Name: Strategic Management Creating Competitive Advantages Global Edition Gregory Dess 7th Edition - Test Bank
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Sample Questions Posted Below

Chapter 05

Business-Level Strategy: Creating and Sustaining Competitive

Advantages

True / False Questions

1. 2. 3. 4. 5. 6. The three generic strategies presented by Michael Porter can be shown on two

dimensions: competitive advantage and product life cycle.

True False

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

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

highest possible level of profitability.

True False

A firm striving for cost leadership will typically spend relatively more on product

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

True False

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

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

production increases.

True False

5-1

McGraw-Hill Education.7. 8. 9. A firm can attain an overall cost leadership position by increasing the management

layers in order to reduce overhead costs.

True False

A firm can attain an overall cost leadership position by using automated technology to

reduce scrappage rates.

True False

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 French automobile maker, Renault, attains competitive advantage by revamping

cars to be more cost efficient.

True False

11.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

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

cost leadership strategy.

True False

13.A cost leadership strategy can be at risk of obsolescence of the basis of the cost

advantage.

True False

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

True False

15.The example of Lexus automobiles in the text points out that a firm can strengthen its

differentiation strategy by achieving integration at multiple points along the value

chain.

True False

5-2

McGraw-Hill Education.16.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

17.A successful differentiation strategy increases rivalry since buyers become more

price-sensitive.

True False

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

cost.

True False

19.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

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

True False

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

satisfy buyer needs.

True False

22.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

23.A potential pitfall of a focus strategy is that over time the cost advantages in a narrow

market niche can erode, leaving the company with little profit.

True False

24.Mass customization enables manufacturers to be more responsive to customer

demands for high quality products.

True False

25.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

5-3

McGraw-Hill Education.26.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

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

declining.

True False

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

the industry.

True False

29.Most analysts agree that use of the Internet will lower transaction costs.

True False

30.One way the Internet and digital technologies are creating opportunities for firms with

differentiation strategies is by enabling mass customization.

True False

31.The Internet offers few advantages for focusers because niche players and small

companies cannot implement capabilities as effectively as their larger competitors.

True False

32.The Internet has provided a small subset of companies with greater tools for

managing costs.

True False

33.Incumbent firms that thought a niche market was too small to enter in the past may

use Internet technologies to enter that segment with focusers.

True False

34.The market life cycle should be used as a short-run forecasting device because it

provides a conceptual framework for understanding what changes typically occur.

True False

5-4

McGraw-Hill Education.35.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

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

brand loyalty.

True False

37.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

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

competition.

True False

39.As markets mature the magnitude of differentiation and cost leadership advantages

among competitors decrease.

True False

40.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

41.Businesses that compete in markets that are in decline should simply be harvested or

divested since they are no longer profitable.

True False

42.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

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

True False

5-5

McGraw-Hill Education.44.Many firms facing a turnaround situation try to reduce their costs by outsourcing the

production of many inputs.

True False

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

cycle.

True False

46.The software maker, Intuit, successfully implemented a turnaround strategy by

discontinuing product lines and focusing all resources on a few core profitable areas.

True False

Multiple Choice Questions

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

A. maximizing risk-return tradeoffs through

diversification

B. achieving a low cost

position

C. maximizing differentiation of products and/or

services

D. achieving competitive

advantage

48.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. differentiati

B. differentiation

focus

C. overall cost

leadership

D. stuck-in-the-

middle

5-6

McGraw-Hill Education.49.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

50.One aspect of using a cost leadership strategy is that experience effects may lead to

lower costs. Experience effects are achieved by ____________.

A. repeating a process until a task becomes

easier

B. hiring more experienced

personnel

C. spreading out a given expense or investment over a

greater volume

D. competing in an industry for a

long time

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

industries.

A. cost

B. outp

C. pric

D. volum

5-7

McGraw-Hill Education.52.Research has consistently shown that firms that achieve both cost leadership 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. higher than firms that achieve either a cost or a differentiation

advantage

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

achieve cost advantages

53.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. differentiati

B. overall cost

leadership

C. differentiation

focus

D. cost leadership

focus

54.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.

5-8

McGraw-Hill Education.55.A firm can achieve differentiation through all of the following means EXCEPT ________.

A. improving brand

image

B. better customer

service

C. adding additional product

features

D. offering lower prices to frequent

customers

56.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. overall cost

leadership

B. differentiati

C. differentiation

focus

D. stuck-in-the

middle

57.High product differentiation is generally accompanied by __________.

