J401 Exam 2 Study Guide
Which of the following companies uses a focus low-cost strategy?
Costco
Which of the following companies uses a focus low-cost strategy?
Dollar General
Which of the following is an example of a focus strategy?
ESPN offers sports-related programming 24/7
benefits of standards
Guarantees compatibility between products and their complements, Reduces confusion in the minds of consumers, Reduces production costs and risks associated with supplying complementary products, Leads to low-cost and differentiation advantages for individual companies, Helps raise the level of industry profitability
strategic commitments
Investments that signal an incumbent's long-term commitment to a market, or a segment of that market
competitors capability to imitate a pioneer's innovation depend on ____ and ____
Research and development skills and access to complementary assets
price signaling
The process by which companies increase or decrease product prices to convey their intentions to other companies and influence the price of an industry's products
product proliferation strategy
The strategy of "filling the niches," or catering to the needs of customers in all market segments to deter entry by competitors
Many retailers that counted on having a physical presence in the form of local stores are now under intense pricing pressure from online retailers. Which of the following stores has responded by investing heavily in an online presence?
Walmart
Which of the following businesses pursues a broad low-cost strategy?
Walmart
Which of the following companies pursues standardization as its market segmentation strategy?
Walmart
divestment strategy
When a company decides to exit an industry by selling off its business assets to another company
segmentation strategy
When a company decides to serve many segments, or even the entire market, producing different offerings for different segments
broad differentiation strategy
When a company differentiates its product in some way, such as by recognizing different segments or offering different products to each segment
broad low-cost strategy
When a company lowers costs so that it can lower prices and still make a profit
When companies that all follow a low-cost strategy compete in a market niche, which of the following is likely to happen within that niche?
a company following a focus strategy will have an advantage over a company following a broad strategy
leadership strategy
a competitive strategy in which the firm tries to become the dominant player in a declining industry
four main strategic postures when competing internationally
a global standardization strategy, a localization strategy, a transnational strategy, and an international strategy
disruptive technology
a new technology that originates away from the mainstream of a market and then, as its functionality improves over time, invades the main market
Which of the following is an example of responding to differences in distribution channels?
a pharmaceutical company develops different marketing strategies for Britain versus the United States
Which of the following is an example of responding to differences in distribution channels?
a pharmaceutical company devises different marketing strategies for Britain versus the United States
The success of General Motors at capturing market share from Ford in the 1920s illustrates how:
a segmentation strategy can attain a competitive advantage against a standardization strategy
technical standards
a set of technical specifications that producers adhere to when making a product or component
Early demand for products of embryonic industries typically comes from:
a small set of technologically savvy customers willing and able to tolerate the imperfections in a new product
Which of the following is a valid comparison between standardization and segmentation strategies?
a standardization strategy typically incurs lower costs than a segmentation strategy
One advantage of _____ is that it reduces a company's risk of losing control of a technological competency.
a wholly-owned subsidiary
Which of the following statements regarding the efficiency frontier is NOT true?
all companies eventually reach the efficiency frontier
Which of the following statements regarding the efficiency frontier is NOT true?
all countries eventually reach the efficiency frontier
two advantages of differentiation
allows for the company to charge a premium price for their goods and services and/or it can help the company to grow overall demand and capture market share from competitors
One of the two primary advantages of differentiation is that it:
allows the company to charge a premium price for its products
Being the first mover in a high-tech industry is usually:
an advantage
harvest strategy
an exit strategy, or the way an entrepreneur intends to extract, or harvest, his or her money from a business after it is operating successfully
Which of the following statements regarding companies that follow an international strategy is true?
any local customization of an international company's product offering and marketing strategy tend to be rather limited in scope
killer application
applications and / or uses of a new technology or product that are so compelling they persuade customers to switch, thereby "killing" demand in competing formats
For a low-tech company, when price is graphed as a function of output, average costs:
are U-shaped
network effects
arise in industries where the size of the "network" of complementary products is a primary determinant of demand for a product
two distinct advantages of exporting
avoids the costs of establishing manufacturing operations in the host country and / or may be consistent with scale economies and location economies
The use of nonprice competition is:
based on product differentiation strategies to deter potential entrants and manage rivalry within an industry
format wars
battles to set and control technical standards
With regard to efficiency, a company pursuing a differentiation strategy should
be as efficient as possible
With regard to differentiation, a company pursuing a low-cost strategy should:
be just good enough
Which feature of a successfully differentiated company serves as an entry barrier to its industry?
