Chapter 5 Strategic Management

______ is a generic strategy based on appeal to the industrywide market using a competitive advantage based on ______.

Overall cost leadership; low cost

A firm's ability to manufacture unique products in small quantities at low cost is known as ______.

mass customization

The ______ stage is the third stage of the product life cycle.

maturity

Focus strategies exploit ______.

one or more specific segments by tailoring specific strategies to serve them

A firm that follows a differentiation strategy for competitive advantage still needs to be mindful of maintaining cost ______ relative to competitors by lowering costs in features that customers care less about.

parity

JK Industries is a diversified company that has been in business for decades. Its healthcare division has been profitable, but its line of prestige beauty products has been losing money. JK decides to discontinue its line of prestige beauty products and focus its efforts on the healthcare lines that have been most promising. Which strategy is JK using?selective product and market pruning

selective product and market pruning

Firms that use a differentiation strategy may be able to decrease buyer power ______.

since buyers lack comparable alternatives and are less price-sensitive

Salvamoser Steel fabricates widgets. When the company first began production, it had high unit costs because it was trying to figure out the most efficient manufacturing method. After a few years, Salvamoser Steel had ironed out its production issues, and unit costs of production declined, even as cumulative output increased. This is known as ______.

the experience curve

______ is when firms in a turnaround situation seek to eliminate costs and improve productivity through small gains that accumulate over a period of time.

Piecemeal productivity improvements

Which of the following are characteristics of the growth stage? (Check all that apply.)

- increasing sales revenues - developing brand recognition - growing competition - financing complementary value -chain activities

Which of the following are strategies that are available in the decline phase? (Check all that apply.)

- maintaining - harvesting - exiting - consolidating

The ability of some firms to manufacture unique products in relatively small quantities at lower costs is due to advances in ______ technologies. (Check all that apply.)

- manufacturing - information

The introduction stage of the industry life cycle is characterized by which of the following characteristics? (Check all that apply.)

- poorly defined market segments - unspecified product features and low sales growth - rapid technological change and operating losses - new products that are not known to customers

Companies that use differentiation strategies may use which of the following to differentiate their products or services? (Check all that apply.)

- prestige - features - technology

Which of the following are characteristics of the industry life cycle's maturity stage? (Check all that apply.)

- slowing demand growth and saturated markets - strategic emphasis on efficient operations and company exiting industry - direct and price competition

Name the stages of the industry life cycle in the correct order, with the first stage at the top.

1. Introduction 2. Growth 3. Maturity 4. Decline

True or false: One component of asset and cost surgery for a mature company is to outsource production when market prices are less than in-house production costs.

True

Which of the following are benefits when companies successfully integrate cost and differentiation advantages create an enviable position? (Check all that apply.)

- They decrease supplier and buyer power. - They decrease industry rivalry. - They are able to erect significant barriers to entry.

A successful overall cost leadership strategy requires a tight set of interrelated tactics that include which of the following?

- Tight cost and overhead controls - Aggressive construction of efficient-scale facilities - Vigorous pursuit of cost reductions from experience

Which of the following are two requirements for successfully introducing a new product? (Check all that apply.)

- an emphasis on marketing activities to create product awareness - an emphasis on research and development

Which of the following are potential pitfalls of using an overall cost leadership strategy? (Check all that apply.)

- focusing too much on one value-chain activity - ready imitation by competitors - increases in costs of raw materials due to suppliers' rising costs

Which of the following are two challenges of the introduction stage of the industry life cycle? (Check all that apply.)

- generating enough exposure so the product emerges as the "standard" by which all rivals' products are evaluated - developing the product and finding a way to get users to try it

Which of the following can erode a company's competitive advantage? (Check all that apply.)

- globalized trade - competitors' actions - technological advancements

Companies that exit markets need to be aware of ______.

- how dropping the product may affect their brand name - how the exit will affect employees skilled in producing the product

Which of the following are examples of piecemeal productivity improvements? (Check all that apply.)

- improving employee productivity - increasing capacity utilization - reengineering business processes - benchmarking specific activities against industry leaders

Which of the following are characteristics of the decline stage of the industry life cycle? (Check all that apply.)

