MANA CHAPTER 5
Which statement regarding competitive advantages is true? A) If several competitors pursue similar differentiation tactics, they may all be perceived as equals in the mind of the consumer. B) With an overall cost leadership strategy, firms need not be concerned with parity on differentiation. 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.
Answer: A
A firm following a focus strategy A) must focus on governmental regulations. B) must focus on a market segment or group of segments. C) must focus on the rising cost of inputs. D) must avoid entering international markets.
Answer: B
A manufacturing business pursuing cost leadership will likely A) focus on a narrow market segment. B) rely on experience effects to raise efficiency. C) use advertising to build brand image. D) put heavy emphasis on product engineering.
Answer: B
All of the following are potential pitfalls of a focus strategy except A) erosion of cost advantages within the narrow segment. B) all rivals share a common input or raw material. C) even product and service offerings that are highly focused are subject to competition from new entrants and from imitation. D) focusers can become too focused to satisfy buyer needs.
Answer: B
The market life cycle should be used as a short-run forecasting device because it provides a conceptual framework for understanding what changes typically occur.
Answer: False
To generate above average returns, a firm following an overall cost leadership position should not be concerned with attaining parity or proximity on the basis of differentiation relative to its peers.
Answer: False
A pitfall of a focus strategy is that focusers can become too focused to satisfy buyer needs.
Answer: True
According to the text, Food Lion's fundamental problem was that it based its strategy on an organizational strength that did not create a sustainable competitive advantage.
Answer: True
An important advantage of first movers or "pioneers" in a market is that they may establish brand recognition that may later serve as an important switching cost.
Answer: True
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) differentiation B) overall cost leadership C) differentiation focus D) stuck-in-the middle
Answer: A
The experience curve suggests that cutting prices is a good strategy A) if it can induce greater demand and thereby help a firm travel down the experience curve faster. B) in industries characterized by high economies of scale. C) in the maturity stage of the industry life cycle. D) in the decline stage of the industry life cycle.
Answer: A
Which of the following is a risk (or 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 suppliers' cost
Answer: A
An important pitfall of an integrated overall cost leadership and differentiation strategy is that firms may fail to implement either one and become "stuck-in-the-middle."
Answer: True
As markets mature, competition on the basis of differentiation is preferable to price competition.
Answer: True
As markets mature, the magnitude of differentiation and cost leadership advantages among competitors decrease.
Answer: True
Creating a niche by differentiating one's product or service often allows small firms to compete successfully with market leaders.
Answer: True
Firms that compete on overall cost are vulnerable if all rivals share a common input or raw material that contributes a significant amount to total costs.
Answer: True
Many firms facing a turnaround situation try to reduce their costs by outsourcing the production of many inputs.
Answer: True
Mass customization enables manufacturers to be more responsive to customer demands for high quality products.
Answer: True
One pitfall of a differentiation strategy is that a brand's identification in the marketplace may become diluted through excessive product line extensions.
Answer: True
The example of Lexus automobiles in the text points out that a firm can strengthen its differentiation strategy by achieving integration at multiple points along the value chain.
Answer: True
The experience curve concept suggests that production costs tend to decrease as production increases regardless of where an industry is at in its life cycle.
Answer: False
The focus strategy refers to focusing on the "non-price" attributes of a company's products.
Answer: False
A narrow market focus is to a differentiation-based strategy as a A) broadly-defined target market is to a cost leadership strategy. B) growth market is to a differentiation-based strategy. C) growth market is to a cost-based strategy. D) technological innovation is to a cost-based strategy.
Answer: A
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) overall cost leadership B) differentiation C) differentiation focus D) cost leadership focus
Answer: A
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) introduction B) growth C) maturity D) decline
Answer: A
A differentiation strategy enables a business to address the five competitive forces by A) lessening competitive rivalry by distinguishing itself. B) having brand-loyal customers become more sensitive to prices. C) increasing economies of scale. D) serving a broader market segment.
Answer: A
The decline stage of the industry life cycle stage is inevitably followed by death.
Answer: False
All of the following are potential pitfalls of an integrated overall low cost and differentiation strategy except: A) firms that fail to attain both strategies may end up with neither and become "stuck-in-the-middle." B) targeting too large a market that causes unit costs to increase. C) underestimating the challenges and expenses associated with coordinating value-creating activities in the extended value chain. D) miscalculating sources of revenue and profit pools in the firm's industry.
Answer: B
As markets mature, firms should attempt to compete on the basis of _______. A) quick response B) differentiation C) cost leadership D) market focus
Answer: B
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) harvesting C) exiting D) consolidating
Answer: B
High product differentiation is generally accompanied by A) higher market share. B) decreased emphasis on competition based on price. C) higher profit margins and lower costs. D) significant economies of scale.
Answer: B
One aspect of using a cost leadership strategy is that experience effects may lead to lower costs. Experience effects are achieved by A) hiring more experienced personnel. B) repeating a process until a task becomes easier. C) spreading out a given expense or investment over a greater volume. D) competing in an industry a long time.
Answer: B
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) overall cost leadership C) differentiation focus D) stuck-in-the-middle
Answer: B
The growth market 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.
Answer: B
Which of the following descriptions of a product in the growth stage is true? A) There are few forms of differentiation, emphasis is placed on efficiency, and there is a growing trend to compete on the basis of price. B) There is an emphasis on product variety, prices are declining rapidly, and although the firm may be making a profit, cash flows may be negative. C) There is an obsolescence of technologies, minimal capital investment is required, and consumer demand is satiated. D) There is a tendency to hold on to competitive advantages, pricing can be volatile, and there is an opportunity to establish strong brand recognition.
