Competitive advantage requires choices to be made, especially those that differ from rivals-making trade-offs. Trade-offs are the glue that holds a strategy together by contributing to both creating and sustaining competitive advantage. Trade-offs are similar to qualitative methods in that they are flexible and allow entrepreneurs to pursue directions they may not have initially anticipated (Hyman & Sierra, 2010). Trade-offs are the strategic equivalent of a fork in the road. If you take one path, you cannot simultaneously take the other (Magretta, 2012). Companies with superb strategies often encompass multiple trade-offs. The more superior companies have trade-offs at almost every step in the value chain.
An example of a company with a strategy that has many trade-offs can be seen in the company IKEA. The company has done a great job differentiating themselves from competitors in the industry. IKEA has strayed from other home furnishing retailers in their product design, product variety, in-store service, delivery and store design, as well as their flat packs and competitive advantage (Magretta, 2012). This strategy has made it difficult for others to imitate or come relatively close to the stature of the company. It is important to note, that trying to overextend and offer something to everyone can lead to weaker trade-offs that weaken a company’s competitive advantage.
References:
Hyman, M. R., & Sierra, J. J. (2010). Marketing research kit for dummies. Hoboken, NJ: John Wiley & Sons Inc.
Magretta, J. (2012). Understanding Michael Porter: the essential guide to competition and strategy. Boston, Mass: Harvard Business Review Press.
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