Proceedings of 11th Asian Business Research Conference
26-27 December, 2014, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-68-9
Competitive Advantage and Customer Satisfaction
Sabrina Matin*1
The theory of Competitive Advantage advocates; companies should develop strategies
to survive in the competition and to overcome the challenges in the marketplace.
According to the theory these strategies help the companies stay competitive in the
competition and thus are called the competitive advantages. This article is an outcome
of a secondary research analysis of the competitive advantage for business both from
domestic and international perspectives. The core of the analysis has been the
development of understanding of the competitive advantages. Companies use the
competitive advantage as a tool to organise and manage their operations. To set a
competitive advantage, companies must describe a profitable approach of its industry.
This strategy must be specific both to the business and to the industry under
consideration. Companies need to keep working on the existing competitive
advantages and keep looking for a new competitive advantage that suits its
requirements.
Keywords: Competitive Advantage, Competitive scope, Customer value, Customer satisfaction,
Customer retention, Market need.
Field of Research: Marketing
1. Introduction
Many theories tried to explain why a country is more competitive than another. For some, the
national competitiveness comes from macroeconomic phenomena directed by change rates,
interest rates, deficit of the national budget. For others, it depends on the abundance of cheap
work force, or raw materials. (Passemard & Brian, 2000) Unfortunately, no single explanation
could explain the commercial success of a country appropriately. However, a macroeconomic
explanation was developed by M. Porter which consists of studying specific industry sectors of a
country instead of studying the whole economy. Porter studied the detailed elements that
condition the success of a business organization in a certain segment internationally. He
believes, that the business organizations of a country must achieve competitive advantage by
inferior costs, or differentiated product to spread the business worldwide.
Industry is the appropriate unit of analysis in setting competitive strategy. Strategically, industries
are distinguishable by the products that they propose but the products might have similar sources
of competitive advantage. Technically, the industry is the place where the companies win or lose
a competitive advantage. To set a competitive advantage, the enterprise must define and
elaborate a profitable approach of its industry. There is no such strategy called perfect or
universal, so to be successful, the enterprise must set up a strategy that is specific to the
enterprise itself and also to the industry under consideration. There are two distinguishable
components in every competitive strategy. The first one is the structure of the industry in which
the firm evolves and the second one is the positioning of the company within the industry.
Sabrina Matin, Lecturer, School of Business, University of Information Technology & Sciences (UITS), Jamalpur
Twin Tower, GA-37/1, Progati Sarani, Block-J, Baridhara, Dhaka-1212, Bangladesh. Email: sabrinashiti@yahoo.com
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Proceedings of 11th Asian Business Research Conference
26-27 December, 2014, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-68-9
2. Origin of the Competitive Advantage
The competitive advantage is used by the firms as a function to organise and manage their
activities. There are various activities involved in an enterprise. All these activities create value to
the customers. The final value is created by the price the customers agree to pay for the product
or the service they receive from the firm. The firm is only profitable when the customer value is
higher than the global cost. To get a competitive advantage against its competitors, the firm
should supply its customers with the same value as the competitors and be more efficient in the
production or elaborate specific activities that generate a greatest final value and authorise higher
purchase prices (Passemard & Brian, 2000). These activities can be classified as ―Chain Value‖.
The activities in the value chain give the product an added value and create value for customers.
These activities can be divided into two types: the first one is ―The primary activity‖ which
involves in the continuity of the production, and the second one is ―The support activity‖. When
the enterprise conceives a new way to manage its activities, uses new technologies or different
means of production, it may acquire a competitive advantage (Passemard & Brian, 2000). The
value chain is a series of interdependent activities where the costs of these activities are linked. A
good management of these activities can be a real source of competitive advantage. Besides, the
chain value, which is the basis of the competitiveness of a firm in a given industry, should be
replaced in a larger flow of activities called the ―Value System‖. This value system includes the
value chains of the firm’s supplier, the firm itself, the distributors, and the customers. The product
goes from one value chain to another, becoming each time a means of production (Passemard &
Brian, 2000). As the firm manages its global value system, the competitive advantage becomes
an important function of the firm’s know-how. So, it is depends on the firm whether to create a
competitive advantage by optimising and co-ordinating its existing external relationships. The
chain value is a useful valuator of the costs advantages. To ensure this advantage, the firm
needs to ensure the co-ordination and the optimisation of its activities. It also highlights the
factors of differentiation; the differentiation is a strategy that makes a firm unique in its industry
and the dimensions that it adds to the firm are widely valued by the customers. Thus, the idea of
value chain allows not only to analyse more deeply the different types of competitive advantage,
but also to understand the role of the competitive scope on the acquisition of a competitive
advantage (Passemard & Brian, 2000).
