6.4 Business-Level Strategy and the Five Forces: Benefits and Risks The business-level strategies introduced in this chapter allow firms to carve out strong strategic positions that enhance the likelihood of gaining and sustaining competitive advantage. The five forces model introduced in Chapter 3 helps managers assess the forces—threat of entry, power of suppliers, power of buyers, threat of substitutes, and rivalry among existing competitors—that make some industries more attractive than others. With this understanding of industry dynamics, managers use one of the generic business-level strategies to protect themselves against the forces that drive down profitability.33 Exhibit 6.7 details the relation-ship between competitive positioning and the five forces. In particular, it highlights the benefits and risks of cost-leadership and differentiation business strategies, which we discuss next.
COST-LEADERSHIP STRATEGY: BENEFITS AND RISKS A cost-leadership strategy is defined by obtaining the lowest-cost position in the industry while offering acceptable value. The cost leader, therefore, is protected from other competitors because of having the lowest cost. If a price war ensues, the low-cost leader will be the last firm standing; all other firms will be driven out as margins evaporate. Since reaping