The most basic determinant of a firm's profit rate is the gross profit margin. When a firm charges a premium price or differentiates its product, it is using generic business-level strategies, according to Michael Porter. The building blocks of competitive advantage are efficiency, quality, innovation, and customer responsiveness. These building blocks are generic in that they provide four basic ways to lower cost and achieve differentiation. Any firm can adopt these no matter what industry it is in or what product or service it provides.
Efficiency is based on the cost of inputs required to produce a given output.
The more efficient a firm, the lower the cost of its inputs required to produce a given output. Efficiency helps a firm attain a low-cost competitive advantage. Employee productivity can be the key to efficiency. The impact of high product quality on competitive advantage is the creation of a brand name reputation, greater efficiency and, thus, lower costs. This enhanced reputation allows the firm to charge a higher price.