Chapter 5

A business model based on differentiation requires a company to A. make strategic choices that reinforce each other and increase the value of a good or service in the eyes of customers. B. serve several market segments simultaneously to take full advantage of differentiation. C. systematically raise its prices at stipulated times. D. develop a functional organization structure. E. all of these choices.

a

A producer of commodity steel should pursue which of the following generic competitive strategies? A. Growth B. Differentiation C. Focus D. Cost leadership E. Profit

d

At their simplest level, customer needs can be defined as A. desires. B. wants. C. cravings. D. all of these choices. E. none of these choices.

d

Which of the following automobile manufacturers have found it difficult to differentiate their cars? A. Lincoln B. Audi C. Acura D. All of these choices E. None of these choices

d

All focus strategies entail serving a specific market segment using a differentiation approach.

f

Companies that successfully pursue a cost leadership strategy generally have a distinctive competency in research and development.

f

Companies with a differentiation advantage must charge a lower price for their products.

f

For any company, building new competencies in the functions that sustain its differentiation means neglecting its cost structure.

f

Market segmentation addresses the "what" portion of a firm's business model.

f

Once a focused differentiator gains competitive advantage in its market, the threat of competitive rivalry is greatly reduced.

f

Strategic group analysis allows managers to focus only on what is happening in their group.

f

If consumer tastes change and a focuser's niche disappears, the danger for the focuser is that it might have difficulty shifting resources from its niche to another market segment.

t

A company searching for a successful business model has to group customers according to the similarities or differences in their needs to discover what kinds of products to develop that will best meet the needs of different kinds of customers.

t

A cost leader must respond to the strategic moves of its differentiated competitors.

t

A differentiation business model is based on pursuing a set of generic strategies that allows a company to achieve a competitive advantage by creating a product that customers perceive as different or distinct in some important way.

t

A firm's business model should contain three components: what is to be satisfied, who is to be satisfied, and how they will be satisfied.

t

Maximizing the profitability of a company's business model is about making the right choices with regard to value creation through differentiation, costs, and pricing given both the demand conditions in the company's market and the competitive conditions in the company's industry.

t

A disadvantage of pursuing a cost leadership strategy is that A. technological change can make production methods obsolete. B. price wars make it hard to compete with differentiators. C. it costs more than a differentiation strategy because of the necessity of high capital investments. D. powerful buyers are a major threat. E. no quality control exists.

a

Companies are now able to pursue cost leadership and differentiation simultaneously because A. of the emergence of flexible manufacturing technologies and new information technologies. B. markets have become more homogeneous. C. industries have become consolidated. D. barriers to entry have fallen. E. government regulation has diminished.

a

Companies that successfully differentiate a product often charge ____ prices for them. A. premium B. exorbitant C. below cost D. average E. none of these choices

a

Differentiation is least effective when it is based on A. physical features. B. service quality. C. an appeal to the customer's psychological needs. D. reliability. E. product quality.

a

If a company uses a focused cost-leadership strategy, it competes in the market segments where A. it can operate at no cost disadvantage. B. where cost is not a high concern. C. it can operate at a minimal cost disadvantage. D. there is frequently little or no competition. E. none of these choices.

a

In which of the following situations does a differentiation strategy make the most sense? A. The industry is fragmented into different customer groups, each of which has different needs. B. Customer needs are primarily satisfied by the price of the product. C. There is a lot of technological change. D. There are low barriers to entry and exit. E. The industry is in the maturity stage of the life cycle.

a

Market fragmentation has occurred in many industries because of the A. emergence of flexible technologies. B. homogenization of markets. C. implementation of just-in-time inventories. D. increased strength of large competitors. E. increased internationalization of business.

a

The most expensive competitive strategy to pursue is A. differentiation. B. cost leadership. C. focus. D. growth. E. hypercompetition.

a

The principal dangers of a cost leadership approach include all of the following except A. powerful buyers. B. technological change. C. imitation of production techniques. D. changes in consumer tastes. E. rivals lowering their costs.

a

When a company services the broad market and has a low degree of product differentiation, it is most likely A. pursuing a cost-leadership strategy. B. pursuing a differentiation strategy. C. pursuing a focus strategy. D. stuck in the middle. E. pursuing both cost leadership and differentiation.

a

Which generic business-level strategy is based on the intent to outperform competitors by doing everything a company can to lower its cost structure? A. Cost leadership B. Differentiation C. Broad differentiation D. Focused differentiation E. None of these choices

a

Which of the following statements is true? A. Differentiation and cost structure decisions affect one another. B. Differentiation and cost structure decisions do not affect one another. C. Differentiation and cost structure decisions have little effect on a company's profitability. D. Differentiation decisions do not affect a company's profitability. E. Cost structure decisions do not affect a company's profitability.

