Strategic Management Creating Competitive Advantages Gregory Dess 9e - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below Strategic Management: Text and Cases, 9e (Dess) Chapter 5 Business-Level Strategy: Creating and Sustaining Competitive Advantages 1) Overall cost leadership is a generic strategy unlike others …
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Strategic Management: Text and Cases, 9e (Dess)
Chapter 5 Business-Level Strategy: Creating and Sustaining Competitive Advantages
1) Overall cost leadership is a generic strategy unlike others that does not require a tight set of interrelated tactics.
Answer: FALSE
Explanation: Overall cost leadership requires a tight set of interrelated tactics that include:
Aggressive construction of efficient-scale facilities.
Vigorous pursuit of cost reductions from experience.
Tight cost and overhead control.
Avoidance of marginal customer accounts.
Cost minimization in all activities in the value chain of the firm, such as R/D, service, sales force, and advertising.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
2) An example of a firm applying the overall cost leadership generic strategy in a value-chain activity would be to automate the production assembly line to reduce scrappage from quality errors.
Answer: TRUE
Explanation: Overall cost leadership requires a tight set of interrelated tactics that includes cost minimization in all activities in the value chain of the firm such as R&D, service, sales force, and advertising. An example of this is the effective use of automated technology to reduce scrappage rates.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
3) The experience curve is a factor central to an overall cost leadership strategy and refers to how business learns to increase costs as it gains experience with production processes.
Answer: FALSE
Explanation: The experience curve is the decline in unit costs of production as cumulative output increases.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
4) The five-forces model suggests that with intense competition an overall low-cost position will not enable a firm to achieve above-average returns.
Answer: FALSE
Explanation: An overall low-cost position enables a firm to achieve above-average returns despite intense competition. It protects a firm against rivalry from competitors, because lower costs allow a firm to earn returns even if its competitors eroded their profits through intense rivalry.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
5) Factors that lead to a low-cost position also provide substantial entry barriers to substitute and new products as is demonstrated by the retailer, Aldi, whose focus on minimizing costs across the entire operation permits it to position well against competitors such as Walmart.
Answer: TRUE
Explanation: The factors that lead to a low-cost position also provide a substantial entry barriers position with respect to substitute products introduced by new and existing competitors. The extreme focus on minimizing costs across its operations makes Aldi less vulnerable to substitutes, such as discount retailers like Walmart and dollar stores.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
6) If the overall cost leadership strategy is to provide sustainable competitive advantage, all activities in the value-chain need to be evaluated including the relationships among the value-chain activities.
Answer: TRUE
Explanation: Too often managers make big cuts in operating expenses but do not question year-to-year spending on capital projects. Or managers may decide to cut selling and marketing expenses but ignore manufacturing expenses. Managers should explore all value-chain activities, including relationships among them, as candidates for cost reductions.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
7) A firm can differentiate itself in a support activity by purchasing high-quality components to enhance product image such as Apple does with its laptop computers.
Answer: TRUE
Explanation: As the name implies, a differentiation strategy consists of creating differences in the product or services of the firm by offering by creating something that is perceived industrywide as unique and valued by customers. An example is the use by Apple of quality in procurement to enhance the product image.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
8) Caterpillar uses data analytics to differentiate itself from competitors by providing information services.
Answer: TRUE
Explanation: More recently, Caterpillar has looked to big data to help it grow its business. In a study of one malfunctioning machine owned by a large mining company, Cat concluded that the new technology of the firm would have reduced repair costs from the 650,000 USD the mining company incurred to 12,000 USD by identifying an emerging problem before it did serious damage. Thus, Cat sees this technology as allowing it to better serve both its customers and dealers, resulting in new sources of income for Cat as customers see value in buying ongoing data-access and software subscriptions.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
9) Combination strategies, such as integrating overall low cost and differentiation, makes it easier for rivals to duplicate or imitate because it is harder for the primary firm to provide value.
Answer: FALSE
Explanation: Perhaps the primary benefit to firms that integrate low-cost and differentiation strategies is the difficulty for rivals to duplicate or imitate. This strategy enables a firm to provide two types of value to customers: differentiated attributes (e.g., high quality, brand identification, reputation) and lower prices (because of the lower costs of the firm in value-creating activities). The goal is thus to provide unique value to customers in an efficient manner.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
10) Airlines such as Emirates exploit the profit pool for competitive advantage by adding fees for a variety of services such as access to airport lounges.
Answer: TRUE
Explanation: By separating the value of the actual flight from the services associated with flying, airlines have greatly expanded the profit pool associated with flying. They have found that flyers may be very price-conscious when purchasing tickets but are willing to shell out more for a range of services.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
11) A pitfall of integrated overall cost leadership and differentiation is underestimating the expenses associated with coordinating value-creating activities in the extended value chain.
Answer: TRUE
Explanation: Integrating activities across a value chain of a firm with the value chain of suppliers and customers involves a significant investment in financial and human resources. Firms must consider the expenses linked to technology investment, managerial time and commitment, and the involvement and investment required by the customers and suppliers of the firm. The firm must be confident that it can generate a sufficient scale of operations and revenues to justify all associated expenses.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
12) Once established, competitive advantages last forever whether the firm is in a high technology environment or not.
Answer: FALSE
Explanation: Competitive advantages are, however, often short-lived. Nothing is forever when it comes to competitive advantages. Rapid changes in technology, globalization, and actions by rivals from within and outside the industry can quickly erode firm advantages. It is becoming increasingly important to recognize that the duration of competitive advantages is declining, especially in technology-intensive industries. Even in industries that are normally viewed as low tech, the increasing use of technology has suddenly made competitive advantages less sustainable.