A. higher market

B. higher profit margins and lower

costs

C. decreased emphasis on competition based

on price

D. significant economies of

scale

5-9

McGraw-Hill Education.58.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. By increasing firm margins, it avoids the need for a low cost

position.

B. It reduces buyer power because 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.

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

______.

A. having brand-loyal customers become more sensitive

to prices

B. lessening competitive rivalry by

distinguishing itself

C. increasing economies of

scale

D. serving a broader market

segment

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

A. Uniqueness that is not

valuable.

B. All rivals share a common input or raw

material.

C. The price premium is too

high.

D. Perceptions of differentiation may vary between buyers

and sellers.

5-10

McGraw-Hill Education.61.Which statement regarding competitive advantages is true?

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

on differentiation.

B. If several competitors pursue similar differentiation tactics, they may all be

perceived as equals in the mind of the consumer.

C. In the long run, a business with one or more competitive advantages is probably

destined to earn normal profits.

D. Attaining multiple types of competitive advantage is a recipe

for failure.

62.A narrow market focus is to a differentiation-based strategy as a __________________.

A. growth market is to a differentiation-based

strategy

B. broadly-defined target market is to a cost leadership

strategy

C. growth market is to a cost-based

strategy

D. technological innovation is to a cost-based

strategy

63.A firm following a focus strategy must focus on _____________.

A. governmental

regulations

B. the rising cost of

inputs

C. a market segment or group of

segments

D. avoiding entering international

markets

5-11

McGraw-Hill Education.64.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. All rivals share a common input or raw

material.

D. Focusers can become too focused to satisfy buyer

needs.

65.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. exploiting the profit pool concept for competitive

advantage

C. deriving benefits from highly focused and high technology

markets

D. coordinating the extended value chain by way of information

technology

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

industry value chain.

A. profit

maximizer

B. profit

pool

C. revenue

enhancer

D. profit

outsourcing

5-12

McGraw-Hill Education.67.Which of the following is not a potential pitfall of an integrated overall low cost and

differentiation strategy?

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

in-the-middle.

B. Firms that underestimate the challenges and expenses associated with

coordinating value-creating activities in the extended value chain.

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

increase.

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

company industry.

68.Which of the following is not a reason for the possible erosion of company competitive

advantage?

A. rapid change in

technology

B. globalizati

C. actions by rivals from within and outside of the

industry

D. company commitment to

innovation

69.Atlas Door created competitive advantage by reducing the time to receive and

process and 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. It exerted power over its

customers.

B. It created high entry barriers for new

entrants.

C. The integration of many value-chain activities in the firm provided causal ambiguity

and path dependency.

D. The product was easily

imitable.

5-13

McGraw-Hill Education.70.Which of the following is NOT one of the ways the Internet is lowering transaction

costs?

A. eliminating supply chain

intermediaries

B. minimizing office

expenses

C. evaluating employee

performance

D. reducing business

travel

71.Dell Computer has an online ordering system that allows consumers to configure their

own computers before Dell builds them. This capability is an example of

_____________.

A. electronic data

interchange

B. mass

customization

C. knowledge

management

D. collaborative

design

72.Which of the following methods of implementing a differentiation strategy has been

greatly enhanced because of Internet technologies?

A. celebrity

endorsements

B. prestige

packaging

C. mass

customization

D. exceptional

service

5-14

McGraw-Hill Education.73.Due to the Internet, firms that use a focus strategy have new opportunities to

_________.

A. respond quickly to customer

requests

B. provide more services and

features

C. access niche markets in a highly specialized

fashion

D. access markets less

expensively

74.One of the main reasons the Internet is eroding sustainable competitive advantages is

that _______.

A. incumbent firms are entering market segments that they previously considered to

be too small

B. nearly all competitors will have greater access to tools for

managing costs

C. differentiators have been able to preserve their unique

advantages

D. firms are ignoring opportunities to offer high-end services in

niche markets

75.Which of these statements regarding the industry life cycle is correct?

A. Part of the 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 simultaneously.

D. It has important implications for company generic strategies, functional areas,

value-creating activities, and overall objectives.

5-15

McGraw-Hill Education.76.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 or services offered by pioneers may be perceived as differentiated

because they are new.

77.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. growt

B. maturi

C. introducti

D. declin

78.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

5-16

McGraw-Hill Education.79.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. introducti

B. growt

C. maturi

D. declin

80.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. introducti

B. growt

C. maturi

D. declin

81.A market that mainly competes on the basis of price and has stagnant growth is

characteristic of what life cycle stage?

A. introducti

B. growt

C. maturi

D. declin

5-17

McGraw-Hill Education.82.As markets mature, ___________.

