Name: Strategic Management Text and Cases 9th Edition By Gregory Dess - Test Bank
SKU: 24915
Availability: InStock

Complete Test Bank With Answers

Sample Questions Posted Below

Strategic Management: Text and Cases, 9e (Dess)

Chapter 5 Business-Level Strategy: Creating and Sustaining Competitive Advantages

1) Overall cost leadership is a generic strategy unlike others that does not require a tight set of

interrelated tactics.

Answer: FALSE

Explanation: 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.

Avoidance of marginal customer accounts.

Cost minimization in all activities in the value chain of the firm, such as R/D, service, sales

force, and advertising.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

2) An example of a firm applying the overall cost leadership generic strategy in a value-chain

activity would be to automate the production assembly line to reduce scrappage from quality

errors.

Answer: TRUE

Explanation: Overall cost leadership requires a tight set of interrelated tactics that includes cost

minimization in all activities in the value chain of the firm such as R&D, service, sales force, and

advertising. An example of this is the effective use of automated technology to reduce scrappage

rates.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.3) The experience curve is a factor central to an overall cost leadership strategy and refers to how

business learns to increase costs as it gains experience with production processes.

Answer: FALSE

Explanation: The experience curve is the decline in unit costs of production as cumulative

output increases.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

4) The five-forces model suggests that with intense competition an overall low-cost position will

not enable a firm to achieve above-average returns.

Answer: FALSE

Explanation: An overall low-cost position enables a firm to achieve above-average returns

despite intense 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.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

5) Factors that lead to a low-cost position also provide substantial entry barriers to substitute and

new products as is demonstrated by the retailer, Aldi, whose focus on minimizing costs across

the entire operation permits it to position well against competitors such as Walmart.

Answer: TRUE

Explanation: The factors that lead to a low-cost position also provide a substantial entry barriers

position with respect to substitute products introduced by new and existing competitors. The

extreme focus on minimizing costs across its operations makes Aldi less vulnerable to

substitutes, such as discount retailers like Walmart and dollar stores.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.6) If the overall cost leadership strategy is to provide sustainable competitive advantage, all

activities in the value-chain need to be evaluated including the relationships among the value-

chain activities.

Answer: TRUE

Explanation: Too often managers make big cuts in operating expenses but do not question year-

to-year spending on capital projects. Or managers may decide to cut selling and marketing

expenses but ignore manufacturing expenses. Managers should explore all value-chain activities,

including relationships among them, as candidates for cost reductions.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

strategies.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

7) A firm can differentiate itself in a support activity by purchasing high-quality components to

enhance product image such as Apple does with its laptop computers.

Answer: TRUE

Explanation: As the name implies, a differentiation strategy consists of creating differences in

the product or services of the firm by offering by creating something that is perceived

industrywide as unique and valued by customers. An example is the use by Apple of quality in

procurement to enhance the product image.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

strategies.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.8) Caterpillar uses data analytics to differentiate itself from competitors by providing information

services.

Answer: TRUE

Explanation: More recently, Caterpillar has looked to big data to help it grow its business. In a

study of one malfunctioning machine owned by a large mining company, Cat concluded that the

new technology of the firm would have reduced repair costs from the 650,000 USD the mining

company incurred to 12,000 USD by identifying an emerging problem before it did serious

damage. Thus, Cat sees this technology as allowing it to better serve both its customers and

dealers, resulting in new sources of income for Cat as customers see value in buying ongoing

data-access and software subscriptions.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

strategies.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

9) Combination strategies, such as integrating overall low cost and differentiation, makes it

easier for rivals to duplicate or imitate because it is harder for the primary firm to provide value.

Answer: FALSE

Explanation: 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 of the firm in value-

creating activities). The goal is thus to provide unique value to customers in an efficient manner.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

cost leadership and differentiation.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.10) Airlines such as Emirates exploit the profit pool for competitive advantage by adding fees for

a variety of services such as access to airport lounges.

Answer: TRUE

Explanation: By separating the value of the actual flight from the services associated with

flying, airlines have greatly expanded the profit pool associated with flying. They have found

that flyers may be very price-conscious when purchasing tickets but are willing to shell out more

for a range of services.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

cost leadership and differentiation.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

11) A pitfall of integrated overall cost leadership and differentiation is underestimating the

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

Answer: TRUE

Explanation: Integrating activities across a value chain of a firm with the value chain of

suppliers and customers involves a significant investment in financial and human resources.

Firms must consider the expenses linked to technology investment, managerial time and

commitment, and the involvement and investment required by the customers and suppliers of the

firm. The firm must be confident that it can generate a sufficient scale of operations and revenues

to justify all associated expenses.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

cost leadership and differentiation.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.12) Once established, competitive advantages last forever whether the firm is in a high

technology environment or not.

Answer: FALSE

Explanation: Competitive advantages are, however, often short-lived. Nothing is forever when it

comes to competitive advantages. Rapid changes in technology, globalization, and actions by

rivals from within and outside the industry can quickly erode firm advantages. It is becoming

increasingly important to recognize that the duration of competitive advantages is declining,

especially in technology-intensive industries. Even in industries that are normally viewed as low

tech, the increasing use of technology has suddenly made competitive advantages less

sustainable.

Difficulty: 2 Medium

Topic: Sustaining a Competitive Advantage

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

advantage.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

13) A platform business is like a matchmaker in that it can bring together buyers and sellers. An

example of a successful platform provider is Facebook. By attracting and retaining users through

expanding services it differentiates itself from more narrowly-focused competitors such as

Twitter.

Answer: TRUE

Explanation: Successful platform firms create a business that attracts a large range of suppliers

and a wide population of customers, becoming the go-to clearinghouse that both suppliers and

customers turn to, in order to facilitate a transaction. In doing so, they typically successfully

combine elements of both cost and differentiation advantages. Facebook has looked to

continually extend its differentiation by expanding the range of services it offers, and as a result,

has been able to put the squeeze on narrow platform providers, such as Twitter.

Difficulty: 2 Medium

Topic: Sustaining a Competitive Advantage

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

advantage.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.14) A platform business such as Airbnb leverages data analytics to differentiate its offer from

that of competitors such as VRBO.

