Strategic Management And Competitive Advantage 5th Edition By Barney – Test Bank

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Strategic Management and Competitive Advantage, 5e (Barney)

Chapter 5   Product Differentiation

1) Wal-Mart exemplifies a firm pursuing a product-differentiation strategy while Victoria’s Secret exemplifies a firm pursuing a cost-leadership strategy.

Answer:  FALSE

Diff: 1

Learning Obj.:  5.1: Define Product Differentiation

AACSB:  Application of Knowledge

2) Product differentiation is a business strategy whereby firms attempt to gain a competitive advantage by increasing the perceived value of their products and services relative to the perceived value of other firms’ products or services.

Answer:  TRUE

Diff: 1

Learning Obj.:  5.1: Define Product Differentiation

AACSB:  Analytical Thinking

3) Attempts to create differences in the relative perceived value of a firm’s products or services are rarely made by altering the objective properties of those products or services.

Answer:  FALSE

Diff: 2

Learning Obj.:  5.1: Define Product Differentiation

AACSB:  Analytical Thinking

4) While firms often alter the objective properties of their products or services in order to implement a product-differentiation strategy, the existence of product differentiation is always a matter of customer perception.

Answer:  TRUE

Diff: 2

Learning Obj.:  5.1: Define Product Differentiation

AACSB:  Analytical Thinking

5) If products or services are perceived as being different in a way that is valued by customers, even if there is no physical differentiation, then product differentiation exists.

Answer:  TRUE

Diff: 2

Learning Obj.:  5.1: Define Product Differentiation

AACSB:  Analytical Thinking

6) A hedonic price is that part of a products’ or services’ actual price that is not attributable to a particular attribute of that product or service.

Answer:  FALSE

Diff: 3

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Analytical Thinking

7) Chryslers’ introduction of the “cab forward” design was an attempt at differentiation through product features.

Answer:  TRUE

Diff: 3

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Application of Knowledge

8) To the extent that differences in product complexity lead customers to conclude that the products of some firms are more valuable than the product of other firms, then product complexity can be a basis of product differentiation.

Answer:  TRUE

Diff: 2

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Analytical Thinking

9) Timing-based product differentiation relies solely on being a first mover.

Answer:  FALSE

Diff: 2

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Analytical Thinking

10) The physical location of a firm cannot be a source of product differentiation.

Answer:  FALSE

Diff: 1

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Analytical Thinking

11) Products can be differentiated by the extent to which they are customized for particular customer applications.

Answer:  TRUE

Diff: 1

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Analytical Thinking

12) Through advertising and other consumer marketing efforts, firms attempt to alter the perceptions of current and potential customers, but only when specific attributes of a firm’s products or services are altered.

Answer:  FALSE

Diff: 2

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Analytical Thinking

13) Once developed, a firm’s reputation can last a long time, even if the basis for that reputation no longer exists.

Answer:  TRUE

Diff: 2

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Analytical Thinking

14) The ability to use organization structure to facilitate coordination among scientific disciplines to conduct research is known as architectural competence.

Answer:  TRUE

Diff: 2

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Analytical Thinking

15) Linkages between firms that differentiate their products are examples of cooperative strategic alliance strategies.

Answer:  TRUE

Diff: 3

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Analytical Thinking

16) In the information technology business, interconnectivity is a relatively unimportant basis of potential product differentiation.

Answer:  FALSE

Diff: 2

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Analytical Thinking

17) Product differentiation is ultimately an expression of the creativity of individuals and groups within firms and is limited only by the opportunities that exist, or that can be created, in a particular industry and by the willingness and ability of firms to creatively explore ways to take advantage of those opportunities.

Answer:  TRUE

Diff: 2

Learning Obj.:  5.3: Describe How Product Differentiation is Ultimately Limited Only by Managerial Creativity

AACSB:  Analytical Thinking

18) It is reasonable to expect that in the near future a marketing specialist will develop a definitive list of bases of product differentiation.

Answer:  FALSE

Diff: 2

Learning Obj.:  5.3: Describe How Product Differentiation is Ultimately Limited Only by Managerial Creativity

AACSB:  Analytical Thinking

19) Firms selling differentiated products face a horizontal demand curve.

Answer:  FALSE

Diff: 3

Learning Obj.:  5.4: Describe How Product Differentiation can be used to Neutralize Environmental Threats and Exploit Environmental Opportunities

AACSB:  Analytical Thinking

20) Edward Chamberlin described firms selling differentiated products and facing a downward-sloping demand curve as being in an industry characterized by monopolistic competition.

Answer:  TRUE

Diff: 3

Learning Obj.:  5.4: Describe How Product Differentiation can be used to Neutralize Environmental Threats and Exploit Environmental Opportunities

AACSB:  Analytical Thinking

21) Product differentiation helps reduce the threat of new entry by forcing potential entrants to an industry to absorb not only the standard costs of beginning business but also the additional costs associated with overcoming incumbent firms’ product-differentiation advantages.

Answer:  TRUE

Diff: 2

Learning Obj.:  5.4: Describe How Product Differentiation can be used to Neutralize Environmental Threats and Exploit Environmental Opportunities

AACSB:  Analytical Thinking

22) Product differentiation effectively reduces rivalry to zero.

Answer:  FALSE

Diff: 2

Learning Obj.:  5.4: Describe How Product Differentiation can be used to Neutralize Environmental Threats and Exploit Environmental Opportunities

AACSB:  Analytical Thinking

23) Product differentiation increases the threat of substitutes by making a firm’s current products appear less attractive than substitutes.

