Chapter 3

The two broad strategies for building a competitive advantage are the _____ strategies. a. cost-based and differentiation-based b. price-advantage and cost-advantage c. marketing-advantage and price-advantage d. focus-advantage and marketing-advantage

...a. cost-based and differentiation-based

Which action is a cause for erosion of a small firm's focus strategy? a. Consumer demand grows. b. New firms reconstruct the industry. c. Differences between segments grow larger. d. The focus strategy is imitated.

...d. The focus strategy is imitated.

Based on William A. Sahlman's suggestions, which question about competitors should be answered by the business plan? a. Are there ways to co-opt potential or actual competitors by forming alliances? b. How easily can new competitors enter the industry? c. Do small businesses have special advantages when competing in the industry? d. What is the average size of competitors?

a. Are there ways to co-opt potential or actual competitors by forming alliances?

Consuela noticed significant growth in the Hispanic population in her mid-size town. The local grocery carried mostly traditional American products. She knew her neighbors would want familiar foods so she decided to open a food market catering to their preferences. Which kind of startup will her store be? a. New market idea b. New technology idea c. New benefit idea d. New product idea

a. New market idea

Which statement is an example of an economic trend? a. The Federal Reserve announces that it will decrease the interest rate charged to banks. b. Congress passes legislation that increases the tax rate on corporations. c. A new computer chip is announced which will allow for miniaturization of many electronic devices. d. The E.U. declares an increase in tariffs on all agricultural goods.

a. The Federal Reserve announces that it will decrease the interest rate charged to banks.

As the success of the athletic teams at O-MY-U skyrocketed, so did attendance at the games. Out-of-town visitors found all the hotels fully booked. So Bob and Shirley opened their home to guests on weekends, operating as a bed-and-breakfast. Soon many of their neighbors did the same and Bob and Shirley found they could no longer fill all their rooms every game weekend. How would Michael Porter explain this? a. The focus strategy was imitated. b. Demand disappeared. c. The target segment lost its uniqueness. d. The industry became further segmented.

a. The focus strategy was imitated.

Mike and Jane opened a franchise sporting goods store. Neither was athletic; neither had ever managed a retail store; and the business failed within one year. Which statement best explains these results? a. The venture did not fit with their mission or aspirations. b. They had no connections with suppliers, customers, or investors. c. They lacked factors critical to the success of the enterprise. d. They failed to complete a feasibility study.

a. The venture did not fit with their mission or aspirations.

An example of an idea for a new startup from a hobby is a. a coin collector, who bought and sold coins for years to build a personal collection, deciding to become a coin dealer. b. a furniture salesperson seeing the possibility of opening a new furniture store in a different area of the city. c. a sharpshooter, who shot holes in a pair of her boyfriend's jeans during an argument, hearing him get complimented on the way they look. d. all of the above are examples.

a. a coin collector, who bought and sold coins for years to build a personal collection, deciding to become a coin dealer.

Arlene runs Aquabuddies, a company that makes figurines for aquariums. What type of strategy would be expected? a. a focus strategy. b. an unsegmented strategy. c. a multisegmentation strategy. d. a marketing mix strategy.

a. a focus strategy

Generally speaking, a strategy is a. an action plan that guides resource investments. b. a formal statement of what the firm intends to do. c. an expanded description of the firm's mission statement. d. most effective when it is designed to reflect the tactics that are common within an industry.

a. an action plan that guides resource investments.

. Noland has identified an underserved market for his product. Competitors are not likely to notice his efforts to attract his target market, and his product fills a need for these customers. Noland has found: a. an opportunity sweet spot. b. a core competency. c. a competitive advantage. d. a capability.

a. an opportunity sweet spot.

Tangible resources include: a. cash, technology, and raw materials. b. cash, management expertise, and a good reputation c. management expertise, a good reputation, and technology. d. intellectual property rights, equipment, and a skilled workforce.

a. cash, technology, and raw materials.

