Chapter 5 Flashcards
A business-level strategy is a strategy designed for a multi-business company that competes across
multiple businesses.
F. A business-level strategy is a strategy designed for a firm or a division of a firm that competes within a
single business.
The primary aim of strategic management at the business level is
A. maximizing risk-return tradeoffs through diversification.
B. achieving competitive advantage.
C. maximizing differentiation of products and/or services.
D. achieving a low cost position.
B
What does a business-level strategy primarily focus on?
A) Managing company finances
B) Competing within a single business or division
C) Mergers and acquisitions
D) Setting corporate social responsibility goals
B
Why is the concept of competitive advantage central to strategic management?
A) Because it ensures product diversification
B) Because it helps firms outperform competitors and sustain success over time
C) Because it reduces the cost of production
D) Because it focuses on market share
B
What is a key issue in strategic management?
A) Determining company size
B) Identifying why some firms outperform others and sustain competitive advantages
C) Developing a product development roadmap
D) Managing public relations and brand image
B
What is the focus of business-level strategy in terms of competitive advantage?
A) Short-term gains
B) Achieving lasting competitive advantage
C) Focusing only on financial growth
D) Ensuring market saturation
B
The three generic strategies that Michael Porter believes a firm can use to overcome the five forces and
achieve competitive advantage include overall price leadership.
F. Michael Porter presented three generic strategies that a firm can use to overcome the five forces and
achieve competitive advantage. The strategies are: overall cost leadership, differentiation, and focus.
Which of the following is NOT one of the three generic strategies identified by Michael Porter?
A) Overall cost leadership
B) Differentiation
C) Focus
D) Product innovation
D
Who presented the three generic strategies to overcome the five forces and achieve competitive advantage?
A) Henry Mintzberg
B) Peter Drucker
C) Michael Porter
D) Clayton Christensen
C
Concentrating solely on one form of competitive advantage generally leads to the highest possible level
of profitability.
F. Observation and research support the notion that firms that identify with one or more of the forms of
competitive advantage outperform those that do not. One study found that businesses combining forms
of competitive advantage (differentiation and overall cost leadership) outperformed those using a single
form.
What is the primary idea supported by observation and research in the statement?
A) Firms that use a single form of competitive advantage outperform those using multiple forms.
B) Firms that identify with one or more forms of competitive advantage outperform those that do not.
C) Firms focusing on cost leadership are the most successful.
D) Differentiation is the only key to success for businesses.
B
According to the study mentioned in the statement, which firms tend to outperform others?
A) Businesses using only differentiation as their competitive advantage.
B) Businesses combining differentiation and cost leadership.
C) Businesses with a focus on overall cost leadership.
D) Businesses that do not focus on competitive advantages.
B
Research has consistently shown that firms that achieve both cost leadership and differentiation
advantages tend to perform
A. at about the same level as firms that achieve either cost or differentiation advantages.
B. higher than firms that achieve either a cost or a differentiation advantage.
C. about the same as firms that are stuck-in-the-middle.
D. lower than firms that achieve differentiation advantages but higher than firms that achieve cost
advantages.
b
What is the primary goal of overall cost leadership?
A) To achieve the highest level of product differentiation.
B) To achieve the lowest cost of operation in an industry.
C) To focus solely on customer service.
D) To offer a diverse range of products at high prices.
B
Which tactic involves constructing large-scale production facilities to maximize efficiency?
A) Cost Reduction Pursuit
B) Tight Cost and Overhead Control
C) Efficient-Scale Facilities
D) Selective Customer Accounts
C
According to the definition, what is a key tactic to ensure continuous cost reduction?
A) Offering a wide range of products at varying price points.
B) Continuously seeking cost reductions through operational experience.
C) Focusing on high-end customer accounts.
D) Minimizing the size of production facilities.
B
What does “tight cost and overhead control” refer to in the context of overall cost leadership?
A) A focus on increasing overhead costs to improve quality.
B) Strict oversight of both costs and overhead to maintain low operational costs.
C) Ignoring overhead costs in favor of production speed.
D) Offering incentives to increase overhead expenses.
B
- Which of the following is NOT a key tactic for overall cost leadership?
A) Focusing on minimizing costs across the value chain.
B) Engaging with all customer accounts, regardless of profitability.
C) Seeking cost reductions through operational experience.
D) Avoiding marginal customer accounts that do not contribute significantly to profits.
B
What does the tactic of “selective customer accounts” involve?
A) Engaging with all potential customers to maximize market share.
B) Avoiding customer accounts that do not contribute significantly to profits.
C) Focusing on the highest-paying customers only.
D) Offering discounts to customers who generate high volumes of sales.
B
In the context of overall cost leadership, which of the following activities is focused on minimizing costs?
A) Research and Development (R&D), service, sales, and advertising.
B) Increasing product features to differentiate from competitors.
C) Offering premium customer service to all customers.
D) Allocating high budgets to marketing and advertising.
A
What does the overall cost leadership strategy focus on across all activities in the value chain?
A) Increasing product features to enhance differentiation.
B) Cost minimization across all activities to reduce overall operational costs.
C) Focusing on premium pricing strategies.
D) Increasing customer satisfaction at all costs.
B
Which of the following is a key feature of the overall cost leadership strategy?
A) Maximizing innovation and differentiation at the cost of efficiency.
B) Using a combination of tactics to achieve the lowest cost in the industry.
C) Focusing on high-end, niche markets with high margins.
