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Michael Porter's three generic strategies can be depicted on two dimensions: competitive advantage and product life cycle.. To generate above average returns, a firm following an overall

Chapter 05 Business-Level Strategy: Creating and Sustaining Competitive Advantages

True / False Questions

1 Michael Porter's three generic strategies can be depicted on two dimensions: competitive advantage and product life cycle

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

should not be concerned with attaining parity or proximity on the basis of differentiation

relative to its peers

7 The example of Lexus automobiles in the text points out that a firm can strengthen its differentiation strategy by achieving integration at multiple points along the value chain True False

8 A successful differentiation strategy lowers entry barriers because of customer loyalty and the firm's ability to provide uniqueness in its products and services

14 A potential pitfall of a focus strategy is that focusers can become too focused to satisfy buyer needs

True False

15 A disadvantage of firms that successfully integrate overall cost leadership and

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

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

True False

20 One way the Internet and digital technologies are creating opportunities for firms with differentiation strategies is by enabling mass customization

True False

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

companies cannot implement capabilities as effectively as their larger competitors

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

a conceptual framework for understanding what changes typically occur

True False

25 An important advantage of first movers or "pioneers" in a market is that they may

establish brand recognition that may later serve as an important switching cost

True False

26 During the growth stage of the market life cycle, customers are very likely to establish brand loyalty

True False

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

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

True False

34 Many firms facing a turnaround situation try to reduce their costs by outsourcing the production of many inputs

True False

35 The primary aim of strategic management at the business level is

A maximizing risk-return tradeoffs through diversification

B achieving a low cost position

C maximizing differentiation of products and/or services

D achieving competitive advantage(s)

36 Primary value chain activities that involve the effective layout of receiving dock

operations (inbound logistics) and support value chain activities that include expertise in process engineering (technology development) characterize what generic strategy?

A differentiation

B overall cost leadership

C differentiation focus

D stuck-in-the-middle

37 A manufacturing business pursuing cost leadership will likely

A focus on a narrow market segment

B rely on experience effects to raise efficiency

C use advertising to build brand image

D put heavy emphasis on product engineering

38 One aspect of using a cost leadership strategy is that experience effects may lead to lower costs Experience effects are achieved by

A hiring more experienced personnel

B repeating a process until a task becomes easier

C spreading out a given expense or investment over a greater volume

D competing in an industry a long time

40 Convincing rivals not to enter a price war, protection from customer pressure to lower prices, and the ability to better withstand cost increases from suppliers characterize which type of competitive strategy?

A Overall cost leadership

B Differentiation

C Differentiation focus

D Cost leadership focus

41 Which of the following is a risk (or potential pitfall) of cost leadership?

A Cost cutting may lead to the loss of desirable features

B Attempts to stay ahead of the competition may lead to gold plating

C Cost differences increase as the market matures

D Producers are more able to withstand increases in suppliers' cost

42 A firm can achieve differentiation through all of the following means except

A improving brand image

B better customer service

C offering lower prices to frequent customers

D adding additional product features

43 Support value chain activities that involve excellent applications engineering support (technology development) and facilities that promote a positive firm image (firm

infrastructure) characterize what generic strategy?

A Differentiation

B Overall cost leadership

C Differentiation focus

D Stuck-in-the middle

44 High product differentiation is generally accompanied by

A higher market share

B decreased emphasis on competition based on price

C higher profit margins and lower costs

D significant economies of scale

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

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

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

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

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

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

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

A lessening competitive rivalry by distinguishing itself

B having brand-loyal customers become more sensitive to prices

C increasing economies of scale

D serving a broader market segment

47 All of the following are potential pitfalls of a differentiation strategy except:

A uniqueness that is not valuable

B too high a price premium

C all rivals share a common input or raw material

D perceptions of differentiation may vary between buyers and sellers

48 Which statement regarding competitive advantages is true?

A If several competitors pursue similar differentiation tactics, they may all be perceived as equals in the mind of the consumer

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

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

A broadly-defined target market is to a cost leadership strategy

B growth market is to a differentiation-based strategy

C growth market is to a cost-based strategy

D technological innovation is to a cost-based strategy

50 A firm following a focus strategy

A must focus on governmental regulations

B must focus on a market segment or group of segments

C must focus on the rising cost of inputs

D must avoid entering international markets

51 All of the following are potential pitfalls of a focus strategy except

A erosion of cost advantages within the narrow segment

B all rivals share a common input or raw material

C even product and service offerings that are highly focused are subject to competition from new entrants and from imitation

D focusers can become too focused to satisfy buyer needs

52 Research has consistently shown that firms that achieve both cost leadership and

differentiation advantages tend to perform

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

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

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

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

53 The text discusses three approaches to combining overall cost leadership and

differentiation competitive advantages These are the following except

A automated and flexible manufacturing systems

B exploiting the profit pool concept for competitive advantage

C coordinating the "extended" value chain by way of information technology

D deriving benefits from highly focused and high technology markets

54 A can be defined as the total profits in an industry at all points along the industry's value chain

A profit maximizer

B revenue enhancer

C profit pool

D profit outsourcing

55 All of the following are potential pitfalls of an integrated overall low cost and

differentiation strategy except:

A firms that fail to attain both strategies may end up with neither and become middle."

