Deck 6: Business-Level Strategy and the Industry Environment

Question 1

The late majority customers are typically reached through specialized distribution channels, and products are often sold by word of mouth.

Answer 1

False

Question 2

Later entrants to embryonic industries have the advantage over earlier entrants because they do not have the development or educational costs of figuring out how to produce the technology or teaching consumers about its' benefits.

Answer 2

True

Question 3

Explicit price leadership, when companies jointly set prices, is illegal under antitrust laws.

Answer 3

True

Question 4

Innovators and early adopters make up the largest market share percentage of the total market. The highest market demand and industry profits arise when they enter the market.

Question 5

The restaurant industry is an example of a fragmented industry.

Question 6

Laggards are technologically sophisticated customers willing to tolerate the limitations of the product.

Question 7

Relish Inc. created the first national chain of fast-food restaurants in a previously fragmented industry. This is called divestment.

Question 8

As markets develop demand is initially slow, accelerates as the technology becomes better understood and utilized and then declines as demand is increasingly limited to replacement demand.

Question 9

Early adopters are customers who purchase a new technology or product only when they are convinced that it will be around for a long time.

Question 10

The rate of growth in the market is not affected by strategies chosen when considering the factors of relative advantage, complexity, compatibility, trialability, and observability.

Question 11

The franchisor typically owns and funds each of its franchisees.

Question 12

Horizontal mergers often lead to industry fragmentation.

Question 13

Development of a mass market is the stimulus for an industry to change from growth to embryonic.

Question 14

Alpha Corporation owns and controls several retail outlets and is pursuing a strategy called franchising.

Question 15

A franchisor does not benefit from the franchisee's incentive to receive a return on their capital investments.

Question 16

Laggards are the customers who are the first ones to try and adopt a new technology.

Question 17

The goal for a company in the growth stage of the industry life cycle is to maintain its relative competitive position in a rapidly expanding market.

Question 18

A new product's relative advantage refers to the degree to which a new product is perceived as being better at satisfying customer needs than the product that it supersedes.

Question 19

Fragmented industries typically have high barriers to entry.

Question 20

The last group of customers to enter the market are characterized as practical, generally understand the value of new technology, weigh the benefits of adopting new products against the costs, and wait to enter the market until they are confident they will benefit.

Question 21

A divestment strategy's success is often dependent upon good timing.

Question 22

Which of the following is a disadvantage of franchising?

A) It restricts the franchisor from expanding.
B) It results in the franchisor taking all the financial burden of the franchisees.
C) It results in the delegation of authority to franchisees, and the franchisor may not enjoy complete control.
D) It does not provide enough incentive to the franchisees to run operations effectively because franchisees are not entrepreneurs.
E) It requires the franchisees to create a new business model and plan strategies.

Question 23

Which of the following is a way that a fragmented industry can be consolidated?

A) Using strategies to create meaningful scale economies.
B) Creating a national brand where none previously existed.
C) Lowering costs through the creation of scale economies by value innovations.
D) Offering new ways to address customer's demands such as wider product selection, longer operating hours, and lower prices.
E) All of these are ways that a fragmented industry can be consolidated.

Question 24

Which of the following is an advantage of franchising?

A) It gives the franchisor the same level of tight control over franchisees as does chaining.
B) It allows the franchisor to earn all the profits made by franchisees.
C) It is beneficial for franchisees because they do not have to face higher capital costs.
D) It helps the franchisees by relieving them of the responsibility of running operations.
E) It can help the franchisor expand his or her business rapidly.

Question 25

Market penetration involves the creation of new or improved products to replace existing products.

Question 26

The real estate industry is comprised of different firms in several locations. Some are independent and popular locally, whereas others are affiliated to national chains. The real estate industry is most likely to be a(n):

A) fragmented industry.
B) oligopoly.
C) pure competition industry.
D) consolidated industry.
E) monopoly.