A. costs continue to

increase

B. application for patents

increase

C. there is increasing emphasis on

efficiency

D. differentiation opportunities

increase

83.The size of pricing and differentiation advantages between competitors decreases in

which stage of the market life cycle?

A. introducti

B. growt

C. maturi

D. declin

84.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. Advantages that cannot be duplicated by other competitors are difficult

to achieve.

C. The market supports premium pricing, which attracts additional

competitors.

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

the growth stage.

5-18

McGraw-Hill Education.85.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. introducti

B. growt

C. declin

D. maturi

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

A. high

growth

B. strong competitive

advantage

C. decline in the market life

cycle

D. mergers and

acquisitions

87.During the decline stage of the industry life cycle, __________ refers to obtaining as

much profit as possible and requires that costs be decreased quickly.

A. maintaini

B. exitin

C. harvesti

D. consolidati

5-19

McGraw-Hill Education.88.Research shows that which of the following is not a strategy used by firms engaged in

successful turnarounds?

A. asset and cost

surgery

B. global

expansion

C. selective product and market

pruning

D. piecemeal productivity

improvements

89.Piecemeal productivity improvements during a turnaround typically do NOT involve

_______.

A. business process

reengineering

B. increased capacity

utilization

C. expansion of company product market

scope

D. benchmarki

90.Which of the following is not a reason for the successful turnaround that Ford

experienced in 2011 under CEO Mulally?

A. downsizing through the sale of non-Ford

brands

B. focus on a narrower range of

cars

C. tightening of the product design across

brands

D. increasing its manpower across the

company

Essay Questions

5-20

McGraw-Hill Education.91.Use the value chain as a framework to explain how a firm can achieve a competitive

advantage of overall cost leadership.

92.Explain how a cost leadership strategy permits a firm to address the five forces in its

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

93.Discuss how a competitive advantage can be attained through differentiation using

the value chain concept.

5-21

McGraw-Hill Education.94.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.

95.Discuss the risks associated with each of these forms of competitive advantage:

overall cost leadership, differentiation, and focus.

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

differentiation strategies?

5-22

McGraw-Hill Education.97.Discuss the uses and limitations associated with the industry life cycle concept as a

framework for studying strategy formulation at the business level.

98.Explain what factors determine the sustainability of company competitive advantage

and provide an example of this in action.

99.The Internet and digital technologies offer opportunities and pitfalls to companies

using overall cost leadership, differentiation, and focus strategies. Discuss the

statement and provide examples that support your argument.

5-23

McGraw-Hill Education.100

Explain how firms can use reverse positioning and breakaway positioning when faced

with the maturity phase of the industry life cycle.

101

Explain the advantages of the four alternative strategies of maintaining, harvesting,

exiting, and consolidating that are associated with the decline stage of the market life

cycle.

102

Discuss some of the effective turnaround strategies.

5-24

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

Competitive Advantages Answer Key

True / False Questions

1. The three generic strategies presented by Michael Porter can be shown on two

dimensions: competitive advantage and product life cycle.

FALSE

Michael Porter presented three generic strategies that a firm can use to achieve

competitive advantage. They can be illustrated on two dimensions: competitive

advantage and strategic target.

AACSB: Analytic

Blooms: Remember

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

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: Analytic

Blooms: Remember

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

5-25

McGraw-Hill Education.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.

AACSB: Analytic

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

4. A firm striving for cost leadership will typically spend relatively more on product

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

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.

AACSB: Analytic

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

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.

AACSB: Analytic

Blooms: Understand

5-26

McGraw-Hill Education.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: Analytic

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

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.

AACSB: Analytic

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

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.

AACSB: Analytic

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.

5-27

McGraw-Hill Education.9. Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

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.

AACSB: Analytic

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

10. 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.

AACSB: Analytic

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

5-28

McGraw-Hill Education.11. 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.

12. AACSB: Analytic

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.

13. AACSB: Analytic

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 can be at risk of obsolescence of the basis of the cost

advantage.

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.

AACSB: Analytic

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

5-29

McGraw-Hill Education.14. 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. As a result,

they have great difficulty responding to changes in the environment.

15. AACSB: Analytic

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

The example of Lexus automobiles in the text points out that a firm can strengthen

its differentiation strategy by achieving integration at multiple points along the

value chain.

TRUE

Lexus provides an example of how a firm can strengthen its differentiation strategy

by achieving integration at multiple points along the value chain. By the early

1990s it soared to the top of J. D. Power customer satisfaction ratings. It found that

quality perceptions (design, engineering, and manufacturing) can be strongly

influenced by downstream activities in the value chain (marketing and sales,

service).

