Competitive advantage can be defined as superior performance compared to the average performance of the sector. A company is said to have a competitive advantage over its rivals when its profitability is greater than the average profitability and profit growth of other companies competing for the same group of customers (Jones & Hill, 2008). Organizations must remain relevant for as long as possible and to do this, a company must create clear objectives, strategies and operations to build a sustainable competitive advantage. Michael Porter has outlined the three different strategies that companies can use to gain a competitive advantage. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay This strategy involves choosing a business model that will do everything possible to reduce your cost structure so that the company can produce and sell goods or services at a lower cost than its competitors. These strategies include functional strategies designed to improve its operational performance and competitive strategies intended to influence industry competition in its favor. Using the cost leadership model, a company will seek to achieve competitive advantage and above-average profitability by developing a model that positions it on the value creation frontier as close to the lowest cost axis as possible. This strategy gives the company an advantage because it will be more profitable than other companies due to lower costs and lower cost structure. This can be achieved by offering the same type of value as a product at a lower price which will attract more customers, resulting in increased sales and profits (Jones & Hill, 2008). This strategy allows an organization to create a unique product that is seen by consumers as distinct in some important way. A company that differentiates its products gains a competitive advantage because it has the ability to charge premium prices while meeting consumer needs in a way that its competitors cannot. A company can differentiate itself by providing a unique or high-quality product that consumers appreciate at the same or premium price (Johnson, Scholes, & Whittngton, 2008). Companies typically achieve differentiation through innovation, quality, or customer service. Innovating means satisfying the same needs in a new way. Quality means providing the best product or service. Differentiation strategy allows a company to position itself more on branding, advertising, design, quality and new product development rather than efficiency, outsourcing or process innovation. Customers are willing to pay a higher price only for unique features and better quality (Barney, 1995). Please note: this is just an example. Get a custom paper from our expert writers now. Get a Custom Essay In this strategy the company chooses to combine differentiation and targeted and generic business-level strategies to specialize in making distinctive products for one or two market segments. The company can differentiate in terms of cost where it targets niche markets where consumers are price sensitive, or differentiation where it targets niche markets with luxury or value-added products. It focuses on one type of consumer or product (Barney, 1995). The company is able to better meet the needs of consumers in a particular segment. A competitive advantage develops because the company owns it, 2008).