Strategic management exam2

broad differentiation strategy

seeking to differentiate the company's product or service from rivals' in ways that will appeal to a broad spectrum of buyers

focused differentiation strategy

serving only one segment of the overall market and trying to be the most differentiated organization serving that segment

broad low-cost strategy

type of strategy aimed at providing low-cost products to a broad customer segment

When a Low-Cost Provider Strategy Works Best

1) Price competition among rival sellers is vigorous. 2) Identical products are available from many sellers. 3) There are few ways to differentiate industry products. 4) Most buyers use the product in the same ways. 5) Buyers incur low costs in switching among sellers. 6) The majority of industry sales are made to a few, large volume buyers. 7) New entrants can use introductory low prices to attract buyers and build a customer base

The two major avenues for achieving a cost advantage

1. perform value chain activities more cost-effectively than rivals 2. revamp the firm's overall value chain to eliminate or bypass some cost-producing activities

broad differentiation strategy allows a firm to do one or more of the following

1.command premium price 2. Increase unit sales (because additional buyers are won over by the differentiation features) 3. Gain buyer loyalty (buyers are strongly attracted to the differentiating features and bond with the company and its products)

focused low-cost strategy

Concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by having lower costs than rivals and thus being able to serve niche members at a lower price

cost driver

anything that has a cause-and-effect relationship to costs

Revamping the Value Chain System to Lower Costs

>Use a direct sales force and a company website to bypass the activities and costs of distributors and dealers. >Streamline operations by eliminating low value-added or unnecessary work steps and activities. >Reduce materials handling and shipping costs by having suppliers locate their plants or warehouses close to the firm's own facilities.

32. A weaker U.S. dollar is an economically favorable exchange-rate shift for manufacturing plants based in the United States. A. This is a true statement . B. No, the U.S. dollar must be stronger. C. Yes, because it provides for a weakened foreign demand for U.S.-made goods. D. Yes, because it makes such plants less cost competitive with foreign plants. E. Yes, because it provides incentives of foreign companies to locate manufacturing facilities in the U.S. to make goods for U.S. consumers.

A A weaker U.S. dollar is an economically favorable exchange rate shift for manufacturing plants based in the United States because a decline in the value of the U.S. dollar strengthens the cost competitiveness of U.S.-based manufacturing plants and boosts buyer demand for U.S.-made goods.

44. An umbrella brand A. is a generalized resource that can be leveraged in unrelated diversification. B. is a brand name that can steer a narrow assortment of business types. C. represents a public disclosure spotlighting the corporate image. D. represents an overall corporate marker covering its overriding image of sustainability and responsibility. E. is a specialized resource designed to influence profit growth.

A An umbrella brand is a corporate brand name that can be applied to a wide assortment of business types. As such, it is a type of general resource that can be leveraged in unrelated diversification.

Low-cost leaders who have the lowest industry costs are likely to A. have out managed rivals in finding ways to perform value chain activities more cost-effectively. B. be considering exiting the current product market and use their competitive low-cost strength to gain a competitive advantage in other product arenas. C. be favorites to win the game of strategy in the long run. D. understand that driving costs to the lowest possible level is the only way to sell cheap products to consumers. E. understand that they have lower bargaining power with suppliers than rivals who employ a different strategy.

A.

A company's competitive strategy should A. ensure it is designed to concentrate on a small range of products so it can react quickly to competitive moves. B. be well matched to its internal situation and predicated on leveraging its collection of competitively valuable resources and competencies. C. be well matched to its resources and capabilities in order to incorporate standard attributes into its product offering. D. be supportive with its objective to become at least an average performer within its industry. E. be well attuned to doing an outstanding job of satisfying the needs and expectations of niche buyers.

B

77. Best-cost provider strategies are those that A. are a hybrid of low-cost provider and differentiation strategies that aim at providing desired attributes while beating rivals on price. B. are rewarded by providing buyers with the best attributes at a premium. C. have strategy elements related to the lowest-cost provider in the largest and fastest growing (or best) market segment. D. look for a low-cost advantage rather than a differentiation advantage. E. look for a differentiation advantage rather than a low-cost advantage.

A. Best-cost provider strategies are a hybrid of low-cost provider and differentiation strategies that aim at providing more desirable attributes (quality, features, performance, service) while beating rivals on price.

