Strategic Management of Technological Innovation 5th Edition By Schilling – Test Bank

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Chapter 05

Timing of Entry

 

True / False Questions

1. Early leaders are firms that are the first to enter a market.

True    False

 

2. Early followers enter the market only after a product begins to penetrate the mass market.

True    False

 

3. The initial cost of a good itself can be a switching cost.

True    False

 

4. In an industry characterized by increasing returns to adoption, there can be powerful advantages to being an early provider.

True    False

 

5. Late entrants typically bear the bulk of the research and development expenses for their product or service technologies.

True    False

 

6. First movers typically invest more in exploratory research than late entrants.

True    False

 

7. All pioneers face customer uncertainty.

True    False

 

8. Other things being equal, less customer uncertainty favors earlier timing of entry.

True    False

 

9. When a market is characterized by mature enabling technologies, a firm should enter the market late.

True    False

 

10. Not all innovations require complementary goods.

True    False

 

11. In industries that have increasing returns to adoption due to network externalities, allowing competitors to get a head start in building an installed base is the safest strategy.

True    False

 

12. Many start-up firms demise because new innovations tend to be adopted very slowly at first.

True    False

 

13. Other things being equal, an entrant with a strong reputation can attract adoptions earlier than entrants without strong reputations.

True    False

 

14. A firm intending to refine an earlier entrant’s technology should avoid fast-cycle development processes.

True    False

 

15. A disadvantage of using parallel development processes is that it greatly lengthens the new product development time.

True    False

 

 

Multiple Choice Questions

16. The first entrants to sell in a new product or service category are referred to as _____.

A. pioneers

 

B. early leaders

 

C. early followers

 

D. laggards

 

17. Doven Inc. pioneered software development in the 1970s and introduced its range of office tools well ahead of its competitors. According to the classification scheme of entrants, Doven would be classified as a(n) _____.

A. first mover

 

B. early follower

 

C. early leader

 

D. laggard

 

18. Magnitude Inc. was the first company to introduce a video gaming console in the market. However, consumers were uncertain about the product, and its high costs discouraged consumers from purchasing it. Eventually, Magnitude withdrew the product from the market. A few years later, Mantel Corp. and Adventura Inc. came up with their respective gaming consoles and successfully established their products. In this scenario, Mantel and Adventura would be considered:

A. pioneers.

 

B. early followers.

 

C. laggards.

 

D. late movers.

 

19. Marine Systems was the first company to develop an inventory management software specifically for hotels and restaurants. Soon after Marine Systems launched its product, Unicorn Systems developed a similar software. The software developed by Unicorn Systems outperformed the one developed by Marine Systems, and it eventually became the market leader. In this scenario, Unicorn Systems is an example of a(n) _____.

A. first pioneer

 

B. late mover

 

C. early follower

 

D. eccentric laggard

 

20. If the aspects that customers have come to expect in a technology are difficult for competitors to imitate, being the technology leader will:

A. result in an inability to preemptively capture scarce assets.

 

B. enable it to yield sustained monopoly rents.

 

C. result in lower bargaining power over suppliers.

 

D. mean negligible research and development costs.

 

21. Alpen Inc. is a manufacturing firm that holds the patent for a new food processing machine that is considerably safer and more efficient than the others available in the market. Being the only firm that manufactures this product, Alpen charges a very high price for it. This is referred to as _____.

A. monopoly rent

 

B. technology lag

 

C. incumbent inertia

 

D. absorptive capacity

 

22. Jupiter Inc., a software firm, is starting to face competition from the new entrant in its market, Coral Inc. Jupiter wants to prevent its existing customers from switching to Coral’s newly developed software. Which of the following measures should Jupiter adopt to achieve its objective?

A. Ensuring that customers find its software simpler and more convenient to use than that of Coral

 

B. Keeping the initial cost of its software higher than that of Coral’s

 

C. Keeping the prices of the complements required for its software higher than that set by Coral

 

D. Ensuring that fewer complementary products are available for its products in comparison to that for the products of Coral

 

23. Which of the following statements is true of first movers in comparison with early followers and late entrants?

A. Cost of developing necessary production processes and complementary goods is lower for first movers.

 

B. First movers are in a better position to exploit buyer switching costs and also to reap increasing returns advantages.

 

C. First movers, being incumbents, have greater ability than later entrants to respond to changes in the industry environment and adopt newer production processes.

 

D. First movers fail to capture scarce resources such as key locations, government permits, access to distribution channels, and relationships with suppliers.