For the past several years the borrowing interest rates has been very low in the United States. This is an example of a(n) ______________ trend. a. economic b. sociocultural c. political/legal d. demographic

a. economic

Kitty-Kat Korner fabric shop caters to the quilters in the region. Other fabric shops carry fabrics for all types of clothing along with floral, yarn, and other craft supplies. Kitty-Kat carries only items related to quilting. Which of the following best describes Kitty-Kat's strategy? a. focus b. cost-based c. quality d. innovation

a. focus

When conducting an outside-in analysis, one should consider the _____ environment followed by the _____ environment. a. general; industry b. general; natural c. industry; natural d. industry; political

a. general; industry

Considering Michael Porter's five factors, we can say that the fast food hamburger industry is characterized by: a. intense rivalry. b. strong suppliers. c. strong buyers. d. ease of entry into the industry.

a. intense rivalry.

According to a study by the National Federation of Independent Business, the most common source of new product ideas for small business startups is a. prior work experience. b. personal interests and hobbies. c. a chance happening. d. existing records of a business.

a. prior work experience.

When Sally realized her vintage clothing pieces were being bought by the local college students and not just their parents, she started adding more vintage pieces to her inventory. Sally is a. recognizing a hot trend and riding the wave. b. combining two businesses into one to create a market opening. c. beginning with a problem in mind. d. considering ways to adapt a product or service to meet customer needs in a different way.

a. recognizing a hot trend and riding the wave.

Substitute products a. reduce the attractiveness and profitability of an industry. b. represent those items manufactured by direct rivals within an industry. c. are usually cheaper than the products they can replace. d. are always a serious threat to rivals in an industry.

a. reduce the attractiveness and profitability of an industry.

Resources are best described as a. those basic inputs that a firm uses to conduct its business. b. only those features that are visible and easy to quantify. c. the firm's lending capacity. d. capabilities that can be exploited.

a. those basic inputs that a firm uses to conduct its business.

The quote "Good artists borrow; great artists steal" is the principle that launched which company? a. Aimie's Dinner and Movie b. Apple c. C and D Landscape Company d. Xerox

b. Apple

Carol enjoyed yarn crafts but there were no yarn shops in her small town. She reasoned that there were many others nearby who might appreciate being able to purchase yarns and supplies without a long drive. Within a year her shop was profitable and expanding into larger space. Which of these statements best describes this situation? a. Carol grew a business out of her personal experience. b. Carol turned her hobby into a thriving business. c. Carol accidentally stumbled upon a gold mine. d. Carol used her work experience as a source of startup ideas.

b. Carol turned her hobby into a thriving business.

Which statement is an example of a political/legal trend? a. The Federal Reserve announces that it will decrease the interest rate it charges banks. b. Congress passes legislation that increases the tax rates on corporations. c. A new computer chip is announced which will allow for miniaturization of many electronic devices. d. The E.U. declares an increase in tariffs on all agricultural goods

b. Congress passes legislation that increases the tax rates on corporations.

. O-MY-U once had a winning team in every college sport. But athletes graduate and fortunes change. Attendance at the games dropped when the team had a losing season. Bob and Shirley found it difficult to attract enough guests to their bed-and-breakfast to cover their costs. How would Michael Porter explain this? a. The focus strategy was imitated. b. Demand disappeared. c. The target segment lost its uniqueness. d. New firms subsegmented the industry.

b. Demand disappeared.

When Jeff Bezos launched Amazon.com, his idea of selling items he did not own from a website was unique. Which type of startup is this? a. New market idea b. New technology idea c. New benefit idea d. New product idea

b. New technology idea

The trend toward more customized consumer goods is what kind of trend? a. Economic b. Sociocultural c. Technological d. Demographic

b. Sociocultural

Which segment is part of the general environment? a. The industry segment b. The global segment c. The information segment d. The human resources segment

b. The global segment

Intangible resources include: a. a good location, cash, and capable business partners. b. a good reputation, a respected brand name, and an extensive personal network. c. intellectual property rights, equipment, and technology. d. capable business partners, intellectual property rights, and equipment.

b. a good reputation, a respected brand name, and an extensive personal network.

