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Sample Questions Posted Below

Chapter 05

Business-Level Strategy: Creating and Sustaining Competitive Advantages

True / False Questions

1. A business-level strategy is a strategy designed for a multi-business company that competes across multiple

businesses.

True False

2. The three generic strategies that Michael Porter believes a firm can use to overcome the five forces and

achieve competitive advantage include overall price leadership.

True False

3. Concentrating solely on one form of competitive advantage generally leads to the highest possible level of

profitability.

True False

4. A firm striving for cost leadership will typically spend relatively more on product-related research and

development than on process-related research and development.

True False

5. To generate above average returns, a firm following an overall cost leadership position should not be

concerned with attaining parity or proximity on the basis of differentiation relative to its peers.

True False

6. The experience curve concept suggests that production costs tend to decrease as production increases.

True False

7. A firm can attain an overall cost leadership position by increasing the management layers in order to reduce

overhead costs.

True False

8. A firm can attain an overall cost leadership position by using automated technology to reduce scrappage

rates.

True False

5-1

McGraw-Hill Education.9. A firm can attain an overall cost leadership position by purchasing media in large blocks and maximizing

sales force utilization through territory management.

True False

10. The Yugo car was cheap, but it was poorly made. Consumers did not purchase it. This is an example of

failure to attain parity on the basis of differentiation.

True False

11. The experience curve is a way of looking at price benefits that come from studying sales figures.

True False

12. Competitive parity on the basis of differentiation permits a cost leader to maximize disadvantages and turn

them into higher profits than competitors.

True False

13. Zulily keeps very little inventory. It orders products from vendors after their customer has completed the

purchase. This is an example of how Zulily intends to enhance a cost leadership position.

True False

14. The French automobile maker, Renault, attains competitive advantage by revamping cars to be more cost

efficient.

True False

15. An overall high-cost position enables a firm to achieve above-average returns despite strong competition.

True False

16. An overall low-cost position protects a firm against rivalry from competitors, because higher costs allow a

firm to earn returns even if its competitors eroded their profits through intense rivalry.

True False

17. A low-cost position protects firms against powerful buyers.

True False

18. A low-cost position provides more flexibility to cope with demands from powerful suppliers for input cost

decreases.

True False

19. The factors that lead to a low-cost position do not provide a substantial entry barriers position with respect

to substitute products introduced by new and existing competitors.

True False

5-2

McGraw-Hill Education.20. Zulily pays close attention to costs which helps to protect the company from buyer power and intense

rivalry from competitors.

True False

21. Renault both lessens the degree of rivalry it faces and increases entry barriers for new entrants by

increasing productivity and lowering unit costs.

True False

22. The supermarket, Aldi, places extreme focus on minimizing costs across its operations which ultimately

makes it more vulnerable to substitutes.

True False

23. Discount retailers like Walmart and dollar stores are prime substitutes for Aldi, because Aldi focuses on

minimizing costs across its operations.

True False

24. Firms that compete on overall cost leadership are vulnerable if there is an increase in the cost of the inputs

on which the advantage is based.

True False

25. Too much focus on one or a few value-chain activities can be a pitfall of the overall cost leadership

strategy.

True False

26. A cost leadership strategy can be at risk of becoming obsolete and must be evaluated regularly in terms of

current competitor responses.

True False

27. A cost leadership strategy is not susceptible to the risk of reduced flexibility.

True False

28. Cheesecake Factory differentiates itself along several different dimensions at once by offering high-quality

food, the widest and deepest menu in its class of restaurants, and premium locations.

True False

29. A successful differentiation strategy lowers entry barriers because of customer loyalty and the ability of the

firm to provide uniqueness in its products and services.

True False

30. A successful differentiation strategy increases rivalry since buyers become more price-sensitive.

True False

5-3

McGraw-Hill Education.31. If a firm has a successful differentiation strategy, it is necessary to attain parity on cost.

True False

32. One potential pitfall of a differentiation strategy is that identification of the brand in the marketplace may

become diluted through excessive product line extensions.

True False

33. Focus, by itself, often constitutes a competitive advantage.

True False

34. A potential pitfall of a focus strategy is that focusers can become too focused to satisfy buyer needs.

True False

35. A potential pitfall of a focus strategy is that cost advantages will not change over time.

True False

36. A potential pitfall of a focus strategy is that highly focused product and service offerings are not subject to

competition from new entrants and from imitation.

True False

37. A disadvantage of firms that successfully integrate overall cost leadership and a differentiation strategy is

that they are relatively easy for competitors to imitate.

True False

38. The combination strategy of low-cost and differentiation provides lower prices and no differentiated

attributes for customers.

True False

39. Mass customization enables manufacturers to be more responsive to customer demands for high quality

products.

True False

40. An important idea behind the profit pool concept is that there is always a strong relationship between the

generation of revenues and the capturing of profits.

True False

41. An important potential pitfall of an integrated overall cost leadership and differentiation strategy is that

firms may fail to implement either one and become stuck in the middle.

True False

5-4

McGraw-Hill Education.42. Firms can underestimate the challenges and expenses associated with coordinating value-creating activities

in the extended value chain. This is an advantage of integrated overall cost leadership and differentiation.

True False

43. Firms may fail to accurately assess sources of revenue and profits in their value chain. This might be a

result of an unbiased manager.

True False

44. If a car manufacturer focuses a lot on downstream activities such as warranty fulfillment and financing

operations, but also considers the differentiation and cost of the cars themselves, the resulting strategy is

likely to be a failed strategy.

True False

45. Integration of information systems, logistics, and transportation at Walmart helps it to drive down costs and

provide outstanding product selection. This serves to erect low entry barriers to potential competitors.

True False

46. Due to its size with over 475 billion USD in sales in 2014, Walmart has enormous bargaining power over

its suppliers.

True False

47. The overall value proposition of Walmart makes potential substitute products such as Internet competitors a

more viable threat.

True False

48. By separating the value of the actual flight from the services associated with flying, airlines have greatly

expanded the profit pool associated with flying. This combines the advantages of integrating overall low

cost and differentiation strategies.

True False

49. Big Data efforts have the potential to allow firms to better customize their product and service offerings to

customers but are less efficient at using the resources of the company. Kaiser Permanente is an example of

how big data does not lead to cost-conscious treatment patterns.

True False

50. In technology intensive industries, the duration of competitive advantages is declining.

True False

51. Competitive advantage is not affected by actions by rivals from within and outside of the industry.

True False

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McGraw-Hill Education.52. The reason Dell lost its competitive advantage is that it focused too much on operational efficiency and not

enough on innovations demanded by the changing market.

True False

53. Rapid changes in technology, globalization, and actions by rivals cannot erode company advantages.

True False

54. The increasing use of technology in low tech industries has made competitive advantages more

sustainable.

True False

55. Competitive advantage can be found in just-in-time manufacturing processes.

56. 57. 58. 59. 60. 61. 62. True False

An important issue in evaluating the sustainability of a unique strategy is whether or not rivals will be able

to imitate its strategy or create a viable substitute.

True False

Using information systems to streamline and automate the primary activities of a manufacturing company

value chain does not provide competitive advantage.

True False

In the textbook example of Atlas Door, it created low entry barriers for new entrants through its

development of competitive advantages.

True False

In the textbook example of Atlas Door, it integrated many value-chain activities with the firm in order to

support its just-in-time strategy. This, however, did not provide sustainable competitive advantage.

True False

Many companies have a tight integration among their value-creating activities and have implemented just-

in-time manufacturing. The textbook example of Atlas Door suggests that this is a competitive advantage,

but it is easily imitated and therefore may not be sustainable in the long run.

True False

In the textbook example of Atlas Door, human talent trained in the new just-in-time systems have little

reason to leave the company and therefore this is a sustainable competitive advantage.

True False

In the textbook example of Atlas Door, the threat of new rivals who could bring new technologies and

processes to a similar business model diminishes the sustainability of the Atlas Door just-in-time model.

True False

5-6

McGraw-Hill Education.63. 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.

True False

64. 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.

True False

65. During the growth stage of the market life cycle, customers are very likely to establish brand loyalty.

True False

66. Given the attractiveness of premium pricing during the growth stage of the market life cycle, managers

should emphasize short-term results to increase profits.

True False

67. As markets mature, competition on the basis of differentiation is preferable to price competition.

True False

68. As markets mature the magnitude of differentiation and cost leadership advantages among competitors

decrease.

True False

69. With reverse positioning, a strategy to be used during the mature stage of the industry life cycle, a product

escapes its category by deliberately associating with a different one.

True False

70. Businesses that compete in markets that are in decline should simply be harvested or divested since they are

no longer profitable.

True False

71. During the decline stage of the product life cycle, a harvesting strategy means that a firm keeps a product

going without significantly reducing marketing support, technological development, or other investments,

while hoping that competitors will exit the market.

True False

72. The decline stage of the industry life cycle stage is inevitably followed by death.

True False

73. The Commerce Bank gains customers by using reverse positioning to structure its offers. It pared down its

offers to just four checking accounts.

True False

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McGraw-Hill Education.74. Swatch defined its watches as playful fashion accessories which were showily promoted. This is an

example of reverse positioning.

True False

75. The desktop computer is in the decline stage of the industry life cycle, but it is not dead because companies

have found ways to improve the price-performance trade-off.

True False

76. Many firms facing a turnaround situation try to reduce their costs by outsourcing the production of many

inputs.

True False

77. A need for turnaround occurs only during the maturity or declining stage of the life cycle.

True False

78. Procter and Gamble successfully implemented a turnaround strategy by discontinuing brands and focusing

all resources on a few core brands.