Answer: TRUE

Explanation: Platform businesses can learn a great deal about their suppliers and customers by

observing their search and usage patterns. Successful platform firms leverage this data to figure

out how to best fill their matchmaking role in bringing together suppliers and users. Airbnb has

worked to create systems that increase the likelihood that hosts will agree to offers from potential

renters. The firm realizes that renters get frustrated if their rental offers are declined.

Additionally, hosts will be dissatisfied if offers come from undesirable renters. Using data

analytics, Airbnb analyzed when specific hosts accepted and declined offers and their

satisfaction ratings of renters to develop profiles of preferred renter characteristics. Using the

resulting algorithm for matching renter characteristics and host preferences, the company saw a 4

percent increase in its rate of converting offers into accepted rental matches

Difficulty: 2 Medium

Topic: Sustaining a Competitive Advantage

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

advantage.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

15) The market life cycle should be used for short-run forecasting because it provides a

conceptual framework for understanding what changes typically occur over the life of an

industry.

Answer: FALSE

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-06 The importance of considering the industry life cycle to determine a

firm’s business-level strategy and its relative emphasis on functional area strategies and value-

creating activities.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.16) 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.

Answer: TRUE

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-06 The importance of considering the industry life cycle to determine a

firm’s business-level strategy and its relative emphasis on functional area strategies and value-

creating activities.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

17) Given the attractiveness of premium pricing during the growth stage of the market life cycle,

managers should emphasize short-term results to increase profits.

Answer: FALSE

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-06 The importance of considering the industry life cycle to determine a

firm’s business-level strategy and its relative emphasis on functional area strategies and value-

creating activities.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

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

Answer: FALSE

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

occur during maturity or decline.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its

competitive position in an industry.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.19) Few turnarounds require firms to analyze both the external and internal environments

relevant to their firm.

Answer: FALSE

Explanation: Most turnarounds require a firm to carefully analyze the external and internal

environments. The external analysis leads to identification of market segments or customer

groups that may still find the product attractive. Internal analysis results in actions aimed at

reduced costs and higher efficiency. A firm needs to undertake a mix of both internally and

externally oriented actions to affect a turnaround.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its

competitive position in an industry.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

20) Piecemeal productivity improvements can be used by a mature business in need of a

turnaround.

Answer: TRUE

Explanation: There are many ways in which a firm can eliminate costs and improve

productivity. Although individually these are small gains, they cumulate over a period of time to

substantial gains. Improving business processes by reengineering them, benchmarking specific

activities against industry leaders, encouraging employee input to identify excess costs,

increasing capacity utilization, and improving employee productivity lead to a significant overall

gain.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its

competitive position in an industry.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.21) The primary aim of strategic management at the business level is

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

B) maximizing differentiation of products and/or services.

C) achieving competitive advantage.

D) achieving a low-cost position.

Answer: C

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

22) Primary value chain activities that involve the effective layout of receiving dock operations

(inbound logistics) and support value chain activities that include expertise in process

engineering (technology development) characterize which generic strategy?

A) differentiation

B) differentiation focus

C) stuck-in-the-middle

D) overall cost leadership

Answer: D

Explanation: 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).

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.23) A manufacturing business pursuing cost leadership is likely to

A) focus on a narrow market segment.

B) use advertising to build brand image.

C) put heavy emphasis on product engineering.

D) rely on experience effects to raise efficiency.

Answer: D

Explanation: One factor often central 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.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

24) One aspect of using a cost leadership strategy is that experience effects may lead to lower

costs. Experience effects are achieved by

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

B) hiring more experienced personnel.

C) repeating a process until a task becomes easier.

D) competing in an industry for a long time.

Answer: C

Explanation: One factor often central 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.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.25) With experience, unit costs of production decline as ________ increases in most industries.

A) costs

B) volume

C) output

D) price

Answer: C

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

26) 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.

Answer: C

Explanation: Both casual 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. 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.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.27) Global logistics firms such as DHL Supply Chain and Global Forwarding or C. H. Robinson

Worldwide compete using an overall cost leadership strategy in primary activities such as

A) effective layout of receiving dock operations.

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

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

D) standardized accounting practices to minimize personnel required.

Answer: A

Explanation: Inbound logistics is a primary activity in the value chain. These global logistics

firms strive to achieve cost advantages through the design of their receiving dock operations,

among other operation design features.

Difficulty: 2 Medium

Topic: Value Chain Analysis

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.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

28) Overhead costs associated with the number of layers of management in a firm are part of the

________ activities of the value chain.

A) human resources management

B) firm infrastructure

C) operations

D) marketing and sales

Answer: B

Explanation: Exhibit 5.3 draws on the value-chain concept to provide examples of how a firm

can attain an overall cost leadership strategy in its primary and support activities. Reducing

management layers to reduce overhead costs is the support activity associated with the firm

infrastructure.

Difficulty: 2 Medium

Topic: Value Chain Analysis

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.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.29) Primark, a fashion retailer, has found a way to keep its cost structure lower than its rivals by

leveraging streamlined logistics, a low marketing budget, and negotiating bargain prices from its

suppliers. They are using a(n) ________ strategy.

A) differentiation

B) overall cost leadership

C) focus

D) broad differentiation

Answer: B

Explanation: Overall cost leadership requires a tight set of interrelated tactics that include:

aggressive construction of efficient-scale facilities and vigorous pursuit of cost reductions from

experience.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

30) Aldi, a discount supermarket retailer, has grown from its German base to the rest of Europe,

Australia, and the United States by replicating a simple business format. Aldi limits the number

of products in each category to ensure product turn, to ease stocking shelves, and to increase its

power over supplier. This is an example of an overall cost leadership strategy because it

A) gives them competitive advantage by decreasing productivity.

B) gives them competitive advantage by tight cost and overhead control.

C) eliminates the need to compete based on its products.

D) requires the customer to recognize its efforts.

Answer: B

Explanation: Aldi, a discount supermarket retailer limits the number of products in each

category to become more efficient. This enhances its cost leadership position.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.31) A business that strives for a low-cost advantage must attain a(n) ________ cost advantage

over rivals.