16. AACSB: Analytic

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 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.

AACSB: Analytic

Blooms: Understand

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

5-30

McGraw-Hill Education.17. 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.

18. AACSB: Analytic

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.

AACSB: Analytic

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

5-31

McGraw-Hill Education.19. 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.

20. AACSB: Analytic

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

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.

21. AACSB: Analytic

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.

AACSB: Analytic

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

5-32

McGraw-Hill Education.22. 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).

23. AACSB: Analytic

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

A potential pitfall of a focus strategy is that over time the cost advantages in a

narrow market niche can erode, leaving the company with little profit.

TRUE

The advantages of a cost focus strategy may be fleeting if the cost advantages are

eroded over time. For example, the Dell pioneering direct-selling model in the

personal computer industry has been eroded by rivals such as Hewlett-Packard as

they gain experience with the Dell distribution method.

AACSB: Analytic

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

24.

Mass customization enables manufacturers to be more responsive to customer

(p. 176)

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.

AACSB: Analytic

Blooms: Understand

5-33

McGraw-Hill Education.25. 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.

26. AACSB: Analytic

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

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.

AACSB: Analytic

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

5-34

McGraw-Hill Education.27. 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.

28. AACSB: Analytic

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.

29. AACSB: Analytic

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

Most analysts agree that use of the Internet will lower transaction costs.

TRUE

Managing costs, and even changing the cost structures of certain industries, is a

key feature of the digital economy. Most analysts agree that the ability of the

Internet to lower transaction costs has transformed business. Broadly speaking,

transaction costs refer to all the various expenses associated with conducting

business.

Learning Objective: 05-06 How Internet-enabled business models are being used to improve strategic

AACSB: Analytic

Blooms: Understand

positioning.

5-35

McGraw-Hill Education.30. Level of Difficulty: 2 Medium

Topic: How the Internet and Digital Technologies Affect the Competitive Strategies

One way the Internet and digital technologies are creating opportunities for firms

with differentiation strategies is by enabling mass customization.

TRUE

For many companies, Internet and digital technologies have enhanced their ability

to build brand, offer quality products and services, and achieve other differentiation

advantages. Among the most striking trends are new ways to interact with

consumers. In particular, the Internet has created new ways of differentiating by

enabling mass customization, which improves the response to customer wishes.

31. AACSB: Analytic

Blooms: Understand

Learning Objective: 05-06 How Internet-enabled business models are being used to improve strategic

positioning.

Level of Difficulty: 2 Medium

Topic: How the Internet and Digital Technologies Affect the Competitive Strategies

The Internet offers few advantages for focusers because niche players and small

companies cannot implement capabilities as effectively as their larger

competitors.

FALSE

With focus strategies, the Internet offers new avenues in which to compete

because they can access markets less expensively (low cost) and provide more

services and features (differentiation). Some claim that the Internet has opened up

a new world of opportunities for niche players who seek to access small markets in

a highly specialized fashion.

AACSB: Analytic

Blooms: Understand

Learning Objective: 05-06 How Internet-enabled business models are being used to improve strategic

positioning.

Level of Difficulty: 2 Medium

Topic: How the Internet and Digital Technologies Affect the Competitive Strategies

5-36

McGraw-Hill Education.32. The Internet has provided a small subset of companies with greater tools for

managing costs.

FALSE

The Internet has provided all companies with greater tools for managing costs. So

it may be that cost management and control will become more important

management tools.

33. AACSB: Analytic

Blooms: Understand

Learning Objective: 05-06 How Internet-enabled business models are being used to improve strategic

positioning.

Level of Difficulty: 2 Medium

Topic: How the Internet and Digital Technologies Affect the Competitive Strategies

Incumbent firms that thought a niche market was too small to enter in the past

may use Internet technologies to enter that segment with focusers.

TRUE

An incumbent firm that previously thought a niche market was not worth the effort

may use Internet technologies to enter that segment for a lower cost than in the

past. The larger firm can then bring its market power and resources to bear in a

way that a smaller competitor cannot match.

34. AACSB: Analytic

Blooms: Understand

Learning Objective: 05-06 How Internet-enabled business models are being used to improve strategic

positioning.

Level of Difficulty: 2 Medium

Topic: How the Internet and Digital Technologies Affect the Competitive Strategies

The market life cycle should be used as a short-run forecasting device because it

provides a conceptual framework for understanding what changes typically occur.