D) Expanding production to increase market share regardless of cost.
B
A firm striving for cost leadership will typically spend relatively more on product-related research and
development than on process-related research and development.
F
The experience curve concept suggests that production costs tend to decrease as production increases.
T
The experience curve is a way of looking at price benefits that come from studying sales figures.
F
A manufacturing business pursuing cost leadership is likely to
A. focus on a narrow market segment.
B. use advertising to build brand image.
C. rely on experience effects to raise efficiency.
D. put heavy emphasis on product engineering.
C
One aspect of using a cost leadership strategy is that experience effects may lead to lower costs.
Experience effects are achieved by
A. spreading out a given expense or investment over a greater volume.
B. hiring more experienced personnel.
C. repeating a process until a task becomes easier.
D. competing in an industry for a long time
C
With experience, unit costs of production decline as _________ increases in most industries.
A. costs
B. volume
C. pric
e
D. output
D
How do simplified product designs contribute to cost reduction?
A) They reduce the complexity of production and lower manufacturing costs.
B) They make products more appealing to high-end customers.
C) They increase production time, reducing efficiency.
D) They focus on adding more features to attract more customers.
A
What does “competitive parity” refer to in the context of business strategy?
A) A firm’s ability to achieve the highest level of differentiation.
B) A firm’s ability to match competitors’ prices while offering more features.
C) A firm achieving similar levels of differentiation as its competitors.
D) A firm focusing exclusively on cost leadership without regard for differentiation.
C
According to the statement, what must a firm following an overall cost leadership position focus on in relation to differentiation?
A) Achieving the highest differentiation in the industry.
B) Attaining competitive parity or proximity in differentiation relative to its competitors.
C) Offering the lowest prices regardless of product differentiation.
D) Ignoring competitors’ differentiation strategies.
B
To generate above average returns, a firm following an overall cost leadership position should not be
concerned with attaining parity or proximity on the basis of differentiation relative to its peers.
F
Competitive parity on the basis of differentiation permits a cost leader to maximize disadvantages and
turn them into higher profits than competitors.
F.
Competitive parity on the basis of differentiation permits a cost leader to translate cost advantages
directly into higher profits than competitors. Thus, the cost leader earns above-average returns.
Why is achieving competitive parity important for a firm pursuing a cost leadership strategy?
A) It allows the firm to differentiate its products dramatically.
B) It enables the firm to convert its cost advantages into higher profits.
C) It encourages the firm to enter niche markets.
D) It makes the firm more dependent on external factors like market conditions.
B
What is the expected outcome for firms that maintain competitive parity while being a cost leader?
A) The firm will struggle to maintain profitability.
B) The firm can earn above-average returns.
C) The firm will focus only on expanding its customer base.
D) The firm will be forced to increase costs in order to differentiate itself.
B
What is the relationship between competitive parity and the ability of a cost leader to earn above-average returns?
A) Competitive parity helps a cost leader to generate lower profits than competitors.
B) Competitive parity allows a cost leader to compete effectively in price wars.
C) Competitive parity enables a cost leader to convert cost advantages into higher profits, leading to above-average returns.
D) Competitive parity forces a cost leader to abandon cost leadership in favor of differentiation.
C
A risk for a firm that tries to attain both cost and differentiation advantages is that it can be stuck in the
middle. An example of this is supermarkets because their _____ structure is _____ than discount
retailers and customers do not value their products and services as being high-end such as those offered
by Whole Foods.
A. cost; higher
B. price; higher
C. price; lower
D. cost; lower
A
The Yugo car was cheap, but it was poorly made. Consumers did not purchase it. This is an example of
failure to attain parity on the basis of differentiation.
T
Southwest Airlines uses an overall cost leadership strategy. This could fail if it
A. cannot maintain parity on differentiation dimensions requested by customers.
B. maintains parity with competitors on low cost.
C. exceeds customer expectations.
D. increases its sales prices while maintaining competitor parity.
A
. Tesco is saving 3 million USD a year alone in landfill taxes by simply sending its used cooking oil and
chicken fat to be used to generate bioenergy rather than putting it in a landfill. This is an example of an
overall cost leadership strategy because it
A. gives them competitive advantage by reducing energy costs.
B. gives them competitive advantage by decreasing productivity.
C. eliminates the need to compete based on its products.
D. requires the customer to recognize its efforts
A
Zulily keeps very little inventory. It orders products from vendors after their customer has completed the
purchase. This is an example of how Zulily intends to enhance a cost leadership position.
T
What does the term “absolute cost advantage” mean for a company pursuing a low-cost strategy?
A) The company offers the highest-quality products in the market.
B) The company can produce a product more efficiently and at a lower cost than its competitors.
C) The company focuses on offering premium services to a small niche.
D) The company charges higher prices for superior products.
b. “Absolute cost advantage” means that the company needs to beat competitors not just in cost, but in actual cost efficiency
What is one potential benefit of having an absolute cost advantage?
A) The company can offer lower prices than competitors and still make a profit.
B) The company must invest heavily in advertising.
C) The company can charge more for its products while still being the lowest-cost producer.
D) The company can focus only on premium market segments.
A
Which of the following is important for a company to achieve when pursuing a low-cost strategy?
A) Offering unique and differentiated products.
B) Having an absolute cost advantage over rivals.
C) Providing personalized customer service.
D) Focusing on small-scale, customized productio
B
How does standardization help companies pursuing a low-cost strategy?