A) relative

B) evolutionary

C) absolute

D) potential

Answer: C

Explanation: A business that strives for a low-cost advantage must attain an absolute cost

advantage relative to its rivals.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

32) A firm typically achieves an absolute cost advantage by offering a ________ product or

service to a ________ target market using standardization to derive the greatest benefits from

economies of scale and experience.

A) no frills; narrow

B) complex; narrow

C) no frills; broad

D) complex; diverse

Answer: C

Explanation: A business that strives for a low-cost advantage must attain an absolute cost

advantage relative to its rivals. This is typically accomplished by offering a no-frills product or

service to a broad target market using standardization to derive the greatest benefits from

economies of scale and experience.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.33) Primark, an Irish clothing retailer, uses an overall cost leadership strategy. This could fail if

A) maintains parity with competitors on low cost.

B) cannot maintain parity on differentiation dimensions requested by customers.

C) exceeds customer expectations.

D) increases its sales prices while maintaining competitor parity.

Answer: B

Explanation: 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. Primark, an Irish clothing retailer, has built a low-cost strategy while also being

seen as effectively addressing concerns about environmental sustainability.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

34) Zulily, an online retailer, competes with Amazon and other online retailers by

A) maintaining a large inventory of products.

B) running a labor-intensive distribution system.

C) ordering products from vendors to keep in stock until a customer order comes in.

D) keeping little inventory and ordering only when customers purchase a product.

Answer: D

Explanation: Zulily, an online retailer, has built its business model around lower-cost operations

in order to carve out a unique position relative to Amazon and other online retailers. Zulily keeps

very little inventory and typically orders products from vendors only when customers purchase

the product. It also has developed a bare-bones distribution system. Together, these actions result

in deliveries that take an average of 11.5 days to get to customers and can sometimes stretch out

to several weeks. Due to its reduced operational costs, Zulily is able to offer attractive prices to

customers who are willing to wait.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.35) Which type of competitive strategy is characterized by 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?

A) differentiation

B) overall low-cost leadership

C) differentiation focus

D) cost leadership focus

Answer: B

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

36) An overall low-cost position enables a firm to achieve ________ returns despite strong

competition.

A) below average

B) average

C) no

D) above average

Answer: D

Explanation: An overall low-cost position enables a firm to achieve above-average returns

despite strong competition.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.37) An overall low-cost position protects a firm against rivalry from competitors because

________ allow a firm to earn returns even if its competitors eroded their profits through intense

rivalry.

A) higher costs

B) higher prices

C) lower costs

D) lower prices

Answer: C

Explanation: An overall low-cost position protects a firm against rivalry from competitors

because lower costs allow a firm to earn returns even if its competitors eroded their profits

through intense rivalry.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

38) An overall ________ position enables a firm to achieve above-average returns because it

protects firms against powerful buyers.

A) differentiation

B) low-cost

C) focused

D) high-cost

Answer: B

Explanation: An overall low-cost position enables a firm to achieve above-average returns

because it protects firms against powerful buyers.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.39) A low-cost position permits buyers to exert power to drive ________ prices only to the level

of the next most efficient producer.

A) up

B) down

C) increasing

D) decreasing

Answer: B

Explanation: A low-cost position permits buyers to exert power to drive down prices only to the

level of the next most efficient producer.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

40) A low-cost position provides ________ flexibility to cope with demands from powerful

suppliers for input cost increases.

A) less

B) decreasing

C) more

D) no

Answer: C

Explanation: A low-cost position provides more flexibility to cope with demands from powerful

suppliers for input cost increases.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.41) The factors that lead to a low-cost position also provide a substantial ________ barriers

position with respect to ________ products introduced by new and existing competitors.

A) entry; substitute

B) exit; primary

C) product; substitute

D) entry; primary

Answer: A

Explanation: The factors that lead to a low-cost position also provide a substantial entry barriers

position with respect to substitute products introduced by new and existing competitors.

Difficulty: 2 Medium

Topic: Competitive Advantage

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.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

42) Zulily protects itself from buyer power and intense rivalry from competitors by

A) increasing the bargaining power of its customers.

B) paying close attention to costs.

C) increasing costs.

D) increasing the buyer power.

Answer: B

Explanation: Zulily pays close attention to costs that help to protect the company from buyer

power and intense rivalry from competitors. Thus, Zulily is able to drive down costs and reduce

the bargaining power of its customers.

Difficulty: 1 Easy

Topic: Competitive Advantage

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.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.43) Which of the following is a risk (or potential pitfall) of cost leadership?

A) Cost cutting in one area of the value chain might increase costs in another.

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.

Answer: A

Explanation: Potential pitfalls of overall cost leadership strategy include too much focus on one

or a few value-chain activities; increase in the cost of the inputs on which the advantage is based;

the strategy is imitated too easily; a lack of parity on differentiation; reduced flexibility; and

obsolescence of the basis of cost advantage

Difficulty: 2 Medium

Topic: Competitive Advantage

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

strategies.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

44) A firm can achieve differentiation through all the following means except

A) improving brand image.

B) offering lower prices to frequent customers.

C) better customer service.

D) adding additional product features.

Answer: B

Explanation: 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, quality,

technology, innovation, features, customer service, or a dealer network.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

strategies.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.45) Value-chain support activities that involve excellent applications engineering support

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

characterize which generic strategy?

A) overall cost leadership

B) differentiation focus

C) differentiation

D) stuck-in-the middle

Answer: C

Explanation: Examples of value-chain activities for differentiation include value chain support

activities like excellent applications engineering support (technology development) and facilities

that promote a positive firm image (firm infrastructure).

Difficulty: 2 Medium

Topic: Competitive Advantage

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

strategies.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

46) High product differentiation is generally accompanied by

A) higher market share.

B) higher profit margins and lower costs.

C) significant economies of scale.

D) decreased emphasis on competition based on price.

Answer: D

Explanation: Differentiation provides protection against rivalry because 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.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

strategies.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.47) Which of the following is false regarding how a differentiation strategy can help a firm to

improve its competitive position relative to the Porter five-forces model?

A) Firms will enjoy high customer loyalty.

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

C) It reduces buyer power because buyers lack comparable alternatives.

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

inputs.

Answer: D

Explanation: 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.

Difficulty: 2 Medium

Topic: Porter’s Five Competitive Forces

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

strategies.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

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

A) having brand-loyal customers become more sensitive to prices.