brand loyalty
If Fareway Foods takes a wide approach to the market and its place on the efficiency frontier is far to the right, what type of generic business-level strategy is it pursuing?
broad low-cost
____ are companies that can move quickly to imitate the pioneering company
capable competitors
____ arises when companies collectively produce too much output and to dispose of it, they cut prices
capacity control
Segmentation strategy is the most effective at:
capturing incremental revenues from groups of customers with varying needs
By expanding through _____, a value innovator can quickly build a national brand.
chaining
limit price strategy
charging a price that is lower than that required to maximize profits in the short run to signal to new entrants that the incumbent has a low-cost structure that the entrant likely cannot match
dominant design
common set of features or design characteristics
According to Porter, which of the following is true of the four generic business-level strategies?
companies must choose one of the four strategies or else suffer relatively poor performance
All of the following statements regarding market penetration are true except:
companies use this strategy when it concentrates on expanding market share in new product markets
niche strategy
company focuses on pockets of demand that are declining more slowly than the industry as a whole to maintain profitability
A company is offering a single passenger automated car. It is most suitable for in-city driving. If it is perceived as being consistent with the needs of potential adopters, it contributes the _____ factor to market growth rate.
compatibility
the transition between the embryonic stage and the growth stage is called a / an ____
competitive chasm
Which of the following statements regarding the trend toward the globalization of production and markets is true?
competitive rivalries have threatened to drive down a company's profitability
____ also include marketing knowhow, an adequate sales force, access to distribution systems, and an after-sales system and support network
complementary assets
global strategic alliances
cooperative agreements between companies from different countries that are actual or potential competitors
By flying between smaller, downtown airports whenever possible, Southwest Airlines executed which component of Kim and Mauborgne's strategy for finding a blue ocean?
create
A company that produces aluminum and steel can generally achieve a competitive advantage only by:
cutting its costs
For a company that develops and sells video games, when price is graphed as a function of output, average costs:
decrease exponentially
For a high-tech company, when price is graphed as a function of output, average costs:
decrease exponentially
low-cost structure
deliberately driving down prices to increase volume of sales
three basic strategies for exploiting first mover advantages
develop and market the innovation, develop and market the innovation jointly with other companies through a strategic alliance or joint venture, license the innovation to others and allow them to develop the market
When sales of Stature, an international fashion and lifestyle magazine, dipped below a certain threshold in the United States, it was dropped from the U.S. bookstores and newsstands where it had been sold. The publisher has decided to produce an online-only edition sold directly to U.S. consumers. However, it will continue to sell print magazines in other countries. To which of the following is Stature responding?
differences in distribution channels
Which of the following statements regarding a broad attribute of national competitive advantage—intensity of rivalry—is not true?
different nations are characterized by similar management ideologies, which help them to build national competitive advantage
Which of the following accurately describes the relationship between business-level strategies and the threat of substitute goods and services?
differentiated and low-cost companies both enjoy protection from substitute goods and services
____ involves distinguishing your company from its rivals by offering something that they find hard to match
differentiation
Which of the following describes the strategy by which a company sells the business to others?
divestment
a ____ strategy is the idea that a company can recover most of its investment in a failing business by selling it early, before the industry enters a steep decline
divestment
two capacity control strategies
each company must try to predict the demand and seize the initiative and / or the companies must find indirect ways of coordinating so they are all aware of the mutual impacts of their decisions
What is the second group of customers to enter a market?
early adopters
To successfully execute a low-cost strategy, companies should pursue functional-level strategies that result in superior:
efficiency and product reliability
the four factors of the blue ocean strategy
eliminate, reduce, raise, and create
"innovators" and "early adaptors" enter in which stage?
embryonic
When it comes to both international and localization strategies, managers:
employ them most successfully when faced with the emergence of competitors
The best position for a company is _____ the efficiency frontier.
exactly on
Which of the following entry modes has the advantages of (1) avoiding the costs of establishing manufacturing operations in the host country and (2) possibly being consistent with scale economies and location economies?
