510 The Marketing Book
barrier which stops competitors from coming
into the attractive market created by the busi-
ness. This is shown diagrammatically in Figure
20.3. When any company is achieving a super
profit in a particular market, the market is
financially attractive to lots of other companies.
If these other companies were all able to enter
this market, they would rapidly drive down the
rate of return for allcompanies in the market to
the required rate, thus removing the super
profit of the original company and ending the
creation of shareholder value. This is what
would happen under the economic definition
of perfect competition; thus, another way of
thinking about sustainablecompetitive advan-
tages is that they can only exist under condi-
tions of imperfect competition.
The possible entry barriers shown in
Figure 20.3 are not meant to be totally compre-
hensive, but they illustrate a number of impor-
tant issues relating to sustainable competitive
advantages and their financial control. It is
clear that some potential entry barriers are the
direct result of marketing activities, e.g. brand-
ing and control of the channel of distribution,
but several more can only be fully exploited
through the implementation of the appropriate
marketing strategy (such as low unit costs,
technology barriers, etc.). However, all these
entry barriers are normally only developed by
substantial investment (i.e. upfront) expendi-
tures and this investment must be regarded as
very high risk. If the entry barrier does not
work, e.g. if competitors can find a way around
it or through it, the company will be unable to
generate a return on its expenditure designed
to develop the competitive advantage.
It should also be clear from the illustrations
of entry barriers that they have a finite life cycle
(the best example of this is a patent which
expires at the end of 20 years). The company
may be able to extend the economic life of some
entry barriers by carefully managing the sus-
tainable competitive advantage (e.g. as has
Figure 20.3 Use of entry barriers