 

24. The tendency of existing firms to be slow to respond to changes in the industry environment due to their large size, established routines, or prior strategic commitments to existing suppliers and customers is known as:

A. monopoly costs.

 

B. path dependency.

 

C. incumbent inertia.

 

D. technology trajectory.

 

25. Fashion Fair Corp., the first mover in the “all-year discount” stores market, lost its market share to a late entrant, Brand Fair Inc. Brand Fair operates its discount stores solely through the Internet, which saves a lot of expenses. Fashion Fair has been unable to replicate this strategy by adopting the online store business model due to its existing contracts with suppliers and heavy investment in retail stores. Fashion Fair has been experiencing:

A. incumbent inertia.

 

B. monopoly rents.

 

C. path dependency.

 

D. technology attrition.

 

26. When Fun Bun Inc., an international fast-food chain, first moved into China, it had to teach farmers how to grow a particular variety of potatoes, and bakers had to be taught how to make hamburger buns. This is an example of:

A. corporate social responsibility.

 

B. an undeveloped supply channel.

 

C. incumbent inertia.

 

D. monopoly rents.

 

27. Which of the following is an advantage of being a late entrant into a market?

A. Late entrants are the first to capture scarce resources.

 

B. Late entrants often do not have to invest in exploratory research.

 

C. Late entrants often are most likely to capitalize on monopoly rents.

 

D. Late entrants are unaffected by switching costs.

 

28. Component technologies that are necessary for the performance or desirability of a given innovation are referred to as _____.

A. architectural technologies

 

B. diffused technologies

 

C. primary technologies

 

D. enabling technologies

 

29. Pioneer Athletics Inc. wants to provide better landing mats for gymnasts. It therefore asks its foam suppliers to use a new innovative process to manufacture higher quality, durable foam for use in its mats. This new process used to develop the foam represents a(n) _____ for Pioneer Athletics.

A. network externality

 

B. preemption rent

 

C. enabling technology

 

D. incumbent rent

 

30. Which of the following statements is true of a firm entering a market too early?

A. Distribution channels required for the firm’s products will be well established prior to its entry.

 

B. Enabling technologies and complements available to the firm will be immature.

 

C. The firm’s competitors would have already captured controlling shares of the market.

 

D. The firm will not be able to reap the advantages of monopoly rent.

 

31. Which of the following statements is true of customer preferences?

A. The importance of technological features to customers stays constant over time.

 

B. Customers can differ from producers in their understanding of a new technology.

 

C. All pioneers of new-to-the-world technologies face customer uncertainty.

 

D. Other things being equal, more customer uncertainty favors earlier timing of entry.

 

32. A delayed entry into a market with a new technology is preferred if:

A. support by complementary goods providers is high.

 

B. enabling technologies are less mature.

 

C. customer uncertainty is low.

 

D. the scope for improving over previous technologies is high.

 

33. Which of the following calls for an early entry into a market?

A. Immature enabling technologies

 

B. Unavailability of complementary goods

 

C. High customer uncertainty

 

D. Low entry barriers

 

34. New innovations typically tend to:

A. be adopted very slowly at first.

 

B. eliminate incumbent inertia for late entrants.

 

C. eliminate monopoly rents when they are first introduced.

 

D. reduce the effectiveness of future enabling technologies.

 

35. _____ require multiple stages of a new product development process to occur simultaneously.

A. Incumbent development processes

 

B. Parallel development processes

 

C. Monopoly development processes

 

D. Slow-cycle development processes

 

 

Essay Questions

36. Why were other keyboards that claimed to be more efficient not able to replace the QWERTY keyboard? Explain how this illustrates the need to consider switching costs when introducing new technologies.

 

 

 

 

37. Explain why sometimes the follower and not the first mover of a new technology is more successful in the marketplace.

 

 

 

 

38. Loren has invented a product that detects water leakages caused by broken pipes and sends out an alarm similar to a smoke alarm. However, Loren has very little personal money to invest in this new product. Therefore, he borrows enough money from his friends to enter the market and begins to experience some success. The product is not patentable because it is too similar to other existing technologies. Major corporations have seen his success and have now entered the market with competing products. What will be the probable destiny of Loren’s company?

 

 

 

 

39. Since SmartShoe Inc. is the market leader in the gliding shoe market, it enjoys an excellent reputation. It is the pioneer of this new market and currently holds 40 percent market share. Now, SmartShoe wants to introduce a new range of orthopedic shoes. Discuss how its reputation might affect the new product’s acceptance among distributors and consumers.

