Chapter 05

True

A company that actively tries to become more efficient is likely to be pursuing a cost leadership strategy. In order to offer products at a low cost, a company must become as efficient as possible. Companies using a low-cost leadership strategy must have tight cost controls and actively pursue cost reductions on an ongoing basis.

T

A company that creates a distinctive product is likely to use a differentiation strategy. Companies that use a differentiation strategy create products that stand out in the market. Because these products are distinctive, customers perceive them as valuable and are willing to pay a premium for them.

Rivalry among existing competitors

According to Porter's 5-Forces Model, which environmental force becomes more intense under these conditions? According to Porter, rivalry among existing competitors intensifies when industry growth slows, as companies have to work harder to attract smaller numbers of customers.

support activities

Accountants who are employed by insurance companies such as Allstate and State Farm Insurance to handle corporate finances are engaged in _________ for the company. Accountants who handle corporate finances are engaged in support activities. They provide the support necessary for the primary activities, such as product manufacturing and sales, to occur. Other examples of support activities are typically the human resources, IT, and legal functions.

human

Business Insider released a list of the 50 best U.S. employers, and the number one company was a surprise: the biopharmaceutical firm Celgene. Firms invest in their _______ resources by offering excellent pay and benefits. The company's employees are its human resources. Tangible resources are inanimate things like equipment, computer systems, land, and factories. Intangible resources cannot be touched or easily quantified; these include the firm's culture, brand names, and internal systems.(Source: Giane, V., Stanger, M., & Lubin, G. (2013). The 50 best employers in America. Business Insider. Retrieved from http://www.businessinsider.com/best-employers-in-america-2013-2)

economies of scale

Companies that focus on reducing costs by making large quantities of product are looking for _______. Economies of scale are decreased costs achieved by producing a large volume of product or supplying a large volume of service. Economies of scale can permit a firm to pursue a cost leadership strategy. Differentiation is a strategy that involves providing customers unique value for which they are willing to pay more. A firm that shows strategic flexibility responds to changes in its external environment. First-mover advantage goes to the firm that is the first to offer products or services that win customer loyalty.

Sign a free-agent outfielder to bolster the current roster and sign the current pitchers to long-term contracts.

Considering all of the factors listed in the preceding SWOT analysis question, which of the following strategies would make the most sense for the Giants in the upcoming season? The most effective strategy for the Giants is to sign a free-agent outfielder to bolster the current roster and sign the current pitchers to long-term contracts, because doing so would take advantage of the Giants' strengths and opportunities and minimize the Giants' weaknesses. Just as in the business world, where one's competitors are constantly seeking to improve, the Giants need to assume that other baseball teams will improve. In fact, the previous question includes the information that the Dodgers are signing better players than the Giants have. Therefore, taking no action because they were good enough to win this year is not the best option.

False

Differentiation strategies increase competition because they reduce customer loyalty. Differentiation strategies actually reduce competition, because their goal is to create a product that competitors can't imitate.

strategic flexibility

During the 1990s, consumers started to drink bottled water instead of soft drinks. The Coca-Cola Company and PepsiCo decided to change their product lineup to include water products, indicating ___________ on the part of both companies. Both Coke and Pepsi executed strategic flexibility, the capability to identify and react to changes in the external environment (changes in drink preferences) and mobilize internal resources to deal with those changes (by creating new products). Almost every firm has some strengths, and Coke and Pepsi used some of their strengths in pursing this new market. However, this question is about that decision, not the resources the companies used to execute it. Cost leadership is the strategy of selling products at a discount. A focus strategy means concentrating on a specific customer, geographic region, or product; Coke and Pepsi did not pursue a focus strategy by expanding their product line and seeking customers with different tastes.

barriers to entry

If you wanted to start a new oil company, you would face large _______, including the cost of extraction and refining equipment; the advanced technology needed to find, retrieve, and process oil; and formidable competitors. Equipment costs, advanced technology, and formidable competitors are all barriers to entry, or obstacles a firm may face when trying to enter a market or an industry. If a company can negotiate from a strong position with suppliers, bargaining power may overcome costs of equipment and technology, but it will not overcome the power of strong competitors. Economies of scale occur as an organization builds its operations. Customer-switching costs relate to the expense and inconvenience a customer faces by choosing to buy from another firm.

There are a number of free-agent outfielders who are available for signing by the Giants this year, many of whom have better statistics than the current team members.

