MGMT 425 Chapter 6

1. A fragmented industry is composed of a large number of small and medium-sized companies. (A) True (B) False

(A)

10. A new product's relative advantage refers to the degree to which a new product is perceived as better at satisfying customer needs than the product that it supersedes. (A) True (B) False

(A)

11. One characteristic of embryonic industries is unconventional and specialized distribution channels. (A) True (B) False

(A)

13. Both innovators and early adopters are customers in the market while the industry is in its embryonic stage. (A) True (B) False

(A)

15. Different strategies are often required to support and strengthen a company's business model as a market develops over time. (A) True (B) False

(A)

19. Innovators and early adopters have very different customer needs from the early majority. (A) True (B) False

(A)

21. Formal price leadership, or when companies collaborate to set prices, is illegal under antitrust laws. (A) True (B) False

(A)

22. The goal for companies in the growth stage of the industry life cycle is to maintain its relative competitive position in a rapidly expanding market. (A) True (B) False

(A)

25. A technology upgrading strategy is utilized by incumbent companies in a mature industry to deter entry by investing in costly upgrades that potential entrants would have trouble matching. (A) True (B) False

(A)

26. Product proliferation refers to the strategy of filling the niches by catering to the needs of customers in all market segments. (A) True (B) False

(A)

28. A limit price strategy involves charging a price that is lower than that required to maximize profits in the short run, but is above the cost structure of potential entrants. (A) True (B) False

(A)

29. Market development strategy involves finding new market segments for a company's products. (A) True (B) False

(A)

3. By their choices of competitive actions and decisions about product attributes, managers can speed up or slow down the rate of progress of an industry through the stages of the industry life cycle. (A) True (B) False

(A)

30. A leadership strategy aims at growing in a declining industry by picking up the market share of companies that are leaving the industry. (A) True (B) False

(A)

31. A divestment strategy's success is often dependent upon good timing. (A) True (B) False

(A)

32. A harvest strategy requires the company to halt all new investments in capital equipment, advertising, research and development, and other activities that require cash flow. (A) True (B) False

(A)

23. In the embryonic stage of the industry life cycle, a company's investment needs and production costs are low. (A) True (B) False

(B)

24. Product proliferation often results in lowering of entry barriers in a mature industry. (A) True (B) False

(B)

27. Market penetration involves the creation of new and innovative products to replace existing ones. (A) True (B) False

(B)

4. Relish Inc. created the first national chain of fast-food restaurants in a previously fragmented industry. This is called divestment. (A) True (B) False

(B)

43. One strategy used to consolidate fragmented industries is: (A) vertical mergers. (B) chaining. (C) product proliferation. (D) price signaling. (E) nonprice competition.

(B)

46. An embryonic industry is one that: (A) includes a number of small and medium sized companies. (B) is just beginning to develop and customer demand is initially limited. (C) has sufficiently developed so that early industry leaders have already been identified. (D) has initial government backing because of its importance to the general populace. (E) is characterized by intense rivalry among established companies.

(B)

5. The franchisor typically owns and funds each of its franchisees. (A) True (B) False

(B)

53. Which of the following customer groups represents the leading wave or edge of the mass market? (A) Early adopters (B) Early majority (C) Innovators (D) Late majority (E) Laggards

(B)

56. In a declining industry, a company may utilize a harvest strategy and: (A) significantly increase its investment in a business. (B) extract maximum profits from its investments. (C) venture into new market segments with new products. (D) expand the number of stores or outlets for its products. (E) significantly increase its advertising expenditure.

(B)

58. A market growth factor that explains customers' perceptions of a new product as better at satisfying their needs than the product it replaces is called: (A) complexity (B) relative advantage (C) compatibility (D) trialability (E) observability

(B)

6. Alpha corporation owns and controls several retail outlets and is pursuing a strategy called franchising. (A) True (B) False

(B)

62. Which of the following statements is true of growing industries? (A) Innovators and early adopters have the same customer needs as the early majority. (B) Innovators and early adopters are typically reached through specialized distribution channels. (C) Reaching the early majority rarely requires advertising and is usually achieved through word of mouth. (D) Companies serving innovators need to have large-scale mass production and very low prices. (E) Companies competing in an embryonic market typically pay more attention to increasing the reliability of a product than to its performance.

(B)

34. The real estate industry is comprised of different firms in several locations. Some are independent and popular locally, while others are affiliated to national chains. The real estate industry is most likely to be a(n): (A) fragmented industry. (B) oligopolies industry. (C) pure competition industry. (D) consolidated industry. (E) monopoly.

