Strategic Management Creating Competitive Advantages 5Th Canadian Edition By Gregory – Test Bank

Complete Test Bank With Answers

 

 

Sample Questions Posted Below

 

Chapter 05 – Business-Level Strategy: Creating and Sustaining Competitive Advanta

Chapter 05

Business-Level Strategy: Creating and Sustaining Competitive Advanta

Multiple Choice Questions

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

A. maximizing risk-return trade-offs through diversification.

B. achieving a low-cost position.

C. maximizing differentiation of products and/or services.

D. achieving competitive advantage(s).

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management.

Topic: 05-01 Types of Competitive Advantage and Sustainability

2. Generic strategies include all, except

A. differentiation.

B. resources exploitation.

C. cost leadership.

D. focus.

Difficulty: Easy

Accessibility: Keyboard Navigation

Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management.

Topic: 05-01 Types of Competitive Advantage and Sustainability

5-1Chapter 05 – Business-Level Strategy: Creating and Sustaining Competitive Advanta

3. 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. overall cost leadership

B. differentiation

C. differentiation focus

D. cost leadership focus

Difficulty: Hard

Accessibility: Keyboard Navigation

Learning Objective: 05-02 The three generic strategy choices: market focus; cost leadership; and differentiation.

Topic: 05-02 Overall Cost Leadership

4. Which of the following is a disadvantage of a cost leadership strategy?

A. The strategy is too easily imitated.

B. It 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 suppliers’ cost.

Difficulty: Easy

Accessibility: Keyboard Navigation

Learning Objective: 05-04 The pitfalls managers must avoid in striving to attain generic strategies.

Topic: 05-02 Overall Cost Leadership

5. A manufacturing business pursuing cost leadership will likely

A. focus on a narrow market segment.

B. rely on experience effects to raise efficiency.

C. use advertising to build brand image.

D. overemphasize product engineering.

Difficulty: Hard

Accessibility: Keyboard Navigation

Learning Objective: 05-02 The three generic strategy choices: market focus; cost leadership; and differentiation.

Topic: 05-02 Overall Cost Leadership

5-2Chapter 05 – Business-Level Strategy: Creating and Sustaining Competitive Advanta

6. 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 what generic strategy?

A. Differentiation

B. Overall cost leadership

C. Differentiation focus

D. Stuck-in-the-middle

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-02 The three generic strategy choices: market focus; cost leadership; and differentiation.

Topic: 05-02 Overall Cost Leadership

7. Which of the following are good examples of firms that follows the strategy of

differentiation based on prestige or brand image?

A. North Face and Loblaws

B. 3M and Cirque du Soleil

C. Lexus and President’s Choice

D. BMW, Roots, and Holt Renfrew

Difficulty: Easy

Accessibility: Keyboard Navigation

Learning Objective: 05-02 The three generic strategy choices: market focus; cost leadership; and differentiation.

Topic: 05-03 Differentiation

8. The experience curve suggests that cutting prices is a good strategy

A. if it can induce greater demand and thereby help a firm travel down the experience curve

faster.

B. in industries characterized by high economies of scale.

C. in the maturity stage of the industry life cycle.

D. in the decline stage of the industry life cycle.

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-02 The three generic strategy choices: market focus; cost leadership; and differentiation.

Topic: 05-02 Overall Cost Leadership

5-3Chapter 05 – Business-Level Strategy: Creating and Sustaining Competitive Advanta

9. A firm can achieve differentiation through the following means, except

A. improving brand image.

B. better customer service.

C. offering lower prices to frequent customers.

D. adding additional product features.

Difficulty: Easy

Accessibility: Keyboard Navigation

Learning Objective: 05-02 The three generic strategy choices: market focus; cost leadership; and differentiation.

Topic: 05-03 Differentiation

10. High product differentiation is generally accompanied by

A. higher market share.

B. decreased emphasis on competition based on price.

C. higher profit margins and lower costs.

D. significant economies of scale.

Difficulty: Hard

Accessibility: Keyboard Navigation

Learning Objective: 05-03 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.

Topic: 05-03 Differentiation

11. Support value chain activities that involve excellent applications, engineering support

(technology development), and facilities that promote a positive firm image (firm

infrastructure) characterize what generic strategy?

A. Differentiation

B. Overall cost leadership

C. Differentiation focus

D. Stuck-in-the middle

Difficulty: Easy

Accessibility: Keyboard Navigation

Learning Objective: 05-03 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.

