Chap 005- test bank

Chapter 05 - Business-Level Strategy: Creating and Sustaining Competitive Advantages

Chapter 05 Business-Level Strategy: Creating and Sustaining Competitive Advantages

True / False Questions

1. Michael Porter's three generic strategies can be depicted on two dimensions: competitive advantage and product life cycle. True False

2. Concentrating solely on one form of competitive advantage generally leads to the highest possible level of profitability. True False

3. A firm striving for cost leadership will typically spend relatively more on product related R&D than on process related R&D. True False

4. 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. True False

5. 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. True False

6. Firms that compete on overall cost leadership are vulnerable if all rivals share a common input or raw material that contributes a significant amount to total costs. True False

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7. 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. True False

8. A successful differentiation strategy lowers entry barriers because of customer loyalty and the firm's ability to provide uniqueness in its products and services. True False

9. A successful differentiation strategy increases rivalry since buyers become more pricesensitive. True False

10. If a firm has a successful differentiation strategy, it is not necessary to attain parity on cost. True False

11. One potential pitfall of a differentiation strategy is that a brand's identification in the marketplace may become diluted through excessive product line extensions. True False

12. With a focus strategy, creating a niche by differentiating one's product or service often allows small firms to compete successfully with market leaders. True False

13. Focus, by itself, often constitutes a competitive advantage. True False

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14. A potential pitfall of a focus strategy is that focusers can become too focused to satisfy buyer needs. True False

15. A disadvantage of firms that successfully integrate overall cost leadership and differentiation strategies is that they are relatively easy for competitors to imitate. True False

16. Mass customization enables manufacturers to be more responsive to customer demands for high quality products. True False

17. 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. True False

18. An important potential 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." True False

19. Most analysts agree that use of the Internet will lower transaction costs. True False

20. One way the Internet and digital technologies are creating opportunities for firms with differentiation strategies is by enabling mass customization. True False

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21. The Internet offers few advantages for focusers because niche players and small companies cannot implement capabilities as effectively as their larger competitors. True False

22. The Internet has provided a small subset of companies with greater tools for managing costs. True False

23. Incumbent firms that thought a niche market was too small to enter in the past may use Internet technologies to enter that segment with focusers. True False

24. 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. True False

25. 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. True False

26. During the growth stage of the market life cycle, customers are very likely to establish brand loyalty. True False

27. Given the attractiveness of premium pricing during the growth stage of the market life cycle, managers should emphasize short-term results to increase profits. True False

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28. As markets mature, competition on the basis of differentiation is preferable to price competition. True False

29. As markets mature, the magnitude of differentiation and cost leadership advantages among competitors decrease. True False

30. With reverse positioning, a strategy to be used during the mature stage of the industry life cycle, a product escapes its category by deliberately associating with a different one. True False

31. Businesses that compete in markets that are in decline should simply be harvested or divested since they are no longer profitable. True False

32. 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. True False

33. The decline stage of the industry life cycle stage is inevitably followed by death. True False

34. Many firms facing a turnaround situation try to reduce their costs by outsourcing the production of many inputs. True False

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Chapter 05 - Business-Level Strategy: Creating and Sustaining Competitive Advantages Multiple Choice Questions

35. 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).

36. 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

37. 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.

38. 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.

39. 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.

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40. 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.

41. Which of the following is a risk (or potential 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.

42. 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.

43. 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.

44. 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.

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45. 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.

46. 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.

47. 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.

48. 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.

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49. 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.

50. 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.

51. 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.

52. Research has consistently shown that firms that achieve both cost leadership 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.

53. 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.

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54. 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

55. 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-themiddle." 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.

56. Which of the following is not one of the ways the Internet is lowering transaction costs? A. eliminating supply chain intermediaries B. evaluating employee performance C. minimizing office expenses D. reducing business travel

57. Dell Computer has an online ordering system that allows consumers to configure their own computers before Dell builds them. This capability is an example of A. electronic data interchange. B. knowledge management. C. collaborative design. D. mass customization.

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58. Which of the following methods of implementing a differentiation strategy has been greatly enhanced because of Internet technologies? A. celebrity endorsements B. prestige packaging C. exceptional service D. mass customization

59. Which of the following phrases best completes this sentence: Because of the Internet, firms that use a focus strategy have new opportunities to A. respond quickly to customer requests. B. provide more services and features. C. access markets less expensively. D. access niche markets in a highly specialized fashion.

60. One of the reasons the Internet is eroding sustainable competitive advantages is A. incumbent firms are entering market segments that they previously considered to be too small. B. nearly all competitors will have greater access to tools for managing costs making it hard for any one to achieve an advantage. C. differentiators have been able to preserve the unique advantages that have always been the hallmark of their success. D. firms are ignoring opportunities to offer high-end services in niche markets.

61. Which of these statements regarding the industry 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 or repeatable. C. It has important implications for a firm's generic strategies, functional areas, value-creating activities, and overall objectives. D. It points out the need to maintain a differentiation advantage and a low cost advantage simultaneously.

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62. 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.