Jeff Bezos' original business plan involved taking orders for books and having the items shipped directly from the publisher to the customer. He modified the plan to include other products such as toys and decided to buy the toys from the producers and ship them from his own warehouse. This modification of the original plan is called: a. a change of plan b. a pivot. c. a serendipity. d. a competitive move.

b. a pivot.

A computer technician recognizing a need for more aesthetically pleasing computers would be said to have entrepreneurial _____. a. technology b. alertness c. strategy d. rivalry

b. alertness

An inside-out analysis is one that: a. considers the general environment and industry setting. b. catalogs the startup's sources of potential strengths. c. considers the strengths of buyers and suppliers. d. catalogs the possible responses of rivals in the industry.

b. catalogs the startup's sources of potential strengths.

Julie, owner of a bed and breakfast inn, had been asked repeatedly to cater events. Once she realized her kitchen was not being used during the later part of the day, she started the company. This change is an example of a. recognizing a hot trend and riding the wave. b. combining two businesses into one to create a market opening. c. beginning with a problem in mind. d. considering ways to adapt a product or service to meet customer needs in a different way.

b. combining two businesses into one to create a market opening.

Morris built a thriving business by selling tailor-made clothing at off-the-rack prices. All other custom-clothing stores charge much higher prices. We can say that Morris has a(n) a. core competency. b. competitive advantage. c. serendipity. d. opportunity alertness.

b. competitive advantage.

An increase in the bargaining power of suppliers a. increases both the attractiveness and the profitability of the target market. b. decreases both the attractiveness and the profitability of the target market. c. decreases the attractiveness and increases the profitability of the target market. d. increases the attractiveness and decreases the profitability of the target market.

b. decreases both the attractiveness and the profitability of the target market.

Kitty-Kat Korner fabric shop caters to the quilters in the region. Nowhere else can a quilter find everything she needs: fabrics, notions, pattern books, even quilting machines and quilting classes. This is not your typical fabric store by any means. Which of the following best describes Kitty-Kat's strategy? a. innovation b. differentiation c. cost-based d. strategic alliances

b. differentiation

Containers Etc. manufactures household containers. In contrast to traditional market designs, all of the products are microwaveable, child-proof and come in an assortment of 35 colors. Accordingly, Containers Etc. is pursuing a _____ strategy. a. product-based b. differentiation-based c. concept-based d. efficiency-based

b. differentiation-based

Richard could see the demand for towable recreational vehicles declining so beginning in the early 1970s he used his equipment, employees, and professional network to design and build utility trucks, a more recession-resistant industry. This is an example of: a. serendipity. b. diversification. c. innovative thinking d. market ideas.

b. diversification.

A differentiation-based strategy requires that a firm a. be the lowest-cost provider in an industry. b. emphasize the uniqueness of its product or services. c. achieve the highest resource efficiency in an industry. d. be the lowest-priced competitor in an industry.

b. emphasize the uniqueness of its product or services.

Isabella listens whenever someone says "Someone ought to make a ..." She expects one of these ideas to develop into a profitable business. Isabella possesses: a. market awareness. b. entrepreneurial alertness. c. opportunity recognition. d. innovative thinking.

b. entrepreneurial alertness.

. The increased trade between the United States and Mexico since the enactment of the North American Free Trade Agreement is related to the ____ element of the general environment. a. technological b. global c. ecological d. sociocultural

b. global

An evaluation of the general environment a. is done before the feasibility analysis. b. helps identify a trend that could be used for a possible startup idea. c. will clarify the unique value of the startup idea. d. will be the primary determinant for a possible startup idea.

b. helps identify a trend that could be used for a possible startup idea.

Considering Michael Porter's five factors, the automotive industry in the United States is characterized by: a. weak rivalry. b. high barriers to entry. c. many substitute products. d. weak suppliers.

b. high barriers to entry.