Question 27

Which of the following is NOT an example of a fragmented industry?

A) Custom-made jewelry
B) Aircraft manufacturing
C) Massage services industry
D) Catering
E) Landscaping

Question 28

A company uses which of the following when it focuses on pockets of demand that are declining more slowly than the industry as a whole to maintain profitability?

A) An acquisition strategy
B) Chaining
C) A divestment strategy
D) A niche strategy
E) Franchising

Question 29

Effects of pursuing a harvest strategy include lowered employee morale, rapidly defecting customers and a faster decreasing market share than a company might initially expect.

Question 30

A company pursuing a market development strategy can use the brand name it has developed in one market segment to locate new market segments in which to compete.

Question 31

A product proliferation strategy can be used to lower the entry barriers in a mature industry.

Question 32

Which of the following is NOT a reason for fragmentation?

A) Lack of scale economies may mean that there are few, if any, cost advantages to large size.
B) There is no established brand loyalty in the market segment.
C) The lack of scale economies and national brand loyalty often implies low entry barriers.
D) The company is specialty company that operates in local or regional markets or is focused on specialized or custom-made products.
E) Brand loyalty in the industry may primarily be local.

Question 33

Which of the following statements about horizontal mergers is true?

A) Horizontal mergers enable companies to achieve economies of scale.
B) Horizontal mergers result in the fragmentation of the industry.
C) The horizontal merger strategy has been very successful in businesses with zero cases of failure.
D) Companies that establish a network of distributor outlets to obtain the advantages of a low-cost position are known as horizontal mergers.
E) Companies that adopt the strategy of centralization to gain control over all business units are known as horizontal mergers.

Question 34

A limit price strategy involves charging a price that is lower than that required to maximize profits in the short run to signal to new entrants that the incumbent has a low-cost structure that the entrant likely cannot match.

Question 35

Tactical steps companies using a leadership strategy might initiate can include using aggressive pricing, acquiring established competitors to consolidate the industry and making new investments in productive capacity. aims at growing in a declining industry by picking up the market share of companies that are leaving the industry.

Question 36

A firm may pursue a chaining strategy to:

A) obtain the advantages of economies of scale.
B) create product diversity.
C) generate revenue by licensing the patents it owns.
D) spread overhead costs.
E) establish several unrelated business units.

Question 37

Which of the following statements about fragmented industries is true?

A) They are usually characterized by large, mass-production operations.
B) They essentially enjoy a national brand loyalty.
C) They require companies to use focus strategies to meet specialized customer needs.
D) They do not attract new entrants as they have extremely high entry barriers due to economies of scale.
E) They are usually dominated by one or two large companies that enjoy the power to influence industry prices.

Question 38

A technology upgrading strategy is utilized by incumbent companies in a mature industry to deter entry by investing in costly technology upgrades that potential entrants would have trouble matching.

Question 39

To compete in the fragmented restaurant industry, Starbucks built, and now operates, hundreds of restaurants across the United States and Canada. Which of the following strategies is Starbucks using?

A) Acquisitions
B) Horizontal mergers
C) Franchising
D) Licensing
E) Chaining

Question 40

The strategy used by cereal companies where they produce a wide array of different types of cereal and are quick to sell their own version of any product brought in by new entrants is an example of a product proliferation strategy.

Question 41

Armando, a technology enthusiast, is often willing to pay premium prices to always have the newest tech gadgets. Armando most likely belongs to which of the following group of customers?

A) Laggard
B) Early majority
C) Early adopter
D) Late majority
E) Innovator

Question 42

How can a company take advantage of viral diffusion in a rapidly growing market?

A) They can encourage experts in the field to use the product first.
B) They can give opinion leaders free products to use.
C) They can create a partnership with opinion leaders to help further develop the technology.
D) They can identify and court opinion leaders in a particular market.
E) All of these are ways for companies to take advantage of viral diffusion in a rapidly growing market.