True False

79. Few turnarounds require firms to analyze both the external and internal environments relevant to their firm.

True False

80. Mature firms tend to have assets that continue to produce significant returns.

True False

81. Firms in turnaround situations find that cutting administrative expenses and inventories and speeding up

collection of receivables provide no real value.

True False

82. Piecemeal productivity improvements can be used by a mature business in need of a turnaround.

True False

83. HSN CEO Mindy Grossman managed a successful turnaround by first engaging with employees.

True False

84. HSN CEO Mindy Grossman tailored the company offerings to meet the changing needs of her customer

base in her quest to turnaround the company.

True False

85. When company performance severely erodes, no strategies exist that can help to reverse its situation and

enhance its competitive position.

True False

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McGraw-Hill Education.86. Piecemeal productivity improvements are not useful as a turnaround strategy because they are not

87. 88. cumulative.

True False

Firms in turnaround situations find that cutting administrative expenses and inventories and speeding up

collection of receivables are ineffective strategies.

True False

When a company finds that its performance is in decline at any stage in the life cycle, it can look toward a

turnaround strategy that is designed to help it to grow but not necessarily to be profitable.

True False

Multiple Choice Questions

89. The primary aim of strategic management at the business level is

90. A. maximizing risk-return tradeoffs through diversification.

B. achieving competitive

advantage.

C. maximizing differentiation of products and/or services.

D. achieving a low cost position.

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?

91. A. differentiation

B. differentiation focus

C. stuck-in-the-

middle

D. overall cost leadership

A manufacturing business pursuing cost leadership is likely to

A. focus on a narrow market segment.

B. use advertising to build brand image.

C. rely on experience effects to raise efficiency.

D. put heavy emphasis on product engineering.

5-9

McGraw-Hill Education.92. One aspect of using a cost leadership strategy is that experience effects may lead to lower costs. Experience

effects are achieved by

93. A. spreading out a given expense or investment over a greater

volume.

B. hiring more experienced

personnel.

C. repeating a process until a task becomes

easier.

D. competing in an industry for a long time.

With experience, unit costs of production decline as _________ increases in most industries.

94. A. costs

B. volum

C. price

D. output

Research has consistently shown that firms that achieve both cost leadership and differentiation advantages

tend to perform

95. A. at about the same level as firms that achieve either cost or differentiation advantages.

B. higher than firms that achieve either a cost or a differentiation advantage.

C. about the same as firms that are stuck-in-the-middle.

D. lower than firms that achieve differentiation advantages but higher than firms that achieve cost

advantages.

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

A. effective layout of receiving dock operations.

B. effective use of automated technology to reduce scrappage rates.

C. minimize costs associated with employee turnover through effective policies.

D. standardized accounting practices to minimize personnel

required.

96. Overhead costs associated with the number of layers of management in a firm are part of the _________

activities of the value chain.

A. human resources management

B. operations

C. firm infrastructure

D. marketing and sales

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McGraw-Hill Education.97. Renault has found a way to generate high profits on low-priced cards by using simple designs that

incorporate components from older car designs and a no-discount retail policy. They are using a(n)

______________ strategy.

98. A. differentiation

B. overall cost

leadership

C. focus

D. broad differentiation

Tesco is saving 3 million USD a year alone in landfill taxes by simply sending its used cooking oil and

chicken fat to be used to generate bioenergy rather than putting it in a landfill. This is an example of an

overall cost leadership strategy because it

99. A. gives them competitive advantage by reducing energy

costs.

B. gives them competitive advantage by decreasing

productivity.

C. eliminates the need to compete based on its

products.

D. requires the customer to recognize its efforts.

A business that strives for a low-cost advantage must attain a(n) _______ cost advantage over rivals.

A. relative

B. evolutionar

C. absolute

D. potential

100.Southwest Airlines uses an overall cost leadership strategy. This could fail if it

A. cannot maintain parity on differentiation dimensions requested by customers.

B. maintains parity with competitors on low

cost.

C. exceeds customer

expectations.

D. increases its sales prices while maintaining competitor

parity.

5-11

McGraw-Hill Education.101.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 characterize which type of competitive strategy?

A. differentiation

B. overall low-cost

leadership

C. differentiation focus

D. cost leadership focus

102.An overall low-cost position enables a firm to achieve ______ returns despite strong competition.

A. below average

B. average

C. no

D. above average

103.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.

A. higher costs

B. higher prices

C. lower costs

D. lower prices

104.An overall ______ position enables a firm to achieve above-average returns because it protects firms

against powerful buyers.

A. differentiation

B. low-cost

C. focuse

D. high-cost

105.A low-cost position permits buyers to exert power to drive ____ prices only to the level of the next most

efficient producer.

A. up

B. down

C. increasin

D. decreasing

5-12

McGraw-Hill Education.106.A low-cost position provides _______ flexibility to cope with demands from powerful suppliers for input

cost increases.

A. less

B. decreasing

C. mor

D. no

107.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.

A. entry; substitute

B. exit;

primary

C. product; substitute

D. entry; primary

108.Which of the following is a risk (or potential pitfall) of cost leadership?

A. Cost cutting may lead to the loss of desirable

features.

B. Attempts to stay ahead of the competition may lead to gold

plating.

C. Cost differences increase as the market matures.

D. Producers are more able to withstand increases in supplier

costs.

109.A firm can achieve differentiation through all of the following means except

A. improving brand image.

B. better customer

service.

C. offering lower prices to frequent customers.

D. adding additional product

features.

110.Support value chain activities that involve excellent applications engineering support (technology

development) and facilities that promote a positive firm image (firm infrastructure) characterize which

generic strategy?

A. overall cost leadership

B. differentiation focus

C. differentiation

D. stuck-in-the middle

5-13

McGraw-Hill Education.111.High product differentiation is generally accompanied by

A. higher market share.

B. higher profit margins and lower costs.

C. significant economies of scale.

D. decreased emphasis on competition based on price.

112.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?

A. Firms will enjoy high customer loyalty.

B. By increasing firm margins, it avoids the need for a low cost position.

C. It reduces buyer power because buyers lack comparable

alternatives.

D. Supplier power is increased, because suppliers will be able to charge higher prices for their

inputs.

113.A differentiation strategy enables a business to address the five competitive forces by

A. having brand-loyal customers become more sensitive to

prices.

B. increasing economies of

scale.

C. providing protection against

rivalry.

D. serving a broader market segment.

114.Which of the following is not a potential pitfall of a differentiation strategy?

A. Uniqueness that is not valuable.

B. The price premium is too

high.

C. All rivals share a common input or raw

material.

D. Perceptions of differentiation may vary between buyers and sellers.

115.Which statement regarding competitive advantages is true?

A. With an overall cost leadership strategy, firms need not be concerned with parity on differentiation.

B. In the long run, a business with one or more competitive advantages is probably destined to earn normal

profits.

C. If several competitors pursue similar differentiation tactics, they may all be perceived as equals in the

mind of the consumer.

D. Attaining multiple types of competitive advantage is a recipe for

failure.

5-14

McGraw-Hill Education.116.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.

A. increases; more

B. lessens; more

C. lessens; less

D. increases; less

117.A firm following a focus strategy must focus on

A. governmental regulations.

B. a market segment or group of

segments.

C. rising cost of inputs.

D. avoiding entering international markets.

118.Which of the following is not a potential pitfall of a focus strategy?

A. Erosion of cost advantages can arise within the narrow

segment.

B. Product/service offerings that are highly focused are subject to competition from new entrants.

C. Focusers can become too focused to satisfy buyer

needs.

D. All rivals share a common input or raw

material.

119.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?

A. The price differential was too high.

B. The market for batteries is

saturated.

C. The customer perceived the products to be different.

D. There are valid alternatives for

batteries.

120.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?

A. automated and flexible manufacturing systems

B. deriving benefits from highly focused and high technology markets

C. exploiting the profit pool concept for competitive advantage

D. coordinating the extended value chain by way of information

technology

5-15

McGraw-Hill Education.121.A __________ can be defined as the total profits in an industry at all points along the industry value chain.

A. profit maximizer

B. revenue

enhancer

C. profit pool

D. profit outsourcing

122.Which of the following is not a potential pitfall of an integrated overall low cost and differentiation

strategy?

A. Firms that target too large a market that causes unit costs to

increase.

B. Firms that underestimate the expenses associated with coordinating value-creating activities in the

extended value chain.

C. Firms that fail to attain both strategies may end up with neither and become stuck-in-the-

middle.

D. Firms that miscalculate sources of revenue and profit pools in the company industry.

123.Mass customization permits companies to manufacture unique products in relatively _________ quantities

at ______ costs.

A. large; higher

B. large;

lower

C. small;

higher

D. small; lower

124.Anderson Windows lowered costs, enhanced quality and variety, and improved its response time to

customers by

A. creating a new paper-based catalog.

B. creating an interactive computer version of its paper

catalogs.

C. creating an integrated computer system of catalogs, products, orders, and

manufacturing.

D. creating a manufacturing system for ordering

parts.

5-16

McGraw-Hill Education.125.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.

A. cost; higher

B. price; higher

C. price;

lower

D. cost; lower

126.The Pepsi algorithm that permits it to lower out of stock inventory is a result of using

A. purchasing patterns.

B. data

analytics.

C. physical plant.

D. flooding the market with ads.

127.Corporations increasingly collect and analyze data on their customers. This is known as

A. profit analysis.

B. big data.

C. cost reduction.

D. automated

analysis.

128.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.

A. customization

B. information

technology

C. human resources

D. competitive advantage

129.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

A. increase competition.

B. expand the profit pool.

C. provide better customer

service.

D. satisfy regulators.

5-17

McGraw-Hill Education.130.By separating the value of the actual flight from the services associated with flying, airlines have greatly

expanded the __________ associated with flying.

