Exam for Strategic Management Part VII

98. Tesco is saving 3 million USD a year alone in landfill taxes by simply sending its used cooking oil and chicken fat to be used to generate bioenergy rather than putting it in a landfill. This is an example of an overall cost leadership strategy because it A. gives them competitive advantage by reducing energy costs. B. gives them competitive advantage by decreasing productivity. C. eliminates the need to compete based on its products. D. requires the customer to recognize its efforts. Tesco, the largest grocery retailer in Britain, has changed how it views waste in order to become more efficient. This enhances its cost leadership position. 99. 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 A business that strives for a low-cost advantage must attain an absolute cost advantage relative to its rivals. 100. Southwest Airlines uses an overall cost leadership strategy. This could fail if it A. cannot maintain parity on differentiation dimensions requested by customers. B. maintains parity with competitors on low cost. C. exceeds customer expectations. D. increases its sales prices while maintaining competitor parity. To generate above-average performance, a firm following an overall cost leadership position must attain competitive parity on the basis of differentiation relative to competitors. The nofrills product strategy employed by Southwest Airlines may fail if it is unable to attain parity on important dimensions of differentiation such as quick responses to customer requests for services or design changes. 101. 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 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. 102. An overall low-cost position enables a firm to achieve ______ returns despite strong competition. A. below average B. average C. no D. above average An overall low-cost position enables a firm to achieve above-average returns despite strong competition. 103. 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 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. 104. 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 An overall low-cost position enables a firm to achieve above-average returns because it protects firms against powerful buyers. 105. 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 A low-cost position permits buyers to exert power to drive down prices only to the level of the next most efficient producer. 106. 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 A low-cost position provides more flexibility to cope with demands from powerful suppliers for input cost increases. 107. 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 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. 108. 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. 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. 109. 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. 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. 110. 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 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). 111. 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. 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. 112. 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. B. C. D. Firms will enjoy high customer loyalty. By increasing firm margins, it avoids the need for a low cost position. It reduces buyer power because buyers lack comparable alternatives. Supplier power is increased, because suppliers will be able to charge higher prices for their inputs. 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. 113. 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. Differentiation provides protection against rivalry since brand loyalty lowers customer sensitivity to price and raises customer switching costs. 114. 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. 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. 115. 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. 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. 116. Porsche has enhanced power over buyers because its strong reputation makes buyers more willing to pay a premium price. This ______ rivalry, since buyers become _____ pricesensitive. A. increases; more B. lessens; more C. lessens; less D. increases; less 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. 117. 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. 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. 118. 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. 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. 119. 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. 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. 120. 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 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. 121. 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 A profit pool is defined as the total profits in an industry at all points along the industry value chain. 122. 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-themiddle. D. Firms that miscalculate sources of revenue and profit pools in the company industry. The pitfalls of integrated overall cost leadership and differentiation include: firms that fail to attain both strategies may end up with neither and become stuck-in-the-middle; underestimating the challenges and expenses associated with coordinating value-creating activities in the extended value chain; and miscalculating sources of revenue and profit pools in the company industry. 123. 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 Given the advances in manufacturing technologies such as CAD-CAM (computer aided design and computer aided manufacturing) as well as information technologies, many firms have been able to manufacture unique products in relatively small quantities at lower costs. This is a concept known as mass customization. 124. Anderson 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. Andersen developed an interactive computer version of its paper catalogs that it sold to distributors and retailers. Salespersons can now customize each window to meet customer needs, check the design for structural soundness, and provide a price quote. The system is virtually error-free, customers get exactly what they want, and the time to develop the design and furnish a quotation has been cut by 75 percent. Each showroom computer is connected to the factory, and customers are assigned a code number that permits them to track the order. The manufacturing system has been developed to use some common finished parts, but it also allows considerable variation in the final products. 125. 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 A key issue in strategic management is the creation of competitive advantages that enable a firm to enjoy above-average returns. Some firms may become stuck in the middle if they try to attain both cost and differentiation advantages. Mainline supermarket chains find themselves stuck in the middle as their cost structure is higher than discount retailers offering groceries and their products and services are not seen by consumers as being as valuable as those of high-end grocery chains, such as Whole Foods. 126. The Pepsi algorithm that permits it to lower out of stock inventory is a result of using A. purchasing patterns. B. data analytics. C. physical plant. D. flooding the market with ads. Pepsi used data analytics to develop an algorithm that lowers the rate of inventory out-ofstocks and has shared the algorithm with partners and retailers. 127. Corporations increasingly collect and analyze data on their customers. This is known as A. profit analysis. B. big data. C. cost reduction. D. automated analysis. Corporations are increasingly collecting and analyzing data on their customers, including data on customer characteristics, purchasing patterns, employee productivity, and physical asset utilization. These efforts, commonly referred to as Big Data, have the potential to allow firms to better customize their product and service offerings to customers while more efficiently and fully using the resources of the company. 128. 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 Many firms have achieved success by integrating activities throughout the extended value chain by using information technology to link their own value chain with the value chains of their customers and suppliers. 129. 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. 