Deck 4: Business-Level Strategy

Question 1

An English professor spends her summers writing low-brow romance novels that sell directly to paperback. She writes under a fictional name because she is embarrassed to admit to her colleagues and students how she earns the extra money for foreign vacations. The professor is correct in her concern that she is serving customer needs that are objectively inferior and bad.

Answer 1

False

Question 2

Companies without the core competencies to link primary and support activities are still able to implement successfully a either a cost leadership or a differentiation strategy, although they cannot implement an integrated cost leadership/differentiation strategy.

Answer 2

False

Question 3

There are three generic business level strategies.

Answer 3

False

Question 4

A business-level strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage in specific product markets.

Question 5

To position itself differently from competitors, a firm must decide to either perform activities differently or to perform different activities.

Question 6

Support activities in the value chain are generic across business strategies.

Question 7

Firms implementing cost leadership strategies often sell no-frills standardized goods or services to the industry's most typical customers.

Question 8

The difference between the cost leadership and differentiation business-level strategies, and the focused cost leadership and focused differentiation strategies, is their competitive reach.

Question 9

Global competition has increased the options for consumers and has made it more imperative for firms to identify the needs of customers in order to earn above-average returns.

Question 10

Every firm uses all levels of strategy: corporate, acquisition and restructuring, international and cooperative.

Question 11

An examination of a company's activity map will reveal its strategic themes.

Question 12

A low-cost position in the industry is not a valuable defense against rivals when competing on the basis of price.

Question 13

The best of the generic business strategies is the integrated cost leadership/differentiation strategy.

Question 14

The goal of business-level strategy is to earn above-average returns.

Question 15

In general, firms can be most effective if they develop business-level strategies that will serve the needs of the "average customer."

Question 16

When selecting a business level strategy, the firm determines who will be served, what customer needs will be satisfied, and how those needs will be satisfied.

Question 17

The two basic ways to segment a market are customer and industrial.

Question 18

In general, U.S. middle-market consumers place their highest priority on functional products without many frills.

Question 19

Essentially, there are only two basic competitive advantages: cost and uniqueness.

Question 20

Business-level strategy can be thought of as the firm's core strategy.

Question 21

A low-cost leader may create entry barriers to potential entrants by continually improving its levels of efficiency.

Question 22

In order for a cost leadership strategy to earn the firm above-average returns, the firm must sell large volumes of the product.

Question 23

Because of its focus on innovation and quality manufacturing, Total Quality Management is not useful for firms which follow a cost leadership strategy.

Question 24

The strategic focus of Chapter 4 highlights PetSmart and its business level strategy. What is the primary risk of PetSmart's strategy of "engaging the enthusiast" pet owners?

A) Customers might decide that the price differential between their product and competitors' products is too large.
B) The processes PetSmart uses to produce and distribute its products and services could become obsolete because of competitors' innovations.
C) PetSmart might focus too much on cost reductions at the expense of trying to understand customers' perceptions of "competitive levels of differentiation."
D) Competitors may learn how to successfully imitate PetSmart's strategy.

Question 25

A flexible manufacturing system is a computer-controlled process used to produce a variety of products in moderate, flexible quantities with minimal manual intervention.

Question 26

Caribou Coffee, with 430 stores, is much smaller than Starbucks. Therefore, Caribou is using a focus strategy.

Question 27

Virtually anything can be a basis for a firm to create a differentiated product or service.

Question 28

Unlike a cost leadership and a differentiation strategy, both focus strategies are less dependent on the completion of various primary and secondary activities in order to compete in a superior manner.

Question 29

Counterfeit products are a serious problem for firms following the differentiation strategy.

Question 30

A customer relationship management system will allow firms to identify the trade-offs that customers are willing to make between differentiated features and low cost.

Question 31

The differentiation strategy is effective for products that are expensive, luxury consumer goods. It is not effective for common, inexpensive products such as doughnuts.

Question 32

Business-level strategies detail commitments and actions taken to provide value to customers and gain competitive advantage by exploiting core competencies in

A) the selection of industries in which the firm will compete.
B) specific product markets.
C) primary value chain activities.
D) particular geographic locations.