A. costs

B. services

C. profit pool

D. difficulties

131.Underestimating expenses associated with coordinating value-creating activities in the extended value

chain can be a result of ______ integration of cost leadership and differentiation.

A. good

B. poor

C. intentional

D. structured

132.Which of the following is not a reason for the possible erosion of company competitive advantage?

A. rapid change in technology

B. globalization

C. actions by rivals from within and outside of the

industry

D. company commitment to innovation

133.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?

A. The service was easily imitable.

B. It created high entry barriers for new

entrants.

dependency.

D. It exerted power over its customers.

C. The integration of many company value-chain activities provided causal ambiguity and path

134.Dell lost its competitive advantage starting in 2007 because it

A. did not deliver innovations to respond to changing market

demand.

B. developed a highly performant just-in-time delivery

system.

C. did not reward its

employees.

D. let suppliers have dominant power.

5-18

McGraw-Hill Education.135.Company competitive advantages can be eroded by all of the following except

A. rapid changes in technology.

B. globalization.

C. actions by rivals within the

industry.

D. actions by workers outside of the

industry.

136.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

A. a short term strategy.

B. a company-wide

strategy.

C. sustainable competitive

advantage.

D. good suppliers.

137.Atlas Door tightly controlled logistics so that it always shipped only fully complete orders to construction

sites. In regards to the five forces model, which of the following is a reason this might give them

competitive advantage?

A. It helps to reduce the threat of new entrants.

B. It created low entry barriers for new

entrants.

C. It created a high threat of

substitution.

D. It gave more power to buyers.

138.In evaluating the sustainability of the Atlas Door competitive advantages over the long run, it is important

to evaluate the ability of rivals to

A. easily imitate its

strategy.

B. communicate with its

customers.

C. consistently overprice their

products.

D. find new suppliers.

5-19

McGraw-Hill Education.139.Atlas Door created competitive advantages in overall low cost and differentiation by creating ___________

among value-chain activities.

A. substitutes

B. advantages

C. disadvantage

D. linkages

140.Atlas Door relies on technologies that are rather well known and non-proprietary. This opens it up to the

potential of

A. imitation by rivals.

B. customer

abandonment.

C. increased supplier power.

D. government regulation.

141.Atlas Door could lose competitive advantage for all of the following reasons except

A. Its technologies are non-proprietary.

B. A rival could hire away its talents

easily.

C. A new rival with a strong resource base could undercut its

prices.

D. It has strong power over its distributors.

142.Rivals would find it difficult to challenge Atlas Door in the short run because of

A. strong customer loyalty.

B. low barriers to entry.

C. high threat of

substitution.

D. low buyer switching costs.

143.Rivals would find it difficult to challenge Atlas Door in the short run because of

A. weak customer loyalty.

B. high barriers to

entry.

C. high threat of

substitution.

D. low buyer switching costs.

5-20

McGraw-Hill Education.144.Which of these statements regarding the industry life cycle is true?

A. Partial power of the market life cycle is its ability to serve as a short-run forecasting

device.

B. Trends suggested by the market life cycle model are generally not reversible or

repeatable.

C. It points out the need to maintain a differentiation advantage and a low cost advantage.

D. It has important implications for company generic strategies, functional areas, value-creating activities,

and overall objectives.

145.Which of the following statements about the introduction stage of the market life cycle is true?

A. It produces relatively large, positive cash flows.

B. Strong brand recognition seldom serves as an important switching

cost.

C. Market share gains by pioneers are usually easily sustained for many

years.

D. Products offered by pioneers may be perceived as differentiated because they are new.

146.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.

A. growth

B. maturit

C. introductio

D. decline

147.The growth stage of the industry life cycle is characterized by

A. in-kind competition (from the same type of

product).

B. premium

pricing.

C. a growing trend to compete on the basis of

price.

D. retaliation by competitors whose customers are

stolen.

5-21

McGraw-Hill Education.148.In the __________ stage of the industry life cycle, there are many segments, competition is very intense,

and the emphasis on process design is high.

A. growth

B. introductio

C. decline

D. maturity

149.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?

A. introduction

B. growth

C. maturit

D. decline

150.A market that mainly competes on the basis of price and has stagnant growth is characteristic of what life

cycle stage?

A. introduction

B. growth

C. maturit

D. decline

151.As markets mature,

A. costs continue to increase.

B. application for patents

increase.

C. differentiation opportunities increase.

D. there is increasing emphasis on efficiency.

152.The size of pricing and differentiation advantages between competitors decreases in which stage of the

market life cycle?

A. introduction

B. growth

C. maturit

D. decline

5-22

McGraw-Hill Education.153.Which of the following is most often true of mature markets?

A. Some competitors enjoy a significant operating advantage due to increasing experience effects.

B. The market supports premium pricing, which attracts additional

competitors.

C. Advantages that cannot be duplicated by other competitors are difficult to achieve.

D. The magnitude of pricing differences and product differentiation is larger than in the growth stage.

154.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.

A. introduction

B. growth

C. decline

D. maturity

155.The most likely time to pursue a harvest strategy is in a situation of

A. high growth.

B. strong competitive

advantage.

C. mergers and

acquisitions.

D. decline.

156.Research shows that which one of the following is not a strategy used by firms engaged in successful

turnarounds?

A. asset and cost surgery

B. selective product and market

pruning

C. piecemeal productivity

improvements

D. global expansion

157.Piecemeal productivity improvements during a turnaround typically do not involve

A. business process reengineering.

B. increased capacity

utilization.

C. benchmarking.

D. expansion of company product market

scope.

5-23

McGraw-Hill Education.158.Which of the following is not a reason for the successful turnaround HSN experienced by 2014 under CEO

Mindy Grossman?

A. engaging stakeholders in the discussion

B. redesigning the employee

lineup

C. redesigning the company offerings

D. making all best efforts to offer something for everyone

159.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?

A. asset and cost surgery

B. selective product and market

pruning

C. piecemeal productivity

improvements

D. global expansion

160.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?

A. asset and cost surgery

B. selective product and market

pruning

C. piecemeal productivity

improvements

D. global expansion

161.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?

A. asset and cost surgery

B. selective product and market

pruning

C. piecemeal productivity

improvements

D. global expansion

5-24

McGraw-Hill Education.162.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.

A. external

B. interna

C. globa

D. environmental

163.Most turnarounds require a firm to carefully analyze its relevant environments. ________ analysis results in

actions aimed at reduced costs and higher efficiency.

A. External

B. Interna

C. Global

D. Environmental

5-25

McGraw-Hill Education.Chapter 05 Business-Level Strategy: Creating and Sustaining Competitive

Advantages Answer Key

True / False Questions

1. A business-level strategy is a strategy designed for a multi-business company that competes across

multiple businesses.

FALSE

A business-level strategy is a strategy designed for a firm or a division of a firm that competes within a

single business.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

2. The three generic strategies that Michael Porter believes a firm can use to overcome the five forces and

achieve competitive advantage include overall price leadership.

FALSE

Michael Porter presented three generic strategies that a firm can use to overcome the five forces and

achieve competitive advantage. The strategies are: overall cost leadership, differentiation, and focus.

AACSB: Analytical Thinking

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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.

Level of Difficulty: 1 Easy

Topic: Types of Competitive Advantage and Sustainability

3. Concentrating solely on one form of competitive advantage generally leads to the highest possible level

of profitability.

FALSE

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. One study found that businesses combining forms

of competitive advantage (differentiation and overall cost leadership) outperformed those using a single

form.

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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.

Level of Difficulty: 2 Medium

5-26

McGraw-Hill Education.4. Topic: Types of Competitive Advantage and Sustainability

A firm striving for cost leadership will typically spend relatively more on product-related research and

development than on process-related research and development.

FALSE

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, and cost minimization in all activities in the value chain.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5. To generate above average returns, a firm following an overall cost leadership position should not be

concerned with attaining parity or proximity on the basis of differentiation relative to its peers.

FALSE

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. In other words, a firm

achieving parity is similar to its competitors, or on par, with respect to differentiated products.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

6. The experience curve concept suggests that production costs tend to decrease as production increases.

TRUE

The experience curve 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.

AACSB: Analytical Thinking

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-27

McGraw-Hill Education.7. A firm can attain an overall cost leadership position by increasing the management layers in order to

reduce overhead costs.

FALSE

In order for a firm to attain a cost leadership position using its infrastructure, it should decrease the

number of management layers in order to reduce overhead costs.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

8. A firm can attain an overall cost leadership position by using automated technology to reduce scrappage

rates.

TRUE

In order for a firm to attain a cost leadership position using its technology development support activity,

it should use automated technology effectively to reduce scrappage rates.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

9. A firm can attain an overall cost leadership position by purchasing media in large blocks and

maximizing sales force utilization through territory management.

TRUE

In order for a firm to attain a cost leadership position using its marketing and sales activities, it can

purchase media in large blocks and maximize the utilization of its sales force through territory

management.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-28

McGraw-Hill Education.10. The Yugo car was cheap, but it was poorly made. Consumers did not purchase it. This is an example of

failure to attain parity on the basis of differentiation.

TRUE

The failure to attain parity on the basis of differentiation can be illustrated with an example from the

automobile industry which is the ill-fated Yugo. Yugo was offering a lousy value proposition. The cars

literally fell apart before your eyes. And the lesson was simple. Price is just one component of value. No

matter how good the price, the most cost-sensitive consumer won’t buy a bad product.

