Question 1

An industry's current profitability:
A)On its own tends to be a poor predictor of future profitability
B)Is an excellent predictor of its future profitability since changes in industries' profitability occur slowly
C)Is the result of many different factors interacting in unpredictable ways
D)Is largely set by the profitability of the biggest company within that industry

Accepted Answer

An industry's current profitability is influenced by many factors that can change quickly, such as changes in technology, consumer preferences, and competition. Therefore, it is a not a reliable predictor of future profitability.

Question 2

Identifying key success factors within an industry requires answers to the following questions:
A)What do customers want and what should the firm do to survive competition?
B)What is a firm's unique selling proposition?
C)Which of the five forces of competition most threaten a firm's survival and how could the firm deal with them?
D)What are the main sources of a company's cost efficiency?

Accepted Answer

The answer of Identifying key success factors within an industry...

Question 3

The suppliers of agricultural products tend to lack bargaining power relative to buyers because:
A)Farmers tend to be uneducated
B)The farming industry tends to be fragmented and supply commodity products
C)Agricultural products are essential food products that must be kept at affordable prices
D)Most farmers are not forward integrated

Accepted Answer

The farming industry tends to be fragmented and supply commodity products, which reduces the bargaining power of individual farmers and suppliers. Buyers have more leverage in negotiating prices and terms of sale.

Question 4

For most business enterprises a market is:
A)An abstract concept-from the point of view of competition it is a continuum from a firm's closest competitor towards more distant competitors
B)A sociological concept that is defined mainly by convention and institutions
C)Geographical concept defined by the location of customers and competitors
D)All the above

Accepted Answer

A market encompasses various dimensions including the abstract concept of competition, sociological aspects defined by conventions and institutions, and geographical considerations based on the location of customers and competitors.

Question 5

Key success factors are:
A)Factors that allow rivals to undermine a firm's competitive advantage
B)The sources of competitive advantage within an industry
C)The forces of competition that are most influential in determining industry profitability
D)The generic strategy that is most closely aligned with customer preferences

Accepted Answer

Key success factors are the sources of competitive advantage within an industry. They are the things that a company must do well to succeed in a particular market. These factors can include things like technology, distribution channels, marketing, and branding. Identifying and focusing on these factors is essential for a company to achieve long-term success in the market.

Question 6

Airlines' frequent flyer programs and retailer loyalty schemes are both examples of efforts to:
A)Offer disguised price reductions to customers
B)Establish product differentiation by measures that reward customer loyalty
C)Establish competitive advantage that failed because they could be easily imitated by competitors
D)Promote a company's product to new customers

Accepted Answer

Both frequent flyer programs and retailer loyalty schemes offer rewards to customers who repeatedly choose their product or service over competitors, thus creating a level of differentiation and incentivizing customer loyalty.

Question 7

In practice,drawing the boundaries of industries and markets is:
A)A matter of the personal preferences of top managers
B)Almost impossible to carry out with rigor because it requires many "rules of thumb" and approximations
C)Largely a matter of judgment and experience contingent on the purpose of the analysis
D)Critical to the output of the analysis and therefore should only be undertaken with the help of an academic or consultant

Accepted Answer

Drawing the boundaries of industries and markets is largely a matter of judgment and experience contingent on the purpose of the analysis. While there are some established methods and frameworks for defining industries and markets, they often require approximations and are not always applicable to every situation. Ultimately, the boundaries will depend on the specific objectives of the analysis and the context in which it is being conducted. Personal preferences of top managers or the help of an academic or consultant may be useful, but they are not the only determinants of industry and market boundaries.

Question 8

Initiatives to improve an industry's profitability through changing its structure are:
A)Only feasible for the dominant player within an industry
B)More difficult in fragmented industries than in concentrated industries
C)Feasible in any industry that is subject to ruinous price competition
D)Always risky because they attract the attention of antitrust authorities

Accepted Answer

In fragmented industries, there are many small players with minimal market power, making it difficult to coordinate and implement structural changes. In contrast, in concentrated industries, there are fewer large players with greater market power, making it easier to coordinate and implement changes to improve profitability.

Question 9

Legal requirements that banks,providers of wireless telecommunication services,and taxis must obtain a government issued license before going into business impact the profitability of their respective industries:
A)Negatively because governments charge high fees for such licenses
B)Positively because they restrict entry to the industry
C)Negatively because such licensing is usually accompanied by regulation of prices
D)Positively if such licenses can be sold on a secondary market

Accepted Answer

Licensing restricts entry to the industry, reducing competition and potentially allowing existing businesses to maintain higher prices and profitability.

Question 10

The most useful approach to forecasting industry profitability in the future is:
A)To estimate the industry's revenues and costs in future years
B)To use an industry's probability at similar stages of the business cycle in the past as an indicator of future profitability
C)To extrapolate the trend of industry profitability into the future
D)To understand how the industry's structure has determined competitive intensity and profitability in the past,then to use information on an industry's changing structure to predict how profitability is likely to change in the future

Accepted Answer

Understanding how an industry's structure has determined competitive intensity and profitability in the past is the most useful approach to forecasting industry profitability in the future. By using information on changes in the industry's structure, one can predict how profitability is likely to change in the future. This approach takes into account the underlying factors that impact profitability, rather than relying solely on past revenue and cost estimates or extrapolating past trends. Using an industry's probability at similar stages of the business cycle is also a valuable tool, but it does not provide the same level of insight into the determinants of future profitability.

Question 11

A market's boundaries are defined by:
A)The geographies of the markets that are supplied by the incumbents
B)The type of product which is sold,and the type of customers willing to pay for the product
C)Price homogeneity-within the confines of a market,a single price rules
D)Substitutability on both the demand side and the supply side

Accepted Answer

The definition of a market's boundaries is based on the concept of substitutability on both the demand side and the supply side. This means that if there are substitute products available in the market, the consumer may switch to that product when the price of the product changes or for other reasons. Similarly, the supplier may switch to producing substitute products in response to changes in the market conditions. This is why D is the correct choice. The other options do play a role in defining the boundaries of a market, but they are not the primary factors.

Quiz 3: Industry Analysis: the Fundamentals

An industry's current profitability:

Identifying key success factors within an industry requires answers to the following questions:

The suppliers of agricultural products tend to lack bargaining power relative to buyers because:

For most business enterprises a market is:

Key success factors are:

Airlines' frequent flyer programs and retailer loyalty schemes are both examples of efforts to:

In practice,drawing the boundaries of industries and markets is:

Initiatives to improve an industry's profitability through changing its structure are:

Legal requirements that banks,providers of wireless telecommunication services,and taxis must obtain a government issued license before going into business impact the profitability of their respective industries:

The most useful approach to forecasting industry profitability in the future is:

A market's boundaries are defined by: