Strategic Positioning: Competitive Advantage and Value Creation (A) Overview - Background Note

A firm achieves a competitive advantage when it earns higher economic profits than its competitors in the same industry. This advantage is primarily achieved by creating and delivering more economic value than competitors. Competitive advantage is essential for long-term success and profitability as it allows a firm to outperform its rivals consistently. The concept of value creation is central to this discussion. It is defined as the difference between the perceived benefit of a product/service (hereafter, product), often measured as the maximum willingness-to-pay, and the costs incurred in producing that product. To establish a sustainable competitive edge it is necessary to understand how to enhance value creation.