AACSB: Analytical Thinking

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

11. The experience curve is a way of looking at price benefits that come from studying sales figures.

FALSE

The experience curve 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. 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. There are a number of

reasons why we find this effect. Among the most common factors are workers getting better at what

they do, product designs being simplified as the product matures, and production processes being

automated and streamlined. However, experience curve gains will be the foundation for a cost

advantage only if the firm knows the source of the cost reduction and can keep these gains proprietary.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

12. Competitive parity on the basis of differentiation permits a cost leader to maximize disadvantages and

turn them into higher profits than competitors.

FALSE

Competitive parity on the basis of differentiation permits a cost leader to translate cost advantages

directly into higher profits than competitors. Thus, the cost leader earns above-average returns.

AACSB: Analytical Thinking

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-29

McGraw-Hill Education.13. Zulily keeps very little inventory. It orders products from vendors after their customer has completed

the purchase. This is an example of how Zulily intends to enhance a cost leadership position.

TRUE

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. Due to its reduced

operational costs, Zulily is able to offer attractive prices to customers who are willing to wait.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

14. The French automobile maker, Renault, attains competitive advantage by revamping cars to be more

cost efficient.

TRUE

In these difficult conditions, Renault has been able to carve out a profitable market for itself, selling

low-cost, no-frills cars. Renault responded to this shift by creating an entry-level car group that was

charged with designing and producing cars for these more cost conscious consumers. Carlos Ghosn,

CEO of Renault, stated that they are working on a new platform that will be ultra-low-cost.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

15. An overall high-cost position enables a firm to achieve above-average returns despite strong

competition.

FALSE

An overall low-cost position enables a firm to achieve above-average returns despite strong competition.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-30

McGraw-Hill Education.16. An overall low-cost position protects a firm against rivalry from competitors, because higher costs allow

a firm to earn returns even if its competitors eroded their profits through intense rivalry.

FALSE

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.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

17. A low-cost position protects firms against powerful buyers.

TRUE

A low-cost position also protects firms against powerful buyers. Buyers can exert power to drive down

prices only to the level of the next most efficient producer.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

18. A low-cost position provides more flexibility to cope with demands from powerful suppliers for input

cost decreases.

FALSE

A low-cost position provides more flexibility to cope with demands from powerful suppliers for input

cost increases.

AACSB: Analytical Thinking

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

19. The factors that lead to a low-cost position do not provide a substantial entry barriers position with

respect to substitute products introduced by new and existing competitors.

FALSE

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.

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Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces

5-31

McGraw-Hill Education.20. that determine an industry’s average profitability.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

Zulily pays close attention to costs which helps to protect the company from buyer power and intense

rivalry from competitors.

TRUE

Zulily pays close attention to costs helps 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.

21. AACSB: Analytical Thinking

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Blooms: Understand

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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

Renault both lessens the degree of rivalry it faces and increases entry barriers for new entrants by

increasing productivity and lowering unit costs.

TRUE

Renault both lessens the degree of rivalry it faces and increases entry barriers for new entrants by

increasing productivity and lowering unit costs.

22. AACSB: Analytical Thinking

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Blooms: Understand

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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

The supermarket, Aldi, places extreme focus on minimizing costs across its operations which ultimately

makes it more vulnerable to substitutes.

FALSE

The supermarket, Aldi, places extreme focus on minimizing costs across its operations which ultimately

makes it less vulnerable to substitutes.

AACSB: Analytical Thinking

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Blooms: Understand

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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-32

McGraw-Hill Education.23. Discount retailers like Walmart and dollar stores are prime substitutes for Aldi, because Aldi focuses on

minimizing costs across its operations.

FALSE

The supermarket, Aldi, places extreme focus on minimizing costs across its operations which ultimately

makes it less vulnerable to substitutes such as discount retailers like Walmart and dollar stores.

24. AACSB: Analytical Thinking

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Blooms: Understand

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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

Firms that compete on overall cost leadership are vulnerable if there is an increase in the cost of the

inputs on which the advantage is based.

TRUE

Firms can be vulnerable to price increases in the factors of production. For example, consider

manufacturing firms based in China which rely on low labor costs. Due to demographic factors, the

supply of workers 16 to 24 years old has peaked and will drop by a third in the next 12 years, thanks to

stringent family-planning policies that have sharply reduced population growth in China. This is leading

to upward pressure on labor costs in Chinese factories, undercutting the cost advantage of firms

producing there.

25. AACSB: Analytical Thinking

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Blooms: Understand

Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

Too much focus on one or a few value-chain activities can be a pitfall of the overall cost leadership

strategy.

TRUE

Managers should explore all value-chain activities, including relationships among them, as candidates

for cost reductions.

AACSB: Analytical Thinking

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Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-33

McGraw-Hill Education.26. A cost leadership strategy can be at risk of becoming obsolete and must be evaluated regularly in terms

of current competitor responses.

TRUE

Other firms may develop new ways of cutting costs, leaving the old cost leaders at a significant

disadvantage. The older cost leaders are often locked into their way of competing and are unable to

respond to the newer, lower-cost means of competing. This is what happened to the U.S. auto industry

in the 1970s.

27. AACSB: Analytical Thinking

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Blooms: Understand

Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

A cost leadership strategy is not susceptible to the risk of reduced flexibility.

FALSE

Building up a low-cost advantage often requires significant investments in plant and equipment,

distribution systems, and large, economically scaled operations. As a result, firms often find that these

investments limit their flexibility in responding to changes in the environment.

28. AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

Cheesecake Factory differentiates itself along several different dimensions at once by offering high-

quality food, the widest and deepest menu in its class of restaurants, and premium locations.

TRUE

Firms may differentiate themselves along several different dimensions at once. For example, the

Cheesecake Factory, an upscale casual restaurant, differentiates itself by offering high-quality food, the

widest and deepest menu in its class of restaurants, and premium locations.

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Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-34

McGraw-Hill Education.29. A successful differentiation strategy lowers entry barriers because of customer loyalty and the ability of

the firm to provide uniqueness in its products and services.

FALSE

Differentiation provides protection against rivalry since brand loyalty lowers customer sensitivity to

price. By increasing margins of the firm, differentiation also avoids the need for a low-cost position.

Higher entry barriers result because of customer loyalty and the ability to provide uniqueness in its

products or services.

30. AACSB: Analytical Thinking

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Blooms: Understand

Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

A successful differentiation strategy increases rivalry since buyers become more price-sensitive.

FALSE

Differentiation provides protection against rivalry since brand loyalty lowers customer sensitivity to

price and raises customer switching costs.

31. AACSB: Analytical Thinking

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Blooms: Understand

Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

If a firm has a successful differentiation strategy, it is necessary to attain parity on cost.

FALSE

Differentiation provides protection against rivalry since 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. Higher entry barriers result because of customer loyalty and the

company’s ability to provide uniqueness in its products or services. Differentiation also provides higher

margins that enable a firm to deal with supplier power. And it reduces buyer power, because buyers lack

comparable alternatives and are therefore less price-sensitive. 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. Last, differentiation enhances customer loyalty, thus reducing the

threat from substitutes.

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Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-35

McGraw-Hill Education.32. One potential pitfall of a differentiation strategy is that identification of the brand in the marketplace

may become diluted through excessive product line extensions.

TRUE

Potential pitfalls of a differentiation strategy include dilution of brand identification through product-

line extensions. Firms may erode their quality brand image by adding products or services with lower

prices and less quality. Although this can increase short-term revenues, it may be detrimental in the long

run.

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Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

33. Focus, by itself, often constitutes a competitive advantage.

FALSE

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. As you might expect, narrow focus

itself (like merely being different as a differentiator) is simply not sufficient for above-average

performance.

34. AACSB: Analytical Thinking

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Blooms: Understand

Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

A potential pitfall of a focus strategy is that focusers can become too focused to satisfy buyer needs.

TRUE

Potential pitfalls of focus strategies include focusers that become too focused to satisfy buyer needs.

Some firms attempting to attain advantages through a focus strategy may have too narrow a product or

service.

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Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-36

McGraw-Hill Education.35. A potential pitfall of a focus strategy is that cost advantages will not change over time.

FALSE

Potential pitfalls of focus strategies include that cost advantages may erode within the narrow segment.

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.

36. AACSB: Analytical Thinking

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Blooms: Understand

Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

A potential pitfall of a focus strategy is that highly focused product and service offerings are not subject

to competition from new entrants and from imitation.

FALSE

Potential pitfalls of focus strategies include that product and service offerings that are highly focused are

subject to competition from new entrants and from imitation.

37. AACSB: Analytical Thinking

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Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

A disadvantage of firms that successfully integrate overall cost leadership and a differentiation strategy

is that they are relatively easy for competitors to imitate.

FALSE

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 for the firm in value-creating activities).

AACSB: Analytical Thinking

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Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-37

McGraw-Hill Education.38. The combination strategy of low-cost and differentiation provides lower prices and no differentiated

attributes for customers.

FALSE

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 for the firm in value-creating activities).

39. AACSB: Analytical Thinking

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Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

Mass customization enables manufacturers to be more responsive to customer demands for high quality

products.

TRUE

Advances in manufacturing technologies such as CAD-CAM (computer aided design and computer

aided manufacturing) and information technologies allow firms to manufacture unique products in

relatively small quantities at lower costs, a concept known as mass customization. Andersen Windows

uses this to lower costs, enhance quality and variety, and improve response time to customers.

40. AACSB: Analytical Thinking

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Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

An important idea behind the profit pool concept is that there is always a strong relationship between

the generation of revenues and the capturing of profits.

FALSE

A profit pool is defined as the total profits in an industry at all points along the industry value chain. The

pattern of profit concentration in an industry is very often different from the pattern of revenue

generation.

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Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-38

McGraw-Hill Education.41. An important potential pitfall of an integrated overall cost leadership and differentiation strategy is that

firms may fail to implement either one and become stuck in the middle.