A) It allows them to offer highly customized products.
B) It enables them to reduce production costs by taking advantage of large-scale production and experience.
C) It increases the product’s uniqueness in the marketplace.
D) It helps companies target only a specific, high-end market segment.
B
What is a major risk for companies pursuing a low-cost strategy?
A) Focusing too much on advertising and branding.
B) Failing to match competitors in areas like fast delivery or product design.
C) Offering highly customized products.
D) Not achieving sufficient economies of scale.
B
A business that strives for a low-cost advantage must attain a(n) _______ cost advantage over rivals.
A. relative
B. evolutionary
C. absolute
D. potential
C
Renault has found a way to generate high profits on low-priced cards by using simple designs that
incorporate components from older car designs and a no-discount retail policy. They are using a(n)
______________ strategy.
A. differentiation
B. overall cost leadership
C. focus
D. broad differentiation
B
The French automobile maker, Renault, attains competitive advantage by revamping cars to be more cost
efficient.
T
How does having fewer management layers help a company pursuing a cost leadership strategy?
A) It improves customer service by having more managers available.
B) It reduces overhead costs associated with salaries and administration.
C) It increases the number of decision-makers in the organization.
D) It ensures more specialized management in different departments.
B
Why are standardized accounting practices important for a cost leadership strategy?
A) They ensure financial flexibility and allow for customized reports.
B) They minimize the need for multiple accountants, cutting costs.
C) They increase the complexity of financial analysis, improving decision-making.
D) They help the company offer premium pricing strategies.
B
What is one key benefit of minimizing employee turnover in a cost leadership strategy?
A) Reduces the need for extensive marketing campaigns.
B) Helps avoid the costs of hiring and training new workers.
C) Increases employee satisfaction through higher wages.
D) Encourages higher levels of customization and specialization.
B
How do effective orientation and training programs contribute to a cost leadership strategy?
A) They help employees specialize in niche areas, improving differentiation.
B) They improve employee productivity and efficiency, reducing overall costs.
C) They increase job satisfaction, resulting in higher wages.
D) They encourage employees to pursue further education, raising costs.
B
What role does automated technology play in a cost leadership strategy?
A) It increases product quality by allowing for more manual interventions.
B) It helps reduce production mistakes and waste, cutting costs.
C) It provides more personalized customer service to retain clients.
D) It adds complexity to production processes, raising costs.
B
How does process engineering expertise help a company achieve cost leadership?
A) By improving product differentiation and uniqueness.
B) By finding better, more cost-effective ways to produce products.
C) By focusing on high-end, specialized production techniques.
D) By increasing the number of specialized machines used in production.
B
What is the primary goal of setting policy guidelines for low-cost raw materials in a cost leadership strategy?
A) To ensure the highest possible quality of materials.
B) To reduce material costs without sacrificing quality.
C) To increase the use of expensive, premium raw materials.
D) To focus on eco-friendly, sustainable sourcing, regardless of cost.
B
How do shared purchasing operations contribute to a cost leadership strategy?
A) By allowing for bulk purchasing, which reduces overall supply costs.
B) By improving product quality through diversified suppliers.
C) By increasing the flexibility of procurement and reducing inventory levels.
D) By centralizing all purchasing decisions under one department.
A
Primary value chain activities that involve the effective layout of receiving dock operations (inbound
logistics) and support value chain activities that include expertise in process engineering (technology
development) characterize which generic strategy?
A. differentiation
B. differentiation focus
C. stuck-in-the-middle
D. overall cost leadership
D
A firm can attain an overall cost leadership position by increasing the management layers in order to reduce
overhead costs.
F
A firm can attain an overall cost leadership position by using automated technology to reduce scrappage
rates.
T
Why is the effective layout of receiving dock operations important for a company pursuing a cost leadership strategy?
A) It ensures materials are processed faster and more efficiently into the production process.
B) It allows the company to offer a higher quality product.
C) It reduces the need for automated systems in logistics.
D) It provides more space for inventory storage.
A
How do global logistics firms like DHL Supply Chain or C.H. Robinson Worldwide compete using cost leadership strategies?
A) By focusing on premium services and high-end logistics solutions.
B) By utilizing efficient operations like effective layout of receiving dock operations to reduce costs.
C) By investing in customer service to build long-term relationships.
D) By offering custom, niche solutions for specific industries.
B
What is the purpose of quality control inspections during production in a cost leadership strategy?
A) To catch and fix issues early, preventing wasted work and reducing production costs.
B) To ensure that products are differentiated and meet premium standards.
C) To increase product complexity and add value to customers.
D) To focus on luxury features and ensure high-quality raw materials are used.
A
How does utilizing delivery fleets efficiently benefit a company following a cost leadership strategy?
A) It helps in making sure products reach customers quickly while minimizing transportation costs.
B) It focuses on premium delivery services, offering a high-end experience.
C) It allows for more frequent product updates and shipments.
D) It ensures product quality by using only high-end transport vehicles.
A
What is one advantage of bulk media purchases in marketing for a cost leadership strategy?
A) It ensures the company reaches a niche market segment with targeted ads.
B) It lowers the cost per advertisement, making marketing efforts more cost-effective.
C) It allows for personalized, high-quality advertising materials.
D) It increases the number of ads shown, focusing on quality over quantity.
B
How does sales force utilization contribute to a cost leadership strategy?
A) By ensuring that salespeople can cover more ground and be more effective through territory management.