Answer: B
A ____________ can be defined as the total profits in an industry at all points along the industry's value chain. A) profit maximizer B) revenue enhancer C) profit pool D) profit outsourcing
Answer: C
A firm can achieve differentiation through all of the following means except A) improving brand image. B) better customer service. C) offering lower prices to frequent customers. D) adding additional product features.
Answer: C
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
Answer: C
All of the following are potential pitfalls of a differentiation strategy except: A) uniqueness that is not valuable. B) too high a price premium. C) all rivals share a common input or raw material. D) perceptions of differentiation may vary between buyers and sellers.
Answer: C
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
Answer: C
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
Answer: C
In the long run, businesses without a competitive advantage are unlikely to earn more than "normal" profits. Normal profits are A) what one would receive on U.S. Treasury securities. B) profits received by corporations in the normal course of business. C) profits one would expect to earn on investments that have a similar level of risk. D) profits earned by a corporation on a diversified portfolio of stocks.
Answer: C
Research shows that the following are all strategies used by firms engaged in successful turnarounds except A) asset and cost surgery. B) selective product and market pruning. C) global expansion. D) piecemeal productivity improvements.
Answer: C
The opening case of Food Lion, Inc. illustrates the point that A) firms can differentiate their product/service offerings to such a great extent that it erodes performance. B) firms that emphasize support activities too much will suffer performance declines. C) firms that overemphasize overall cost leadership thoughout their value chain can experience low performance. D) the key to success is effective production operations.
Answer: C
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
Answer: C
Which of the following is considered an accurate statement for a product in the growth period of its life cycle? A) It is difficult to gain market share in growth markets. B) There is more price pressure in growth markets. C) It is easier to develop technology in the growth phase. D) Customers are brand loyal in the growth phase.
Answer: C
Which of the following is false regarding how a differentiation strategy can help a firm to improve its competitive position vis à vis Porter's five forces? A) by increasing a firm's margins, it avoids the need for a low cost position B) it helps a firm to deal with supplier power and reduces buyer power since 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, thus experiencing less threat from substitutes than its competitors
Answer: C
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) The market supports premium pricing, which attracts additional competitors. C) Advantages that cannot be duplicated by other competitors are difficult to achieve. D) The magnitude of pricing differences and product differentiation is larger than in the growth stage.
Answer: C
Which of these statements regarding the market 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 nor repeatable. C) It provides a "shorthand" for thinking about differences in strategic situations. D) It points out the need to maintain a differentiation advantage and a low cost advantage simultaneously.
Answer: C
As markets mature A) costs continue to increase. B) application for patents increase. C) differentiation opportunities increase. D) there is increasing emphasis on efficiency.
Answer: D
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) maturity D) decline
Answer: D
Piecemeal productivity improvements during a turnaround typically does not involve A) business process reengineering. B) increased capacity utilization. C) benchmarking. D) expansion of a firm's product market scope.
Answer: D
Research has consistently shown that firms that achieve both cost 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) lower than firms that achieve differentiation advantages but higher than firms that achieve cost advantages. D) higher than firms that achieve either a cost or a differentiation advantage.
Answer: D
The most likely time to pursue a harvest strategy is in a situation of A) high growth. B) strong competitive advantage. C) mergers and acquisitions. D) decline in the market life cycle.
Answer: D
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(s)
Answer: D
The text discusses three approaches to combining overall cost leadership and differentiation competitive advantages. These are the following except A) automated and flexible manufacturing systems. B) exploiting the profit pool concept for competitive advantage. C) coordinating the "extended" value chain by way of information technology. D) deriving benefits from highly focused and high technology markets.
Answer: D
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 simply because they are new.
Answer: D
A disadvantage of firms that successfully integrate overall cost leadership and differentiation strategies is that they are relatively easy for competitors to imitate.
Answer: False
A firm striving for cost leadership will typically spend relatively more on product related R&D than on process related R&D.
Answer: False
A successful differentiation strategy increases rivalry since buyers become more price-sensitive.
Answer: False
A successful differentiation strategy lowers entry barriers because of customer loyalty and the firm's ability to provide uniqueness in its products and services.
Answer: False
An important idea behind the "profit pool" concept is that there is always a strong relationship between the generation of revenues and the capturing of profits.
Answer: False
Businesses that compete in markets that are in decline should simply be harvested or divested since they are no longer profitable.
Answer: False
Concentrating solely on one form of competitive advantage generally leads to the highest possible level of profitability.
Answer: False
During the decline stage of the product life cycle, a harvesting strategy means that a firm keeps a product going without significantly reducing marketing support, technological development, or other investments, while hoping that competitors will exit the market.
Answer: False
During the growth stage of the market life cycle, customers are very likely to establish brand loyalty.
Answer: False
Focus, by itself, often constitutes a competitive advantage.
Answer: False
Given the attractiveness of premium pricing during the growth stage of the market life cycle, managers should emphasize short-term results to increase profits.
Answer: False
If a firm has a successful differentiation strategy, it is not necessary to attain parity on cost.
Answer: False
In an undifferentiated product market where companies compete solely on the basis of cost, the second most cost efficient producer has little difficulty competing with the most efficient manufacturer.
Answer: False
Many firms in the maturity stage of the life cycle bring about their own decline by selective product and market pruning.
Answer: False
Michael Porter's three generic strategies can be depicted on two dimensions: competitive advantage and product life cycle.
Answer: False
One of the advantages of high differentiation is that even if many competitors follow the same strategy, differentiation still exists for all.
Answer: False
