Lesson: Creating Competitive Advantage

Key Learning Outcomes:

- Understanding the concept of competitive advantage and its role in business

success.
- Learning about different business models and how they support competitive
advantage.
- Gaining Knowledge on the importance of intellectual property rights in protecting
innovations.

In general, the module provides students with the legal and strategic skills needed to
manage a company in the fast-paced business world of today, emphasizing innovation,
flexibility, and safeguarding competitive assets.

Competitive Advantage:

- Competitive advantage is the capacity of an organization to outperform its

competitors by use of special qualities, tactics, or assets.

Example:

- Apple gains a competitive advantage through innovation and high-quality design,

which differentiate its products from competitors.
- Shoppee‘s excellent customer service and logistics capabilities enable them to rule
the eCommerce market.

Sources of Competitive Advantage

- These are the qualities that set one company apart from the others. Consider it as
the unique "powers" that a company possesses.

Common Sources:

1. Brand Reputation: companies like Coca-cola have such a strong brand image that
people trust and prefer their products, even if they’re similar to others.
2. Better Technology: having advance technology, like Tesla’s electric car batteries,
that can make a company stand out.
3. Unique Products: If a company makes something really special that others don’t
such as Apple’s Iphone.
Sustainability of Competitive Advantage:

- This refers to how long a company can keep its advantage.

Types of Sustainability

1. Long-lasting – this is when a company’s advantage stays strong for a long time
because it’s hard to copy of to replicate.
Example: Google Search
o Why? Google has developed an incredibly powerful search engine that’s hard
to replicate.
o Google’s advantage lasts because creating a search engine that works as
well as Google’s takes a lot of time, money, and skill.
2. Temporary Sustainability – This is when a company’s advantage only lasts for a short
time because others can catch up or copy it quickly.
Example: New smartphone features
o Why? When a company like Samsung comes out with a new phone feature
(like a better camera), it might attract more buyers, but soon, other
companies like Apple or Huawei will add similar features to their phones.
o The advantage doesn’t last long because technology changes fast, and
competitors can easily match those features.

In Simple Terms:

• Long-lasting sustainability: The advantage stays for a long time because it’s hard
to copy (like Google’s search engine or Coca-Cola’s brand).

• Temporary sustainability: The advantage fades quickly because others can catch
up easily (like new phone features that competitors can replicate).
Resource Based View:

1. Resource Heterogeneity: This refers to the idea that firms have different resources
(e.g., technology, skills, or patents) that provide them with distinct advantages.
These resources must be unique and not widely available across competitors.

o Example: Apple’s design capabilities are considered heterogeneous

because no other tech company can replicate them easily, giving Apple a
unique position in the market.

2. Resource Immobility: Resources are not easily transferable or replicable by

competitors. Firms with immobile resources can maintain a competitive edge
because competitors cannot easily acquire or develop similar resources.

o Example: Coca-Cola’s secret formula is an immobile resource that is

difficult to replicate, allowing Coca-Cola to sustain its advantage.

3. Value: Resources must provide value to the company by enabling it to exploit

opportunities or defend against threats.

o Example: A strong brand like Nike adds value by attracting customers and
allowing the company to charge premium prices.

4. Rareness: Resources must be rare or scarce, meaning few firms possess them. The
fewer companies that have access to such resources, the greater the competitive
advantage.

o Example: Tesla’s battery technology is considered rare because it is highly

specialized and few competitors can match it.

5. Imperfect Imitability: Resources that are difficult or costly for competitors to

imitate are key to sustained competitive advantage. This could be due to historical
conditions, causal ambiguity (competitors not understanding how the resource
provides value), or social complexity.

o Example: Google’s algorithm is highly complex and difficult to imitate,

giving the company a sustained advantage in search technology.

6. Substitutability: There should be no strategically equivalent substitutes for the

resource. If competitors can easily substitute the resource, its value diminishes.

o Example: Intel’s microchip technology is hard to substitute, giving Intel a

lasting competitive edge in the semiconductor industry.
6 Ways to Gain Competitive Advantage

1. Create a Positive Work Culture

- Happy employees equals to happy customers. If a company treats its workers well, they
will provide better service, which makes customers happy. For example, if workers feel
supported and motivated, they will give their best, leading to better customer care and
higher-quality products. This helps the company stand out from its competitors.

2. Find Under-Served Markets

- Instead of going after big markets with lots of competition, focus on smaller markets that
aren’t getting enough attention. Imagine fishing in a small pond where there are fewer
people fishing you have a better chance of catching something. Similarly, finding
customers in a niche market can give you an advantage.

3. Know Your Ideal Customer

- Not every customer is right for you. You need to figure out who your perfect customer is
and understand their needs, decision-making process, and buying habits. When you meet
their specific needs, they will stay loyal to your business. For example, if you sell sports
gear, knowing which sports your target customers play can help you offer the right products
at the right time.

4. Clarify Your Strengths

- Every business has strengths whether it’s their technology, experience, or skills. Focus
on these strengths and use them creatively to stand out. For example, if your company is
known for fast delivery, use that as a selling point to win customers who value quick
service.

