Essentials of Strategic Management 3rd Edition by Charles W. - Test Bank

Essentials of Strategic Management 3rd Edition by Charles W. – Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

Chapter 5

Business-Level Strategy and Competitive Positioning

Name: __________________________  Date: _____________

1. T F    The process of defining a business should address the questions:  “What is to be satisfied?,” “Who is to be satisfied?,” and “How will they be satisfied?”

ANS:  True                    PTS:  1                    REF:  118

NAT:    AACSB Analytic   | AACSB Strategy

 

2. T F    A business-level strategy is the plan of action that strategic managers adopt to use a company’s resources and distinctive competencies to gain a competitive advantage over its rival in a market or industry.

ANS:  True                    PTS:  1                    REF:  118

NAT:    AACSB Analytic   | AACSB Strategy

 

3. T F    Customers needs are desires, wants, or cravings that can be satisfied by means of the characteristics of a product or service.

ANS:  True                    PTS:  1                    REF:  118

NAT:    AACSB Analytic   | AACSB Strategy

 

4. T F    Market segmentation is the way a company decides to group customers, based on important differences in their needs or preferences.

ANS:  True                    PTS:  1                    REF:  119

NAT:    AACSB Analytic   | AACSB Strategy

 

5. T F    Market segmentation addresses the “who” portion of a firm’s business model.

ANS:  True                    PTS:  1                    REF:  119

NAT:    AACSB Analytic   | AACSB Strategy

 

6. T F    The three generic competitive approaches are cost leadership, differentiation, and focus.

ANS:  True                    PTS:  1                    REF:  120

NAT:    AACSB Analytic   | AACSB Strategy

 

7. T F    Product differentiation is the process of creating a competitive advantage by designing goods or services to satisfy customer needs.

ANS:  True                    PTS:  1                    REF:  118

NAT:    AACSB Analytic   | AACSB Strategy

8. T F    Because of its lower cost structure, the cost leader is able to charge a higher price than its competitors.

ANS:  False                    PTS:  1                    REF:  121

NAT:    AACSB Analytic   | AACSB Strategy

9. T F    A cost leader generally has low product differentiation and high market segmentation.

ANS:  False                    PTS:  1                    REF:  121

NAT:    AACSB Analytic   | AACSB Strategy

10. T F    Cost leaders ignore the many different market segments in an industry and position their products to appeal to the “average” customer.

ANS:  True                    PTS:  1                    REF:  121

NAT:    AACSB Analytic   | AACSB Strategy

11. T F    The cost leader is able to withstand competition better than the other companies because of its lower costs.

ANS:  False                    PTS:  1                    REF:  122

NAT:    AACSB Analytic   | AACSB Strategy

12. T F    Achieving a low-cost position may require the company to develop skills in flexible manufacturing and adopt efficient materials-management techniques.

ANS:  True                    PTS:  1                    REF:  121

NAT:    AACSB Analytic   | AACSB Strategy

13. T F    Many cost leaders gear all their strategic choices to the single goal of squeezing out every cent of costs to sustain their competitive advantage.

ANS:  True                    PTS:  1                    REF:  122

NAT:    AACSB Analytic   | AACSB Strategy

14. T F    Companies with a differentiation advantage can charge a higher price for their products.

ANS:  True                    PTS:  1                    REF:  122-123

NAT:    AACSB Analytic   | AACSB Strategy

15. T F    The three principal routes to high product differentiation are superior innovation, excellent quality, and responsiveness to customer needs.

ANS:  True                    PTS:  1                    REF:  123

NAT:    AACSB Analytic   | AACSB Strategy

16. T F    A product’s appeal to customers’ psychological desires is a source of differentiation.

ANS:  True                    PTS:  1                    REF:  123

NAT:    AACSB Analytic   | AACSB Strategy

17. T F    A company pursuing a business model based on differentiation usually strives to differentiate itself on one key dimension.

ANS:  False                    PTS:  1                    REF:  124

NAT:    AACSB Analytic   | AACSB Strategy

18. T F    Differentiation on the basis of innovation and technological competency depends on the R&D function.

ANS:   True                   PTS:  1                    REF:  124

NAT:    AACSB Analytic   | AACSB Strategy

19. T F    For any company, building new competencies in the functions that sustain its differentiation means neglecting its cost structure.