a

A company pursuing a cost-leadership strategy does which of the following? A. Includes substandard components in the product to keep costs low B. Chooses strategies that keep costs as low as feasible and are effective C. Keeps advertising expenses at a maximum D. Relies on patent protections to keep costs low E. None of these choices

b

A company pursuing a focus strategy A. attempts to serve all market segments. B. concentrates on building market share in one market segment. C. typically has more resources at its disposal than a differentiator does. D. need not be concerned that a differentiator will try to imitate the company's products or services. E. none of these choices.

b

A cost leader could reasonably be expected to reduce costs by developing distinctive competencies in all but A. manufacturing. B. materials management. C. marketing and sales. D. information technology. E. learning organizational structure.

b

A differentiated product is a product that A. looks different from rival products. B. better satisfies customer needs than rival products do. C. is packaged in a unique and eye-appealing manner. D. always costs more than rival products. E. always costs less than rival products.

b

A differentiation strategy is based on creating a product that customers perceive as being A. about the same as other available products. B. distinct. C. the least costly product in the industry. D. the most costly product in the industry. E. somewhat faddish in nature.

b

A firm makes complex telecommunications products, such as cellular telephones. Because this company has a distinctive competency in research and development, it should try to differentiate its product through A. reliability. B. innovation. C. advertising. D. service. E. low price.

b

A large company produces a variety of clothing for different customer groups. This firm is pursuing which of the following strategies? A. Cost leadership B. Differentiation C. Both cost and differentiation D. Focus E. Share building

b

A market segment consists of a group of A. similar products. B. customers who have similar needs. C. companies who produce similar products. D. diverse products produced by one manufacturer. E. customers who have diverse needs.

b

Compared to a differentiator, the cost leader has the advantage over its rivals of A. making higher profit margins. B. being better able to withstand the negative influence of powerful suppliers and buyers. C. having inimitable production methods. D. enjoying higher brand loyalty. E. being preferred by investors.

b

Delta Airlines used to advertise its high-quality air travel service by saying it flew "anywhere, anytime." What generic strategy is represented by this advertisement? A. Cost leadership B. Differentiation C. Stuck in the middle D. Focused differentiation E. Both cost leadership and differentiation simultaneously

b

Differentiated products should be targeted at multiple market segments (instead of a particular segment) if a company has a distinctive competency in A. marketing. B. research and development. C. accounting. D. materials management. E. human resources.

b

Differentiators have higher costs than cost leaders do for all of the following reasons except that they A. invest more in research and development. B. invest in materials management techniques. C. provide a wider range of products. D. serve more market segments. E. have larger marketing departments.

b

Product differentiation is often A. inexpensive. B. expensive. C. cheaper than producing a single undifferentiated product. D. not likely to be successful. E. unnecessary because customer needs and wants are essentially alike.

b

When a company produces a wide range of products for different customer groups, it is following a strategy of A. cost leadership. B. differentiation. C. focus. D. market concentration. E. share building.

b

A company pursuing a focused differentiation business model A. manufactures products for a generic consumer market. B. typically has little competition. C. specializes in making products for one or two market segments. D. is likely to enjoy monopoly-like status in its industry. E. bases its strategy on low costs.

c

A focused differentiator has the advantage of A. charging a premium price because of its low costs. B. pursuing differentiation and low-cost strategies simultaneously. C. being close to the customer. D. superior materials management. E. protection against price wars.

c

A shrinking market segment poses the greatest threat to a company pursuing which of the following strategies? A. Cost leadership B. Differentiation C. Focused differentiation D. Growth E. Both cost leadership and differentiation simultaneously

c

A strategic group is a group of companies within a particular industry A. with the same overhead costs. B. with the same cost structure. C. that are pursuing a similar business model. D. that are using the same suppliers. E. all of these choices.

c

Generally speaking, a differentiator chooses to divide its market into A. one generic market. B. two or three major segments. C. niches and segments in which customers will pay premium prices. D. as few segments as possible. E. None of these choices.

c

Market segmentation is best described as what type of process? A. Static B. Regressive C. Evolving D. Normative E. Revolving

c

Mercedes-Benz automobiles are a good example of A. moderately priced products. B. imitative products. C. differentiated products. D. products that are struggling to differentiate. E. highly competitive products.

c

Nick is often asked to perform his clown act for birthday parties and school groups, but he offers his most inexpensive services only to children's hospitals. Nick is pursuing which generic business strategy? A. Cost leadership B. Differentiation C. Focused cost leadership D. Focused differentiation E. Stuck in the middle

c

The main difference between companies following a cost leadership strategy and those following a focused cost leadership strategy is A. standardized market price. B. industry life cycle stage. C. degree of market segmentation. D. age of the market. E. market trajectory.