Management at Work After he finishes celebrating with his team, Bruce Bochy, the general manager of the 2014 World Series Champion San Francisco Giants, is going to do a SWOT analysis to determine his strategy for the upcoming baseball season. Help him figure out how he should classify the following information. Which of the following factors should be classified as an opportunity for the team? In a SWOT analysis, the number of good free-agent outfielders available would be regarded as an opportunity, because it is something that could work in the team's favor and is occurring outside the organization.

intangible

One of the special features of a Uniqlo dressing room is the Magic Mirror, a device that lets customers see different colors of what they are wearing without having to change clothes. The mirror was developed by the Dai Nippon Printing company, and the intellectual property that underlies the technology for the mirror is part of Dai Nippon's __________ resources. Explanation: Intellectual property rights (in this case, the patents associated with the Magic Mirror) are intangible, or nonphysical, resources of their owner. The mirror itself is a tangible resource of Dai Nippon, while Dai Nippon's employees and managers are the organization's human resources.

bargaining power of suppliers

People who brew craft beer typically do not have to worry that the cost of their supplies will increase. Because there are so many hops growers and bottle manufacturers, the ________ is low. The bargaining power of suppliers is the pressure that a supplier can exert on another company. Because there are so many suppliers for the items needed to make craft beer, no one supplier has a great deal of bargaining power relative to breweries. Brewers will simply move to another supplier if they can't get the price they want. Threat of substitutes relates to other products that the customer can use instead of the firm's product to do the same thing. Distribution channels are how a firm gets its product to customers. If anything, rivalry among supplier firms would be high because many suppliers offer similar products.

Inbound logistics

Plant managers receive meat and vegetables from suppliers and store them before they are distributed to Sonic franchises for cooking. Inbound logistics involves materials handling, warehousing, and inventory control for the supplies (meat and vegetables) that will eventually become company products (hamburgers). Outbound logistics is the same set of tasks but used for completed products, such as finished hamburgers. Technological development and procurement are support activities.

Outbound logistics

Servers on roller skates deliver orders to customers. Delivering food orders by carhop is an example of outbound logistics, or activities involved with collecting, storing, and physically distributing final products to customers. Inbound logistics are activities related to storing and distributing the items needed to create a product, while operations involve actually making the product. Procurement is a support process involving purchasing the supplies needed to create a final product.

differentiation

Some aspects of Uniqlo's strategy appear to be in line with Porter's ideal of differentiation, while others are more aligned with cost leadership. Uniqlo offers customers high-technology clothing made with Heattech, a fabric that can trap moisture from the body and turn it into heat. The clothing is very lightweight but does a great job at keeping people comfortable when temperatures drop. No other store carries Heattech fabric. Heattech clothes are associated with a ________ strategy for Uniqlo. Explanation: Because Heattech is a unique product that is not carried by other retailers, it is part of a differentiation strategy for Uniqlo. Differentiation occurs when an organization offers customers products that are seen as valuable and unique. While Uniqlo does keep its prices down, it also attracts people to its stores by carrying special lines of clothing, such as Heattech. Cost leadership involves selling products for the lowest possible price, and focus is related to selling products to a very specific group of customers.

Firm infrastructure

Sonic's senior managers meet on a regular basis to do long-range planning for the organization. When senior managers do long-range planning, they are participating in firm infrastructure, or the general management activities of the organization. Technological development refers to activities that support the improvement of a firm's product and the processes used to make it, operations refers to actually making the product, and inbound logistics is the process of handling supplies before they are turned into products.

rivalry among competitors

The _____ is influenced by all of the other competitive forces. According to Porter, rivalry among competitors is influenced by all of the other competitive forces. Think of the soft drink industry, for example. The companies that produce Coke and Pepsi have a fierce rivalry due, in part, to the environment in which they must compete. It is relatively easy to get into the soft drink industry (number of potential new entrants is high), there are a limited number of cola suppliers (the bargaining power of suppliers is high), customers switch between soft drinks readily based on price (the bargaining power of buyers is high), and customers have many ways to quench their thirst other than soft drinks (the threat of substitutes is high). The more difficult the environment, the more competitive an organization will need to be if it is to survive.