40. A primary reason for why mergers and acquisitions sometimes fail is due to the . A. misinterpretation of the cultural differences, like employee disenchantment and low morale, differences in management styles and operating procedures, and operations integration decision mistakes. B. execution of functional and integration activity, while sustaining and capitalizing on the combined sources of revenue. C. development of effective integration plans conducive to employee satisfaction. D. advertising message detailing the merger announcement. E. creation of management-employee programs in order to foster better communication.

A. Despite many successes, mergers and acquisitions do not always produce the hoped for outcomes. Cost savings may prove smaller than expected. Gains in competitive capabilities may take substantially longer to realize or, worse, may never materialize at all. Efforts to mesh the corporate cultures can stall due to formidable resistance from organization members. Key employees at the acquired company can quickly become disenchanted and leave; the morale of company personnel who remain can drop to disturbingly low levels because they disagree with newly instituted changes. Differences in management styles and operating procedures can prove hard to resolve. In addition, the managers appointed to oversee the integration of a newly acquired company can make mistakes in deciding which activities to leave alone and which activities to meld into their own operations and systems.

An example of how companies can revamp their value chain to reduce costs is to A. have suppliers locate their plants close to companies' own facilities. B. continue to utilize traditional methods of distribution and sales. C. not make any changes in product manufacturing but change end distribution methods. D. increase extra services to increase staffing requirements. E. facilitate the learning curve by providing superior training to new employees.

A. Having suppliers locate their plants or warehouses close to a company's own plant facilitates just-in- time deliveries of parts and components to the exact workstation where they will be used in assembling the company's product. This not only lowers incoming shipping costs but also curbs or eliminates the company's need to build and operate storerooms for incoming parts and components and to have plant personnel move the inventories to the workstations as needed for assembly. The other options provide methods of cost-efficient management of value chain activities.

63. A pitfall to avoid in pursuing a differentiation strategy is A. trying to differentiate on the basis of attributes or features that are easily and quickly copied. B. choosing a product offering that supports buyers' indifference to rival brands' offerings. C. charging a premium price for the differentiating features. D. meeting and exceeding the meaningful gaps in quality, performance, service, and other attractive differentiating attributes offered by rivals. E. spending on activities to differentiate the company's product to enhance profitability.

A. Rapid imitation means that no rival achieves differentiation, since whenever one firm introduces some value-creating aspect that strikes the fancy of buyers, fast-following copycats quickly reestablish parity. This is why a firm must seek out sources of value creation that are time-consuming or burdensome for rivals to match if it hopes to use differentiation to win a sustainable competitive edge.

85. The target market of a best-cost provider is A. value-conscious buyers. B. brand-conscious buyers. C. price-sensitive buyers. D. middle-income buyers. E. young adults (in the 18-35 age group).

A. The target market for a best-cost provider is value-conscious buyers—buyers who are looking for appealing extras and functionality at a comparatively low price. Value-hunting buyers (as distinct from price-conscious buyers looking for a basic product at a bargain-basement price) often constitute a very sizable part of the overall market for a product or service.

46. The two most compelling reasons for a company to pursue vertical integration (either forward or backward) are to A. strengthen the company's competitive position and/or boost its profitability. B. achieve product differentiation and/or lengthen the company's value chain to include more activities performed in-house and thereby gain greater ability to reduce internal operating costs. C. broaden the firm's product line and/or avoid the need for outsourcing. D. expand into foreign markets and/or control more of the industry value chain. E. enable use of offensive strategies and/or gain a first-mover advantage over rivals in revamping the industry value chain.

A. The two best reasons for investing company resources in vertical integration are to strengthen the firm's competitive position and/or to boost its profitability. Vertical integration has no real payoff unless it produces sufficient cost savings to justify the extra investment, adds materially to a company's technological and competitive strengths, and/or helps differentiate the company's product offering.

78. The businesses in a diversified company's lineup exhibit good resource fit when A. the resource requirements of each business exactly match the resources the company has available. B. individual businesses have matching resource requirements at points along their value chain and add to a company's overall resource strengths and when solid parenting capabilities exist without spreading itself too thin. C. each business generates just enough cash flow annually to fund its own capital requirements and thus does not require cash infusions from the corporate parent. D. each business unit produces sufficient cash flows over and above what is needed to build and maintain the business, thereby providing the parent company with enough cash to pay shareholders a generous and steadily increasing dividend. E. there are enough cash cow businesses to support the capital requirements of the cash hog businesses.

