Differential advantage refers to a set of unique features, benefits or characteristics of a firm or a business which sets it apart from its competitors for its target market. It differs from comparative advantage where a firm has an upper hand over its competitor in a directly comparable feature and is a relatively more subjective measure.
Differential advantage allows firms to charge a premium for its offered products or services as the customer does not only recognizes the advantage but also finds it useful enough to pay extra price for it. It does not necessarily imply better quality and can be observed in any stage of the company-customer relationship e.g. the ease of ordering products from a particular company may encourage customers to choose it over another company offering products with the same quality but less convenient ordering system.
In the service industry, example of a differential advantage may include firms which involve high level of engagement with their customers and offer customized services thereby ensuring customer loyalty even if a premium is charged for the service. Differential advantage is also sometimes used as an analysis tool in identifying the target market for a particular product based on the benefits a customer can avail by choosing that product.
Hence, this concludes the definition of Differential Advantage along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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