TRUE

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.

42. AACSB: Analytical Thinking

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Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

Firms can underestimate the challenges and expenses associated with coordinating value-creating

activities in the extended value chain. This is an advantage of integrated overall cost leadership and

differentiation.

FALSE

Integrating activities across the company value chain 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 firm’s customers and suppliers. The firm must be confident that it can generate a

sufficient scale of operations and revenues to justify all associated expenses. Underestimating the

challenges and expenses with coordinating value-creating activities in the extended value chain is a

pitfall of integrated overall cost leadership and differentiation strategy.

43. AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

Firms may fail to accurately assess sources of revenue and profits in their value chain. This might be a

result of an unbiased manager.

FALSE

Firms may fail to accurately assess sources of revenue and profits in their value chain. This can occur

for several reasons. For example, a manager may be biased due to his or her functional area background,

work experiences, and educational background.

AACSB: Analytical Thinking

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Blooms: Understand

Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-39

McGraw-Hill Education.44. If a car manufacturer focuses a lot on downstream activities such as warranty fulfillment and financing

operations, but also considers the differentiation and cost of the cars themselves, the resulting strategy is

likely to be a failed strategy.

FALSE

Directing an overwhelming amount of managerial time, attention, and resources to value-creating

activities that produce the greatest margins, to the detriment of other important, albeit less profitable,

activities is a pitfall for companies. For example, a car manufacturer may focus too much on

downstream activities, such as warranty fulfillment and financing operations, to the detriment of

differentiation and cost of the cars themselves.

45. AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

Integration of information systems, logistics, and transportation at Walmart helps it to drive down costs

and provide outstanding product selection. This serves to erect low entry barriers to potential

competitors.

FALSE

Integration of information systems, logistics, and transportation at Walmart helps it to drive down costs

and provide outstanding product selection. This serves to erect high entry barriers to potential

competitors that have neither the financial nor physical resources to compete head-to-head.

46. AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

Due to its size with over 475 billion USD in sales in 2014, Walmart has enormous bargaining power

over its suppliers.

TRUE

The dominant competitive position of Walmart serves to erect high entry barriers to potential

competitors that have neither the financial nor physical resources to compete head-to-head. Given the

size of Walmart, with over 475 billion USD in sales in 2014, it has enormous bargaining power over

suppliers.

AACSB: Analytical Thinking

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Blooms: Understand

Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-40

McGraw-Hill Education.47. The overall value proposition of Walmart makes potential substitute products such as Internet

competitors a more viable threat.

FALSE

The overall value proposition of Walmart makes potential substitute products such as Internet

competitors a less viable threat.

48. AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

By separating the value of the actual flight from the services associated with flying, airlines have greatly

expanded the profit pool associated with flying. This combines the advantages of integrating overall low

cost and differentiation strategies.

TRUE

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 firm’s lower costs in value-creating activities). 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. While this does increase their revenue, it may also provide

benefits for at least some customers. Jay Sorensen, CEO of IdeaWorks, noted that it offers the potential

for an airline to better tailor service to the needs of individual customers. They can click and buy the

amenities they want rather than the airline deciding what is bundled in the base fare.

49. AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

Big Data efforts have the potential to allow firms to better customize their product and service offerings

to customers but are less efficient at using the resources of the company. Kaiser Permanente is an

example of how big data does not lead to cost-conscious treatment patterns.

FALSE

Big Data efforts have the potential to allow firms to better customize their product and service offerings

to customers while more efficiently and fully using the resources of the company. Kaiser Permanente

collects petabytes of data on the health treatment of its 8 million health care members. This has allowed

Kaiser to develop insights on the cost, efficacy, and safety of the treatments provided by doctors and

procedures in hospitals, thereby leading to more effective and cost-conscious treatment patterns.

AACSB: Analytical Thinking

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Blooms: Understand

Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-41

McGraw-Hill Education.50. In technology intensive industries, the duration of competitive advantages is declining.

TRUE

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.

51. AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

Level of Difficulty: 2 Medium

Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

Competitive advantage is not affected by actions by rivals from within and outside of the industry.

FALSE

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.

52. AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

Level of Difficulty: 2 Medium

Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

The reason Dell lost its competitive advantage is that it focused too much on operational efficiency and

not enough on innovations demanded by the changing market.

TRUE

Dell was a firm whose advantages in the marketplace seemed unassailable in the early 2000s. Cracks

began to appear in 2007, and its competitive position has recently been severely eroded both by its

traditional competitors and by an onslaught of firms selling tablets and other mobile devices. In short,

Dell focused so much on operational efficiency and perfecting its direct model that it failed to deliver

innovations that an increasingly sophisticated market demanded.

AACSB: Analytical Thinking

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Blooms: Understand

Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

Level of Difficulty: 2 Medium

Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

5-42

McGraw-Hill Education.53. Rapid changes in technology, globalization, and actions by rivals cannot erode company advantages.

FALSE

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.

54. AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

Level of Difficulty: 2 Medium

Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

The increasing use of technology in low tech industries has made competitive advantages more

sustainable.

FALSE

Even in industries that are normally viewed as low tech, the increasing use of technology has suddenly

made competitive advantages less sustainable.

55. AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

Level of Difficulty: 2 Medium

Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

Competitive advantage can be found in just-in-time manufacturing processes.

TRUE

The case example of Atlas Door illustrates how a company can build competitive advantage from just-

in-time manufacturing.

56. AACSB: Analytical Thinking

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Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

Level of Difficulty: 2 Medium

Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

An important issue in evaluating the sustainability of a unique strategy is whether or not rivals will be

able to imitate its strategy or create a viable substitute.

TRUE

Even if a strategy is unique in the industry, the central issue in determining if the advantage is

sustainable becomes whether or not rivals will be able to easily imitate its strategy or create a viable

substitute strategy.

AACSB: Analytical Thinking

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Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

5-43

McGraw-Hill Education.57. Level of Difficulty: 2 Medium

Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

Using information systems to streamline and automate the primary activities of a manufacturing

company value chain does not provide competitive advantage.

FALSE

In the textbook example of Atlas Door, the company created marketplace competitive advantages by

building just-in-time factories that were driven by automated supply chain logistics systems.

58. AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

Level of Difficulty: 2 Medium

Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

In the textbook example of Atlas Door, it created low entry barriers for new entrants through its

development of competitive advantages.

FALSE

Atlas Door has attained a very favorable position vis-à-vis the five forces of industry competition. Its

dominance in the industry creates high entry barriers for new entrants.

59. AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

Level of Difficulty: 2 Medium

Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

In the textbook example of Atlas Door, it integrated many value-chain activities with the firm in order to

support its just-in-time strategy. This, however, did not provide sustainable competitive advantage.

FALSE

In the textbook example of Atlas Door, it integrated many value-chain activities with the firm in order to

support its just-in-time strategy. Such integration of activities provides a strong basis for sustainability,

because rivals would have difficulty in imitating this strategy due to causal ambiguity and path

dependency (i.e., it is difficult to build up in a short period of time the resources that Atlas Door has

accumulated and developed, as well as disentangle the causes of what the valuable resources are or how

they can be re-created).

AACSB: Analytical Thinking

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Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

Level of Difficulty: 2 Medium

Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

5-44

McGraw-Hill Education.60. Many companies have a tight integration among their value-creating activities and have implemented

just-in-time manufacturing. The textbook example of Atlas Door suggests that this is a competitive

advantage, but it is easily imitated and therefore may not be sustainable in the long run.

TRUE

An argument could be made that much of the Atlas Door strategy relies on technologies that are rather

well known and nonproprietary. 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.

61. AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

Level of Difficulty: 2 Medium

Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

In the textbook example of Atlas Door, human talent trained in the new just-in-time systems have little

reason to leave the company and therefore this is a sustainable competitive advantage.

FALSE

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.

62. AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

Level of Difficulty: 2 Medium

Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

In the textbook example of Atlas Door, the threat of new rivals who could bring new technologies and

processes to a similar business model diminishes the sustainability of the Atlas Door just-in-time

model.

TRUE

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). Finally, a rival could potentially leapfrog the

technologies and processes that Atlas Door has employed and achieve competitive superiority.

AACSB: Analytical Thinking

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Blooms: Understand

Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

Level of Difficulty: 2 Medium

Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

5-45

McGraw-Hill Education.63. 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.

FALSE

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.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

64. 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.

TRUE

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.

AACSB: Analytical Thinking

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Blooms: Understand

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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

65. During the growth stage of the market life cycle, customers are very likely to establish brand loyalty.

TRUE

In the growth stage, the primary key to success is to build consumer preferences for specific brands.

This requires strong brand recognition, differentiated products, and the financial resources to support a

variety of value-chain activities such as marketing and sales, and research and development.

AACSB: Analytical Thinking

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Blooms: Understand

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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

5-46

McGraw-Hill Education.66. Given the attractiveness of premium pricing during the growth stage of the market life cycle, managers

should emphasize short-term results to increase profits.

FALSE

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.

AACSB: Analytical Thinking

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Blooms: Understand

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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

67. As markets mature, competition on the basis of differentiation is preferable to price competition.

TRUE

In the mature stage, 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.

AACSB: Analytical Thinking

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Blooms: Understand

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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

68. As markets mature the magnitude of differentiation and cost leadership advantages among competitors

decrease.

TRUE

In the mature stage, 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.

AACSB: Analytical Thinking

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Blooms: Understand

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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

5-47

McGraw-Hill Education.69. With reverse positioning, a strategy to be used during the mature stage of the industry life cycle, a

product escapes its category by deliberately associating with a different one.

FALSE

Two positioning strategies that managers can use to affect consumer mental shifts are reverse

positioning, which strips away sacred product attributes while adding new ones, and breakaway

positioning, which associates the product with a radically different category.