B A company pursuing related diversification exhibits resource fit when its businesses have matching specialized resource requirements along their value chains; a company pursuing unrelated diversification has resource fit when the parent company has adequate corporate resources (parenting and general resources) to support its businesses' needs and add value.

72. A global strategy allows for A. the leading companies to compete for the biggest share of the world market, but only occasionally compete head-to-head in different countries. B. the markets in various countries to be part of the world market and competitive conditions across country markets to be strongly linked. C. a company's overall market strength to be the sum of its market shares in each country market where it has a presence. D. the industry leaders to be foreign companies, while domestic companies are relegated to runner-up status. E. a firm's overall competitive advantage to be determined by the size of the competitive advantage it has in each of its profit sanctuaries.

B A think-global, act-global approach prompts company managers to integrate and coordinate the company's strategic moves worldwide and to expand into most, if not all, nations where there is significant buyer demand.

23. The big dilemma an acquisition-minded firm faces is whether to A. focus on building brand awareness or establishing supplier relationships. B. pay a premium price for a successful company or buy a struggling company at a bargain price. C. strive for scale economies or to acquire technical know-how to customize production. D. focus on building brand awareness or striving for scale economies. E. focus on acquiring technical know-how or outsourcing production.

B Acquisition offers an effective way to hurdle such entry barriers as acquiring technological know-how, establishing supplier relationships, achieving scale economies, building brand awareness, and securing adequate distribution. The big dilemma an acquisition-minded firm faces is whether to pay a premium price for a successful company or to buy a struggling company at a bargain price.

90. When concentrating production in a few locations, which of the following can allow a manufacturer to lower unit costs, boost quality, or master a new technology more quickly? A. significant scale economies B. learning-curve effects C. superior resources D. profit sanctuaries E. supporting industries

B In some industries, learning-curve effects can allow a manufacturer to lower unit costs, boost quality, or master a new technology more quickly by concentrating production in a few locations. The key to riding down the learning curve is to concentrate production in a few locations to increase the cumulative volume at a plant (and thus the experience of the plant's workforce) as rapidly as possible.

52. The one factor that company executives need not worry about when their company is managing many diverse, unrelated firms is to A. stay abreast of what's happening in each industry and subsidiary. B. pick business-unit heads having the requisite combination of managerial skills and know-how to motivate people. C. understand the true value of strategic investment proposals by business-unit managers. D. know what to do if a business unit stumbles. E. "manage by the numbers"—that is, keep a close track on the financial and operating results of each subsidiary.

B The greater the number of businesses a company is operating in and the more diverse those businesses are, the more difficult it is for corporate managers to: (1) stay abreast of what's happening in each industry and each subsidiary; (2) pick business-unit heads having the requisite combination of managerial skills and know-how to drive gains in performance; (3) tell the difference between those strategic proposals of business-unit managers that are prudent and those that are risky or unlikely to succeed; (4) know what to do if a business unit stumbles and its results suddenly head downhill; and (5) "manage by the numbers"—that is, keep a close track on the financial and operating results of each subsidiary and assume that the heads of the various subsidiaries have most everything under control so long as the latest key financial and operating measures look good.

19. Apollo Tires sets up a manufacturing unit in Mexico. Following this, Renault-Nissan signs a supply contract with the tire multinational. A. different styles of management, organization, and strategy B. knowledge sharing within same value chain system C. availability of natural resources at low cost D. growth potential and large size of the market E. government policies in the host country

B. Robust industries often develop in locales where there is a cluster of related industries, including others within the same value chain system (e.g., suppliers of components and equipment, distributors) and the makers of complementary products or those that are technologically related. The advantage to firms that develop as part of a related-industry cluster comes from the close collaboration with key suppliers and the greater knowledge sharing throughout the cluster, resulting in greater efficiency and innovativeness.

32. The extent to which a firm's internal activities encompass one, some, many, or all of the activities that make up an industry's entire value chain system is known as A. horizontal scale. B. vertical scope. C. outsourcing scope. D. cooperative scaled scope. E. focal scope.

