MGMT 492- Chapter 6

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. True

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. True

Both innovators and early adopters enter the market while the industry is in its embryonic stage. a. True b. False

a. True

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. True

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. True

Formal price leadership, or when companies jointly set prices, is illegal under antitrust laws. a. True b. False

a. True

Innovators and early adopters have very different customer needs from the early majority. a. True b. False

a. True

Market development strategy involves finding new market segments for a company's products. a. True b. False

a. True

One characteristic of embryonic industries is poorly developed distribution channels. a. True b. False

a. True

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. True

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

a. True

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. True

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. True

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. True

Most embryonic industries arise from: a. a technological breakthrough. b. product proliferation. c. lack of high entry barriers. d. chaining. e. franchising.

a. a technological breakthrough.

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. False

Fragmented industries typically have high barriers to entry. a. True b. False

b. False

Franchisees essentially pursue independent strategies and do not use the business model of the franchisor. a. True b. False

b. False

Horizontal mergers often lead to industry fragmentation. a. True b. False

b. False

In the embryonic stage of the industry life cycle, a company's investment needs and production costs are low. a. True b. False

b. False

Laggards are technologically sophisticated customers willing to tolerate the limitations of the product. a. True b. False

b. False

Laggards are the customers who are the first ones to try and adopt a new technology. a. True b. False

b. False

Market penetration involves the creation of new and innovative products to replace existing ones. a. True b. False

b. False

Product proliferation often results in lowering of entry barriers in a mature industry. a. True b. False

b. False

The "late majority" are typically reached through specialized distribution channels, and products are often sold by word of mouth. a. True b. False

b. False

The franchisor typically owns and funds each of its franchisees. a. True b. False

b. False

Alpha corporation owns and controls several retail outlets and is thus pursuing a strategy called franchising. a. True b. False

b. False

Development of a mass market is the stimulus for an industry to change from growth to embryonic. a. True b. False

b. False

A harvest strategy requires the company to halt all new investments in capital equipment, advertising, research and development, and so forth. a. True b. False

a. True

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. Chaining

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. Complexity

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. High observability

Which of the following statements is true about horizontal mergers? a. Horizontal mergers result from an intention to achieve economies of scale. b. Horizontal mergers result in the fragmentation of the industry. c. Horizontal mergers has been a very successful concept so far with zero cases of failure. d. Companies that establish a network of linked merchandising outlets to obtain advantages of cost leadership 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. Horizontal mergers result from an intention to achieve economies of scale.

Nutrimax Corp., a breakfast cereal company, has designed extensive and elaborate advertising campaigns for its existing products. The campaigns mainly focus on the aspects and benefits of the products that make them better than other products. 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. Market penetration

Which of the following statements is true in the context of declining industries? a. Not all segments of an industry typically 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 by which a declining industry seeks to improve sales by improving product quality. d. Greater the exit barriers of a declining industry, lesser is the intensity of competition. e. Intensity of competition is less in declining industries that sell commodity-like products.

a. Not all segments of an industry typically decline at the same rate.

A divestment 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. True

A divestment strategy's success is often dependent upon good timing. a. True b. False

a. True

A fragmented industry is composed of a large number of small and medium-sized companies. a. True b. False

a. True

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. early adopters.

The real estate industry comprises different kinds of firms in several locations. Some are independent and popular locally while the 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. fragmented industry.

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. lower prices.

Firms sometimes pursue a chaining strategy to: a. obtain the advantages of cost leadership. 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. obtain the advantages of cost leadership.

A telecommunications firm is working on new product concept of built-in routers in mobile phones. 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. product development.

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. Early majority

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. opportunity to reduce investment in a product. e. phase when the demand for products is low because of customers not being familiar with the product.

a. time when companies attempt to secure their grip over customers in existing market segments.

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. Chaining

Which of the following statements is true in the context 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 seldom 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. Innovators and early adopters are typically reached through specialized distribution channels.

Which of the following factors that affect market growth rates refers to the degree to which a new product is perceived as better at satisfying customer needs than the product it supersedes? a. Complexity b. Relative advantage c. Compatibility d. Trialability e. Observability

b. Relative advantage

One strategy used to consolidate fragmented industries is: a. vertical mergers. b. chaining. c. product proliferation. d. price signaling. e. non-price competition.

b. chaining.