exporting
five primary choices of entry mode
exporting, licensing, franchising, entering into a joint-venture with a host-country company, and / or setting up a wholly-owned subsidiary in the host country
Michael Porter's four attributes
factor endowments, local demand conditions, related and supporting industries, firm strategy, structure, and rivalry
strategies to win format wars are centered on
finding ways to make network effects work in their favor and against their competitors
____ is the first company to develop a revolutionary new product
first mover
in many high-tech industries, the ____ cost of developing the product are very high, but the ____ cost is very low
fixed, marginal
A glove company produces golf gloves only. The gloves come in black, white, and green. Which market segmentation strategy should the company pursue?
focus
global standardization strategy
focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies (pursue a low-cost strategy on a global scale)
transnational strategy
focuses on developing a strategy that simultaneously achieves low costs, differentiates the product offering across geographic markets, and fosters a flow of resources such as process knowledge between different subsidiaries within the company's global network
localization strategy
focuses on increasing profitability by customizing the firm's goods or services so that they provide a good match to tastes and preferences in different national markets
In the era of the typewriter, the QWERTY keyboard layout was ideal because it minimized the risk of keys jamming. It is, however, an extremely inefficient layout from a typing perspective. The Dvorak keyboard layout, though unfamiliar to most people, is actually easier to type with once learned. If there were a serious push by some firms to oust the QWERTY layout in favor of the Dvorak layout, that would constitute a:
format war
Which of the following is NOT a disadvantage of franchising as a business strategy?
franchisees have little incentive to improve the efficiency and effectiveness of their operations by developing new offerings and or processes
Which of the following is a disadvantage of franchising as a business strategy?
franchisees may face a higher cost of capital, which lowers system costs
In order for a company to execute a strategy that translates into a competitive advantage, which of the following components must be in alignment?
functional strategy, business-level strategy, and organizational arrangements
____ strategy makes the most sense when there are strong pressures for cost reductions and demand for local responsiveness is minimal
global standardization
Which global strategy is most appropriate when pressures for local responsiveness are low and pressures for cost reductions are high?
global standardization strategy
The Apple Newton, the first hand-held computer, failed. Palm, the second mover, succeeded with a device that could interpret human handwriting. The success of the second mover in this instance most clearly illustrates which of the following first-mover disadvantages?
greater susceptibility to making mistakes
France Telecom created the world's first online service, Minitel. France Telecom suffered most acutely from which of the following first-mover disadvantages?
greater susceptibility to to investing in inferior or soon-to-be obsolete technology
The speed at which a market develops can be measured by its:
growth rate
____ is the rate at which customers in the market purchase that industry's product
growth rate
the speed at which a market develops can be measured by its ____
growth rate
the entry of the "early majority" signifies the beginning of which stage?
growth stage
Heartland Inc. is using which of the following strategies to optimize its cash flow by reducing to a minimum the assets it employs?
harvest
____ strategy is the best choice when a company wants to exit a declining industry and optimize cash flow in the process
harvest
A leadership strategy makes the most sense when a company:
has distinctive strengths that allow it to capture market share in a declining industry
A niche strategy should be used when a company:
has unique strengths relative to those segments in which demand remains relatively strong
One of the strongest factors that kept many companies from pursuing a global standardization strategy was:
high barriers to cross-border trade and investment
A disadvantage of differentiation is that it usually:
increases the cost structure of the firm
technology upgrading
incumbent companies can deter entry by investing in costly technology upgrades that potential entrants have trouble matching
The _____ make up the smallest segment of the market.
innovators
Japan has different management ideologies from those of Germany. Japan excels in technology, while Germany is known for its automotive engineering. Which piece of Michael Porter's framework does this describe?
intensity of rivalry
Taking advantage of network effects for its products is a primary goal for a company:
involved in a format war
Which of the following statements regarding a tit-for-tat strategy is true?
it can be a useful way of shaping pricing behavior in an industry
locating a value creation activity in the optimal location for that activity can have one of two effects
it can lower the cost of value creation and / or it can enable a company to differentiate its product offering
In which of the following ways does successful value innovation contribute to a company's competitive advantage?
it catches rivals off guard and makes it difficult for them to catch up
A high-tech company that drives its prices downward succeeds because:
it has more volume and greater profit margins
What effect does innovation have upon the efficiency frontier?