ANS:  False                    PTS:  1                    REF:  125

NAT:    AACSB Analytic   | AACSB Strategy

20. T F    A differentiator should not be concerned about the production cost of a product because it can charge a premium price.

ANS:  False                    PTS:  1                    REF:  125

NAT:    AACSB Analytic   | AACSB Strategy

21. T F    Powerful suppliers are usually a problem for companies following a differentiation strategy.

ANS:  False                    PTS:  1                    REF:  125

NAT:    AACSB Analytic   | AACSB Strategy

22. T F    Differentiation leads to high brand loyalty, which in turn reduces the threat of new firms entering the industry.

ANS:  True                    PTS:  1                    REF:  125

NAT:    AACSB Analytic   | AACSB Strategy

23. T F    A factor promoting the trend toward market fragmentation and niche marking is the substantial reeducation of the costs of differentiation as a result of flexible manufacturing.

ANS:  True                    PTS:  1                    REF:  125

NAT:    AACSB Analytic   | AACSB Strategy

24. T F    All focus strategies entail serving a specific market segment using a differentiation approach.

ANS:  False                    PTS:  1                    REF:  125

NAT:    AACSB Analytic   | AACSB Strategy

25. T F    The fate of a company whose strategy fails because it has made product/market choices in a way that does not lead to a sustained competitive advantage is stuck in the middle.

ANS:  True                    PTS:  1                    REF:  128

NAT:    AACSB Analytic   | AACSB Strategy

26. T F    A fragmented industry is composed of a large number of small and medium-sized companies.

ANS:  True                    PTS:  1                    REF:  129

NAT:    AACSB Analytic   | AACSB Strategy

27. T F    Fragmented industries typically have few barriers to entry.

ANS:  True                    PTS:  1                    REF:  129

NAT:    AACSB Analytic   | AACSB Strategy

28. T F    John wants to open a small sandwich shop, in a city that contains dozens of similar stores. John’s industry is consolidated.

ANS:  False                    PTS:  1                    REF:  130

NAT:    AACSB Reflective Thinking   | AACSB Strategy

29. T F    A focused company is a specialized differentiator or a cost leader.

ANS:  True                    PTS:  1                    REF:  126

NAT:    AACSB Analytic   | AACSB Strategy

30. T F    McDonald’s created the first national chain of fast-food restaurants in a previously fragmented industry. This is an example of consolidation.

ANS:  True                    PTS:  1                    REF:  130

NAT:    AACSB Analytic   | AACSB Strategy

31. T F    JCPenney’s corporation owns thousands of retail outlets and is pursuing a strategy called franchising.

ANS:  False                    PTS:  1                    REF:  130

NAT:    AACSB Analytic   | AACSB Strategy

32. T F    Through chaining, companies increase their buying power, which allows them to negotiate large price reductions with their suppliers, which promotes their competitive advantage.

ANS:  True                    PTS:  1                    REF:  130

NAT:    AACSB Analytic   | AACSB Strategy

33. T F    Product proliferation refers to the strategy of “filling the niches” by catering to the needs of customers in all market segments.

ANS:  True                    PTS:  1                    REF:  132

NAT:    AACSB Analytic   | AACSB Strategy

34. T F    A price-cutting strategy will always keep potential entrants from entering the industry.

ANS:  False                    PTS:  1                    REF:  133

NAT:    AACSB Analytic   | AACSB Strategy

35. T F    Market penetration is a strategy in which a company concentrates on expanding market share in its existing product markets.

ANS:  True                    PTS:  1                    REF:  136

NAT:    AACSB Analytic   | AACSB Strategy

36. T F    Market development is the process that a company uses to increase its market share in its existing, established markets.

ANS:  False                    PTS:  1                    REF:  136

NAT:    AACSB Analytic   | AACSB Strategy

37. T F    Product proliferation can be used to manage rivalry within an industry and to encourage other businesses to enter the industry.

ANS:  False                    PTS:  1                    REF:  132

NAT:    AACSB Analytic   | AACSB Strategy

38. T F    When the size of the total market is shrinking, competition tends to intensify in a declining industry and profit rates tend to fall.