Difficulty: 2 Medium
Topic: Sustaining a Competitive Advantage
Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
13) A platform business is like a matchmaker in that it can bring together buyers and sellers. An example of a successful platform provider is Facebook. By attracting and retaining users through expanding services it differentiates itself from more narrowly-focused competitors such as Twitter.
Answer: TRUE
Explanation: Successful platform firms create a business that attracts a large range of suppliers and a wide population of customers, becoming the go-to clearinghouse that both suppliers and customers turn to, in order to facilitate a transaction. In doing so, they typically successfully combine elements of both cost and differentiation advantages. Facebook has looked to continually extend its differentiation by expanding the range of services it offers, and as a result, has been able to put the squeeze on narrow platform providers, such as Twitter.
Difficulty: 2 Medium
Topic: Sustaining a Competitive Advantage
Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
14) A platform business such as Airbnb leverages data analytics to differentiate its offer from that of competitors such as VRBO.
Answer: TRUE
Explanation: Platform businesses can learn a great deal about their suppliers and customers by observing their search and usage patterns. Successful platform firms leverage this data to figure out how to best fill their matchmaking role in bringing together suppliers and users. Airbnb has worked to create systems that increase the likelihood that hosts will agree to offers from potential renters. The firm realizes that renters get frustrated if their rental offers are declined. Additionally, hosts will be dissatisfied if offers come from undesirable renters. Using data analytics, Airbnb analyzed when specific hosts accepted and declined offers and their satisfaction ratings of renters to develop profiles of preferred renter characteristics. Using the resulting algorithm for matching renter characteristics and host preferences, the company saw a 4 percent increase in its rate of converting offers into accepted rental matches
Difficulty: 2 Medium
Topic: Sustaining a Competitive Advantage
Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
15) The market life cycle should be used for short-run forecasting because it provides a conceptual framework for understanding what changes typically occur over the life of an industry.
Answer: FALSE
Explanation: The industry life cycle refers to the stages of introduction, growth, maturity, and decline that occur over the life of an industry. In considering the industry life cycle, it is useful to think in terms of broad product lines such as personal computers, photocopiers, or long-distance telephone service. Changes tend to be slower than what is needed for forecasting.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-06 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
16) An important advantage of first movers in a market is that they may establish brand recognition that may later serve as an important switching cost.
Answer: TRUE
Explanation: There is an advantage to being the first mover in a market. It led to the success of Coca-Cola in becoming the first soft-drink company to build a recognizable global brand and enabled Caterpillar to get a lock on overseas sales channels and service capabilities.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-06 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
17) Given the attractiveness of premium pricing during the growth stage of the market life cycle, managers should emphasize short-term results to increase profits.
Answer: FALSE
Explanation: In the growth stage, revenues increase at an accelerating rate because new consumers are trying the product and a growing proportion of satisfied consumers are making repeat purchases. Since repeat purchases are necessary, a long-term strategy is desirable.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-06 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
18) A need for turnaround occurs only during the maturity or declining stage of the life cycle.
Answer: FALSE
Explanation: A need for turnaround may occur at any stage in the life cycle but is more likely to occur during maturity or decline.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
19) Few turnarounds require firms to analyze both the external and internal environments relevant to their firm.
Answer: FALSE
Explanation: Most turnarounds require a firm to carefully analyze the external and internal environments. The external analysis leads to identification of market segments or customer groups that may still find the product attractive. Internal analysis results in actions aimed at reduced costs and higher efficiency. A firm needs to undertake a mix of both internally and externally oriented actions to affect a turnaround.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
20) Piecemeal productivity improvements can be used by a mature business in need of a turnaround.
Answer: TRUE
Explanation: There are many ways in which a firm can eliminate costs and improve productivity. Although individually these are small gains, they cumulate over a period of time to substantial gains. Improving business processes by reengineering them, benchmarking specific activities against industry leaders, encouraging employee input to identify excess costs, increasing capacity utilization, and improving employee productivity lead to a significant overall gain.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
21) The primary aim of strategic management at the business level is
Answer: C
Explanation: How firms compete with each other and how they attain and sustain competitive advantages goes to the heart of strategic management. In short, the key issue becomes to identify why some firms outperform others and enjoy such advantages over time.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
22) Primary value chain activities that involve the effective layout of receiving dock operations (inbound logistics) and support value chain activities that include expertise in process engineering (technology development) characterize which generic strategy?
Answer: D
Explanation: Examples of overall cost leadership within primary value chain activities may involve the effective layout of receiving dock operations (inbound logistics), and support value chain activities may include expertise in process engineering (technology development).
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
23) A manufacturing business pursuing cost leadership is likely to
Answer: D
Explanation: One factor often central to an overall cost leadership strategy is the experience curve, which refers to how business learns to lower costs as it gains experience with production processes. With experience, unit costs of production decline as output increases in most industries.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
24) One aspect of using a cost leadership strategy is that experience effects may lead to lower costs. Experience effects are achieved by
Answer: C
Explanation: One factor often central to an overall cost leadership strategy is the experience curve, which refers to how business learns to lower costs as it gains experience with production processes. With experience, unit costs of production decline as output increases in most industries.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
25) With experience, unit costs of production decline as ________ increases in most industries.