it pushes the frontier outward
three reasons for fragmentation
lack of scale of economies, brand loyalty in the industry may be primarily local, low entry barriers
The _____ are the customers who purchase a new technology or product only when many of their peers have already done so.
late majority
when roughly 50% of the market has been penetrated, ____ group enters the growth stage?
late majority
____ is a slang term for a business that ends up not being as efficient as they thought prior to purchasing it
lemon
Early in a paradigm shift, successor technology is _____ established technology.
less sufficient than
A mediocre video game console has good sales because one of its exclusive games is so good that people are willing to pay for the entire console just to get that game. This example illustrates which strategy for winning a format war?
leveraging killer applications
A key strategic component of the successes of VHS and Dolby was their makers' decision to:
license liberally
If an innovation has low barriers to imitation, which strategy for profiting from an innovation is best?
license the innovation
Which of the following strategies does Carson Corp. implement when it charges a price that is lower than that required to maximize profits in the short run to signal to new entrants that it has a low-cost structure that the entrant likely cannot match?
limit price
three ways that standards emerge in an industry
lobby the government, set by business cooperation, and / or by the purchasing patterns of customers in the marketplace
Companies in a given country gain competitive advantage because their domestic customers are sophisticated and demanding, pressuring local companies to meet high standards of product quality and produce innovative products. Which piece of Michael Porter's framework does this describe?
local demand conditions
In the past, Ford favored a _____ strategy for entering foreign markets.
localization
____ strategy makes the most sense when there are substantial differences across nations or regions with regard to consumer tastes and / or preferences, and where cost pressures are not too intense
localization
In choosing a(n) _____, Broadview Inc. understands that it needs to be efficient and, whenever possible, capture scale economies from its global reach.
localization strategy
The ultimate goal of a company in a format war is to:
lock out its competition
Although the QWERTY keyboard layout is vastly less efficient than the Dvorak layout, most consumers are unwilling to learn a new layout, figure out how to install software to alter the default QWERTY layout, and modify their keyboards away from QWERTY. The continued dominance of a keyboard layout that is inefficient by design illustrates the power of:
lockout
By using a global standardization strategy, a company can reasonably expect to experience all of the following EXCEPT:
lower profit margins
If a manager wants to take advantage of differentiation, the best option is to:
maintain or modestly increase the price, sell more, and boost profitability through the obtainment of scale economies
Leveraging valuable resources created within subsidiaries and applying them to other operations within the firm's global network may create value. Which of the following statements regarding this process is NOT true?
managers should designate other employees to act as facilitators, helping to transfer valuable resources and competencies within the firm
strategy canvas
maps out how value innovators differ from their rivals
the law of diminishing returns
marginal costs rise as a company tries to expand output
when a company concentrates on expanding market share in its existing product markets, it is engaging in a ____ strategy
market penetration
Mass customization can:
minimize one of the disadvantages of a segmentation strategy
Which of the following is an accurate assessment of the efficiency frontier?
multiple positions on the efficiency frontier may be viable
Initially, telephones were nearly useless because there was almost no one to call. As more and more people adopted the technology, however, its usefulness grew. This illustrates the importance of _____ in the demand of a product.
network effects
When the size of the set of complementary products is a primary determinant of demand for an industry's product, it gives rise to:
network effects
technological paradigm shifts
occur when new technologies revolutionize the structure of the industry, dramatically altering the nature of competition, and requires companies to adopt new strategies to survive
price leadership
one firm sets its price first, and other firms then follow (technically illegal under antitrust laws)
Which of the following statements regarding price leadership is true?
one of the dangers of price leadership is that it allows companies with high cost structures to survive without needing to implement strategies to become more efficient
chaining
opening additional locations that adhere to one basic formula that the company owns
Which of the following statements about operating in a declining industry is true?
operating in a declining industry can still be profitable if managers can figure out the right strategy
five primary sources of first mover advantage
opportunity to exploit network effects and positive feedback loops, establish brand loyalty, able to realize scale of economies faster, ability to create switching costs, time to accumulate knowledge
a ____ is one of the most widely used barriers to imitation
patents
Which of the following describes the first group to enter a market?