B) By reducing the number of salespeople needed, focusing on a smaller market segment.
C) By increasing the focus on high-end customers, requiring more specialized sales efforts.
D) By expanding the sales force into international markets, raising costs.
A
What role do service repair guidelines play in a cost leadership strategy?
A) They reduce the number of follow-up services needed, cutting repair and customer service costs.
B) They increase service complexity, providing higher customer satisfaction.
C) They focus on offering personalized repair services to each customer.
D) They require more expensive repair parts to ensure product longevity.
A
How does using a single type of vehicle for service calls help a company reduce costs in a cost leadership strategy?
A) It minimizes maintenance and repair costs by standardizing the fleet.
B) It increases the number of vehicles available for service calls.
C) It allows for more specialized service vehicles, improving service quality.
D) It focuses on high-end, luxury service vehicles to create a premium customer
A
A firm can attain an overall cost leadership position by purchasing media in large blocks and maximizing
sales force utilization through territory management.
T
Global logistics firms such as DHL Supply Chain and Global Forwarding or C. H. Robinson Worldwide
compete using an overall cost leadership strategy in primary activities such as
A. effective layout of receiving dock operations.
B. effective use of automated technology to reduce scrappage rates.
C. minimize costs associated with employee turnover through effective policies.
D. standardized accounting practices to minimize personnel required.
A
Overhead costs associated with the number of layers of management in a firm are part of the _________
activities of the value chain.
A. human resources management
B. operations
C. firm infrastructure
D. marketing and sales
C
How does a low-cost position help a firm achieve above-average returns?
A) By allowing the firm to charge the highest prices in the market.
B) By enabling the firm to maintain profitability even in highly competitive environments.
C) By focusing on high-end, niche markets with less competition.
D) By investing heavily in advertising to dominate brand awareness.
B
An overall high-cost position enables a firm to achieve above-average returns despite strong
competition.
F
Convincing rivals not to enter a price war, protection from customer pressure to lower prices, and the
ability to better withstand cost increases from suppliers characterize which type of competitive strategy?
A. differentiation
B. overall low-cost leadership
C. differentiation focus
D. cost leadership focus
B
How does a low-cost position protect a firm against rivalry from competitors?
A) It forces competitors to raise their prices, reducing rivalry.
B) It allows the firm to sustain profitability even if competitors reduce their prices.
C) It leads to price wars that decrease overall profitability in the industry.
D) It prevents new competitors from entering the market by offering superior quality.
B
What is the primary way that a low-cost position defends against powerful buyers?
A) It allows firms to lower their prices without affecting profitability.
B) It allows firms to charge buyers higher prices without losing market share.
C) It limits buyers’ ability to push prices down to the level of the next most efficient producer.
D) It forces buyers to choose higher-quality products instead of lower-cost alternatives.
C
How does a low-cost position create barriers to entry for new competitors?
A) By reducing the need for advertising, which makes it harder for new entrants to gain market share.
B) By enabling the firm to provide premium products that attract new customers.
C) By reducing operational costs and creating a significant cost advantage, making it difficult for new competitors to enter.
D) By focusing on niche markets and creating highly specialized products.
C
How can a low-cost position increase entry barriers for substitute products?
A) By lowering the price of substitute products, making them unattractive to customers.
B) By offering better-quality substitutes at a lower price than competitors.
C) By making it difficult for new competitors to match the low-cost structure, even for substitutes.
D) By eliminating substitute products from the market altogether.
C
How does Renault use a low-cost position to lessen rivalry and increase entry barriers?
A) By charging higher prices than competitors.
B) By increasing productivity and lowering unit costs.
C) By investing in brand marketing to dominate the market.
D) By offering high-end features that attract premium customers.
B
An overall low-cost position protects a firm against rivalry from competitors, because higher costs allow
a firm to earn returns even if its competitors eroded their profits through intense rivalry.
F. lower cost
An overall low-cost position protects a firm against rivalry from competitors, because _________ allow
a firm to earn returns even if its competitors eroded their profits through intense rivalry.
A. higher costs
B. higher prices
C. lower costs
D. lower prices
C
Renault both lessens the degree of rivalry it faces and increases entry barriers for new entrants by
increasing productivity and lowering unit costs.
T
A low-cost position protects firms against powerful buyers.
T
A low-cost position permits buyers to exert power to drive ____ prices only to the level of the next most
efficient producer.
A. up
B. down
C. increasing
D. decreasing
B
An overall ______ position enables a firm to achieve above-average returns because it protects firms
against powerful buyers.
A. differentiation
B. low-cost
C. focused
D. high-cost
B
An overall low-cost position protects a firm against rivalry from competitors, because _________ allow
a firm to earn returns even if its competitors eroded their profits through intense rivalry.
A. higher costs
B. higher prices
C. lower costs
D. lower prices
C
A low-cost position provides more flexibility to cope with demands from powerful suppliers for input
cost decreases.
F. increase
The factors that lead to a low-cost position do not provide a substantial entry barriers position with
respect to substitute products introduced by new and existing competitors.
F. The factors that lead to a low-cost position also provide a substantial entry barriers position with respect
to substitute products introduced by new and existing competitors.
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
A
A low-cost position provides _______ flexibility to cope with demands from powerful suppliers for
input cost increases.
A. less
B. decreasing
C. more
D. no
C
How does Zulily use a low-cost position to mitigate buyer power and competitive rivalry?
A) By focusing on offering premium products that attract high-end customers.
