MGT 4950 Chapter 5
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. Advantages that cannot be duplicated by other competitors are difficult to achieve. C. The market supports premium pricing, which attracts additional competitors. D. The magnitude of pricing differences and product differentiation is larger than in the growth stage.
Advantages that cannot be duplicated by other competitors are difficult to achieve. In the maturity stage of the industry life cycle, rivalry among existing rivals intensifies because of fierce price competition at the same time that expenses associated with attracting new buyers are rising. It also becomes more difficult for firms to differentiate their offerings, because users have a greater understanding of products and services.
Which of the following is not a potential pitfall of a differentiation strategy? A. Uniqueness that is not valuable. B. All rivals share a common input or raw material. C. The price premium is too high. D. Perceptions of differentiation may vary between buyers and sellers.
All rivals share a common input or raw material. Potential pitfalls of a differentiation strategy include uniqueness that is not valuable; too much differentiation; too high a price premium; differentiation that is easily imitated; dilution of brand identification through product-line extensions; or perceptions of differentiation may vary between buyers and sellers.
Which of the following is not a potential pitfall of a focus strategy? A. Erosion of cost advantages can arise within the narrow segment. B. Product/service offerings that are highly focused are subject to competition from new entrants. C. All rivals share a common input or raw material. D. Focusers can become too focused to satisfy buyer needs.
All rivals share a common input or raw material. Potential pitfalls of focus strategies include: erosion of cost advantages within the narrow segment; the idea that even product and service offerings that are highly focused are subject to competition from new entrants; and focusers that become too focused to satisfy buyer needs.
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 because they are new.
Products or services offered by pioneers may be perceived as differentiated because they are new. In the introduction stage, products are unfamiliar to consumers. Market segments are not well defined, and product features are not clearly specified.
A narrow market focus is to a differentiation-based strategy as a __________________. A. growth market is to a differentiation-based strategy B. broadly-defined target market is to a cost leadership strategy C. growth market is to a cost-based strategy D. technological innovation is to a cost-based strategy
broadly-defined target market is to a cost leadership strategy
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 supplier costs.
Cost cutting may lead to the loss of desirable features. Potential pitfalls of overall cost leadership strategy include too much focus on one or a few value-chain activities; all rivals share a common input or raw material; the strategy is imitated too easily; a lack of parity on differentiation; and erosion of cost advantages when the pricing information available to customers increases.
Which of the following is not a potential pitfall of an integrated overall low cost and differentiation strategy? A. Firms that fail to attain both strategies may end up with neither and become stuck-in-the-middle. B. Firms that underestimate the challenges and expenses associated with coordinating value-creating activities in the extended value chain. C. Firms that target too large a market that causes unit costs to increase. D. Firms that miscalculate sources of revenue and profit pools in the company industry.
Firms that target too large a market that causes unit costs to increase. The pitfalls of integrated overall cost leadership and differentiation include: firms that fail to attain both strategies may end up with neither and become stuck-in-the-middle; underestimating the challenges and expenses associated with coordinating value-creating activities in the extended value chain; and miscalculating sources of revenue and profit pools in the company industry.
Which statement regarding competitive advantages is true? A. With an overall cost leadership strategy, firms need not be concerned with parity on differentiation. B. If several competitors pursue similar differentiation tactics, they may all be perceived as equals in the mind of the consumer. C. In the long run, a business with one or more competitive advantages is probably destined to earn normal profits. D. Attaining multiple types of competitive advantage is a recipe for failure.
If several competitors pursue similar differentiation tactics, they may all be perceived as equals in the mind of the consumer. Potential pitfalls of a differentiation strategy include the idea that perceptions of differentiation may vary between buyers and sellers. The issue here is that beauty is in the eye of the beholder. Companies must realize that although they may perceive their products and services as differentiated, their customers may view them as commodities.
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 points out the need to maintain a differentiation advantage and a low cost advantage simultaneously. D. It has important implications for company generic strategies, functional areas, value-creating activities, and overall objectives.
It has important implications for company generic strategies, functional areas, value-creating activities, and overall objectives. Industry life cycles are important because the emphasis on various generic strategies, functional areas, value-creating activities, and overall objectives varies over the course of an industry life cycle.
Which of the following is FALSE regarding how a differentiation strategy can help a firm to improve its competitive position relative to the Porter five forces model? A. By increasing firm margins, it avoids the need for a low cost position. B. It reduces buyer power because 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.