c

Zara, the Spanish high-fashion house, was unsuccessful in using creative information systems to produce fashionable clothes at lower prices and sell them in their own chain of clothing stores.

f

Which firm has the greatest probability of achieving a competitive advantage by successfully managing its strategy? A. A steel manufacturer that continues to use large plants instead of new technology to achieve economies of scale B. A retailer that sells a wide range of clothes to the mass market C. A pharmaceutical firm with brand loyalty that decreases administrative costs but continues to invest in research and development D. A large defense contractor that offers an undifferentiated product only to a few market segments E. A jeans manufacturer that keeps its production within the United States rather than moving to less expensive, overseas factories

c

Competitive advantage with product differentiation occurs when a company A. creates competitive advantage by grouping customers on the basis of important differences in their needs. B. helps firms keep costs to a minimum. C. creates, makes, and sells a product in a way that better satisfies customer needs than its rivals do. D. is focused on corporate-level strategy. E. allows its managers to ignore costs.

d

For a cost lead in manufacturing, ____ functions are the center of attention. A. research and development B. cost accounting C. sales management D. materials-management E. advertising

d

Jordan's ice cream stand offers different combinations of premium flavors, cones, and toppings to create hundreds of extravagant, customized products. Which generic strategy is Jordan following in the restaurant industry? A. Cost leadership B. Differentiation C. Focused cost leadership D. Focused differentiation E. Both cost leadership and differentiation simultaneously

d

To create a successful business model, managers must choose a set of business-level strategies that A. allow the company to better compete with rivals within an industry. B. help them decide what businesses to enter and exit. C. help build an organizational structure that contains multiple businesses. D. work together to give a company a competitive advantage over its rivals. E. help it to diversify to better leverage distinctive competencies.

d

A competitor's ability to ____ a cost leader's methods is a threat to a cost-leadership strategy. A. negate B. subvert C. control D. repudiate E. imitate

e

A radio station has a distinctive competency in developing new products (shows) and wants to serve the upscale market. Which of the following is the most appropriate generic strategy for this company? A. Cost leadership B. Differentiation C. Both cost leadership and differentiation D. Focused low-cost approach E. Focused differentiation approach

e

Cost leadership is most appropriate when A. the power of buyers is low and barriers to entry are high. B. economies of scale are relatively unimportant in manufacturing products. C. customers have very different needs and uses for the industry's products. D. product innovation is the key competitive factor. E. industry rivalry is high and customers are very sensitive to prices.

e

When technological change is low and customer needs are well established and standardized, the most appropriate generic strategy to pursue is A. market concentration. B. differentiation. C. focus. D. asset reduction. E. cost leadership.

e

Which of the following is not a generic competitive strategy? A. Cost leadership B. Differentiation C. Focused cost leadership D. Focused differentiation E. Innovation

e

Which of the following is not a main approach to market segmentation? A. Marketing a product targeted toward average or typical customers B. Marketing a product targeted toward most or all of the different market segments C. Making customized products to meet the specific needs of customers D. Making products to meet the specific needs of a narrow group of customers E. Making one product aimed toward a general rather than a specific subset of customers

e

The three generic business-level strategies are cost leadership, differentiation, and mass marketing.

f

To pursue a cost leadership strategy, strategic managers need to incorporate all the latest technology into their products.

f

A major problem with a differentiation strategy centers on the long-term ability to maintain a product's perceived difference or distinctness in customers' eyes.

t

A product's appeal to customers' psychological desires is a source of differentiation.

t

Both the way a product is differentiated from other products of its type and the price of the product determine which product a customer chooses to satisfy his or her needs.

t

Cost leaders ignore the many different market segments in an industry and position their products to appeal to the average customer.

t

Crowne Plaza, Hampton Inn, and Embassy Suites were created by Holiday Inn in response to competition in the hotel-motel industry.

t

Differentiation leads to high brand loyalty, which in turn reduces the threat of new firms entering the industry.

t

Differentiation on the basis of innovation and technological competency depends on the research and development function.

t

E*Trade, the online brokerage company, is an example of a new entrant to an industry that has used the Internet to overcome barriers to entry and compete successfully against market leaders.

t

Focusers are vulnerable to shifting consumer tastes, which can eliminate their market niche.

t

Market segmentation is an evolving, ongoing process that presents considerable opportunities for strategic managers to improve their company's business model.

t

Ryanair, based in Dublin, Ireland, used the cost-leadership business model pioneered by Southwest Airlines in the United States to become a leading player in the European air travel market.

t

The problem facing differentiators, such as L. L. Bean, is how to protect the distinctiveness of their products from imitators who are constantly searching for ways to steal away customers by offering similar products at lower prices.

t

To pursue a successful business model, managers must be careful to ensure that the set of business-level strategies they have formulated and implemented are working in harmony to support each other.

t