Deck 5: Business-Level Strategy: Creating Andsustaining Competitive Advantages

Question 1

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

Answer 1

False
Explanation: Observation and research support the notion that firms that identify with one or more of the forms of competitive advantage outperform those that do not. One study found that businesses combining forms of competitive advantage (differentiation and overall cost leadership) outperformed those using a single form.

Question 2

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.

Answer 2

False
Explanation: To generate above-average performance, a firm following an overall cost leadership position must attain competitive parity on the basis of differentiation relative to competitors. In other words, a firm achieving parity is similar to its competitors, or on par, with respect to differentiated products.

Question 3

Firms that compete on overall cost leadership are vulnerable if there is an increase in the cost of the inputs on which the advantage is based.

Answer 3

True
Explanation: Firms can be vulnerable to price increases in the factors of production. For example, consider manufacturing firms based in China which rely on low labor costs. Due to demographic factors, the supply of workers 16 to 24 years old has peaked and will drop by a third in the next 12 years, thanks to stringent family-planning policies that have sharply reduced population growth in China. This is leading to upward pressure on labor costs in Chinese factories, undercutting the cost advantage of firms producing there.

Question 4

A firm can attain an overall cost leadership position by using automated technology to reduce scrappage rates.

Question 5

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

Question 6

The French automobile maker,Renault,attains competitive advantage by revamping cars to be more cost efficient.

Question 7

A cost leadership strategy can be at risk of obsolescence of the basis of the cost advantage.

Question 8

If a firm has a successful differentiation strategy,it is necessary to attain parity on cost.

Question 9

The experience curve concept suggests that production costs tend to decrease as production increases.

Question 10

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

Question 11

The three generic strategies presented by Michael Porter can be shown on two dimensions: competitive advantage and product life cycle.

Question 12

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.
D. Power customer satisfaction ratings. It found that quality perceptions (design, engineering, and manufacturing) can be strongly influenced by downstream activities in the value chain (marketing and sales, service).

Question 13

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

Question 14

A cost leadership strategy is not susceptible to the risk of reduced flexibility.

Question 15

Focus,by itself,often constitutes a competitive advantage.

Question 16

A successful differentiation strategy increases rivalry since buyers become more price-sensitive.

Question 17

The three generic strategies that Michael Porter believes a firm can use to overcome the five forces and achieve competitive advantage include overall price leadership.

Question 18

Too much focus on one or a few value-chain activities can be a pitfall of the overall cost leadership strategy.

Question 19

A firm can attain an overall cost leadership position by purchasing media in large blocks and maximizing sales force utilization through territory management.

Question 20

A firm can attain an overall cost leadership position by increasing the management layers in order to reduce overhead costs.

Question 21

As markets mature the magnitude of differentiation and cost leadership advantages among competitors decrease.

Question 22

A disadvantage of firms that successfully integrate overall cost leadership and a differentiation strategy is that they are relatively easy for competitors to imitate.

Question 23

Competitive advantage is not affected by actions by rivals from within and outside of the industry.

Question 24

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.

Question 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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.

Question 30

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

Question 31

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

Question 32

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.

Question 33

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

Question 34

A potential pitfall of a focus strategy is that over time the cost advantages in a narrow market niche can erode,leaving the company with little profit.

Question 35

An important advantage of first movers in a market is that they may establish brand recognition that may later serve as an important switching cost.

Question 36

In technology intensive industries,the duration of competitive advantages is declining.

Question 37

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.

Question 38

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

Question 39

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

Question 40

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.

Question 41

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) higher than firms that achieve either a cost or a differentiation advantage
D) lower than firms that achieve differentiation advantages but higher than firms that achieve cost advantages

Question 42

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) differentiation
B) overall cost leadership
C) differentiation focus
D) cost leadership focus

Question 43

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 supplier costs.

Question 44

A firm can achieve differentiation through all of the following means EXCEPT ________.

A) improving brand image
B) better customer service
C) adding additional product features
D) offering lower prices to frequent customers

Question 45

One aspect of using a cost leadership strategy is that experience effects may lead to lower costs.Experience effects are achieved by ____________.

A) repeating a process until a task becomes easier
B) hiring more experienced personnel
C) spreading out a given expense or investment over a greater volume
D) competing in an industry for a long time

Question 46

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) differentiation focus
C) overall cost leadership
D) stuck-in-the-middle

Question 47

A differentiation strategy enables a business to address the five competitive forces by ______.

A) having brand-loyal customers become more sensitive to prices
B) lessening competitive rivalry by distinguishing itself
C) increasing economies of scale
D) serving a broader market segment

Question 48

A need for turnaround occurs only during the maturity or declining stage of the life cycle.