AACSB: Analytical Thinking

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Blooms: Remember

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.

Level of Difficulty: 1 Easy

Topic: Industry Life Cycle Stages: Strategic Implications

70. Businesses that compete in markets that are in decline should simply be harvested or divested since they

are no longer profitable.

FALSE

Four basic strategies are available in the decline phase: maintaining, harvesting, exiting, or

consolidating. Managers must carefully monitor the actions and intentions of competitors before

deciding on a course of action.

AACSB: Analytical Thinking

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Blooms: Understand

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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

71. During the decline stage of the product life cycle, a harvesting strategy means that a firm keeps a

product going without significantly reducing marketing support, technological development, or other

investments, while hoping that competitors will exit the market.

FALSE

Harvesting involves obtaining as much profit as possible and requires that costs be reduced quickly.

Maintaining refers to keeping a product going without significantly reducing marketing support,

technological development, or other investments, in the hope that competitors will eventually exit the

market.

AACSB: Analytical Thinking

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Blooms: Understand

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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

5-48

McGraw-Hill Education.72. The decline stage of the industry life cycle stage is inevitably followed by death.

FALSE

Old technologies that are in decline do not always quickly fade away. Research shows that in a number

of cases, old technologies actually enjoy a very profitable last gasp, and can become resilient survivors

in some circumstances.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

73. The Commerce Bank gains customers by using reverse positioning to structure its offers. It pared down

its offers to just four checking accounts.

TRUE

The Commerce Bank stripped away all of what customers expected including lots of choices and peak

interest rates and it reverse positioned itself as the most convenient bank in America. It was open seven

days a week, including evenings until 8 p.m. You could get a debit card while you waited. And when it

rained, an escort with an umbrella walked you to your car. Further, the bank offered free coffee and

newspapers for customers. Not too surprisingly, despite the inferior rates and few choices, customers

regularly flocked to the bank, making it an attractive target for a larger bank to buy.

AACSB: Analytical Thinking

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Blooms: Understand

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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

74. Swatch defined its watches as playful fashion accessories which were showily promoted. This is an

example of reverse positioning.

FALSE

With breakaway positioning, a product escapes its category by deliberately associating with a different

one. Thus, managers leverage the conventions of the new category to change both how products are

consumed and with whom they compete. Instead of seeing the breakaway product as an alternative to

others in its category, consumers perceive it as altogether different. The name Swatch is often

misconstrued as a contraction of the words Swiss watch. However, Nicolas Hayek, chairman, affirms

that the original contraction was second watch. The new watch was introduced as a new concept of

watches as casual, fun, and relatively disposable accessories. Therein lies the Swatch breakaway

positioning.

AACSB: Analytical Thinking

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Blooms: Understand

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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

5-49

McGraw-Hill Education.75. The desktop computer is in the decline stage of the industry life cycle, but it is not dead because

companies have found ways to improve the price-performance trade-off.

TRUE

Old technologies that are in decline do not always quickly fade away. Research shows that in a number

of cases, old technologies actually enjoy a very profitable last gasp, and can become resilient survivors

in some circumstances. Companies use three approaches to keep the products in play successfully. One

of these is to improve the price-performance trade-off in which desktop computers are retooled with

technology originally developed for the lightweight and ultrafast laptops.

AACSB: Analytical Thinking

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Blooms: Understand

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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

76. Many firms facing a turnaround situation try to reduce their costs by outsourcing the production of

many inputs.

TRUE

Firms in turnaround situations try to aggressively cut administrative expenses and inventories and speed

up collection of receivables. Costs also can be reduced by outsourcing production of various inputs for

which market prices may be cheaper than in-house production costs.

77. AACSB: Analytical Thinking

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Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

A need for turnaround occurs only during the maturity or declining stage of the life cycle.

FALSE

A need for turnaround may occur at any stage in the life cycle but is more likely to occur during

maturity or decline.

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Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

5-50

McGraw-Hill Education.78. Procter and Gamble successfully implemented a turnaround strategy by discontinuing brands and

focusing all resources on a few core brands.

TRUE

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. For example, in 2014, Procter and Gamble announced that it would sell off or close

down up to 100 of its brands, allowing the firm to improve its efficiency and its innovativeness as it

focused on its core brands. The remaining 70 to 80 core brands accounted for 90 percent of total

company sales.

79. AACSB: Analytical Thinking

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Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

Few turnarounds require firms to analyze both the external and internal environments relevant to their

firm.

FALSE

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.

80. AACSB: Analytical Thinking

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Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

Mature firms tend to have assets that continue to produce significant returns.

FALSE

Very often, mature firms tend to have assets that do not produce any returns. These include real estate,

buildings, and so on.

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Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

5-51

McGraw-Hill Education.81. Firms in turnaround situations find that cutting administrative expenses and inventories and speeding up

collection of receivables provide no real value.

FALSE

A study of 260 mature businesses in need of a turnaround identified three strategies used by successful

companies. One of these strategies is asset and cost surgery. Firms in turnaround situations try to

aggressively cut administrative expenses and inventories and speed up collection of receivables.

82. AACSB: Analytical Thinking

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Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

Piecemeal productivity improvements can be used by a mature business in need of a turnaround.

TRUE

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.

83. AACSB: Analytical Thinking

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Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

HSN CEO Mindy Grossman managed a successful turnaround by first engaging with employees.

TRUE

Grossman managed a successful turnaround of HSN by first finding value in engaging with employees.

During her first day at HSN, she choose to go through the same new-employee orientation that all

employees go through. She felt this humanized her in the minds of other employees. On her second day,

she held a town-hall meeting so that she could directly introduce herself and set the tone that she was

accessible and that all employees were valued and could have a future at HSN. She also set up a policy

to regularly have breakfasts and lunches with employees.

AACSB: Analytical Thinking

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Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

5-52

McGraw-Hill Education.84. HSN CEO Mindy Grossman tailored the company offerings to meet the changing needs of her customer

base in her quest to turnaround the company.

TRUE

She tailored company offerings to meet the changing needs of her customer base. In the deep days of the

recession in 2008-2009, this meant shifting from offering high-priced jewelry and fashions to providing

products and services that helped the HSN customers save time and money.

85. AACSB: Analytical Thinking

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Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

When company performance severely erodes, no strategies exist that can help to reverse its situation and

enhance its competitive position.

FALSE

When company performance severely erodes, turnaround strategies are needed to reverse its situation

and enhance its competitive position. We have discussed three approaches: asset cost surgery, selective

product and market pruning, and piecemeal productivity improvements.

86. AACSB: Analytical Thinking

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Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

Piecemeal productivity improvements are not useful as a turnaround strategy because they are not

cumulative.

FALSE

Piecemeal productivity improvements, although individually are small gains, cumulate over a period of

time to substantial gains.

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Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

5-53

McGraw-Hill Education.87. Firms in turnaround situations find that cutting administrative expenses and inventories and speeding up

collection of receivables are ineffective strategies.

FALSE

One of the strategies used by successful companies in need of a turnaround is to try to aggressively cut

administrative expenses and inventories and speed up collection of receivables. Costs also can be

reduced by outsourcing production of various inputs for which market prices may be cheaper than in-

house production costs.

88. AACSB: Analytical Thinking

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Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

When a company finds that its performance is in decline at any stage in the life cycle, it can look toward

a turnaround strategy that is designed to help it to grow but not necessarily to be profitable.

FALSE

A turnaround strategy involves reversing performance decline and reinvigorating growth toward

profitability. The need for turnaround may occur at any stage in the life cycle but is more likely to occur

during maturity or decline.

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Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

Multiple Choice Questions

89. The primary aim of strategic management at the business level is

A. maximizing risk-return tradeoffs through diversification.

B. achieving competitive advantage.

C. maximizing differentiation of products and/or services.

D. achieving a low cost position.

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.

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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.

Level of Difficulty: 2 Medium

5-54

McGraw-Hill Education.90. Topic: Types of Competitive Advantage and Sustainability

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?

A. differentiation

B. differentiation focus

C. stuck-in-the-middle

D. overall cost leadership

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).

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

91. A manufacturing business pursuing cost leadership is likely to

A. focus on a narrow market segment.

B. use advertising to build brand image.

C. rely on experience effects to raise efficiency.

D. put heavy emphasis on product engineering.

Key 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.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-55

McGraw-Hill Education.92. One aspect of using a cost leadership strategy is that experience effects may lead to lower costs.

Experience effects are achieved by

A. spreading out a given expense or investment over a greater

volume.

B. hiring more experienced personnel.

C. repeating a process until a task becomes

easier.

D. competing in an industry for a long time.

Key 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.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

93. With experience, unit costs of production decline as _________ increases in most industries.

A. costs

B. volume

C. price

D. output

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.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-56

McGraw-Hill Education.94. Research has consistently shown that firms that achieve both cost leadership and differentiation

advantages tend to perform

A. B. C. D. at about the same level as firms that achieve either cost or differentiation advantages.

higher than firms that achieve either a cost or a differentiation advantage.

about the same as firms that are stuck-in-the-middle.

lower than firms that achieve differentiation advantages but higher than firms that achieve cost

advantages.

Research supports 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.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

95. 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

A. B. C. effective layout of receiving dock operations.

effective use of automated technology to reduce scrappage rates.

minimize costs associated with employee turnover through effective policies.

D. standardized accounting practices to minimize personnel

required.

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.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-57

McGraw-Hill Education.96. Overhead costs associated with the number of layers of management in a firm are part of the _________

activities of the value chain.