ANS:  True                    PTS:  1                    REF:  137

NAT:    AACSB Analytic   | AACSB Strategy

39. T F    A leadership strategy aims at growing in a declining industry by picking up the market share of companies that are leaving the industry.

ANS:  True                    PTS:  1                    REF:  138

NAT:    AACSB Analytic   | AACSB Strategy

40. T F    A harvest strategy is the best choice when a company wishes to get out of a declining industry and perhaps optimize cash flow in the process.

ANS:  True                    PTS:  1                    REF:  139

NAT:    AACSB Analytic   | AACSB Strategy

41. Competitive advantage with product differentiation occurs when a company
42. a) creates competitive advantage by grouping customers on the basis of important differences in their needs.
43. b) helps firms keep costs to a minimum.
44. c) creates, makes, and sells a product in a way that better satisfies customer needs than its rivals.
45. d) is focused on corporate-level strategy.
46. e) allows its managers to ignore costs.

ANS:  C                    PTS:  1                    REF:  122

NAT:    AACSB Analytic   | AACSB Strategy

42. Which of the following markets offers the best opportunity for product differentiation and market segmentation?
43. a) Bulk chemicals
44. b) Wheat
45. c) Cement
46. d) Home theater
47. e) Fax machines

ANS:  D                    PTS:  1                    REF:  118-119

NAT:    AACSB Reflective Thinking   | AACSB Value of Creation

43. Which of the following is not a generic competitive strategy?
44. a) Cost leadership
45. b) Differentiation
46. c) Focused cost leadership
47. d) Focused differentiation
48. e) Innovation

ANS:  E                    PTS:  1                    REF:  121-125

NAT:    AACSB Analytic   | AACSB Strategy

44. Which of the following industries offers the least opportunity for product differentiation and market segmentation?
45. a) Oil and gas
46. b) Clothing
47. c) Building supplies
48. d) Home electronics
49. e) Computers

ANS:  A                    PTS:  1                    REF:  118-119

NAT:    AACSB Reflective Thinking   | AACSB Strategy

45. A producer of commodity steel should pursue which of the following generic competitive strategies?
46. a) Growth
47. b) Cost leadership
48. c) Focus
49. d) Differentiation
50. e) Profit

ANS:  B                    PTS:  1                    REF:  121

NAT:    AACSB Reflective Thinking   | AACSB Strategy

46. When a company services the broad market and has a low degree of product differentiation, it is most likely
47. a) pursuing a focus strategy.
48. b) pursuing a differentiation strategy.
49. c) pursuing a cost-leadership strategy.
50. d) stuck in the middle.
51. e) pursuing both cost leadership and differentiation.

ANS:  C                    PTS:  1                    REF:  121

NAT:    AACSB Analytic   | AACSB Strategy

47. Which generic business-level strategy is based on the intent to outperform competitors by doing everything it can to lower its cost structure?
48. a) Focused differentiation
49. b) Differentiation
50. c) Broad differentiation
51. d) Cost leadership
52. e) None of these

ANS:  D                    PTS:  1                    REF:  121

NAT:    AACSB Analytic   | AACSB Strategy

48. A true cost leader has a __________ level of product differentiation and __________ market segmentation.
49. a) high; low
50. b) low; high
51. c) low; low
52. d) high; high
53. e) variable; variable

ANS:  C                    PTS:  1                    REF:  121

NAT:    AACSB Analytic   | AACSB Strategy

49. Which of the five forces does a cost leadership advantage help protect a company from?
50. a) Competitive rivalry
51. b) Power of suppliers
52. c) Power of buyers
53. d) Substitute products
54. e) All of these

ANS:  E                    PTS:  1                    REF:  122

NAT:    AACSB Analytic   | AACSB Strategy

50. As compared to a differentiator, the cost leader has the advantage over its rivals of
51. a) making higher profit margins.
52. b) being better able to withstand the negative influence of powerful suppliers and buyers.
53. c) having inimitable production methods.
54. d) enjoying higher brand loyalty.
55. e) being preferred by investors.