B) increasing economies of scale.

C) providing protection against rivalry.

D) serving a broader market segment.

Answer: C

Explanation: Differentiation provides protection against rivalry since brand loyalty lowers

customer sensitivity to price and raises customer switching costs.

Difficulty: 2 Medium

Topic: Sustaining a Competitive Advantage

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

strategies.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.49) Which of the following is not a potential pitfall of a differentiation strategy?

A) Uniqueness that is not valuable.

B) The price premium is too high.

C) All rivals share a common input or raw material.

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

Answer: C

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

strategies.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

50) Hardware chains such as Ace and True Value are losing market share to rivals such as

Lowe’s and Home Depot in spite of them using a focus strategy. Why?

A) Achieving parity on costs for specialty retailers is difficult.

B) They have too broad a product line.

C) They have equivalent purchasing power as the national chains.

D) Their costs are the same as those of the national chains.

Answer: A

Explanation: Some firms attempting to attain advantages through a focus strategy may have too

narrow a product or service. Consider many retail firms. Hardware chains such as Ace and True

Value are losing market share to rivals such as Lowe’s and Home Depot that offer a full line of

home and garden equipment and accessories. And given the enormous purchasing power of the

national chains, it would be difficult for such specialty retailers to attain parity on costs.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

strategies.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.51) Early pioneer in online education, University of Phoenix, has faced increasing challenges

from traditional university online programs who are able to offer their programs at the same cost.

This is an example of which generic strategy gone wrong:

A) Differentiation.

B) Overall cost leadership.

C) Focus strategy.

D) Low cost leadership.

Answer: C

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

eroded over time. For example, early pioneers in online education, such as the University of

Phoenix, have faced increasing challenges as traditional universities have entered with their own

online programs that allow them to match the cost benefits associated with online delivery

systems. This is a pitfall of a focus strategy.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

strategies.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

52) Marlin Steel Wire Products is a manufacturer of commodity wire products out of Baltimore,

MD. Marlin has many rivals based in China and other emerging markets. The company cannot

compete on labor costs so it used a ________ strategy to automate its production and now

specializes in high-end products.

A) differentiation

B) overall cost leadership

C) focus strategy

D) low cost leadership

Answer: C

Explanation: Marlin Steel Wire Products, a Baltimore-based manufacturing company, has also

seen great benefit from developing a niche-differentiator strategy. Marlin, a manufacturer of

commodity wire products, faced stiff and ever-increasing competition from rivals based in China

and other emerging markets. These rivals had labor-based cost advantages that Marlin found

hard to counter. Marlin responded by changing the game it played. The company president

decided to go upmarket, automating his production and specializing in high-end products.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

strategies.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.53) Which statement regarding competitive advantages is true?

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

differentiation.

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

earn normal profits.

C) If several competitors pursue similar differentiation tactics, they may all be perceived as

equals in the mind of the consumer.

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

Answer: C

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

strategies.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

54) Porsche has enhanced power over buyers because its strong reputation makes buyers more

willing to pay a premium price. This ________ rivalry, since buyers become ________ price-

sensitive.

A) increases; more

B) lessens; more

C) lessens; less

D) increases; less

Answer: C

Explanation: Porsche has enjoyed enhanced power over buyers because its strong reputation

makes buyers more willing to pay a premium price. This lessens rivalry, since buyers become

less price-sensitive. The prestige associated with its brand name also lowers supplier power since

margins are high. Suppliers would probably desire to be associated with prestige brands, thus

lessening their incentives to drive up prices.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

strategies.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.55) A firm following a focus strategy must focus on

A) governmental regulations.

B) a market segment or group of segments.

C) rising cost of inputs.

D) avoiding entering international markets.

Answer: B

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

strategies.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

56) Which of the following is not a potential pitfall of a focus strategy?

A) Erosion of cost advantages can arise within the narrow segment.

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

entrants.

C) Focusers can become too focused to satisfy buyer needs.

D) All rivals share a common input or raw material.

Answer: D

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

strategies.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.57) At one CVS drugstore, a four-pack of Energizer AA batteries was on sale at 2.99 USD

compared with a Duracell four-pack at 4.59 USD. The Duracell market share dropped 2 percent

in a recent two-year period, and its profits declined over 30 percent. Why did this happen?

A) The price differential was too high.

B) The market for batteries is saturated.

C) The customer perceived the products to be different.

D) There are valid alternatives for batteries.

Answer: A

Explanation: Customers may desire the product, but they are repelled by the price premium. For

example, Duracell recently charged too much for batteries. The firm tried to sell consumers on

its superior-quality products, but the mass market was not convinced. Why? The price

differential was simply too high. Clearly, the price-performance proposition Duracell offered

customers was not accepted.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

strategies.

Bloom’s: Apply; Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

58) The text discusses three approaches to combining overall cost leadership and differentiation

competitive advantages. Which of the following is not one of these three approaches?

A) automated and flexible manufacturing systems

B) deriving benefits from highly-focused and high-technology markets

C) exploiting the profit pool concept for competitive advantage

D) coordinating the extended value chain by way of information technology

Answer: B

Explanation: Three approaches to combining overall low cost and differentiation include:

automated and flexible manufacturing systems, using data analytics, exploiting the profit pool

concept for competitive advantage, and coordinating the extended value chain by way of

information technology.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

cost leadership and differentiation.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.59) A ________ can be defined as the total profits in an industry at all points along the industry

value chain.

A) profit maximizer

B) revenue enhancer

C) profit pool

D) profit outsourcing

Answer: C

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

industry value chain.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

cost leadership and differentiation.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

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

differentiation strategy?

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

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

in the extended value chain.

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

middle.

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

Answer: A

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

cost leadership and differentiation.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.61) Mass customization permits companies to manufacture unique products in relatively

________ quantities at ________ costs.

A) large; higher

B) large; lower

C) small; higher

D) small; lower

Answer: D

Explanation: Given the advances in manufacturing technologies such as CAD-CAM (computer

aided design and computer aided manufacturing) as well as information technologies, many

firms have been able to manufacture unique products in relatively small quantities at lower costs.

This is a concept known as mass customization.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

cost leadership and differentiation.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

62) Andersen Windows lowered costs, enhanced quality and variety, and improved its response

time to customers by

A) creating a new paper-based catalog.