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: Analytic

Blooms: Understand

Learning Objective: 05-07 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

5-37

McGraw-Hill Education.35. Topic: Industry Life Cycle Stages: Strategic Implications

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.

36. AACSB: Analytic

Blooms: Understand

Learning Objective: 05-07 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

During the growth stage of the market life cycle, customers are very likely to

establish brand loyalty.

FALSE

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.

37. AACSB: Analytic

Blooms: Understand

Learning Objective: 05-07 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

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: Analytic

Blooms: Understand

Learning Objective: 05-07 The importance of considering the industry life cycle to determine a firm’s business-

5-38

McGraw-Hill Education.38. 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

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.

39. AACSB: Analytic

Blooms: Understand

Learning Objective: 05-07 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

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: Analytic

Blooms: Understand

Learning Objective: 05-07 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

5-39

McGraw-Hill Education.40. 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.

41. AACSB: Analytic

Blooms: Remember

Learning Objective: 05-07 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

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.

42. AACSB: Analytic

Blooms: Understand

Learning Objective: 05-07 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

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: Analytic

Blooms: Remember

5-40

McGraw-Hill Education.43. Learning Objective: 05-07 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

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.

44. AACSB: Analytic

Blooms: Understand

Learning Objective: 05-07 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

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.

45. AACSB: Analytic

Blooms: Understand

Learning Objective: 05-08 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.

AACSB: Analytic

Blooms: Understand

Learning Objective: 05-08 The need for turnaround strategies that enable a firm to reposition its competitive

position in an industry.

Level of Difficulty: 2 Medium

5-41

McGraw-Hill Education.46. Topic: Industry Life Cycle Stages: Strategic Implications

The software maker, Intuit, successfully implemented a turnaround strategy by

discontinuing product lines and focusing all resources on a few core profitable

areas.

TRUE

Software maker Intuit is a case of a quick but well-implemented turnaround

strategy. After stagnating and stumbling during the dot-com boom, the company

discontinued its offers in online finance, insurance, and bill-paying operations that

were losing money and focused on software for small businesses that employ less

than 250 people. The company also instituted a performance-based reward system

that greatly improved employee productivity.

AACSB: Analytic

Blooms: Understand

Learning Objective: 05-08 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

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

__________________.

A. maximizing risk-return tradeoffs through

diversification

B. achieving a low cost

position

C. maximizing differentiation of products and/or

services

D. achieving competitive

advantage

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.

AACSB: Analytic

Blooms: Remember

5-42

McGraw-Hill Education.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

48. 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. differentiati

B. differentiation

focus

C. overall cost

leadership

D. stuck-in-the-

middle

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).

AACSB: Analytic

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

5-43

McGraw-Hill Education.49. 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.

AACSB: Analytic

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

50. One aspect of using a cost leadership strategy is that experience effects may lead

to lower costs. Experience effects are achieved by ____________.

A. repeating a process until a task becomes

easier

B. hiring more experienced

personnel

C. spreading out a given expense or investment over a

greater volume

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.

AACSB: Analytic

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

5-44

McGraw-Hill Education.51. With experience, unit costs of production decline as _________ increases in most

industries.

A. cost

B. outp

C. pric

D. volum

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.

AACSB: Analytic

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

52. Research has consistently shown that firms that achieve both cost leadership 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. higher than firms that achieve either a cost or a differentiation

advantage

D. 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.

AACSB: Analytic

5-45

McGraw-Hill Education.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

53. 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. differentiati

B. overall 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.

AACSB: Analytic

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

5-46

McGraw-Hill Education.54. 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.

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.

55. AACSB: Analytic

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 firm can achieve differentiation through all of the following means EXCEPT

________.

A. improving brand

image

B. better customer

service

C. adding additional product

features

D. offering lower prices to frequent

customers

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.

AACSB: Analytic

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

5-47

McGraw-Hill Education.56. 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. overall cost

leadership

B. differentiati

C. differentiation

focus

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).

57. AACSB: Analytic

Blooms: Remember

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

High product differentiation is generally accompanied by __________.

A. higher market

B. higher profit margins and lower

costs

C. decreased emphasis on competition based

on price

D. significant economies of

scale

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.

AACSB: Analytic

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

5-48

McGraw-Hill Education.58. 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. By increasing firm margins, it avoids the need for a low cost

position.

B. It reduces buyer power because 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.

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.

59. AACSB: Analytic

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. lessening competitive rivalry by

distinguishing itself

C. increasing economies of

scale

D. serving a broader market

segment

Differentiation provides protection against rivalry since brand loyalty lowers

customer sensitivity to price and raises customer switching costs.