people who have greater resources to spare
An established company investing in a potentially disruptive technology should:
place it in its own division
The success of VHS over Betamax most clearly illustrates the importance of:
positive feedback loops
Mass markets emerge when all of the following occur except:
potential customers express the need for a new product
Mass markets emerge when all of the following occur except:
potential customers express the need for a product
companies that compete in the global marketplace typically face two types of competitive pressures:
pressures for cost reductions and pressures to be locally responsive
The possibility for leveraging skills and products associated with a firm's distinctive competencies wholesale from one nation to another depends on:
pressures for local responsiveness
Gonzalez Industries assumes the responsibility for determining the pricing strategy that maximizes industry profitability. What strategy is Gonzalez using to manage rivalry?
price leadership
razor and blade strategy
pricing the product (razor) low to stimulate demand and increased the installed base, and then try to make high profits on the sale of complements (razor blades) which are priced relatively high
Each of the following is a strategy for winning a format war EXCEPT:
pricing the product high, then selling components cheaply
During a paradigm shift, new entrants face each of the following challenges EXCEPT:
product cannibalization
As a way to manage rivalries, Stanton Electronics, a large company in the industry, has a product in each market segment (niche). If a new niche develops, Stanton will get a first-mover advantage. Which of the following strategies is Stanton using?
product proliferation
____ generally means that large companies in an industry have a product in each market segment (niche)
product proliferation
Expanding globally allows firms to increase their _____ and rate of profit growth in ways not available to purely domestic enterprises.
profitability
Specifications set forth by governments or associations comprise a:
public domain
By flying point to point, Southwest Airlines executed which component of Kim and Mauborgne's strategy for finding a blue ocean?
raise
A defining feature of value innovation is that it:
redefines what is possible in an industry
building interpersonal relationships between two firm's managers
relational capital
____ is the first factor that accelerates consumer demand in a new product
relative advantage
Autel Robotics produces easy-to-use aerial drones for photography/filming and imaging. As a high-tech company, when its product price is graphed as a function of output, marginal costs:
remain flat
For a low-tech company, when price is graphed as a function of output, marginal costs:
rise exponentially
A successful differentiation strategy can occasionally lower a firm's cost structure through the acquisition of:
scale economies
market development
seeks new market segments for a company's existing products
A glove company produces five different types of gloves: gloves for general use in cold weather, gloves especially suited for skiing, gardening gloves, work gloves, and golf gloves. All of the gloves are only available in the company's signature green color. Which market segmentation strategy should the company pursue?
segmentation
One approach to market segmentation is to acknowledge it and create different product offerings for each band of customers. This strategy is known as:
segmentation
First Mover Disadvantages
significant pioneering costs, easier to make mistakes, potential to invest in the wrong resources and / or capabilities, potential to invest in inferior and / or obsolete technology
factors that determine the intensity of competition in declining industries
speed of decline, height of exit barriers, level of fixed costs, commodity nature of product
A company produces gloves in several colors and styles. The purpose of all of the company's gloves is to keep the hands warm in cold weather. Which market segmentation strategy should the company pursue?
standardization
A(n) _____ is used to map out how value innovators differ from their rivals.
strategy canvas
The QWERTY keyboard is an example of a:
technical standard
factors causing excessive capacity
technological developments, competitive factors, new entries to the industry
three main causes for mass markets
technological process innovation makes a product easier to use for the everyday consumer, complementary products are developed that add value to the original product, and / or companies find a way to lower the cost of production in order to lower the selling price
The best way for WDM Inc., a company that is limited in its pricing strategies, to deter new entrants would be to engage in:
technology upgrading
Which of the following is an advantage of licensing?