Answer: C
Explanation: With experience, unit costs of production decline as output increases in most industries. The experience curve, developed by the Boston Consulting Group in 1968, is a way of looking at efficiency gains that come with experience. For a range of products, as cumulative experience doubles, costs and labor hours needed to produce a unit of product decline by 10 to 30 percent.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
26) Research has consistently shown that firms that achieve both cost leadership and differentiation advantages tend to perform
Answer: C
Explanation: Both casual observation and research support the notion that firms that identify with one or more of the forms of competitive advantage outperform those that do not. There has been a rich history of strategic management research addressing this topic. One study found that businesses combining multiple forms of competitive advantage (differentiation and overall cost leadership) outperformed businesses that used only a single form.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
27) Global logistics firms such as DHL Supply Chain and Global Forwarding or C. H. Robinson Worldwide compete using an overall cost leadership strategy in primary activities such as
Answer: A
Explanation: Inbound logistics is a primary activity in the value chain. These global logistics firms strive to achieve cost advantages through the design of their receiving dock operations, among other operation design features.
Difficulty: 2 Medium
Topic: Value Chain Analysis
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
28) Overhead costs associated with the number of layers of management in a firm are part of the ________ activities of the value chain.
Answer: B
Explanation: Exhibit 5.3 draws on the value-chain concept to provide examples of how a firm can attain an overall cost leadership strategy in its primary and support activities. Reducing management layers to reduce overhead costs is the support activity associated with the firm infrastructure.
Difficulty: 2 Medium
Topic: Value Chain Analysis
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
29) Primark, a fashion retailer, has found a way to keep its cost structure lower than its rivals by leveraging streamlined logistics, a low marketing budget, and negotiating bargain prices from its suppliers. They are using a(n) ________ strategy.
Answer: B
Explanation: Overall cost leadership requires a tight set of interrelated tactics that include: aggressive construction of efficient-scale facilities and vigorous pursuit of cost reductions from experience.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
30) Aldi, a discount supermarket retailer, has grown from its German base to the rest of Europe, Australia, and the United States by replicating a simple business format. Aldi limits the number of products in each category to ensure product turn, to ease stocking shelves, and to increase its power over supplier. This is an example of an overall cost leadership strategy because it
Answer: B
Explanation: Aldi, a discount supermarket retailer limits the number of products in each category to become more efficient. This enhances its cost leadership position.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
31) A business that strives for a low-cost advantage must attain a(n) ________ cost advantage over rivals.
Answer: C
Explanation: A business that strives for a low-cost advantage must attain an absolute cost advantage relative to its rivals.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
32) A firm typically achieves an absolute cost advantage by offering a ________ product or service to a ________ target market using standardization to derive the greatest benefits from economies of scale and experience.
Answer: C
Explanation: A business that strives for a low-cost advantage must attain an absolute cost advantage relative to its rivals. This is typically accomplished by offering a no-frills product or service to a broad target market using standardization to derive the greatest benefits from economies of scale and experience.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
33) Primark, an Irish clothing retailer, uses an overall cost leadership strategy. This could fail if it
Answer: B
Explanation: To generate above-average performance, a firm following an overall cost leadership position must attain competitive parity on the basis of differentiation relative to competitors. Primark, an Irish clothing retailer, has built a low-cost strategy while also being seen as effectively addressing concerns about environmental sustainability.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
34) Zulily, an online retailer, competes with Amazon and other online retailers by
Answer: D
Explanation: Zulily, an online retailer, has built its business model around lower-cost operations in order to carve out a unique position relative to Amazon and other online retailers. Zulily keeps very little inventory and typically orders products from vendors only when customers purchase the product. It also has developed a bare-bones distribution system. Together, these actions result in deliveries that take an average of 11.5 days to get to customers and can sometimes stretch out to several weeks. Due to its reduced operational costs, Zulily is able to offer attractive prices to customers who are willing to wait.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
35) Which type of competitive strategy is characterized by convincing rivals not to enter a price war, protection from customer pressure to lower prices, and the ability to better withstand cost increases from suppliers?
Answer: B
Explanation: An overall low-cost position enables a firm to achieve above-average returns despite strong competition. It protects a firm against rivalry from competitors, because lower costs allow a firm to earn returns even if its competitors eroded their profits through intense rivalry. It protects firms against powerful buyers, who can only drive down prices to the level of the next most efficient producer. A low-cost position provides more flexibility to cope with supplier demands for input cost increases.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
36) An overall low-cost position enables a firm to achieve ________ returns despite strong competition.
Answer: D
Explanation: An overall low-cost position enables a firm to achieve above-average returns despite strong competition.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
37) An overall low-cost position protects a firm against rivalry from competitors because ________ allow a firm to earn returns even if its competitors eroded their profits through intense rivalry.
Answer: C
Explanation: An overall low-cost position protects a firm against rivalry from competitors because lower costs allow a firm to earn returns even if its competitors eroded their profits through intense rivalry.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
38) An overall ________ position enables a firm to achieve above-average returns because it protects firms against powerful buyers.
Answer: B
Explanation: An overall low-cost position enables a firm to achieve above-average returns because it protects firms against powerful buyers.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
39) A low-cost position permits buyers to exert power to drive ________ prices only to the level of the next most efficient producer.
Answer: B
Explanation: A low-cost position permits buyers to exert power to drive down prices only to the level of the next most efficient producer.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
40) A low-cost position provides ________ flexibility to cope with demands from powerful suppliers for input cost increases.
Answer: C
Explanation: A low-cost position provides more flexibility to cope with demands from powerful suppliers for input cost increases.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
41) The factors that lead to a low-cost position also provide a substantial ________ barriers position with respect to ________ products introduced by new and existing competitors.
Answer: A
Explanation: The factors that lead to a low-cost position also provide a substantial entry barriers position with respect to substitute products introduced by new and existing competitors.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
42) Zulily protects itself from buyer power and intense rivalry from competitors by
Answer: B
Explanation: Zulily pays close attention to costs that help to protect the company from buyer power and intense rivalry from competitors. Thus, Zulily is able to drive down costs and reduce the bargaining power of its customers.
