Final answer:
This answer discusses the risks associated with each form of competitive advantage, explains how an overall cost leadership strategy enables profitability, and explains how a differentiation strategy enables profitability.
Step-by-step explanation:
1. Risks associated with each form of competitive advantage:
a) Overall cost leadership: The risk of focusing solely on cost reduction strategies is that other competitors may undercut prices further, resulting in a profit squeeze. Additionally, there's a risk of neglecting innovation and product quality.
b) Differentiation: The risk is that competitors may replicate the unique features or attributes that make a business stand out, leading to diminished competitive advantage.
c) Focus: The risk is that a narrow focus may limit opportunities for growth and leave the business vulnerable to market changes outside its target segment.
2. Overall cost leadership strategy:
An overall cost leadership strategy enables a business to address the five competitive forces by achieving a competitive advantage based on lower costs. This reduces the threat of new entrants and the bargaining power of suppliers, and allows the business to compete on price, thus countering the rivalry among existing competitors. Ultimately, high levels of profitability can be achieved by capturing a larger market share through lower prices.
3. Differentiation strategy:
A differentiation strategy enables a business to address the five competitive forces by creating a unique and desirable product or service that sets it apart from competitors. This reduces the threat of substitutes, increases customer loyalty, and allows the business to charge premium prices, thus countering the rivalry among existing competitors. Ultimately, high levels of profitability can be achieved by capturing a loyal customer base willing to pay a premium for the differentiated product or service.