Answer:  FALSE

Diff: 1

Learning Obj.:  5.4: Describe How Product Differentiation can be used to Neutralize Environmental Threats and Exploit Environmental Opportunities

AACSB:  Analytical Thinking

24) Firms with highly differentiated products may have loyal customers, or customers who are unable to purchase similar products or services from other firms and are therefore more likely to accept increased prices due to a firm passing on increased costs by a powerful supplier.

Answer:  TRUE

Diff: 2

Learning Obj.:  5.4: Describe How Product Differentiation can be used to Neutralize Environmental Threats and Exploit Environmental Opportunities

AACSB:  Analytical Thinking

25) When a firm sells a highly differentiated product, it enjoys a quasi-monopoly in that segment of the market.

Answer:  TRUE

Diff: 3

Learning Obj.:  5.4: Describe How Product Differentiation can be used to Neutralize Environmental Threats and Exploit Environmental Opportunities

AACSB:  Analytical Thinking

26) In fragmented industries firms can use product differentiation to help consolidate a market.

Answer:  TRUE

Diff: 2

Learning Obj.:  5.4: Describe How Product Differentiation can be used to Neutralize Environmental Threats and Exploit Environmental Opportunities

AACSB:  Analytical Thinking

27) In emerging industries, product-differentiation efforts often focus on product refinement as a basis for product differentiation.

Answer:  FALSE

Diff: 2

Learning Obj.:  5.4: Describe How Product Differentiation can be used to Neutralize Environmental Threats and Exploit Environmental Opportunities

AACSB:  Analytical Thinking

28) The concept of product differentiation generally assumes that the number of firms that have been able to differentiate their products in a particular way is, at some point in time, less than the number of firms needed to generate perfect competition dynamics.

Answer:  TRUE

Diff: 2

Learning Obj.:  5.5: Describe Those Bases of Product Differentiation That are not Likely to be Costly to Duplicate, Those that May be Costly to Duplicate, and Those that will Often be Costly to Duplicate

AACSB:  Analytical Thinking

29) Firms that pursue a product-differentiation strategy can choose whether or not they want to reveal this strategic choice to their competition by adjusting their prices.

Answer:  FALSE

Diff: 2

Learning Obj.:  5.5: Describe Those Bases of Product Differentiation That are not Likely to be Costly to Duplicate, Those that May be Costly to Duplicate, and Those that will Often be Costly to Duplicate

AACSB:  Analytical Thinking

30) Knowing how a firm is differentiating its products means that competitors will be able to duplicate a firm’s product-differentiation strategy at a lower cost.

Answer:  FALSE

Diff: 2

Learning Obj.:  5.5: Describe Those Bases of Product Differentiation That are not Likely to be Costly to Duplicate, Those that May be Costly to Duplicate, and Those that will Often be Costly to Duplicate

AACSB:  Analytical Thinking

31) Product features as a basis for product differentiation are generally not easy to duplicate.

Answer:  FALSE

Diff: 2

Learning Obj.:  5.5: Describe Those Bases of Product Differentiation That are not Likely to be Costly to Duplicate, Those that May be Costly to Duplicate, and Those that will Often be Costly to Duplicate

AACSB:  Analytical Thinking

32) While product features, by themselves, are usually not a source of sustained competitive advantage, they can be a source of a temporary competitive advantage.

Answer:  TRUE

Diff: 1

Learning Obj.:  5.5: Describe Those Bases of Product Differentiation That are not Likely to be Costly to Duplicate, Those that May be Costly to Duplicate, and Those that will Often be Costly to Duplicate

AACSB:  Analytical Thinking

33) Product features, product customization, and product complexity have few obvious close substitutes and may be sources of sustained competitive advantages.

Answer:  FALSE

Diff: 3

Learning Obj.:  5.6: Describe the Main Substitutes for Product Differentiation Strategies

AACSB:  Analytical Thinking

34) Timing, location, distribution channels, and service and support are all very similar bases of product differentiation and can act as substitutes for each other.

Answer:  FALSE

Diff: 3

Learning Obj.:  5.6: Describe the Main Substitutes for Product Differentiation Strategies

AACSB:  Analytical Thinking

35) While the U-form structure for a firm pursuing cost leadership is relatively simple, the U-form structure for a firm implementing a product-differentiation strategy can be somewhat more complex.

Answer:  TRUE

Diff: 2

Learning Obj.:  5.7: Describe How Organizational Structure, Control Processes, and Compensation Policies can be Used to Implement Product Differentiation Strategies

AACSB:  Analytical Thinking

36) Firms pursuing a differentiation strategy often use temporary cross-divisional and cross-functional teams to manage the development and implementation of new, innovative and highly differentiated products.

Answer:  TRUE

Diff: 1

Learning Obj.:  5.7: Describe How Organizational Structure, Control Processes, and Compensation Policies can be Used to Implement Product Differentiation Strategies

AACSB:  Analytical Thinking

37) More recent work contradicts the argument about being “stuck in the middle” and suggests that firms that are successful in both cost leadership and product differentiation often can expect to gain a sustained competitive advantage.

Answer:  TRUE

Diff: 1

Learning Obj.:  5.8: Discuss Whether it is Possible for a Firm to Implement Cost Leadership and Product Differentiation Strategies Simultaneously

AACSB:  Analytical Thinking

38) McDonald’s is an excellent example of a firm that simultaneously employs both a product-differentiation and a cost-leadership strategy since their product differentiation based on cleanliness, consistency and fun in its fast food outlets allowed the company to become the market share leader in the industry and to reduce its costs.