Supplier power is increased, because suppliers will be able to charge higher prices for their inputs. Supplier power is also decreased, because there is a certain amount of prestige associated with being the supplier to a producer of highly differentiated products and services.
Atlas Door created competitive advantage by reducing the time to receive and process and order and through installing a just in time logistics operation. Which of the following is not a reason for their favorable position relative to the five forces of industry competition? A. It exerted power over its customers. B. It created high entry barriers for new entrants. C. The integration of many value-chain activities in the firm provided causal ambiguity and path dependency. D. The product was easily imitable.
The product was easily imitable. When Atlas began operations, distributors had little interest in its product. The established distributors already carried the door line of a much larger competitor and saw little to no reason to switch suppliers except, perhaps, for a major price concession. But as a startup, Atlas was too small to compete on price alone. Instead, it positioned itself as the door supplier of last resort, that is, the company people came to if the established supplier could not deliver or missed a key date. With an average industry order fulfillment time of almost four months, some calls inevitably came to Atlas. And when it did get the call, Atlas commanded a higher price because of its faster delivery. Atlas not only got a higher price, but its effective integration of value-creating activities saved time and lowered costs. Thus, it enjoyed the best of both worlds.
A firm following a focus strategy must focus on _____________. A. governmental regulations B. the rising cost of inputs C. a market segment or group of segments D. avoiding entering international markets
a market segment or group of segments A focus strategy is based on the choice of a narrow competitive scope within an industry. A firm following this strategy selects a segment or a group of segments and tailors its strategy to serve them. The essence of focus is the exploitation of a particular market niche.
Due to the Internet, firms that use a focus strategy have new opportunities to _________. A. respond quickly to customer requests B. provide more services and features C. access niche markets in a highly specialized fashion D. access markets less expensively
access niche markets in a highly specialized fashion With focus strategies, the Internet offers new avenues in which to compete because they can access markets less expensively (low cost) and provide more services and features (differentiation). Some claim that the Internet has opened up a new world of opportunities for niche players who seek to access small markets in a highly specialized fashion.
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
achieving competitive advantage How firms compete with each other and how they attain and sustain competitive advantages goes to the heart of strategic management. In short, the key issue becomes to identify why some firms outperform others and enjoy such advantages over time.
Which of the following is not a reason for the possible erosion of company competitive advantage? A. rapid change in technology B. globalization C. actions by rivals from within and outside of the industry D. company commitment to innovation
company commitment to innovation Nothing is forever, when it comes to competitive advantages. Rapid changes in technology, globalization, and actions by rivals from within and outside of the industry can quickly erode company advantages. It is becoming increasingly important to recognize that the duration of competitive advantages is declining, especially in technology intensive industries.
In the __________ stage of the industry life cycle, there are few segments, the emphasis on process design is low, and the major functional areas of concern are general management and finance. A. introduction B. growth C. decline D. maturity
decline In the decline stage of the industry life cycle, there are few segments, the emphasis on process design is low, and the major functional areas of concern are general management and finance.
The most likely time to pursue a harvest strategy is in a situation of _______. A. high growth B. strong competitive advantage C. decline in the market life cycle D. mergers and acquisitions
decline in the market life cycle Four basic strategies are available in the decline phase: maintaining, harvesting, exiting, or consolidating.
High product differentiation is generally accompanied by __________. A. higher market share B. higher profit margins and lower costs C. decreased emphasis on competition based on price D. significant economies of scale
decreased emphasis on competition based on price Differentiation provides protection against rivalry since brand loyalty lowers customer sensitivity to price and raises customer switching costs. By increasing company margins, differentiation also avoids the need for a low-cost position.
The text discusses three approaches to combining overall cost leadership and differentiation competitive advantages. Which of the following is not one of these three approaches? A. automated and flexible manufacturing systems B. exploiting the profit pool concept for competitive advantage C. deriving benefits from highly focused and high technology markets D. coordinating the extended value chain by way of information technology
deriving benefits from highly focused and high technology markets Three approaches to combining overall low cost and differentiation include: automated and flexible manufacturing systems, exploiting the profit pool concept for competitive advantage, and coordinating the extended value chain by way of information technology.
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. overall cost leadership B. differentiation C. differentiation focus D. stuck-in-the middle
differentiation Examples of value chain activities for differentiation include support value chain activities like excellent applications engineering support (technology development) and facilities that promote a positive firm image (firm infrastructure).