Difficulty: 1 Easy
Topic: Competitive Advantage
Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
43) Which of the following is a risk (or potential pitfall) of cost leadership?
Answer: A
Explanation: Potential pitfalls of overall cost leadership strategy include too much focus on one or a few value-chain activities; increase in the cost of the inputs on which the advantage is based; the strategy is imitated too easily; a lack of parity on differentiation; reduced flexibility; and obsolescence of the basis of cost advantage
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
44) A firm can achieve differentiation through all the following means except
Answer: B
Explanation: A differentiation strategy consists of creating differences in the product or service offering of the firm by creating something that is perceived industrywide as unique and valued by customers. Differentiation can take many forms, including prestige or brand image, quality, technology, innovation, features, customer service, or a dealer network.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
45) Value-chain support activities that involve excellent applications engineering support (technology development) and facilities that promote a positive firm image (firm infrastructure) characterize which generic strategy?
Answer: C
Explanation: Examples of value-chain activities for differentiation include value chain support activities like excellent applications engineering support (technology development) and facilities that promote a positive firm image (firm infrastructure).
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
46) High product differentiation is generally accompanied by
Answer: D
Explanation: Differentiation provides protection against rivalry because brand loyalty lowers customer sensitivity to price and raises customer switching costs. By increasing company margins, differentiation also avoids the need for a low-cost position.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
47) Which of the following is false regarding how a differentiation strategy can help a firm to improve its competitive position relative to the Porter five-forces model?
Answer: D
Explanation: Supplier power is also decreased, because there is a certain amount of prestige associated with being the supplier to a producer of highly differentiated products and services.
Difficulty: 2 Medium
Topic: Porter’s Five Competitive Forces
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
48) A differentiation strategy enables a business to address the five competitive forces by
Answer: C
Explanation: Differentiation provides protection against rivalry since brand loyalty lowers customer sensitivity to price and raises customer switching costs.
Difficulty: 2 Medium
Topic: Sustaining a Competitive Advantage
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
49) Which of the following is not a potential pitfall of a differentiation strategy?
Answer: C
Explanation: Potential pitfalls of a differentiation strategy include uniqueness that is not valuable; too much differentiation; too high a price premium; differentiation that is easily imitated; dilution of brand identification through product-line extensions; or perceptions of differentiation may vary between buyers and sellers.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
50) Hardware chains such as Ace and True Value are losing market share to rivals such as Lowe’s and Home Depot in spite of them using a focus strategy. Why?
Answer: A
Explanation: Some firms attempting to attain advantages through a focus strategy may have too narrow a product or service. Consider many retail firms. Hardware chains such as Ace and True Value are losing market share to rivals such as Lowe’s and Home Depot that offer a full line of home and garden equipment and accessories. And given the enormous purchasing power of the national chains, it would be difficult for such specialty retailers to attain parity on costs.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
51) Early pioneer in online education, University of Phoenix, has faced increasing challenges from traditional university online programs who are able to offer their programs at the same cost. This is an example of which generic strategy gone wrong:
Answer: C
Explanation: The advantages of a cost focus strategy may be fleeting if the cost advantages are eroded over time. For example, early pioneers in online education, such as the University of Phoenix, have faced increasing challenges as traditional universities have entered with their own online programs that allow them to match the cost benefits associated with online delivery systems. This is a pitfall of a focus strategy.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
52) Marlin Steel Wire Products is a manufacturer of commodity wire products out of Baltimore, MD. Marlin has many rivals based in China and other emerging markets. The company cannot compete on labor costs so it used a ________ strategy to automate its production and now specializes in high-end products.
Answer: C
Explanation: Marlin Steel Wire Products, a Baltimore-based manufacturing company, has also seen great benefit from developing a niche-differentiator strategy. Marlin, a manufacturer of commodity wire products, faced stiff and ever-increasing competition from rivals based in China and other emerging markets. These rivals had labor-based cost advantages that Marlin found hard to counter. Marlin responded by changing the game it played. The company president decided to go upmarket, automating his production and specializing in high-end products.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
53) Which statement regarding competitive advantages is true?
Answer: C
Explanation: Potential pitfalls of a differentiation strategy include the idea that perceptions of differentiation may vary between buyers and sellers. The issue here is that beauty is in the eye of the beholder. Companies must realize that although they may perceive their products and services as differentiated, their customers may view them as commodities.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
54) Porsche has enhanced power over buyers because its strong reputation makes buyers more willing to pay a premium price. This ________ rivalry, since buyers become ________ price-sensitive.
Answer: C
Explanation: Porsche has enjoyed enhanced power over buyers because its strong reputation makes buyers more willing to pay a premium price. This lessens rivalry, since buyers become less price-sensitive. The prestige associated with its brand name also lowers supplier power since margins are high. Suppliers would probably desire to be associated with prestige brands, thus lessening their incentives to drive up prices.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
55) A firm following a focus strategy must focus on
Answer: B
Explanation: A focus strategy is based on the choice of a narrow competitive scope within an industry. A firm following this strategy selects a segment or a group of segments and tailors its strategy to serve them. The essence of focus is the exploitation of a particular market niche.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
56) Which of the following is not a potential pitfall of a focus strategy?
Answer: D
Explanation: Potential pitfalls of focus strategies include: erosion of cost advantages within the narrow segment; the idea that even product and service offerings that are highly focused are subject to competition from new entrants; and focusers that become too focused to satisfy buyer needs.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
57) At one CVS drugstore, a four-pack of Energizer AA batteries was on sale at 2.99 USD compared with a Duracell four-pack at 4.59 USD. The Duracell market share dropped 2 percent in a recent two-year period, and its profits declined over 30 percent. Why did this happen?