Question 43

Factors leading to the slow growth of demand for products in embryonic industries include all of the following EXCEPT:

A) the poor quality of the first products.
B) a lack of complementary products.
C) customer passion for the products.
D) high production costs.
E) poorly developed distribution channels.

Question 44

Hydralicious, a juice bar, has been looking to expand its business. The company has given a few entrepreneurs in different locations the license to operate under its name. The entrepreneurs have permission to use the company's reputation and the business model to run operations. The entrepreneurs will be charged a fee, but they will also get a percentage of the profits. Which of the following strategies is Hydralicious most likely to be using?

A) Chaining
B) Horizontal merger
C) Vertical merger
D) Franchising
E) Centralization

Question 45

Which of the following factors of a product tends to accelerate customer demand for it?

A) High observability
B) Minimum relative advantage
C) High complexity
D) Minimal value
E) Low trialability

Question 46

An industry moves from the embryonic to the growth stage when:

A) the sales of complementary products decline.
B) the production costs increase.
C) companies manufacture products in very small quantities.
D) ongoing technological progress makes its product easier to use.
E) mass markets for its products decline.

Question 47

Which of the following statements about embryonic industries is true?

A) They are characterized by very a high initial customer demand.
B) They are characterized by well-developed distribution channels.
C) They involve low production costs because of large volumes of production.
D) They face the challenge of educating customers who are not familiar with their product benefits.
E) They enjoy the abundance of complementary products that help increase sales.

Question 48

In a declining industry, a company may utilize a harvest strategy and:

A) significantly increase its investment in a business.
B) extract maximum profits from its investments.
C) venture into new market segments with new products.
D) expand the number of stores or outlets for its products.
E) significantly increase its advertising expenditure.

Question 49

Which of the following individuals is most likely to fall under the category of laggards in the context of customer groups?

A) Lauren, who is tech-savvy and tends to actively seek out new and innovative products in the market
B) Suresh, who appreciates technology but tends to refrain from trying products that are extremely new
C) Phillip, who is ignorant about the newest uses of technology and buys new products only when they become an absolute necessity
D) Charlotte, who is aware of the value that technology offers; she tends to weigh costs and benefits of a product before making a buying decision
E) Maria, who tends to be a little apprehensive about buying new technology but buys nevertheless when she observes that a lot of people are using the new technology

Question 50

In a bid to expand its business and build a national brand, Omega Inc. has acquired several competing outlets in different locations. All the outlets are responsible for the production of smaller components. Omega believes that having a larger enterprise that can offer a full portfolio of products, it can gain an edge over smaller rivals when selling to other companies. Which of the following strategies has Omega Inc. most likely used?

A) Chaining
B) Franchising
C) Horizontal merger
D) Niche strategy
E) Divestment strategy

Question 51

Which of the following is a market growth factor that refers to the degree to which the results of using and enjoying a new product can be seen and appreciated by other people?

A) Complexity
B) Relative advantage
C) Compatibility
D) Trialability
E) Observability

Question 52

Which of the following represents the difference in strategies for the innovators and early majority versus the mass market?

A) Companies serving innovators and the early majority must engage in large-scale mass production to ensure that a high-quality product can be reliably produced at a low price point while serving the rapidly growing mass market typically is to pursue a focus model.
B) Companies serving innovators and the early majority must pay more attention to increasing the performance of a product while mass market strategies focus on the product's ease of use and reliability.
C) Companies serving innovators and the early majority requires mass-market distribution channels and mass-media advertising campaigns while the mass market is typically reached through specialized distribution channels, and products are often sold by word of mouth.
D) Companies serving innovators and the early majority typically pursue a focus model while serving the rapidly growing mass market takes large-scale mass production to ensure that a high-quality product can be reliably produced at a low price point.
E) Product development strategies required for success do not vary as a market develops over time.