 

 

 

 

40. What assumptions underlie the use of timing of entry strategies into the market for new products?

 

 

 

 

Chapter 05 Timing of Entry Answer Key

True / False Questions

1.
(p. 93)
Early leaders are firms that are the first to enter a market.

FALSE

 

Difficulty: 1 Easy
 

 

2.
(p. 93)
Early followers enter the market only after a product begins to penetrate the mass market.

FALSE

 

Difficulty: 1 Easy
 

 

3.
(p. 94)
The initial cost of a good itself can be a switching cost.

TRUE

 

Difficulty: 1 Easy
 

 

4.
(p. 95)
In an industry characterized by increasing returns to adoption, there can be powerful advantages to being an early provider.

TRUE

 

Difficulty: 1 Easy
 

 

5.
(p. 96)
Late entrants typically bear the bulk of the research and development expenses for their product or service technologies.

FALSE

 

Difficulty: 1 Easy
 

 

6.
(p. 96)
First movers typically invest more in exploratory research than late entrants.

TRUE

 

Difficulty: 1 Easy
 

 

7.
(p. 99)
All pioneers face customer uncertainty.

FALSE

 

Difficulty: 1 Easy
 

 

8.
(p. 99)
Other things being equal, less customer uncertainty favors earlier timing of entry.

TRUE

 

Difficulty: 1 Easy
 

 

9.
(p. 100)
When a market is characterized by mature enabling technologies, a firm should enter the market late.

FALSE

 

Difficulty: 1 Easy
 

 

10.
(p. 100)
Not all innovations require complementary goods.

TRUE

 

Difficulty: 1 Easy
 

 

11.
(p. 101)
In industries that have increasing returns to adoption due to network externalities, allowing competitors to get a head start in building an installed base is the safest strategy.

FALSE

 

Difficulty: 1 Easy
 

 

12.
(p. 102)
Many start-up firms demise because new innovations tend to be adopted very slowly at first.

TRUE

 

Difficulty: 1 Easy
 

 

13.
(p. 103)
Other things being equal, an entrant with a strong reputation can attract adoptions earlier than entrants without strong reputations.

TRUE

 

Difficulty: 1 Easy
 

 

14.
(p. 103)
A firm intending to refine an earlier entrant’s technology should avoid fast-cycle development processes.

FALSE

 

Difficulty: 1 Easy
 

 

15.
(p. 103)
A disadvantage of using parallel development processes is that it greatly lengthens the new product development time.

FALSE

 

Difficulty: 1 Easy
 

 

Multiple Choice Questions

16.
(p. 93)
The first entrants to sell in a new product or service category are referred to as _____.

A. pioneers

 

B. early leaders

 

C. early followers

 

D. laggards

 

Difficulty: 1 Easy
 

 

17.
(p. 93)
Doven Inc. pioneered software development in the 1970s and introduced its range of office tools well ahead of its competitors. According to the classification scheme of entrants, Doven would be classified as a(n) _____.

A. first mover

 

B. early follower

 

C. early leader

 

D. laggard

 

Difficulty: 2 Medium
 

 

18.
(p. 93)
Magnitude Inc. was the first company to introduce a video gaming console in the market. However, consumers were uncertain about the product, and its high costs discouraged consumers from purchasing it. Eventually, Magnitude withdrew the product from the market. A few years later, Mantel Corp. and Adventura Inc. came up with their respective gaming consoles and successfully established their products. In this scenario, Mantel and Adventura would be considered:

A. pioneers.

 

B. early followers.

 

C. laggards.

 

D. late movers.

 

Difficulty: 3 Hard
 

 

19.
(p. 93)
Marine Systems was the first company to develop an inventory management software specifically for hotels and restaurants. Soon after Marine Systems launched its product, Unicorn Systems developed a similar software. The software developed by Unicorn Systems outperformed the one developed by Marine Systems, and it eventually became the market leader. In this scenario, Unicorn Systems is an example of a(n) _____.

A. first pioneer

 

B. late mover

 

C. early follower

 

D. eccentric laggard

 

Difficulty: 3 Hard
 

 

20.
(p. 93-94)
If the aspects that customers have come to expect in a technology are difficult for competitors to imitate, being the technology leader will:

A. result in an inability to preemptively capture scarce assets.

 

B. enable it to yield sustained monopoly rents.

 

C. result in lower bargaining power over suppliers.

 

D. mean negligible research and development costs.

 

Difficulty: 2 Medium
 

 

21.
(p. 94)
Alpen Inc. is a manufacturing firm that holds the patent for a new food processing machine that is considerably safer and more efficient than the others available in the market. Being the only firm that manufactures this product, Alpen charges a very high price for it. This is referred to as _____.

