Gaining a Competitive Advantage: How Businesses Make Money Selling Goods and Services - Essay Sample

Introduction

Businesses apply various tactics to make more sales compared to their competitors. These competitive advantages include differentiation and cost leadership. Differentiation and cost leadership tend to make a business unreachable by its competitors. This paper discusses the various methods used by companies to increase their sales and gain a competitive advantage.

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How Businesses Make Money

Selling Goods and Services

Businesses make money by retailing their products or services to consumers at higher prices than they cost to acquire or produce them. Companies also make money by increasing their sales or customers. Increased sales may be as a result of expanded channels of distribution. Companies also make money by increasing the spending per each client either through; offers, promotions and after-sales services. Loyalty programs are also a strategy used by businesses to make money as it enhances the increased frequency of spending.

Strategies Used by Businesses to Gain Competitive Advantage

Cost Leadership

Cost leadership is a competitive advantage used by businesses in pursuit of profit. Cost leadership occurs in situations where a company offers products of an even quality with that of its competitors but at a lower price (Noe et al., 2017). This strategy tends to drive the competitors away from the market as the prices are steadily modified to attract consumers. In this case, the involved business finds a way of producing at low costs, which may include proper utilization of available resources or perfecting their production system.

Differentiation

Differentiation targets at differentiating a business from its competitors. Lowered prices are among the constituents of differentiation strategies. Companies tend to find most marketable features that can distinguish them from the rest of the market. The features are then exposed to the category of buyers in the market that find them valuable. A business may also decide to research features that most consumers value and then develop a position for the learned features.

Position Maintenance by the Use of Defensive Strategies

Defensive strategies are used by businesses to make a profit through the retention of position in the market (Rothaermel, 2017). This strategy gives a business advantage by enhancing a clear distinction between the company and its competitors through the already created competitive advantages. This policy is mostly used to retain variation and cost leadership by a company. It ensures that business continuously becomes unreachable by its competitors.

Conclusion

In conclusion, businesses use various methods to increase their sales and make more profit called competitive strategies. The two major competitive plans are differentiation and cost leadership. Cost leadership involves the use of relatively low prices for commodities of similar quality to competitors. Differentiation, on the other hand, consists of the use of different methods to distinguish the business from its competitors. The use of defensive strategies maintains these competitive advantages.

References

Noe, R. A., Hollenbeck, J. R., Gerhart, B., & Wright, P. M. (2017). Human resource management: Gaining a competitive advantage. New York, NY: McGraw-Hill Education.

Rothaermel, F. T. (2017). Strategic management. New York, NY: McGraw-Hill Education.