the company does not have to bear the development costs and risks associated with opening up a foreign market
in commodity markets, competitive advantage goes to:
the company that has the lowest costs
firm strategy, structure, and rivalry
the conditions in the nation governing how companies are created, organized, and managed, as well as the nature of domestic rivalry
factor endowments
the cost and quality of factors of production
marginal cost
the cost of producing one more unit of a good
product development
the creation of new or improved products to replace existing products
relative advantage
the degree to which a consumer perceives that a new product provides superior benefits
compatibility
the degree to which a product is perceived as being consistent with the existing values, past experiences, and needs of potential adopters
location economies
the economic benefits that arise from performing a value creation activity in the optimal location for that activity
The relationship between low cost and differentiation is subtle. Strategy is not so much about making discrete choices as it is about achieving the right balance between differentiation and low costs. This is reflected in the concept of:
the efficiency frontier
Each of the following is a reason noted by Christenson why established companies fail to invest in disruptive technologies EXCEPT:
the established companies do not listen to their customers
franchising
the founding company licenses the right to open and operate a new location in return for a fee
licensing makes the most sense when
the innovating company lacks the necessary complementary assets, barriers to imitate the innovation are low, and there are many capable competitors
the strategy of developing and marketing an innovation alone makes the most sense when
the innovator has access to the complementary assets necessary, the barriers to imitate the innovation are high, the capability of competitors is limited
the strategy of developing and marketing an innovation jointly makes the most sense when
the innovator lacks the necessary complementary assets, barriers to imitate the innovation are high, there are several capable competitors
Customer demand for the products of an embryonic industry is initially limited because of:
the limited performance and poor quality of the first products
local demand conditions
the nature of home demand for the industry's product or service
Even when established companies invest in a potentially disruptive technology, they often fail to benefit from it because:
the new technology requires a different value chain
By not licensing its Betamax technology, first-mover Sony failed to realize which of the following first-mover advantages?
the opportunity to exploit network effects and positive feedback loops
related and supporting industries
the presence or absence of supplier industries and related industries that are internationally competitive
managers must thus make a judgement call about the appropriate level of aggregation given:
the product market they are looking at and the nature of natural differences and trends for regional convergence
mass customization
the production of more product variety without a large cost penalty
Linux, as a free and open-source operating system, has influenced a number of products. One of the most notable is the Android system for cell phones. This progression from idea to widespread availability is an example of:
the public domain
If, at the beginning of a paradigm shift, there is a swarm of potential successor technologies as opposed to a single successor, what effect does that have on the established technology?
the situation is worse for the established technology because it doesn't know which successor to invest in
non-price competition
the use of product differentiation strategies to deter potential entrants and manage rivalry within an industry
One of Boeing's primary reasons for outsourcing a significant amount of its production to foreign suppliers is that:
these suppliers are the best in the world at what they do
Which of the following is descriptive of the early majority?
they are practically and generally understand the value of new technology
Which of the following is characteristic of the second group of people to enter a market?
they understand that the technology may have important future applications
Which of the following statements regarding market development is true?
through market development, a company can leverage the product differentiation advantages of its brand name
Which of the following statements regarding capacity control is true?
to prevent costly excess capacity, companies must devise strategies that enable them to control (or at least benefit from) capacity-expansion programs
____ strategy makes the most sense when cost pressures are high and there is a strong demand for local responsiveness
transnational
How can the failure rate for international strategic alliances be described?
two-thirds of international strategic alliances run into serious managerial and financial troubles within two years of their formation
_____ innovation happens when innovation pushes out the efficiency frontier in an industry, allowing for greater value to be offered through superior differentiation at a lower cost than was previously thought possible.
value
Southwest Airlines delivers more value to its customer set and does so at a lower cost than its rivals, enabling the company to offer lower prices than its competitors and still make a profit. In this regard, Southwest is considered to be a:
value innovator
standardization strategy
when a company decides to ignore different segments and produces a standardized product for the average consumer
focus strategy
when a company decides to serve a limited number of segments, or just one segment
focus differentiation strategy
when a company targets a certain segment or niche and customizes its offerings to the needs of that particular segment through the addition of features and functions
focus low-cost strategy
when a company targets a certain segment or niche and tries to be the low-cost player in that niche
mass market
when large numbers of customers enter the market
Where are competencies most likely to be created within a multinational's global network of operations?
wherever people have the opportunity and incentive to try new ways of doing things
create
which factors can we create that rivals do not offer, thereby increasing value?
raise
which factors should be raised above the standard of our industry, thereby increasing value?
reduce
which factors should be reduced well below the standard of our industry, thereby lowering costs?
eliminate
which factors that rivals take for granted in our industry can be eliminated, thereby reducing costs?
business-level strategy
whom a company is deciding to serve, what customer needs and desires the company is trying to satisfy, and how does the company satisfy those needs