Question 53

Most embryonic industries emerge from:

A) a technological innovation.
B) product proliferation.
C) a lack of high entry barriers.
D) chaining.
E) franchising.

Question 54

Which of the following statements about growing industries is true?

A) Innovators and early adopters have the same customer needs as the early majority.
B) Innovators and early adopters are typically reached through specialized distribution channels.
C) Reaching the early majority rarely requires advertising and is usually achieved through word of mouth.
D) Companies serving innovators need to have large-scale mass production and very low prices.
E) Companies competing in an embryonic market typically pay more attention to increasing the reliability of a product than to its performance.

Question 55

Customers who understand a new technology may have important future applications and are willing to experiment with it to see if they can pioneer new uses for the technology are called:

A) early adopters.
B) the early majority.
C) innovators.
D) laggards.
E) the late majority.

Question 56

Tom tends to be ignorant about technological advancements. He was reluctant to own a smartphone even when they were well established and familiar in the market. However, Thomas slowly got used to the idea of a smartphone when his job demanded him to be connected to the office network all the time. Thomas is most likely to fall under which of the following categories of customers?

A) Early majority
B) Late majority
C) Laggards
D) Early adopters
E) Innovators

Question 57

The strategy that company should pursue for the first group of customers to enter the market for a new product

A) is to wait until the customer can see the benefits and appreciate the use of the new technology.
B) is to highlight the utility and longevity of the technology.
C) should focus on product values such as ease of use and reliability.
D) is to use their social influence to promote new technologies and their future vision support the diffusion of new innovations.
E) is to compare the benefits against the costs of adopting a new product.

Question 58

Which of the following represents the correct chronology for market development?

A) embryonic, mass market, growth, mature, market saturation
B) embryonic, growth, mass market, mature, market saturation
C) embryonic, growth, mass market, market saturation, mature
D) growth, embryonic, mass market, mature, market saturation
E) mass market, embryonic, growth, market saturation, mature

Question 59

Which of the following market growth factors that accelerates customer demand allows customers to experiment with a new product during a hands-on trial basis?

A) Complexity
B) Relative advantage
C) Compatibility
D) Trialability
E) Observability

Question 60

Which of the following statements about customer categories in growing industries is true?

A) Laggards frequently adopt new products even when the benefits are not obvious.
B) Innovators are the customers who are the last ones to adopt a new product.
C) A typical late majority customer group is a behaviorally conservative set of customers.
D) Customers in the early majority generally do not understand the value of new technology.
E) Laggards form the leading wave or edge of the mass market.

Question 61

In his book Crossing the Chasm, Geoffrey Moore discusses some of the issues involved in marketing technologically new products as markets develop through different stages. What customer groups does Moore identify as critical to the movement into mass market, and what must companies do if they are to successfully cross the chasm?

Question 62

The highest market demand and industry profits arise when:

A) early adopters leave the market.
B) innovators and early adopters enter the market.
C) when laggards and late majority users leave the market.
D) early and late majority users enter the market.
E) when the production costs become high.

Question 63

The intensity of competition is greater in declining industries in which:

A) the industry is declining slowly instead of rapidly.
B) the product is easy to differentiate.
C) exit barriers are high.
D) entry barriers are high.
E) technology is stable.

Question 64

When a company decides to exit an industry by selling its business assets to another company, it is said to be using which of the following strategies?

A) Market penetration
B) Divestment
C) Niche
D) Downsizing
E) Outsourcing

Question 65

Music CDs and newspaper sales have been falling as users turn to the Internet for their music and news. Which of the following is NOT a strategy for companies in these declining industries?
a.
Leadership
b.
Chaining
c.
Niche
d.
Divestment
e.
Harvest

Question 66

An app development firm is working on a new product to identify and consolidate a smartphone user's favorite and most-used apps into one place on the phone. If the new product will be sold to existing customers, the firm is pursuing a strategy of:

A) product development.
B) market penetration.
C) product proliferation.
D) market signaling.
E) market development

Question 67

When dealing with a declining industry, which of the following strategies should be used if a company has distinctive strengths that allow it to capture market share or if the speed of decline and the intensity of competition is moderate?