Topic: 05-03 Differentiation

5-4Chapter 05 – Business-Level Strategy: Creating and Sustaining Competitive Advanta

12. Which of the following is false regarding how a differentiation strategy can help a firm to

improve its competitive position vis-à-vis Porter’s five forces?

A. By increasing a firm’s margins, it avoids the need for a low-cost position

B. It helps a firm to deal with supplier power and reduces buyer power since buyers lack

comparable alternatives

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

inputs

D. Firms will enjoy high customer loyalty, thus experiencing less threat from substitutes than

its competitors

Difficulty: Hard

Accessibility: Keyboard Navigation

Learning Objective: 05-03 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.

Topic: 05-03 Differentiation

13. Developing uniqueness that is not valuable is:

A. an essential feature of a differentiation strategy.

B. the result of having brand-loyal customers become more sensitive to prices.

C. a potential pitfall of a differentiation strategy.

D. a necessary evil of a cost-leadership strategy.

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-04 The pitfalls managers must avoid in striving to attain generic strategies.

Topic: 05-03 Differentiation

14. Staple’s strategy in Canada is to deliberately limit its product selection to:

A. focusing on quality.

B. focusing on quantity.

C. shedding customers.

D. building the brand.

Difficulty: Hard

Accessibility: Keyboard Navigation

Learning Objective: 05-02 The three generic strategy choices: market focus; cost leadership; and differentiation.

Topic: 05-04 Focus

5-5Chapter 05 – Business-Level Strategy: Creating and Sustaining Competitive Advanta

15. The Keg Steakhouse & Bar has a simple operating formula. The Keg

A. purposefully limited its menu and has stayed away from food fashions and fads.

B. expanded its menu and embraced food fashions and fads.

C. cut expenses from suppliers.

D. purposefully limited its menu and has stayed away from food fashions and fads and cut

expenses from suppliers.

Difficulty: Hard

Accessibility: Keyboard Navigation

Learning Objective: 05-02 The three generic strategy choices: market focus; cost leadership; and differentiation.

Topic: 05-04 Focus

16. A firm following a focus strategy

A. must focus on governmental regulations.

B. must focus on a market segment or group of segments.

C. must focus on the rising cost of inputs.

D. must avoid entering international markets.

Difficulty: Easy

Accessibility: Keyboard Navigation

Learning Objective: 05-02 The three generic strategy choices: market focus; cost leadership; and differentiation.

Topic: 05-04 Focus

17. The following are potential pitfalls of a focus strategy, except

A. erosion of cost advantages within the narrow segment.

B. all rivals share a common input or raw material.

C. even product and service offerings that are highly focused are subject to competition from

new entrants and from imitation.

D. focusers can become too focused to satisfy buyer needs.

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-04 The pitfalls managers must avoid in striving to attain generic strategies.

Topic: 05-04 Focus

5-6Chapter 05 – Business-Level Strategy: Creating and Sustaining Competitive Advanta

18. Research has consistently shown firms that achieve both cost and differentiation

advantages tend to perform

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

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

C. lower than firms that achieve differentiation advantages but higher than firms that achieve

cost advantages.

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

Difficulty: Hard

Accessibility: Keyboard Navigation

Learning Objective: 05-05 How firms can effectively combine elements of generic strategies.

Topic: 05-05 Combination Strategies: Integrating Overall Low Cost and Differentiation

19. The text discusses three approaches to combining overall cost leadership and

differentiation competitive advantages. These are the following, except

A. automated and flexible manufacturing systems.

B. exploiting the profit pool concept for competitive advantage.

C. coordinating the ‘extended’ value chain by way of information technology.

D. deriving benefits from highly focused and high technology markets.

Difficulty: Hard

Accessibility: Keyboard Navigation

Learning Objective: 05-05 How firms can effectively combine elements of generic strategies.

Topic: 05-05 Combination Strategies: Integrating Overall Low Cost and Differentiation

20. A ____________ can be defined as the total profits in an industry at all points along the

industry’s value chain.

A. profit maximizer

B. revenue enhancer

C. profit pool

D. profit outsourcer

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-05 How firms can effectively combine elements of generic strategies.