3. Positioning in the Industry
Considering the structure of the industry is not the only thing for an enterprise, it also has to
decide an appropriate position for itself within the industry. The positioning of an enterprise has to
match the options it had taken with regard to the market. The fundamental component of the
positioning is the competitive advantage, which can be divided into advantage by low costs or
advantage by differentiation. The advantage by low costs means that the company is more
efficient than its competitors on the conception, the production and the marketing of a product.
The differentiation is the ability of the enterprise to supply its customers with the same product
but of a better quality. In both cases, the competitive advantage translates a higher productivity of
the enterprise (Passemard & Brian, 2000). However, it is very difficult for a firm to position itself
for both advantages by the costs and by differentiation at the same time because offering great
performance, good quality and services is costly. An enterprise can reduce its cost by improving
its technology and method of production and thus obtain a differentiation, but in the long run the
competitors will copy its activities and the enterprise will need to choose a single advantage to
push further. If the enterprise tries to improve both advantages at the same time none of the
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Proceedings of 11th Asian Business Research Conference
26-27 December, 2014, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-68-9
strategies can obtain good results. Another powerful attribute for the positioning is the
competitive scope, which means, the extent of the target that a firm has set within an industry.
The enterprise must determine the four dimension of the competitive scope:
i)
ii)
Segment scope: the range of products it will propose;
Vertical scope: the extent to which activities are performed in-house instead of by
independent farms;
iii) Geographic scope: the type of customers it will attract, the range of regions, countries it will
invest;
iv) Industry scope: the range of related industries in which the firm competes with a coordinated
strategy (Porter, 2004).
This competitive scope is very important since all the industry is segmented. Supplying different
segments requires the firm to have the necessary capacities and the specific strategies. Thus, it
is possible to find various competitive scopes in one industry. Then, the enterprise, to insure its
leadership, should define sharply the type of advantage it is seeking, and the scope on which the
advantage is going to be reached. The worst strategy for the firm is not to choose a particular
strategy: This will drive the firm to a bad strategy position that will bring low profitability
(Passemard & Brian, 2000).
4. Sources of competitive advantage:
A firm's competitive advantage can arise from one or more sources. These are:
4.1. Ownership-based,
4.2. Access-based,
4.3. Proficiency-based.
A firm can gain advantage by ownership or possession of certain valuable assets or factors, e.g.
strong market position (Porter, 1980), unique resources or reputation; by superior access to
inputs and markets e.g. exclusive relationship with supplier or distribution channel; by superior
knowledge, competence, or capabilities in conducting and managing its business processes
(Nonaka, 1991; Prahalad & Hamel, 1990; Teece et al., 1997) producing quality products at lower
costs and delivering the right products and service to its customers in the right place at the right
price and time through the right channels (Ma, 1999). Achieving any advantage in business
needs an intense and systematic analysis into what the firm has, what it knows, and what it can
get. The advantage that comes from any of these sources allows one firm to provide better
customer value than those of others. Any factor that contributes to the existence or enlargement
a differential could serve as a source of firm advantage (Figure 1). That is, to gain advantage, a
firm could focus on raising the playing level of it; it could also proactively constrain or belittle
rivals (Ma, 1999).
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Proceedings of 11th Asian Business Research Conference
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Source: Ma, 1999.
4.1. Ownership-Based Source of Advantage
Ownership-based source of advantage includes any assets or factors possessed by a firm from
which it could gain a lead over its rivals in terms of serving customers. Firms by possessing
extra-ordinary characteristics or by being in a different status can enjoy advantage over others.