ANS:  B                    PTS:  1                    REF:  122

NAT:    AACSB Analytic   | AACSB Strategy

51. A disadvantage of pursuing a cost leadership strategy is that
52. a) technological change can make experience curve economies obsolete.
53. b) price wars make it hard to compete with differentiators.
54. c) it costs more than a differentiation strategy because of the necessity of high capital investments.
55. d) powerful buyers are a major threat.
56. e) no quality control exists.

ANS:  A                    PTS:  1                    REF:  122

NAT:    AACSB Analytic   | AACSB Strategy

 

52. A large company produces a variety of clothing for different customer groups. This firm is pursuing which of the following strategies?
53. a) Cost leadership
54. b) Differentiation
55. c) Both cost and differentiation
56. d) Focus
57. e) Share building

ANS:  B                    PTS:  1                    REF:  124

NAT:    AACSB Reflective Thinking   | AACSB Strategy

53. Delta Airlines used to advertise its high-quality air travel service by saying it flew “anywhere, anytime.” What generic strategy is represented by this advertisement?
54. a) Cost leadership
55. b) Focused differentiation
56. c) Stuck in the middle
57. d) Differentiation
58. e) Both cost leadership and differentiation simultaneously

ANS:  E                    PTS:  1                    REF:  124-125

NAT:    AACSB Reflective Thinking   | AACSB Strategy

54. Which of the following is not a route that can help a company achieve a differentiation advantage?
55. a) Superior innovation
56. b) Low cost structure
57. c) Responsiveness to customer needs
58. d) Excellent quality
59. e) Superior innovation and excellent quality

ANS:  B                    PTS:  1                    REF:  122-123

NAT:    AACSB Analytic   | AACSB Strategy

55. When a company produces a wide range of products for different customer groups, it is following a strategy of
56. a) cost leadership.
57. b) market concentration.
58. c)
59. d)
60. e) share building.

ANS:  A                    PTS:  1                    REF:  121

NAT:    AACSB Analytic   | AACSB Strategy

56. The most expensive competitive strategy to pursue is
57. a)
58. b) cost leadership.
59. c) focused cost leadership.
60. d)
61. e) hyper-competition.

ANS:  D                    PTS:  1                    REF:  122-123

NAT:    AACSB Analytic   | AACSB Strategy

57. The main difference between companies following a cost leadership strategy and those following a focused cost leadership strategy is
58. a) standardized market price.
59. b) industry life cycle stage.
60. c) degree of market segmentation.
61. d) age of the market.
62. e) market trajectory.

ANS:  C                    PTS:  1                    REF:  122-122, 125

NAT:    AACSB Analytic   | AACSB Strategy

58. Nick is often asked to perform his clown act for birthday parties or school groups, but instead he only offers his very inexpensive services to children’s hospitals. Nick is pursuing which generic business strategy?
59. a) Cost leadership
60. b) Differentiation
61. c) Focused cost leadership
62. d) Focused differentiation
63. e) Stuck in the middle

ANS:  D                    PTS:  1                    REF:  122-126

NAT:    AACSB Reflective Thinking   | AACSB Strategy

59. Which of the following types of businesses would not be considered a focused differentiator?
60. a) A store specializing in fly-fishing
61. b) A plus-size clothing store
62. c) A Belgian chocolate shop
63. d) A Mexican fast food restaurant chain
64. e) An aquarium store selling only salt water fish and equipment

ANS:  D                    PTS:  1                    REF:  126

NAT:    AACSB Reflective Thinking   | AACSB Strategy

60. A radio station has a distinctive competency in developing new products (shows) and wants to serve the upscale market. Which of the following is the most appropriate generic strategy for this company?
61. a) Cost leadership
62. b) Differentiation
63. c) Both cost leadership and differentiation
64. d) Focused low cost approach
65. e) Focused differentiation approach

ANS:  E                    PTS:  1                    REF:  126

NAT:    AACSB Reflective Thinking   | AACSB Strategy

61. Which of the following best describes an industry that consists of many small firms?
62. a) Fragmented
63. b) Growth
64. c) Mature
65. d) Declining
66. e) Diverse

ANS:  A                    PTS:  1                    REF:  129

NAT:    AACSB Analytic   | AACSB Strategy

62. Which of the following is not a characteristic of fragmented industries?
63. a) A large number of small competitors
64. b) High barriers to entry
65. c) Many “custom-made” or specialty firms
66. d) Few economies of scale
67. e) Low consolidation