Topic: 05-05 Combination Strategies: Integrating Overall Low Cost and Differentiation

5-7Chapter 05 – Business-Level Strategy: Creating and Sustaining Competitive Advanta

21. The following are potential pitfalls of an integrated overall low cost and differentiation

strategy, except:

A. firms that fail to attain both strategies may end up with neither and become ‘stuck-in-the-

middle.’

B. targeting too large a market that causes unit costs to increase.

C. underestimating the challenges and expenses associated with coordinating value-creating

activities in the extended value chain.

D. miscalculating sources of revenue and profit pools in the firm’s industry.

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-05 How firms can effectively combine elements of generic strategies.

Topic: 05-05 Combination Strategies: Integrating Overall Low Cost and Differentiation

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

A. Perceptions of differentiation may vary between buyers and sellers

B. Too high a premium price

C. It is easily imitated

D. Highly valued uniqueness

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-04 The pitfalls managers must avoid in striving to attain generic strategies.

Topic: 05-03 Differentiation

23. Evaluating strategic choices should involve four tests:

A. consistency, consonance, competitive advantages, and differentiation

B. competitive advantages, differentiation, feasibility, and consistency

C. competitive advantages, consistency, feasibility, and consonance

D. consistency, consonance, cost leadership, and feasibility

Difficulty: Easy

Accessibility: Keyboard Navigation

Learning Objective: 05-06 How strategies can be evaluated before they are implemented.

Topic: 05-07 Evaluating Business Strategy

5-8Chapter 05 – Business-Level Strategy: Creating and Sustaining Competitive Advanta

24. Differentiation improves a firm’s competitive position by:

A. increasing the buyer’s power

B. creating high entry barriers

C. providing buyer’s with comparable alternatives

D. creating the need for a low-cost position

Difficulty: Easy

Accessibility: Keyboard Navigation

Learning Objective: 05-03 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.

Topic: 05-03 Differentiation

True / False Questions

25. Both the positioning school and the resource-based school of strategic management take

an ‘inside-out’ perspective.

FALSE

Difficulty: Hard

Accessibility: Keyboard Navigation

Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management.

Topic: 05-01 Types of Competitive Advantage and Sustainability

26. Michael Porter’s three generic strategies can be depicted on two dimensions: competitive

advantage and product life cycle.

FALSE

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management.

Topic: 05-01 Types of Competitive Advantage and Sustainability

5-9Chapter 05 – Business-Level Strategy: Creating and Sustaining Competitive Advanta

27. Concentrating solely on one form of competitive advantage generally leads to the highest

possible level of profitability.

FALSE

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management.

Topic: 05-01 Types of Competitive Advantage and Sustainability

5-10Chapter 05 – Business-Level Strategy: Creating and Sustaining Competitive Advanta

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

R&D than on process-related R&D.

FALSE

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-02 The three generic strategy choices: market focus; cost leadership; and differentiation.

Topic: 05-02 Overall Cost Leadership

29. The focus strategy refers to focusing on the ‘non-price’ attributes of a company’s products.

FALSE

Difficulty: Easy

Accessibility: Keyboard Navigation

Learning Objective: 05-02 The three generic strategy choices: market focus; cost leadership; and differentiation.

Topic: 05-04 Focus

30. To generate above average returns, a firm following an overall cost leadership position

should not be concerned with attaining parity or proximity based on differentiation relative to

its peers.

FALSE

Difficulty: Hard

Accessibility: Keyboard Navigation

Learning Objective: 05-02 The three generic strategy choices: market focus; cost leadership; and differentiation.

Topic: 05-02 Overall Cost Leadership

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

production increases regardless of where an industry is at in its life cycle.

FALSE

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-02 The three generic strategy choices: market focus; cost leadership; and differentiation.

Topic: 05-02 Overall Cost Leadership

5-11Chapter 05 – Business-Level Strategy: Creating and Sustaining Competitive Advanta

32. Firms that compete on overall cost are vulnerable if all rivals share a common input or

raw material that contributes a significant amount to total costs.

TRUE

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-04 The pitfalls managers must avoid in striving to attain generic strategies.

Topic: 05-02 Overall Cost Leadership

33. One of the advantages of high differentiation is that even if many competitors follow the

same strategy, differentiation still exists for all.

FALSE

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-02 The three generic strategy choices: market focus; cost leadership; and differentiation.

Topic: 05-03 Differentiation

34. BMW integrates several different dimensions along the value chain at the same time.

TRUE

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-02 The three generic strategy choices: market focus; cost leadership; and differentiation.