4.1.1. Acquire Valuable Assets
Proactively acquiring and accumulating valuable resources and gaining market positions in a
systematic way contributes to a firm's gaining and sustaining of ownership based competitive
advantage (Ma, 1999). If we will take brand name as an example as this is one of the most
valuable assets a firm can own. If a firm can own strong brand names, good reputation in the
industry, it will certainly serve as the source of competitive advantage.
4.1.2. Constrain Rivals' Options
A firm could gain advantage by sabotage or constrain rivals' options in acquiring valuable assets
or positions. This could include pre-empting a major competitor from expanding its business by
hiring own franchisee. A pre-emptive move to avoid potential disadvantage puts the firm in great
advantage.
4.2. Access-Based Source of Advantage
Access-based source of advantage refers to the possibility that a firm enjoys competitive
advantages over its rivals because it has more superior access to the factor markets than do
rivals or it has such access that is not at all available to rivals. Such access depends on a firm's
ability to tap the resources and skills, knowledge and expertise, market reach, as well as power
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Proceedings of 11th Asian Business Research Conference
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and authority of other business or non-business entities (Ma, 1999). The access-based source of
advantage entirely depends on a firm's external relationship with other parties involved within its
operating environment. For examples, a firm's relationship with suppliers, partners, distributors,
licensing authorities, governmental agencies in charge of sales or import/export quota, or
agencies overseeing approvals for the introduction of certain products or services.
4.2.1. Build Gateway to Access
A firm enjoys advantage if it can access resource inputs or customers in ways more convenient
and efficient than those of rivals or in ways no rivals can. Similarly, superior access to factor
inputs also helps provide firms with advantage. For instance, top management consulting firms
usually have better access to and often skim the best candidates of a graduating class. This
superior access to talents insures that they are on the frontier in the competition for knowledge
accumulation and dissemination in advising business firms (Ma, 1999).
4.2.2. Deny Rival Access
A firm could gain advantage by denying rivals access to a particular piece of potentially valuable
resource (Brandenberg & Nalebuff, 1996). To be sure, this practice is not necessarily a pure
defensive measure to avoid disadvantage. It is, in fact, often an offensive defence to proactively
alter a firm's relative competitive position vis-a-vis that of rivals' (Ma, 1999).
4.3. Proficiency-Based Source of Advantage
Proficiency-based source of advantage refers to the knowledge (Nonaka, 1991), competence
(Prahalad & Hamel, 1990), and capabilities (Teece et al., 1997) of a firm which enable it to
conduct its business processes more effectively and efficiently than its rivals (Ma, 1999). Different
from access-based source which is external to the firm, this source lies primarily within the firm.
The proficiency-based source depends on a firm's ability to actually do things in order to
undertake business activities in manufacturing, selling products and delivering services. This
source of advantage includes, for example, strengths in process R&D, technical know-how,
intimate knowledge of customers and ability to identify market opportunities.
4.3.1. Foster Learning and Build Routine
Knowledge is power. The firms that now dominate our attention are often knowledge-based firms.
A firm that constantly learns accumulates and expands its knowledge base or intellectual capital
(Stewart, 1997), enjoys competitive advantage. Such knowledge and capability could then be
shared with the firm's other office automation businesses.
4.3.2. Discourage Rival Learning and Imitating
A firm could gain advantage if it is able to effectively discourage rivals' learning of new knowledge
and imitating in acquiring new capabilities. Pre-emptive measures against rival learning and
imitating could be found way before the modern era of business.
A firm can pre-empt rivals or destroy rivals' ownership-based advantages but a firm cannot
eliminate the rival's will to learn if the rival is so determined. To a great extent, pre-empting rivals'
learning and imitating helps. But what really matters is whether you are learning; whether you are
renewing and widening your knowledge base, whether you are constantly sharpening your
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Proceedings of 11th Asian Business Research Conference
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routine skills and capabilities. Both sources are important. Combined, they provide greater
advantage (Ma, 1999).
5. The Context for Competitive Advantage
The long term challenge for any firm is to put itself in a position where it is most likely to perceive
and able to address, the imperatives of competitive advantage. One problem is to expose a firm
to new market and technological opportunities that may be hard to perceive. Another is preparing
for change by upgrading and expanding the skills of employees and improving the firms scientific
and knowledge base. Ultimately, the most important challenge is overcoming complacency and
inertia to act on the new opportunities and circumstances (Porter, 1998).