ANS:  B                    PTS:  1                    REF:  129

NAT:    AACSB Analytic   | AACSB Strategy

63. If a firm operating in a fragmented industry can find a way to __________, the profit potential is high.
64. a) backwards integrate
65. b) consolidate the industry
66. c) change its generic strategy
67. d) diversify
68. e) change strategic groups

ANS:  B                    PTS:  1                    REF:  130

NAT:    AACSB Analytic   | AACSB Strategy

64. All of the following strategies are used to grow and consolidate fragmented industries except
65. a)
66. b) using the Internet and IT
67. c)
68. d) horizontal merger.
69. e) vertical merger

ANS:  E                    PTS:  1                    REF:  130-131

NAT:    AACSB Analytic   | AACSB Strategy

65. One strategy used to consolidate fragmented industries is
66. a) vertical mergers.
67. b) horizontal merger
68. c) product proliferation.
69. d) chaining
70. e) non-price competition.

ANS:  B                    PTS:  1                    REF:  131

NAT:    AACSB Analytic   | AACSB Strategy

66. To compete in the fragmented restaurant industry, Red Lobster Corporation built and operated hundreds of restaurants across the United States and Canada. Red Lobster is using which type of strategy?
67. a) Acquisitions
68. b) Chaining
69. c) Franchising
70. d) Diversification
71. e) Horizontal mergers

ANS:  B                    PTS:  1                    REF:  130

NAT:    AACSB Reflective Thinking   | AACSB Strategy

67. Which of the following strategies for fragmented industries grants the right to use the parent’s name, reputation, and business model in a particular location or area in return for a fee and often a percentage of the profits?
68. a) Chaining
69. b) Franchising
70. c) Vertical merger
71. d) Horizontal merger
72. e) B2B

ANS:  B                    PTS:  1                    REF:  130-131

NAT:    AACSB Analytic   | AACSB Strategy

68. Which of the following is an example of a company following a strategy of consolidating a fragmented industry through horizontal merger?
69. a) Mail Boxes Etc. grew through the investments of local owner-managers.
70. b) America Online grew by acquiring rivals such as Netscape, CompuServe, and ICQ.
71. c) Sears funded growth with cash from operations in its existing stores.
72. d) Software House International is licensed to sell over 100,000 products in a dozen countries.
73. e) Heinz started with just one product, pickled horseradish, and today manufactures almost 6,000 foods.

ANS:  B                    PTS:  1                    REF:  131

NAT:    AACSB Analytic   | AACSB Strategy

69. Which of the following refers to the process by which companies increase or decrease product prices to convey their competitive intention to other companies and so influence the way they price their products?
70. a) Cost cutting
71. b) Price signaling
72. c) Preemption
73. d) Non-price competition
74. e) Horizontal mergers

ANS:  B                    PTS:  1                    REF:  134

NAT:    AACSB Analytic   | AACSB Strategy

70. Which of the following refers to the process by which one company informally takes the responsibility for setting industry prices?
71. a) Price leadership
72. b) Non-price competition
73. c) Capacity control
74. d) Market development
75. e) Price signaling

ANS:  A                    PTS:  1                    REF:  134

NAT:    AACSB Analytic   | AACSB Strategy

71. A telecommunications firm is working on the next generation of switching equipment that allows calls to be digitally transmitted from sender to receiver. If the new product will be sold to existing customers, the firm is pursuing a strategy of
72. a) product proliferation
73. b) market penetration.
74. c) product development
75. d) market signaling.
76. e) market development.

ANS:  C                    PTS:  1                    REF:  136

NAT:    AACSB Reflective Thinking   | AACSB Strategy

72. A Japanese automaker begins selling its compact cars in Southeast Asia. This firm is pursuing a strategy of
73. a) market penetration.
74. b) market signaling
75. c) product proliferation.
76. d) market development
77. e) product development.

ANS:  D                    PTS:  1                    REF:  136

NAT:    AACSB Reflective Thinking   | AACSB Strategy

73. Competitive intensity in a declining industry is greatest when
74. a) exit barriers are high.
75. b) the product has high differentiation.
76. c) the industry is declining slowly instead of rapidly
77. d) the industry cannot keep up with demand.
78. e) industry fixed costs are low.