B) By driving down costs and improving productivity, reducing customer bargaining power and rivalry.
C) By investing heavily in advertising to create brand loyalty.
D) By focusing on a narrow market segment, reducing competition
B
How does Renault use a low-cost position to reduce competition and raise entry barriers for new entrants?
A) By increasing the number of models offered to attract different customer segments.
B) By lowering unit costs and increasing productivity to make it harder for new entrants to compete.
C) By offering luxury features that appeal to premium customers.
D) By investing in aggressive marketing campaigns to dominate the market.
B
How does Aldi’s focus on minimizing operational costs protect it from substitutes like Walmart and dollar stores?
A) By offering products with better quality at a higher price.
B) By keeping operational costs low, making it less vulnerable to competition from substitutes.
C) By focusing on personalized customer service, which attracts loyal customers.
D) By offering a wider range of premium-priced products.
B
Discount retailers like Walmart and dollar stores are prime substitutes for Aldi, because Aldi focuses on
minimizing costs across its operations.
F. The supermarket, Aldi, places extreme focus on minimizing costs across its operations which ultimately
makes it less vulnerable to substitutes such as discount retailers like Walmart and dollar stores.
The supermarket, Aldi, places extreme focus on minimizing costs across its operations which ultimately
makes it more vulnerable to substitutes.
F
Zulily pays close attention to costs which helps to protect the company from buyer power and intense
rivalry from competitors.
T
What is a potential pitfall of focusing too much on specific value-chain activities in a cost leadership strategy?
A) It leads to improvements in quality and customer service.
B) It can result in the loss of desirable features and neglect of other important activities.
C) It causes an overinvestment in capital projects.
D) It creates a niche market that drives high-profit margins.
B
What can happen if a firm in a cost leadership strategy fails to evaluate all its value-chain activities?
A) The firm may increase its market share through differentiation.
B) The firm may miss opportunities for cost reductions in non-core activities.
C) The firm may create an over-reliance on marketing and advertising.
D) The firm could lose its competitive advantage and face increased costs.
D
Firms that compete on overall cost leadership are vulnerable if there is an increase in the cost of the
inputs on which the advantage is based.
T
Too much focus on one or a few value-chain activities can be a pitfall of the overall cost leadership
strategy.
T
What is one example of how an increase in input costs can impact a company following a cost leadership strategy?
A) The firm can easily absorb rising labor costs due to its high-margin products.
B) The firm becomes more vulnerable to input cost increases, like rising labor costs or raw material prices.
C) The firm can shift the burden of higher costs onto customers without losing profitability.
D) The firm can easily pass on all cost increases to buyers through price increases.
B
Why are cost leadership strategies vulnerable to being easily imitated by competitors?
A) The competitive advantage is often based on processes and cost-cutting measures that are not unique.
B) The firm differentiates its product significantly, making it hard for others to copy.
C) The firm invests heavily in advertising and brand-building.
D) The firm focuses on a niche market that is hard to replicate.
A
What is a risk for cost leaders if they lack differentiation parity in the market?
A) Customers may perceive their products as inferior compared to competitors, even if they are priced lower.
B) Their products will always be seen as superior, regardless of price.
C) Competitors will struggle to match their low prices.
D) The firm may become too dependent on customer loyalty.
A
What is a significant drawback of making large investments in infrastructure for a cost leadership strategy?
A) It increases the firm’s flexibility to respond to market changes.
B) It creates high customer loyalty by building strong brand recognition.
C) It limits the firm’s ability to adapt to changes in the market environment.
D) It reduces the company’s dependence on external suppliers.
C
How can a cost leadership strategy become obsolete over time?
A) When competitors introduce new efficiencies or innovative practices that make the current cost advantages less effective.
B) When the firm shifts focus to differentiation and loses its low-cost structure.
C) When demand for the low-cost products disappears entirely.
D) When the firm over-invests in marketing to maintain its cost advantage.
A
Which of the following is an example of the risk of obsolescence in a cost leadership strategy?
A) A company loses its cost advantage when new technologies or lean practices emerge, as seen in the U.S. auto industry vs. Japanese manufacturers.
B) A company increases product differentiation and stops focusing on cost.
C) A company maintains a competitive advantage by continually innovating its pricing model.
D) A company focuses on niche markets, avoiding direct competition with larger firms.
A
A cost leadership strategy can be at risk of becoming obsolete and must be evaluated regularly in terms
of current competitor responses.
T
A cost leadership strategy is not susceptible to the risk of reduced flexibility.
F
Which of the following is a risk (or potential pitfall) of cost leadership?
A. Cost cutting may lead to the loss of desirable features.
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.
A
A firm can achieve differentiation through all of the following means except
A. improving brand image.
B. better customer service.
C. offering lower prices to frequent customers.
D. adding additional product features
C
What is the primary focus of a differentiation strategy?
A) Making the product or service the lowest-priced option in the market.
B) Creating a unique product or service that customers find valuable.
C) Offering a wide variety of similar products to appeal to all customer segments.
D) Reducing operational costs to improve profit margins.
B
What does a company aim to achieve with a differentiation strategy?
A) Competing solely based on price to capture a larger market share.
B) Creating a product or service that is perceived as unique and valued by customers.
C) Minimizing product quality while offering low prices to attract more customers.
D) Expanding into new markets by offering generic products.
B
What can be considered a successful result of implementing a differentiation strategy?
A) The company achieves cost leadership in the industry.