rivalry among competitors high

The fact that Facebook and YouTube are both trying to market to the same customers is an example of ________; in this case, the bargaining power of buyers would be ____. Rivalry among competitors can become intense and lead to depressed prices when two established companies offer products or services with little to differentiate them. In this situation, the bargaining power of buyers is high, and they can command lower prices. Rivalry is especially likely to emerge when both companies have invested heavily in fixed costs (in this case, video distribution platforms) and are roughly equal in marketplace power (as Facebook gains on YouTube, this may become the case).

potential for new market entrants low

The fact that it is relatively easy to become a supplier of monetized videos means there is greater _________ ; in this case, barriers are ______. Because the barriers are low, it is relatively easy for people to become YouTube partners, which means the potential for new market entrants in this industry is high. While this will make it easier to start trying to earn money on YouTube, the overall landscape may quickly become more competitive, making it more difficult to stay in business.

A. Low-Cost Focus B. Differentiation

The following image shows the types of strategies adopted by companies based on their competitive scope/market appeal and their competitive advantage. Companies can adopt one of three basic strategies: cost leadership, which means attracting consumers based on the low cost of items sold; differentiation, which means attracting consumers based on the quality or value of goods sold; and focus, which means reaching out to a very specific group of consumers. Note that when a company adopts a focus strategy, it must still decide whether it will be selling items for a low cost or whether it will be encouraging people to pay full price for items of more value.

A. Technological development B. Outbound logistics

This image shows the general categories of both primary activities (those related to physically creating and selling a product or service) and support activities (those that support primary activities) for an organization. Value chain analysis involves determining where a company's strengths and weaknesses lie in these activities and creating a plan for capitalizing on strengths and improving weaknesses to create a better competitive advantage (margin) for the organization.

The industry is mature, and growth is slow. Competitors are approximately equal in size and power. Products are perishable, such as foods or unstable chemical compounds.

Under which of the following circumstances would the rivalry among existing competitors be high? Check all that apply. The following conditions promote intense rivalry and price wars among competitors: products don't have differentiation or switching costs are low; fixed costs are high, and marginal costs are low; new products have to be created in large batches; the product is perishable; competitors are numerous or roughly equal in size and power; the growth of the industry is slow; and exit barriers in the industry are high. When a company does not have barriers to leaving an industry, or when it can create small batches of products to sell, there is less likely to be excessive competition.

Industry growth has slowed

Uniqlo's biggest competitor right now is GAP stores. As the video points out, GAP has recently closed 200 stores. This action most likely indicates that ___________________. The closure of GAP stores is a good indicator that industry growth has slowed for clothing retailers.

cost leadership

Wal-Mart, Dollar Tree, and 99 Cents Only Stores operate under a __________ strategy, appealing to the price-conscious consumer of everyday items. Wal-Mart, Dollar Tree, and 99 Cents Only Stores all use cost leadership, a strategy that aims to provide a product or service at as low a price as possible to a broad audience. Cost leadership is made possible by the efficiency of an organization's operations. A focus strategy involves marketing to a select group of customers, while a differentiation strategy involves offering unique products and services highly valued by consumers.

more

When competitive rivalry, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers, and the number of new entrants into a business are all low, a business is ____ likely to be successful. The higher each of the five competitive forces is, the less likely it is that a company will be successful. An increase in any force increases the amount of competition a company faces, and the greater the competition, the harder it will be for a company to attract and retain customers. Conversely, when each of the five competitive forces is low, the more likely it is that a company will be successful.

Company strengths and weaknesses

When conducting a SWOT analysis, information about turnover, profit margins, and staff quality can be used to identify:

opportunities external

When referring to a SWOT analysis, the letter O stands for ________ , and it refers to factors that are __________ to the organization. A SWOT analysis is a critical review of the organization and its environment that takes place during the strategy formulation process. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. Strengths and weaknesses are internal to the organization, while opportunities and threats are external to the organization. Any information about finances or staff that comes from within the organization can be used to identify strengths and weaknesses.

Amazon, which purchases an extremely large amount of shipping from UPS Reebok, which purchases rubber from many different suppliers, often buying all of the products an individual company has to sell

Which of the following customer groups would have significant amounts of power over their indicated suppliers? Check all that apply. Customers have bargaining power if they purchase large amounts of a supplier's product (as Amazon and Reebok do); if the supplier is selling an undifferentiated product (office supplies); if the customers face few costs when switching suppliers; and if the customers can potentially integrate backward to produce the supplier's product. When customers buy a highly differentiated product, or when they face high costs when switching suppliers, they have less control over the cost of their supplies.