BUS497ABH
Spring 2010
Chapter 5 Review Questions
There is only ONE correct answer for each question.
1. Concentrating solely on one form of competitive advantage generally leads to the highest possible level of
profitability.
2. An important disadvantage of a fast-second strategy is the high cost of research and development required to
develop new products.
3. Firms that compete on overall cost leadership are vulnerable if all rivals share a common input or raw material that
contributes a significant amount to total costs.
4. Mass customization enables manufacturers to be more responsive to customer demands for high quality products.
5. A firm using a differentiation strategy should not be concerned with costs because it can charge a premium price
for its products.
6. A company with a focus strategy seeks to emphasize the unique characteristics of its products.
7. 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."
8. In determining how to compete in its product markets, a firm needs to focus on what products and services it is
able to produce effectively.
9. Businesses that compete in markets that are in decline should simply be harvested or divested since they can no
longer be profitable.
10. An integrated strategy is both the most effective strategy and the most difficult to maintain.
11. A successful differentiation strategy raises entry barriers because of customer loyalty and the firm's ability to
provide uniqueness in its products and services.
12. An important advantage of first movers is that they may establish brand recognition that may later serve as an
important switching cost.
13. As markets mature, competition on the basis of differentiation is preferable to price competition.
14. A company in the embryonic stage in the life cycle should concentrate more on developing its products than on
controlling costs.
15. Which of the following is a risk (or pitfall) of cost leadership strategy?
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 suppliers' cost
E. All of the above
16. In the _______ stage of the industry life cycle, there are many segments, competition is very intense, and the
emphasis on process design is high.
A. introduction
B. growth
C. maturity
D. decline
E. adolescent
17. The primary aim of strategic management at the business level is ______.
A. maximizing risk-return tradeoffs through diversification.
B. achieving a low cost position.
C. maximizing differentiation of products and/or services.
D. achieving competitive advantage.
E. maximizing returns to shareholders.
18. Of the following, which is are major disadvantages of a first mover strategy?
1. The high degree of uncertainty about new markets.
2. The high level of competition in new markets.
3. The high cost of developing new products.
4. The inability to sustain a competitive advantage.
5. The low profits as new markets develop.
A. 1 only
B. 1 and 2
C. 2 and 5
D. 1 and 3
E. 1, 2, 3, 4, and 5
19.
A company with a focus strategy ______
A. pursues both a cost leadership and differentiation strategy simultaneously
B. cannot compete on costs.
C. serve the specialized needs of a market segment.
D. utilizes few value chain activities to achieve competitive advantage.
E. All of these apply.
20.
A firm using a low cost leader strategy should focus on reducing costs in which value chain activities?
A. Inbound Logistics
B. Marketing and sales
C. Human Resource Management
D. Procurement
E. All of the above.
21.
Which of the following is NOT an internet enabled strategy?
A. Speed
B. Disintermediation
C. Massification
D. Intensification
E. Micro-niche
22.
_______ is/are used by a firm when its strategy has become so out of alignment with the environment that it is
facing likely failure.
A) An integration strategy
B) Mergers and acquisitions
C) International expansion
D) Vertical integration
E) A turn around strategy
23.
Which of the following is NOT a source of competitive advantage?
A) Superior quality.
B) Superior efficiency.
C) Superior innovation.
D) Superior responsiveness
E) Superior management.
24.
Porche and other luxury goods manufacturers typically use a(n) ______ generic strategy.
A. integrated
B. broad differentiation
C. focus differentiation
D. exclusive
E. high cost
25.
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
E) competitive advantage
26.
Firms attempt to differentiate themselves from their competitors by developing _____.
A) broad market coverage.
B) above average profits.
C) their core competencies.
D) stakeholder returns.
E) their sources of supply.
27.
Which of the following is NOT considered a generic strategy?
A) Product diversification
B) Low Cost leadership
C) Focused differentiation
D) Integrated low cost/differentiated.
E) All of theses are generic strategies.
28.
The term "stuck-the-middle" means: _____.
A) a middle of the road strategy.
B) customers are willing to pay only a mid-range price for products.
C) customers have only moderate expectations regarding product quality.
D) the firm uses an best value strategy but fails to establish any distinction.
E) the firm is not committing to any strategy because market conditions are too uncertain.
29.
Competitive advantage based on superior quality can support _____.
A) a differentiation strategy.
B) a focus strategy.
C) a cost leader strategy.
D) both a differentiation and a low cost strategy.
E) a first mover strategy.
30.
The heart and soul of building competitive advantage entails _____.
A) building a brand name image that buyers trust.
B) delivering superior value to customers in ways that rivals cannot readily match.
C) becoming the sales and market share leader.
D) finding effective and efficient ways to strengthen the company's competitive assets and to reduce its
competitive liabilities.
E) being the industry's low-cost provider.
31.
The essence of a broad differentiation strategy is to_____.
A) appeal to the high end part of the market and concentrate on providing a top-of-the-line product to
consumers.
B) incorporate a greater number of differentiating features into its product/service than rivals.
C) lower buyer switching costs.
D) outspend rivals on advertising and promotion in order to inform and convince buyers of the value of its
differentiating attributes.
E) be unique in ways that are valuable and appealing to a wide range of buyers.
32.
Broad differentiation strategies enhance company profitability when _____.
A) the product's differentiating features are perceived as having value by most buyers.
B) most buyers use the product in the same ways and have common user requirements.
C) sales increase and the extra price the product commands exceeds the added costs of achieving the
differentiation.
D) buyer switching costs are low and customer loyalty to industry rivals is weak.
E) price competition is not especially vigorous.
33.
According to Abell’s Framework, in determining its competitive strategy a firm needs to ask what, who, and
how. The how question concerns _____.
A) how products can be produced most efficiently.
B) how customer needs can be satisfied.
C) how the firm can achieve high profits.
D) how markets are changing.
E) how production methods can be improved to reduce costs.
34.
One aspect of using a cost leadership strategy is that experience effects may lead to lower costs. Experience
effects can be achieved by ______.
A) hiring more experienced personnel.
B) repeating a process until a task becomes easier.
C) spreading out a given expense or investment over a greater volume.
D) competing in an industry for a long time.
E) competing only in mature industries.
35.
In the ______ stage of the industry life cycle, the emphasis on product design is very high, the intensity of
competition is low, and the market growth rate is low.
A) introduction
B) growth
C) maturity
D) decline