Deck 5: Business-level Strategy: Creating and Sustaining Competitive Advantages

Question 1

An example of a firm applying the overall cost leadership generic strategy in a value-chain activity would be to automate the production assembly line to reduce scrappage from quality errors.

Answer 1

True
Explanation:Overall cost leadership requires a tight set of interrelated tactics that includes cost minimization in all activities in the value chain of the firm such as R&D, service, sales force, and advertising. An example of this is the effective use of automated technology to reduce scrappage rates.

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.

Answer 2

False
Explanation: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

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

Answer 3

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

Question 4

A platform business is like a matchmaker in that it can bring together buyers and sellers.An example of a successful platform provider is Facebook.By attracting and retaining users through expanding services it differentiates itself from more narrowly-focused competitors such as Twitter.

Question 5

Piecemeal productivity improvements can be used by a mature business in need of a turnaround.

Question 6

The experience curve is a factor central to an overall cost leadership strategy and refers to how business learns to increase costs as it gains experience with production processes.

Question 7

A firm can differentiate itself in a support activity by purchasing high-quality components to enhance product image such as Apple does with its laptop computers.

Question 8

Airlines such as Emirates exploit the profit pool for competitive advantage by adding fees for a variety of services such as access to airport lounges.

Question 9

Caterpillar uses data analytics to differentiate itself from competitors by providing information services.

Question 10

Factors that lead to a low-cost position also provide substantial entry barriers to substitute and new products as is demonstrated by the retailer,Aldi,whose focus on minimizing costs across the entire operation permits it to position well against competitors such as Walmart.

Question 11

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

Question 12

The five-forces model suggests that with intense competition an overall low-cost position will not enable a firm to achieve above-average returns.

Question 13

If the overall cost leadership strategy is to provide sustainable competitive advantage,all activities in the value-chain need to be evaluated including the relationships among the value-chain activities.

Question 14

Once established,competitive advantages last forever whether the firm is in a high technology environment or not.

Question 15

Combination strategies,such as integrating overall low cost and differentiation,makes it easier for rivals to duplicate or imitate because it is harder for the primary firm to provide value.

Question 16

A pitfall of integrated overall cost leadership and differentiation is underestimating the expenses associated with coordinating value-creating activities in the extended value chain.

Question 17

Overall cost leadership is a generic strategy unlike others that does not require a tight set of interrelated tactics.

Question 18

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.

Question 19

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

Question 20

A platform business such as Airbnb leverages data analytics to differentiate its offer from that of competitors such as VRBO.

Question 21

The primary aim of strategic management at the business level is

A) maximizing risk to return trade-offs through diversification.
B) maximizing differentiation of products and/or services.
C) achieving competitive advantage.
D) achieving a low-cost position.

Question 22

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.

Question 23

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

Question 24

Primark,an Irish clothing retailer,uses an overall cost leadership strategy.This could fail if it

A) maintains parity with competitors on low cost.
B) cannot maintain parity on differentiation dimensions requested by customers.
C) exceeds customer expectations.
D) increases its sales prices while maintaining competitor parity.

Question 25

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

Question 26

An overall low-cost position enables a firm to achieve ________ returns despite strong competition.

A) below average
B) average
C) no
D) above average

Question 27

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

Question 28

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

Question 29

A manufacturing business pursuing cost leadership is likely to

A) focus on a narrow market segment.
B) use advertising to build brand image.
C) put heavy emphasis on product engineering.
D) rely on experience effects to raise efficiency.

Question 30

A firm typically achieves an absolute cost advantage by offering a ________ product or service to a ________ target market using standardization to derive the greatest benefits from economies of scale and experience.

A) no frills; narrow
B) complex; narrow
C) no frills; broad
D) complex; diverse

Question 31

Zulily,an online retailer,competes with Amazon and other online retailers by

A) maintaining a large inventory of products.
B) running a labor-intensive distribution system.
C) ordering products from vendors to keep in stock until a customer order comes in.
D) keeping little inventory and ordering only when customers purchase a product.

Question 32

With experience,unit costs of production decline as ________ increases in most industries.

A) costs
B) volume
C) output
D) price

Question 33

Aldi,a discount supermarket retailer,has grown from its German base to the rest of Europe,Australia,and the United States by replicating a simple business format.Aldi limits the number of products in each category to ensure product turn,to ease stocking shelves,and to increase its power over supplier.This is an example of an overall cost leadership strategy because it

A) gives them competitive advantage by decreasing productivity.
B) gives them competitive advantage by tight cost and overhead control.
C) eliminates the need to compete based on its products.
D) requires the customer to recognize its efforts.