B) Customers are willing to pay a premium price for the unique features or quality of the product.
C) The company becomes the largest producer in the market by offering the lowest prices.
D) The company attracts the broadest range of customers by offering a wide variety of generic products.
B
Which of the following is an example of differentiation through prestige or brand image?
A) Apple’s iPhone with advanced technology features.
B) Hotel Monaco creating a strong and appealing brand image.
C) Ruth’s Chris Steakhouse offering high-quality products.
D) Marantz stereo components using advanced technology.
B
If a firm has a successful differentiation strategy, it is necessary to attain parity on cost.
F
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
D
Which of the following refers to a company’s ability to establish a unique and desirable position in the market based on its reputation or public perception?
A) Quality
B) Technology
C) Prestige or Brand Image
D) Customer Service
C
A company’s commitment to offering the best materials, craftsmanship, and reliability in its products would primarily be an example of which form of differentiation?
A) Features
B) Technology
C) Quality
D) Dealer Network
C
Which form of differentiation focuses on the incorporation of the latest advancements in science and engineering into a company’s products?
A) Technology
B) Innovation
C) Features
D) Customer Service
A
The ability of a company to consistently introduce new and unique products or services to the market is an example of which type of differentiation?
A) Prestige or Brand Image
B) Innovation
C) Dealer Network
D) Features
B
A product that stands out because of its specific attributes, such as size, design, or functionality, would be differentiated based on which factor?
A) Features
B) Technology
C) Customer Service
D) Prestige or Brand Image
A
Which of the following refers to how well a company attends to its customers, resolves complaints, and provides support post-purchase?
A) Dealer Network
B) Innovation
C) Customer Service
D) Prestige or Brand Image
C
The strength of a company’s distribution and retail network, including the availability and accessibility of its products, is an example of which form of differentiation?
A) Dealer Network
B) Features
C) Quality
D) Technology
A
Support value chain 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
C
Cheesecake Factory differentiates itself along several different dimensions at once by offering highquality food, the widest and deepest menu in its class of restaurants, and premium locations
T
How does differentiation help protect a company against rivalry in the market?
A) By increasing customer price sensitivity
B) By reducing customer switching costs
C) By decreasing customer loyalty
D) By reducing customer sensitivity to price through brand loyalty
D
A successful differentiation strategy lowers entry barriers because of customer loyalty and the ability of
the firm to provide uniqueness in its products and services.
F
A successful differentiation strategy increases rivalry since buyers become more price-sensitive.
F
A successful differentiation strategy generally does not lead to:
A) Increased customer loyalty
B) Increased rivalry among competitors
C) Increased margins
D) Higher entry barriers
B
How does differentiation help a firm avoid the need for a low-cost position?
A) It reduces the margins, making it essential to focus on cost leadership
B) It increases margins, which decreases the emphasis on achieving a low-cost position
C) It makes the firm more reliant on price-based competition
D) It forces the company to match competitors’ costs to stay competitive
B
How does differentiation contribute to creating higher barriers to entry for competitors?
A) By offering lower prices, which attracts new competitors
B) By improving customer loyalty and providing unique products that new entrants cannot replicate easily
C) By making it difficult for suppliers to enter the market
D) By reducing brand recognition, which makes it easier for competitors to enter
B
In what way does differentiation help decrease supplier power?
A) By increasing the dependence on low-cost suppliers
B) By providing higher margins that allow a firm to withstand price hikes from suppliers
C) By reducing the perceived value of the firm’s products
D) By allowing the company to buy in larger quantities at lower prices
B
How does differentiation reduce buyer power?
A) By offering lower prices to attract more buyers
B) By increasing price sensitivity and lowering customer loyalty
C) By making buyers less sensitive to price and reducing the availability of comparable alternatives
D) By making products more standardized and easier to switch between brands
C
Which of the following is true about differentiation’s impact on the threat of substitutes?
A) Differentiation lowers the threat of substitutes by increasing the number of available alternatives
B) Differentiation raises the threat of substitutes by making products more interchangeable
C) Differentiation reduces the threat of substitutes by fostering strong customer loyalty
D) Differentiation increases the threat of substitutes by making products more standardized
c
A firm with a successful differentiation strategy typically:
A) Focuses on achieving the lowest possible cost position
B) Needs to continuously match competitors’ costs to remain competitive
C) Can charge higher prices due to the perceived value of its unique product or service
D) Competes mostly based on price, as its product offers no unique value
C
Which of the following is a key feature of a differentiation strategy that reduces rivalry and competition based on price?
A) Increased price sensitivity and lower switching costs
B) Increased brand loyalty, which makes customers less likely to switch
C) More emphasis on low-cost production
D) Less investment in marketing and customer service
b
If a firm has a successful differentiation strategy, it is necessary to attain parity on cost.
F
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
C
Which of the following describes a situation where a firm’s differentiation fails because it offers uniqueness that customers do not value?
A) Too much differentiation
B) Perceptions of differentiation that vary between buyers and sellers
C) Uniqueness that is not valuable
D) Dilution of brand identification through product-line extensions
C
What is a potential risk of offering too many features or qualities that exceed customer needs?
A) Uniqueness that is not valuable
B) Too high a price premium
C) Too much differentiation
D) Differentiation that is easily imitated
c
What can happen when a company charges a price premium that is too high for its differentiated product?
