Question 1

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

Accepted Answer

A divestment strategy's success can depend on a variety of factors, but timing is often crucial. Market conditions, competitive landscape, and other external factors can all impact the success of a divestment, so choosing the right time to divest is important. Additionally, internal factors such as the company's financial situation and strategic goals can also influence the timing of a divestment.

Question 2

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.

Accepted Answer

Franchising involves delegating authority to franchisees, which means that the franchisor may not have complete control over operations. This can be a disadvantage if the franchisees do not manage the business effectively, as their actions may reflect negatively on the franchisor's brand. However, this disadvantage can be mitigated through careful selection and training of franchisees. A, B, D, and E are not accurate disadvantages of franchising.

Question 3

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.

Accepted Answer

All of the listed options are ways in which a fragmented industry can be consolidated. By creating meaningful scale economies, a company can lower costs and increase efficiency. Creating a national brand can help to establish recognition and customer loyalty. Through value innovations, a company can develop unique ways of providing goods or services that distinguish them from competitors. Finally, offering new and improved ways to address customer demands can attract new customers and increase market share.

Question 4

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.

Accepted Answer

Franchising allows the franchisor to expand their business rapidly by leveraging the resources, capital, and local knowledge of franchisees. This helps the franchisor to reach new markets and customers through a network of franchisees without incurring high costs. This, in turn, helps the franchisor earn more profits and increase their market share.

Question 5

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

Accepted Answer

Market penetration involves increasing the market share of existing products by increasing their sales in current market segments or by finding new market segments to sell them to. It does not involve replacing existing products.

Question 6

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.

Accepted Answer

The real estate industry is characterized by many small firms, which operate independently and cater to local markets. Hence, it is a fragmented industry.

Question 7

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

Accepted Answer

Aircraft manufacturing is not an example of a fragmented industry as it is dominated by a few large companies such as Boeing and Airbus. Custom-made jewelry, massage services industry, catering, and landscaping are all examples of fragmented industries where there are many small businesses and no dominant players in the market.

Question 8

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

Accepted Answer

This is a type of niche strategy known as a selective or concentrated strategy. A company focuses on certain segments or pockets of demand that are declining at a slower rate than the industry as a whole. Rather than trying to compete with everyone, the company focuses on a specific market segment to maintain profitability.

Question 9

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.

Accepted Answer

Pursuing a harvest strategy often involves cutting costs and reducing investment in areas such as marketing and research and development, which can result in decreased quality and customer satisfaction. This can lead to lowered employee morale and rapid customer defection, ultimately resulting in a faster decrease in market share than a company might initially expect.

Question 10

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.

Accepted Answer

A company can use its established brand name to enter new market segments through market development strategy. This requires the company to identify new customer groups or geographical areas where their brand can offer value and target them with tailored marketing campaigns that align with their specific needs and preferences. By leveraging its existing brand equity, the company can achieve faster market penetration and establish a foothold in new markets with reduced risk and cost compared to starting from scratch.

Question 11

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

Accepted Answer

A product proliferation strategy, which involves increasing the number of products a company offers, is typically used to saturate the market and create barriers to entry, rather than lower them. It makes it harder for new entrants to find a niche or gap in the product offerings.

Question 12

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.

Accepted Answer

Lack of established brand loyalty in the market segment would actually make consolidation easier, as there are fewer existing loyalties to overcome. The other options, on the other hand, provide valid reasons for fragmentation.

Question 13

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.

Accepted Answer

Horizontal mergers allow for companies to combine resources, leading to greater economies of scale. This can result in cost savings, increased efficiency, and potentially greater profits.

Question 14

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.

Accepted Answer

A limit price strategy is a form of predatory pricing where an incumbent firm intentionally charges a lower price than what is required to maximize profits in the short run in order to signal to potential entrants that the incumbent has a low cost structure and can sustain the lower price in the long run. This strategy is aimed at deterring entry and maintaining market power.

Question 15

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.

Accepted Answer

This statement correctly describes tactical steps that companies using a leadership strategy might initiate to grow in a declining industry. By acquiring established competitors and making strategic investments in productive capacity, companies can pick up market share from competitors who are leaving the industry or struggling to stay afloat. Aggressive pricing can also help to attract customers away from competitors and boost sales.

Question 16

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.

Accepted Answer

Pursuing a chaining strategy can help a firm obtain the advantages of economies of scale, which refers to the cost advantages that accrue to a firm when it increases its production output and reduces its per-unit costs. This allows the firm to offer its products at a lower price than its competitors, which can help it gain a competitive advantage in the market. By opening multiple locations and centralizing certain functions such as purchasing and marketing, a firm can reduce its overhead costs and achieve economies of scale.

Question 17

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.

Accepted Answer

Fragmented industries are usually made up of many small players, leading to a lack of industry leaders and a need for companies to differentiate themselves and use focus strategies to meet specialized customer needs.

Question 18

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.

Accepted Answer

This is a common strategy known as "technology barriers to entry" or "technology lock-in." By investing in advanced technology, incumbent companies can increase efficiency, lower costs, and offer better products/services, making it difficult for potential entrants to compete. This strategy can create significant barriers to entry and give established companies a competitive advantage.

Question 19

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

Accepted Answer

Starbucks is using the strategy of chaining, which involves building and operating multiple locations of the same brand in a particular market. This allows for brand recognition and greater market share.

Question 20

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.

Accepted Answer

This statement accurately describes the product proliferation strategy used by many cereal companies.

Quiz 6: Business-Level Strategy and the Industry Environment

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

Which of the following is a disadvantage of franchising?

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

Which of the following is an advantage of franchising?

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

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) :

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

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?

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.

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.

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

Which of the following is NOT a reason for fragmentation?

Which of the following statements about horizontal mergers is true?

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.

A firm may pursue a chaining strategy to:

Which of the following statements about fragmented industries is true?

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.

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?

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.