Answer:  TRUE

Diff: 3

Learning Obj.:  5.8: Discuss Whether it is Possible for a Firm to Implement Cost Leadership and Product Differentiation Strategies Simultaneously

AACSB:  Analytical Thinking

39) Firms able to successfully differentiate their products and services are likely to see a decrease in their volume of sales.

Answer:  FALSE

Diff: 3

Learning Obj.:  5.8: Discuss Whether it is Possible for a Firm to Implement Cost Leadership and Product Differentiation Strategies Simultaneously

AACSB:  Analytical Thinking

40) Product differentiation can lead to high market share and low costs.

Answer:  TRUE

Diff: 2

Learning Obj.:  5.8: Discuss Whether it is Possible for a Firm to Implement Cost Leadership and Product Differentiation Strategies Simultaneously

AACSB:  Analytical Thinking

41) ________ is a business strategy whereby firms attempt to gain a competitive advantage by increasing the perceived value of their products or services relative to the perceived value of other firms’ products or services.

A) Product differentiation

B) Related diversification

C) Cost leadership

D) Best-cost provider

Answer:  A

Diff: 1

Learning Obj.:  5.1: Define Product Differentiation

AACSB:  Analytical Thinking

42) By increasing the perceived value of a firm’s products or services, a firm will be able to

A) charge a lower price than it would otherwise be able to do.

B) charge a higher price than it would otherwise be able to do.

C) sell its products at lower prices than firms pursuing a cost-leadership strategy.

D) gain significantly more market share than firms pursuing a cost-leadership strategy.

Answer:  B

Diff: 2

Learning Obj.:  5.1: Define Product Differentiation

AACSB:  Analytical Thinking

43) While firms often alter the ________ of their products or services in order to implement a product-differentiation strategy, the existence of product differentiation, in the end, is always a matter of ________.

A) customer perceptions; objective properties

B) objective properties; price

C) customer perceptions; price

D) objective properties; customer perception

Answer:  D

Diff: 3

Learning Obj.:  5.1: Define Product Differentiation

AACSB:  Analytical Thinking

44) If an individual is considering purchasing a Toyota Camry or a Ferrari and decides that it is worth paying the extra money for the prestige that is associated with the Ferrari, the additional money the customer is willing to pay for the prestige is known as a(n)

A) altruistic price.

B) hedonic price.

C) fair market value.

D) margin price.

Answer:  B

Diff: 3

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Application of Knowledge

45) The most obvious way that firms can try to differentiate their products is by

A) making the product more complex.

B) introducing the product at the right time.

C) customizing the product for a particular segment.

D) altering the features of the products they sell.

Answer:  D

Diff: 2

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Analytical Thinking

46) Which of the following bases of product differentiation attempts to create the perception that a firm’s products or services are unusually valuable by focusing directly on the attributes of the products or services a firm sells?

A) Product complexity

B) Product customization

C) Consumer marketing

D) Reputation

Answer:  A

Diff: 3

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Analytical Thinking

47) The ability of companies that produce complex software packages to tailor these packages to the specific needs of their customers is an example of product differentiation through

A) complexity.

B) consumer marketing.

C) product customization.

D) timing.

Answer:  C

Diff: 2

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Analytical Thinking

48) A firm’s ________ is really no more than a socially complex relationship between a firm and its customers and can serve as a basis for product differentiation.

A) location

B) reputation

C) consumer marketing

D) architectural competence

Answer:  B

Diff: 2

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Analytical Thinking

49) In the bicycle industry, the feel of high-end bicycles when they are ridden is important.  As a serious rider becomes accustomed to a particular bicycle, it is very difficult for that rider to switch to an alternative supplier.  This is an example of product differentiation through which of the following?

A) linkages between functions

B) product customization

C) location

D) product complexity

Answer:  B

Diff: 2

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Application of Knowledge

50) Through which bases of competitive advantage do firms attempt to alter the perceptions of current and potential customers, whether or not specific attributes of a firm’s products or services are altered?

A) reputation

B) location

C) product customization

D) consumer marketing

Answer:  D

Diff: 2

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Analytical Thinking

51) ________ is the ability to use organizational structure to facilitate coordination among specific disciplines to conduct research.

A) Architectural competence

B) Cross-functional linking

C) Organizational coordination

D) Managerial leverage

Answer:  A

Diff: 2

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Analytical Thinking

52) Which of the following bases of product differentiation attempts to create the perception that a firm’s products or services are unusually valuable by focusing on links within and between firms?

A) reputation

B) product complexity

C) consumer marketing

D) product mix

Answer:  D

Diff: 2

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Analytical Thinking

53) ________ can be can be a source of product differentiation when a single set of customers purchases several of a firm’s products.

A) Product placements

B) Reputation

C) Product mix

D) Architectural competence

Answer:  C

Diff: 3

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Analytical Thinking

54) Product differentiation is ultimately an expression of the ________ of individuals and groups within firms and is limited only by the ________ that exist, or that can be created, in a particular industry.

A) creativity; resources

B) resources; opportunities

C) creativity; opportunities

D) opportunities; resources

Answer:  C

Diff: 2

Learning Obj.:  5.3: Describe How Product Differentiation is Ultimately Limited Only by Managerial Creativity

AACSB:  Analytical Thinking

55) In general, firms selling differentiated products face a demand curve that is

A) upward sloping.

B) horizontal.

C) vertical.

D) downward sloping.

Answer:  D

Diff: 3

Learning Obj.:  5.4: Describe How Product Differentiation can be used to Neutralize Environmental Threats and Exploit Environmental Opportunities

AACSB:  Analytical Thinking

56) According to Chamberlin, firms selling differentiated products and facing a downward sloping demand curve are in an industry described as

A) perfect competition.

B) monopolistic competition.

C) oligopolistic competition.

D) semi-structured competition.

Answer:  B

Diff: 3

Learning Obj.:  5.4: Describe How Product Differentiation can be used to Neutralize Environmental Threats and Exploit Environmental Opportunities

AACSB:  Analytical Thinking

57) Which of the following statements regarding the impact of product differentiation on the threat of new entry is accurate?

A) Product differentiation helps reduce the threat of new entry by forcing potential new entrants to absorb costs associated with overcoming incumbent firms’ product-differentiation advantages.

B) Product differentiation increases the threat of new entry by allowing potential new entrants to avoid costs associated with overcoming incumbent firms’ product-differentiation advantages.

C) Product differentiation has no impact on the threat of new entry.

D) It is not possible to determine the impact of product differentiation on the threat of new entry.

Answer:  A

Diff: 2

Learning Obj.:  5.4: Describe How Product Differentiation can be used to Neutralize Environmental Threats and Exploit Environmental Opportunities

AACSB:  Analytical Thinking

58) When considering the impact of product differentiation on the threat of rivalry, product differentiation

A) reduces the threat of rivalry to zero.

B) increases the threat of rivalry by forcing each firm in an industry to compete directly with one another instead of allowing them to carve out their own unique product niche.

C) has no impact on the threat of rivalry.

D) reduces the threat of rivalry because each firm in an industry attempts to carve out its own unique product niche.

Answer:  D

Diff: 3

Learning Obj.:  5.4: Describe How Product Differentiation can be used to Neutralize Environmental Threats and Exploit Environmental Opportunities

AACSB:  Analytical Thinking

59) With regard to the threat of suppliers, product differentiation

A) reduces the threat of suppliers because a firm with a highly differentiated product can pass increased costs on to customers.

B) increases the threat of suppliers because a firm with a highly differentiated product is unable to pass increased costs on to customers.

C) has no impact on the threat of suppliers.

D) can either increase or reduce the threat of suppliers.

Answer:  A

Diff: 2

Learning Obj.:  5.4: Describe How Product Differentiation can be used to Neutralize Environmental Threats and Exploit Environmental Opportunities

AACSB:  Analytical Thinking

60) In emerging industries

A) firms that are first movers are unlikely to gain product-differentiation advantages based on buyer loyalty and high switching costs.

B) firms that are first movers can gain product-differentiation advantages based on perceived technological leadership.

C) product-differentiation efforts are focused on product refinement as a basis of product differentiation.

D) firms can sometimes be tempted to exaggerate the extent to which they have refined and improved their products and services.

Answer:  B

Diff: 2

Learning Obj.:  5.4: Describe How Product Differentiation can be used to Neutralize Environmental Threats and Exploit Environmental Opportunities

AACSB:  Analytical Thinking

61) In a declining industry

A) product-differentiation efforts are focused on product refinement as a basis of product differentiation.

B) firms that are first movers can gain product-differentiation advantages based on perceived technological leadership.

C) highly differentiated firms may be able to gain product-differentiation advantages by preempting strategically valuable assets.

D) highly differentiated firms may be able to discover a viable market niche that will enable them to survive despite the overall decline in the market.

Answer:  D

Diff: 3

Learning Obj.:  5.4: Describe How Product Differentiation can be used to Neutralize Environmental Threats and Exploit Environmental Opportunities

AACSB:  Analytical Thinking

62) Which of the following bases of product differentiation is almost always easy to duplicate?

A) product features

B) product mix

C) product customization

D) consumer marketing

Answer:  A

Diff: 2

Learning Obj.:  5.5: Describe Those Bases of Product Differentiation That are not Likely to be Costly to Duplicate, Those that May be Costly to Duplicate, and Those that will Often be Costly to Duplicate

AACSB:  Analytical Thinking

63) Which of the following bases of product differentiation is usually costly to duplicate?

A) product features

B) links with other firms

C) reputation

D) product mix

Answer:  C

Diff: 3

Learning Obj.:  5.5: Describe Those Bases of Product Differentiation That are not Likely to be Costly to Duplicate, Those that May be Costly to Duplicate, and Those that will Often be Costly to Duplicate

AACSB:  Analytical Thinking

64) Which of the following bases of product differentiation is by far the most popular way for firms to try to differentiate their products but is identified as almost always being easy to duplicate?

A) product mix

B) product features

C) customization

D) distribution channels

Answer:  B

Diff: 2

Learning Obj.:  5.5: Describe Those Bases of Product Differentiation That are not Likely to be Costly to Duplicate, Those that May be Costly to Duplicate, and Those that will Often be Costly to Duplicate

AACSB:  Analytical Thinking

65) Product features, by themselves, are

A) usually not a source of temporary competitive advantage, but they can be a source of a sustainable competitive advantage.

B) usually not a source of either a temporary competitive advantage, or a source of a sustainable competitive advantage.

C) usually can be a source of both a temporary competitive advantage and a source of a sustainable competitive advantage.

D) usually not a source of sustained competitive advantage, but they can be a source of a temporary competitive advantage.

Answer:  D

Diff: 3

Learning Obj.:  5.5: Describe Those Bases of Product Differentiation That are not Likely to be Costly to Duplicate, Those that May be Costly to Duplicate, and Those that will Often be Costly to Duplicate

AACSB:  Analytical Thinking

66) Under which of the following conditions is the product mix advantage as a basis of product differentiation the least difficult to duplicate?

A) when the base of a product mix advantage is a common customer

B) when the mix of products is highly integrated with each other

C) if each of the products in a product mix has unique features

D) if a firm brings a series of products to market

Answer:  A

Diff: 2

Learning Obj.:  5.5: Describe Those Bases of Product Differentiation That are not Likely to be Costly to Duplicate, Those that May be Costly to Duplicate, and Those that will Often be Costly to Duplicate

AACSB:  Analytical Thinking

67) Research on architectural competence in pharmaceutical firms suggests that

A) not only do some firms possess this competence, but that other firms do not; firms without this competence have, on average, been able develop it with minimal investment.

B) very few firms possess this competence, but firms without this competence, on average, are able to develop it.

C) not only do some firms possess this competence, but also that other firms do not and firms without this competence have, on average, been unable to develop it.

D) virtually every firm possesses this competence to some extent.

Answer:  C

Diff: 3

Learning Obj.:  5.6: Describe the Main Substitutes for Product Differentiation Strategies

AACSB:  Analytical Thinking

68) Which of the following bases of product differentiation is generally viewed as the most difficult to duplicate?

A) product features

B) reputation

C) linkages with other firms

D) location

Answer:  B

Diff: 2

Learning Obj.:  5.5: Describe Those Bases of Product Differentiation That are not Likely to be Costly to Duplicate, Those that May be Costly to Duplicate, and Those that will Often be Costly to Duplicate

AACSB:  Analytical Thinking

69) The U-form structure used to implement a product-differentiation strategy

A) rarely uses temporary cross-divisional and cross-functional teams to manage the development and implementation of new, innovative, and highly differentiated products.

B) has simple reporting relationships.

C) often uses temporary cross-divisional and cross-functional teams to manage the development and implementation of new, innovative, and highly differentiated products.

D) has a small corporate staff.

Answer:  C

Diff: 2

Learning Obj.:  5.7: Describe How Organizational Structure, Control Processes, and Compensation Policies can be Used to Implement Product Differentiation Strategies

AACSB:  Analytical Thinking

70) A ________ structure exists when individuals in a firm have two or more bosses simultaneously.

A) U-form

B) multidivisional

C) cross-divisional

D) matrix

Answer:  D

Diff: 2

Learning Obj.:  5.7: Describe How Organizational Structure, Control Processes, and Compensation Policies can be Used to Implement Product Differentiation Strategies

AACSB:  Analytical Thinking

71) The Lockheed Corporation Skunk Works is an example of a(n)

A) cross-divisional or cross-functional team.

B) M-form structure.

C) U-form structure.

D) multidivisional structure.

Answer:  A

Diff: 1

Learning Obj.:  5.7: Describe How Organizational Structure, Control Processes, and Compensation Policies can be Used to Implement Product Differentiation Strategies

AACSB:  Analytical Thinking

72) Ultimately the ________ of a product differentiation strategy depends on the ability of individual firms to be creative in finding new ways to differentiate their products.

A) sustained competitive advantage

B) rarity

C) imitation

D) innovation

Answer:  B

Diff: 2

Learning Obj.:  5.5: Describe Those Bases of Product Differentiation That are not Likely to be Costly to Duplicate, Those that May be Costly to Duplicate, and Those that will Often be Costly to Duplicate

AACSB:  Analytical Thinking

73) A ________ exists when firms are committed to engage in several related product-differentiation strategies simultaneously.

A) policy of substitution

B) policy of extrapolation

C) policy of exploration

D) policy of experimentation

Answer:  D

Diff: 2

Learning Obj.:  5.7: Describe How Organizational Structure, Control Processes, and Compensation Policies can be Used to Implement Product Differentiation Strategies

AACSB:  Analytical Thinking

74) In developing a compensation policy used to implement a product-differentiation strategy, firms will

A) hold individuals responsible for experiments that fail.

B) punish individuals for taking risks when their projects are not successful.

C) simultaneously use multiple dimensions to examine employee performance.

D) provide appropriate incentives for managers and employees to reduce costs.

Answer:  C

Diff: 2

Learning Obj.:  5.7: Describe How Organizational Structure, Control Processes, and Compensation Policies can be Used to Implement Product Differentiation Strategies

AACSB:  Analytical Thinking

75) More recent work in the area of strategic management regarding assertions about being stuck in the middle

A) supports the argument that firms that attempt to simultaneously pursue cost leadership and product differentiation will find themselves at a competitive disadvantage.

B) contradicts the argument and finds that firms that successfully pursue cost leadership and product differentiation simultaneously can often expect to gain a sustained competitive advantage.

C) partially contradicts the argument and finds that firms that successfully simultaneously pursue cost leadership and product differentiation can only expect to gain a temporary competitive advantage.

D) partially contradicts the argument and finds that only firms in certain select industries can successfully simultaneously pursue cost leadership and product differentiation and gain a temporary competitive advantage.

Answer:  B

Diff: 3

Learning Obj.:  5.8: Discuss Whether it is Possible for a Firm to Implement Cost Leadership and Product Differentiation Strategies Simultaneously

AACSB:  Analytical Thinking

76) Firms that are stuck in the middle attempt to sell

A) high-priced products and gain small market share.

B) low-priced products and gain large market share.

C) high-priced products and gain a large market share.

D) medium-priced products and gain medium market share.

