Question 1

Porsche has enhanced power over buyers because its strong reputation makes buyers more willing to pay a premium price. This ________ rivalry, since buyers become ________ price-sensitive.
A) increases; more
B) lessens; more
C) lessens; less
D) increases; less

Accepted Answer

Porsche has enjoyed enhanced power over buyers because its strong reputation makes buyers more willing to pay a premium price. This lessens rivalry, since buyers become less price-sensitive. The prestige associated with its brand name also lowers supplier power since margins are high. Suppliers would probably desire to be associated with prestige brands, thus lessening their incentives to drive up prices.

Question 2

At one CVS drugstore, a four-pack of Energizer AA batteries was on sale at 2.99 USD compared with a Duracell four-pack at 4.59 USD. The Duracell market share dropped 2 percent in a recenttwo-year period, and its profits declined over 30 percent. Why did this happen?
A) The price differential was too high.
B) The market for batteries is saturated.
C) The customer perceived the products to be different.
D) There are valid alternatives for batteries.

Accepted Answer

Customers may desire the product, but they are repelled by the price premium. For example, Duracell recently charged too much for batteries. The firm tried to sell consumers on its superior-quality products, but the mass market was not convinced. Why? The price differential was simply too high. Clearly, the price-performance proposition Duracell offered customers was not accepted.

Question 3

The factors that lead to a low-cost position also provide a substantial ________ barriers position with respect to ________ products introduced by new and existing competitors.
A) entry; substitute
B) exit; primary
C) product; substitute
D) entry; primary

Accepted Answer

The factors that lead to a low-cost position, such as economies of scale, cost-efficient operations, and access to cheaper inputs, create barriers to entry for new competitors. This means that it is difficult for new companies to enter the market and compete with the existing low-cost producer. Additionally, a low-cost position provides a strong competitive advantage against substitute products, as the price of the existing products can be lowered to undercut the substitutes. Therefore, a low-cost position provides a substantial entry barrier with respect to substitute products introduced by new and existing competitors.

Question 4

A differentiation strategy enables a business to address the five competitive forces by
A) having brand-loyal customers become more sensitive to prices.
B) increasing economies of scale.
C) providing protection against rivalry.
D) serving a broader market segment.

Accepted Answer

Differentiation provides protection against rivalry since brand loyalty lowers customer sensitivity to price and raises customer switching costs.

Question 5

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) Firms will enjoy high customer loyalty.
B) By increasing firm margins, it avoids the need for a low-cost position.
C) It reduces buyer power because buyers lack comparable alternatives.
D) Supplier power is increased, because suppliers will be able to charge higher prices for their inputs.

Accepted Answer

A differentiation strategy can help a firm to improve its competitive position by reducing buyer power because buyers are less price sensitive due to the unique features or qualities of the firm's product or service. It can also increase customer loyalty and allow the firm to charge premium prices, thereby increasing firm margins. However, a differentiation strategy can lead to higher supplier power as suppliers may have specialized inputs that are required to produce the unique features or qualities of the differentiated product, enabling them to charge higher prices for their inputs.

Question 6

Zulily protects itself from buyer power and intense rivalry from competitors by
A) increasing the bargaining power of its customers.
B) paying close attention to costs.
C) increasing costs.
D) increasing the buyer power.

Accepted Answer

Zulily protects itself from buyer power and intense rivalry from competitors by paying close attention to costs. This includes optimizing its supply chain and technology infrastructure to efficiently manage its inventory and reduce shipping costs. By doing so, it is able to offer its products at attractive prices to customers and stay competitive in the market. This cost optimization strategy also helps Zulily maintain profitability despite the fierce competition in the e-commerce space.

Question 7

Value-chain support activities that involve excellent applications engineering support (technology development) and facilities that promote a positive firm image (firm infrastructure)characterize which generic strategy?
A) overall cost leadership
B) differentiation focus
C) differentiation
D) stuck-in-the middle

Accepted Answer

The value-chain support activities described are indicative of a differentiation strategy, where a firm focuses on enhancing its product or service differentiation through research and development, technology, and innovation as well as creating a strong brand image. These activities enable the firm to charge premium prices for unique, high-quality products or services.