B) creating an interactive computer version of its paper catalogs.

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

D) creating a manufacturing system for ordering parts.

Answer: C

Explanation: Andersen developed an interactive computer version of its paper catalogs that it

sold to distributors and retailers. Salespersons can now customize each window to meet customer

needs, check the design for structural soundness, and provide a price quote. The system is

virtually error-free, customers get exactly what they want, and the time to develop the design and

furnish a quotation has been cut by 75 percent. Each showroom computer is connected to the

factory, and customers are assigned a code number that permits them to track the order. The

manufacturing system has been developed to use some common finished parts, but it also allows

considerable variation in the final products.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

cost leadership and differentiation.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.63) A risk for a firm that tries to attain both cost and differentiation advantages is that it can be

stuck in the middle. An example of this is supermarkets because their ________ structure is

________ than discount retailers, and customers do not value their products and services as

being high-end such as those offered by Whole Foods.

A) cost; higher

B) price; higher

C) price; lower

D) cost; lower

Answer: A

Explanation: A key issue in strategic management is the creation of competitive advantages that

enable a firm to enjoy above-average returns. Some firms may become stuck in the middle if

they try to attain both cost and differentiation advantages. Mainline supermarket chains find

themselves stuck in the middle as their cost structure is higher than discount retailers offering

groceries and their products and services are not seen by consumers as being as valuable as those

of high-end grocery chains, such as Whole Foods.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

cost leadership and differentiation.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

64) The Yoox algorithm permits it to predict which products will sell at which times and where,

thus allowing effective stocking to meet customer needs. This a result of

A) purchasing patterns.

B) data analytics.

C) physical plant.

D) flooding the market with ads.

Answer: B

Explanation: Yoox has developed innovative algorithms to predict which products will sell at

which times and in which geographic regions, allowing effective stocking to meet the needs of

customers and providing guidance to retailers on optimal pricing.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

cost leadership and differentiation.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.65) Caterpillar collects and analyses large volumes of data about how customers use their

tractors. This permits them to ________ the cost of new product development efforts and to

better ________ their products.

A) increase; differentiate

B) reduce; differentiate

C) position; understand

D) identify; disperse

Answer: B

Explanation: Caterpillar collects and analyzes large volumes of data about how customers use

their tractors. Because this data helps Caterpillar better assess the uses and limitations of their

current tractors, the firm can use data analytics to employ more focused and timely product

improvement efforts. This allows the firm to simultaneously reduce the cost of new product

development efforts and better differentiate their products.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

cost leadership and differentiation.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

66) Many firms have achieved success by integrating activities throughout the extended value

chain by using ________ to link their own value chain with the value chains of their customers

and suppliers.

A) customization

B) information technology

C) human resources

D) competitive advantage

Answer: B

Explanation: Many firms have achieved success by integrating activities throughout the

extended value chain by using information technology to link their own value chain with the

value chains of their customers and suppliers.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

cost leadership and differentiation.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.67) Outside the flight experience itself, airlines are generating revenue by charging fees for

credit cards, frequent-flyer programs, and access to airport lounges. This serves to

A) increase competition.

B) expand the profit pool.

C) provide better customer service.

D) satisfy regulators.

Answer: B

Explanation: Outside the flight experience itself, airlines are generating revenue by charging

fees for credit cards, frequent-flyer programs, and access to airport lounges. This serves to

expand the profit pool.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

cost leadership and differentiation.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

68) Ryanair and Spirit Airlines depend upon revenue from services not related to the actual

flight. These services increase their

A) costs.

B) services.

C) profit pool.

D) difficulties.

Answer: C

Explanation: By separating the value of the actual flight from the services associated with

flying, airlines have greatly expanded the profit pool associated with flying.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

cost leadership and differentiation.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.69) Underestimating expenses associated with coordinating value-creating activities in the

extended value chain can be a result of ________ integration of cost leadership and

differentiation.

A) good

B) poor

C) intentional

D) structured

Answer: B

Explanation: The pitfalls of integrated overall cost leadership and differentiation include: firms

underestimating the challenges and expenses associated with coordinating value-creating

activities in the extended value chain.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

cost leadership and differentiation.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

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

advantage?

A) rapid change in technology

B) globalization

C) actions by rivals from within and outside of the industry

D) company commitment to innovation

Answer: D

Explanation: 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.

Difficulty: 2 Medium

Topic: Sustaining a Competitive Advantage

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

advantage.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.71) Atlas Door created competitive advantage by reducing the time to receive and process an

order and through installing a just-in-time logistics operation. Which of the following is not a

reason for their favorable position relative to the five forces of industry competition?

A) The service was easily imitable.

B) It created high entry barriers for new entrants.

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

dependency.

D) It exerted power over its customers.

Answer: A

Explanation: 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 start-up,

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.

Difficulty: 2 Medium

Topic: Sustaining a Competitive Advantage

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

advantage.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

72) BlackBerry lost its competitive advantage by 2016 because it

A) did not deliver innovations to respond to changing market demand.

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

C) did not reward its employees.

D) let suppliers have dominant power.

Answer: A

Explanation: BlackBerry initially dominated the smartphone market. BlackBerry held 20 percent

of the cell phone market in 2009, and its users were addicted to BlackBerry’s products, leading

some to refer to them as crackberrys. However, the market share of the firm quickly eroded with

the introduction of touch screen smartphones from Apple, Samsung, and others. BlackBerry was

slow to move away from its physical keyboards and saw its market share fall to 0.1 percent by

2016.

Difficulty: 2 Medium

Topic: Sustaining a Competitive Advantage

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

advantage.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.73) Company competitive advantages can be eroded by all the following except

A) rapid changes in technology.

B) globalization.

C) actions by rivals within the industry.

D) actions by workers outside of the industry.

Answer: D

Explanation: Clearly, nothing is forever when it comes to competitive advantages. Rapid

changes in technology, globalization, and actions by rivals from within as well as outside the

industry can quickly erode company advantages.

Difficulty: 2 Medium

Topic: Sustaining a Competitive Advantage

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

advantage.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

74) Barnes and Noble lost its market share in book retailing to Amazon. It tried to regain market

share by offering a similar electronic reader, the Nook, to the Amazon Kindle series. This

demonstrates that Barnes and Noble lacked

A) a short-term strategy.