Answer: A
Explanation: Customers may desire the product, but they are repelled by the price premium. For example, Duracell recently charged too much for batteries. The firm tried to sell consumers on its superior-quality products, but the mass market was not convinced. Why? The price differential was simply too high. Clearly, the price-performance proposition Duracell offered customers was not accepted.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Bloom’s: Apply; Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
58) The text discusses three approaches to combining overall cost leadership and differentiation competitive advantages. Which of the following is not one of these three approaches?
Answer: B
Explanation: Three approaches to combining overall low cost and differentiation include: automated and flexible manufacturing systems, using data analytics, exploiting the profit pool concept for competitive advantage, and coordinating the extended value chain by way of information technology.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
59) A ________ can be defined as the total profits in an industry at all points along the industry value chain.
Answer: C
Explanation: A profit pool is defined as the total profits in an industry at all points along the industry value chain.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
60) Which of the following is not a potential pitfall of an integrated overall low cost and differentiation strategy?
Answer: A
Explanation: The pitfalls of integrated overall cost leadership and differentiation include: firms that fail to attain both strategies may end up with neither and become stuck-in-the-middle; underestimating the challenges and expenses associated with coordinating value-creating activities in the extended value chain; and miscalculating sources of revenue and profit pools in the company industry.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
61) Mass customization permits companies to manufacture unique products in relatively ________ quantities at ________ costs.
Answer: D
Explanation: Given the advances in manufacturing technologies such as CAD-CAM (computer aided design and computer aided manufacturing) as well as information technologies, many firms have been able to manufacture unique products in relatively small quantities at lower costs. This is a concept known as mass customization.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
62) Andersen Windows lowered costs, enhanced quality and variety, and improved its response time to customers by
Answer: C
Explanation: Andersen developed an interactive computer version of its paper catalogs that it sold to distributors and retailers. Salespersons can now customize each window to meet customer needs, check the design for structural soundness, and provide a price quote. The system is virtually error-free, customers get exactly what they want, and the time to develop the design and furnish a quotation has been cut by 75 percent. Each showroom computer is connected to the factory, and customers are assigned a code number that permits them to track the order. The manufacturing system has been developed to use some common finished parts, but it also allows considerable variation in the final products.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
63) A risk for a firm that tries to attain both cost and differentiation advantages is that it can be stuck in the middle. An example of this is supermarkets because their ________ structure is ________ than discount retailers, and customers do not value their products and services as being high-end such as those offered by Whole Foods.
Answer: A
Explanation: A key issue in strategic management is the creation of competitive advantages that enable a firm to enjoy above-average returns. Some firms may become stuck in the middle if they try to attain both cost and differentiation advantages. Mainline supermarket chains find themselves stuck in the middle as their cost structure is higher than discount retailers offering groceries and their products and services are not seen by consumers as being as valuable as those of high-end grocery chains, such as Whole Foods.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
64) The Yoox algorithm permits it to predict which products will sell at which times and where, thus allowing effective stocking to meet customer needs. This a result of
Answer: B
Explanation: Yoox has developed innovative algorithms to predict which products will sell at which times and in which geographic regions, allowing effective stocking to meet the needs of customers and providing guidance to retailers on optimal pricing.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
65) Caterpillar collects and analyses large volumes of data about how customers use their tractors. This permits them to ________ the cost of new product development efforts and to better ________ their products.
Answer: B
Explanation: Caterpillar collects and analyzes large volumes of data about how customers use their tractors. Because this data helps Caterpillar better assess the uses and limitations of their current tractors, the firm can use data analytics to employ more focused and timely product improvement efforts. This allows the firm to simultaneously reduce the cost of new product development efforts and better differentiate their products.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
66) Many firms have achieved success by integrating activities throughout the extended value chain by using ________ to link their own value chain with the value chains of their customers and suppliers.
Answer: B
Explanation: Many firms have achieved success by integrating activities throughout the extended value chain by using information technology to link their own value chain with the value chains of their customers and suppliers.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
67) Outside the flight experience itself, airlines are generating revenue by charging fees for credit cards, frequent-flyer programs, and access to airport lounges. This serves to
Answer: B
Explanation: Outside the flight experience itself, airlines are generating revenue by charging fees for credit cards, frequent-flyer programs, and access to airport lounges. This serves to expand the profit pool.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
68) Ryanair and Spirit Airlines depend upon revenue from services not related to the actual flight. These services increase their
Answer: C
Explanation: By separating the value of the actual flight from the services associated with flying, airlines have greatly expanded the profit pool associated with flying.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
69) Underestimating expenses associated with coordinating value-creating activities in the extended value chain can be a result of ________ integration of cost leadership and differentiation.
Answer: B
Explanation: The pitfalls of integrated overall cost leadership and differentiation include: firms underestimating the challenges and expenses associated with coordinating value-creating activities in the extended value chain.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
70) Which of the following is not a reason for the possible erosion of company competitive advantage?
Answer: D
Explanation: Nothing is forever when it comes to competitive advantages. Rapid changes in technology, globalization, and actions by rivals from within and outside of the industry can quickly erode company advantages. It is becoming increasingly important to recognize that the duration of competitive advantages is declining, especially in technology intensive industries.
Difficulty: 2 Medium
Topic: Sustaining a Competitive Advantage
Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
71) Atlas Door created competitive advantage by reducing the time to receive and process an order and through installing a just-in-time logistics operation. Which of the following is not a reason for their favorable position relative to the five forces of industry competition?
