Deck 5: Business-Level Strategy and Competitive Positioning

Question 1

The cost leader is able to withstand competition better than the other companies because of its lower costs.

Answer 1

False

Question 2

Differentiation on the basis of innovation and technological competency depends on the R&D function.

Answer 2

True

Question 3

The three generic competitive approaches are cost leadership, differentiation, and focus.

Answer 3

True

Question 4

For any company, building new competencies in the functions that sustain its differentiation means neglecting its cost structure.

Question 5

Many cost leaders gear all their strategic choices to the single goal of squeezing out every cent of costs to sustain their competitive advantage.

Question 6

Market segmentation is the way a company decides to group customers, based on important differences in their needs or preferences.

Question 7

Cost leaders ignore the many different market segments in an industry and position their products to appeal to the "average" customer.

Question 8

A business-level strategy is the plan of action that strategic managers adopt to use a company's resources and distinctive competencies to gain a competitive advantage over its rival in a market or industry.

Question 9

Customers needs are desires, wants, or cravings that can be satisfied by means of the characteristics of a product or service.

Question 10

A differentiator should not be concerned about the production cost of a product because it can charge a premium price.

Question 11

Achieving a low-cost position may require the company to develop skills in flexible manufacturing and adopt efficient materials-management techniques.

Question 12

Because of its lower cost structure, the cost leader is able to charge a higher price than its competitors.

Question 13

Product differentiation is the process of creating a competitive advantage by designing goods or services to satisfy customer needs.

Question 14

A company pursuing a business model based on differentiation usually strives to differentiate itself on one key dimension.

Question 15

The three principal routes to high product differentiation are superior innovation, excellent quality, and responsiveness to customer needs.

Question 16

Companies with a differentiation advantage can charge a higher price for their products.

Question 17

A cost leader generally has low product differentiation and high market segmentation.

Question 18

A product's appeal to customers' psychological desires is a source of differentiation.

Question 19

Market segmentation addresses the "who" portion of a firm's business model.

Question 20

The process of defining a business should address the questions: "What is to be satisfied?," "Who is to be satisfied?," and "How will they be satisfied?"

Question 21

A fragmented industry is composed of a large number of small and medium-sized companies.

Question 22

JCPenney's corporation owns thousands of retail outlets and is pursuing a strategy called franchising.

Question 23

Product proliferation refers to the strategy of "filling the niches" by catering to the needs of customers in all market segments.

Question 24

Fragmented industries typically have few barriers to entry.

Question 25

A price-cutting strategy will always keep potential entrants from entering the industry.

Question 26

Through chaining, companies increase their buying power, which allows them to negotiate large price reductions with their suppliers, which promotes their competitive advantage.

Question 27

A harvest strategy is the best choice when a company wishes to get out of a declining industry and perhaps optimize cash flow in the process.

Question 28

When the size of the total market is shrinking, competition tends to intensify in a declining industry and profit rates tend to fall.

Question 29

Powerful suppliers are usually a problem for companies following a differentiation strategy.

Question 30

Differentiation leads to high brand loyalty, which in turn reduces the threat of new firms entering the industry.

Question 31

A focused company is a specialized differentiator or a cost leader.

Question 32

A factor promoting the trend toward market fragmentation and niche marking is the substantial reeducation of the costs of differentiation as a result of flexible manufacturing.

Question 33

A leadership strategy aims at growing in a declining industry by picking up the market share of companies that are leaving the industry.

Question 34

All focus strategies entail serving a specific market segment using a differentiation approach.

Question 35

Market development is the process that a company uses to increase its market share in its existing, established markets.

Question 36

Market penetration is a strategy in which a company concentrates on expanding market share in its existing product markets.

Question 37

John wants to open a small sandwich shop, in a city that contains dozens of similar stores. John's industry is consolidated.

Question 38

Product proliferation can be used to manage rivalry within an industry and to encourage other businesses to enter the industry.

Question 39

The fate of a company whose strategy fails because it has made product/market choices in a way that does not lead to a sustained competitive advantage is stuck in the middle.

Question 40

McDonald's created the first national chain of fast-food restaurants in a previously fragmented industry. This is an example of consolidation.