63. 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

64. The growth stage of the industry life cycle 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.

65. 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

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66. 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

67. 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

68. As markets mature, A. costs continue to increase. B. application for patents increase. C. differentiation opportunities increase. D. there is increasing emphasis on efficiency.

69. 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

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70. 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.

71. 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

72. 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.

73. 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

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74. 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.

75. 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.

Essay Questions

76. Use the value chain as a framework to explain how a firm can achieve a competitive advantage of overall cost leadership.

77. Explain how a cost leadership strategy permits a firm to address the five forces in their competitive environment so it can enjoy higher-than-normal profits.

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78. Discuss how a competitive advantage can be attained through differentiation using the value chain concept.

79. Explain how a differentiation strategy enables a business to address the five competitive forces in such a way that it can enjoy high levels of profitability.

80. Discuss the risks associated with each of these forms of competitive advantage: overall cost leadership, differentiation, and focus.

81. What are the benefits and risks associated with combining overall cost leadership and differentiation strategies?

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82. Discuss the uses and limitations associated with the industry life cycle concept as a framework for studying strategy formulation at the business level.

83. Describe the two positioning strategies—reverse positioning and breakaway positioning that firms can use when faced with the maturity phase of the industry life cycle.

84. Briefly explain the advantages of the four alternatives—maintaining, harvesting, exiting, consolidating—associated with the decline stage of the market life cycle.

85. Discuss some of the effective turnaround strategies.

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Chapter 05 Business-Level Strategy: Creating and Sustaining Competitive Advantages Answer Key

True / False Questions

1. (p. 159) Michael Porter's three generic strategies can be depicted on two dimensions: competitive advantage and product life cycle. FALSE

AACSB: Analytic Bloom's: Knowledge Difficulty: Easy Learning Objective: 05-2

2. (p. 159) Concentrating solely on one form of competitive advantage generally leads to the highest possible level of profitability. FALSE

AACSB: Analytic Bloom's: Comprehension Difficulty: Medium Learning Objective: 05-2

3. (p. 160) A firm striving for cost leadership will typically spend relatively more on product related R&D than on process related R&D. FALSE


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4. (p. 165) 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. FALSE


5. (p. 162) 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. FALSE


6. (p. 165) Firms that compete on overall cost leadership are vulnerable if all rivals share a common input or raw material that contributes a significant amount to total costs. TRUE


7. (p. 167) 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. TRUE


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8. (p. 167 - 168) A successful differentiation strategy lowers entry barriers because of customer loyalty and the firm's ability to provide uniqueness in its products and services. FALSE


9. (p. 167 - 168) A successful differentiation strategy increases rivalry since buyers become more price-sensitive. FALSE


10. (p. 169) If a firm has a successful differentiation strategy, it is not necessary to attain parity on cost. FALSE


11. (p. 169 - 170) One potential pitfall of a differentiation strategy is that a brand's identification in the marketplace may become diluted through excessive product line extensions. TRUE


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12. (p. 170 - 171) With a focus strategy, creating a niche by differentiating one's product or service often allows small firms to compete successfully with market leaders. TRUE


13. (p. 170) Focus, by itself, often constitutes a competitive advantage. FALSE


14. (p. 172) A potential pitfall of a focus strategy is that focusers can become too focused to satisfy buyer needs. TRUE


15. (p. 172) A disadvantage of firms that successfully integrate overall cost leadership and differentiation strategies is that they are relatively easy for competitors to imitate. FALSE


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16. (p. 173) Mass customization enables manufacturers to be more responsive to customer demands for high quality products. TRUE


17. (p. 173 - 174) 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. FALSE


18. (p. 175) An important potential pitfall of an integrated overall cost leadership and differentiation strategy is that firms may fail to implement either one and become "stuck-inthe-middle." TRUE


19. (p. 176) Most analysts agree that use of the Internet will lower transaction costs. TRUE


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20. (p. 177) One way the Internet and digital technologies are creating opportunities for firms with differentiation strategies is by enabling mass customization. TRUE


21. (p. 178) The Internet offers few advantages for focusers because niche players and small companies cannot implement capabilities as effectively as their larger competitors. FALSE


22. (p. 178) The Internet has provided a small subset of companies with greater tools for managing costs. FALSE


23. (p. 178) Incumbent firms that thought a niche market was too small to enter in the past may use Internet technologies to enter that segment with focusers. TRUE


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24. (p. 179 - 180) 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. FALSE


25. (p. 182) 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. TRUE


26. (p. 182 - 183) During the growth stage of the market life cycle, customers are very likely to establish brand loyalty. FALSE


27. (p. 182 - 183) Given the attractiveness of premium pricing during the growth stage of the market life cycle, managers should emphasize short-term results to increase profits. FALSE


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28. (p. 183) As markets mature, competition on the basis of differentiation is preferable to price competition. TRUE


29. (p. 183) As markets mature, the magnitude of differentiation and cost leadership advantages among competitors decrease. TRUE


30. (p. 183 - 184) With reverse positioning, a strategy to be used during the mature stage of the industry life cycle, a product escapes its category by deliberately associating with a different one. FALSE


31. (p. 184 - 186) Businesses that compete in markets that are in decline should simply be harvested or divested since they are no longer profitable. FALSE


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32. (p. 185) 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. FALSE


33. (p. 186) The decline stage of the industry life cycle stage is inevitably followed by death. FALSE


34. (p. 187) Many firms facing a turnaround situation try to reduce their costs by outsourcing the production of many inputs. TRUE


Multiple Choice Questions

35. (p. 157) 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).


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36. (p. 161) 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


37. (p. 162) 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.


38. (p. 162) 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.


5-27


39. (p. 162) 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.


40. (p. 163 - 164) 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.


41. (p. 164 - 165) Which of the following is a risk (or potential 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.


5-28


42. (p. 165 - 167) 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.


43. (p. 166) 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.


44. (p. 167 - 168) 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.


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45. (p. 167 - 168) 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.


46. (p. 167 - 168) 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.


47. (p. 168 - 169) 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.


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48. (p. 168 - 169) 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.


49. (p. 170 - 171) 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.

AACSB: Analytic Bloom's: Application Difficulty: Hard Learning Objective: 05-2

50. (p. 170 - 172) 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.


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51. (p. 172) 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.


52. (p. 172 - 173) Research has consistently shown that firms that achieve both cost leadership 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.


53. (p. 173 - 175) 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.


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54. (p. 173 - 175) 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


55. (p. 175) 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-themiddle." 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.


56. (p. 176) Which of the following is not one of the ways the Internet is lowering transaction costs? A. eliminating supply chain intermediaries B. evaluating employee performance C. minimizing office expenses D. reducing business travel


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57. (p. 177) Dell Computer has an online ordering system that allows consumers to configure their own computers before Dell builds them. This capability is an example of A. electronic data interchange. B. knowledge management. C. collaborative design. D. mass customization.


58. (p. 177) Which of the following methods of implementing a differentiation strategy has been greatly enhanced because of Internet technologies? A. celebrity endorsements B. prestige packaging C. exceptional service D. mass customization


59. (p. 178) Which of the following phrases best completes this sentence: Because of the Internet, firms that use a focus strategy have new opportunities to A. respond quickly to customer requests. B. provide more services and features. C. access markets less expensively. D. access niche markets in a highly specialized fashion.


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60. (p. 179) One of the reasons the Internet is eroding sustainable competitive advantages is A. incumbent firms are entering market segments that they previously considered to be too small. B. nearly all competitors will have greater access to tools for managing costs making it hard for any one to achieve an advantage. C. differentiators have been able to preserve the unique advantages that have always been the hallmark of their success. D. firms are ignoring opportunities to offer high-end services in niche markets.


61. (p. 181) Which of these statements regarding the industry 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 or repeatable. C. It has important implications for a firm's generic strategies, functional areas, value-creating activities, and overall objectives. D. It points out the need to maintain a differentiation advantage and a low cost advantage simultaneously.


62. (p. 182) 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.


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63. (p. 182) 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


64. (p. 182 - 183) The growth stage of the industry life cycle 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.


65. (p. 183) 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


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66. (p. 183) 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


67. (p. 183) 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


68. (p. 183) As markets mature, A. costs continue to increase. B. application for patents increase. C. differentiation opportunities increase. D. there is increasing emphasis on efficiency.


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69. (p. 183) 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


70. (p. 183) 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.


71. (p. 184) 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


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72. (p. 185) 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.


73. (p. 185) 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


74. (p. 187) 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.


5-39


75. (p. 187) 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.


Essay Questions

76. (p. 160 - 161) Use the value chain as a framework to explain how a firm can achieve a competitive advantage of overall cost leadership. Answers will vary.


77. (p. 163 - 164) Explain how a cost leadership strategy permits a firm to address the five forces in their competitive environment so it can enjoy higher-than-normal profits. Answers will vary.


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78. (p. 165 - 167) Discuss how a competitive advantage can be attained through differentiation using the value chain concept. Answers will vary.


79. (p. 167 - 168) Explain how a differentiation strategy enables a business to address the five competitive forces in such a way that it can enjoy high levels of profitability. Answers will vary.


80. (p. 164 - 165; 168 - 169; 172, respectively) Discuss the risks associated with each of these forms of competitive advantage: overall cost leadership, differentiation, and focus. Answers will vary.


81. (p. 172 - 176) What are the benefits and risks associated with combining overall cost leadership and differentiation strategies? Answers will vary.


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82. (p. 179 - 186) Discuss the uses and limitations associated with the industry life cycle concept as a framework for studying strategy formulation at the business level. Answers will vary.


83. (p. 183 - 184) Describe the two positioning strategies—reverse positioning and breakaway positioning that firms can use when faced with the maturity phase of the industry life cycle. Answers will vary.


84. (p. 184 - 186) Briefly explain the advantages of the four alternatives—maintaining, harvesting, exiting, consolidating—associated with the decline stage of the market life cycle. Answers will vary.


85. (p. 187) Discuss some of the effective turnaround strategies. Answers will vary.


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Chap 005- test bank

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