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

Question 1

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.

Answer 1

C

Question 2

The text discusses three approaches to combining overall cost leadership and differentiation competitive advantages. These are the following except

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

Answer 2

D

Question 3

Research has consistently shown that firms that achieve both cost 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) lower than firms that achieve differentiation advantages but higher than firms that achieve cost advantages.
D) higher than firms that achieve either a cost or a differentiation advantage.

Answer 3

D

Question 4

A manufacturing business pursuing cost leadership will likely

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

Question 5

All of the following are potential pitfalls of a focus strategy except

A) erosion of cost advantages within the narrow segment.
B) all rivals share a common input or raw material.
C) even product and service offerings that are highly focused are subject to competition from new entrants and from imitation.
D) focusers can become too focused to satisfy buyer needs.

Question 6

Which of the following are good examples of firms that follows the strategy of differentiation on the basis of prestige or brand image?

A) North Face and Marantz
B) 3M and Cirque du Soleil
C) Lexus and President's Choice
D) BMW, Roots, and Holt Renfrew

Question 7

The case of Cott beverages explains how this company

A) employed a poor strategy.
B) failed to secure a long-term agreement with RC Cola.
C) faced high marketing and distribution costs by adopting the retailer's brand.
D) built success from selling private label products to Loblaw.

Question 8

Staples Business Depot's strategy in Canada is to deliberately limit its product selection for the purpose of:

A) focusing on quality.
B) focusing on quantity.
C) shedding customers.
D) building the brand.

Question 9

The experience curve suggests that cutting prices is a good strategy

A) if it can induce greater demand and thereby help a firm travel down the experience curve faster.
B) in industries characterized by high economies of scale.
C) in the maturity stage of the industry life cycle.
D) in the decline stage of the industry life cycle.

Question 10

The primary aim of strategic management at the business level is

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

Question 11

The Keg Steakhouse & Bar has a simple operating formula. The Keg

A) purposefully limited its menu and has stayed away from food fashions and fads.
B) expanded its menu and embraced food fashions and fads.
C) cut expenses from suppliers.
D) purposefully limited its menu and has stayed away from food fashions and fads, and cut expenses from suppliers.

Question 12

Support value chain activities that involve excellent applications, engineering support (technology development) and facilities that promote a positive firm image (firm infrastructure) characterize what generic strategy?

A) differentiation
B) overall cost leadership
C) differentiation focus
D) stuck-in-the middle

Question 13

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

Question 14

Which of the following is false regarding how a differentiation strategy can help a firm to improve its competitive position vis à vis Porter's five forces?

A) by increasing a firm's margins, it avoids the need for a low-cost position
B) it helps a firm to deal with supplier power and reduces buyer power since buyers lack comparable alternatives
C) supplier power is increased because suppliers will be able to charge higher prices for their inputs
D) firms will enjoy high customer loyalty, thus experiencing less threat from substitutes than its competitors

Question 15

Generic strategies include all except

A) differentiation.
B) resources exploitation.
C) cost leadership.
D) focus.

Question 16

High product differentiation is generally accompanied by

A) higher market share.
B) decreased emphasis on competition based on price.
C) higher profit margins and lower costs.
D) significant economies of scale.

Question 17

A firm following a focus strategy

A) must focus on governmental regulations.
B) must focus on a market segment or group of segments.
C) must focus on the rising cost of inputs.
D) must avoid entering international markets.

Question 18

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

A) the strategy is too easily imitated
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 suppliers' cost

Question 19

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 what generic strategy?

A) differentiation
B) overall cost leadership
C) differentiation focus
D) stuck-in-the-middle

Question 20

Developing uniqueness that is not valuable is:

A) an essential feature of a differentiation strategy.
B) the result of having brand-loyal customers become more sensitive to prices.
C) a potential pitfall of a differentiation strategy.
D) an necessary evil of a cost-leadership strategy.

Question 21

If a firm has a successful differentiation strategy, it is not necessary to attain parity on cost.

