6.1 Business-Level Strategy: How
to Compete for Advantage
Business-level strategy details the goal-directed actions managers take in their quest for
competitive advantage when competing in a single product market. 2 It may involve a single
product or a group of similar products that use the same distribution channel. It concerns
the broad question, “How should we compete?” To formulate an appropriate business-level
strategy, managers must answer the “who-what-why-and-how” questions of competition:
■ Who— which customer segments—will we serve?
■ What customer needs, wishes, and desires will we satisfy?
■ Why do we want to satisfy them?
■ How will we satisfy our customers’ needs? 3
To formulate an effective business strategy, managers need to keep in mind that competitive
advantage is determined jointly by industry and firm effects. As shown in Exhibit 6.1 ,
one route to competitive advantage is shaped by industry effects, while a second route is
determined by firm effects. As discussed in Chapter 3, an industry’s profit potential can be
assessed using the five forces framework plus the availability of complements. Managers
need to be certain that the business strategy is aligned with the five forces that shape competition.
They can evaluate performance differences among clusters of firms in the same
industry by conducting a strategic-group analysis. The concepts introduced in Chapter 4
are key in understanding firm effects because they allow us to look inside firms and explain
why they differ based on their resources, capabilities, and competencies. It is also important
to note that industry and firm effects are not independent, but rather they are interdependent,
as shown by the two-pointed arrow connecting industry effects and firm effects.
At the firm level, performance is determined by value and cost positions relative to
competitors. This is the firm’s strategic position. Although P&G was once the global leader
in branded consumer products, recently its value position relative to competitors declined
because consumers did not value additional incremental features and reformulations as