Answer: A
Explanation: When Atlas began operations, distributors had little interest in its product. The established distributors already carried the door line of a much larger competitor and saw little to no reason to switch suppliers except, perhaps, for a major price concession. But as a start-up, Atlas was too small to compete on price alone. Instead, it positioned itself as the door supplier of last resort; that is, the company people came to if the established supplier could not deliver or missed a key date. With an average industry order fulfillment time of almost four months, some calls inevitably came to Atlas. And when it did get the call, Atlas commanded a higher price because of its faster delivery. Atlas not only got a higher price, but its effective integration of value-creating activities saved time and lowered costs. Thus, it enjoyed the best of both worlds.
Difficulty: 2 Medium
Topic: Sustaining a Competitive Advantage
Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
72) BlackBerry lost its competitive advantage by 2016 because it
Answer: A
Explanation: BlackBerry initially dominated the smartphone market. BlackBerry held 20 percent of the cell phone market in 2009, and its users were addicted to BlackBerry’s products, leading some to refer to them as crackberrys. However, the market share of the firm quickly eroded with the introduction of touch screen smartphones from Apple, Samsung, and others. BlackBerry was slow to move away from its physical keyboards and saw its market share fall to 0.1 percent by 2016.
Difficulty: 2 Medium
Topic: Sustaining a Competitive Advantage
Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
73) Company competitive advantages can be eroded by all the following except
Answer: D
Explanation: Clearly, nothing is forever when it comes to competitive advantages. Rapid changes in technology, globalization, and actions by rivals from within as well as outside the industry can quickly erode company advantages.
Difficulty: 2 Medium
Topic: Sustaining a Competitive Advantage
Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
74) Barnes and Noble lost its market share in book retailing to Amazon. It tried to regain market share by offering a similar electronic reader, the Nook, to the Amazon Kindle series. This demonstrates that Barnes and Noble lacked
Answer: C
Explanation: Even in industries that are normally viewed as low tech, the increasing use of technology has suddenly made competitive advantages less sustainable. The Amazon success in book retailing at the cost of Barnes and Noble, the former industry leader, as well as BlackBerry difficulties in responding to Apple innovations in the smartphone market, serves to illustrate how difficult it has become for industry leaders to sustain competitive advantages that they once thought would last forever.
Difficulty: 2 Medium
Topic: Sustaining a Competitive Advantage
Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
75) Atlas Door tightly controlled logistics so that it always shipped only fully complete orders to construction sites. In regard to the five forces model, which of the following is a reason this might give them competitive advantage?
Answer: A
Explanation: Atlas tightly controlled logistics so that it always shipped only fully complete orders to construction sites. Orders require many components, and gathering all of them at the factory and making sure that they are with the correct order can be a time-consuming task. Of course, it is even more time-consuming to get the correct parts to the job site after the order has been shipped. Atlas developed a system to track the parts in production and the purchased parts for each order. This helped to ensure the arrival of all necessary parts at the shipping dock in time. This time-saving efficiency also had cost benefits that made it difficult for new entrants to compete successfully, at least in the short run.
Difficulty: 2 Medium
Topic: Sustaining a Competitive Advantage
Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
76) In evaluating the sustainability of the Atlas Door competitive advantages over the long run, it is important to evaluate the ability of rivals to
Answer: A
Explanation: It is important, of course, to assume that the Atlas Door strategy is unique in the industry, and the central issue becomes whether or not rivals will be able to easily imitate its strategy or create a viable substitute strategy.
Difficulty: 2 Medium
Topic: Sustaining a Competitive Advantage
Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
77) Atlas Door created competitive advantages in overall low cost and differentiation by creating ________ among value-chain activities.
Answer: D
Explanation: Atlas Door has created competitive advantages in both overall low cost and differentiation. Its strong linkages among value-chain activities, a requirement for its just-in-time operations, not only lower costs but enable the company to respond quickly to customer orders. As noted in Exhibit 5.4, many of the value-chain activities associated with a differentiation strategy reflect the element of speed or quick response.
Difficulty: 2 Medium
Topic: Sustaining a Competitive Advantage
Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
78) Atlas Door relies on technologies that are rather well known and non-proprietary. This opens it up to the potential of
Answer: A
Explanation: An argument could be made that much of the Atlas Door strategy relies on technologies that are rather well known and non-proprietary. Over time, a well-financed rival could imitate its strategy (via trial and error), achieve a tight integration among its value-creating activities, and implement a just-in-time manufacturing process.
Difficulty: 2 Medium
Topic: Sustaining a Competitive Advantage
Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
79) Which of the following reasons is not a reason that Atlas Door could lose competitive advantage?
Answer: D
Explanation: An argument could be made that much of the Atlas Door strategy relies on technologies that are rather well-known and non-proprietary. Over time, a well-financed rival could imitate its strategy (via trial and error), achieve a tight integration among its value-creating activities, and implement a just-in-time manufacturing process. Because human capital is highly mobile, a rival could hire away Atlas Door talent, and these individuals could aid the rival in transferring Atlas Door best practices. A new rival could also enter the industry with a large resource base, which might enable it to price its doors well under Atlas Door to build market share (but this would likely involve pricing below cost and would be a risky and non-sustainable strategy). In its favor, it does have high power over its customers (distributors) because of its ability to deliver a quality product in a short period of time.
Difficulty: 2 Medium
Topic: Sustaining a Competitive Advantage
Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
80) Rivals would find it difficult to challenge Atlas Door in the short run because of
Answer: A
Explanation: Two factors make it extremely difficult for a rival to challenge Atlas Door in the short term: (1) The success that Atlas Door has enjoyed with its just-in-time scheduling and production systems helps the firm not only lower costs but also respond quickly to customer needs, and (2) the strong, positive reputational effects that it has earned with its customers increases their loyalty and would take significant time for rivals to match.