B. Vertical scope is the extent to which the firm engages in the various activities that make up the industry's entire value chain system, from initial activities such as raw-material production all the way to retailing and after-sale service activities.

24. An Irish dairy producer that exports gourmet cheeses made at its Kerry plants to the United States A. is competitively disadvantaged when the euro declines in value against the U.S. dollar. B. is largely unaffected by fluctuating exchange rates between the euro and the U.S. dollar. It would, however, be affected if its plants were in the U.S. C. becomes less competitive in the U.S. market when the euro rises in value against the U.S. dollar. D. becomes more competitive in European markets when the euro declines in value against the U.S. dollar. E. has no interest in whether the euro grows stronger or weaker versus the U.S. dollar unless its chief competitors are other companies located in countries whose currency is also the euro.

C.

68. Which of the following is defined as a formal agreement between two or more separate companies in which they agree to work cooperatively toward some common objective? A. joint venture B. vertical integration C. strategic alliance D. forward integration E. outsourcing

C. A strategic alliance is a formal agreement between two or more separate companies in which they agree to work cooperatively toward some common objective.

12. Which of the following countries had the highest labor wage rates in 2013? A. Canada B. China C. Norway D. South Korea E. United States

C. Norway is the correct answer. In 2013, hourly compensation for manufacturing workers averaged about $3.07 in China, $6.82 in Mexico, $9.37 in Taiwan, $9.44 in Hungary, $10.69 in Brazil, $12.90 in Portugal, $21.96 in South Korea, $29.13 in Japan, $36.33 in Canada, $36.34 in the United States, $48.98 in Germany, and $65.86 in Norway. Not surprisingly, China has emerged as the manufacturing capital of the world—virtually all of the world's major manufacturing companies now have facilities in China.

66. A "think-local, act-local" multidomestic type of strategy A. is very risky, given fluctuating exchange rates and the propensity of foreign governments to impose tariffs on imported goods. B. is usually defeated by a "think-global, act-global" type of strategy. C. is more appealing when the country-to-country differences in buyer tastes, cultural traditions, and market conditions are diverse. D. is generally an inferior strategy when one or more foreign competitors are pursuing a global low-cost strategy. E. can defeat a global strategy if the "think-local, act-local" multicountry strategist concentrates its

C. efforts exclusively in those foreign markets which have superior resources. A multidomestic strategy is one in which a company varies its product offering and competitive approach from country to country in an effort to be responsive to differing buyer preferences and market conditions. It is a think-local, act-local type of international strategy, facilitated by decision making decentralized to the local level.

13. A blue-ocean strategy A. is an offensive strike employed by a market leader that is directed at pilfering customers away from unsuspecting rivals to boost profitability. B. involves an unexpected (out-of-the-blue) preemptive strike to secure an advantageous position in a fast-growing market segment. C. works best when a company is the industry's low-cost leader. D. involves abandoning efforts to beat out competitors in existing markets and instead invent a new industry or new market segment that renders existing competitors largely irrelevant and allows a company to create and capture altogether new demand. E. involves the use of highly creative, never-used-before strategic moves to attack the competitive weaknesses of rivals.

D A blue-ocean strategy seeks to gain a dramatic and durable competitive advantage by abandoning efforts to beat out competitors in existing markets and, instead, inventing a new market segment that renders existing competitors irrelevant and allows a company to create and capture altogether new demand.

1. Diversification into new industries deserves strong consideration when a A. single-business company can achieve profitable growth opportunities in its present industry. B. single-business company needs to develop a corporate-wide strategy. C. single-business company needs to develop a multi-line strategy. D. single-business company encounters diminishing market opportunities and stagnating sales in its principal business. E. multiple-business company encounters enhanced market opportunities and increasing sales in its principal business.

D As long as a single-business company can achieve profitable growth opportunities in its present industry, there is no urgency to pursue diversification. However, a company's opportunities for growth can become limited if the industry becomes competitively unattractive. Thus, diversifying into new industries always merits strong consideration whenever a single-business company encounters diminishing market opportunities and stagnating sales in its principal business.