AACSB: Analytic

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

5-49

McGraw-Hill Education.60. Which of the following is not a potential pitfall of a differentiation strategy?

A. Uniqueness that is not

valuable.

B. All rivals share a common input or raw

material.

C. The price premium is too

high.

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.

61. AACSB: Analytic

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

Which statement regarding competitive advantages is true?

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

parity on differentiation.

B. If several competitors pursue similar differentiation tactics, they may all be

perceived as equals in the mind of the consumer.

C. In the long run, a business with one or more competitive advantages is probably

destined to earn normal profits.

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.

AACSB: Analytic

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

5-50

McGraw-Hill Education.62. A narrow market focus is to a differentiation-based strategy as a

__________________.

A. growth market is to a differentiation-based

strategy

B. broadly-defined target market is to a cost leadership

strategy

C. growth market is to a cost-based

strategy

D. technological innovation is to a cost-based

strategy

A narrow market focus is to a differentiation-based strategy as a broadly-defined

target market is to a cost leadership strategy.

63. AACSB: Analytic

Blooms: Apply

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

Level of Difficulty: 3 Hard

Topic: Types of Competitive Advantage and Sustainability

A firm following a focus strategy must focus on _____________.

A. governmental

regulations

B. the rising cost of

inputs

C. a market segment or group of

segments

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.

AACSB: Analytic

Blooms: Remember

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

5-51

McGraw-Hill Education.64. 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. All rivals share a common input or raw

material.

D. Focusers can become too focused to satisfy buyer

needs.

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.

65. AACSB: Analytic

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

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. exploiting the profit pool concept for competitive

advantage

C. deriving benefits from highly focused and high technology

markets

D. 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.

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

AACSB: Analytic

Blooms: Understand

and differentiation.

Level of Difficulty: 2 Medium

5-52

McGraw-Hill Education.66. Topic: Types of Competitive Advantage and Sustainability

A __________ can be defined as the total profits in an industry at all points along the

industry value chain.

A. profit

maximizer

B. profit

pool

C. revenue

enhancer

D. profit

outsourcing

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

industry value chain.

67. AACSB: Analytic

Blooms: Remember

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

and differentiation.

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 fail to attain both strategies may end up with neither and become

stuck-in-the-middle.

B. Firms that underestimate the challenges and expenses associated with

coordinating value-creating activities in the extended value chain.

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

increase.

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.

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

AACSB: Analytic

Blooms: Understand

and differentiation.

5-53

McGraw-Hill Education.68. Level of Difficulty: 2 Medium

Topic: Types of Competitive Advantage and Sustainability

Which of the following is not a reason for the possible erosion of company

competitive advantage?

A. rapid change in

technology

B. globalizati

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.

AACSB: Analytic

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

5-54

McGraw-Hill Education.69. Atlas Door created competitive advantage by reducing the time to receive and

process and 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. It exerted power over its

customers.

B. It created high entry barriers for new

entrants.

C. The integration of many value-chain activities in the firm provided causal

ambiguity and path dependency.

D. The product was easily

imitable.

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.

AACSB: Analytic

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

5-55

McGraw-Hill Education.70. Which of the following is NOT one of the ways the Internet is lowering transaction

costs?

A. eliminating supply chain

intermediaries

B. minimizing office

expenses

C. evaluating employee

performance

D. reducing business

travel

Hiring new employees, meeting with customers, ordering supplies, and addressing

government regulations; all have some costs associated with them that can be

lowered with the use of the Internet. Removing intermediaries also lowers

transaction costs, and Internet search reduces the need for travel.

71. AACSB: Analytic

Blooms: Understand

Learning Objective: 05-06 How Internet-enabled business models are being used to improve strategic

positioning.

Level of Difficulty: 2 Medium

Topic: How the Internet and Digital Technologies Affect the Competitive Strategies

Dell Computer has an online ordering system that allows consumers to configure

their own computers before Dell builds them. This capability is an example of

_____________.

A. electronic data

interchange

B. mass

customization

C. knowledge

management

D. collaborative

design

Among the most striking differentiation trends are new ways to interact with

consumers. In particular, the Internet has created new ways of differentiating by

enabling mass customization, which improves the response to customer wishes.

Learning Objective: 05-06 How Internet-enabled business models are being used to improve strategic

AACSB: Analytic

Blooms: Understand

positioning.

5-56

McGraw-Hill Education.72. Level of Difficulty: 2 Medium

Topic: How the Internet and Digital Technologies Affect the Competitive Strategies

Which of the following methods of implementing a differentiation strategy has been

greatly enhanced because of Internet technologies?