ANS:  A                    PTS:  1                    REF:  138

NAT:    AACSB Analytic   | AACSB Strategy

74. Which of the following is not a strategy used in declining industries?
75. a) Leadership
76. b) Niche
77. c) Divestment
78. d) Harvest
79. e) Diversification

ANS:  E                    PTS:  1                    REF:  137-139

NAT:    AACSB Analytic   | AACSB Strategy

75. If a firm has the resources to serve a stable pocket of demand in a declining industry, then it should pursue a __________ strategy.
76. a) harvest
77. b) product development
78. c) product proliferation
79. d) niche
80. e) divestiture

ANS:  D                    PTS:  1                    REF:  139

NAT:    AACSB Analytic   | AACSB Strategy

76. Are the generic business-level strategies of differentiation and cost leadership incompatible? Explain.

Ans:  Differentiation is a business model that seeks to improve a company’s uniqueness. Cost leadership is a strategy in which a firm strives to be the low-cost producer. Some companies have pursued a differentiation approach, but they have done so in a way that allows them to lower their cost structure as well. Broad differentiators may have a cost structure that is higher than the cost leaders and a level of product differentiation that is less than the most differentiated product in the market. However, they may be able to provide more value to customers if they can balance the tradeoff between differentiation and cost.       The broad differentiation model may allow a company to realize the benefits of being in the middle of differentiators and cost leaders, but this could be desirable if they can still offer a somewhat differentiated product at a premium price (compared to cost leader). Over time, successful broad differentiators can grow their profits, which gives them more capital to reinvest in their business and continually improve their business model and continue to increase both differentiation and lower their cost structure. Over time, differentiators and cost leaders may find that broad differentiators have completely taken away their competitive advantage. The danger with this approach, however, is that a firm moving in both directions simultaneously may end up “stuck-in-the-middle with no real source of competitive advantage. 

REF:  120-127

NAT:    AACSB Reflective Thinking   | AACSB Strategy

    

77. For each of the generic strategies—cost leadership, differentiation, and focus—describe one advantage and one disadvantage.

Ans:  Students should mention items from the following lists.       Cost leadership provides protection against rivalry and price wars, protection against price pressure from suppliers and buyers, competitive pricing compared to the price of substitutes, and the creation of high entry barriers. Disadvantages include a vulnerability to imitation and the risk of losing sight of customer needs or technological advances.       Differentiation provides lessened rivalry due to brand loyalty, protection from price pressure from suppliers, low customer defection rates, protection from substitutes, and high barriers to entry. Disadvantages include the risk of losing their source of uniqueness, risk from changing customer preferences, and price competition.       Focus provides a niche strategy that protects against rivals and new entrants, power over buyers, and lower risk from substitutes. Disadvantages include the risks from powerful suppliers, high costs, disappearance of the niche, and vulnerability to competition from larger firms.     

REF:  120-127

NAT:    AACSB Reflective Thinking   | AACSB Strategy

 

78. Empirical evidence shows that firms that pursue cost leadership or differentiation achieve returns that are about equivalent, firms that pursue both cost leadership and differentiation have the highest returns, and firms that are stuck in the middle have the lowest returns. Using concepts from this chapter, explain why this is so.

Ans:  Firms that pursue cost leadership benefit from low expenses. Even though their prices are typically low relative to competitors’, their profit margins are adequate. Their profitability stems from their ability to sell products in high volumes, so that the modest profit margin is multiplied by many sales, creating large revenues. Differentiators on the other hand, have higher expenses. They typically have higher prices so that their profit margins are high. They sell fewer of each product, but their higher profit margins still allow the firm to realize large revenues. However, firms that are able to both lower expenses and increase price by pursuing both strategies simultaneously will have the largest profit margins and the highest sales, leading to the greatest profitability. Finally, firms that are stuck in the middle have moderate, not low, costs; they are not able to command premium prices; and their sales volume is moderate, not high. Therefore, they have the lowest profitability of all. 

REF:  102-128

NAT:    AACSB Reflective Thinking   | AACSB Strategy