Business$-$Level Strategy and the Five

Forces Model

The Five Forces model assists managers in using generic business strategies to protect themselves against the industry forces that

reduce the potential for profitability and enhance their competitive advantage. Differentiation and cost$-$leadership strategies allow

firms to carve out strong strategic positions, not only to protect themselves against the five forces, but also to benefit from them in

their quest for competitive advantage.

This exercise is important because it will help you identify the benefits and the risks associated with choosing either a differentiation

strategy or a cost$-$leadership strategy and the forces that impact that choice.

The goal of this exercise is for you to demonstrate your understanding of the Five Forces Model and the benefits and risks associated

with choosing the right strategic positioning.

Group the industry forces by the benefits and risks associated with differentiation strategy or a cost$-$leadership strategy. Move each

label to the correct drop zone box$/$boxes$.$ Some labels may be used more than once.

Labels

Drop Zones

Erosion of margins

Protection against

decrease in sales

prices, which can

be absorbed

Protection against

competitors if

product or service

has enough

differential appeal

to command

premium price

Protection against

entry due to

intangible

resources

Replacement,

especially when

faced with

innovation

Differentiation$-$ Differentiation $-$ Risks

Benefit $(1/4)$

$(2/4)$

Cost Leadership $-$

Benefit $(3/4)$

Cost Leadership $-$

Risks $(4/4)$