Question 1

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

Accepted Answer

A low-cost position provides more flexibility to cope with demands from powerful suppliers for input cost increases.

Question 2

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.

Accepted Answer

Potential pitfalls of focus strategies include: erosion of cost advantages within the narrow segment; the idea that even product and service offerings that are highly focused are subject to competition from new entrants; and focusers that become too focused to satisfy buyer needs.

Question 3

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.

Accepted Answer

Differentiation provides protection against rivalry since brand loyalty lowers customer sensitivity to price and raises customer switching costs. By increasing company margins, differentiation also avoids the need for a low-cost position.

Question 4

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.

Accepted Answer

Differentiation provides protection against rivalry since brand loyalty lowers customer sensitivity to price and raises customer switching costs.

Question 5

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

Accepted Answer

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.

Question 6

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

Accepted Answer

An overall low-cost position enables a firm to achieve above-average returns despite strong competition. It protects a firm against rivalry from competitors, because lower costs allow a firm to earn returns even if its competitors eroded their profits through intense rivalry. It protects firms against powerful buyers, who can only drive down prices to the level of the next most efficient producer. A low-cost position provides more flexibility to cope with supplier demands for input cost increases.

Question 7

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.

Accepted Answer

Potential pitfalls of a differentiation strategy include the idea that perceptions of differentiation may vary between buyers and sellers. The issue here is that beauty is in the eye of the beholder. Companies must realize that although they may perceive their products and services as differentiated, their customers may view them as commodities.

Question 8

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

Accepted Answer

A low-cost position permits buyers to exert power to drive down prices only to the level of the next most efficient producer.

Question 9

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

Accepted Answer

Three approaches to combining overall low cost and differentiation include: automated and flexible manufacturing systems, exploiting the profit pool concept for competitive advantage, and coordinating the extended value chain by way of information technology.

Question 10

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.

Accepted Answer

Supplier power is also decreased, because there is a certain amount of prestige associated with being the supplier to a producer of highly differentiated products and services.

Question 11

An overall low-cost position enables a firm to achieve ______ returns despite strong competition.
A)below average
B)average
C)no
D)above average

Accepted Answer

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

Question 12

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.

Accepted Answer

Potential pitfalls of a differentiation strategy include uniqueness that is not valuable; too much differentiation; too high a price premium; differentiation that is easily imitated; dilution of brand identification through product-line extensions; or perceptions of differentiation may vary between buyers and sellers.

Question 13

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.

Accepted Answer

A focus strategy is based on the choice of a narrow competitive scope within an industry. A firm following this strategy selects a segment or a group of segments and tailors its strategy to serve them. The essence of focus is the exploitation of a particular market niche.

Question 14

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

Accepted Answer

An overall low-cost position enables a firm to achieve above-average returns because it protects firms against powerful buyers.

Question 15

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

Accepted Answer

Examples of value chain activities for differentiation include support value chain activities like excellent applications engineering support (technology development) and facilities that promote a positive firm image (firm infrastructure).

Question 16

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

Accepted Answer

An overall low-cost position protects a firm against rivalry from competitors, because lower costs allow a firm to earn returns even if its competitors eroded their profits through intense rivalry.

Question 17

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.

Accepted Answer

A differentiation strategy consists of creating differences in the product or service offering of the firm by creating something that is perceived industrywide as unique and valued by customers. Differentiation can take many forms, including prestige or brand image, technology, innovation, features, customer service, or a dealer network.

Question 18

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

Accepted Answer

Porsche has enjoyed enhanced power over buyers because its strong reputation makes buyers more willing to pay a premium price. This lessens rivalry, since buyers become less price-sensitive. The prestige associated with its brand name also lowers supplier power since margins are high. Suppliers would probably desire to be associated with prestige brands, thus lessening their incentives to drive up prices.

Question 19

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.

Accepted Answer

Potential pitfalls of overall cost leadership strategy include too much focus on one or a few value-chain activities; all rivals share a common input or raw material; the strategy is imitated too easily; a lack of parity on differentiation; and erosion of cost advantages when the pricing information available to customers increases.

Question 20

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.

Accepted Answer

Customers may desire the product, but they are repelled by the price premium. For example, Duracell recently charged too much for batteries. The firm tried to sell consumers on its superior-quality products, but the mass market was not convinced. Why? The price differential was simply too high. Clearly, the price-performance proposition Duracell offered customers was not accepted.

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

A low-cost position provides _______ flexibility to cope with demands from powerful suppliers for input cost increases.

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

High product differentiation is generally accompanied by

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

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.

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?

Which statement regarding competitive advantages is true?

A low-cost position permits buyers to exert power to drive ____ prices only to the level of the next most efficient producer.

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?

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?

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

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

A firm following a focus strategy must focus on

An overall ______ position enables a firm to achieve above-average returns because it protects firms against powerful buyers.

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?

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 firm can achieve differentiation through all of the following means except

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.

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

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?