(A)

37. Firms sometimes pursue a chaining strategy to: (A) obtain the advantages of economies of scale. (B) create product diversity. (C) generate revenue by licensing the patents it owns. (D) spread overhead costs. (E) establish a number of unrelated business units.

(A)

40. Which of the following statements is true about horizontal mergers? (A) Horizontal mergers enable companies to achieve economies of scale. (B) Horizontal mergers result in the fragmentation of the industry. (C) The horizontal merger strategy has been very successful in businesses with zero cases of failure. (D) Companies that establish a network of distributor outlets to obtain the advantages of a low-cost postition are known as horizontal mergers. (E) Companies that adopt the strategy of centralization to gain control over all business units are known as horizontal mergers.

(A)

44. In a bid to expand its business and gain cost advantages, Omega Inc. has established several merchandising outlets in different locations. All the outlets share a good network and are interconnected by information technology. The entire network of outlets operates in the industry as one large company. Which of the following strategies has Omega Inc. most likely used ? (A) Chaining (B) Franchising (C) Horizontal merger (D) Niche strategy (E) Divestment strategy

(A)

47. Most embryonic industries arise from: (A) a technological breakthrough. (B) product proliferation. (C) lack of high entry barriers. (D) chaining. (E) franchising.

(A)

52. Customers who have a practical interest in using a new technology in the future and who are willing to experiment and envision new uses for the technology are called: (A) early adopters. (B) the early majority. (C) innovators. (D) laggards. (E) the late majority.

(A)

54. The growth stage of an industry's life cycle is the: (A) time when companies attempt to secure their grip over customers in existing market segments. (B) time when customers start exiting the markets. (C) time to plan an exit strategy. (D) time to reduce investment in a product. (E) time when the demand for products is low because customers are not familiar with the product.

(A)

55. Which of the following factors of a particular product tends to accelerate customer demand for it? (A) High observability (B) Minimum relative advantage (C) High complexity (D) Minimal value (E) Low trialability

(A)

59. Which of the following factors that affect market growth rates refers to the degree to which a new product is perceived as difficult to understand and use? (A) Complexity (B) Relative advantage (C) Compatibility (D) Trialability (E) Observability

(A)

68. Nutrimax Corp., a breakfast cereal company, has designed extensive and elaborate advertising campaigns for its existing products. The campaigns mainly focus on the features and benefits of the products that differentiate the cereals from the competition. The massive advertising and marketing initiatives are also intended to intimidate new entrants and rivals. Nutrimax Corp. is most likely to be using which of the following strategies? (A) Market penetration (B) Product development (C) Product proliferation (D) Market development (E) Capacity control

(A)

7. Through chaining, companies increase their buying power, which allows them to negotiate large price reductions with their suppliers, which in turn promotes their competitive advantage. (A) True (B) False

(A)

75. An app development firm is working on a new product to identify and consolidate a smartphone users' favorite and most used apps into one place on the phone. If the new product will be sold to existing customers, the firm is pursuing a strategy of: (A) product development. (B) market penetration. (C) product proliferation. (D) market signaling. (E) market development

(A)

76. Which of the following statements is true of declining industries? (A) Typically, not all segments of an industry decline at the same rate. (B) A declining industry should ideally use the leadership strategy when it does not have any strengths and the competition is low. (C) Divestment strategy is when a company in a declining industry tries to improve sales by improving product quality. (D) The greater the exit barriers of a declining industry, the lower the intensity of competition. (E) The intensity of competition lower in declining industries that sell commodity-like products.

(A)

79. In deciding on a strategy, a company in a declining industry must do all of the following except (A) lower prices. (B) manage industry capacity. (C) evaluate its strengths relative to the remaining pockets of demand. (D) evaluate the severity of decline. (E) monitor its cash flow.

(A)

9. The challenge in a fragmented industry is to figure out the best set of strategies to overcome a fragmented market so that the competitive advantages associated with pursuing one of the different business models can be realized. (A) True (B) False

(A)

12. Development of a mass market is the stimulus for an industry to change from growth to embryonic. (A) True (B) False

(B)

14. Early adopters are customers who purchase a new technology or product only when they are convinced that it will be around for a long time. (A) True (B) False

(B)

16. The late majority customers are typically reached through specialized distribution channels, and products are often sold by word of mouth. (A) True (B) False

(B)

17. Laggards are the customers who are the first ones to try and adopt a new technology. (A) True (B) False

(B)

18. Horizontal mergers often lead to industry fragmentation. (A) True (B) False

(B)

2. Fragmented industries typically have high barriers to entry. (A) True (B) False

(B)

20. Laggards are technologically sophisticated customers willing to tolerate the limitations of the product. (A) True (B) False

(B)

65. Gadgetbug, an electronic gadgets company, has established itself as one of the industry leaders. The company has been facing competition from new entrants. The new entrants offer gadgets in different colors, with compelling artwork embossed on the cases. Seeing the interest in this market, Gadgetbug introduced its own range of uniquely designed gadgets. In this scenario, Gadgetbug's attempt to cater to the different segments of customers to deter competition demonstrates: (A) price signaling (B) product proliferation (C) harvest strategy (D) limit price strategy (E) diseconomies of scale

(B)

71. The strategy in a mature industry to invest in infrastructure that would be cost-prohibitive for new entrants to deter new competition from entering the market is known as: (A) product proliferation. (B) technology upgrading. (C) market penetration. (D) capacity control. (E) product development.

(B)

78. When a company decides to exit an industry by selling off its business assets to another company, it is said to be using a(n) _____ strategy. (A) market penetration (B) divestment (C) niche (D) downsizing (E) outsourcing

(B)

8. Franchisees essentially pursue independent strategies and do not use the business model of the franchisor. (A) True (B) False

(B)

81. Music CDs and newspaper sales have been falling as users turn to the Internet for their music and news. Which of the following is NOT a strategy for companies in these declining industries? (A) Leadership (B) Chaining (C) Niche (D) Divestment (E) Harvest

(B)

33. A fragmented industry is one composed of a: (A) single large company that has the power to determine prices. (B) large companies and their subsidiaries. (C) large number of small and medium-sized firms. (D) companies that operate in different locations across the world. (E) a small number of single proprietorships.

(C)

36. Which of the following statements is true about fragmented industries? (A) They are usually characterized by large mass-production operations. (B) They essentially enjoy a national brand loyalty. (C) They require companies to use focus strategies to meet specialized customer needs. (D) They do not attract new entrants as they have extremely high entry barriers due to economies of scale. (E) They are usually dominated by one or two large companies that enjoy the power to influence

(C)

39. Which of the following is a disadvantage of franchising? (A) It restricts the franchisor from expanding. (B) It results in the franchisor taking all the financial burden of the franchisees. (C) It results in the delegation of authority to franchisees, and the franchisor may not enjoy complete control. (D) It does not provide sufficient incentive to the franchisees to run operations effectively because franchisees are not entrepreneurs. (E) It requires the franchisees to create a new business model and plan strategies.

(C)

50. The first group of customers to enter the market for a new product are called: (A) laggards. (B) late majority. (C) innovators. (D) early majority. (E) passive shoppers.

(C)

51. Factors leading to the slow growth of demand in embryonic industries include all of the following except the: (A) poor quality of the first products. (B) lack of complementary products. (C) customer passion for the products. (D) high production costs of the products. (E) lack of distribution channels for the products.

(C)

57. Who among the following is most likely to fall under the category of laggards in the context of customer groups? (A) Lauren is tech-savvy and tends to actively seek out for new and innovative products in the market. (B) Suresh appreciates technology but tends to refrain from trying products that are extremely new. (C) Phillip is ignorant about the newest uses of technology and buys new products only when they become an absolute necessity. (D) Charlotte is aware of the value that technology offers; she tends to weigh costs and benefits of a product before making a buying decision.

(C)

61. Which of the following statements is true about customer categories in growing industries? (A) Laggards frequently adopt new products even when the benefits are not obvious. (B) Innovators are the customers who are the last ones to adopt a new product. (C) A typical late majority customer group is a behaviorally conservative set of customers. (D) Customers in the early majority generally do not understand the value of new technology. (E) Laggards form the leading wave or edge of the mass market.

(C)

64. Tom tends to be ignorant about technological advancements. He was reluctant to own a smartphone even when they were well-established and familiar in the market. However, Thomas slowly got used to the idea of a smartphone when his job demanded him to be connected to the office network all the time. Thomas is most likely to fall under which of the following categories of customers? (A) Early majority (B) Late majority (C) Laggards (D) Early adopters

(C)

69. Which of the following factors in an industry is most likely to cause excess capacity? (A) Technologically outdated production units (B) High customer demand (C) A company's investments in newer production technology (D) Lack of competition from new entrants (E) Limited number of outlets in certain locations

(C)

80. Competitive intensity in a declining industry is greatest when: (A) the industry is declining slowly instead of rapidly. (B) the product is easy to differentiate. (C) exit barriers are high. (D) entry barriers are high. (E) technology is stable.

