How can businesses achieve a competitive advantage?

Businesses can achieve a competitive advantage primarily through differentiation and cost leadership because these strategies allow them to stand out in the marketplace while also managing their expenses effectively.

Differentiation involves offering unique products or services that provide distinct value to customers, which can create brand loyalty and allow a business to charge premium prices. For instance, a company that introduces innovative features or superior quality can attract customers who are willing to pay more for these benefits. This strategy is particularly advantageous in markets where consumers are looking for specific characteristics in products that set them apart from competitors.

Cost leadership, on the other hand, is about being the lowest-cost producer in the industry, which enables businesses to offer competitive prices while still maintaining a profit margin. By minimizing costs in production, materials, and operational processes, businesses can undercut competitors on price without sacrificing quality, thereby attracting price-sensitive customers.

Combining these two approaches allows businesses to appeal to a wider audience, leveraging unique product offerings while also benefiting from cost efficiencies, which can lead to increased market share and profitability.

Other options, while they may have relevance in specific contexts, do not align as closely with the overarching strategies that directly contribute to a competitive advantage. Increasing product variety can sometimes dilute brand identity or complicate supply chains.