Janis wants to open a restaurant. She is not interested in a franchise; she wants to build her business literally from the ground up. When she does, her business will be classified as a: a. entrepreneurial opportunity. b. startup. c. new market idea. d. serendipity.

b. startup.

Rumpelstiltskin, an imp in a Grimm Brothers fairy tale, could spin straw into gold. We would call this a(n) a. useful skill. b. tangible resource. c. intangible resource d. capability.

b. tangible resource.

According to Michael Porter, a focus strategy can erode when a. the strategy is protected. b. the target segment's differences from other segments narrow. c. new firms reconstruct the industry. d. demand for the product grows and thus attracts new competitors.

b. the target segment's differences from other segments narrow.

. Which statement is an example of a technological trend? a. The Federal Reserve announces that it will decrease the interest rate it charges banks. b. Congress passes legislation that increases the tax rates on corporations. c. A new computer chip is announced which will allow for miniaturization of many electronic devices. d. The E.U. announces an increase in tariffs on all agricultural goods.

c. A new computer chip is announced which will allow for miniaturization of many electronic devices.

Drs. James and Janet Baker saw that many people experienced difficulty and frustration when typing, some because of physical disabilities. So they invented a voice recognition software to allow users to talk to the computer. Their ideas have become Dragon Naturally Speaking, a popular talk-to-type software application. Which of these statements describes their startup? a. Borrow heavility from existing products or services. b. Combine two businesses to create a market opening. c. Begin with a problem in mind or a pain you can relieve. d. Recognize a hot trend and ride the wave.

c. Begin with a problem in mind or a pain you can relieve.

. Peggy would like to open a dog grooming business in her home. Which of the following, if true, would indicate this is a good idea? a. More households now own dogs but the owners don't want to give them regular baths. b. Fewer households now own dogs but the owners don't want to give them regular baths. c. Fewer households now own dogs but the owners give them regular baths. d. More households own dogs but the owners give them regular baths.

c. Fewer households now own dogs but the owners give them regular baths.

As China's production of exportable goods increases, Chinese workers have more money to spend on consumer items. Other developing countries are experiencing the same growth. Which type of trend does this represent? a. Economic b. Sociocultural c. Global d. Demographic

c. Global

Laura discovered to her amazement that the skin oil she sold seemed to repel mosquitos. She relabeled the product and began selling it as alternative to brands such as Cutter and Off!. Laura's startup is which kind? a. New market idea b. New technology idea c. New benefit idea d. New product idea

c. New benefit idea

_____ refers to the way entrepreneurs identify new products or services that may lead to promising businesses. a. Focus-based decisions b. Elasticity c. Opportunity recognition d. Cost-benefit analysis

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The State of Maryland has recently imposed a "rain tax" based on the amount of non-water-absorbing surfaces on real estate. Which type of trend does this represent? a. Economic b. Sociocultural c. Political/legal d. Technological

c. Political/legal

Today's smartphones bear little resemblance to the original analog cell phones of the early 1990s. Their capabilities exceed those of the early desktop computers. It seems nearly every adult carries at least one cell phone. Which of the trends does this represent? a. Sociocultural b. Demographic c. Technological d. Global

c. Technological

Which factor determines the nature and degree of competition in an industry, as identified by Michael Porter in his book Competitive Advantage? a. The interest of small businesses b. Bargaining power of competitors c. Threat of substitute products or services d. The macroeconomic level of the industry

c. Threat of substitute products or services

Observations about the external environment and organizational potentials can be brought together by means of a. an alignment strategy. b. the in-and-out assessment. c. a SWOT analysis. d. common sense critique.

c. a SWOT analysis.

An example of an idea for a new startup from an accidental discovery is a. a coin collector, who bought and sold coins for years to build a personal collection, deciding to become a coin dealer. b. a furniture salesperson seeing the possibility of opening a new furniture store in a different area of the city. c. a sharpshooter, who shot holes in a pair of her boyfriend's jeans during an argument, hearing him get complimented on the way they look. d. all of the above are examples.

c. a sharpshooter, who shot holes in a pair of her boyfriend's jeans during an argument, hearing him get complimented on the way they look.