Topic: 05-03 Differentiation

35. A successful differentiation strategy lowers entry barriers because of customer loyalty and

the firm’s ability to provide uniqueness in its products and services.

FALSE

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-03 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.

Topic: 05-03 Differentiation

5-12Chapter 05 – Business-Level Strategy: Creating and Sustaining Competitive Advanta

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

sensitive.

FALSE

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-03 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.

Topic: 05-03 Differentiation

37. If a firm has a successful differentiation strategy, it is not necessary to attain parity on

cost.

FALSE

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-04 The pitfalls managers must avoid in striving to attain generic strategies.

Topic: 05-03 Differentiation

38. One pitfall of a differentiation strategy is that a brand’s identification in the marketplace

may become diluted through excessive product line extensions.

TRUE

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-04 The pitfalls managers must avoid in striving to attain generic strategies.

Topic: 05-03 Differentiation

39. Creating a niche by differentiating one’s product or service often allows small firms to

compete successfully with market leaders.

TRUE

Difficulty: Easy

Accessibility: Keyboard Navigation

Learning Objective: 05-04 The pitfalls managers must avoid in striving to attain generic strategies.

Topic: 05-04 Focus

5-13Chapter 05 – Business-Level Strategy: Creating and Sustaining Competitive Advanta

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

FALSE

Difficulty: Easy

Accessibility: Keyboard Navigation

Learning Objective: 05-02 The three generic strategy choices: market focus; cost leadership; and differentiation.

Topic: 05-04 Focus

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

needs.

TRUE

Difficulty: Easy

Accessibility: Keyboard Navigation

Learning Objective: 05-04 The pitfalls managers must avoid in striving to attain generic strategies.

Topic: 05-04 Focus

42. A disadvantage of firms that successfully integrate overall cost leadership and

differentiation strategies is that they are relatively easy for competitors to imitate.

FALSE

Difficulty: Hard

Accessibility: Keyboard Navigation

Learning Objective: 05-05 How firms can effectively combine elements of generic strategies.

Topic: 05-05 Combination Strategies: Integrating Overall Low Cost and Differentiation

43. Mass customization enables manufacturers to be more responsive to customer demands

for high quality products.

TRUE

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-05 How firms can effectively combine elements of generic strategies.

Topic: 05-05 Combination Strategies: Integrating Overall Low Cost and Differentiation

5-14Chapter 05 – Business-Level Strategy: Creating and Sustaining Competitive Advanta

44. 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

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-05 How firms can effectively combine elements of generic strategies.

Topic: 05-05 Combination Strategies: Integrating Overall Low Cost and Differentiation

45. An important 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

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-05 How firms can effectively combine elements of generic strategies.

Topic: 05-05 Combination Strategies: Integrating Overall Low Cost and Differentiation

46. Firms that successfully integrate both differentiation and cost advantages create an

enviable position relative to industry forces.

TRUE

Difficulty: Easy

Accessibility: Keyboard Navigation

Learning Objective: 05-05 How firms can effectively combine elements of generic strategies.

Topic: 05-05 Combination Strategies: Integrating Overall Low Cost and Differentiation

47. Differentiation provides protection against rivalry since brand loyalty lowers customer

sensitivity to price and raises customer switching cost.

TRUE

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-03 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.

Topic: 05-03 Differentiation

5-15Chapter 05 – Business-Level Strategy: Creating and Sustaining Competitive Advanta

48. Differentiation provides lower margins that enable a firm to deal with supplier power.

FALSE

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-03 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.

Topic: 05-03 Differentiation

Short Answer Questions

49. Use the value chain as a framework to explain how the competitive advantage of

differentiation can create products and/or services that are highly valued by customers.

The firm infrastructure would include superior information systems designed to integrate

value creating activities and improve quality. The human resource management systems

would be designed to attract talented engineers and scientists. Technology development would

feature superior material handling and sorting technology and procurement would include the

purchase of high-quality components from prestigious outlets.

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-02 The three generic strategy choices: market focus; cost leadership; and differentiation.

Topic: 05-03 Differentiation

50. Explain how a differentiation strategy enables a business to address the five competitive

forces in such a way that it can enjoy high levels of profitability.

Differentiation provides protection against rivalry since brand loyalty lowers customer

sensitivity to price and raises customer switching costs. By increasing a firm’s margins,

differentiation also avoids the need for a low-cost position.