In his model of ―Determinants of National Competitive Advantage‖ Porter pointed out four factors
that act as a system which determines the competitive advantage of a country. These attributes
are:
Factor Conditions: The factor conditions are a nation’s position in factors of production, such as
skilled labour or infrastructure, necessary to compete in a given industry.
Demand Conditions: The demand conditions are the nature of home-market demand for the
industry’s product or service.
Related and Supporting Industries: The presence or absence in the nation of supplier industries
and other related industries that are internationally competitive (Porter, 1990).
Firm Strategy, Structure and Rivalry: The conditions in the nation governing how companies are
created, organized, and managed, as well as the nature of domestic rivalry.
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Proceedings of 11th Asian Business Research Conference
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Figure 2: Determinants of National Competitive Advantage
Source: Porter, 1990.
To remain in a profitable position, a firm should always look out for pressure and challenges
instead of avoiding them. A firm should always take advantage of the home nation in order to
create the opportunity of innovation. Some of the ways are:






Sell to the most sophisticated and demanding buyers and channels;
Seek out the buyers with the most difficult needs;
Establish norms of exceeding the toughest regulatory hurdles or product standards;
Source from the most advanced and international home-based suppliers;
Treat employees as permanent;
Establish outstanding competitors as motivators (Porter, 1998).
To be competitive in the business and in the industry the firm should understand the following
factors as well:
5.1. Perceiving Industry Change
Beyond pressure to innovate, one of the most important advantages an industry can have is early
insight into needs, environmental forces and trends that others have not noticed but will be
important elsewhere. Perceiving possibilities for new strategies more clearly or earlier comes in
part from simply being in the right nation at the right time. Yet it is possible for a firm to more
actively position it to see the signals of change and act on them. It must find the right focus or
location within the nation, and work to overcome the filters that distort or limit information flow
(Porter, 1998). To perceive the change successfully, a firm should do the following –
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Proceedings of 11th Asian Business Research Conference
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




Identify and serve buyers with the most anticipatorily needs;
Investigate all emerging new buyers or channels;
Find the localities whose regulations foreshadow those elsewhere;
Discover and highlight trends in factor costs;
Maintain on-going relationships with centers of research and the sources of most talented
people;
 Study all competitors, especially the new and unconventional ones;
 Bring some outsiders into the management team (Porter, 1998).
5.2. Interchange Within the National Cluster
A firm can gain important competitive advantage from the world class buyers, suppliers and
related industries that exist within its home nations. The buyers, suppliers and related industries
provide insight into technological development and future market needs. They become a part of
the innovation process by contributing a climate for change and improvement. Having a strong
cluster at home helps getting extensive information and allows intense contact when dealing with
foreign firms.
Working with the buyers, suppliers, and channels means the firm is also helping them upgrading
their own competitive advantage. This upgraded competitive advantage of the buyers, channels,
and suppliers will enhance the firm’s own rate of innovation. Upgrading the domestic buyers and
suppliers can involve encouraging them to compete globally. Since the local buyers and suppliers
will not be able to sustain their own competitive advantage without competing globally, buyers
and suppliers need the pressure of worldwide competition to advance them.
Industries those are related or potentially related in terms of technology, channels, buyers are
potentially important to creating and sustaining competitive advantages. These industries are
often essential sources of innovation. They can also become new suppliers and buyers, or even
new competitors (Porter 1998).
A firm should locate its activities and its headquarters at those locations in the nation, where
there are the concentrations of sophisticated buyers, important suppliers and groups of
competitors are available. Geographic proximity makes the relationship within a cluster closer
and more fluid. It also makes domestic rivalry more valuable for the competitive advantage
(Porter, 1998).
6.3. Serving Home Buyers Who Are International and Multinational
To transform domestic competitive advantage into a global strategy, a firm should identify and
serve buyers at home that it can also be sure abroad. Such buyers are domestic companies that
have international options, individuals who travel frequently other nations, and local subsidiaries
of foreign firms. Targeting such buyers has two benefits. First, they can provide a base of
demand in foreign markets to help offset the costs of entry. More importantly they will often be
sophisticated byers who can provide a window into international market needs (Porter, 1998).