Question 33

A risk of a focus strategy is that the needs of the customer within a narrow competitive segment may become more similar to those needs of customers in the whole market.

Question 34

The hazard of getting "stuck in the middle" applies to firms using any business strategy.

Question 35

Human resources and other support activities are not value-creating activities in the value chain; only the primary activities create value.

Question 36

PetSmart provides services and products for pet owners which are not available through other outlets. PetSmart's business level strategy is best described as

A) focused cost.
B) cost leadership.
C) differentiation.
D) stuck-in-the-middle.

Question 37

The activities in the value chains of companies using focus strategies are quite different than the activities in the value chains of companies using industry-wide business strategies.

Question 38

One of the benefits of the integrated cost leadership/differentiation strategy is that it is less risky than either the cost leadership or differentiation strategies.

Question 39

A risk of the differentiation strategy is that the firm's means of differentiation may eventually not provide value to the customer.

Question 40

McDonald's brand recognition is a fundamental source of differentiation, while the rigorous standardization of processes allows it to lower costs. Thus, McDonalds is a classic example of the focused differentiation strategy.

Question 41

Viewing the world through the customer's eyes and constantly seeking ways to create more value for the company enhances

A) the reach of the company toward the customer.
B) the ability to identify the customer.
C) the richness of the relationship with the customer.
D) affiliation with the customer.

Question 42

Michael Porter points out that strategic fit among many activities is fundamental to

A) the development of core competencies for a firm.
B) the breadth of competitive scope for a firm.
C) sustainability of a firm's competitive advantage.
D) the integrity of the firm's value chain.

Question 43

Demographic segments include generational identifications. Which segment of the population was previously financially conservative, but is now willing to spend money?

A) Baby Boomers
B) Swing Generation
C) World War II Generation
D) Generation X

Question 44

Amazon has built capabilities around Internet technology and e-commerce to facilitate information exchanges with its customers in a cost effective manner. This represents which of the three service dimension?

A) Reach
B) Richness
C) Affiliation
D) None of the above

Question 45

Before the firm decides what products to offer and what benefits and features they will have, the firm must decide all the following questions EXCEPT

A) who the firm should serve.
B) when the customer's needs should be satisfied.
C) what needs the firm should satisfy.
D) what core competencies are needed to satisfy customer needs.

Question 46

Which value creating strategies best satisfy customer needs?

A) Firm resources
B) Capabilities
C) Core competencies
D) None of the above.

Question 47

When selecting a business level strategy, the firm must determine all of the following EXCEPT

A) How will the customer's needs be satisfied?
B) Who is the customer?
C) What are the customers' needs?
D) Why should these customers' needs be satisfied?

Question 48

Subway is targeting a more narrow market segment among college students than the segment on which McDonald's focuses. Subway is focusing on students interested in healthy fast food. To select this business strategy, Subway would have used information from all the following categories EXCEPT

A) demographic factors.
B) psychological factors.
C) consumption-pattern factors.
D) end-use segments.

Question 49

In order to meet and exceed customer's expectations, firms must

A) constantly manipulate customers' perceptions of their needs.
B) answer the questions: who, what, when, where, how, and why as they apply to customers.
C) continuously improve, innovate, and upgrade their core competencies.
D) successfully defend their established core competencies from imitation by competitors.

Question 50

The analysis of the activity map of a successful company such as Southwest Airlines emphasizes how

A) the organizational culture of Southwest Airlines is the key to the success of the organization.
B) understanding of the profit pool in an industry indicates to companies where above-average returns can be earned.
C) it is hard for rivals to match an array of interlocked activities.
D) the primary and support activities of a successful company capture value all along the value chain.

Question 51

A firm's core strategy is its ____ strategy.

A) corporate
B) business
C) pricing
D) international

Question 52

Although both companies have Internet access to potential customers, the most striking difference between Barnes and Noble's access to customers and Amazon.com's access to customers is the difference in the ____ dimension of relationships with customers.

A) responsiveness
B) richness
C) affiliation
D) reach

Question 53

Because of their sensitivity to hype, and their insistence that products deliver as promised, ____ would be less likely to develop product loyalties that would protect a differentiating firm from potential entrants.