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-03 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.

Topic: 05-03 Differentiation

5-16Chapter 05 – Business-Level Strategy: Creating and Sustaining Competitive Advanta

51. Discuss how a competitive advantage can be attained through cost leadership using the

value chain concept.

The emphasis is core functions and would include: effective layout of receiving dock

operations, effective use of quality control in production processes, effective utilization of

delivery fleets, maximizing sales force productivity, standardized service vehicles.

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-02 The three generic strategy choices: market focus; cost leadership; and differentiation.

Topic: 05-02 Overall Cost Leadership

52. Explain how a cost leadership strategy permits a firm to address the five forces in their

competitive environment so it can enjoy higher-than-normal profits.

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 are eroding profits through intense rivalry. 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. Also, a low-cost position

provides more flexibility to cope with demands from powerful suppliers for input cost

increases. The factors that lead to a low-cost position also provide substantial entry barriers

from economies of scale and cost advantages. Finally, a low-cost position puts the firm in a

favourable position with respect to substitute products introduced by new and existing

competitors.

Difficulty: Hard

Accessibility: Keyboard Navigation

Learning Objective: 05-03 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.

Topic: 05-02 Overall Cost Leadership

5-17Chapter 05 – Business-Level Strategy: Creating and Sustaining Competitive Advanta

53. Discuss the risks associated with each of these forms of competitive advantage-cost

leadership, differentiation, and focus.

Cost leadership: must pay attention to all aspects of value chain and manage overall costs;

firm is vulnerable to raw material cost increases; the strategy is easily imitated; need to

maintain parity on differentiation but lower prices.

Differentiation: risk that differentiation is not deemed as valuable; too much differentiation

could make product or service less attractive; price premium can be higher than customers

willing to pay; differentiation can be imitated; brand can be diluted through product line

extensions; perceptions of differentiation may vary.

Focus: cost advantage may erode over time; competition may come from new entrants and

imitation; there can be too much focus to satisfy buyer needs.

Difficulty: Hard

Accessibility: Keyboard Navigation

Learning Objective: 05-04 The pitfalls managers must avoid in striving to attain generic strategies.

Topic: 05-02 Overall Cost Leadership

Topic: 05-03 Differentiation

Topic: 05-04 Focus

54. Describe the two most dominant schools of strategic management.

The two most dominant schools are arguably the positioning school and the resource-based

school.

The positioning school views business strategy and the corresponding role of managers as

identifying and striving to occupy the most attractive competitive positions in the

marketplace. It is an outside-in perspective that emphasizes the importance of external

analysis and alignment of the firm’s activities to pursue a desirable position against external

forces.

The resource-based school starts with the resources within the firm and the uniqueness of

those resources, and it views the choices for exploitation of those resources as the firm’s

strategy. It is, by contrast, an inside-out perspective. Both perspectives provide invaluable

insights for managers and reveal different, but largely complementary, facets of business

strategies.

Difficulty: Hard

Accessibility: Keyboard Navigation

Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management.

Topic: 05-01 Types of Competitive Advantage and Sustainability

5-18Chapter 05 – Business-Level Strategy: Creating and Sustaining Competitive Advanta

55. What are the benefits and risks associated with combining overall cost leadership and

differentiation strategies?

Firms that successfully integrate both differentiation and cost advantages create an enviable

position relative to industry forces. For example, Walmart’s integration of information

systems, logistics, and transportation helps it drive down costs and provide outstanding

product selection. This dominant competitive position, along with its excellent reputation,

serves to erect high entry barriers to potential competitors that have neither the financial nor

the physical resources to compete head to head. Walmart’s size, with its $485 billion sales in

2016, provides the chain with enormous bargaining power over suppliers. Its low pricing and

wide selection of merchandise reduce the power of buyers (its customers) because there are

relatively few competitors that can provide a comparable cost-value proposition. This reduces

the possibility of intense head-to-head rivalry and protracted price wars. Finally, Walmart’s

overall value proposition makes potential substitute products (e.g., Internet competitors) a less

viable threat.

Difficulty: Medium

Accessibility: Keyboard Navigation

Learning Objective: 05-05 How firms can effectively combine elements of generic strategies.

Topic: 05-05 Combination Strategies: Integrating Overall Low Cost and Differentiation

5-19