A. monopoly rent

 

B. technology lag

 

C. incumbent inertia

 

D. absorptive capacity

 

Difficulty: 3 Hard
 

 

22.
(p. 94)
Jupiter Inc., a software firm, is starting to face competition from the new entrant in its market, Coral Inc. Jupiter wants to prevent its existing customers from switching to Coral’s newly developed software. Which of the following measures should Jupiter adopt to achieve its objective?

A. Ensuring that customers find its software simpler and more convenient to use than that of Coral

 

B. Keeping the initial cost of its software higher than that of Coral’s

 

C. Keeping the prices of the complements required for its software higher than that set by Coral

 

D. Ensuring that fewer complementary products are available for its products in comparison to that for the products of Coral

 

Difficulty: 3 Hard
 

 

23.
(p. 94-95)
Which of the following statements is true of first movers in comparison with early followers and late entrants?

A. Cost of developing necessary production processes and complementary goods is lower for first movers.

 

B. First movers are in a better position to exploit buyer switching costs and also to reap increasing returns advantages.

 

C. First movers, being incumbents, have greater ability than later entrants to respond to changes in the industry environment and adopt newer production processes.

 

D. First movers fail to capture scarce resources such as key locations, government permits, access to distribution channels, and relationships with suppliers.

 

Difficulty: 2 Medium
 

 

24.
(p. 96)
The tendency of existing firms to be slow to respond to changes in the industry environment due to their large size, established routines, or prior strategic commitments to existing suppliers and customers is known as:

A. monopoly costs.

 

B. path dependency.

 

C. incumbent inertia.

 

D. technology trajectory.

 

Difficulty: 1 Easy
 

 

25.
(p. 96)
Fashion Fair Corp., the first mover in the “all-year discount” stores market, lost its market share to a late entrant, Brand Fair Inc. Brand Fair operates its discount stores solely through the Internet, which saves a lot of expenses. Fashion Fair has been unable to replicate this strategy by adopting the online store business model due to its existing contracts with suppliers and heavy investment in retail stores. Fashion Fair has been experiencing:

A. incumbent inertia.

 

B. monopoly rents.

 

C. path dependency.

 

D. technology attrition.

 

Difficulty: 3 Hard
 

 

26.
(p. 96)
When Fun Bun Inc., an international fast-food chain, first moved into China, it had to teach farmers how to grow a particular variety of potatoes, and bakers had to be taught how to make hamburger buns. This is an example of:

A. corporate social responsibility.

 

B. an undeveloped supply channel.

 

C. incumbent inertia.

 

D. monopoly rents.

 

Difficulty: 3 Hard
 

 

27.
(p. 96)
Which of the following is an advantage of being a late entrant into a market?

A. Late entrants are the first to capture scarce resources.

 

B. Late entrants often do not have to invest in exploratory research.

 

C. Late entrants often are most likely to capitalize on monopoly rents.

 

D. Late entrants are unaffected by switching costs.

 

Difficulty: 2 Medium
 

 

28.
(p. 96)
Component technologies that are necessary for the performance or desirability of a given innovation are referred to as _____.

A. architectural technologies

 

B. diffused technologies

 

C. primary technologies

 

D. enabling technologies

 

Difficulty: 1 Easy
 

 

29.
(p. 96)
Pioneer Athletics Inc. wants to provide better landing mats for gymnasts. It therefore asks its foam suppliers to use a new innovative process to manufacture higher quality, durable foam for use in its mats. This new process used to develop the foam represents a(n) _____ for Pioneer Athletics.

A. network externality

 

B. preemption rent

 

C. enabling technology

 

D. incumbent rent

 

Difficulty: 3 Hard
 

 

30.
(p. 96)
Which of the following statements is true of a firm entering a market too early?

A. Distribution channels required for the firm’s products will be well established prior to its entry.

 

B. Enabling technologies and complements available to the firm will be immature.

 

C. The firm’s competitors would have already captured controlling shares of the market.

 

D. The firm will not be able to reap the advantages of monopoly rent.

 

Difficulty: 2 Medium
 

 

31.
(p. 99)
Which of the following statements is true of customer preferences?