A. celebrity

endorsements

B. prestige

packaging

C. mass

customization

D. exceptional

service

Among the most striking differentiation trends are new ways to interact with

consumers. In particular, the Internet has created new ways of differentiating by

enabling mass customization, which improves the response to customer wishes.

73. AACSB: Analytic

Blooms: Understand

Learning Objective: 05-06 How Internet-enabled business models are being used to improve strategic

positioning.

Level of Difficulty: 2 Medium

Topic: How the Internet and Digital Technologies Affect the Competitive Strategies

Due to the Internet, firms that use a focus strategy have new opportunities to

_________.

A. respond quickly to customer

requests

B. provide more services and

features

C. access niche markets in a highly specialized

fashion

D. access markets less

expensively

With focus strategies, the Internet offers new avenues in which to compete

because they can access markets less expensively (low cost) and provide more

services and features (differentiation). Some claim that the Internet has opened up

a new world of opportunities for niche players who seek to access small markets in

a highly specialized fashion.

AACSB: Analytic

5-57

McGraw-Hill Education.74. Blooms: Understand

Learning Objective: 05-06 How Internet-enabled business models are being used to improve strategic

positioning.

Level of Difficulty: 2 Medium

Topic: How the Internet and Digital Technologies Affect the Competitive Strategies

One of the main reasons the Internet is eroding sustainable competitive

advantages is that _______.

A. incumbent firms are entering market segments that they previously considered

to be too small

B. nearly all competitors will have greater access to tools for

managing costs

C. differentiators have been able to preserve their unique

advantages

D. firms are ignoring opportunities to offer high-end services in

niche markets

Many experts agree that the net effect of the digital economy is fewer rather than

more opportunities for sustainable advantages. This means strategic thinking

becomes more important. More specifically, the Internet has provided all

companies with greater tools for managing costs.

75. AACSB: Analytic

Blooms: Understand

Learning Objective: 05-06 How Internet-enabled business models are being used to improve strategic

positioning.

Level of Difficulty: 2 Medium

Topic: How the Internet and Digital Technologies Affect the Competitive Strategies

Which of these statements regarding the industry life cycle is correct?

A. Part of the 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 simultaneously.

D. 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.

AACSB: Analytic

5-58

McGraw-Hill Education.76. Blooms: Understand

Learning Objective: 05-07 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

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 or services 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.

AACSB: Analytic

Blooms: Understand

Learning Objective: 05-07 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

5-59

McGraw-Hill Education.77. 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. growt

B. maturi

C. introducti

D. declin

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.

78. AACSB: Analytic

Blooms: Remember

Learning Objective: 05-07 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

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.

AACSB: Analytic

Blooms: Remember

Learning Objective: 05-07 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

5-60

McGraw-Hill Education.79. 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. introducti

B. growt

C. maturi

D. declin

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.

80. AACSB: Analytic

Blooms: Remember

Learning Objective: 05-07 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

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. introducti

B. growt

C. maturi

D. declin

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.

AACSB: Analytic

5-61

McGraw-Hill Education.81. Blooms: Understand

Learning Objective: 05-07 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

A market that mainly competes on the basis of price and has stagnant growth is

characteristic of what life cycle stage?

A. introducti

B. growt

C. maturi

D. declin

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.

AACSB: Analytic

Blooms: Remember

Learning Objective: 05-07 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

82. As markets mature, ___________.

A. costs continue to

increase

B. application for patents

increase

C. there is increasing emphasis on

efficiency

D. differentiation opportunities

increase

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.

AACSB: Analytic

5-62

McGraw-Hill Education.83. Blooms: Understand

Learning Objective: 05-07 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

The size of pricing and differentiation advantages between competitors decreases

in which stage of the market life cycle?

A. introducti

B. growt

C. maturi

D. declin

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.

AACSB: Analytic

Blooms: Understand

Learning Objective: 05-07 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

5-63

McGraw-Hill Education.84. 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. Advantages that cannot be duplicated by other competitors are difficult

to achieve.

C. The market supports premium pricing, which attracts additional

competitors.

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.

85. AACSB: Analytic

Blooms: Understand

Learning Objective: 05-07 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

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. introducti

B. growt

C. declin

D. maturi

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.

AACSB: Analytic

Blooms: Remember

Learning Objective: 05-07 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.

5-64

McGraw-Hill Education.86. Level of Difficulty: 1 Easy

Topic: Industry Life Cycle Stages: Strategic Implications

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

A. high

growth

B. strong competitive

advantage

C. decline in the market life

cycle

D. mergers and

acquisitions

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

exiting, or consolidating.

