A competitive advantage is defined as a condition or circumstance that allows a company to gain a favorable position over its competitors—this usually occurs when the company is able to offer the same value of goods or services at a lower price or is able to differentiate its goods from those of competitors by increasing their value. In other words, a competitively advantageous company is able to create more economic value for their goods or services. A competitive advantage can also be established by superior customer service, for example, having a policy in place to ship all orders same-day.

Establishing a competitive advantage may be more difficult for small to medium-sized companies, as opposed to large corporations, as they often lack the financial or management resources needed to do so. However, establishing a competitive advantage is incredibly important for small companies, as it differentiates them from the competition and encourages consumers to be more faithful to that company rather than shop around, ultimately helping the company become more profitable. Small businesses should analyze market trends, consumers' needs, and even past mistakes in order to identify which areas can be strengthened or adapted to help them gain this competitive advantage.

It is important for a small business (or for any business) to establish a competitive advantage so that it can create a customer base that is loyal to it.

A competitive advantage is simply anything that sets one business apart from another. If a given small firm does not have a competitive advantage, people will not perceive any reason to be faithful to that business. They will patronize competitors’ firms whenever it is more convenient for them. Therefore, a firm needs to create a competitive advantage through something like the quality of its products or its service. This will make customers feel that that firm is better than the others, and the customers will be less likely to patronize other firms.