A) members of the Swing generation
B) Baby Boomers
C) members of the Lost Generation
D) Generation Xers

Question 54

An entrepreneur is investigating starting a company that provides tax advice to small companies. In order to position his company differently from the existing competitors, the entrepreneur must

A) analyze the reach, richness, and affiliation the company must have with its customers.
B) provide tax advice either in a different manner or provide a different kind of tax service than competitors.
C) offer tax advice at a price lower than the cheapest competitor.
D) offer tax advice at a higher quality than the best competitor.

Question 55

An interior decorator has moved his business from Los Angeles to St. Paul, Minnesota, because his spouse's company transferred her to St. Paul. The decorator is distressed because the customers in his target market have, in his words, "banal and bourgeois taste." What is the decorator's problem?

A) The decorator does not understand that customer needs are neither right nor wrong, good nor bad.
B) The decorator has no core competencies that will transfer to his new geographic market.
C) The decorator should choose a strategy of cost-leadership in this environment.
D) The decorator is highly affiliated with the new target market and understands how he can create value for it.

Question 56

The three dimensions of a firm's relationships with customers include all the following EXCEPT

A) exclusiveness.
B) affiliation.
C) richness.
D) reach.

Question 57

If Southwest Airlines employees lost their high enthusiasm and commitment to the company,

A) the airline could continue without problems because its cost-leadership strategy is dependent on its efficient internal procedures.
B) replacement employees could be hired from rival airlines that are laying off employees easily merged into the Southwest culture.
C) there would be no impact on Southwest's profitability because Southwest's customers value the low fares rather than being "entertained" by the employees.
D) Southwest would have lost one of its competitive advantages and its performance would be threatened.

Question 58

By examining the ____ of Southwest Airlines, one can identify the strategic themes around which it has developed its business strategy. These themes include limited passenger service, high aircraft utilization, highly productive ground and gate crews, and so forth.

A) activity map
B) profit pool
C) value diagram
D) five forces model

Question 59

Business-level strategies are concerned specifically with

A) creating differences between the firm's position and its rivals.
B) selecting the industries in which the firm will compete.
C) how functional areas will be organized within the firm.
D) how a business with multiple physical locations will operate one of those locations.

Question 60

Which of the following is TRUE?

A) As customer loyalty increases, customers are more sensitive to price increases.
B) Customer loyalty has a positive relationship with firm profitability.
C) Customer loyalty is fragile and cannot reliably be considered a factor in firm success.
D) Customer loyalty is of importance only to firms using a differentiation strategy.

Question 61

Durable Ceramics, Inc., provides inexpensive ceramic tile to builders of institutional buildings such as schools, prisons, and public administration buildings. It has always competed on a cost leadership basis. Most of its products are purchased by a few commercial construction firms, so it is fairly dependent on these construction firms for selling its product. Durable Ceramic's next most-efficient competitor, Cost-Less Ceramics, Inc., earns average returns, while Durable earns above-average returns. The commercial construction firms are putting pressure on Durable to reduce its prices. If Durable reduces its prices below those of Cost-Less's prices, it is likely that

A) both Durable and Cost-Less will devise additional ways to become more efficient in their production processes.
B) Durable will be unable to absorb the lower cost, and will go out of business.
C) both Cost-Less and Durable will go out of business, leaving the customers with fewer alternative sources of low-cost tile.
D) Cost-Less will go out of business, and Durable will gain higher power over its customers.

Question 62

A company pursuing the differentiation or focused differentiation strategy would tend to

A) have highly efficient systems linking suppliers' products with the firm's production processes.
B) use economies of scale.
C) have strong capabilities in basic research.
D) make investments in easy-to-use manufacturing technologies.

Question 63

When the costs of supplies increase in an industry, the low-cost leader

A) may continue competing with rivals on the basis of product features.
B) will lose customers as a result of price increases.
C) will be unable to absorb higher costs because cost-leaders operate on very narrow profit margins.
D) may be the only firm able to pay the higher prices and continue to earn average or above- average returns.

Question 64

The effectiveness of any of the generic business-level strategies is contingent upon

A) customer needs and competitors' strategies.
B) the match between the opportunities and threats in its external market and the strengths of its internal environment.
C) the trends in the general consumer base and the robustness of the global and industry economy.
D) the firm's competitive scope and its competitive advantage.

Question 65

The typical risks of a cost leadership strategy include

A) the inability to balance high differentiation and low price.
B) production and distribution processes becoming obsolete.
C) excessive differentiation to the point where the customer base is too small.
D) loss of customer loyalty.

Question 66

Ever improving levels of efficiency enhance profit margins for a cost leader. This effects which of the five forces of industry structure most directly?

A) Potential entrants
B) Substitutes
C) Buyer power
D) Supplier power

Question 67

A firm successfully implementing a differentiation strategy would expect

A) customers to be sensitive to price increases.
B) to charge premium prices.
C) customers to perceive the product as standard.
D) to have high levels of power over suppliers.

Question 68

Big Lots is able to compete against Wal-Mart with a cost leadership strategy because of its strengths in highly disciplined merchandise cost and inventory management system. This illustrates the

A) ability of Big Lots to imitate Wal-Mart's tightly integrated activity map.
B) ability to survive against a dominant competitor by changing from a broad competitive scope to a narrow competitive scope.
C) fact that support activities in the firm can provide sources of cost reduction.
D) importance of effective use of primary activities in the value chain.

Question 69

All of the following are considered generic business-level strategies EXCEPT

A) product diversification.
B) cost leadership.
C) focused differentiation.
D) integrated cost leadership/differentiation.

Question 70

The products or services that are differentiated from others have qualities that are

A) perceived by the customer to add value for which they will pay a premium.
B) valued by the typical industry customer.
C) perceived as standardized by the customer.
D) seen as classic attributes rather than passing fads.

Question 71

When a product's unique attributes provide value to customers, the firm is implementing

A) a differentiation strategy.
B) a cost leadership strategy.
C) an integrated cost leadership/differentiation strategy.
D) a single-product strategy.

Question 72

A river barge company can offer cheaper, although slower, per pound transportation of products to companies when compared with transportation by air, truck, or rail. The river barge company should first target customers whose companies use

A) the integrated cost leadership/differentiation strategy.
B) either of the focus strategies.
C) the cost-leadership strategy.
D) any of the strategies except the focused differentiation strategy.

Question 73

The use of a differentiation strategy would be expected to be LEAST effective in which of the following markets?

A) Commodity goods
B) Motion pictures
C) Popular music
D) Writing instruments

Question 74

A cost leadership strategy provides goods or services with features that are

A) acceptable.
B) unique.
C) substandard.
D) mediocre.

Question 75

As the television industry has changed in the last few decades from just three major networks to a multiplicity of networks, one of the major aspects of business strategy for the newer networks is ____ than the traditional networks.

A) broader competitive scope
B) narrower competitive scope
C) increased use of primary activities to capture value
D) increased use of support activities to capture value

Question 76

A company using a narrow scope in its business strategy is

A) following a cost leadership business strategy.
B) focusing on a broad array of geographic markets.
C) limiting the group of customer segments served.
D) decreasing the number of activities on its value chain.

Question 77

All of the following are examples of differentiated products EXCEPT

A) Toyota's Prius gas-electric hybrid car.
B) Tempur-Pedic mattresses.
C) store brand beef and pork.
D) Starbuck's coffee.

Question 78

Blind taste-tests have shown that the taste of premium-priced vodkas and inexpensive vodkas are indistinguishable even to regular drinkers of vodka. But the sales of premium vodkas are thriving. This is an example of

A) the perception of uniqueness being important to firms following the differentiation strategy.
B) the importance of high-quality raw materials when using the differentiation strategy.
C) the risk of product imitation by competitors.
D) the danger counterfeiting holds for firms pursuing the differentiation strategy.

Question 79

Research suggests that having a competitive advantage in ____ creates more value in the cost leadership strategy than it does in the differentiation strategy.

A) marketing and sales
B) technology development
C) inbound and outbound logistics
D) human resource management

Question 80

A cost leadership strategy targets the industry's ____ customers.

A) most typical
B) poorest
C) least educated
D) most frugal