INTERACTIVE ILLUSTRATION 3 Types of Competitive Advantage Within a Specific Segment Scan QR code, cllck the image, or use this link to access the mteracttve tuustmtlon: bit-Iv/hbsp2GgIse7 Adapted Panel nd VI Rlvkln, crtlng Adntage. HBS 798062, MA: 1998@1998 by Felms ot Colkge_ Reprlnted by The goal is to maximize the gap, or the wedge, between a customer's willingness to pay and the company's cost, which is determined by the supplier's opportunity cost (the smallest amount that a supplier will accept for the services and resources required to produce a good or service). For more on this, see Core Reading: Competitive Advantage (HBP No. 8105). A differentiated firm has increased the customer's willingness to pay. Note that this usually requires an accompanying increase in cost because persuading customers to pay more means investing additional resources in the product or service. In simple terms, the differentiated firm's goal is to increase the price a lot while allowing costs to increase only a little. A firm competing on low cost aims for an outcome that is the mirror image: It decreases price below the competition, attracting price-conscious customers, while driving its relative cost position as far down as possible. In some cases, firms may even have it both waysdriving costs below the industry average and increasing the customer's willingness to pay. Such firms have generally locked in customers in some way while simultaneously benefiting from economies of scale that reduce costs relative to competitors'. To achieve the economic outcomes shown in Interactive Illustration 3, the business model must be built around a coherent set of activities. A firm's activities may include product development, procurement, manufacturing, deliveries, sales, and much more. An underlying economic logic must tie together the chosen activities, ensuring that the right customer value is delivered at the right cost-21 For example, by relentlessly driving costs out of every area of its business, Walmart is able to consistently offer the lowest prices across product categories. This in turn attracts the store traffic and the volume of purchases required to operate at the low gross margins that come with discount pricing.