A. The importance of technological features to customers stays constant over time.

 

B. Customers can differ from producers in their understanding of a new technology.

 

C. All pioneers of new-to-the-world technologies face customer uncertainty.

 

D. Other things being equal, more customer uncertainty favors earlier timing of entry.

 

Difficulty: 2 Medium
 

 

32.
(p. 100)
A delayed entry into a market with a new technology is preferred if:

A. support by complementary goods providers is high.

 

B. enabling technologies are less mature.

 

C. customer uncertainty is low.

 

D. the scope for improving over previous technologies is high.

 

Difficulty: 2 Medium
 

 

33.
(p. 100)
Which of the following calls for an early entry into a market?

A. Immature enabling technologies

 

B. Unavailability of complementary goods

 

C. High customer uncertainty

 

D. Low entry barriers

 

Difficulty: 1 Easy
 

 

34.
(p. 102)
New innovations typically tend to:

A. be adopted very slowly at first.

 

B. eliminate incumbent inertia for late entrants.

 

C. eliminate monopoly rents when they are first introduced.

 

D. reduce the effectiveness of future enabling technologies.

 

Difficulty: 2 Medium
 

 

35.
(p. 103)
_____ require multiple stages of a new product development process to occur simultaneously.

A. Incumbent development processes

 

B. Parallel development processes

 

C. Monopoly development processes

 

D. Slow-cycle development processes

 

Difficulty: 1 Easy
 

 

Essay Questions

36.
(p. 93-94)
Why were other keyboards that claimed to be more efficient not able to replace the QWERTY keyboard? Explain how this illustrates the need to consider switching costs when introducing new technologies.

The QWERTY keyboard was initially introduced to slow down typing and prevent key jamming on mechanical keyboards. Since so many people had already learned to use this keyboard, they were unwilling to learn how to type on other keyboards even though key jamming was no longer an issue. This illustrates that if buyers face high switching costs, the firm that captures customers early may be able to keep those customers even if technologies with a superior value proposition are introduced later.

 

Difficulty: 2 Medium
 

 

37.
(p. 98)
Explain why sometimes the follower and not the first mover of a new technology is more successful in the marketplace.

Although first movers have the opportunity to shape the market and have the first shot at becoming the dominant design, often they are not sure of consumer preferences. As consumer preferences become known, they may have to modify their product designs. Sometimes they must also engage in consumer education about using the new technology, which can be an expensive proposition. Followers can capitalize on learning about consumer preferences from the marketplace. They can introduce products that meet consumer preferences without having to make costly adjustments. They do not have to worry as much about consumer education. This helps them in becoming more successful in the marketplace.

 

Difficulty: 2 Medium
 

 

38.
(p. 102)
Loren has invented a product that detects water leakages caused by broken pipes and sends out an alarm similar to a smoke alarm. However, Loren has very little personal money to invest in this new product. Therefore, he borrows enough money from his friends to enter the market and begins to experience some success. The product is not patentable because it is too similar to other existing technologies. Major corporations have seen his success and have now entered the market with competing products. What will be the probable destiny of Loren’s company?

Since Mr. Loren does not have significant resources and the income will probably be slow, he may not last very long in this new industry. His lack of funds means that he will have very little to invest in product enhancements, while his competitors would be able to improve the product. For example, one company might attach a dialing system to the alarm that notifies a neighbor, a plumber, or the police department in case the owner is not at home. The larger companies can outspend Mr. Loren in advertising as well.

 

Difficulty: 3 Hard
 

 

39.
(p. 102-103)
Since SmartShoe Inc. is the market leader in the gliding shoe market, it enjoys an excellent reputation. It is the pioneer of this new market and currently holds 40 percent market share. Now, SmartShoe wants to introduce a new range of orthopedic shoes. Discuss how its reputation might affect the new product’s acceptance among distributors and consumers.

SmartShoe’s excellent reputation will give the new product high credibility and will increase the likelihood of its acceptance into the market. The fact that it has such a strong track record will increase the likelihood that it will be able to line up distributors to carry its new range of orthopedic shoes. Consumers are also more likely to trust this entry due to satisfaction with past products of the company. All of this will mean earlier adoption of the product than any other company could expect.

 

Difficulty: 3 Hard
 

 

40.
(p. 103)
What assumptions underlie the use of timing of entry strategies into the market for new products?

It is assumed that timing of entry is a matter of choice for the firm. However, implicit in this assumption is a corollary assumption that the firm is capable of producing the technology at any point in the time horizon under consideration. For this to be true, the firm must possess the core capabilities required to produce the technology to consumer expectations, or be able to develop them quickly. Also, to be able to take advantage of timing strategies for entry, the firm must have a fast-cycle development process in place and the financial resources to develop, produce, and market the product.

 

Difficulty: 2 Medium
 

 

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