5. Create a Unique Selling Point (USP)

- A unique value proposition is what makes you different from your competitors. Ask
yourself, "Why should someone choose my business?" Keep asking “so what?” until you
find a truly unique answer. For example, instead of just saying “we have good customer
service,” say “we offer 24/7 support, and if we don’t fix your issue within two hours, you get
a free replacement the next day.”
6. Reward Behaviors that Support Corporate Mission and Value

- Rewarding both your employees and loyal customers helps build long-term
relationships. For example, top-performing employees might earn a travel incentive, while
loyal customers could get special discounts. This strengthens trust and motivates
continued support for the company.

Business Models

- is a conceptual structure that supports the viability of the business and explains
how it operates, makes money, and how it intends to achieve its goals.

According to Peter Drucker “ A business model is supposed to answer who your customer
is, what value you can create/add for the customer and how you can do that at reasonable
costs.” Thus, a business model is a description of how a company creates, delivers, and
captures value for itself as well as the customer.

Importance of business model

1. Defines Value: Explains what the business offers to customers and why it matters.
2. Identifies Target Market: Clarifies who the business will serve.
3. Shows Revenue Streams: Lays out how the company will make money.
4. Manages Costs: Helps control expenses by understanding the cost structure.
5. Guides Strategy: Acts as a roadmap for long-term success and decision-making.
6. Attracts Investors: Provides potential investors with a clear view of how the
business will be profitable.
7. Ensures Competitive Advantage: Explains how the business can stand out and
outperform competitors.

1. Defines Value:

a. What is the business offering?

b. Example: Netflix offers on-demand movies and TV shows. Its business

model revolves around delivering entertainment at your convenience.

2. Identifies Target Market:

a. Who are the customers?

b. Example: McDonald's targets people looking for fast, affordable meals.

Their business model focuses on quick service to meet the needs of busy
people.
 3. Shows Revenue Streams:

a. How does the company make money?

b. Example: Spotify uses a freemium model—users can listen to music for

free but pay for premium features like no ads and offline listening.

4. Manages Costs:

a. What are the business’s main costs?

b. Example: A company like Walmart keeps costs low by managing a large

supply chain efficiently, allowing them to offer lower prices to customers.

5. Guides Strategy:

a. What’s the long-term plan?

b. Example: Tesla’s business model focuses on electric cars and innovation,

guiding its strategy to invest in new technology and sustainable energy.

6. Attracts Investors:

a. Why should people invest in the company?

b. Example: Uber attracted investors by showing how their app connects

drivers with passengers and how they could scale it globally.

7. Ensures Competitive Advantage:

a. How is the business better than competitors?

b. Example: Apple has a business model that focuses on premium products

with unique designs and a loyal customer base, giving it an edge over other
tech companies.

30 Types of Business Models

1. Manufacturer: Produces products from raw materials.

• Example: Ford makes cars.

2. Distributor: Buys products from manufacturers and sells them to retailers or directly to
customers.

• Example: Auto dealerships.

3. Retailer: Sells goods directly to customers.

• Example: Walmart or Amazon.

4. Franchise: Uses the business model and brand of a parent company.

• Example: McDonald's franchises around the world.

5. Brick-and-Mortar: Traditional businesses with physical stores.

• Example: Starbucks.

6. E-Commerce: Selling products online.

• Example: Amazon or eBay.

7. Bricks-and-Clicks: Combines online and physical stores.

• Example: Best Buy, where customers can order online and pick up in-store.

8. Freemium: Offers basic services for free but charges for premium features.

• Example: Spotify (free version with ads, paid version without ads).

9. Subscription: Customers pay regularly for continuous access to a service.

• Example: Netflix.

10. Aggregator: Brings together multiple service providers and offers them under one
brand.

• Example: Uber for ride-sharing.

11. Online Marketplace: Multiple sellers compete on one platform.

• Example: Amazon or Alibaba.

12. Advertising: Free content is provided, and revenue comes from ads.

• Example: YouTube.

13. Data Licensing: Selling or licensing data to third parties.

• Example: Facebook selling user data for targeted ads.

14. Agency-Based: A company provides services on behalf of another.

• Example: Marketing agencies like Ogilvy.

15. Affiliate Marketing: Earns a commission by promoting another company’s products.

 • Example: Bloggers promoting products and earning commissions through affiliate
links.

16. Dropshipping: Selling products without holding inventory.

• Example: Shopify store owners who sell goods that are shipped by suppliers.

17. Network Marketing: Sales are made by individuals who recruit others into the
business.

• Example: Amway.

18. Crowdsourcing: Users contribute to the value of the product or service.

• Example: Wikipedia, where users contribute content.

19. Peer-to-Peer (P2P): Users interact directly without an intermediary.

• Example: Airbnb (hosts rent out their spaces directly to guests).

20. Blockchain: A decentralized, digital ledger where transactions are verified by a

network.

• Example: Bitcoin.

21. SAAS (Software as a Service): Customers pay for software access on a subscription
basis.

• Example: Microsoft 365 or Google Workspace.

22. IAAS (Infrastructure as a Service): Offers computing infrastructure as a service.

• Example: Amazon Web Services (AWS).