A. human resources management

B. operations

C. firm infrastructure

D. marketing and sales

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.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

97. Renault has found a way to generate high profits on low-priced cards by using simple designs that

incorporate components from older car designs and a no-discount retail policy. They are using a(n)

______________ strategy.

A. differentiation

B. overall cost leadership

C. focus

D. broad differentiation

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.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-58

McGraw-Hill Education.98. Tesco is saving 3 million USD a year alone in landfill taxes by simply sending its used cooking oil and

chicken fat to be used to generate bioenergy rather than putting it in a landfill. This is an example of an

overall cost leadership strategy because it

A. gives them competitive advantage by reducing energy

costs.

B. gives them competitive advantage by decreasing

productivity.

C. eliminates the need to compete based on its

products.

D. requires the customer to recognize its efforts.

Tesco, the largest grocery retailer in Britain, has changed how it views waste in order to become more

efficient. This enhances its cost leadership position.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

99. A business that strives for a low-cost advantage must attain a(n) _______ cost advantage over rivals.

A. relative

B. evolutionary

C. absolute

D. potential

rivals.

A business that strives for a low-cost advantage must attain an absolute cost advantage relative to its

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-59

McGraw-Hill Education.100. Southwest Airlines uses an overall cost leadership strategy. This could fail if it

A. B. D. cannot maintain parity on differentiation dimensions requested by customers.

maintains parity with competitors on low cost.

C. exceeds customer expectations.

increases its sales prices while maintaining competitor

parity.

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. The no-frills product strategy

employed by Southwest Airlines may fail if it is unable to attain parity on important dimensions of

differentiation such as quick responses to customer requests for services or design changes.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

101. 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 characterize which type of competitive

strategy?

A. differentiation

B. overall low-cost leadership

C. differentiation focus

D. cost leadership focus

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.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-60

McGraw-Hill Education.102. An overall low-cost position enables a firm to achieve ______ returns despite strong competition.

A. below average

B. average

C. no

D. above average

An overall low-cost position enables a firm to achieve above-average returns despite strong competition.

AACSB: Analytical Thinking

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Blooms: Understand

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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

103. 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.

A. higher costs

B. higher prices

C. lower costs

D. lower prices

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.

AACSB: Analytical Thinking

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Blooms: Understand

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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

104. An overall ______ position enables a firm to achieve above-average returns because it protects firms

against powerful buyers.

A. differentiation

B. low-cost

C. focused

D. high-cost

An overall low-cost position enables a firm to achieve above-average returns because it protects firms

against powerful buyers.

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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.

Level of Difficulty: 2 Medium

5-61

McGraw-Hill Education.105. Topic: Types of Competitive Advantage and Sustainability

A low-cost position permits buyers to exert power to drive ____ prices only to the level of the next most

efficient producer.

A. up

B. down

C. increasing

D. decreasing

A low-cost position permits buyers to exert power to drive down prices only to the level of the next

most efficient producer.

AACSB: Analytical Thinking

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Blooms: Understand

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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

106. A low-cost position provides _______ flexibility to cope with demands from powerful suppliers for

input cost increases.

A. less

B. decreasing

C. more

D. no

A low-cost position provides more flexibility to cope with demands from powerful suppliers for input

cost increases.

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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.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

107. 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.

A. entry; substitute

B. exit; primary

C. product; substitute

D. entry; primary

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.

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5-62

McGraw-Hill Education.Blooms: Remember

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.

Level of Difficulty: 1 Easy

Topic: Types of Competitive Advantage and Sustainability

108. Which of the following is a risk (or potential pitfall) of cost leadership?

A. Cost cutting may lead to the loss of desirable

features.

B. Attempts to stay ahead of the competition may lead to gold

plating.

C. D. Cost differences increase as the market matures.

Producers are more able to withstand increases in supplier

costs.

Potential pitfalls of overall cost leadership strategy include too much focus on one or a few value-chain

activities; all rivals share a common input or raw material; the strategy is imitated too easily; a lack of

parity on differentiation; and erosion of cost advantages when the pricing information available to

customers increases.

109. AACSB: Analytical Thinking

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Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

A firm can achieve differentiation through all of the following means except

A. improving brand image.

B. better customer service.

C. offering lower prices to frequent customers.

D. adding additional product

features.

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, technology, innovation, features, customer

service, or a dealer network.

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Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-63

McGraw-Hill Education.110. Support value chain activities that involve excellent applications engineering support (technology

development) and facilities that promote a positive firm image (firm infrastructure) characterize which

generic strategy?

A. overall cost leadership

B. differentiation focus

C. differentiation

D. stuck-in-the middle

Examples of value chain activities for differentiation include support value chain activities like excellent

applications engineering support (technology development) and facilities that promote a positive firm

image (firm infrastructure).

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Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 1 Easy

Topic: Types of Competitive Advantage and Sustainability

111. High product differentiation is generally accompanied by

A. higher market share.

B. higher profit margins and lower costs.

C. significant economies of scale.

D. decreased emphasis on competition based on price.

Differentiation provides protection against rivalry since 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.

112. AACSB: Analytical Thinking

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Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

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?

A. B. C. D. Firms will enjoy high customer loyalty.

By increasing firm margins, it avoids the need for a low cost position.

It reduces buyer power because buyers lack comparable

alternatives.

Supplier power is increased, because suppliers will be able to charge higher prices for their

inputs.

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.

AACSB: Analytical Thinking

5-64

McGraw-Hill Education.113. Accessibility: Keyboard Navigation

Blooms: Understand

Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

A differentiation strategy enables a business to address the five competitive forces by

A. having brand-loyal customers become more sensitive to

prices.

B. increasing economies of scale.

C. providing protection against rivalry.

D. serving a broader market segment.

Differentiation provides protection against rivalry since brand loyalty lowers customer sensitivity to

price and raises customer switching costs.

114. AACSB: Analytical Thinking

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Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

Which of the following is not a potential pitfall of a differentiation strategy?

A. B. C. Uniqueness that is not valuable.

The price premium is too high.

All rivals share a common input or raw

material.

D. Perceptions of differentiation may vary between buyers and sellers.

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.

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Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-65

McGraw-Hill Education.115. Which statement regarding competitive advantages is true?

A. B. With an overall cost leadership strategy, firms need not be concerned with parity on differentiation.

In the long run, a business with one or more competitive advantages is probably destined to earn

normal profits.

C. If several competitors pursue similar differentiation tactics, they may all be perceived as equals in

the mind of the consumer.

D. Attaining multiple types of competitive advantage is a recipe for

failure.

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.

116. AACSB: Analytical Thinking

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Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

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.

A. increases; more

B. lessens; more

C. lessens; less

D. increases; less

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.

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Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-66

McGraw-Hill Education.117. A firm following a focus strategy must focus on

A. governmental regulations.

B. a market segment or group of segments.

C. rising cost of inputs.

D. avoiding entering international

markets.

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.

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Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

118. Which of the following is not a potential pitfall of a focus strategy?

A. B. C. D. Erosion of cost advantages can arise within the narrow

segment.

Product/service offerings that are highly focused are subject to competition from new entrants.

Focusers can become too focused to satisfy buyer needs.

All rivals share a common input or raw

material.

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.

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Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-67

McGraw-Hill Education.119. 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?

A. The price differential was too high.

B. The market for batteries is saturated.

C. The customer perceived the products to be different.

D. There are valid alternatives for

batteries.

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.

120. AACSB: Analytical Thinking

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Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

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?

A. B. C. D. automated and flexible manufacturing systems

deriving benefits from highly focused and high technology markets

exploiting the profit pool concept for competitive advantage

coordinating the extended value chain by way of information

technology

Three approaches to combining overall low cost and differentiation include: automated and flexible

manufacturing systems, exploiting the profit pool concept for competitive advantage, and coordinating

the extended value chain by way of information technology.

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Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-68

McGraw-Hill Education.121. A __________ can be defined as the total profits in an industry at all points along the industry value

chain.

A. profit maximizer

B. revenue enhancer

C. profit pool

D. profit outsourcing

A profit pool is defined as the total profits in an industry at all points along the industry value chain.

122. Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

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Level of Difficulty: 1 Easy

Topic: Types of Competitive Advantage and Sustainability

Which of the following is not a potential pitfall of an integrated overall low cost and differentiation

strategy?

A. Firms that target too large a market that causes unit costs to

increase.

B. Firms that underestimate the expenses associated with coordinating value-creating activities in the

extended value chain.

C. Firms that fail to attain both strategies may end up with neither and become stuck-in-the-

middle.

D. Firms that miscalculate sources of revenue and profit pools in the company industry.

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.

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Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-69

McGraw-Hill Education.123. Mass customization permits companies to manufacture unique products in relatively _________

quantities at ______ costs.

A. large; higher

B. large; lower

C. small; higher

D. small; lower

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.

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Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

Anderson Windows lowered costs, enhanced quality and variety, and improved its response time to

customers by

A. creating a new paper-based catalog.

B. creating an interactive computer version of its paper

catalogs.

C. creating an integrated computer system of catalogs, products, orders, and

manufacturing.

D. creating a manufacturing system for ordering

parts.

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.

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Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

5-70

McGraw-Hill Education.125. 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.

A. cost; higher

B. price; higher

C. price; lower

D. cost; lower

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.

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Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

The Pepsi algorithm that permits it to lower out of stock inventory is a result of using

A. purchasing patterns.

B. data analytics.

C. physical plant.

D. flooding the market with ads.

Pepsi used data analytics to develop an algorithm that lowers the rate of inventory out-of-stocks and has

shared the algorithm with partners and retailers.

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Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

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Topic: Types of Competitive Advantage and Sustainability

5-71

McGraw-Hill Education.127. Corporations increasingly collect and analyze data on their customers. This is known as

A. profit analysis.

B. big data.

C. cost reduction.

D. automated analysis.

Corporations are increasingly collecting and analyzing data on their customers, including data on

customer characteristics, purchasing patterns, employee productivity, and physical asset utilization.