Answer:  D

Diff: 3

Learning Obj.:  5.8: Discuss Whether it is Possible for a Firm to Implement Cost Leadership and Product Differentiation Strategies Simultaneously

AACSB:  Analytical Thinking

77) While cost leadership requires rewards for cost reduction, product differentiation requires rewards for ________.

A) creative flair

B) efficiency

C) quantitative goals

D) production goals

Answer:  A

Diff: 2

Learning Obj.:  5.7: Describe How Organizational Structure, Control Processes, and Compensation Policies can be Used to Implement Product Differentiation Strategies

AACSB:  Analytical Thinking

78) Recent research suggests that ________ firms must have competitive levels of cost to survive.

A) low-cost

B) all

C) domestic

D) product-differentiation

Answer:  D

Diff: 2

Learning Obj.:  5.8: Discuss Whether it is Possible for a Firm to Implement Cost Leadership and Product Differentiation Strategies Simultaneously

AACSB:  Analytical Thinking

79) Recent research shows that firms can simultaneously implement cost-leadership and product-differentiation strategies if they learn how to manage the ________ inherent in these two strategies.

A) consistencies

B) similarities

C) contradictions

D) superfluousness

Answer:  C

Diff: 3

Learning Obj.:  5.8: Discuss Whether it is Possible for a Firm to Implement Cost Leadership and Product Differentiation Strategies Simultaneously

AACSB:  Analytical Thinking

80) Cross-functional product development teams are suitable for a firm pursuing a ________ strategy.

A) cost-leadership

B) confrontation

C) product-differentiation

D) stuck-in-the-middle

Answer:  C

Diff: 3

Learning Obj.:  5.7: Describe How Organizational Structure, Control Processes, and Compensation Policies can be Used to Implement Product Differentiation Strategies

AACSB:  Analytical Thinking

According to Coach’s website, the company has built a distinctive style and prestigious image over the past 40 years to develop a reputation as “America’s preeminent designer, producer, and marketer of fine accessories and gifts for women and men including handbags, business cases, luggage and travel accessories, wallets, outerwear, eyewear, gloves, scarves and fine jewelry.” Coach employs a multi-channel distribution channel to reach its customers, including company-owned stores and boutiques in the stores of prominent specialty retailers both within the United States and abroad, and the company operates an online store. Consumers who purchase coach products are generally willing to pay the premium price due to the superior quality of Coach’s products as well as the perceived prestige of owning a Coach product. Coach stresses these features in its advertising campaigns and regularly allows movies and television shows to favorably feature Coach products in appropriate scenes. Over the last five years. Coach has partnered with automobile manufacturers such as Lexus to produce automobiles with Coach interiors. In an effort to expand its international reach, Coach intends to increase its international distribution and is expanding into Japan through Coach Japan, Inc., a joint venture with a local company that will allow Coach to control international distribution and to maintain a consistent brand strategy domestically and abroad.

81) Which generic business level strategy is Coach pursuing?

A) cost leadership

B) related diversification

C) product differentiation

D) unrelated diversification

Answer:  C

Diff: 1

Learning Obj.:  5.1: Define Product Differentiation

AACSB:  Application of Knowledge

82) The price premium that customers are willing to pay for the superior quality and perceived prestige of Coach’s products over the prices of similar products are known as

A) marginal prices.

B) hedonic prices.

C) heroic prices.

D) elastic prices.

Answer:  B

Diff: 3

Learning Obj.:  5.1: Define Product Differentiation

AACSB:  Application of Knowledge

83) Which of the following bases of product differentiation does Coach appear to be employing?

A) product features, product complexity, and consumer marketing

B) location, linkages between functions, and reputation

C) reputation, consumer marketing, and product features

D) distribution channels, service and support, and links with other firms

Answer:  C

Diff: 3

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Application of Knowledge

84) Which of the following bases of Coach’s competitive advantage is likely to be the most difficult to duplicate?

A) product features

B) consumer marketing

C) location

D) reputation

Answer:  D

Diff: 2

Learning Obj.:  5.5: Describe Those Bases of Product Differentiation That are not Likely to be Costly to Duplicate, Those that May be Costly to Duplicate, and Those that will Often be Costly to Duplicate

AACSB:  Application of Knowledge

85) Which of the following bases of Coach’s competitive advantage is likely to be the easiest to duplicate?

A) product features

B) consumer marketing

C) location

D) reputation

Answer:  A

Diff: 1

Learning Obj.:  5.5: Describe Those Bases of Product Differentiation That are not Likely to be Costly to Duplicate, Those that May be Costly to Duplicate, and Those that will Often be Costly to Duplicate

AACSB:  Application of Knowledge

86) The business level strategy Coach is pursuing is likely to

A) reduce the threat of rivalry to virtually zero.

B) increase the threat of substitutes due to premium pricing.

C) decrease the threat of new entrants due to the additional cost they would face to overcome Coach’s reputation advantages.

D) decrease the threat of buyers since Coach can lower its prices due to its efficient manufacturing operations.

Answer:  C

Diff: 3

Learning Obj.:  5.4: Describe How Product Differentiation can be used to Neutralize Environmental Threats and Exploit Environmental Opportunities

AACSB:  Application of Knowledge

87) Given that the leather handbag market that Coach largely competes in can be considered a mature market, Coach should focus its product-differentiation efforts on

A) exploiting a first-mover advantage as a basis of product differentiation.

B) introducing radically new technologies as a basis of product differentiation.

C) seeking a viable market niche that will enable it to survive.