Question 8

Which of the following is not a potential pitfall of an integrated overall low cost and differentiation strategy?
A) Firms that target too large a market that causes unit costs to increase.
B) Firms that underestimate the expenses associated with coordinating value-creating activities in the extended value chain.
C) Firms that fail to attain both strategies may end up with neither and become stuck-in-the-middle.
D) Firms that miscalculate sources of revenue and profit pools in the company industry.

Accepted Answer

The pitfalls of integrated overall cost leadership and differentiation include:firms that fail to attain both strategies may end up with neither and become stuck-in-the-middle; underestimating the challenges and expenses associated with coordinating value-creating activities in the extended value chain; and miscalculating sources of revenue and profit pools in the company industry.

Question 9

Hardware chains such as Ace and True Value are losing market share to rivals such as Lowe's and Home Depot in spite of them using a focus strategy. Why?
A) Achieving parity on costs for specialty retailers is difficult.
B) They have too broad a product line.
C) They have equivalent purchasing power as the national chains.
D) Their costs are the same as those of the national chains.

Accepted Answer

Some firms attempting to attain advantages through a focus strategy may have too narrow a product or service. Consider many retail firms. Hardware chains such as Ace and True Value are losing market share to rivals such as Lowe's and Home Depot that offer a full line of home and garden equipment and accessories. And given the enormous purchasing power of the national chains, it would be difficult for such specialty retailers to attain parity on costs.

Question 10

A firm following a focus strategy must focus on
A) governmental regulations.
B) a market segment or group of segments.
C) rising cost of inputs.
D) avoiding entering international markets.

Accepted Answer

A firm following a focus strategy must focus on a specific market segment or group of segments. This means the firm should tailor its products or services to the needs and preferences of the targeted market and differentiate their products from those of competitors in the same segment. The other options, such as governmental regulations, rising costs of inputs, and avoiding international markets, are not necessarily inherent to the focus strategy.

Question 11

Which of the following is a risk (or potential pitfall) of cost leadership?
A) Cost cutting in one area of the value chain might increase costs in another.
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.

Accepted Answer

Cost cutting in one area of the value chain might increase costs in another. For example, if a company cuts costs in manufacturing, it might result in lower quality products, which in turn will increase costs in customer service or after-sales service. This could impact customer satisfaction and result in losing customers to competitors.

Question 12

A ________ can be defined as the total profits in an industry at all points along the industry value chain.
A) profit maximizer
B) revenue enhancer
C) profit pool
D) profit outsourcing

Accepted Answer

A profit pool is the total profits generated in an industry or market at all points along the industry value chain, including suppliers, manufacturers, distributors, and retailers. By understanding the profit pool, companies can identify areas where they can capture more value and increase their profitability.

Question 13

Marlin Steel Wire Products is a manufacturer of commodity wire products out of Baltimore, MD. Marlin has many rivals based in China and other emerging markets. The company cannot compete on labor costs so it used a ________ strategy to automate its production and now specializes in high-end products.
A) differentiation
B) overall cost leadership
C) focus strategy
D) low cost leadership

Accepted Answer

Marlin Steel Wire Products, a Baltimore-based manufacturing company, has also seen great benefit from developing a niche-differentiator strategy. Marlin, a manufacturer of commodity wire products, faced stiff and ever-increasing competition from rivals based in China and other emerging markets. These rivals had labor-based cost advantages that Marlin found hard to counter. Marlin responded by changing the game it played. The company president decided to go upmarket, automating his production and specializing in high-end products.

Question 14

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) Focusers can become too focused to satisfy buyer needs.
D) All rivals share a common input or raw material.

Accepted Answer

All rivals sharing a common input or raw material is not a potential pitfall of a focus strategy. In fact, if all rivals share a common input or raw material, it can provide an opportunity for a focused company to excel in that particular area and differentiate itself from competitors. The other three options are potential pitfalls of a focus strategy. Erosion of cost advantages can occur as competitors may enter the market and drive down prices. Highly focused product/service offerings can face competition from new entrants who can replicate the strategy. Focusers becoming too focused can lead to neglecting other customer needs and missing out on potential opportunities outside of the narrow segment.