A focus strategy is best described as a. an attempt to compete directly with industry giants. b. a domestic marketing strategy. c. a strategy that isolates the firm from market forces. d. targeting the high end of a market.

c. a strategy that isolates the firm from market forces.

Considering Michael Porter's five factors, the chicken meat processing industry is characterized by: a. low barriers to entry. b. intense rivalry among competitors. c. availability of many substitutes. d. strong buyers.

c. availability of many substitutes.

A(n) _____ exists when multiple resources are integrated and then deployed to the firm's advantage. a. networked resource b. common intangible c. capability d. industry edge

c. capability

Angela noticed an interest among her friends and colleagues in wearing high-end watches and other jewelry for special occasions, so she started a company where customers could rent high-end jewelry. Angela is a. considering ways to adapt a product or service to meet customer needs in a different way. b. offering products through a subscription service. c. cashing in on the sharing economy. d. imagining how a market for a product could be creatively expanded.

c. cashing in on the sharing economy.

Milton's Auto Service is a small auto maintenance and repair shop located in a small town in a garage behind Milton's house. Milton doesn't charge as much as auto dealerships so he has a steady stream of local customers. Which of the following best describes Milton's strategy? a. innovation b. strategic alliances c. cost-based d. differentiation

c. cost-based

3. Israel Kirzner believes entrepreneurs have a unique capability, which he calls _________ ________, to spot existing opportunities for businesses. a. innovative thinking b. market awareness c. entrepreneurial alertness d. opportunity recognition

c. entrepreneurial alertness

Mark is the owner of Delectable Delights, a specialty store offering chocolates, candies, and fruit baskets. After a recent analysis of the competitive environment, Mark concluded that three distinct consumer segments exist for his products - A, B, and C consumers. In an effort to maximize the effectiveness of its strategy, Mark has decided to limit his efforts to fulfilling the needs of A consumers. He is employing a _____ strategy. a. multisegmentation b. selective c. focus d. concentration

c. focus

One of the drawbacks of SWOT analysis is: a. it is very time consuming. b. a professional consultant must perform it. c. its focus on present conditions. d. it requires information about competitors not readily available to outsiders.

c. its focus on present conditions.

38. TV commercials promote reverse mortgages. Other ads promote medications for high blood pressure, ED, immune system disorders, and high cholesterol. Which type of trend do these represent? a. Sociocultural b. Global c. Technological d. Demographic

d. Demographic

Verlin worked in a cabinet shop until he became frustrated that his ideas for improving efficiency were falling on deaf ears. So he left and started his own cabinet shop where he could implement those ideas. From which source did his ideas for his startup come? a. From hobbies b. From personal interests c. From accidental discovery d. From work experience

d. From work experience

Miles' startup company began well but within a couple months he found he was unable to pay invoices from suppliers. He didn't understand how he could have this problem. He hired experts; his business idea was sound; and he had many new customers. What went wrong? a. Miles lacked critical technologies. b. Miles lacked patents or copyrights. c. Miles lacked raw materials. d. Miles lacked cash resources.

d. Miles lacked cash resources

Miriam opened a yarn craft store in her small town based on her personal interests and hobbies. There were no competitors locally; the merchandise was readily available; and she had the initial capital to open the store. Yet her business failed. Too few customers visited her store. What was Miriam's fatal flaw? a. The merchandise was patent-protected. b. Miriam could not raise enough capital. c. Miriam lacked industry knowledge. d. Miriam ignored the market limitations.

d. Miriam ignored the market limitations.

Which of the following could be considered a core competency? a. Zappos' 365 day return policy b. NutriSystem's claim that users lose weight by eating c. McDonald's ability to fry hamburgers quickly d. Southwest Airlines' ability to make flying fun

d. Southwest Airlines' ability to make flying fun

Many commuters grab a cup of coffee and drink it during their ride to work. So someone invented specially shaped cups that don't tip and lids with sip openings that close and don't spill. Which of these innovative ways of thinking best fits this situation? a. Combine two businesses to create a market opening. b. Study a product or service to see if you can make it "green." c. Recognize a hot trend and ride the wave. d. Study an existing product and explore ways to improve its function.

d. Study an existing product and explore ways to improve its function

Which statement is an example of a global trend? a. The Federal Reserve announces that it will decrease the interest rate it charges banks. b. Congress passes legislation that increases the tax rates on corporations. c. A new computer chip is announced that will allow for miniaturization of many electronic devices. d. The E.U. declares an increase in tariffs on all agricultural goods.

d. The E.U. declares an increase in tariffs on all agricultural goods.

Many direct sales organizations suggest that the new "member" begin selling the product part-time while continuing to work at his/her regular job. Which explanation best fits this recommendation? a. The business meets a definite market need. b. The target market is sizable. c. There are few competitors. d. The business can be tested cheaply and expanded incrementally.

d. The business can be tested cheaply and expanded incrementally

A SWOT analysis can be described best as a. a means of assessing the firm's industry situation. b. an assessment of the internal strengths and weaknesses of the firm. c. a dynamic analysis of the firm's current situation. d. a concise overview of the firm's strategic situation.

d. a concise overview of the firm's strategic situation.

Wilma needed wine glasses but all she had were candlestick holders and 8-ounce canning jars. Gluing the two together, she created what she called "mountain crystal" which became a big hit. The local crafters' association asked her to make enough for them to sell, and her business took off. This is an example of building a business from: a. work experience. b. hobbies. c. personal interest. d. accidental discovery.

d. accidental discovery.

According to the feasibility analysis framework, an entrepreneur who has a vision of a multi-unit company will a. be satisfied with an attractive niche so the company can gain market share. b. check to see if the health of the micro-market is strong enough for future macro-market growth. c. desire a healthier micro-market potential growth over the health of the macro-market. d. be satisfied with an attractive niche if it would serve as a point of entry for long-term potential.

d. be satisfied with an attractive niche if it would serve as a point of entry for long-term potential.

A company that is the lowest-cost producer within the market will have what type of strategy? a. price-based b. marketing-based c. efficiency-based d. cost-based

d. cost-based

Marketplace Farms is a regional cooperative of apple and orange growers. In order to compete against larger regional growers, the company relies on inexpensive packaging processes and lower cost labor instead of machines. Marketplace Farms is relying on what type of strategy? a. price-based b. marketing-based c. efficiency-based d. cost-based

d. cost-based

Alyson and Andrea, country artists, realized that their love of classic rock was also popular with their fans. Their change to their show to incorporate more rock songs with a country flavor is an example of a. recognizing a hot trend and riding the wave. b. combining two businesses into one to create a market opening. c. beginning with a problem in mind. d. finding a way to adapt a product or service to meet customer needs in a different way.

d. finding a way to adapt a product or service to meet customer needs in a different way.

Careful analysis of the competitive environment can result in: a. failure of a new business. b. unexpected response from a rival. c. loss of the startup's supplier base. d. greater financial success of the startup.

d. greater financial success of the startup

Katarina has founded three different businesses in the past eight years, all of which have become so successful she has sold them at large profits. We can say Katarina is good at: a. innovative ideas. b. entrepreneurial alertness. c. new market ideas. d. opportunity recognition.

d. opportunity recognition.

Farmers wishing to sell grain cannot negotiate a price; they either accept the price offered or decline to sell their crop. This is an example of: a. low barriers to entry. b. availability of substitutes. c. intense rivalry. d. strong buyers.

d. strong buyers.

The diamond market is monopolized by the DeBeers organization, from mining to cutting and polishing to wholesaling. Jewelers can do little to negotiate prices. This situation typifies: a. low barriers to entry. b. availability of substitutes. c. intense rivalry. d. strong suppliers.

d. strong suppliers.