34. What is the difference between economies of scale and economies of scope? A. Scale refers to the magnitude or size of the operation, while scope refers to the reach of defined savings within the value chain. B. Scale refers to the extent of change, while scope refers to the possibilities of change. C. Scale is about dimensions, while scope is about the capacity available for production capabilities. D. Scale refers to cost savings that accrue directly from larger-sized operations, while scope stems directly from strategic fit along the value chains of related businesses. E. Scale and scope mean the same thing and the only difference is the extent of cost savings accrued from unrelated businesses in each.

D Economies of scale are cost savings that accrue directly from a larger-sized operation—for example, unit costs may be lower in a large plant than in a small plant. Economies of scope, however, stem directly from strategic fit along the value chains of related businesses, which in turn enables the businesses to share resources or to transfer them from business to business at low cost.

15. The three tests for judging whether a particular diversification move can create value for shareholders are the A. attractiveness test, the profitability test, and the shareholder value test. B. strategic fit test, the competitive advantage test, and the return-on-investment test. C. resource fit test, the profitability test, and the shareholder value test. D. attractiveness test, the cost of entry test, and the better-off test. E. shareholder value test, the cost of entry test, and the profitability test.

D To build shareholder value, any business diversification strategy should pass the three Tests of Corporate Advantage: the industry attractiveness test, the cost of entry test, and the better-off test.

42. A broad differentiation strategy improves profitability when A. it is focused on product innovation. B. differentiating enhances product performance and quality. C. the differentiating features appeal to sophisticated and prestigious buyers. D. the higher price the product commands exceeds the added costs of achieving the differentiation . E. the differentiator charges a price that is only fractionally higher than the industry's low-cost provider.

D. Differentiation enhances profitability whenever a company's product can command a sufficiently higher price or produce sufficiently bigger unit sales to more than cover the added costs of achieving the differentiation.

52. Which of the following is an example of a cross-border alliance? A. Facebook took over WhatsApp for $19 billion in February 2014. B. Hyundai Motor Company plans to open a new manufacturing plant in the Czech Republic. C. The insurance company Geico is a wholly owned subsidiary of Berkshire Hathaway. D. Renault-Nissan sells more than one in ten cars worldwide. E. Carrefour, a French grocery chain, established a new wholly-owned venture in Poland.

D. Cross-border alliances enable a growth-minded company to widen its geographic coverage and strengthen its competitiveness in foreign markets; at the same time, they offer flexibility and allow a company to retain some degree of autonomy and operating control.

6. To create value for shareholders via diversification, a company must A. get into new businesses that are profitable. B. diversify into industries that are growing rapidly. C. spread its business risk across various industries by only acquiring firms that are strong competitors in their respective industries. D. diversify into businesses that can perform better under a single corporate umbrella than they could perform operating as independent, stand-alone businesses. E. diversify into businesses that have either key success factors or value chains that are similar to its present businesses.

D. Diversification cannot be considered a success unless it results in added shareholder value—value that shareholders cannot capture on their own by spreading their investments across the stocks of companies in different industries.

Which of the following is NOT one of the benefits of outsourcing value chain activities presently performed in-house? A. streamlines company operations in ways that improve organizational flexibility and cuts the time it takes to get new products into the marketplace B. allows a company to concentrate on its core business, leverage its key resources, and do even better what it already does best C. helps the company assemble diverse kinds of expertise speedily and efficiently D. enables a company to gain better access to end users and better market visibility E. improves a company's ability to innovate

D. Outsourcing certain value chain activities makes strategic sense whenever: an activity can be performed better or more cheaply by outside specialists; the activity is not crucial to the firm's ability to achieve sustainable competitive advantage; the outsourcing improves organizational flexibility and speeds time to market; it reduces the company's risk exposure to changing technology and buyer preferences; and, it allows a company to concentrate on its core business, leverage its key resources, and do even better what it already does best

62. A weighted industry attractiveness assessment is generally analytically superior to an unweighted assessment because A. a weighted ranking identifies which industries offer the best/worst long-term profit prospects. B. an unweighted ranking doesn't discriminate between strong and weak industry driving forces and industry competitive forces. C. it does a more accurate job of singling out which industry key success factors are the most important. D. an unweighted ranking doesn't help identify which industries have the easiest and hardest value chains to execute. E. the various measures of attractiveness are not likely to be equally important in determining overall attractiveness.