Difficulty: 2 Medium
Topic: Sustaining a Competitive Advantage
Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
81) Rivals would find it difficult to challenge Atlas Door in the short run because of
Answer: B
Explanation: Two factors make it extremely difficult for a rival to challenge Atlas Door in the short term: (1) The success that Atlas Door has enjoyed with its just-in-time scheduling and production systems helps the firm not only lower costs but also respond quickly to customer needs, and (2) the strong, positive reputational effects that it has earned with its customers increases their loyalty and would take significant time for rivals to match.
Difficulty: 2 Medium
Topic: Sustaining a Competitive Advantage
Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
82) Which of these statements regarding the industry life cycle is true?
Answer: D
Explanation: Industry life cycles are important because the emphasis on various generic strategies, functional areas, value-creating activities, and overall objectives varies over the course of an industry life cycle.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-06 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
83) Which of the following statements about the introduction stage of the market life cycle is true?
Answer: D
Explanation: In the introduction stage, products are unfamiliar to consumers. Market segments are not well-defined, and product features are not clearly specified.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-06 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
84) In the ________ stage of the industry life cycle, the emphasis on product design is very high, the intensity of competition is low, and the market growth rate is low.
Answer: C
Explanation: In the introduction stage, products are unfamiliar to consumers. Market segments are not well-defined, and product features are not clearly specified. The early development of an industry typically involves low sales growth, rapid technological change, operating losses, and the need for strong sources of cash to finance operations. Since there are few players and not much growth, competition tends to be limited.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-06 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
85) The growth stage of the industry life cycle is characterized by
Answer: A
Explanation: The growth stage is the second stage of the product life cycle, characterized by strong increases in sales and growing competition.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-06 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
86) In the ________ stage of the industry life cycle, there are many segments, competition is very intense, and the emphasis on process design is high.
Answer: D
Explanation: In the maturity stage of the industry life cycle, there are many segments, competition is very intense, and the emphasis on process design is high.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-06 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
87) In a given market, key technology no longer has patent protection, experience is not an advantage, and there is a growing need to compete on price. What stage of its life cycle is the market in?
Answer: C
Explanation: In the maturity stage of the industry life cycle, rivalry among existing rivals intensifies because of fierce price competition at the same time that expenses associated with attracting new buyers are rising. Advantages based on efficient manufacturing operations and process engineering become more important for keeping costs low as customers become more price sensitive. It also becomes more difficult for firms to differentiate their offerings because users have a greater understanding of products and services.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-06 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
88) A market that mainly competes on the basis of price and has stagnant growth is characteristic of what life cycle stage?
Answer: C
Explanation: In the maturity stage of the industry life cycle, aggregate industry demand softens. As markets become saturated, there are few new adopters. Rivalry among existing rivals intensifies because of fierce price competition at the same time that expenses associated with attracting new buyers are rising.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-06 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
89) As markets mature,
Answer: D
Explanation: In the maturity stage of the industry life cycle, advantages based on efficient manufacturing operations and process engineering become more important for keeping costs low as customers become more price sensitive.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-06 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
90) The size of pricing and differentiation advantages between competitors decreases in which stage of the market life cycle?
Answer: C
Explanation: In the maturity stage of the industry life cycle, rivalry among existing rivals intensifies because of fierce price competition at the same time that expenses associated with attracting new buyers are rising. It also becomes more difficult for firms to differentiate their offerings because users have a greater understanding of products and services.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-06 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
91) Which of the following is most often true of mature markets?
Answer: C
Explanation: In the maturity stage of the industry life cycle, rivalry among existing rivals intensifies because of fierce price competition at the same time that expenses associated with attracting new buyers are rising. It also becomes more difficult for firms to differentiate their offerings because users have a greater understanding of products and services.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-06 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
92) In the ________ stage of the industry life cycle, there are few segments, the emphasis on process design is low, and the major functional areas of concern are general management and finance.
Answer: C
Explanation: In the decline stage of the industry life cycle, there are few segments, the emphasis on process design is low, and the major functional areas of concern are general management and finance.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-06 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
93) The most likely time to pursue a harvest strategy is in a situation of
Answer: D
Explanation: Four basic strategies are available in the decline phase: maintaining, harvesting, exiting, or consolidating.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-06 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
94) Research shows that which one of the following is not a strategy used by firms engaged in successful turnarounds?
Answer: D
Explanation: A study of 260 mature businesses in need of a turnaround identified three strategies used by successful companies: asset and cost surgery, selective product and market pruning, and piecemeal productivity improvements.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
95) Piecemeal productivity improvements during a turnaround typically do not involve
Answer: D
Explanation: Piecemeal productivity improvements include improving business processes by reengineering them, benchmarking specific activities against industry leaders, encouraging employee input to identify excess costs, increasing capacity utilization, and improving employee productivity.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
96) When Cindy Grossman turned around HSN successfully in 2014, which of the following was not one of the practices she used?
Answer: D
Explanation: Key to it all is staying focused on what HSN strategy is and who its customers are. Grossman stated that they are not trying to be Amazon—all things to all people.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
97) Proctor and Gamble announced that it would sell off or close down up to 100 of its brands. This is an example of which turnaround strategy used by successful companies?
Answer: B
Explanation: Most mature or declining firms have many product lines that are losing money or are only marginally profitable. One strategy is to discontinue such product lines and focus all resources on a few core profitable areas.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
98) Outright sales or sale and leaseback free up considerable cash and improve returns. This is an example of which turnaround strategy used by successful companies?
Answer: A
Explanation: Very often, mature firms tend to have assets that do not produce any returns. These include real estate, buildings, and so on. Outright sales or sale and leaseback free up considerable cash and improve returns. Investment in new plants and equipment can be deferred. Firms in turnaround situations try to aggressively cut administrative expenses and inventories and speed up collection of receivables.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
99) Improving business processes by reengineering them, benchmarking specific activities against industry leaders, encouraging employee input to identify excess costs, increasing capacity utilization, and improving employee productivity lead to a significant overall gain. These are examples of which turnaround strategy used by successful companies?
Answer: C
Explanation: There are many ways in which a firm can eliminate costs and improve productivity. Although individually these are small gains, they cumulate over a period of time to substantial gains. Improving business processes by reengineering them, benchmarking specific activities against industry leaders, encouraging employee input to identify excess costs, increasing capacity utilization, and improving employee productivity lead to a significant overall gain.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
100) Most turnarounds require a firm to carefully analyze its relevant environments. The ________ analysis leads to identification of market segments or customer groups that may still find the product attractive.
Answer: A
Explanation: Most turnarounds require a firm to carefully analyze the external and internal environments. The external analysis leads to identification of market segments or customer groups that may still find the product attractive.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
101) Most turnarounds require a firm to carefully analyze its relevant environments. ________ analysis results in actions aimed at reduced costs and higher efficiency.
Answer: B
Explanation: Most turnarounds require a firm to carefully analyze the external and internal environments. Internal analysis results in actions aimed at reduced costs and higher efficiency.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
102) What are the pitfalls of the overall cost leadership strategy? Provide an example for each pitfall and explain why it is a pitfall.
Answer: Potential pitfalls of overall cost leadership strategies include: too much focus on one or a few value-chain activities; increase in the cost of the inputs on which the advantage is based; a strategy that can be imitated too easily; a lack of parity on differentiation; reduced flexibility; and obsolescence of the basis of cost advantage.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
103) Discuss how each stage of the industry life cycle (introduction, growth, maturity, and decline) can play a role in decisions that managers must make at the business level. Provide an example for each stage.
Answer: The industry life cycle refers to the stages of introduction, growth, maturity, and decline that occur over the life of an industry. In considering the industry life cycle, it is useful to think in terms of broad product lines such as personal computers, photocopiers, or long-distance telephone service. Changes tend to be slower than what is needed for forecasting. Why are industry life cycles important? The emphasis on various generic strategies, functional areas, value-creating activities, and overall objectives varies over the course of an industry life cycle. Managers must become even more aware of the strengths and weaknesses of their firm in many areas to attain competitive advantages. For example, firms depend on their research and development (R&D) activities in the introductory stage. R&D is the source of new products and features that everyone hopes will appeal to customers. Firms develop products and services to stimulate consumer demand. Later, during the maturity phase, the functions of the product have been defined, more competitors have entered the market, and competition is intense. Managers then place greater emphasis on production efficiencies and process (as opposed to the product) engineering in order to lower manufacturing costs. This helps to protect the market position of the firm and to extend the product life cycle because the lower costs of the firm can be passed on to consumers in the form of lower prices, and price-sensitive customers will find the product more appealing.
Difficulty: 2 Medium
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 05-06 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
104) Two-sided or platform markets are an emerging trend according to the textbook authors. Choose an example of an existing platform market and explain how this firm positions itself to become the dominant player linking suppliers and customers.
Answer: Successful platform firms create a business that attracts a large range of suppliers and a wide population of customers, becoming the go-to clearinghouse that both suppliers and customers turn to in order to facilitate a transaction. In doing so, they typically successfully combine elements of both cost and differentiation advantages. But how do firms position themselves to succeed in these two-sided markets? It involves a combination of actions to build a strong position and facilitate optimal interactions between suppliers and users. In doing so, these firms strive to simultaneously limit costs to users and also provide differentiated service. The issues platform businesses need to master to succeed include the following: draw in users; create easy and informative customer interfaces; facilitate the best connections between suppliers and customers; sequencing the growth of the business.
Difficulty: 2 Medium
Topic: Sustaining a Competitive Advantage
Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
105) What is a focus strategy? Provide an example where this has been implemented successfully.
Answer: A focus strategy is based on the choice of a narrow competitive scope within an industry. A firm following this strategy selects a segment or group of segments and tailors its strategy to serve them. The essence of focus is the exploitation of a particular market niche. A narrow focus (like merely being different as a differentiator) is simply not sufficient for above-average performance.
The focus strategy, has two variants. In a cost focus, a firm strives to create a cost advantage in its target segment. In a differentiation focus, a firm seeks to differentiate in its target market. Both variants of the focus strategy rely on providing better service than broad-based competitors that are trying to serve the target segment of the focuser. Cost focus exploits differences in cost behavior in some segments, while differentiation focus exploits the special needs of buyers in other segments. Two firms that have successfully implemented focus strategies are LinkedIn and Facebook. LinkedIn has staked out a position as the business social media site of choice. Rather than compete with Facebook head on, LinkedIn created a strategy that focuses on individuals who wish to share their business experience and make connections with individuals with whom they share or could potentially share business ties. In doing so, it has created an extremely strong business model. LinkedIn monetizes its user information in three ways: subscription fees from some users, advertising fees, and recruiter fees. The first two are fairly standard for social media sites, but the advertising fees are higher for LinkedIn since the ads can be more effectively targeted as a result of LinkedIn’s focus. The third income source is fairly unique for LinkedIn. Headhunters and human resource departments pay significant user fees, up to 8,200 USD a year, to have access to the LinkedIn recruiting search engine, which can sift through LinkedIn profiles to identify individuals with desired skills and experiences. The power of this business model can be seen in the difference in user value for LinkedIn when compared to Facebook. For every hour that a user spends on the site, LinkedIn generates 1.30 USD in income. For Facebook, it is a paltry 6.2 cents.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