Question 15

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

Accepted Answer

Automated and flexible manufacturing systems, exploiting the profit pool concept, and coordinating the extended value chain through information technology are the three approaches discussed in the text for combining overall cost leadership and differentiation competitive advantages. Deriving benefits from highly-focused and high-technology markets is not discussed as one of these approaches.

Question 16

Which statement regarding competitive advantages is true?
A) With an overall cost leadership strategy, firms need not be concerned with parity on differentiation.
B) In the long run, a business with one or more competitive advantages is probably destined to earn normal profits.
C) If several competitors pursue similar differentiation tactics, they may all be perceived as equals in the mind of the consumer.
D) Attaining multiple types of competitive advantage is a recipe for failure.

Accepted Answer

If multiple competitors pursue similar differentiation tactics, they may all be perceived as equals in the mind of the consumer. This is known as the "commoditization" of products or services, where customers see little difference between the offerings of different companies. Thus, it is important for firms to differentiate themselves in unique ways to stand out from their competitors.

Question 17

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

Accepted Answer

If all rivals share a common input or raw material, it can actually be an opportunity for a differentiation strategy. By finding ways to use that input or material differently or more efficiently, a company can create a unique product or service that stands out from competitors. Therefore, this is not a potential pitfall but rather a potential advantage for differentiation.

Question 18

A firm can achieve differentiation through all the following means except
A) improving brand image.
B) offering lower prices to frequent customers.
C) better customer service.
D) adding additional product features.

Accepted Answer

Offering lower prices to frequent customers is not a means of achieving differentiation as it goes against the concept of differentiation which is to offer unique and superior attributes that set a product or service apart from competitors in the eyes of customers. The other options - improving brand image, better customer service, adding additional product features - are all ways to achieve differentiation.

Question 19

High product differentiation is generally accompanied by
A) higher market share.
B) higher profit margins and lower costs.
C) significant economies of scale.
D) decreased emphasis on competition based on price.

Accepted Answer

Differentiation provides protection against rivalry because brand loyalty lowers customer sensitivity to price and raises customer switching costs. By increasing company margins, differentiation also avoids the need for a low-cost position.

Question 20

Early pioneer in online education, University of Phoenix, has faced increasing challenges from traditional university online programs who are able to offer their programs at the same cost.This is an example of which generic strategy gone wrong:
A) Differentiation.
B) Overall cost leadership.
C) Focus strategy.
D) Low cost leadership.

Accepted Answer

The advantages of a cost focus strategy may be fleeting if the cost advantages are eroded over time. For example, early pioneers in online education, such as the University of Phoenix, have faced increasing challenges as traditional universities have entered with their own online programs that allow them to match the cost benefits associated with online delivery systems. This is a pitfall of a focus strategy.

Quiz 5: Business-Level Strategy Creating and Sustaining Competitive Advantages

Porsche has enhanced power over buyers because its strong reputation makes buyers more willing to pay a premium price. This rivalry, since buyers become price-sensitive.

At one CVS drugstore, a four-pack of Energizer AA batteries was on sale at 2.99 USD compared with a Duracell four-pack at 4.59 USD. The Duracell market share dropped 2 percent in a recenttwo-year period, and its profits declined over 30 percent. Why did this happen?

The factors that lead to a low-cost position also provide a substantial barriers position with respect to products introduced by new and existing competitors.

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

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?

Zulily protects itself from buyer power and intense rivalry from competitors by

Value-chain support activities that involve excellent applications engineering support (technology development) and facilities that promote a positive firm image (firm infrastructure) characterize which generic strategy?

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

Hardware chains such as Ace and True Value are losing market share to rivals such as Lowe's and Home Depot in spite of them using a focus strategy. Why?

A firm following a focus strategy must focus on

Which of the following is a risk (or potential pitfall) of cost leadership?

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

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

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?

Which statement regarding competitive advantages is true?

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

A firm can achieve differentiation through all the following means except

High product differentiation is generally accompanied by

Early pioneer in online education, University of Phoenix, has faced increasing challenges from traditional university online programs who are able to offer their programs at the same cost.This is an example of which generic strategy gone wrong: