A durable competitive advantage are the factors that differentiate the products and services of a company from its peers. A durable competitive advantage can be achieved by creating a strong brand, strong supply chain, wide distribution network and competitive pricing. A durable competitive advantage allows a company to capture bigger market share in its sector, maintain customer loyalty, and give pricing power on the product which helps company gain higher profit margin on products.

For Example, Nestle Indias Maggi brand makes multiple products such as instant noodles, and sauce. The sauce of Maggi have captured almost 50% market share because of its product quality, targeting righ consumer segment (which is urban and semi urban middle class), strong distribution network which makes products available even in smaller cities, and continuous innovation by introducing new and better products, keeping consumers interested. Warren Buffett looks for such companies that have dominated the market because of their unique offering and have the ability to sustain it for long time. Coca cola was one of the investments made by Warren Buffett because it had a durable competitive advantage over other beverage companies.

Warren Buffet invested in Coca Cola because it has a strong competitive advantage over other beverage companies. Coca Cola serve 8 billion 300 ml servings everyday around the world, if it charges one rupee extra for each serving, it will generate Rs. 8 billion extra revenue every day which becomes Rs. 2,920 billion of revenue annually, and I am sure no one would mind paying a rupee extra for one bottle of Coca Cola.

A durable competitive advantage not only helps a company in achieving better financial performance, it also prevents a companys business from being taken over by its peers by building an economic moat around itself. Let us understand what an economic moat is and how it is an advantage for a business.