Question 1

Cost leaders' emphasis on efficiency makes them vulnerable to price competition from rivals.

Accepted Answer

False

Question 2

Cost leaders are companies that sell inferior, poor quality goods and services for rock-bottom prices.

Accepted Answer

Cost leaders aim to achieve low costs through efficient operations and processes, not by sacrificing quality. They may offer lower prices than competitors, but they still aim to provide good quality goods and services.

Question 3

Most cost leaders spend little on advertising, market research, or research and development in order to be efficient.

Accepted Answer

Cost leaders prioritize efficiency and cost savings, and therefore tend to spend less on activities like advertising, market research, and research and development.

Question 4

One of the ways that cost leaders generally keep their costs low is by not spending much on advertising.

Accepted Answer

Cost leaders focus on achieving efficiency and cost savings in their operations, including minimizing advertising expenses.

Question 5

A relative lack of market research can lead cost leaders to be not as skilled as other firms at detecting important environmental changes.

Accepted Answer

Cost leaders typically prioritize minimizing costs above conducting extensive market research, which can make it difficult for them to anticipate or react to changes in the external environment.

Question 6

The need for efficiency means that cost leaders' profit margins are often higher than the margins enjoyed by other firms.

Accepted Answer

The answer of The need for efficiency means that cost...

Question 7

The presence of a cost leader in an industry encourages new firms to enter the business.

Accepted Answer

The answer of The presence of a cost leader in...

Question 8

Cost leaders are often large companies, and this allows them to demand price concessions from their suppliers.

Accepted Answer

Cost leaders often have greater bargaining power due to their size and ability to make bulk purchases, which can lead to suppliers offering them price concessions in order to maintain their business.

Question 9

Focusing on generic strategies allows executives to concentrate on the core elements of firms' business-level strategies.

Accepted Answer

Focusing on generic strategies helps executives to identify and concentrate on the fundamental aspects of their business-level strategies, which can help to improve overall performance and competitiveness. This approach enables them to choose between cost leadership, differentiation, or focus strategies, which are essential components of business-level strategies. Therefore, it is true that focusing on generic strategies allows executives to concentrate on the core elements of firms' business-level strategies.

Question 10

The big risk when using a differentiation strategy is that customers will not be willing to pay extra to obtain the unique features that a firm is trying to build its strategy.

Accepted Answer

When using a differentiation strategy, the company needs to ensure that the unique features they offer are valued and desired by their target customers. If customers do not perceive enough value in the differentiation, they may not be willing to pay a premium price, leading to lower sales and profits for the company. Therefore, it is a big risk associated with a differentiation strategy.

Question 11

A differentiation strategy helps break barriers to entry that protect the firm and its industry from new competition.

Accepted Answer

The answer of A differentiation strategy helps break barriers to...

Question 12

A firm following a differentiation strategy attempts to convince customers to pay a premium price for its good or services by providing unique and desirable features.

Accepted Answer

This statement is true. A differentiation strategy involves offering unique and desirable features that make a product or service stand out from others, allowing the firm to charge a higher price and retain loyal customers.

Question 13

Customers, in many cases, may simply prefer a cheaper alternative to a unique product sold at a premium price.

Accepted Answer

This statement is true as customers often prioritize price over uniqueness or premium features when making purchasing decisions.

Question 14

Effective differentiation creates an ability to obtain premium prices from customers.

Accepted Answer

Effective differentiation creates a unique value proposition for a product or service, which allows companies to justify charging higher prices compared to their competitors. Customers are willing to pay more for a differentiated product that meets their specific needs or preferences. This is why differentiation is a powerful strategy that can improve profitability and competitiveness in the long run.

Question 15

Markets that involve a lot of brand loyalty offer great opportunities to cost leaders to attract a large segment of customers.

Accepted Answer

Markets with high brand loyalty are difficult for cost leaders to penetrate as customers are willing to pay a premium for their preferred brand. Cost leaders typically target markets with low customer loyalty where price is the main factor influencing purchase decisions.

Question 16

Firms that are not able to offer low prices or appealing unique features are said to be following the best-cost strategy.

Accepted Answer

The answer of Firms that are not able to offer...

Question 17

A firm may not match every characteristic that its generic strategy entails.

Accepted Answer

It is not necessary for a firm to match every characteristic of its generic strategy. Generic strategies provide a guide for companies to position themselves in the market, but every firm has its own unique strengths, weaknesses, and resources that may affect how they implement their strategy.

Question 18

Economies of scale occur because expenses are distributed across a greater number of items.

Accepted Answer

When production levels increase, fixed costs get distributed over a greater number of units leading to a reduction in average cost per unit. This is known as economies of scale.

Question 19

A differentiation strategy also creates benefits relative to potential new entrants.

Accepted Answer

A differentiation strategy can create barriers to entry for potential new entrants who may find it difficult to replicate the unique features and benefits of a differentiated product or service. This can give the company a sustainable competitive advantage.

Question 20

Firms that are able to offer both low prices and unique features that customer find desirable are said to be stuck in the middle.

Accepted Answer

Firms that are stuck in the middle are unable to offer low prices and unique features simultaneously, which puts them at a disadvantage against competitors that specialize in one or the other.

Quiz 5: Selecting Business-Level Strategies