Evidence · Strategy

Competitive strategy: the foundations behind marketing advantage

Lasting advantage is argued to come from resources that are valuable, rare and hard to copy, and for marketers the main candidates are brands, channels and customer relationships. Studies linking market orientation and customer metrics to financial performance support this view, though mostly with correlational data. Several foundational ideas, including the resource-based view, strategic fit and the experience curve, are conceptual arguments rather than tested regularities.

Definition

Competitive strategy is about how a firm gains and keeps an advantage over its rivals. The main explanations are the firm's resources (what it owns or controls that others cannot easily copy), the fit between its activities, cost advantages from scale and experience, and the design of its business model. For marketing, the central question is whether assets such as brands and customer relationships can be a durable source of advantage rather than a cost of doing business.

What the research finds

Advantage comes from resources that are hard to copy

The resource-based view holds that sustained competitive advantage comes from firm resources that are valuable, rare, imperfectly imitable and not substitutable, not from industry position alone. Brands and distinctive brand assets are candidate resources of this kind.^[1]

Fit matters more than forced trade-offs

The belief that firms must trade one goal against another, such as cost against quality, is often a false choice; capabilities can improve on several fronts together, which gives strategic coherence its value. A business model can be read the same way, as a system of linked activities that crosses firm boundaries and creates value through novelty, lock-in, complementarities and efficiency.^[2]^[3]

The experience curve is real but often misused

Unit costs fall in a predictable way as cumulative volume grows. A practitioner-oriented article argues that the curve's basic validity holds and that disappointment with it came from managers applying it where its conditions did not hold.^[4]

Marketing's assets are strategic assets

Brands, channel relationships and customer relationships can be treated as market-based assets that raise shareholder value by speeding up and enlarging cash flows, making them less volatile and increasing their residual value. On the customer side, brand equity is the difference that brand knowledge makes to how buyers respond. A more recent theory of brand competition builds on the same idea of market-based assets.^[5]^[6]^[7]

Market orientation is linked to profitability

A measured market orientation, made up of customer orientation, competitor orientation and coordination across functions, was positively associated with profitability across the business units of a forest-products corporation.^[8]

Customer metrics connect to financial results

Reviews show that customer metrics such as satisfaction, retention and lifetime value are related to firms' financial performance, and summarise which marketing actions and assets move stock returns and cash flows. This is the empirical side of the argument that marketing assets create value.^[9]^[10]

An alternative lens: service-dominant logic

Service-dominant logic proposes that all exchange is ultimately service for service and that value is created together with customers rather than delivered to them. It is the main theoretical alternative to seeing marketing through goods and assets.^[11]

How strong is the evidence?

Most ideas on this page are conceptual. The resource-based view is often criticised as close to circular, since advantage-creating resources are identified by the advantage they create, and measuring such resources remains the open problem. The experience curve and strategic-fit arguments come from management writing that has not been held to the standard of repeated replication across markets. The original market orientation study covers one corporation, and the links from customer metrics to financial results come from reviews of mainly observational research. Service-dominant logic is a framework for thinking, not a tested claim.

References

Jay B. Barney (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management.
Charles Corbett, Luk Van Wassenhove (1993). Trade-Offs? What Trade-Offs? Competence and Competitiveness in Manufacturing Strategy. California Management Review.
Christoph Zott, Raphael Amit (2010). Business Model Design: An Activity System Perspective. Long Range Planning.
Bruce D. Henderson (1984). The Application and Misapplication of the Experience Curve. Journal of Business Strategy.
Rajendra K. Srivastava, Tasadduq A. Shervani, Liam Fahey (1998). Market-Based Assets and Shareholder Value: A Framework for Analysis. Journal of Marketing.
Kevin Lane Keller (1993). Conceptualizing, Measuring, and Managing Customer-Based Brand Equity. Journal of Marketing.
Byron Sharp, John Dawes, Kirsten Victory (2024). The Market-Based Assets Theory of Brand Competition. Journal of Retailing and Consumer Services.
John C. Narver, Stanley F. Slater (1990). The Effect of a Market Orientation on Business Profitability. Journal of Marketing.
Sunil Gupta, Valarie A. Zeithaml (2006). Customer Metrics and Their Impact on Financial Performance. Marketing Science.
Shuba Srinivasan, Dominique M. Hanssens (2009). Marketing and Firm Value: Metrics, Methods, Findings, and Future Directions. Journal of Marketing Research.
Stephen L. Vargo, Robert F. Lusch (2007). Service-dominant logic: continuing the evolution. Journal of the Academy of Marketing Science.

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