"stuck-in-the-B targeting too large a market that causes unit costs to increase

C underestimating the challenges and expenses associated with coordinating value-creating activities in the extended value chain

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

56 Which of the following is not one of the ways the Internet is lowering transaction costs?

A eliminating supply chain intermediaries

B evaluating employee performance

C minimizing office expenses

D reducing business travel

57 Dell Computer has an online ordering system that allows consumers to configure their own computers before Dell builds them This capability is an example of

A electronic data interchange

B knowledge management

C collaborative design

D mass customization

58 Which of the following methods of implementing a differentiation strategy has been greatly enhanced because of Internet technologies?

A respond quickly to customer requests

B provide more services and features

C access markets less expensively

D access niche markets in a highly specialized fashion

60 One of the reasons the Internet is eroding sustainable competitive advantages is

A incumbent firms are entering market segments that they previously considered to be too small

B nearly all competitors will have greater access to tools for managing costs making it hard for any one to achieve an advantage

C differentiators have been able to preserve the unique advantages that have always been the hallmark of their success

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

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

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

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

C It has important implications for a firm's generic strategies, functional areas, value-creatingactivities, and overall objectives

D It points out the need to maintain a differentiation advantage and a low cost advantage simultaneously

62 Which of the following statements about the introduction stage of the market life cycle is

true?

A It produces relatively large, positive cash flows

B Strong brand recognition seldom serves as an important switching cost

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

D Products or services offered by pioneers may be perceived as differentiated simply becausethey are new

63 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 introduction

B growth

C maturity

D decline

64 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

65 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 introduction

B growth

C maturity

D decline

66 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

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

characteristic of what life cycle stage?

A costs continue to increase

B application for patents increase

C differentiation opportunities increase

D there is increasing emphasis on efficiency

69 The size of pricing and differentiation advantages between competitors decreases in whichstage of the market life cycle?

A introduction

B growth

C maturity

D decline

70 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

71 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

B strong competitive advantage

C mergers and acquisitions

D decline in the market life cycle

73 During the decline stage of the industry life cycle, refers to obtaining as much profit as possible and requires that costs be decreased quickly

A maintaining

B harvesting

C exiting

D consolidating

74 Research shows that the following are all strategies used by firms engaged in successful

turnarounds except

A asset and cost surgery

B selective product and market pruning

C global expansion

D piecemeal productivity improvements

75 Piecemeal productivity improvements during a turnaround typically does not involve

A business process reengineering

B increased capacity utilization

78 Discuss how a competitive advantage can be attained through differentiation using the value chain concept

79 Explain how a differentiation strategy enables a business to address the five competitive forces in such a way that it can enjoy high levels of profitability

80 Discuss the risks associated with each of these forms of competitive advantage: overall cost leadership, differentiation, and focus

81 What are the benefits and risks associated with combining overall cost leadership and differentiation strategies?

82 Discuss the uses and limitations associated with the industry life cycle concept as a framework for studying strategy formulation at the business level

83 Describe the two positioning strategies—reverse positioning and breakaway positioning that firms can use when faced with the maturity phase of the industry life cycle

84 Briefly explain the advantages of the four alternatives—maintaining, harvesting, exiting, consolidating—associated with the decline stage of the market life cycle

85 Discuss some of the effective turnaround strategies

Chapter 05 Business-Level Strategy: Creating and Sustaining Competitive Advantages Answer Key

True / False Questions

competitive advantage and product life cycle

highest possible level of profitability

related R&D than on process related R&D

FALSE

AACSB: Analytic

4. (p 165) To generate above average returns, a firm following an overall cost leadership

position should not be concerned with attaining parity or proximity on the basis of

differentiation relative to its peers

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

common input or raw material that contributes a significant amount to total costs

differentiation strategy by achieving integration at multiple points along the value chain

8. (p 167 - 168) A successful differentiation strategy lowers entry barriers because of customer loyalty and the firm's ability to provide uniqueness in its products and services

the marketplace may become diluted through excessive product line extensions

TRUE

AACSB: Analytic

12. (p 170 - 171) With a focus strategy, creating a niche by differentiating one's product or service often allows small firms to compete successfully with market leaders

satisfy buyer needs

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