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 expand the profit pool. 130. By separating the value of the actual flight from the services associated with flying, airlines have greatly expanded the __________ associated with flying. A. costs B. services C. profit pool D. difficulties By separating the value of the actual flight from the services associated with flying, airlines have greatly expanded the profit pool associated with flying. 131. 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 The pitfalls of integrated overall cost leadership and differentiation include: firms underestimating the challenges and expenses associated with coordinating value-creating activities in the extended value chain. 132. 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 Nothing is forever, when it comes to competitive advantages. Rapid changes in technology, globalization, and actions by rivals from within and outside of the industry can quickly erode company advantages. It is becoming increasingly important to recognize that the duration of competitive advantages is declining, especially in technology intensive industries. 133. 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. When Atlas began operations, distributors had little interest in its product. The established distributors already carried the door line of a much larger competitor and saw little to no reason to switch suppliers except, perhaps, for a major price concession. But as a startup, Atlas was too small to compete on price alone. Instead, it positioned itself as the door supplier of last resort, that is, the company people came to if the established supplier could not deliver or missed a key date. With an average industry order fulfillment time of almost four months, some calls inevitably came to Atlas. And when it did get the call, Atlas commanded a higher price because of its faster delivery. Atlas not only got a higher price, but its effective integration of value-creating activities saved time and lowered costs. Thus, it enjoyed the best of both worlds. 134. Dell lost its competitive advantage starting in 2007 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. Dell went from being the Fortune magazine darling in 2005 to a weak competitor in 2007 when cracks began to appear. Its competitive position has recently been severely eroded both by its traditional competitors and by an onslaught of firms selling tablets and other mobile devices. In short, Dell focused so much on operational efficiency and perfecting its direct model that it failed to deliver innovations that an increasingly sophisticated market demanded. 135. Company competitive advantages can be eroded by all of 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. Clearly, nothing is forever when it comes to competitive advantages. Rapid changes in technology, globalization, and actions by rivals from within as well as outside the industry can quickly erode company advantages. 136. 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. sustainable competitive advantage. D. good suppliers. Even in industries that are normally viewed as low tech, the increasing use of technology has suddenly made competitive advantages less sustainable. The Amazon success in book retailing at the cost of Barnes and Noble, the former industry leader, as well as BlackBerry difficulties in responding to Apple innovations in the smartphone market, serves to illustrate how difficult it has become for industry leaders to sustain competitive advantages that they once thought would last forever. 137. Atlas Door tightly controlled logistics so that it always shipped only fully complete orders to construction sites. In regards 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. Atlas tightly controlled logistics so that it always shipped only fully complete orders to construction sites. Orders require many components, and gathering all of them at the factory and making sure that they are with the correct order can be a time-consuming task. Of course, it is even more time-consuming to get the correct parts to the job site after the order has been shipped. Atlas developed a system to track the parts in production and the purchased parts for each order. This helped to ensure the arrival of all necessary parts at the shipping dock in time. This time-saving efficiency also had cost benefits that make it difficult for new entrants to compete successfully, at least in the short run. 138. 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. It is important, of course, to assume that the Atlas Door strategy is unique in the industry, and the central issue becomes whether or not rivals will be able to easily imitate its strategy or create a viable substitute strategy. 139. 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 Atlas Door has created competitive advantages in both overall low cost and differentiation. Its strong linkages among value-chain activities, a requirement for its just-in-time operations, not only lower costs but enable the company to respond quickly to customer orders. As noted in Exhibit 5.4, many of the value-chain activities associated with a differentiation strategy reflect the element of speed or quick response. 140. 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. An argument could be made that much of the Atlas Door strategy relies on technologies that are rather well known and nonproprietary. Over time, a well-financed rival could imitate its strategy (via trial and error), achieve a tight integration among its value-creating activities, and implement a just-in-time manufacturing process. 141. Atlas Door could lose competitive advantage for all of the following reasons except A. Its technologies are non-proprietary. B. A rival could hire away its talents easily. C. A new rival with a strong resource base could undercut its prices. D. It has strong power over its distributors. An argument could be made that much of the Atlas Door strategy relies on technologies that are rather well known and nonproprietary. Over time, a well-financed rival could imitate its strategy (via trial and error), achieve a tight integration among its value-creating activities, and implement a just-in-time manufacturing process. Because human capital is highly mobile, a rival could hire away Atlas Door talent, and these individuals could aid the rival in transferring Atlas Door best practices. A new rival could also enter the industry with a large resource base, which might enable it to price its doors well under Atlas Door to build market share (but this would likely involve pricing below cost and would be a risky and nonsustainable strategy). In its favor, it does have high power over its customers (distributors), because of its ability to deliver a quality product in a short period of time. 142. 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. Two factors make it extremely difficult for a rival to challenge Atlas Door in the short term: (1) The success that Atlas Door has enjoyed with its just-in-time scheduling and production systems helps the firm not only lower costs but also respond quickly to customer needs, and (2) the strong, positive reputational effects that it has earned with its customers increases their loyalty and would take significant time for rivals to match. 143. Rivals would find it difficult to challenge Atlas Door in the short run because of A. weak customer loyalty. B. high barriers to entry. C. high threat of substitution. D. low buyer switching costs. Two factors make it extremely difficult for a rival to challenge Atlas Door in the short term: (1) The success that Atlas Door has enjoyed with its just-in-time scheduling and production systems helps the firm not only lower costs but also respond quickly to customer needs, and (2) the strong, positive reputational effects that it has earned with its customers increases their loyalty and would take significant time for rivals to match. 144. Which of these statements regarding the industry life cycle is true? A. Partial power of the market life cycle is its ability to serve as a short-run forecasting device. B. Trends suggested by the market life cycle model are generally not reversible or repeatable. C. It points out the need to maintain a differentiation advantage and a low cost advantage. D. It has important implications for company generic strategies, functional areas, valuecreating activities, and overall objectives. Industry life cycles are important because the emphasis on various generic strategies, functional areas, value-creating activities, and overall objectives varies over the course of an industry life cycle.