate, or tightly controlled, it becomes a durable source of competitive advantage.
Explore sales and marketing channels that can put your product in front of people—from wholesale partnerships and third-party ecommerce marketplaces to TikTok content and Instagram influencer partnerships.
“Distribution is make or break for the business. It’s not just the idea and the brand, but the customer acquisition process,” says Ashwinn.
“It’s underappreciated because people always start with the idea first. But they need to understand, based on different categories, that distribution and capital models look really different.”
Focus on product or service innovation
Product or service innovation as a strategy means improving what you offer in ways that compound over time.
This strategy directs resources toward product development, customer feedback loops, and operational improvements that materially change how the product performs or how customers experience it.
Regional and national innovation surveys, such as the European Regional Innovation Scoreboard 2025, track innovation performance and associate it with broader growth indicators such as employment and sales.
Optimize the customer experience
Optimizing the customer experience means choosing to compete on how easy, reliable, and satisfying it is to buy from you—end to end. For online shops, where products and prices are easy to copy, experience becomes a primary differentiator.
This strategy prioritizes clarity, speed, trust, and consistency across every touchpoint: discovery, checkout, delivery, returns, and support.
Streamline the supply chain
A lean supply chain can lower costs and produce greater efficiency by eliminating excess inventory, streamlining operations, and improving supplier relationships. This, in turn, minimizes waste, reduces lead times, and enables a faster response to market changes.
This efficiency can enable you to offer lower prices or improve profit margins, providing a solid competitive edge against larger companies and new entrants.
Develop strategic pricing models
A competitive pricing strategy starts with understanding willingness to pay (WTP): the maximum price a customer is prepared to pay based on perceived value, not your internal economics. When pricing aligns with WTP, businesses can capture more value without relying on volume or discounts.
Willingness to pay also varies by generation. For example, younger shoppers in particular, show a higher tolerance for premium pricing when value aligns with their priorities. Nearly half of Gen Z (49%) and millennials (47%) say they’re willing to spend more for eco-friendly packaging, compared with 41% of Gen X and 37% of boomers.
From there, you can apply price discrimination, offering different prices to different customer segments based on context. Student or senior discounts are simple examples: the product is the same, but pricing adjusts to match different levels of price sensitivity without eroding overall value.
Another common approach is bundled pricing, where products or services are grouped together to increase perceived value and average order value.
Invest in human capital and culture
A human capital competitive advantage comes from how consistently a company develops, retains, and empowers its people. Training, mentorship, and culture matter because they determine how people adapt when markets and expectations change.
Recent research on US organizations shows a clear divide. Many companies adopted new technologies without changing roles, processes, or training, resulting in pilots that failed to scale and teams that felt monitored rather than supported. Others redesigned work around their people—deciding what should remain human and what could be automated. Those companies are seeing more durable gains, reinforcing the conclusion that competitive advantage in 2026 comes from collaborative intelligence.
Build strategic alliances and partnerships
Strategic alliances and partnerships can unlock new competitive advantages by combining strengths, resources, and market presence. By collaborating with other businesses, you can access new customer bases, share the burden of research and development costs, and accelerate innovation.
Prioritize branding and positioning
Strong branding and positioning give a company’s products or services a recognizable identity and ensure they are perceived as unique and desirable within a well-defined market segment. By developing a brand that resonates with your target audience, you can differentiate your company and foster a sense of loyalty and trust.
This recognition can allow you to maintain higher margins as customers are often willing to pay more for brands they perceive as superior or closely aligned with their values.
“You really have to build a unique brand identity, meaning you need to have a unique brand strategy,” Ashwinn says. “You need to position in the market correctly, and you need to have a perspective and point of view.”
Leverage intellectual property management
Effective intellectual property management can help secure your innovations and create significant barriers to entry.
You can prevent other companies from replicating your success by patenting proprietary technologies or processes. This exclusivity allows for greater market control and pricing power and improves your appeal to investors and customers.
How to maintain a competitive advantage
A sustainable competitive advantage depends on continual reinforcement, because what worked once will erode unless it’s actively defended and updated.
To maintain competitive advantage over time, businesses need to focus on a few ongoing disciplines:
- Monitor the market continuously. To spot shifts in pricing, positioning, customer behavior, and competitive moves before they become threats.
- Track the right metrics. Including customer satisfaction, retention, market share, and profitability.
- Stay current with technology trends. Especially ones that affect cost structure, customer experience, or operational efficiency.
- Build structured customer feedback systems. So that changes in preference are detected early, not after churn increases.
- Protect what’s hard to copy. Reinforce the processes, relationships, data, or capabilities that make your advantage difficult for competitors to imitate.
- Re-test your advantage regularly. Make sure it still creates value and hasn’t quietly become table stakes.
Competitive advantage FAQ
What is the difference between competitive advantage and comparative advantage?
A competitive advantage is a company’s ability to offer greater value through lower cost or higher quality.
Comparative advantage generally refers to a country’s efficiency in producing a particular good or service at a lower opportunity cost than other countries.
How is competitive advantage determined?
A company’s competitive advantage is determined by identifying its unique strengths, resources, and capabilities that enable it to outperform its competitors.
What creates and sustains competitive advantage?
Competitive advantage is created by making deliberate choices about how to compete—such as cost structure, differentiation, distribution, pricing, or customer experience—and aligning the business around those choices. It’s sustained by continually reinforcing what’s hard to copy while adapting as markets and customer expectations change.
What is a sustainable competitive advantage?
A sustainable competitive advantage is an advantage that holds up over time because competitors can’t easily replicate or neutralize it.
What are Porter’s three competitive strategies?
According to Michael Porter, companies achieve competitive advantage through one of three competitive strategies: cost leadership (being the lowest-cost producer), differentiation (offering something customers value enough to pay more for), or focus (serving a specific market segment better than competitors).