87. AACSB: Analytic

Blooms: Understand

Learning Objective: 05-07 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

During the decline stage of the industry life cycle, __________ refers to obtaining as

much profit as possible and requires that costs be decreased quickly.

A. maintaini

B. exitin

C. harvesti

D. consolidati

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

reduced quickly.

AACSB: Analytic

Blooms: Remember

Learning Objective: 05-07 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

5-65

McGraw-Hill Education.88. Research shows that which of the following is not a strategy used by firms engaged

in successful turnarounds?

A. asset and cost

surgery

B. global

expansion

C. selective product and market

pruning

D. piecemeal productivity

improvements

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.

89. AACSB: Analytic

Blooms: Remember

Learning Objective: 05-08 The need for turnaround strategies that enable a firm to reposition its competitive

position in an industry.

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. expansion of company product market

scope

D. benchmarki

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.

AACSB: Analytic

Blooms: Understand

Learning Objective: 05-08 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

5-66

McGraw-Hill Education.90. Which of the following is not a reason for the successful turnaround that Ford

experienced in 2011 under CEO Mulally?

A. downsizing through the sale of non-Ford

brands

B. focus on a narrower range of

cars

C. tightening of the product design across

brands

D. increasing its manpower across the

company

First, a plan was executed to undertake a dramatic refinancing of the business by

raising bank loans secured against company assets. Second, the firm concentrated

resources on the Ford brand and sold off the Premier Automotive Group (PAG)

businesses. Third, Ford narrowed the range of cars down to 36 from 97 different

models. Fourth, emphasis was placed on quality and being the best in class. Fifth,

more shared platforms for building cars economically were installed. Sixth, Ford cut

half of its shop-floor workforce and a third of its office jobs. By 2011, 17 factories

had been closed and employment was reduced to 75,000 from 128,000.

AACSB: Analytic

Blooms: Understand

Learning Objective: 05-08 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

Essay Questions

91. Use the value chain as a framework to explain how a firm can achieve a

competitive advantage of overall cost leadership.

Answers will vary.

AACSB: Analytic

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

5-67

McGraw-Hill Education.92. Topic: Types of Competitive Advantage and Sustainability

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

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

Answers will vary.

93. AACSB: Analytic

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

Discuss how a competitive advantage can be attained through differentiation using

the value chain concept.

Answers will vary.

94. AACSB: Analytic

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

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.

Answers will vary.

AACSB: Analytic

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

5-68

McGraw-Hill Education.95. Discuss the risks associated with each of these forms of competitive advantage:

overall cost leadership, differentiation, and focus.

Answers will vary.

96. AACSB: Analytic

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

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

and differentiation strategies?

Answers will vary.

97. AACSB: Analytic

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

Discuss the uses and limitations associated with the industry life cycle concept as a

framework for studying strategy formulation at the business level.

Answers will vary.

AACSB: Analytic

Blooms: Understand

Learning Objective: 05-07 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

5-69

McGraw-Hill Education.98. Explain what factors determine the sustainability of company competitive

advantage and provide an example of this in action.

Answers will vary.

99. AACSB: Analytic

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 Internet and digital technologies offer opportunities and pitfalls to companies

using overall cost leadership, differentiation, and focus strategies. Discuss the

statement and provide examples that support your argument.

Answers will vary.

100. AACSB: Analytic

Blooms: Understand

Learning Objective: 05-06 How Internet-enabled business models are being used to improve strategic

positioning.

Level of Difficulty: 2 Medium

Topic: How the Internet and Digital Technologies Affect the Competitive Strategies

Explain how firms can use reverse positioning and breakaway positioning when

faced with the maturity phase of the industry life cycle.

Answers will vary.

AACSB: Analytic

Blooms: Remember

Learning Objective: 05-07 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

5-70

McGraw-Hill Education.101. Explain the advantages of the four alternative strategies of maintaining,

harvesting, exiting, and consolidating that are associated with the decline stage of

the market life cycle.

Answers will vary.

AACSB: Analytic

Blooms: Understand

Learning Objective: 05-07 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

102. Discuss some of the effective turnaround strategies.

Answers will vary.

AACSB: Analytic

Blooms: Understand

Learning Objective: 05-08 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

5-71

McGraw-Hill Education.

Strategic Management Creating Competitive Advantages Global Edition Gregory Dess 7th Edition – Test Bank

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Evidence Based Practice 4th edition in Nursing And Healthcare – Test Bank

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