B) a company-wide strategy.

C) a sustainable competitive advantage.

D) good suppliers.

Answer: C

Explanation: Even in industries that are normally viewed as low tech, the increasing use of

technology has suddenly made competitive advantages less sustainable. The Amazon success in

book retailing at the cost of Barnes and Noble, the former industry leader, as well as BlackBerry

difficulties in responding to Apple innovations in the smartphone market, serves to illustrate how

difficult it has become for industry leaders to sustain competitive advantages that they once

thought would last forever.

Difficulty: 2 Medium

Topic: Sustaining a Competitive Advantage

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

advantage.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.75) Atlas Door tightly controlled logistics so that it always shipped only fully complete orders to

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

might give them competitive advantage?

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

B) It created low entry barriers for new entrants.

C) It created a high threat of substitution.

D) It gave more power to buyers.

Answer: A

Explanation: Atlas tightly controlled logistics so that it always shipped only fully complete

orders to construction sites. Orders require many components, and gathering all of them at the

factory and making sure that they are with the correct order can be a time-consuming task. Of

course, it is even more time-consuming to get the correct parts to the job site after the order has

been shipped. Atlas developed a system to track the parts in production and the purchased parts

for each order. This helped to ensure the arrival of all necessary parts at the shipping dock in

time. This time-saving efficiency also had cost benefits that made it difficult for new entrants to

compete successfully, at least in the short run.

Difficulty: 2 Medium

Topic: Sustaining a Competitive Advantage

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

advantage.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

76) In evaluating the sustainability of the Atlas Door competitive advantages over the long run, it

is important to evaluate the ability of rivals to

A) easily imitate its strategy.

B) communicate with its customers.

C) consistently overprice their products.

D) find new suppliers.

Answer: A

Explanation: It is important, of course, to assume that the Atlas Door strategy is unique in the

industry, and the central issue becomes whether or not rivals will be able to easily imitate its

strategy or create a viable substitute strategy.

Difficulty: 2 Medium

Topic: Sustaining a Competitive Advantage

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

advantage.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.77) Atlas Door created competitive advantages in overall low cost and differentiation by creating

________ among value-chain activities.

A) substitutes

B) advantages

C) disadvantages

D) linkages

Answer: D

Explanation: Atlas Door has created competitive advantages in both overall low cost and

differentiation. Its strong linkages among value-chain activities, a requirement for its just-in-time

operations, not only lower costs but enable the company to respond quickly to customer orders.

As noted in Exhibit 5.4, many of the value-chain activities associated with a differentiation

strategy reflect the element of speed or quick response.

Difficulty: 2 Medium

Topic: Sustaining a Competitive Advantage

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

advantage.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

78) Atlas Door relies on technologies that are rather well known and non-proprietary. This opens

it up to the potential of

A) imitation by rivals.

B) customer abandonment.

C) increased supplier power.

D) government regulation.

Answer: A

Explanation: An argument could be made that much of the Atlas Door strategy relies on

technologies that are rather well known and non-proprietary. Over time, a well-financed rival

could imitate its strategy (via trial and error), achieve a tight integration among its value-creating

activities, and implement a just-in-time manufacturing process.

Difficulty: 2 Medium

Topic: Sustaining a Competitive Advantage

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

advantage.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.79) Which of the following reasons is not a reason that Atlas Door could lose competitive

advantage?

A) Its technologies are non-proprietary.

B) A rival easily could hire away its talented employees.

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

D) It has strong power over its distributors.

Answer: D

Explanation: An argument could be made that much of the Atlas Door strategy relies on

technologies that are rather well-known and non-proprietary. Over time, a well-financed rival

could imitate its strategy (via trial and error), achieve a tight integration among its value-creating

activities, and implement a just-in-time manufacturing process. Because human capital is highly

mobile, a rival could hire away Atlas Door talent, and these individuals could aid the rival in

transferring Atlas Door best practices. A new rival could also enter the industry with a large

resource base, which might enable it to price its doors well under Atlas Door to build market

share (but this would likely involve pricing below cost and would be a risky and non-sustainable

strategy). In its favor, it does have high power over its customers (distributors) because of its

ability to deliver a quality product in a short period of time.

Difficulty: 2 Medium

Topic: Sustaining a Competitive Advantage

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

advantage.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

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

A) strong customer loyalty.

B) low barriers to entry.

C) high threat of substitution.

D) low buyer switching costs.

Answer: A

Explanation: Two factors make it extremely difficult for a rival to challenge Atlas Door in the

short term: (1) The success that Atlas Door has enjoyed with its just-in-time scheduling and

production systems helps the firm not only lower costs but also respond quickly to customer

needs, and (2) the strong, positive reputational effects that it has earned with its customers

increases their loyalty and would take significant time for rivals to match.

Difficulty: 2 Medium

Topic: Sustaining a Competitive Advantage

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

advantage.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.81) Rivals would find it difficult to challenge Atlas Door in the short run because of

A) weak customer loyalty.

B) high barriers to entry.

C) high threat of substitution.

D) low buyer switching costs.

Answer: B

Explanation: Two factors make it extremely difficult for a rival to challenge Atlas Door in the

short term: (1) The success that Atlas Door has enjoyed with its just-in-time scheduling and

production systems helps the firm not only lower costs but also respond quickly to customer

needs, and (2) the strong, positive reputational effects that it has earned with its customers

increases their loyalty and would take significant time for rivals to match.

Difficulty: 2 Medium

Topic: Sustaining a Competitive Advantage

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

advantage.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

82) Which of these statements regarding the industry life cycle is true?

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

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

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

D) It is important for company generic strategies, functional areas, value-creating activities, and

overall objectives.

Answer: D

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-06 The importance of considering the industry life cycle to determine a

firm’s business-level strategy and its relative emphasis on functional area strategies and value-

creating activities.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.83) Which of the following statements about the introduction stage of the market life cycle is

true?

A) It produces relatively large, positive cash flows.

B) Strong brand recognition seldom serves as an important switching cost.