Question 34

Primark,a fashion retailer,has found a way to keep its cost structure lower than its rivals by leveraging streamlined logistics,a low marketing budget,and negotiating bargain prices from its suppliers.They are using a(n)________ strategy.

A) differentiation
B) overall cost leadership
C) focus
D) broad differentiation

Question 35

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) firm infrastructure
C) operations
D) marketing and sales

Question 36

Which type of competitive strategy is characterized by 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?

A) differentiation
B) overall low-cost leadership
C) differentiation focus
D) cost leadership focus

Question 37

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

Question 38

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.

Question 39

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

Question 40

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) about the same as firms that are stuck-in-the-middle.
C) higher than firms that achieve either a cost or a differentiation advantage.
D) lower than firms that achieve differentiation advantages but higher than firms that achieve cost advantages.

Question 41

Value-chain support 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

Question 42

Zulily protects itself from buyer power and intense rivalry from competitors by

A) increasing the bargaining power of its customers.
B) paying close attention to costs.
C) increasing costs.
D) increasing the buyer power.

Question 43

Marlin Steel Wire Products is a manufacturer of commodity wire products out of Baltimore,MD.Marlin has many rivals based in China and other emerging markets.The company cannot compete on labor costs so it used a ________ strategy to automate its production and now specializes in high-end products.

A) differentiation
B) overall cost leadership
C) focus strategy
D) low cost leadership

Question 44

A firm can achieve differentiation through all the following means except

A) improving brand image.
B) offering lower prices to frequent customers.
C) better customer service.
D) adding additional product features.

Question 45

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.

Question 46

Which of the following is not a potential pitfall of an integrated overall low cost and differentiation strategy?

A) Firms that target too large a market that causes unit costs to increase.
B) Firms that underestimate the expenses associated with coordinating value-creating activities in the extended value chain.
C) Firms that fail to attain both strategies may end up with neither and become stuck-in-the-middle.
D) Firms that miscalculate sources of revenue and profit pools in the company industry.

Question 47

Which of the following is false regarding how a differentiation strategy can help a firm to improve its competitive position relative to the Porter five-forces model?

A) Firms will enjoy high customer loyalty.
B) By increasing firm margins, it avoids the need for a low-cost position.
C) It reduces buyer power because buyers lack comparable alternatives.
D) Supplier power is increased, because suppliers will be able to charge higher prices for their inputs.

Question 48

Early pioneer in online education,University of Phoenix,has faced increasing challenges from traditional university online programs who are able to offer their programs at the same cost.This is an example of which generic strategy gone wrong:

A) Differentiation.
B) Overall cost leadership.
C) Focus strategy.
D) Low cost leadership.

Question 49

Which of the following is a risk (or potential pitfall)of cost leadership?

A) Cost cutting in one area of the value chain might increase costs in another.
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.

Question 50

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

Question 51

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.

Question 52

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.

Question 53

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.

Question 54

The text discusses three approaches to combining overall cost leadership and differentiation competitive advantages.Which of the following is not one of these three approaches?

A) automated and flexible manufacturing systems
B) deriving benefits from highly-focused and high-technology markets
C) exploiting the profit pool concept for competitive advantage
D) coordinating the extended value chain by way of information technology

Question 55

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

Question 56

A ________ can be defined as the total profits in an industry at all points along the industry value chain.

A) profit maximizer
B) revenue enhancer
C) profit pool
D) profit outsourcing

Question 57

Which of the following is not a potential pitfall of a differentiation strategy?

A) Uniqueness that is not valuable.
B) The price premium is too high.
C) All rivals share a common input or raw material.
D) Perceptions of differentiation may vary between buyers and sellers.

Question 58

Hardware chains such as Ace and True Value are losing market share to rivals such as Lowe's and Home Depot in spite of them using a focus strategy.Why?

A) Achieving parity on costs for specialty retailers is difficult.
B) They have too broad a product line.
C) They have equivalent purchasing power as the national chains.
D) Their costs are the same as those of the national chains.

Question 59

A differentiation strategy enables a business to address the five competitive forces by

A) having brand-loyal customers become more sensitive to prices.
B) increasing economies of scale.
C) providing protection against rivalry.
D) serving a broader market segment.

Question 60

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.

