Chaptoer 4—Business-Level Strategy
1. The three dimensions of a firm’s relationships with customers include all the following EXCEPT
a. exclusiveness.
b. affiliation.
c. richness.
d. reach.
ANSWER: A
2. Subway is targeting a more narrow market segment among college students than the segment on which
McDonald’s focuses. Subway is focusing on students interested in healthy fast food. To select this
business strategy, Subway would have used information from all the following categories EXCEPT
a. demographic factors.
b. psychological factors.
c. consumption-pattern factors.
d. end-use segments.
ANSWER: D
3. Gap used shopping experience to subdivide its customers into different segments. Specifically, Gap
learned from market research that its female and male customers want different shopping experiences
(e.g., men come and go easily, women want exploration). Which of the following aspects of managing
customer relationships was Gap engaged in?
a. Who: Determining the Customers to Serve
b. What: Determining Which Customer Needs to Satisfy
c. How: Determining Core Competencies Necessary to satisfy Customer Needs
d. When: Determining When to Satisfy Customer Needs
ANSWER: A
4. An interior decorator has moved his business from Los Angeles to St. Paul, Minnesota, because his
spouse’s company transferred her to St. Paul. The decorator is distressed because the customers in his
target market have, in his words, “banal and bourgeois taste.” What is the decorator’s problem?
a. The decorator does not understand that customer needs are neither right nor wrong, good
nor bad.
b. The decorator has no core competencies that will transfer to his new geographic market.
c. The decorator should choose a strategy of cost-leadership in this environment.
d. The decorator is highly affiliated with the new target market and understands how he can
create value for it.
ANSWER: A
5. Business-level strategies are concerned specifically with
a. creating differences between the firm’s position and its competitors.
b. selecting the industries in which the firm will compete.
c. how functional areas will be organized within the firm.
d. how a business with multiple physical locations will operate one of those locations.
ANSWER: A
6. Michael Porter points out that strategic fit among many activities is fundamental to
a. the development of core competencies for a firm.
b. the breadth of competitive scope for a firm.
c. sustainability of a firm’s competitive advantage.
d. the integrity of the firm’s value chain.
ANSWER: C
7. When the costs of supplies increase in an industry, the low-cost leader
a. may continue competing with rivals on the basis of product features.
b. will lose customers as a result of price increases.
c. will be unable to absorb higher costs because cost-leaders operate on very narrow profit
margins.
d. may be the only firm able to pay the higher prices and continue to earn average or aboveaverage returns.
ANSWER: D
8. Blind taste-tests have shown that the taste of premium-priced vodkas and inexpensive vodkas are
indistinguishable even to regular drinkers of vodka. But the sales of premium vodkas are thriving. This
is an example of
a. the perception of uniqueness being important to firms following the differentiation
strategy.
b. the importance of high-quality raw materials when using the differentiation strategy.
c. the risk of product imitation by competitors.
d. the danger counterfeiting holds for firms pursuing the differentiation strategy.
ANSWER: A
9. The typical risks of a differentiation strategy do NOT include which of the following?
a. Customers may find the price differential between the low-cost product and the
differentiated product too large.
b. Customers’ experience with other products may narrow customers’ perception of the value
of a product’s differentiated features.
c. Counterfeit goods are widely available and acceptable to customers.
d. Suppliers of raw materials erode the firm’s profit margin with price increases.
ANSWER: D
10. Ikea offers young customers a selection of home furnishings featuring good design, function, and
acceptable quality at low prices. Ikea is using which business level strategy?
a. Cost leadership
b. Focused cost leadership
c. Differentiation
d. Focused differentiation
ANSWER: B