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Proceedings of 11th Asian Business Research Conference
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6.4. Governments Effect on Factor Conditions
Factor conditions must also encourage firms to upgrade their competitive advantage over time.
Government policy has a role in each of this area (Porter, 1998).
6.4.1. Factor Creation
Government is creating and upgrading factors, whether they are skilled human resources, basic
scientific knowledge, economic information and infrastructure. Government is often seen as the
principle engine of factor creation. Governments roles in factor creation is justified by externalities
or benefits to the economy that exceed those available to any individual participant or especially
significant where factors can be deployed in a range of industries (Porter, 1998).
6.4.2. Policies toward Factor and Currency Market
Macro-economic and micro economic policies designed to control factor costs and the exchange
rate through intervention in factor and currency markets are a prominent part of many nations’
efforts to improve the competitiveness of industry. Fiscal and monitory policy, regulation of
energy markets, and policies to influence the collective bargaining process are prominent tools to
influence wage levels, energy costs, and exchange rates. The rationale is that lower factor costs
of a lower exchange rate will help firms compete effectively in international market (Porter, 1998).
7. Customer Satisfaction
Customer satisfaction is generally described as a judgement that a customer develops after the
act of purchase or consumption of a product or service (Churchill & Surprenant, 1982; Fournier &
Mick, 1999). It is also defined as a customer’s overall evaluation of the performance of an offering
to date (Johnson & Fornell, 1991). Historically, satisfaction has been used to explain loyalty as
behavioural intentions. Satisfaction typically mediates the effects of product quality, service
quality, and price or payment equity on loyalty (Bolton & Lemon 1999; Fornell et al. 1996). It also
contains a significant affective component, which is created through repeated product or service
usage (Oliver 1999). The overall satisfaction has a strong positive effect on customer loyalty
intentions across a wide range of product and service categories (Fornell 1992; Fornell et al.
1996). Customer’s overall evaluations are more likely to influence their behaviours that help a
firm, such as positive word of mouth and repurchase (Boulding et al. 1993).
According to researches, customer satisfaction has a significant influence on customer retention
and it varies across customers (Gustafsson, Johnson & Roos, 2005).
7.1. Determinants of Customer Satisfaction
Some of the well-established determinants of customer satisfaction include expectations,
disconfirmation of expectations, performance, affect and equity (Szymanski & Henard, 2001). A
customer is satisfied when actual performance outcomes exceed expectations, and they are
dissatisfied when expectations exceed performance outcomes.
Consumers relied heavily on other people's opinions and word of mouth during the consumption
process (Turnbull, et al. 2000). However, others argue that customers develop norms for product
performance based on general product experiences, and these, rather than expectations for a
focal brand's performance, determine the final consumption decision. A few customer satisfaction
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Proceedings of 11th Asian Business Research Conference
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researches have reported the role of factors other than expectations, performance, past
experience, affect and equity in the formation process leading to overall customer satisfaction.
The evaluative criteria can include attributes like price, brand perceptions, quality, and comfort
and design (Grapentine 1995; Lee & Lou 1996; Monroe & Dodds 1988; Myers & Shocker 1981;
Rao & Monroe 1989; Richardson et al. 1994).
Some earlier studies have also suggested that the effect of product attributes can be moderated
by individual customer differences and customers' expertise (Bettman & Park 1980; Oliver 1980).
Previous research suggests that expert customers are likely to have a superior knowledge of
existing alternatives; they are also likely to have a superior ability to encode new information and
to discriminate between relevant and irrelevant information (Alba & Hutchinson 1987; Johnson &
Russo 1984) (Mark, et.al. 2005).
7.2. Outcomes of Customer Satisfaction
The outcome of customer satisfaction can be distinguished in four categories:
1. Customer-related
2. Employee-related
3. Efficiency-related
4. Overall performance-related outcomes
Evidences proved that customer satisfaction acts as an important driver of a firm’s profitability.