Question 49

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

Question 50

A manufacturing business pursuing cost leadership is likely to _______.

A) focus on a narrow market segment
B) use advertising to build brand image
C) rely on experience effects to raise efficiency
D) put heavy emphasis on product engineering

Question 51

Which of the following is not a potential pitfall of a differentiation strategy?

A) Uniqueness that is not valuable.
B) All rivals share a common input or raw material.
C) The price premium is too high.
D) Perceptions of differentiation may vary between buyers and sellers.

Question 52

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

Question 53

High product differentiation is generally accompanied by __________.

A) higher market share
B) higher profit margins and lower costs
C) decreased emphasis on competition based on price
D) significant economies of scale

Question 54

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

Question 55

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.

Question 56

With experience,unit costs of production decline as _________ increases in most industries.

A) costs
B) output
C) price
D) volume

Question 57

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) overall cost leadership
B) differentiation
C) differentiation focus
D) stuck-in-the middle

Question 58

Which of the following is FALSE regarding how a differentiation strategy can help a firm to improve its competitive position relative to the Porter five forces model?

A) By increasing firm margins, it avoids the need for a low cost position.
B) It reduces buyer power because 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.

Question 59

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

Question 60

The software maker,Intuit,successfully implemented a turnaround strategy by discontinuing product lines and focusing all resources on a few core profitable areas.

Question 61

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

Question 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 because they are new.

Question 63

Which of the following is not a potential pitfall of a focus strategy?

A) Erosion of cost advantages can arise within the narrow segment.
B) Product/service offerings that are highly focused are subject to competition from new entrants.
C) All rivals share a common input or raw material.
D) Focusers can become too focused to satisfy buyer needs.

Question 64

One of the main reasons the Internet is eroding sustainable competitive advantages is that _______.

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
C) differentiators have been able to preserve their unique advantages
D) firms are ignoring opportunities to offer high-end services in niche markets

Question 65

Which statement regarding competitive advantages is true?

A) With an overall cost leadership strategy, firms need not be concerned with parity on differentiation.
B) If several competitors pursue similar differentiation tactics, they may all be perceived as equals in the mind of the consumer.
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.

Question 66

Which of the following is not a reason for the possible erosion of company competitive advantage?

A) rapid change in technology
B) globalization
C) actions by rivals from within and outside of the industry
D) company commitment to innovation

Question 67

Atlas Door created competitive advantage by reducing the time to receive and process and order and through installing a just in time logistics operation.Which of the following is not a reason for their favorable position relative to the five forces of industry competition?

A) It exerted power over its customers.
B) It created high entry barriers for new entrants.
C) The integration of many value-chain activities in the firm provided causal ambiguity and path dependency.
D) The product was easily imitable.

Question 68

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

Question 69

The text discusses three approaches to combining overall cost leadership and differentiation competitive advantages.Which of the following is not one of these three approaches?

A) automated and flexible manufacturing systems
B) exploiting the profit pool concept for competitive advantage
C) deriving benefits from highly focused and high technology markets
D) coordinating the extended value chain by way of information technology

Question 70

A firm following a focus strategy must focus on _____________.

A) governmental regulations
B) the rising cost of inputs
C) a market segment or group of segments
D) avoiding entering international markets

Question 71

Due to 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 niche markets in a highly specialized fashion
D) access markets less expensively

Question 72

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) mass customization
D) exceptional service

Question 73

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 points out the need to maintain a differentiation advantage and a low cost advantage simultaneously.
D) It has important implications for company generic strategies, functional areas, value-creating activities, and overall objectives.

Question 74

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) mass customization
C) knowledge management
D) collaborative design

Question 75

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

Question 76

Which of the following is not a potential pitfall of an integrated overall low cost and differentiation strategy?

A) Firms that fail to attain both strategies may end up with neither and become stuck-in-the-middle.
B) Firms that underestimate the challenges and expenses associated with coordinating value-creating activities in the extended value chain.
C) Firms that target too large a market that causes unit costs to increase.
D) Firms that miscalculate sources of revenue and profit pools in the company industry.

Question 77

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) growth
B) maturity
C) introduction
D) decline

Question 78

A narrow market focus is to a differentiation-based strategy as a __________________.

A) growth market is to a differentiation-based strategy
B) broadly-defined target market is to a cost leadership strategy
C) growth market is to a cost-based strategy
D) technological innovation is to a cost-based strategy

Question 79

A __________ can be defined as the total profits in an industry at all points along the industry value chain.

A) profit maximizer
B) profit pool
C) revenue enhancer
D) profit outsourcing

Question 80

Which of the following is NOT one of the ways the Internet is lowering transaction costs?

A) eliminating supply chain intermediaries
B) minimizing office expenses
C) evaluating employee performance
D) reducing business travel