Question 22

A firm striving for cost leadership will typically spend relatively more on product related R&D than on process related R&D.

Question 23

The experience curve concept suggests that production costs tend to decrease as production increases regardless of where an industry is at in its life cycle.

Question 24

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

A) perceptions of differentiation may vary between buyers and sellers
B) too high a premium price
C) it is easily imitated
D) highly valued uniqueness

Question 25

Evaluating strategic choices should involve four tests:

A) consistency, consonance, competitive advantages, and differentiation
B) competitive advantages, differentiation, feasibility, and consistency
C) competitive advantages, consistency, feasibility, and consonance
D) consistency, consonance, cost leadership, and feasibility

Question 26

Firms that compete on overall cost are vulnerable if all rivals share a common input or raw material that contributes a significant amount to total costs.

Question 27

A successful differentiation strategy increases rivalry since buyers become more price-sensitive.

Question 28

Concentrating solely on one form of competitive advantage generally leads to the highest possible level of profitability.

Question 29

Differentiation improves a firm's competitive position by:

A) increasing the buyer's power
B) creating high entry barriers
C) providing buyer's with comparable alternatives
D) creating the need for a low-cost position

Question 30

Focus, by itself, often constitutes a competitive advantage.

Question 31

A successful differentiation strategy lowers entry barriers because of customer loyalty and the firm's ability to provide uniqueness in its products and services.

Question 32

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

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

Question 33

One pitfall of a differentiation strategy is that a brand's identification in the marketplace may become diluted through excessive product line extensions.

Question 34

The focus strategy refers to focusing on the "non-price" attributes of a company's products.

Question 35

All of the following are potential pitfalls of an integrated overall low cost and differentiation strategy except:

A) firms that fail to attain both strategies may end up with neither and become "stuck-in-the-middle."
B) targeting too large a market that causes unit costs to increase.
C) underestimating the challenges and expenses associated with coordinating value-creating activities in the extended value chain.
D) miscalculating sources of revenue and profit pools in the firm's industry.

Question 36

BMW integrates several different dimensions along the value chain at the same time.

Question 37

Creating a niche by differentiating one's product or service often allows small firms to compete successfully with market leaders.

Question 38

Michael Porter's three generic strategies can be depicted on two dimensions: competitive advantage and product life cycle.

Question 39

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.

Question 40

One of the advantages of high differentiation is that even if many competitors follow the same strategy, differentiation still exists for all.

Question 41

Firms that successfully integrate both differentiation and cost advantages create an enviable position relative to industry forces.

Question 42

Use the value chain as a framework to explain how the competitive advantage of differentiation can create products and/or services that are highly valued by customers.

Question 43

A pitfall of a focus strategy is that focusers can become too focused to satisfy buyer needs.

Question 44

Mass customization enables manufacturers to be more responsive to customer demands for high quality products.

Question 45

A disadvantage of firms that successfully integrate overall cost leadership and differentiation strategies is that they are relatively easy for competitors to imitate.

Question 46

Explain how a differentiation strategy enables a business to address the five competitive forces in such a way that it can enjoy high levels of profitability.

Question 47

Differentiation provides lower margins that enable a firm to deal with supplier power.

Question 48

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

Question 49

Discuss how a competitive advantage can be attained through cost leadership using the value chain concept.

Question 50

Discuss the risks associated with each of these forms of competitive advantage-cost leadership, differentiation, and focus.

Question 51

What are the benefits and risks associated with combining overall cost leadership and differentiation strategies?

Question 52

An important idea behind the "profit pool" concept is that there is always a strong relationship between the generation of revenues and the capturing of profits.

Question 53

Explain how a cost leadership strategy permits a firm to address the five forces in their competitive environment so it can enjoy higher-than-normal profits.

Question 54

An important pitfall of an integrated overall cost leadership and differentiation strategy is that firms may fail to implement either one and become "stuck-in-the-middle."