These efforts, commonly referred to as Big Data, have the potential to allow firms to better customize

their product and service offerings to customers while more efficiently and fully using the resources of

the company.

128. AACSB: Analytical Thinking

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Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

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.

A. customization

B. information technology

C. human resources

D. competitive advantage

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.

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Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

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

A. increase competition.

B. expand the profit pool.

C. provide better customer service.

D. satisfy regulators.

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.

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McGraw-Hill Education.130. Blooms: Understand

Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

By separating the value of the actual flight from the services associated with flying, airlines have greatly

expanded the __________ associated with flying.

A. costs

B. services

C. profit pool

D. difficulties

By separating the value of the actual flight from the services associated with flying, airlines have greatly

expanded the profit pool associated with flying.

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Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

Underestimating expenses associated with coordinating value-creating activities in the extended value

chain can be a result of ______ integration of cost leadership and differentiation.

A. good

B. poor

C. intentional

D. structured

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.

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Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

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Topic: Types of Competitive Advantage and Sustainability

5-73

McGraw-Hill Education.132. Which of the following is not a reason for the possible erosion of company competitive advantage?

A. rapid change in technology

B. globalization

C. actions by rivals from within and outside of the

industry

D. company commitment to innovation

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.

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Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

Level of Difficulty: 2 Medium

Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

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?

A. B. The service was easily imitable.

It created high entry barriers for new

entrants.

C. The integration of many company value-chain activities provided causal ambiguity and path

dependency.

D. It exerted power over its customers.

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 startup, 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.

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Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

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Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

5-74

McGraw-Hill Education.134. Dell lost its competitive advantage starting in 2007 because it

A. did not deliver innovations to respond to changing market

demand.

B. developed a highly performant just-in-time delivery

system.

C. did not reward its employees.

D. let suppliers have dominant power.

Dell went from being the Fortune magazine darling in 2005 to a weak competitor in 2007 when cracks

began to appear. Its competitive position has recently been severely eroded both by its traditional

competitors and by an onslaught of firms selling tablets and other mobile devices. In short, Dell focused

so much on operational efficiency and perfecting its direct model that it failed to deliver innovations that

an increasingly sophisticated market demanded.

135. AACSB: Analytical Thinking

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Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

Level of Difficulty: 2 Medium

Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

Company competitive advantages can be eroded by all of the following except

A. rapid changes in technology.

B. globalization.

C. actions by rivals within the

industry.

D. actions by workers outside of the

industry.

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.

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Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

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5-75

McGraw-Hill Education.136. 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

A. a short term strategy.

B. a company-wide strategy.

C. sustainable competitive

advantage.

D. good suppliers.

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.

137. AACSB: Analytical Thinking

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Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

Level of Difficulty: 2 Medium

Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

Atlas Door tightly controlled logistics so that it always shipped only fully complete orders to

construction sites. In regards to the five forces model, which of the following is a reason this might give

them competitive advantage?

A. B. It helps to reduce the threat of new entrants.

It created low entry barriers for new

entrants.

C. It created a high threat of substitution.

D. It gave more power to buyers.

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 make

it difficult for new entrants to compete successfully, at least in the short run.

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Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

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Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

5-76

McGraw-Hill Education.138. In evaluating the sustainability of the Atlas Door competitive advantages over the long run, it is

important to evaluate the ability of rivals to

A. easily imitate its

strategy.

B. communicate with its

customers.

C. consistently overprice their

products.

D. find new suppliers.

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.

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Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

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Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

Atlas Door created competitive advantages in overall low cost and differentiation by creating

___________ among value-chain activities.

A. substitutes

B. advantages

C. disadvantages

D. linkages

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.

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Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

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Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

5-77

McGraw-Hill Education.140. Atlas Door relies on technologies that are rather well known and non-proprietary. This opens it up to the

potential of

A. imitation by rivals.

B. customer abandonment.

C. increased supplier power.

D. government regulation.

An argument could be made that much of the Atlas Door strategy relies on technologies that are rather

well known and nonproprietary. 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.

141. AACSB: Analytical Thinking

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Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

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Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

Atlas Door could lose competitive advantage for all of the following reasons except

A. Its technologies are non-proprietary.

B. A rival could hire away its talents

easily.

C. A new rival with a strong resource base could undercut its

prices.

D. It has strong power over its distributors.

An argument could be made that much of the Atlas Door strategy relies on technologies that are rather

well known and nonproprietary. 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.

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Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

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5-78

McGraw-Hill Education.142. Rivals would find it difficult to challenge Atlas Door in the short run because of

A. strong customer loyalty.

B. low barriers to entry.

C. high threat of substitution.

D. low buyer switching costs.

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.

143. AACSB: Analytical Thinking

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Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

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Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

Rivals would find it difficult to challenge Atlas Door in the short run because of

A. weak customer loyalty.

B. high barriers to entry.

C. high threat of substitution.

D. low buyer switching costs.

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.

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Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

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Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

5-79

McGraw-Hill Education.144. Which of these statements regarding the industry life cycle is true?

A. B. C. D. Partial power of the market life cycle is its ability to serve as a short-run forecasting

device.

Trends suggested by the market life cycle model are generally not reversible or

repeatable.

It points out the need to maintain a differentiation advantage and a low cost advantage.

It has important implications for company generic strategies, functional areas, value-creating

activities, and overall objectives.

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.

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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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

145. Which of the following statements about the introduction stage of the market life cycle is true?

A. It produces relatively large, positive cash flows.

B. Strong brand recognition seldom serves as an important switching

cost.

C. Market share gains by pioneers are usually easily sustained for many

years.

D. Products offered by pioneers may be perceived as differentiated because they are new.

In the introduction stage, products are unfamiliar to consumers. Market segments are not well defined,

and product features are not clearly specified.

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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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

5-80

McGraw-Hill Education.146. 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.

A. growth

B. maturity

C. introduction

D. decline

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.

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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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

147. The growth stage of the industry life cycle is characterized by

A. in-kind competition (from the same type of

product).

B. premium pricing.

C. a growing trend to compete on the basis of

price.

D. retaliation by competitors whose customers are

stolen.

The growth stage is the second stage of the product life cycle, characterized by strong increases in sales

and growing competition.

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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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

5-81

McGraw-Hill Education.148. In the __________ stage of the industry life cycle, there are many segments, competition is very

intense, and the emphasis on process design is high.

A. growth

B. introduction

C. decline

D. maturity

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.

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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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

149. 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?

A. introduction

B. growth

C. maturity

D. decline

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.

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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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

5-82

McGraw-Hill Education.150. A market that mainly competes on the basis of price and has stagnant growth is characteristic of what

life cycle stage?

A. introduction

B. growth

C. maturity

D. decline

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.

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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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

151. As markets mature,

A. costs continue to increase.

B. application for patents

increase.

C. differentiation opportunities increase.

D. there is increasing emphasis on efficiency.

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.

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Learning Objective: 05-06 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative

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Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

5-83

McGraw-Hill Education.152. The size of pricing and differentiation advantages between competitors decreases in which stage of the

market life cycle?

A. introduction

B. growth

C. maturity

D. decline

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.

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Blooms: Understand

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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

153. Which of the following is most often true of mature markets?

A. B. Some competitors enjoy a significant operating advantage due to increasing experience effects.

The market supports premium pricing, which attracts additional

competitors.

C. Advantages that cannot be duplicated by other competitors are difficult to achieve.

D. The magnitude of pricing differences and product differentiation is larger than in the growth stage.

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.

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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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

5-84

McGraw-Hill Education.154. 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.

A. introduction

B. growth

C. decline

D. maturity

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.

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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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

155. The most likely time to pursue a harvest strategy is in a situation of

A. high growth.

B. strong competitive advantage.

C. mergers and acquisitions.

D. decline.

Four basic strategies are available in the decline phase: maintaining, harvesting, exiting, or

consolidating.

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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.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

156. Research shows that which one of the following is not a strategy used by firms engaged in successful

turnarounds?

A. asset and cost surgery

B. selective product and market

pruning

C. piecemeal productivity

improvements

D. global expansion

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.

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5-85

McGraw-Hill Education.157. Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

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Level of Difficulty: 1 Easy

Topic: Industry Life Cycle Stages: Strategic Implications

Piecemeal productivity improvements during a turnaround typically do not involve

A. business process reengineering.

B. increased capacity utilization.

C. benchmarking.

D. expansion of company product market scope.

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.

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Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

Which of the following is not a reason for the successful turnaround HSN experienced by 2014 under

CEO Mindy Grossman?

A. engaging stakeholders in the discussion

B. redesigning the employee lineup

C. redesigning the company offerings

D. making all best efforts to offer something for everyone

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.

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Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

5-86

McGraw-Hill Education.159. 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?

A. asset and cost surgery

B. selective product and market

pruning

C. piecemeal productivity

improvements

D. global expansion

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.

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Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

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?

A. asset and cost surgery

B. selective product and market

pruning

C. piecemeal productivity

improvements

D. global expansion

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.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

5-87

McGraw-Hill Education.161. 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?

A. asset and cost surgery

B. selective product and market

pruning

C. piecemeal productivity

improvements

D. global expansion

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.

162. AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

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.

A. external

B. internal

C. global

D. environmental

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.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

5-88

McGraw-Hill Education.163. Most turnarounds require a firm to carefully analyze its relevant environments. ________ analysis

results in actions aimed at reduced costs and higher efficiency.

A. External

B. Internal

C. Global

D. Environmental

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.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Level of Difficulty: 2 Medium

Topic: Industry Life Cycle Stages: Strategic Implications

5-89

McGraw-Hill Education.

Strategic Management 8Th Edition By Dess -Test Bank

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