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. differentiation B. overall cost leadership C. differentiation focus D. cost leadership focus
differentiation focus An overall low-cost position enables a firm to achieve above-average returns despite strong competition. It protects a firm against rivalry from competitors, because lower costs allow a firm to earn returns even if its competitors eroded their profits through intense rivalry. It protects firms against powerful buyers, who can only drive down prices to the level of the next most efficient producer. A low-cost position provides more flexibility to cope with supplier demands for input cost increases.
Which of the following is NOT one of the ways the Internet is lowering transaction costs? A. eliminating supply chain intermediaries B. minimizing office expenses C. evaluating employee performance D. reducing business travel
evaluating employee performance Hiring new employees, meeting with customers, ordering supplies, and addressing government regulations; all have some costs associated with them that can be lowered with the use of the Internet. Removing intermediaries also lowers transaction costs, and Internet search reduces the need for travel.
Piecemeal productivity improvements during a turnaround typically do NOT involve _______. A. business process reengineering B. increased capacity utilization C. expansion of company product market scope D. benchmarking
expansion of company product market scope Piecemeal productivity improvements include improving business processes by reengineering them, benchmarking specific activities against industry leaders, encouraging employee input to identify excess costs, increasing capacity utilization, and improving employee productivity.
Research shows that which of the following is not a strategy used by firms engaged in successful turnarounds? A. asset and cost surgery B. global expansion C. selective product and market pruning D. piecemeal productivity improvements
global expansion A study of 260 mature businesses in need of a turnaround identified three strategies used by successful companies: asset and cost surgery, selective product and market pruning, and piecemeal productivity improvements.
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. exiting C. harvesting D. consolidating
harvesting Harvesting involves obtaining as much profit as possible and requires that costs be reduced quickly.
Research has consistently shown that firms that achieve both cost leadership and differentiation advantages tend to perform ______________. A. at about the same level as firms that achieve either cost or differentiation advantages B. about the same as firms that are stuck-in-the-middle C. higher than firms that achieve either a cost or a differentiation advantage D. lower than firms that achieve differentiation advantages but higher than firms that achieve cost advantages
higher than firms that achieve either a cost or a differentiation advantage Research supports the notion that firms that identify with one or more of the forms of competitive advantage outperform those that do not. There has been a rich history of strategic management research addressing this topic. One study found that businesses combining multiple forms of competitive advantage (differentiation and overall cost leadership) outperformed businesses that used only a single form.
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
in-kind competition (from the same type of product) The growth stage is the second stage of the product life cycle, characterized by strong increases in sales and growing competition.
Which of the following is not a reason for the successful turnaround that Ford experienced in 2011 under CEO Mulally? A. downsizing through the sale of non-Ford brands B. focus on a narrower range of cars C. tightening of the product design across brands D. increasing its manpower across the company
increasing its manpower across the company First, a plan was executed to undertake a dramatic refinancing of the business by raising bank loans secured against company assets. Second, the firm concentrated resources on the Ford brand and sold off the Premier Automotive Group (PAG) businesses. Third, Ford narrowed the range of cars down to 36 from 97 different models. Fourth, emphasis was placed on quality and being the best in class. Fifth, more shared platforms for building cars economically were installed. Sixth, Ford cut half of its shop-floor workforce and a third of its office jobs. By 2011, 17 factories had been closed and employment was reduced to 75,000 from 128,000.
In the __________ stage of the industry life cycle, the emphasis on product design is very high, the intensity of competition is low, and the market growth rate is low. A. growth B. maturity C. introduction D. decline
introduction In the introduction stage, products are unfamiliar to consumers. Market segments are not well defined, and product features are not clearly specified. The early development of an industry typically involves low sales growth, rapid technological change, operating losses, and the need for strong sources of cash to finance operations. Since there are few players and not much growth, competition tends to be limited.
A differentiation strategy enables a business to address the five competitive forces by ______. A. having brand-loyal customers become more sensitive to prices B. lessening competitive rivalry by distinguishing itself C. increasing economies of scale D. serving a broader market segment
lessening competitive rivalry by distinguishing itself Differentiation provides protection against rivalry since brand loyalty lowers customer sensitivity to price and raises customer switching costs.
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. mass customization C. knowledge management D. collaborative design
mass customization Among the most striking differentiation trends are new ways to interact with consumers. In particular, the Internet has created new ways of differentiating by enabling mass customization, which improves the response to customer wishes.