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

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

Answer: D

Explanation: In the introduction stage, products are unfamiliar to consumers. Market segments

are not well-defined, and product features are not clearly specified.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-06 The importance of considering the industry life cycle to determine a

firm’s business-level strategy and its relative emphasis on functional area strategies and value-

creating activities.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

84) In the ________ stage of the industry life cycle, the emphasis on product design is very high,

the intensity of competition is low, and the market growth rate is low.

A) growth

B) maturity

C) introduction

D) decline

Answer: C

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-06 The importance of considering the industry life cycle to determine a

firm’s business-level strategy and its relative emphasis on functional area strategies and value-

creating activities.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.85) 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.

Answer: A

Explanation: The growth stage is the second stage of the product life cycle, characterized by

strong increases in sales and growing competition.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-06 The importance of considering the industry life cycle to determine a

firm’s business-level strategy and its relative emphasis on functional area strategies and value-

creating activities.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

86) In the ________ stage of the industry life cycle, there are many segments, competition is

very intense, and the emphasis on process design is high.

A) growth

B) introduction

C) decline

D) maturity

Answer: D

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-06 The importance of considering the industry life cycle to determine a

firm’s business-level strategy and its relative emphasis on functional area strategies and value-

creating activities.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.87) In a given market, key technology no longer has patent protection, experience is not an

advantage, and there is a growing need to compete on price. What stage of its life cycle is the

market in?

A) introduction

B) growth

C) maturity

D) decline

Answer: C

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-06 The importance of considering the industry life cycle to determine a

firm’s business-level strategy and its relative emphasis on functional area strategies and value-

creating activities.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

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

of what life cycle stage?

A) introduction

B) growth

C) maturity

D) decline

Answer: C

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-06 The importance of considering the industry life cycle to determine a

firm’s business-level strategy and its relative emphasis on functional area strategies and value-

creating activities.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.89) As markets mature,

A) costs continue to increase.

B) application for patents increase.

C) differentiation opportunities increase.

D) there is increasing emphasis on efficiency.

Answer: D

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-06 The importance of considering the industry life cycle to determine a

firm’s business-level strategy and its relative emphasis on functional area strategies and value-

creating activities.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

90) The size of pricing and differentiation advantages between competitors decreases in which

stage of the market life cycle?

A) introduction

B) growth

C) maturity

D) decline

Answer: C

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-06 The importance of considering the industry life cycle to determine a

firm’s business-level strategy and its relative emphasis on functional area strategies and value-

creating activities.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.91) Which of the following is most often true of mature markets?

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

effects.

B) The market supports premium pricing, which attracts additional competitors.

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

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

stage.

Answer: C

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-06 The importance of considering the industry life cycle to determine a

firm’s business-level strategy and its relative emphasis on functional area strategies and value-

creating activities.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

92) In the ________ stage of the industry life cycle, there are few segments, the emphasis on

process design is low, and the major functional areas of concern are general management and

finance.

A) introduction

B) growth

C) decline

D) maturity

Answer: C

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-06 The importance of considering the industry life cycle to determine a

firm’s business-level strategy and its relative emphasis on functional area strategies and value-

creating activities.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.93) The most likely time to pursue a harvest strategy is in a situation of

A) high growth.

B) strong competitive advantage.

C) mergers and acquisitions.

D) decline.

Answer: D

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

exiting, or consolidating.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-06 The importance of considering the industry life cycle to determine a

firm’s business-level strategy and its relative emphasis on functional area strategies and value-

creating activities.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

94) Research shows that which one of the following is not a strategy used by firms engaged in

successful turnarounds?

A) asset and cost surgery

B) selective product and market pruning

C) piecemeal productivity improvements

D) global expansion

Answer: D

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its

competitive position in an industry.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.95) Piecemeal productivity improvements during a turnaround typically do not involve

A) business process reengineering.

B) increased capacity utilization.

C) benchmarking.

D) expansion of company product market scope.

Answer: D

Explanation: 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.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its

competitive position in an industry.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

96) When Cindy Grossman turned around HSN successfully in 2014, which of the following was

not one of the practices she used?

A) engaging stakeholders in the discussion

B) developing a skilled, committed management team

C) redesigning the company offerings

D) making all best efforts to offer something for everyone

Answer: D

Explanation: Key to it all is staying focused on what HSN strategy is and who its customers are.

Grossman stated that they are not trying to be Amazon—all things to all people.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its

competitive position in an industry.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.97) Proctor and Gamble announced that it would sell off or close down up to 100 of its brands.

This is an example of which turnaround strategy used by successful companies?

A) asset and cost surgery

B) selective product and market pruning

C) piecemeal productivity improvements

D) global expansion

Answer: B

Explanation: Most mature or declining firms have many product lines that are losing money or

are only marginally profitable. One strategy is to discontinue such product lines and focus all

resources on a few core profitable areas.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its

competitive position in an industry.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

98) Outright sales or sale and leaseback free up considerable cash and improve returns. This is an

example of which turnaround strategy used by successful companies?

A) asset and cost surgery

B) selective product and market pruning

C) piecemeal productivity improvements

D) global expansion

Answer: A

Explanation: Very often, mature firms tend to have assets that do not produce any returns. These

include real estate, buildings, and so on. Outright sales or sale and leaseback free up considerable

cash and improve returns. Investment in new plants and equipment can be deferred. Firms in

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

up collection of receivables.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its

competitive position in an industry.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.99) Improving business processes by reengineering them, benchmarking specific activities

against industry leaders, encouraging employee input to identify excess costs, increasing

capacity utilization, and improving employee productivity lead to a significant overall gain.

These are examples of which turnaround strategy used by successful companies?

A) asset and cost surgery

B) selective product and market pruning

C) piecemeal productivity improvements

D) global expansion

Answer: C

Explanation: There are many ways in which a firm can eliminate costs and improve

productivity. Although individually these are small gains, they cumulate over a period of time to

substantial gains. Improving business processes by reengineering them, benchmarking specific

activities against industry leaders, encouraging employee input to identify excess costs,

increasing capacity utilization, and improving employee productivity lead to a significant overall

gain.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its

competitive position in an industry.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

100) Most turnarounds require a firm to carefully analyze its relevant environments. The

________ analysis leads to identification of market segments or customer groups that may still

find the product attractive.