Question 41

Which of the following is not a generic competitive strategy?

A) Cost leadership
B) Differentiation
C) Focused cost leadership
D) Focused differentiation
E) Innovation

Question 42

Delta Airlines used to advertise its high-quality air travel service by saying it flew "anywhere, anytime." What generic strategy is represented by this advertisement?

A) Cost leadership
B) Focused differentiation
C) Stuck in the middle
D) Differentiation
E) Both cost leadership and differentiation simultaneously

Question 43

When a company produces a wide range of products for different customer groups, it is following a strategy of

A) cost leadership.
B) market concentration.
C) focus.
D) differentiation.
E) share building.

Question 44

A producer of commodity steel should pursue which of the following generic competitive strategies?

A) Growth
B) Cost leadership
C) Focus
D) Differentiation
E) Profit

Question 45

A disadvantage of pursuing a cost leadership strategy is that

A) technological change can make experience curve economies obsolete.
B) price wars make it hard to compete with differentiators.
C) it costs more than a differentiation strategy because of the necessity of high capital investments.
D) powerful buyers are a major threat.
E) no quality control exists.

Question 46

The main difference between companies following a cost leadership strategy and those following a focused cost leadership strategy is

A) standardized market price.
B) industry life cycle stage.
C) degree of market segmentation.
D) age of the market.
E) market trajectory.

Question 47

Competitive advantage with product differentiation occurs when a company

A) creates competitive advantage by grouping customers on the basis of important differences in their needs.
B) helps firms keep costs to a minimum.
C) creates, makes, and sells a product in a way that better satisfies customer needs than its rivals.
D) is focused on corporate-level strategy.
E) allows its managers to ignore costs.

Question 48

A large company produces a variety of clothing for different customer groups. This firm is pursuing which of the following strategies?

A) Cost leadership
B) Differentiation
C) Both cost and differentiation
D) Focus
E) Share building

Question 49

Which of the following industries offers the least opportunity for product differentiation and market segmentation?

A) Oil and gas
B) Clothing
C) Building supplies
D) Home electronics
E) Computers

Question 50

Which of the following types of businesses would not be considered a focused differentiator?

A) A store specializing in fly-fishing
B) A plus-size clothing store
C) A Belgian chocolate shop
D) A Mexican fast food restaurant chain
E) An aquarium store selling only salt water fish and equipment

Question 51

As compared to a differentiator, the cost leader has the advantage over its rivals of

A) making higher profit margins.
B) being better able to withstand the negative influence of powerful suppliers and buyers.
C) having inimitable production methods.
D) enjoying higher brand loyalty.
E) being preferred by investors.

Question 52

Which generic business-level strategy is based on the intent to outperform competitors by doing everything it can to lower its cost structure?

A) Focused differentiation
B) Differentiation
C) Broad differentiation
D) Cost leadership
E) None of these

Question 53

When a company services the broad market and has a low degree of product differentiation, it is most likely

A) pursuing a focus strategy.
B) pursuing a differentiation strategy.
C) pursuing a cost-leadership strategy.
D) stuck in the middle.
E) pursuing both cost leadership and differentiation.

Question 54

A true cost leader has a __________ level of product differentiation and __________ market segmentation.

A) high; low
B) low; high
C) low; low
D) high; high
E) variable; variable

Question 55

A radio station has a distinctive competency in developing new products (shows) and wants to serve the upscale market. Which of the following is the most appropriate generic strategy for this company?

A) Cost leadership
B) Differentiation
C) Both cost leadership and differentiation
D) Focused low cost approach
E) Focused differentiation approach

Question 56

Which of the five forces does a cost leadership advantage help protect a company from?

A) Competitive rivalry
B) Power of suppliers
C) Power of buyers
D) Substitute products
E) All of these

Question 57

Nick is often asked to perform his clown act for birthday parties or school groups, but instead he only offers his very inexpensive services to children's hospitals. Nick is pursuing which generic business strategy?

A) Cost leadership
B) Differentiation
C) Focused cost leadership
D) Focused differentiation
E) Stuck in the middle

Question 58

The most expensive competitive strategy to pursue is

A) growth.
B) cost leadership.
C) focused cost leadership.
D) differentiation.
E) hyper-competition.

