Deck 5: Creating Business Strategies

Question 1

By creating a sustainable cost gap over rivals, firms earn above industry-average profits.

Answer 1

True

Question 2

Pacific Cycle grabbed the lion's share of the U.S. bicycle market by pioneering the concept of sourcing bicycles from Asia.

Answer 2

True

Question 3

Economic logic influences strategic positioning choices.

Answer 3

True

Question 4

The generic strategy model helps decision makers determine how best to motivate customers to choose their products over those of competitors.

Question 5

The generic strategy typology is helpful in selecting a starting strategic position.

Question 6

Successful differentiation enables firms to set prices at the industry average and gain market share.

Question 7

Porter's generic strategies may also be called strategic positions.

Question 8

A firm that competes by achieving higher prices and margins because of superior product quality is called a differentiator.

Question 9

If a firm wants to exploit opportunities while withstanding competitive pressures, its strategy must be built on its bureaucracy and structure.

Question 10

Low-cost leadership creates a unique product that causes customers to be willing to pay premium prices.

Question 11

Michael Porter's model is based on the principles of industrial organization economics.

Question 12

Diffused cost leadership is one of Michael Porter's four positions in the field of strategic management.

Question 13

Strategic positioning is a useful starting point in dealing with issues derived from the industrial economic model.

Question 14

Business strategy refers to the choices that a firm makes about its competitive posture.

Question 15

Firms that take a differentiation position try to satisfy basic rather than highly specialized customer needs.

Question 16

Strategic positioning increases the effects of rivalry and decreases profitability.

Question 17

Porter's strategy model is based on the potential source of strategic advantage and the breadth of the target market.

Question 18

The generic strategies that derive from the strategic-positioning model help managers reduce the effects of intense rivalry on profitability.

Question 19

A successful strategy must be consistent with both a firm's resources and the competitive environment.

Question 20

A low cost leader is a firm that competes by achieving lower margins due to a higher cost basis than rivals.

Question 21

Toyota pursues a low-cost leadership strategic position.

Question 22

To influence consumer decisions, advertising must first reach a certain threshold at which it creates awareness.

Question 23

Economies of scale occur when average total costs decrease at higher levels of output.

Question 24

Increased size ensures economies of scale.

Question 25

Marginal cost is the mean cost of total production during a given period.

Question 26

Firms operating above the minimum efficient scale (MES) have a cost advantage.

Question 27

Firms that have integrated low-cost and differentiation positions can be found in most industries.

Question 28

Greater scale discourages the use of more sophisticated technology.

Question 29

Focused differentiation targets unique products to relatively small segments.

Question 30

The focus position usually involves eliminating some services or features in order to drive costs down.

Question 31

Economies of scale exist if average costs are lower at higher levels of production.

Question 32

A firm with innovative capabilities will generally favor the use of low-cost leader strategy.

Question 33

Focus strategies are influenced by unique economic drivers.

Question 34

Rent and equipment are examples of variable costs.

Question 35

Successful strategic positions are based on the effective implementation of the drivers of cost or differentiation.

Question 36

The smaller the differentiation, the smaller the market segment to which a product will appeal.

Question 37

Costs may decline at some ranges of production but increase at others.

Question 38

Large-scale operations lead to greater flexibility and reduced costs.

Question 39

Capabilities in large-scale manufacturing and distribution generally favor low-cost strategies.

Question 40

Firms that produce differentiated products usually have difficulties managing costs.

Question 41

Differentiating on a feature that buyers don't care about increases costs without increasing willingness to pay.

Question 42

Overfulfillment could result in significantly lower profit margins.

Question 43

As production experience is gained, incremental production costs increase at a constant rate.

Question 44

The source of Jet Blue's low operating costs is its production technology.

Question 45

Different production technologies result in similar costs.

Question 46

Possible threats to the low-cost strategic position include new technology and inferior quality.

Question 47

Differentiation strategists work to create a common brand image.

Question 48

The intent to offer a differentiated product generally results in competitive advantage and above-average profitability.

Question 49

A successful attempt to integrate low-cost and differentiation positions is called straddling.

Question 50

Possible threats to the differentiation strategic position include overfulfilling buyers' needs and lower-cost imitation.

Question 51

Customization and convenient access are both drivers of the low-cost strategic position.

Question 52

Product design can sometimes be altered to lower a firm's production costs.

Question 53

The goal of low-cost approach is to reduce costs significantly so that you drive up the customers' willingness to pay.

Question 54

Learning and economies of scope are both drivers of the differentiation strategic position.

Question 55

MES varies by industry and market segment.

Question 56

Enforcing codes of ethical conduct for suppliers can increase costs.

Question 57

The automobile industry is a commodity market.

Question 58

Economies of scope are similar to economies of scale.

Question 59

Two firms of the same size may have significantly different operating costs because one has progressed farther down the learning curve.

Question 60

Low-cost leaders must offer an acceptable combination of price and quality.

Question 61

The industry life cycle influences the strategies of firms that compete in them.

Question 62

The likelihood of a firm achieving its objectives is maximized when its vision strategy and industry conditions are aligned.

Question 63

During the industry's growth phase, differentiators will increase their efforts toward differentiation.

Question 64

To successfully pursue the integrated position, managers must make tradeoffs for one position over another.

Question 65

Frequent-flier programs create switching costs for the buyer.

Question 66

Developing a low-cost strategy means that a firm must not pursue opportunities to enhance product quality.

Question 67

When managers decide on generic competitive positions, they are actually deciding on strategies themselves.

Question 68

Conditions at different phases of an industry life cycle provide similar opportunities and constraints.

Question 69

The strategy-diamond and VRINE are not strategy formulation tools.

Question 70

It is not always necessary to determine whether a firm's strategy aligns with the key success factors favored by the competitive environment.

Question 71

During the industry's maturity phase, companies will choose the global or diversified arena.

Question 72

The elements of a firm's strategy diamond must be internally consistent, but it is not necessary for them to be aligned with the firm's strategic position.

Question 73

A frequent flyer program is an example of a barrier to customer mobility.

Question 74

During an industry's embryonic phase, capital needs may surpass resources and capabilities.

Question 75

In testing the quality of a firm's strategy, it is important to understand the profit potential of both the firm's current position and the position toward which the strategy is taking the firm.

Question 76

As industries enter periods of rapid growth, early movers are virtually guaranteed rapid growth.

Question 77

Mature industries often undergo consolidation.

Question 78

As industries mature, there are fewer competitors and greater pressure for cost savings.

Question 79

To be ready for the maturity phase, a firm's strategy will need to accommodate rapid growth.

Question 80

It is necessary to have both financial and human capital resources to successfully pull off a firm's strategy.