Which of the following methods of implementing a differentiation strategy has been greatly enhanced because of Internet technologies? A. celebrity endorsements B. prestige packaging C. mass customization D. exceptional service
mass customization Among the most striking differentiation trends are new ways to interact with consumers. In particular, the Internet has created new ways of differentiating by enabling mass customization, which improves the response to customer wishes.
A market that mainly competes on the basis of price and has stagnant growth is characteristic of what life cycle stage? A. introduction B. growth C. maturity D. decline
maturity In the maturity stage of the industry life cycle, aggregate industry demand softens. As markets become saturated, there are few new adopters. Rivalry among existing rivals intensifies because of fierce price competition at the same time that expenses associated with attracting new buyers are rising.
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
maturity In the maturity stage of the industry life cycle, rivalry among existing rivals intensifies because of fierce price competition at the same time that expenses associated with attracting new buyers are rising. Advantages based on efficient manufacturing operations and process engineering become more important for keeping costs low as customers become more price sensitive. It also becomes more difficult for firms to differentiate their offerings, because users have a greater understanding of products and services.
The size of pricing and differentiation advantages between competitors decreases in which stage of the market life cycle? A. introduction B. growth C. maturity D. decline
maturity In the maturity stage of the industry life cycle, rivalry among existing rivals intensifies because of fierce price competition at the same time that expenses associated with attracting new buyers are rising. It also becomes more difficult for firms to differentiate their offerings, because users have a greater understanding of products and services.
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
maturity In the maturity stage of the industry life cycle, there are many segments, competition is very intense, and the emphasis on process design is high.
One of the main reasons the Internet is eroding sustainable competitive advantages is that _______. 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 C. differentiators have been able to preserve their unique advantages D. firms are ignoring opportunities to offer high-end services in niche markets
nearly all competitors will have greater access to tools for managing costs Many experts agree that the net effect of the digital economy is fewer rather than more opportunities for sustainable advantages. This means strategic thinking becomes more important. More specifically, the Internet has provided all companies with greater tools for managing costs.
A firm can achieve differentiation through all of the following means EXCEPT ________. A. improving brand image B. better customer service C. adding additional product features D. offering lower prices to frequent customers
offering lower prices to frequent customers A differentiation strategy consists of creating differences in the product or service offering of the firm by creating something that is perceived industrywide as unique and valued by customers. Differentiation can take many forms, including prestige or brand image, technology, innovation, features, customer service, or a dealer network.
With experience, unit costs of production decline as _________ increases in most industries. A. costs B. output C. price D. volume
output With experience, unit costs of production decline as output increases in most industries. The experience curve, developed by the Boston Consulting Group in 1968, is a way of looking at efficiency gains that come with experience. For a range of products, as cumulative experience doubles, costs and labor hours needed to produce a unit of product decline by 10 to 30 percent.
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. differentiation focus C. overall cost leadership D. stuck-in-the-middle
overall cost leadership Examples of overall cost leadership within primary value chain activities may involve the effective layout of receiving dock operations (inbound logistics) and support value chain activities may include expertise in process engineering (technology development).
A __________ can be defined as the total profits in an industry at all points along the industry value chain. A. profit maximizer B. profit pool C. revenue enhancer D. profit outsourcing
profit pool A profit pool is defined as the total profits in an industry at all points along the industry value chain.
A manufacturing business pursuing cost leadership is likely to _______. A. focus on a narrow market segment B. use advertising to build brand image C. rely on experience effects to raise efficiency D. put heavy emphasis on product engineering
rely on experience effects to raise efficiency Key to an overall cost leadership strategy is the experience curve, which refers to how business learns to lower costs as it gains experience with production processes. With experience, unit costs of production decline as output increases in most industries.
One aspect of using a cost leadership strategy is that experience effects may lead to lower costs. Experience effects are achieved by ____________. A. repeating a process until a task becomes easier B. hiring more experienced personnel C. spreading out a given expense or investment over a greater volume D. competing in an industry for a long time
repeating a process until a task becomes easier Key to an overall cost leadership strategy is the experience curve, which refers to how business learns to lower costs as it gains experience with production processes. With experience, unit costs of production decline as output increases in most industries.
As markets mature, ___________. A. costs continue to increase B. application for patents increase C. there is increasing emphasis on efficiency D. differentiation opportunities increase
there is increasing emphasis on efficiency In the maturity stage of the industry life cycle, advantages based on efficient manufacturing operations and process engineering become more important for keeping costs low as customers become more price sensitive.