- increasing price competition - falling sales and profits - industry consolidation

Which actions should be taken when implementing a retrenchment strategy? (Choose all that apply.)

- Analyze the cost-effectiveness of internal processes. - Analyze the profitability of market segments. - Take action to cut unprofitable market segments.

Which of the following are issues for platform businesses? (Choose all that apply.)

- Build an accessible customer interface. - Maximize the connection between supplier and customer. - Create a base of customers and suppliers.

Which of the following are ways that companies can combine overall cost leadership and differentiation? (Check all that apply.)

- By exploiting the profit pool - By using information technology - By adopting mass customization

Which of the following are characteristics of products that are in the decline stage? (Check all that apply.)

- Changes in customer tastes or technology decrease product demand. - Competitors often cut their prices. - Declining products often take a large share of time and financial resources relative to their worth.

Which of the following are potential pitfalls of using a focus strategy? (Check all that apply.)

- Competition from new entrants due to low barriers to entry - A product or service that becomes too narrow to satisfy buyer needs - An erosion of cost advantages within the narrow segment as competitors copy the value-chain

Which of the following statements regarding maintaining cost parity are true? (Check all that apply.)

- Cost parity can be partially addressed by maintaining close ties with suppliers. - Even differentiators cannot ignore cost. - Differentiators maintain cost parity by lowering costs in features that customers care less about.

Which of the following statements regarding combination strategies are correct? (Check all that apply.)

- Customers benefit from both differentiated attributes and lower prices. - The goal is to provide unique customer value in an efficient manner.

Which of the following are potential pitfalls of using a differentiation strategy? (Check all that apply.)

- Customers do not find value in the product's or service's uniqueness. - The company's differentiation may be easily imitated. - Perceptions of differentiation may vary between buyers and sellers.

Which of the following are pitfalls of using a combination strategy? (Check all that apply.)

- Firms may miscalculate sources of revenue and profit pools in their industry. - Firms may underestimate the challenges and costs associated with coordinating value-creating activities in the extended value chain. - Firms that are not able to attain both strategies may become "stuck in the middle."

Which of the following are ways that a combination strategy can improve a company's position vis-a-vis Porter's forces? (Check all that apply.)

- Low pricing and a wide product selection reduces buyer bargaining power due to the lack of competitors that can provide comparable cost/value. - Integrating value-chain activities lowers costs so the company can better withstand increases by suppliers. - Potential entrants may face high barriers if they do not have the financial or physical resources to compete head-to-head.

Which of the following are ways an overall cost leadership strategy can improve a company's position vis-a-vis Porter's forces? (Check all that apply.)

- Low-cost leaders are in a better position to absorb supplier price increases due to their margins. - Low-cost leaders can earn returns even when intense rivalry erodes profits. - Powerful buyers can only drive down prices to the level of the next most efficient producer.

Which of the following are goals of reverse positioning? (Check all that apply.)

- Move a product from maturity backward into a growth position. - Allow a product to assume a new competitive position in its category.

Which of the following are pitfalls of using a focus strategy? (Check all that apply.)

- New competitors may enter lucrative niche markets. - Cost advantages for the focus segment may become eroded over time. - Companies may become too focused on satisfying buyer needs.

Firms that sell products in a declining industry are often affected by which of the following competitor actions? (Check all that apply.)

- Sales and profits may increase if one or more competitors exit the industry. - Prospects are limited if all competitors remain. - A company's market power may decrease if some of their rivals merge.

Revenues grow during the growth stage due to which of the following? (Check all that apply.)

- The number of repeat customers is increasing. - New consumers are purchasing the product.

Which of the following are reasons a differentiation strategy may not succeed? (Check all that apply.)

- The product's or service's price is too high for the value customers receive. - Companies may erode their quality brand image if they sell other lines of products or services at lower prices and quality. - Other companies may be able to imitate the differentiation of the product or service.

A differentiation strategy can improve a company's position vis-a-vis Porter's forces due to which of the following? (Check all that apply.)

- The threat of substitutes is decreased due to customer loyalty. - Customer loyalty results in increased barriers to entry for potential competitors. - Rivalry is decreased because brand loyalty lowers customer sensitivity to price.

Which of the following is an example of a platform firm?

Amazon

______ is when firms are in a turnaround situation and aggressively cut administrative expenses and inventories and speed up receivable collections.

