Porter defined that competition in most traditional industries follow into one of three generic strategies: cost leadership, differentiation, and niche specialization. A competitive advantage happens when a firm makes more profits selling its product or service than its competitors can (Harmon. 2007. Business Process Change).
The cost leader is the firm offering the product at the cheapest price. The way to bring down prices is by economies of scale, control of suppliers and channels, and by experience in products or process that help the company to produce more efficiently. Competition on cost is lead by large companies that can produce large volumes of products sell cheaper than smaller competitors.
If a company cannot compete by cost, the next best alternative is to differentiate its products from its competitors. These products will not be the cheapest one but they have attributes that make them more desirable. This process of differentiation could involve the use of better raw materials, having a unique set of craftsmanship skills, providing a unique design, or customizing the solution to certain requirements.
Finally, niche specialists focus on specific buyers, market segments, or particular geographical areas. This type of competition is a version of differentiation where premiums are added to the products’ prices given the products offer special features for those customers in the selected niche