D) refining products as a basis of product differentiation.

Answer:  D

Diff: 3

Learning Obj.:  5.4: Describe How Product Differentiation can be used to Neutralize Environmental Threats and Exploit Environmental Opportunities

AACSB:  Application of Knowledge

88) Coach’s agreement with Lexus to produce automobiles with Coach leather interior is an example of

A) cooperative strategic alliance.

B) architectural competence.

C) skunk works.

D) product placement.

Answer:  A

Diff: 2

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Application of Knowledge

89) If Coach had an organizational structure that used cross-functional teams, the members of which reported not only to their functional boss (i.e. the head of production) but also to the head of the team, Coach could be said to be using which organizational structure?

A) product divisional

B) matrix

C) U-form

D) multi-domestic

Answer:  B

Diff: 2

Learning Obj.:  5.7: Describe How Organizational Structure, Control Processes, and Compensation Policies can be Used to Implement Product Differentiation Strategies

AACSB:  Application of Knowledge

90) One feature of Coach’s compensation policies is likely to be

A) rewards for cost reduction.

B) rewards for efficiency.

C) rewards for creative flair.

D) rewards for manufacturing efficiency.

Answer:  C

Diff: 3

Learning Obj.:  5.8: Discuss Whether it is Possible for a Firm to Implement Cost Leadership and Product Differentiation Strategies Simultaneously

AACSB:  Application of Knowledge

91) Define product differentiation and discuss the role that customer perceptions play in product differentiation.

Answer:  Product differentiation is a business strategy whereby firms attempt to gain a competitive advantage by increasing the perceived value of their products or services relative to the perceived value of other firms’ products or services. These other firms can be either that firm’s rivals or firms that provide substitute products or services. By increasing the perceived value of a firm’s products or services, a firm will be able to charge a higher price than it would otherwise be able to do. This higher price can increase a firm’s revenues and can generate competitive advantages. While firms often alter the objective properties of their products or services in order to implement a product differentiation strategy, the existence of product differentiation, in the end, is always a matter of customer perception. If products or services are perceived as being different in a way that is valued by consumers, then product differentiation exists. However, just as perceptions can create product differentiation between products that are essentially identical, the lack of perceived differences between products with very different characteristics can prevent product differentiation.

Diff: 2

Learning Obj.:  5.1: Define Product Differentiation

AACSB:  Analytical Thinking

92) Identify the three broad categories of product differentiation and identify two bases of differentiation under each category.

Answer:  The first category of bases of product differentiation attempts to create perceptions of product differentiation by focusing directly on the attributes of the products or services a firm sells and includes altering the features of products, increasing product complexity, advantageous timing of product introduction, and choosing a physical location. The second category attempts to create the perception of product differentiation by developing a relationship between a firm and its customers and includes product customization, consumer marketing, and establishing a reputation. The last category attempts to create a perception of product differentiation through linkages within and between firms and includes bases such as linkages between functions, links with other firms, changing the mix of products a firm brings to the market, establishing a distribution network, and offering products with significant levels of service and support.

Diff: 2

Learning Obj.:  5.2: Describe 11 Bases of Product Differentiation and How They can be Grouped into Three Categories

AACSB:  Analytical Thinking

93) What is the relationship between product differentiation and managerial creativity?

Answer:  Product differentiation is ultimately an expression of the creativity of individuals and groups within firms and is limited only by the opportunities that exist, or that can be created, in a particular industry and by the willingness and ability of firms to creatively explore ways to take advantage of those opportunities. Thus, in general, the potential bases of product differentiation are limited only by managerial creativity.

Diff: 1

Learning Obj.:  5.3: Describe How Product Differentiation is Ultimately Limited Only by Managerial Creativity

AACSB:  Analytical Thinking

94) What is the impact of product differentiation on each of the environmental threats identified in the five forces framework?

Answer:  Successful product differentiation helps a firm respond to each of the environmental threats identified in the five forces framework.

• Product differentiation helps reduce the threat of new entry by forcing potential entrants to an industry to absorb not only the standard costs of beginning business but also the additional costs associated with overcoming incumbent firms’ product-differentiation advantages.

• Product differentiation reduces the threat of rivalry because each firm in an industry attempts to carve out its own unique product niche.

• Product differentiation also helps firms reduce the threat of substitutes by making a firm’s current products appear more attractive than substitute products.

• Product differentiation can also reduce the threat of suppliers since higher prices charged by suppliers can often be passed on to a firm’s customers due to strong customer loyalty.

• Finally, product differentiation can reduce the threat of buyers. When a firm sells a highly differentiated product, it enjoys a “quasi-monopoly” in that segment of the market. Buyers interested in purchasing this particular product must buy it from a particular firm. Any potential buyer power is reduced by the ability of a firm to withhold highly valued products for services from a buyer.

Diff: 2

Learning Obj.:  5.4: Describe How Product Differentiation can be used to Neutralize Environmental Threats and Exploit Environmental Opportunities

AACSB:  Analytical Thinking

95) Describe the role of product differentiation and how product differentiation helps firms take advantage of opportunities in fragmented industries, in emerging industries, in mature industries and in declining industries.

Answer:  Fragmented industries 

In fragmented industries, firms can use product differentiation strategies to help consolidate a market.

Emerging industries 

By being a first mover in these industries, firms can gain product-differentiation advantages based on perceived technological leadership, preemption of strategically valuable assets, and buyer loyalty due to high switching costs.

Mature industries 

In mature industries, product-differentiation efforts often switch from attempts to introduce radically new technologies to product refinement as a basis of product differentiation.