(C)

42. A company uses _____ when it focuses on pockets of demand that are declining more slowly than the industry as a whole to maintain profitability. (A) acquisition strategy (B) chaining (C) divestment strategy (D) niche strategy (E) franchising

(D)

45. Hydralicious, a juice bar, has been looking to expand its business. The company has given a few entrepreneurs in different locations the license to operate under its name.The entrepreneurs have permission to use the company's reputation and the business model to run operations. The entrepreneurs will be charged a fee, but they will also get a percentage of the profits. Which of the following strategies is Hydralicious most likely to be using ? (A) Chaining (B) Horizontal merger (C) Vertical merger (D) Franchising (E) Centralization

(D)

48. Which of the following statements is true of embryonic industries? (A) They are characterized by very a high initial customer demand. (B) They are characterized by well-developed distribution channels. (C) They involve low production costs because of large volumes of production. (D) They face the challenge of educating customers who are not familiar with their product benefits. (E) They enjoy the abundance of complementary products that help increase sales.

(D)

49. An industry moves from embryonic to growth stage when: (A) the sales of complementary products decline. (B) the production costs increase. (C) companies manufacture products in very small quantities. (D) ongoing technological progress makes its product easier to use. (E) mass markets for its products decline.

(D)

67. Highest market demand and industry profits arise when: (A) early adopters leave the market. (B) innovators and early adopters enter the market. (C) when laggards and late majority leave the market. (D) early and late majority users enter the market. (E) when the production costs become high.

(D)

70. Price signaling in mature industries happens when: (A) the government intervenes to regulate prices of products. (B) companies decide to invest in slow-growing markets. (C) companies decide to sell its patents to generate revenue. (D) companies increase or decrease product prices to convey their intentions to other companies. (E) a company concentrates on expanding market share in its existing product markets.

(D)

72. Mature industries are generally characterized by: (A) low entry barriers. (B) diseconomies of scale. (C) absence of large-scale production. (D) a small number of large firms. (E) very low customer demand.

(D)

73. Which of the following strategies allows interdependent firms indirectly to coordinate their actions? (A) Market development (B) Harvest strategy (C) Divestment strategy (D) Price signaling (E) Market penetration

(D)

77. A_____ strategy aims to help a company grow in a declining industry by picking up the market share of companies that are leaving the industry. (A) divestment (B) harvest (C) price signaling (D) leadership (E) capacity control

(D)

35. Which of the following is not a characteristic of a fragmented industry? (A) Low barriers to entry (B) Diseconomies of scale (C) Brand loyalty in the industry that may primarily be local (D) Very specialized customer needs (E) Large mass-production operation

(E)

38. Which of the following is an advantage of franchising? (A) It gives the franchisor the same level of tight control over franchisees as does chaining. (B) It allows the franchisor to earn all of the profits made by franchisees. (C) It is beneficial for franchisees because they do not have to face higher capital costs. (D) It helps the franchisees by relieving them of the responsibility of running operations. (E) It can help the franchisor expand his or her business rapidly.

(E)

41. To compete in the fragmented restaurant industry, Starbucks built, and now operates hundreds of restaurants across the United States and Canada. Which of the following strategies is Starbucks using ? (A) Acquisitions (B) Horizontal mergers (C) Franchising (D) Licensing (E) Chaining

(E)

60. ___________ is a market growth factor that refers to the degree to which the results of using and enjoying a new product can be seen and appreciated by other people. (A) Complexity (B) Relative advantage (C) Compatibility (D) Trialability (E) Observability

(E)

63. Armando, a technology enthusiast, is often willing to pay premium prices to always have the newest tech gadgets. Armando most likely belongs to the _____ group of customers. (A) laggard (B) early majority (C) early adopter (D) late majority (E) innovator

(E)

66. Which of the following shakeout strategies requires a company to limit or decrease its investment in a business and to extract, or milk, the proceeds of its investment as much as it can? (A) Market concentration strategy (B) Share-increasing strategy (C) Cost-leadership strategy (D) Hold-and-maintain strategy (E) Harvest strategy

(E)

74. Which of the following strategies helps companies with high cost structures, allowing them to survive without having to implement strategies to become more productive and efficient? (A) Price signaling (B) Nonprice competition (C) Capacity control (D) Market development

(E)