Question 61

Rivals would find it difficult to challenge Atlas Door in the short run because of

A) strong customer loyalty.
B) low barriers to entry.
C) high threat of substitution.
D) low buyer switching costs.

Question 62

Barnes and Noble lost its market share in book retailing to Amazon.It tried to regain market share by offering a similar electronic reader,the Nook,to the Amazon Kindle series.This demonstrates that Barnes and Noble lacked

A) a short-term strategy.
B) a company-wide strategy.
C) a sustainable competitive advantage.
D) good suppliers.

Question 63

Caterpillar collects and analyses large volumes of data about how customers use their tractors.This permits them to ________ the cost of new product development efforts and to better ________ their products.

A) increase; differentiate
B) reduce; differentiate
C) position; understand
D) identify; disperse

Question 64

Atlas Door created competitive advantage by reducing the time to receive and process an order and through installing a just-in-time logistics operation.Which of the following is not a reason for their favorable position relative to the five forces of industry competition?

A) The service was easily imitable.
B) It created high entry barriers for new entrants.
C) The integration of many company value-chain activities provided causal ambiguity and path dependency.
D) It exerted power over its customers.

Question 65

Andersen Windows lowered costs,enhanced quality and variety,and improved its response time to customers by

A) creating a new paper-based catalog.
B) creating an interactive computer version of its paper catalogs.
C) creating an integrated computer system of catalogs, products, orders, and manufacturing.
D) creating a manufacturing system for ordering parts.

Question 66

Underestimating expenses associated with coordinating value-creating activities in the extended value chain can be a result of ________ integration of cost leadership and differentiation.

A) good
B) poor
C) intentional
D) structured

Question 67

Company competitive advantages can be eroded by all the following except

A) rapid changes in technology.
B) globalization.
C) actions by rivals within the industry.
D) actions by workers outside of the industry.

Question 68

Which of the following is not a reason for the possible erosion of company competitive advantage?

A) rapid change in technology
B) globalization
C) actions by rivals from within and outside of the industry
D) company commitment to innovation

Question 69

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

Question 70

Mass customization permits companies to manufacture unique products in relatively ________ quantities at ________ costs.

A) large; higher
B) large; lower
C) small; higher
D) small; lower

Question 71

Many firms have achieved success by integrating activities throughout the extended value chain by using ________ to link their own value chain with the value chains of their customers and suppliers.

A) customization
B) information technology
C) human resources
D) competitive advantage

Question 72

Which of the following reasons is not a reason that Atlas Door could lose competitive advantage?

A) Its technologies are non-proprietary.
B) A rival easily could hire away its talented employees.
C) A new rival with a strong resource base could undercut its prices.
D) It has strong power over its distributors.

Question 73

Outside the flight experience itself,airlines are generating revenue by charging fees for credit cards,frequent-flyer programs,and access to airport lounges.This serves to

A) increase competition.
B) expand the profit pool.
C) provide better customer service.
D) satisfy regulators.

Question 74

In evaluating the sustainability of the Atlas Door competitive advantages over the long run,it is important to evaluate the ability of rivals to

A) easily imitate its strategy.
B) communicate with its customers.
C) consistently overprice their products.
D) find new suppliers.

Question 75

Ryanair and Spirit Airlines depend upon revenue from services not related to the actual flight.These services increase their

A) costs.
B) services.
C) profit pool.
D) difficulties.

Question 76

The Yoox algorithm permits it to predict which products will sell at which times and where,thus allowing effective stocking to meet customer needs.This a result of

A) purchasing patterns.
B) data analytics.
C) physical plant.
D) flooding the market with ads.

Question 77

Atlas Door tightly controlled logistics so that it always shipped only fully complete orders to construction sites.In regard to the five forces model,which of the following is a reason this might give them competitive advantage?

A) It helps to reduce the threat of new entrants.
B) It created low entry barriers for new entrants.
C) It created a high threat of substitution.
D) It gave more power to buyers.

Question 78

BlackBerry lost its competitive advantage by 2016 because it

A) did not deliver innovations to respond to changing market demand.
B) developed a highly performant just-in-time delivery system.
C) did not reward its employees.
D) let suppliers have dominant power.

Question 79

Atlas Door created competitive advantages in overall low cost and differentiation by creating ________ among value-chain activities.

A) substitutes
B) advantages
C) disadvantages
D) linkages

Question 80

Atlas Door relies on technologies that are rather well known and non-proprietary.This opens it up to the potential of

A) imitation by rivals.
B) customer abandonment.
C) increased supplier power.
D) government regulation.