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. divestment

In a harvest strategy, a company: a. significantly increases its investment in a business. b. extracts maximum profits from its investments. c. ventures into new market segments with new products. d. expands the number of stores or properties. e. significantly increases advertising expenditure.

b. extracts maximum profits from its investments.

An embryonic industry is one that: a. a number of small and medium sized companies. b. is just beginning to develop. 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. is just beginning to develop.

Gadgetbug, an electronic gadgets company, has established itself as one of the industry leaders. The company recently has been facing some amount of competition from certain new entrants. The new entrants offer gadgets in different colors and with interesting artwork embossed. Recognizing that there is a special market for gadgets that are designed uniquely, Gadgetbug has now introduced its own range of uniquely designed gadgets. In this scenario, Gadgetbug's attempt to cater to all 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. product proliferation

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. innovators.

Which of the following statements is true about customer categories in the context of 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. A typical late majority customer group is a behaviorally conservative set of customers.

Who among the following is most likely to fall under the category of laggards in the context of customer groups? a. Martha is tech-savvy and tends to actively seek out for new and innovative products in the market. b. Philip appreciates technology but tends to refrain from trying products that are extremely new. c. Allan is ignorant about the newest uses of technology and buys new products only when they become an absolute necessity. d. Rebecca is aware about the value that technology offers; she tends to weigh costs and benefits of a product before making a buying decision. e. Arnold tends to be a little apprehensive about buying new technology but buys nevertheless when he observes that a lot of people are using the new technology.

c. Allan is ignorant about the newest uses of technology and buys new products only when they become an absolute necessity.

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. Increasing age of a company's physical assets d. Lack of competition from new entrants e. Limited number of outlets in certain locations

c. Increasing age of a company's physical assets

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 thus, the franchisor may not enjoy complete control. d. It does not provide sufficient incentive to the franchisees to run operations effectively as the franchisees are not entrepreneurs. e. It requires the franchisees to create a new business model and plan strategies.

c. It results in the delegation of authority to franchisees and thus, the franchisor may not enjoy complete control.

Thomas 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 e. Innovators

c. Laggards

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 because of 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 industry prices.

c. They require companies to use focus strategies because of specialized customer needs.

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 familiarity with products. d. high production costs of the products. e. lack of distribution channels for the products.

c. customer familiarity with products.

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. exit barriers are high.

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. large number of small and medium-sized firms.

Hydralicious, a juice parlor, 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 are given the permission to use the company's reputation and the business model to run operations. The entrepreneurs will be charged a fee but will also get a percentage of the profits made. 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. Franchising

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. Price signaling

Which of the following statements is true in the context 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 customers not being familiar with product benefits. e. They enjoy the abundance of complementary products that help increase sales.

d. They face the challenge of customers not being familiar with product benefits.

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. a small number of large firms.

Price signaling in the context of 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. companies increase or decrease product prices to convey their intentions to other companies.

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. early and late majority users enter the market.

A strategy aims at growing 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. leadership

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. niche strategy

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. ongoing technological progress makes its product easier to use.

To compete in the fragmented restaurant industry, Red Lobster Corporation built, and now operates hundreds of stores across the United States and Canada. Which of the following strategies is Red Lobster using ? a. Acquisitions b. Horizontal mergers c. Franchising d. Licensing e. Chaining

e. Chaining

Which of the following shakeout strategies requires a company to limit or decrease its investment in a business and to extract, or milk, the 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. Harvest strategy

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 obtain the entire profits made by franchisees. c. It is beneficial for franchisees as they do not have to face the challenge of 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. It can help the franchisor expand his or her business rapidly.

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. Large mass-production operation

Which of the following factors that affect market growth rates 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. Observability

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. Non price competition c. Capacity control d. Market development e. Price leadership

e. Price leadership

John, a technology enthusiast, is often willing to pay premium prices to be one among those who have new versions of software packages. John most likely belongs to the group of customers. a. laggard b. early majority c. early adopter d. late majority e. innovator

e. innovator