Researches show that the customer satisfaction has a positive impact on financial performance
measures of a firm. Scholars have also found that the customer satisfaction enhances
shareholder value by increasing cash flow growth and reducing its instability. The first three
categories of satisfaction outcomes provide specific explanations for positive impact of customer
satisfaction on firm profitability. The most significant finding in this basis is that satisfaction
increases customer loyalty and influences future repurchase intentions and behaviour. There is
another tool related to pricing through which satisfaction can enhance profitability. Researches
show that customers who are highly satisfied are willing to pay premium prices (Bucklin, 1978;
Luo & Donthu, 2006). Studies show that customer satisfaction positively affects the ratio of sales
to employee. It is likely that customer related outcomes of customer satisfaction affect specific
sides of productivity in the marketing domain. Because customer satisfaction convinces customer
behaviours such as free word-of-mouth advertising, firms with higher customer satisfaction may
be more efficient in future marketing communications investments. A positive impact of customer
satisfaction on future advertising and promotion efficiency on customer satisfaction also saves a
bit of marketing communications spending. The studies which have worked on employee related
performance outcomes reveal a positive impact of customer satisfaction on employee
satisfaction. Firms with higher customer satisfaction are likely to have enormous financial
success and this way they become attractive employers and thus they can often hire better
people; as a result, such firms are able to obtain superior human resource. Another reason for
the firms to become attractive employers is: there is always a positive atmosphere in companies
with satisfied and loyal customers. For this reason the employees enjoy their jobs more and work
voluntarily harder. Thus customer satisfaction is highly relevant for managers. Many
organizations struggle to become first choice employers in their industries to obtain and retain
high skilled employees. It is true that if customer satisfaction helps the firm to obtain excellent
human capital; the human resources department of the firm should have a strong interest in
customer satisfaction as well.
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7.3. Customer Satisfaction and Profitability
There are two different conceptualizations of customer satisfaction:
• Transaction-specific
• Cumulative
From a transaction-specific perspective, customer satisfaction is viewed as a post choice
evaluative judgment of a specific purchase occasion (Hunt, 1977; Oliver 1977, 1980, 1993). On
the other hand, cumulative customer satisfaction is an overall evaluation based on the total
purchase and consumption experience with goods or service over time (Fornell, 1992; Johnson &
Fornell, 1991). Whereas transaction- specific satisfaction may provide specific diagnostic
information about a particular product or service encounter, cumulative satisfaction is a more
fundamental indicator of the firm's past, current, and future performance. It is cumulative
satisfaction that motivates a firm's investment in customer satisfaction. The focus of cumulative
satisfaction is on the relationship between customer satisfaction and economic returns. Perceived
quality of a product or service can be defined as the consumer's judgment about a product's
overall excellence or superiority. However, in marketing and economics, quality has often been
viewed as dependent on the level of product attributes. In the services literature in marketing,
quality is viewed as an overall assessment. Service quality in this context is believed to depend
on gaps between delivered and desired service on certain dimensions. Customer satisfaction is
distinct from quality for several reasons. First, customers require experience with a product to
determine how satisfied they are with it. Quality, on the contrary, can be perceived without actual
consumption experience. Second, it has long been recognized that customer satisfaction is
dependent on value, where value can be viewed as the ratio of perceived quality relative to price
or benefits received relative to costs incurred. Hence, customer satisfaction is also dependent on
price, whereas the quality of a goods or service is not generally considered to be dependent on
price. Third, we view quality as it pertains to customer's current perception of a good or service,
whereas customer satisfaction is based not only on current experience but also all past
experiences, as well as future or anticipated experiences. Finally, there is ample empirical
support for quality as an antecedent of customer satisfaction (Anderson, 1994).
8. Conclusion
Companies require to progress, innovate, and discover the best competitive opportunities and
use them to create competitive advantage for the business. The enterprise should continuously
improve the product quality and the methods of operating its business. An enterprise main role
should be to take risks and to make investments. A country flourishes in an industry when it gets
a favourable environment to the continuous effort it is putting, and when the ability is given to the
enterprise to be deliberately hostile and to react quickly. Maintaining a competitive advantage
requires continuous improvements if the firm wishes to have it in the long run. But, making
continuous evolution is not easy from a firm’s point of view. To become an internationally
successful organization, a firm needs to be able to transform its domestic position into a global
one.
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