A customer oriented approach to identifying competitive advantage

Abstract

A firm’s ‘competitive advantage’ is considered to arise from certain ‘factors internal to the firm as postulated by the resource based view’ or from ‘external sources and industry structure.’ However, it remains unclear as to “how” these factors result in competitive advantage, since the literature has largely focused on establishing that the presence of these factors results in the manifestation of competitive advantage. Since firms serve customers, in this paper, we explore how both internal and external factors influence the organization-customer interface which, in turn, results in competitive advantage for the firm, i.e., we examine the process of manifestation of competitive advantage. We advance propositions to elucidate how internal and external factors influence different stages of organization’s interaction with the customer in terms of an increase or decrease in search, evaluation, and purchase transaction costs and a change in the consumption experience, as applicable. Competitive advantage is a function of these interactions. We also consider the role of three moderating variables – product involvement, frequency of purchase and cognitive vs. affect based evaluation – that are germane to the outcomes at the organization – customer interface.