E

32. Businesses with strategic fit with respect to their supply chain activities perform better together because of all of the following EXCEPT the A. potential for skills transfer in procuring materials. B. sharing of resources and capabilities in logistics. C. benefits of added collaboration with common supply chain partners. D. added leverage gained with shippers when securing volume discounts on incoming parts and components. E. increased allocation and allotment of support activities and specialized resources and capabilities..

E Businesses with strategic fit with respect to their supply chain activities can perform better together because of the potential for transferring skills in procuring materials, sharing resources and capabilities in logistics, collaborating with common supply chain partners, and/or increasing leverage with shippers in securing volume discounts on incoming parts and components

34. The difference between a merger and an acquisition relates to A. strategy and competitive advantage. B. the presence of available resources and competitive capabilities. C. whether the end result is related to horizontal or vertical scope. D. creating a more cost-efficient operation out of the combined companies. E. the details of ownership, management control, and the financial arrangements.

E, The difference between a merger and an acquisition relates more to the details of ownership, management control, and financial arrangements than to strategy and competitive advantage.

A boutique hotel chain provides upscale rooms and superior customer service at value prices. What strategy is the hotelier using to gain competitive advantage? 5-1 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. A. a low-cost provider strategy B. a broad differentiation strategy C. a focused low-cost strategy D. a focused differentiation strategy E. a best-cost provider strategy

E.

68. A focused low-cost strategy can lead to attractive competitive advantage when A. buyers are looking for the best value at the best price. B. buyers are looking for a budget-priced product . C. buyers are price sensitive and are attracted to brands with low switching costs. D. a market is emerging and demand in the target market niche is growing rapidly and is served by industry-wide competitors. E. a firm can lower costs significantly by limiting its customer base to a well-defined buyer segment.

E. A focused strategy based on low cost aims at securing a competitive advantage by serving buyers in the target market niche at a lower cost and lower price than those of rival competitors. This strategy has considerable attraction when a firm can lower costs significantly by limiting its customer base to a well- defined buyer segment.

8. Which of the following is NOT a reason why crafting a strategy to compete in one or more foreign markets is inherently complex? A. Because factors that affect industry competitiveness vary from country to country B. Because of the potential for location-based advantages to conducting value chain activities in certain countries C. Because different government policies and economic conditions make the business climate more favorable in some countries than others D. Because of the risks for shifts in currency exchange rates E. Because similarities in buyer tastes and preferences facilitate standardization of products and services

E. Crafting a strategy to compete in one or more countries of the world is inherently more complex for five reasons. First, different countries have different home-country advantages in different industries. Second, there are location-based advantages to conducting particular value chain activities in different parts of the world. Third, different political and economic conditions make the general business climate more favorable in some countries than in others. Fourth, companies face risk due to adverse shifts in currency exchange rates when operating in foreign markets. And fifth, differences in buyer tastes and preferences present a challenge for companies concerning customizing versus standardizing their products and services.

38. The essence of a broad differentiation strategy is to A. appeal to the high-end part of the market and concentrate on providing a top-of-the-line product to consumers. B. incorporate a greater number of differentiating features into its product/service than rivals. C. lower buyer switching costs. D. outspend rivals on advertising and promotion in order to inform and convince buyers of the value of its differentiating attributes. E. offer unique product attributes in ways that are valuable and appealing and that buyers consider worth paying for.

E. Differentiation strategies are attractive whenever buyers' needs and preferences are too diverse to be fully satisfied by a standardized product offering. A company must incorporate distinctive, desirable features into its product or service to clearly set itself apart from rivals lacking attributes.

2. A hit-and-run or guerrilla warfare type offensive strategy A. involves random offensive attacks used by a market leader to steal customers away from unsuspecting smaller rivals. B. involves undertaking surprise moves to secure an advantageous position in a fast-growing and profitable market segment; usually the guerrilla signals rivals that it will use deep price cuts to defend its newly won position. C. works best if the guerrilla is the industry's low-cost leader. D. involves pitting a small company's own competitive strengths head-on against the strengths of much larger rivals. E. involves unexpected attacks (usually by a small-to-medium size competitor) to grab sales and market share from complacent or distracted rivals.

E. Guerrilla offensives are surprising moves that are particularly well suited to small-medium sized challengers that have neither the resources nor the market visibility to mount a full-fledged attack on industry leaders.