Question 59

Which of the following markets offers the best opportunity for product differentiation and market segmentation?

A) Bulk chemicals
B) Wheat
C) Cement
D) Home theater
E) Fax machines

Question 60

Which of the following is not a route that can help a company achieve a differentiation advantage?

A) Superior innovation
B) Low cost structure
C) Responsiveness to customer needs
D) Excellent quality
E) Superior innovation and excellent quality

Question 61

Which of the following refers to the process by which companies increase or decrease product prices to convey their competitive intention to other companies and so influence the way they price their products?

A) Cost cutting
B) Price signaling
C) Preemption
D) Non-price competition
E) Horizontal mergers

Question 62

Are the generic business-level strategies of differentiation and cost leadership incompatible? Explain.

Question 63

Which of the following is an example of a company following a strategy of consolidating a fragmented industry through horizontal merger?

A) Mail Boxes Etc. grew through the investments of local owner-managers.
B) America Online grew by acquiring rivals such as Netscape, CompuServe, and ICQ.
C) Sears funded growth with cash from operations in its existing stores.
D) Software House International is licensed to sell over 100,000 products in a dozen countries.
E) Heinz started with just one product, pickled horseradish, and today manufactures almost 6,000 foods.

Question 64

If a firm operating in a fragmented industry can find a way to __________, the profit potential is high.

A) backwards integrate
B) consolidate the industry
C) change its generic strategy
D) diversify
E) change strategic groups

Question 65

If a firm has the resources to serve a stable pocket of demand in a declining industry, then it should pursue a __________ strategy.

A) harvest
B) product development
C) product proliferation
D) niche
E) divestiture

Question 66

All of the following strategies are used to grow and consolidate fragmented industries except

A) chaining.
B) using the Internet and IT
C) franchising.
D) horizontal merger.
E) vertical merger

Question 67

Which of the following refers to the process by which one company informally takes the responsibility for setting industry prices?

A) Price leadership
B) Non-price competition
C) Capacity control
D) Market development
E) Price signaling

Question 68

One strategy used to consolidate fragmented industries is

A) vertical mergers.
B) horizontal merger
C) product proliferation.
D) chaining
E) non-price competition.

Question 69

For each of the generic strategies-cost leadership, differentiation, and focus-describe one advantage and one disadvantage.

Question 70

A telecommunications firm is working on the next generation of switching equipment that allows calls to be digitally transmitted from sender to receiver. If the new product will be sold to existing customers, the firm is pursuing a strategy of

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

Question 71

Competitive intensity in a declining industry is greatest when

A) exit barriers are high.
B) the product has high differentiation.
C) the industry is declining slowly instead of rapidly
D) the industry cannot keep up with demand.
E) industry fixed costs are low.

Question 72

Which of the following best describes an industry that consists of many small firms?

A) Fragmented
B) Growth
C) Mature
D) Declining
E) Diverse

Question 73

To compete in the fragmented restaurant industry, Red Lobster Corporation built and operated hundreds of restaurants across the United States and Canada. Red Lobster is using which type of strategy?

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

Question 74

Empirical evidence shows that firms that pursue cost leadership or differentiation achieve returns that are about equivalent, firms that pursue both cost leadership and differentiation have the highest returns, and firms that are stuck in the middle have the lowest returns. Using concepts from this chapter, explain why this is so.

Question 75

A Japanese automaker begins selling its compact cars in Southeast Asia. This firm is pursuing a strategy of

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

Question 76

Which of the following is not a characteristic of fragmented industries?

A) A large number of small competitors
B) High barriers to entry
C) Many "custom-made" or specialty firms
D) Few economies of scale
E) Low consolidation

Question 77

Which of the following is not a strategy used in declining industries?

A) Leadership
B) Niche
C) Divestment
D) Harvest
E) Diversification

Question 78

Which of the following strategies for fragmented industries grants the right to use the parent's name, reputation, and business model in a particular location or area in return for a fee and often a percentage of the profits?

A) Chaining
B) Franchising
C) Vertical merger
D) Horizontal merger
E) B2B