Declining industries 

In a declining industry, product-differentiating firms may be able to become leaders in this kind of industry based on their reputation, on unique product attributes, or on some other product-differentiation basis. Alternatively, highly differentiated firms may be able to discover a viable market niche that will enable them to survive despite the overall decline in the market.

Diff: 2

Learning Obj.:  5.4: Describe How Product Differentiation can be used to Neutralize Environmental Threats and Exploit Environmental Opportunities

AACSB:  Analytical Thinking

96) Identify which bases of product differentiation are likely to be almost always easy to duplicate, which can sometimes be costly to duplicate and which are usually costly to duplicate and discuss under what conditions a base of differentiation is likely to be costly to imitate and can be a source of sustained competitive advantage.

Answer:  Some bases of product differentiation such as product features are almost always easy to duplicate. Other bases of product differentiation such as product mix, links with other firms, product customization, product complexity, and consumer marketing can sometimes be costly to duplicate. Finally, still other bases of product differentiation such as links between functions, timing, location, reputation, distribution channels, and service and support are usually costly to duplicate.

How costly it is to duplicate a particular basis of product differentiation depends on the kinds of resources and capabilities that a basis of product differentiation uses. When those resources and capabilities are acquired in unique historical settings, when there is some uncertainty about how to build these resources and capabilities, or when these resources and capabilities are socially complex in nature, then product-differentiation strategies that exploit these kinds of resources and capabilities will be costly to imitate. These product-differentiation strategies can be a source of sustained competitive advantage for a firm. However, when a product-differentiation strategy exploits resources and capabilities that do not possess these attributes, then those strategies are likely to be less costly to duplicate, and even if they are valuable and rare, will only be sources of temporary competitive advantage.

Diff: 2

Learning Obj.:  5.5: Describe Those Bases of Product Differentiation That are not Likely to be Costly to Duplicate, Those that May be Costly to Duplicate, and Those that will Often be Costly to Duplicate

AACSB:  Analytical Thinking

97) Identify the two primary forms that the substitutes for bases of product differentiation can take.

Answer:  Although some bases of product differentiation, including timing, location, distribution channels, and service and support, have few obvious close substitutes, others have readily available substitutes. Substitutes for these bases of product differentiation can take two forms. First, many of the bases of product differentiation can be partial substitutes for each other. For example, product features, product customization, and product complexity are all very similar bases of product differentiation and thus can act as substitutes for each other. In a similar way, linkages between functions, linkages between firms, and product mix, as bases of product differentiation, can also be substitutes for each other. IBM links its sales, service, and consulting functions to differentiate itself in the computer market. Second, other strategies can be substitutes for many of the bases of product differentiation. For example, one firm may try to gain a competitive advantage through adjusting its product mix, and another firm may substitute strategic alliances to create the same type of product differentiation.

Diff: 2

Learning Obj.:  5.6: Describe the Main Substitutes for Product Differentiation Strategies

AACSB:  Analytical Thinking

98) Discuss the similarities and differences of the organizational structures used by firms pursuing a cost-leadership and a product-differentiation strategy and discuss the importance of broad decision-making authority within a product-differentiation strategy.

Answer:  Both cost-leadership and product-differentiation strategies are implemented through the use of a functional, or U-form, organizational structure. However, where the U-form structure used to implement a cost-leadership strategy has few layers, simple reporting relationships, a small corporate staff, and focuses on only a few business functions, the U-form structure for a firm implementing a product-differentiation strategy can be somewhat more complex. For example, firms pursuing a product-differentiation strategy often use a matrix structure that includes temporary cross-divisional and cross-functional teams to manage the development and implementation of new, innovative, and highly differentiated products. These teams bring individuals together from different businesses and different functional areas to cooperate on a particular new product or service.

One of the key management controls in a product-differentiation strategy is broad decision-making guidelines. These broad decision-making guidelines help bring order to what otherwise might be a chaotic decision-making process. When managers have no constraints in their decision-making, they can make decisions that are disconnected from each other and inconsistent with a firm’s overall mission and objectives. This results in decisions that are either not implemented or not implemented well.

However, if decision-making guidelines become too narrow, they can stifle creativity within a firm, and a firm’s ability to differentiate its products is only limited by its creativity. Thus, decision guidelines must be narrow enough to ensure that decisions that are made are consistent with a firm’s mission and objectives.

Diff: 2

Learning Obj.:  5.7: Describe How Organizational Structure, Control Processes, and Compensation Policies can be Used to Implement Product Differentiation Strategies

AACSB:  Analytical Thinking

99) Is it possible for a firm to implement a cost-leadership and product-differentiation strategy simultaneously?

Answer:  While traditional management thought held that this was not possible, recent work has argued that it is. Firms that are able to successfully differentiate their products and services are likely to see an increase in their volume of sales. This is especially the case if the basis of product differentiation is attractive to a large number of potential customers. Thus product differentiation can lead to increased volumes of sales which, in turn, can lead to economies of scale, learning, and other forms of cost reduction. Additionally, it may also be the case that some firms develop special skills in managing the contradictions that are part of simultaneously implementing low-cost and product-differentiation strategies. However, the management of these contradictions depends on socially complex relations among employees, between employees and the technology they use, and between employees and the firm for which they work.

Diff: 2

Learning Obj.:  5.8: Discuss Whether it is Possible for a Firm to Implement Cost Leadership and Product Differentiation Strategies Simultaneously

AACSB:  Analytical Thinking

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