23. PAAS (Platform as a Service): Provides a platform for customers to build software.

• Example: Google Cloud Platform.

24. High Touch: Requires lots of human interaction to make a sale.

• Example: Consulting firms like McKinsey & Co..

25. Low Touch: Minimal human involvement; relies more on technology.

• Example: IKEA, where customers shop with little salesperson assistance.

26. Auction-Based: Buyers bid to purchase goods.

• Example: eBay, where people bid on products.

27. Reverse Auction-Based: Sellers bid to offer the lowest price to the buyer.

• Example: Platforms that allow companies to bid for government contracts.

28. Razor and Blades: The core product is sold cheaply, and profit comes from selling
complementary products.

• Example: Gillette sells razors cheaply but makes money from the blades.

29. On-Demand: Fulfills customer demand in real-time.

• Example: Uber, where you can order a ride instantly.

30. User Community: A platform where users interact and generate value.

• Example: Glassdoor allows users to leave company reviews and interact.

Steps to Start a Business

1. Conduct Market Research:

• Before starting a business, you need to find out if there is a demand for your product
or service.

• Example: If you want to open a bakery, you should check if people in your area are
interested in buying baked goods and if there are already too many bakeries.

2. Write a Business Plan:

• A business plan is like a roadmap for your business. It outlines what you will sell,
who your customers are, how you will make money, and how much you need to
start.

• Example: If you’re starting an online store, your plan should detail your products,
target market, and how you will handle shipping.

3. Fund Your Business:

• You need money to start your business. You can use your savings, get a loan, or find
investors to help you.

• Example: If you want to open a restaurant, you might need to borrow money from
the bank to rent a place, buy kitchen equipment, and hire staff.

4. Pick a Business Location:

 • Decide whether your business will have a physical location (like a store) or be
online. Your location will impact things like customer accessibility, taxes, and costs.

• Example: If you start a clothing store, you’ll need to rent a shop, while an online
store can be run from home.

5. Choose a Business Structure:

• This is how you legally set up your business, such as a sole proprietorship,
partnership, or corporation. Each structure has different tax and legal
responsibilities.

• Example: If you start a business on your own, you might choose a sole
proprietorship where you own the whole business.

6. Pick and Register Your Business Name:

• You need a unique name that represents your brand. After choosing the name, you
must register it so no one else can use it.

• Example: If you name your bakery “Sweet Treats,” you will need to register that name
with your local government.

7. Get Licenses and Permits:

• Depending on your business type, you may need certain licenses or permits to
operate legally.

• Example: A restaurant will need health and safety permits, while an online store
might need sales tax registration.

8. Get Federal and State Tax IDs:

• You’ll need a tax identification number (like an EIN in the U.S.) to pay business taxes
and hire employees.

• Example: If you start a tech company, you need to apply for an EIN so you can legally
operate and pay taxes.

9. Open a Business Bank Account:

• Keep your personal and business finances separate by opening a business bank
account. This helps with accounting and tax filing.

• Example: For your bakery, you would open a separate account where you deposit
earnings and pay for business expenses.
10. Market Your Business:

• Spread the word! Use social media, advertising, or word-of-mouth to let people
know about your business.

• Example: Create an Instagram page for your bakery, post pictures of your treats, and
offer promotions to attract customers.

Intellectual Property refers to creations of the mind, such as inventions, artistic works,
designs, and symbols, which are protected by law. IP law gives creators the rights to control
how their creations are used and ensures they benefit from their work.

Types of Intellectual Property:

1. Patents: Protect inventions by giving the inventor the right to stop others from
making, using, or selling the invention without permission.

o Example: A company patents a new smartphone technology, preventing

competitors from copying it.

2. Trademarks: Protect brand names, logos, or symbols that distinguish products or

services in the market.

o Example: The Nike "Swoosh" logo is a trademark that identifies Nike

products.

3. Copyrights: Protect creative works like music, books, art, films, and software. It
gives the creator exclusive rights to reproduce, distribute, or display their work.

o Example: A song is copyrighted so only the songwriter or authorized persons

can sell or use it.

4. Trade Secrets: Protect confidential business information (like formulas,

processes, or strategies) that gives a company a competitive edge.

o Example: Coca-Cola’s recipe is a trade secret that’s closely guarded to

keep its uniqueness.

Importance of Intellectual Property Law:

• Encourages Innovation: By protecting inventions and creations, IP law motivates

people to invent and create without fear of their ideas being stolen.

• Rewards Creators: It ensures that creators can benefit financially from their work.
 • Boosts Economic Growth: Protecting IP leads to advancements in technology, art,
and business, driving economic development.

Intellectual Property Law in the Philippines (RA 8293):

In the Philippines, the Intellectual Property Code (RA 8293) protects all forms of IP. The
law establishes the Intellectual Property Office (IPO), which handles patent, trademark,
and copyright registrations and resolves IP disputes.

In Simple Terms:

IP Law protects your ideas, inventions, and creative work, allowing you to control how they
are used. It ensures you get credit and financial benefits from your creations while
preventing others from stealing or copying them.