A) It attracts more customers, increasing market share
B) It drives away customers, leading to a loss of market share and profits
C) It reduces competition from rivals
D) It improves brand loyalty without reducing sales
b
Which of the following describes a situation where a differentiation strategy loses its effectiveness because it is easily copied by competitors?
A) Perceptions of differentiation that vary between buyers and sellers
B) Too much differentiation
C) Differentiation that is easily imitated
D) Dilution of brand identification through product-line extensions
C
What is the risk of introducing lower-priced, lower-quality products into a product line?
A) The brand’s image becomes diluted, negatively affecting its reputation for quality
B) It attracts a larger number of loyal customers
C) It strengthens brand prestige
D) It increases sales of higher-priced products
A
Which of the following can happen when customers view a company’s differentiated product as a commodity, rather than something unique?
A) The firm’s products are more expensive than competitors’ products
B) The firm can lower prices without affecting market perceptions
C) The firm’s differentiation strategy fails, and it loses competitive advantage
D) The brand image becomes more prestigious
C
Which of the following is an example of a firm charging too high a price premium for its product, causing it to lose market share?
A) Duracell charging significantly more than Energizer for batteries
B) Mercedes-Benz offering too many features in its cars
C) Gucci introducing a wider range of luxury products
D) Cereality failing to maintain its unique competitive advantage
A
What happens when multiple competitors pursue similar differentiation strategies and customers perceive them as equal?
A) The firm’s products become more unique in the market
B) The firm is able to charge a higher price premium
C) The differentiation advantage diminishes, and products are seen as commodities
D) The brand image is reinforced, leading to higher market share
C
What can happen when a firm overestimates the value of its differentiation, causing it to overprice its products?
A) Customers may perceive the product as a luxury, increasing sales
B) The firm may need to lower prices to meet market expectations, leading to lost margins
C) Competitors will struggle to replicate the product, maintaining the firm’s competitive edge
D) The firm’s brand image will be strengthened, increasing customer loyalty
B
- Which example illustrates the risk of offering too much differentiation?
A. Gibson’s Dobro bass guitar failing to meet market needs.
B. Mercedes-Benz S-Class being overly luxurious but unreliable.
C. Cereality’s loss of competitive advantage due to imitation.
D. Duracell’s loss of market share due to high prices.
B
. Why might a firm lose market share when implementing a differentiation strategy?
A. The differentiation tactic may require too many resources.
B. A significant price premium might repel customers.
C. Competitors may not follow similar differentiation tactics.
D. The firm may focus solely on cost leadership
b
Which of the following is a risk associated with differentiation strategies that are easily imitated?
A. Competitors may lose interest in copying the product.
B. The unique competitive advantage diminishes.
C. The firm can maintain its differentiation edge indefinitely.
D. Customers are less likely to compare similar products.
B
What can happen to a brand when product-line extensions dilute its prestige?
A. The brand becomes more exclusive.
B. High-end product sales increase.
C. The brand’s image in the marketplace weakens.
D. The market perceives the brand as more valuable.
C
Which example shows the dilution of brand identification?
A. Duracell pricing batteries higher than Energizer.
B. Mercedes-Benz offering overly luxurious features.
C. Gucci introducing lower-priced canvas goods in department stores.
D. Gibson’s Dobro bass guitar failing in its market.
C
Why might perceptions of differentiation vary between buyers and sellers?
A. Sellers often rely on cost leadership strategies.
B. Customers may view differentiation efforts as commodities.
C. Buyers value differentiation more than sellers do.
D. Differentiation strategies often result in higher profits.
B
If several competitors pursue similar differentiation tactics, what might be the outcome?
A. The firm achieves a significant competitive edge.
B. Customers perceive all competitors as equals.
C. The differentiation becomes more sustainable.
D. The market narrows, benefiting the first mover.
B
. What lesson can be learned from Gibson’s Dobro bass guitar failure?
A. Firms should charge high price premiums for unique products.
B. Differentiation strategies should align with customer needs.
C. Product-line extensions improve brand identification.
D. Differentiation must be easy for competitors to imitate.
B
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 recent two-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.
A
One potential pitfall of a differentiation strategy is that identification of the brand in the marketplace
may become diluted through excessive product line extensions.
T
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.
C
What is the main idea behind a Focus Strategy?
A) Targeting a broad market segment and offering generalized products
B) Focusing on a narrow market segment and offering tailored products or services
C) Reducing operational costs across all market segments
D) Competing based on price alone across the entire market
B
Which of the following is a variant of the Focus Strategy?
A) Cost Leadership
B) Differentiation Focus
C) Market Penetration
D) Economies of Scale
B
In a Focus Strategy, what is the goal of the Cost Focus variant?
A) To offer the most expensive product in the market
B) To create a cost advantage within the target segment
C) To offer personalized services for every customer
D) To focus on a broad market to achieve economies of scale
B
Which of the following is a key aspect of the Focus Strategy?
A) Serving a broad market at the lowest cost
B) Providing superior service and value to a specific target segment
C) Developing products for all market segments
D) Offering generic products with no differentiation
B
What is the primary risk of relying solely on a Focus Strategy?
A) It guarantees a competitive advantage in all market segments
B) It may fail to meet the needs of the broader market
C) It could limit a company’s potential to expand into new markets
D) It leads to overpricing of products and services
B
Which of the following statements is true about the Focus Strategy?
A) Focus Strategy involves competing in all market segments with a uniform product.
B) Focus Strategy is always superior to other business strategies.
C) Focus Strategy aims to outperform competitors by tailoring products or services to a niche market.