A) Divestment
B) Harvest
C) Price signaling
D) Leadership
E) Capacity control

Question 68

Which of the following correctly describes a non-price competitive strategy based on product differentiation?

A) Market penetration uses new marketing segments and existing products.
B) Market development uses new marketing segments and new products.
C) Product development uses existing marketing segments and existing products.
D) Product proliferation uses new marketing segments and new products.
E) Price leadership uses existing marketing segments and existing products.

Question 69

Intensifying competition in a declining industry is dependent on which four factors? Explain how these factors are considered when a company chooses a strategy in a declining industry.

Question 70

Which of the following statements about declining industries is true?

A) Not all segments of an industry typically decline at the same rate.
B) A declining industry should ideally use the leadership strategy when it does not have any strengths and the competition is low.
C) A divestment strategy is when a company in a declining industry tries to improve sales by improving product quality.
D) The greater the exit barriers of a declining industry, the lower the intensity of competition.
E) The intensity of competition is lower in declining industries that sell commodity-like products.

Question 71

Which of the following factors in an industry is most likely to cause excess capacity?

A) Technologically outdated production units
B) High customer demand
C) A company's investments in newer production technology
D) Lack of competition from new entrants
E) Limited number of outlets in certain locations

Question 72

What are the causes and effects of excess capacity? How can companies seek to control these effects? Why must companies exercise caution when using capacity control strategies?

Question 73

The strategy in a mature industry to invest in infrastructure that would be cost-prohibitive for new entrants to deter new competition from entering the market is known as:

A) product proliferation.
B) technology upgrading.
C) market penetration.
D) capacity control.
E) product development.

Question 74

Mature industries generally adopt all of the following strategies and tactics EXCEPT:

A) protecting their competitive advantage.
B) moderating the intensity of industry competition.
C) preserving both company and industry profitability.
D) deterring entry into an industry.
E) increasing the level of rivalry within an industry.

Question 75

Drawbacks to which of the following industry rivalry management strategies include allowing companies with high cost structures to survive without implementing efficiency strategies despite the fact that this leaves them vulnerable in the long term?

A) Price signaling
B) Price leadership
C) Non-price competition
D) Market penetration
E) Product development

Question 76

What are the factors that cause the variation in market growth rates for different products? Evaluate whether these factors result in accelerating or retarding the rate at which a market grows.

Question 77

Which of the following is NOT a strategy used by mature industries to manage industry rivalry?

A) Market development
B) Non-price competition
C) Strategic commitments
D) Price signaling
E) Market penetration

Question 78

Gadgetbug, an electronic gadgets company, has established itself as one of the industry leaders. The company has been facing competition from new entrants. The new entrants offer gadgets in different colors, with compelling artwork embossed on the cases. Seeing the interest in this market, Gadgetbug introduced its own range of uniquely designed gadgets. In this scenario, Gadgetbug's attempt to cater to the different segments of customers to deter competition demonstrates:

A) price signaling.
B) product proliferation.
C) a harvest strategy.
D) a limit price strategy.
E) diseconomies of scale.

Question 79

Which of the following strategies requires a company to limit or decrease its investment in a business and to extract, or "milk," the proceeds of its investment as much as it can?

A) Market concentration strategy
B) Share-increasing strategy
C) Cost-leadership strategy
D) Hold-and-maintain strategy
E) Harvest strategy

Question 80

Nutrimax Corp., a breakfast cereal company, has designed extensive and elaborate advertising campaigns for its existing products. The campaigns mainly focus on the features and benefits of the products that differentiate the cereals from the competition. Nutrimax Corp. is most likely to be using which of the following strategies?

A) Market penetration
B) Product development
C) Product proliferation
D) Market development
E) Capacity control