A) external

B) internal

C) global

D) environmental

Answer: A

Explanation: Most turnarounds require a firm to carefully analyze the external and internal

environments. The external analysis leads to identification of market segments or customer

groups that may still find the product attractive.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its

competitive position in an industry.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.101) Most turnarounds require a firm to carefully analyze its relevant environments. ________

analysis results in actions aimed at reduced costs and higher efficiency.

A) External

B) Internal

C) Global

D) Environmental

Answer: B

Explanation: Most turnarounds require a firm to carefully analyze the external and internal

environments. Internal analysis results in actions aimed at reduced costs and higher efficiency.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its

competitive position in an industry.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

102) What are the pitfalls of the overall cost leadership strategy? Provide an example for each

pitfall and explain why it is a pitfall.

Answer: Potential pitfalls of overall cost leadership strategies include: too much focus on one or

a few value-chain activities; increase in the cost of the inputs on which the advantage is based; a

strategy that can be imitated too easily; a lack of parity on differentiation; reduced flexibility;

and obsolescence of the basis of cost advantage.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

strategies.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.103) Discuss how each stage of the industry life cycle (introduction, growth, maturity, and

decline) can play a role in decisions that managers must make at the business level. Provide an

example for each stage.

Answer: 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. Why are

industry life cycles important? The emphasis on various generic strategies, functional areas,

value-creating activities, and overall objectives varies over the course of an industry life cycle.

Managers must become even more aware of the strengths and weaknesses of their firm in many

areas to attain competitive advantages. For example, firms depend on their research and

development (R&D) activities in the introductory stage. R&D is the source of new products and

features that everyone hopes will appeal to customers. Firms develop products and services to

stimulate consumer demand. Later, during the maturity phase, the functions of the product have

been defined, more competitors have entered the market, and competition is intense. Managers

then place greater emphasis on production efficiencies and process (as opposed to the product)

engineering in order to lower manufacturing costs. This helps to protect the market position of

the firm and to extend the product life cycle because the lower costs of the firm can be passed on

to consumers in the form of lower prices, and price-sensitive customers will find the product

more appealing.

Difficulty: 2 Medium

Topic: Competitive Implications and the Industry Life Cycle

Learning Objective: 05-06 The importance of considering the industry life cycle to determine a

firm’s business-level strategy and its relative emphasis on functional area strategies and value-

creating activities.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.104) Two-sided or platform markets are an emerging trend according to the textbook authors.

Choose an example of an existing platform market and explain how this firm positions itself to

become the dominant player linking suppliers and customers.

Answer: Successful platform firms create a business that attracts a large range of suppliers and a

wide population of customers, becoming the go-to clearinghouse that both suppliers and

customers turn to in order to facilitate a transaction. In doing so, they typically successfully

combine elements of both cost and differentiation advantages. But how do firms position

themselves to succeed in these two-sided markets? It involves a combination of actions to build a

strong position and facilitate optimal interactions between suppliers and users. In doing so, these

firms strive to simultaneously limit costs to users and also provide differentiated service. The

issues platform businesses need to master to succeed include the following: draw in users; create

easy and informative customer interfaces; facilitate the best connections between suppliers and

customers; sequencing the growth of the business.

Difficulty: 2 Medium

Topic: Sustaining a Competitive Advantage

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

advantage.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.105) What is a focus strategy? Provide an example where this has been implemented

successfully.

Answer: 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. A

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

average performance.

The focus strategy, has two variants. In a cost focus, a firm strives to create a cost advantage in

its target segment. In a differentiation focus, a firm seeks to differentiate in its target market.

Both variants of the focus strategy rely on providing better service than broad-based competitors

that are trying to serve the target segment of the focuser. Cost focus exploits differences in cost

behavior in some segments, while differentiation focus exploits the special needs of buyers in

other segments. Two firms that have successfully implemented focus strategies are LinkedIn and

Facebook. LinkedIn has staked out a position as the business social media site of choice. Rather

than compete with Facebook head on, LinkedIn created a strategy that focuses on individuals

who wish to share their business experience and make connections with individuals with whom

they share or could potentially share business ties. In doing so, it has created an extremely strong

business model. LinkedIn monetizes its user information in three ways: subscription fees from

some users, advertising fees, and recruiter fees. The first two are fairly standard for social media

sites, but the advertising fees are higher for LinkedIn since the ads can be more effectively

targeted as a result of LinkedIn’s focus. The third income source is fairly unique for LinkedIn.

Headhunters and human resource departments pay significant user fees, up to 8,200 USD a year,

to have access to the LinkedIn recruiting search engine, which can sift through LinkedIn profiles

to identify individuals with desired skills and experiences. The power of this business model can

be seen in the difference in user value for LinkedIn when compared to Facebook. For every hour

that a user spends on the site, LinkedIn generates 1.30 USD in income. For Facebook, it is a

paltry 6.2 cents.

Difficulty: 2 Medium

Topic: Competitive Advantage

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

strategies.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

written consent of McGraw-Hill Education.

Strategic Management Text and Cases 9th Edition By Gregory Dess – Test Bank

Related

Be the first to review “Strategic Management Text and Cases 9th Edition By Gregory Dess – Test Bank” Cancel reply

Beckmann and Ling’s Obstetrics and Gynecology Nursing 8th Edition – Test Bank

Pharmacotherapy Principles and Practice 4th Edition By Dipiro – Test Bank

Evidence Based Practice For Nurses 4th Edition By Schmidt Brown – Test Bank

Alexander’s Care of the Patient in Surgery 16 Th Edition By Jane Rothrock – Test Bank

Need Help

Explore

Categories

Strategic Management Text and Cases 9th Edition By Gregory Dess – Test Bank

Share this:

Related

Be the first to review “Strategic Management Text and Cases 9th Edition By Gregory Dess – Test Bank” Cancel reply

Related products

Beckmann and Ling’s Obstetrics and Gynecology Nursing 8th Edition – Test Bank

Pharmacotherapy Principles and Practice 4th Edition By Dipiro – Test Bank

Evidence Based Practice For Nurses 4th Edition By Schmidt Brown – Test Bank

Alexander’s Care of the Patient in Surgery 16 Th Edition By Jane Rothrock – Test Bank