Asset and cost surgery

The ______ ______ cycle refers to the stages that typically occur over the life of an industry.

Blank 1: industry or industrial Blank 2: life or lifecycle

______ is to offer a product in a different category to create the perception that the product is altogether different.

Breakaway positioning

______ is the decline in unit costs of production as cumulative output increases.

Experience curve

______ is a firm's achievement of similarity, or being "on par," with competitors with respect to low cost, differentiation, or other strategic product characteristics.

Competitive parity

______ involves one firm acquiring at a reasonable price the best of the surviving firms in an industry.

Consolidation

______ involves dropping the product from a firm's portfolio.

Exiting the market

True or false: A firm experiences competitive parity with competing firms when they capture so much of its market share that it is left with no profits.

False

Which of the following statements about platform markets is true?

Firms in platform markets act as intermediaries between buyers and sellers.

______ involves obtaining as much profit as possible and requires that costs be reduced quickly.

Harvesting

Which of the following is a firm able to do when it successfully enters a new category with a breakaway product?

It is able to redefine its competition.

Which statement is true about the duration of competitive advantages in modern business?

It is declining.

______ refers to keeping a product going without significantly reducing marketing support, technological development, or other investments, in the hope that competitors will eventually exit the market.

Maintaining

______ is when firms in a turnaround situation discontinue product lines that are either only marginally profitable or are losing money and focus on a few core profitable areas.

Selective product and market pruning

Firms that compete using a focus strategy are said to focus on ______.

a narrow target market

One reason a company would use a maintaining strategy for a declining stage product would be ______.

because the potential exists to continue to earn revenues and profits.

Companies that are not able to create a competitive advantage through both cost leadership and differentiation strategies ______.

become stuck in the middle

Companies that cannot identify any type of competitive advantage are classified as ______.

being stuck in the middle

The primary benefit of using a combination strategy is that ______.

competitors often have difficulty duplicating or imitating them

An overall cost leadership strategy helps companies erect substantial industry entry barriers through

cost advantages gained from high productivity

An overall cost leadership strategy helps companies erect substantial industry entry barriers through ______.

cost advantages gained from high productivity

Maintaining, harvesting, consolidating, and exiting are the four basic strategies available in the ______ phase.

decline

The ______ stage is the fourth stage of the industry life cycle and is characterized by falling sales and profits.

decline

Which type of strategy is based on creating differences in the firm's product or service offering by creating something that is perceived industrywide as unique and valued by customers?

differentiation

One reason for a company to use a harvesting strategy for a declining product is to ______.

earn as much profit as possible by quickly reducing costs in the value chain's primary and support activities

A ______ strategy is a firm's generic strategy based on appeal to a narrow market segment within an industry.

focus

Michael Porter presented three ______ strategies to achieve competitive advantage by overcoming the five forces.

generic

In order to most effectively sequence the growth of a platform business, what two factors should managers take into account?

geographic area and product markets

Revenues increase during the _____ stage of the industry life cycle as new customers try the product and an ever-increasing number of satisfied customers make repeat purchases.

growth

The ______ stage is the second stage of the industry life cycle.

growth

The ______ stage is the first stage of the industry life cycle.

introduction

An industry's ______ is the total profits at all points along its value chain.

profit pool

Firms that successfully use a differentiation strategy ______.

provide unique and valued products or services to their customers

Companies that use a consolidation strategy in a declining industry ______.

purchase the best of the surviving firms to enhance their market power, acquire valuable assets, and buy market share

A _______strategy works to stop declines in performance and improve profits by eliminating unprofitable market segments and investments.

retrenchment

Companies that use a ______ positioning strategy offer products with fewer product attributes and lower prices, in contrast to the industry tendency to continuously augment products as part of the product life cycle.

reverse

What term describes the strategy of building smaller operations in order to combine low cost and differentiation while meeting the needs of a specific group of customers in an efficient manner?

unscaling

Research has found that companies that ______.

use multiple forms of competitive advantage (e.g., cost leadership and differentiation) outperform those that do not

An industry's profit pool is the total profits at all points along its ______ chain.

value

A common pitfall of using a cost-leadership strategy is that ______.

value-creating activities are easily imitated