23. First-mover disadvantages (or late-mover advantages) rarely ever arise when A. the costs of pioneering are much higher than being a follower and only negligible learning/experience curve benefits accrue to the pioneer. B. rapid market evolution gives fast followers an opening to leapfrog the pioneer with next-generation products of their own. C. the pioneer's products are somewhat primitive and do not live up to buyer expectations, allowing clever followers to win disenchanted buyers with better-performing products. D. the marketplace is skeptical about the benefits of a new technology or product being pioneered by a first-mover. E. the market response is strong and the pioneer gains a monopoly position that enables it to recover its investment. In some instances there are advantages to being an adept follower rather than a first mover. Late-mover advantages (or first-mover disadvantages) arise in four instances: when the costs of pioneering are high relative to the benefits accrued and imitative followers can achieve similar benefits with far lower costs; when an innovator's products are somewhat primitive and do not live up to buyer expectations, thus allowing a follower with better-performing products to win disenchanted buyers away from the leader; when rapid market evolution (due to fast-paced changes in either technology or buyer needs) gives second movers the opening to leapfrog a first mover's products with more attractive next-version products; when market uncertainties make it difficult to ascertain what will eventually succeed, allowing late movers to wait until these needs are clarified; and, when customer loyalty to the pioneer is low and a first mover's skills, know-how, and actions are easily copied or even surpassed.

E. In some instances there are advantages to being an adept follower rather than a first mover. Late-mover advantages (or first-mover disadvantages) arise in four instances: when the costs of pioneering are high relative to the benefits accrued and imitative followers can achieve similar benefits with far lower costs; when an innovator's products are somewhat primitive and do not live up to buyer expectations, thus allowing a follower with better-performing products to win disenchanted buyers away from the leader; when rapid market evolution (due to fast-paced changes in either technology or buyer needs) gives second movers the opening to leapfrog a first mover's products with more attractive next-version products; when market uncertainties make it difficult to ascertain what will eventually succeed, allowing late movers to wait until these needs are clarified; and, when customer loyalty to the pioneer is low and a first mover's skills, know-how, and actions are easily copied or even surpassed.

1. The primary reasons that companies opt to expand into foreign markets are to A. raise the entry barriers for industry newcomers, neutralize the bargaining power of important suppliers, grow sales faster, and increase the number of loyal customers. B. avoid having to employ an export strategy, avoid the threat of cross-market subsidization from rivals, and enable the use of a global strategy instead of a multidomestic strategy. C. grow sales faster than the industry average, reduce the competitive threats from rivals, and open up more opportunities to enter into strategic alliances. D. boost returns on investment, broaden their product lines, avoid tariffs and trade restrictions, and escape dealing with strong labor unions . E. gain access to new customers, achieve lower costs, enhance the company's competitiveness, capitalize on core competencies, and spread business risk across a wider market base.

E. Strengthening capability to employ offensive strategies is not one of the five principal reasons that companies choose to expand into foreign markets.

8. Which of the following is NOT a principal offensive strategy option? A. leapfrogging competitors by being first to market with next-generation products B. using hit-and-run or guerrilla warfare tactics to grab sales and market share C. launching a preemptive strike to secure an advantageous position that rivals are prevented or discouraged from duplicating D. pursuing continuous product innovation to draw sales and market share away from rivals E. blocking the avenues open to challengers

E. The principal offensive strategy options include: (1) offering an equally good or better product at a lower price; (2) leapfrogging competitors by being first to market with next-generation products; (3) pursuing continuous product innovation to draw sales and market share away from less innovative rivals; (4) pursuing disruptive product innovations to create new markets; (5) adopting and improving on the good ideas of other companies; (6) using hit-and-run or guerrilla warfare tactics to grab market share from complacent or distracted rivals; and (7) launching a preemptive strike to secure an industry's limited resources or capture a rare opportunity. Blocking the avenues open to challengers is a defensive strategy.

Pitfalls to Avoid in Pursuing a Low-Cost Provider Strategy

Engaging in overly aggressive price cutting does not result in unit sales gains large enough to recoup forgone profits. Relying on a cost advantage that is not sustainable because rival firms can easily copy or overcome it. Becoming too fixated on cost reduction such that the firm's offering is too features-poor to gain the interest of buyers. Having a rival discover a new lower-cost value chain approach or develop a cost-saving technological breakthrough.

Broad low cost example

Walmart