D) Focus Strategy only involves targeting price-sensitive customers.
C
What is a potential disadvantage of the Focus Strategy?
A) It ensures a strong presence in the mass market.
B) It can create a barrier to entry in all market segments.
C) It may limit the company’s ability to achieve economies of scale.
D) It guarantees market dominance in the targeted segment.
C
What does the statement “Focus alone does not guarantee a competitive advantage” imply about a company’s strategy?
A) A narrow market focus is enough to ensure competitive advantage.
B) Focus must be combined with other factors, such as differentiation or cost leadership, to achieve a competitive advantage.
C) Focus strategy will always result in higher profits.
D) Focus on a narrow segment automatically leads to market dominance.
B
What is a key characteristic of a firm following a Focus Strategy?
A) Competing in the entire market with low-cost products
B) Focusing on a narrow market segment with either a low-cost position, high differentiation, or both
C) Offering the same products and services to all customers
D) Competing with the largest firms in the market
B
How does a Focus Strategy help a firm reduce Rivalry within its market?
A) By increasing the number of competitors in the market
B) By offering products that are similar to competitors
C) By narrowing the target market, thus facing less direct competition
D) By diversifying the product line to attract a broader audience
C
Why is a Focus Strategy less vulnerable to the Threat of Substitutes?
A) Because focus strategies are applied in markets with limited consumer choices
B) Because focus strategies target niches that are less attractive to broad substitutes
C) Because focused firms offer low-cost alternatives that are difficult to substitute
D) Because the products are standardized and cannot be replaced
B
How does a Focus Strategy impact the Bargaining Power of Buyers?
A) It increases buyer power by offering a wide variety of products
B) It reduces buyer power by offering specialized, unique products or services
C) It eliminates the need for negotiations with buyers
D) It leads to price wars among competitors
B
How can a firm with a Focus Strategy negotiate better terms with suppliers?
A) By buying in bulk across all product lines
B) By focusing on the specific needs of its target segment, leading to more tailored supplier agreements
C) By competing with larger companies for the same suppliers
D) By diversifying into multiple market segments to gain leverage
B
How does a Focus Strategy help reduce the Threat of New Entrants?
A) By offering products at the lowest possible price
B) By raising entry barriers in specialized niches that new competitors find difficult to enter
C) By focusing on mass markets, making it easier for new entrants to compete
D) By creating large-scale production facilities that new entrants cannot afford
B
Which of the following is an example of a company successfully using a Focus Strategy?
A) Facebook, targeting all types of social media users
B) LinkedIn, focusing on business professionals and differentiating from general social networks like Facebook
C) Coca-Cola, offering a standard product to all market segments
D) Amazon, offering low-cost products across all categories
B
How did Marlin Steel successfully use a Focus Strategy?
A) By offering a wide variety of generic wire products to all customers
B) By shifting from commodity wire products to high-end, specialized items like antimicrobial baskets
C) By lowering prices to attract a broader market
D) By expanding into all segments of the wire product market
B
What is a potential pitfall of a Focus Strategy related to cost advantages?
A) Focused firms can easily maintain cost advantages over time.
B) Cost advantages in a narrow segment may diminish as new competitors enter the market.
C) Focus strategies always lead to higher cost advantages.
D) Focus strategies ensure that cost advantages increase over time.
B
hat is an example of erosion of cost advantages in a Focus Strategy?
A) The University of Phoenix faced competition when traditional universities began offering online programs with similar cost benefits.
B) Small businesses in niche markets consistently maintained low-cost advantages over time.
C) Ace and True Value gained cost advantages by specializing in a few products.
D) Larger companies faced no competition when entering niche markets.
A
What risk is associated with highly focused product or service offerings in a Focus Strategy?
A) Increased customer loyalty and limited competition
B) Competition from new entrants and imitation of the focused product or service
C) A guaranteed competitive advantage
D) Decreased market competition and increased profits
B
How did dot-com businesses in niche markets (e.g., pet supplies, ethnic foods) face challenges?
A) They maintained exclusive control over their niche markets and avoided competition.
B) Barriers to entry were low, leading to intense competition and eventual market shakeouts.
C) They were able to expand their market share easily due to high customer loyalty.
D) They successfully created unique products that no one else could imitate.
B
What is a potential danger of being too focused in a market segment?
A) The firm can cater to all customer needs in the market segment.
B) The firm may become too specialized and fail to meet broader customer needs.
C) The firm will automatically gain competitive advantages in every market.
D) The firm will benefit from economies of scale due to its focus.
B
What is an example of a company losing market share due to over-narrow focus?
A) Lowe’s and Home Depot outperforming specialized retailers like Ace and True Value because they offer a wider range of products.
B) Ace and True Value gaining more market share by focusing on specific types of products.
C) A large company expanding its focus to serve all market segments.
D) A company successfully differentiating itself with highly specialized product
A
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.
D
Focus, by itself, often constitutes a competitive advantage
F
A potential pitfall of a focus strategy is that focusers can become too focused to satisfy buyer needs.
T. TRUE
Potential pitfalls of focus strategies include focusers that become too focused to satisfy buyer needs.
Some firms attempting to attain advantages through a focus strategy may have too narrow a product or
service.
A potential pitfall of a focus strategy is that cost advantages will not change over time.
F.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
A potential pitfall of a focus strategy is that highly focused product and service offerings are not subject
to competition from new entrants and from imitation
F. are subject
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
B
