Question 1

Mature firms tend to have assets that continue to produce significant returns.

Accepted Answer

Very often, mature firms tend to have assets that do not produce any returns. These include real estate, buildings, and so on.

Question 2

The market life cycle should be used for short run forecasting, because it provides a conceptual framework for understanding what changes typically occur over the life of an industry.

Accepted Answer

The industry life cycle refers to the stages of introduction, growth, maturity, and decline that occur over the life of an industry. In considering the industry life cycle, it is useful to think in terms of broad product lines such as personal computers, photocopiers, or long-distance telephone service. Changes tend to be slower than what is needed for forecasting.

Question 3

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

Accepted Answer

In the mature stage, rivalry among existing rivals intensifies because of fierce price competition at the same time that expenses associated with attracting new buyers are rising. It also becomes more difficult for firms to differentiate their offerings, because users have a greater understanding of products and services.

Question 4

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

Accepted Answer

In the mature stage, rivalry among existing rivals intensifies because of fierce price competition at the same time that expenses associated with attracting new buyers are rising. Advantages based on efficient manufacturing operations and process engineering become more important for keeping costs low as customers become more price sensitive.

Question 5

The desktop computer is in the decline stage of the industry life cycle, but it is not dead because companies have found ways to improve the price-performance trade-off.

Accepted Answer

Old technologies that are in decline do not always quickly fade away. Research shows that in a number of cases, old technologies actually enjoy a very profitable last gasp, and can become resilient survivors in some circumstances. Companies use three approaches to keep the products in play successfully. One of these is to improve the price-performance trade-off in which desktop computers are retooled with technology originally developed for the lightweight and ultrafast laptops.

Question 6

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

Accepted Answer

Firms in turnaround situations try to aggressively cut administrative expenses and inventories and speed up collection of receivables. Costs also can be reduced by outsourcing production of various inputs for which market prices may be cheaper than in-house production costs.

Question 7

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

Accepted Answer

Four basic strategies are available in the decline phase: maintaining, harvesting, exiting, or consolidating. Managers must carefully monitor the actions and intentions of competitors before deciding on a course of action.

Question 8

In the textbook example of Atlas Door, human talent trained in the new just-in-time systems have little reason to leave the company and therefore this is a sustainable competitive advantage.

Accepted Answer

Because human capital is highly mobile, a rival could hire away Atlas Door talent, and these individuals could aid the rival in transferring Atlas Door best practices.

Question 9

Swatch defined its watches as playful fashion accessories which were showily promoted. This is an example of reverse positioning.

Accepted Answer

With breakaway positioning, a product escapes its category by deliberately associating with a different one. Thus, managers leverage the conventions of the new category to change both how products are consumed and with whom they compete. Instead of seeing the breakaway product as an alternative to others in its category, consumers perceive it as altogether different. The name Swatch is often misconstrued as a contraction of the words Swiss watch. However, Nicolas Hayek, chairman, affirms that the original contraction was second watch. The new watch was introduced as a new concept of watches as casual, fun, and relatively disposable accessories. Therein lies the Swatch breakaway positioning.

Question 10

In the textbook example of Atlas Door, the threat of new rivals who could bring new technologies and processes to a similar business model diminishes the sustainability of the Atlas Door just-in-time model.

Accepted Answer

A new rival could also enter the industry with a large resource base, which might enable it to price its doors well under Atlas Door to build market share (but this would likely involve pricing below cost and would be a risky and non-sustainable strategy). Finally, a rival could potentially leapfrog the technologies and processes that Atlas Door has employed and achieve competitive superiority.

Question 11

Few turnarounds require firms to analyze both the external and internal environments relevant to their firm.

Accepted Answer

Most turnarounds require a firm to carefully analyze the external and internal environments. The external analysis leads to identification of market segments or customer groups that may still find the product attractive. Internal analysis results in actions aimed at reduced costs and higher efficiency. A firm needs to undertake a mix of both internally and externally oriented actions to affect a turnaround.

Question 12

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

Accepted Answer

Old technologies that are in decline do not always quickly fade away. Research shows that in a number of cases, old technologies actually enjoy a very profitable last gasp, and can become resilient survivors in some circumstances.

Question 13

The Commerce Bank gains customers by using reverse positioning to structure its offers. It pared down its offers to just four checking accounts.

Accepted Answer

The Commerce Bank stripped away all of what customers expected including lots of choices and peak interest rates and it reverse positioned itself as the most convenient bank in America. It was open seven days a week, including evenings until 8 p.m. You could get a debit card while you waited. And when it rained, an escort with an umbrella walked you to your car. Further, the bank offered free coffee and newspapers for customers. Not too surprisingly, despite the inferior rates and few choices, customers regularly flocked to the bank, making it an attractive target for a larger bank to buy.

Question 14

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

Accepted Answer

In the growth stage, the primary key to success is to build consumer preferences for specific brands. This requires strong brand recognition, differentiated products, and the financial resources to support a variety of value-chain activities such as marketing and sales, and research and development.

Question 15

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

Accepted Answer

A need for turnaround may occur at any stage in the life cycle but is more likely to occur during maturity or decline.

Question 16

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

Accepted Answer

In the growth stage, revenues increase at an accelerating rate because new consumers are trying the product and a growing proportion of satisfied consumers are making repeat purchases. Since repeat purchases are necessary, a long-term strategy is desirable.

Question 17

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.

Accepted Answer

Harvesting involves obtaining as much profit as possible and requires that costs be reduced quickly. Maintaining refers to keeping a product going without significantly reducing marketing support, technological development, or other investments, in the hope that competitors will eventually exit the market.

Question 18

Procter and Gamble successfully implemented a turnaround strategy by discontinuing brands and focusing all resources on a few core brands.

Accepted Answer

Most mature or declining firms have many product lines that are losing money or are only marginally profitable. One strategy is to discontinue such product lines and focus all resources on a few core profitable areas. For example, in 2014, Procter and Gamble announced that it would sell off or close down up to 100 of its brands, allowing the firm to improve its efficiency and its innovativeness as it focused on its core brands. The remaining 70 to 80 core brands accounted for 90 percent of total company sales.

Question 19

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.

Accepted Answer

Two positioning strategies that managers can use to affect consumer mental shifts are reverse positioning, which strips away sacred product attributes while adding new ones, and breakaway positioning, which associates the product with a radically different category.

Question 20

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.

Accepted Answer

There is an advantage to being the first mover in a market. It led to the success of Coca Cola in becoming the first soft-drink company to build a recognizable global brand and enabled Caterpillar to get a lock on overseas sales channels and service capabilities.

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