Crafting and Executing Strategy, 22e (Thompson)
Chapter 5 The Five Generic Competitive Strategies
1) A company’s competitive strategy should
A) ensure it is designed to concentrate on a small range of products so it can react quickly to
competitive moves.
B) be well matched to its internal situation and predicated on leveraging its collection of
competitively valuable resources and competencies.
C) be well matched to its resources and capabilities in order to incorporate standard attributes
into its product offering.
D) be supportive with its objective to become at least an average performer within its industry.
E) be well attuned to doing an outstanding job of satisfying the needs and expectations of niche
buyers.
2) The five generic competitive strategies are not characterized by a________ strategy.
A) broad differentiation
B) low-cost provider
C) best-cost
D) narrow differentiation
E) high-cost
3) While there are many routes to competitive advantage, the two biggest factors that distinguish
one competitive strategy from another are
A) whether a company can build a brand name and an image that buyers trust.
B) whether a company’s target market is broad or narrow and whether the company is pursuing a
low-cost or differentiation strategy.
C) whether a company can achieve lower costs than rivals and whether the company is pursuing
the industry’s sales and market share leader’s role.
D) whether a company can offer the lowest possible prices and whether the company can get the
best suppliers in the market.
E) whether a company’s overall costs are lower than competitors’ and whether the company can
achieve strong product differentiation.
4) Whatever strategic approach is adopted by a company to deliver value, it nearly always
requires
A) that management undertake formal planning sessions with functional departments to ensure
productivity improvement.
B) the identification of strengths and weaknesses within the company.
C) matching corporate identity with the corporate culture in order to integrate effort and build
sales momentum.
D) performing value chain activities differently than rivals and building competitively valuable
resources and capabilities that rivals cannot readily match.
E) constant efforts to thwart entry of new rivals and their attempts to create differentiated
products with unit costs above price premium.
5) The biggest and most important differences among the competitive strategies of different
companies boil down to
A) how they go about building a brand name image that buyers trust and whether they are a risk-
taker or risk-avoider.
B) the different ways the companies try to cope with the five competitive forces.
C) whether a company’s market target is broad or narrow and whether the company is pursuing a
competitive advantage linked to low cost or differentiation.
D) the kinds of actions companies take to improve their competitive assets and reduce their
competitive liabilities.
E) the relative emphasis they place on offensive versus defensive strategies.
6) A boutique hotel chain provides upscale rooms and superior customer service at value prices.
What strategy is the hotelier using to gain competitive advantage?
A) a low-cost provider strategy
B) a broad differentiation strategy
C) a focused low-cost strategy
D) a focused differentiation strategy
E) a best-cost provider strategy
7) The generic types of competitive strategies include
A) market share growth provider, sales revenue leader strategy, and market share retention
strategy.
B) offensive strategies, defensive strategies, and counter maneuvers strategies.
C) low-cost provider, broad differentiation, best-cost provider, focused low-cost, and focused
differentiation strategies.
D) low-cost/low-price strategies, high-quality/high-price strategies, and medium quality/medium
price strategies.
E) price leader strategies, price follower strategies, technology leader strategies, and first-mover
strategies.
8) All other things being equal, the “best” generic competitive strategy for a company to employ
is a strategy that
A) seeks to underprice rivals on comparable products that attract a broad spectrum of buyers.
B) seeks to differentiate product offerings from rivals by offering superior attributes that attract a
broad spectrum of buyers.
C) concentrates on a narrow buyer segment and outcompetes rivals by offering niche members
customized attributes.
D) concentrates on value-conscious buyers and outcompetes rivals by offering products at
attractive prices.
E) is well matched to a company’s internal situation; underpinned by an appropriate set of
resources, know-how, and competitive capabilities; and difficult for rivals to match.
9) The objective of a competitive strategy is to
A) establish a competitively powerful value chain.
B) grow revenues at a faster annual rate than rivals are able to grow their revenues.
C) lend greater detail to the company’s business model.
D) provide buyers superior value relative to the offerings of rival sellers in order to attain a
competitive advantage.
E) get the company into the best strategic group and then dominate it.
10) A low-cost leader’s basis for competitive advantage is
A) lowest possible prices for comparable products.
B) a low-cost/moderate price approach to gain the biggest market share.
C) high buyer switching costs.
D) meaningful lower overall costs than rivals on comparable products.
E) higher unit sales than rivals.
11) In order to be successful with a low-cost leadership strategy, company managers have to
A) eliminate wholesale and retail intermediaries and instead sell directly to users of their product
or service.
B) perform value chain activities more cost-effectively than rivals and be proactive in revamping
the firm’s overall value chain to eliminate or bypass “nonessential” cost-producing activities.
C) outsource the majority of value chain activities to nations that have lower wage rates and
fewer regulations.
D) develop and market products and services at that absolute lowest possible cost.
E) pursue backward or forward integration to deter suppliers or buyers with considerable
bargaining power and leverage.
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12) Low-cost leaders who have the lowest industry costs are likely to
A) have out-managed rivals in finding ways to perform value chain activities more cost-
effectively.
B) be considering exiting the current product market and use their competitive low-cost strength
to gain a competitive advantage in other product arenas.
C) be favorites to win the game of strategy in the long run.
D) understand that driving costs to the lowest possible level is the only way to sell cheap
products to consumers.
E) understand that they have lower bargaining power with suppliers than rivals who employ a
different strategy.
13) How valuable a low-cost leader’s cost advantage is depends on
A) whether it is easy or inexpensive for rivals to copy the low-cost leader’s methods or otherwise
match its low costs.
B) how easy it is for the low-cost leader to gain the biggest market share.
C) the aggressiveness with which the low-cost leader pursues converting the cost advantage into
the absolute lowest possible costs.
D) the leader’s ability to combine the cost advantage with a reputation for good quality.
E) the low-cost leader’s ability to be the industry leader in manufacturing innovation so as to
keep lowering its manufacturing costs.
14) A low-cost leader can translate its low-cost advantage over rivals into superior profit
performance by
A) underpricing rivals and attracting quality-sensitive buyers in great enough numbers.
B) maintaining the present price and using the lower-cost edge to earn a higher profit margin on
each unit sold.
C) going all out to use its cost advantage to capture a dominant share of the market.
D) spending heavily on advertising to promote its cost advantage to build strong customer
loyalty.
E) outproducing rivals and thus having more available units for sale.
15) Domino’s Pizza has a well-known slogan: “We’ll deliver in 30 minutes or less, or it’s free!”
Using this slogan, what has the pizza company achieved?
A) The company built a unique customer value proposition.
B) The company created a new delivery system.
C) The company gave a sense of exclusivity to its customers.
D) The company coordinated with suppliers to better address customer needs.
E) The company emphasized human resource management activities.
16) The major avenues for achieving a cost advantage over rivals include
A) performing value chain activities more cost-effectively than rivals or revamping the firm’s
overall value chain to eliminate or bypass some cost-producing activities.
B) having a management team that is highly skilled in cutting costs.
C) being a first-mover in adopting the latest state-of-the-art technologies, especially those
relating to low-cost manufacture.
D) outsourcing high-cost activities to cost-efficient vendors.
E) paying lower wages and salaries than rivals.
17) Achieving a sure-cost advantage over rivals entails
A) concentrating on the primary activities portion of the value chain and outsourcing all support
activities.
B) being a first-mover in pursuing backward and forward integration and controlling as much of
the industry value chain as possible.
C) selling a mostly standard product and increasing the scale of operation.
D) minimizing R&D expenses and paying below-average wages and salaries to conserve on
labor costs.
E) producing a standard product, redesigning the product infrequently, and having minimal
advertising.
18) A fast-food restaurant stocks bread, meat, sauces, and other main ingredients, but does not
assemble and cook its burgers and sandwiches until a customer places an order. Which cost
driver is the restaurant efficiently using to cut costs?
A) supply chain efficiencies
B) economies of scale
C) incentive systems and culture
D) bargaining power
E) capacity utilization
19) Actions that a company should take to perform value chain activities more cost-effectively
ordinarily will not be concerned with
A) striving to capture all available economies of scale and taking advantage of experience and
learning-curve effects.
B) trying to operate facilities at full capacity.
C) adopting labor-saving operating methods.
D) improving supply chain efficiency.
E) over-differentiating so that product features exceed the needs of most buyers.
20) Vanguard, one of the world’s largest investment management companies, has attained cost
leadership via
A) ferreting out cost-saving opportunities in every part of the value chain.
B) undertaking an operations functionality redesign.
C) establishing sales productivity and operating practices guidelines.
D) re-creating rivals’ assembly plant structuration savings.
E) pursuing a differentiation strategy that can be easily copied.
21) Examples of important cost drivers in a company’s value chain do not include
A) production technology and design.
B) customer service.
C) learning and experience.
D) capacity utilization.
E) input costs.
22) The culture of a company can be a cost-efficient value chain activity because it can
A) allow for safeguarding internalized operating benefits.
B) distinguish a company’s capacity integration efforts.
C) spur worker pride in productivity and continuous improvement.
D) foster quality technological enhancements.
E) increase a company’s bargaining power with suppliers.
23) How can a capital-intensive company achieve a cost advantage by revamping its value
chain?
A) downsizing a direct sales force and utilizing distributors and dealers exclusively
B) eliminating sales operations at the company’s website
C) via higher rates of capacity utilization to allow depreciation and other fixed costs to be spread
over a larger unit volume, thereby lowering fixed costs per unit
D) centralizing facilities and outsourcing shipping and handling activities
E) expanding operations by eliminating low value-added or unnecessary work steps and
activities
24) An example of how companies can revamp their value chain to reduce costs is to
A) have suppliers locate their plants close to companies’ own facilities.
B) continue to utilize traditional methods of distribution and sales.
C) not make any changes in product manufacturing but change end distribution methods.
D) increase extra services to increase staffing requirements.
E) facilitate the learning curve by providing superior training to new employees.
25) Choose the best example of a women’s fashion retailer that uses cost drivers effectively to
manage its value chain activities.
A) Callie’s Closet orders large amounts of supplies and keeps them stocked until customer
demand rises to prevent falling behind schedule in meeting customer needs.
B) Bowdon Designs uses just-in-time inventories and produces made-to-order products as and
when customer demand rises.
C) Molly’s Made-to-Measure collects customer requests first and starts processing them only
after reaching a certain number.
D) Aubergine routes all its supplies to a warehouse for storage and then transports them to
individual factories for processing.
E) Tamarind substitutes lower-cost inputs with high-quality, high-cost inputs to gain customer
attention and loyalty.
26) A potato chip manufacturer purchases a potato farm. Which of the following regarding its
strategy is true?
A) The manufacturer has effectively used vertical integration to increase its bargaining position
and reduce transaction costs.
B) The manufacturer has efficiently capitalized on the experience and learning-curve effects
within the company.
C) The manufacturer has enhanced utilization by allowing depreciation and other fixed costs to
be spread over a larger unit volume.
D) The manufacturer has sacrificed quality by using a lower-cost input.
E) The manufacturer has effectively reduced its operating costs by outsourcing its activities.
27) A competitive strategy of striving to be the low-cost provider is particularly attractive when
A) buyers are not very price-conscious.
B) most rivals are trying to be best-cost providers.
C) there are many ways to achieve product differentiation that have value to buyers.
D) most buyers use the product in much the same ways, with user requirements calling for a
standardized product.
E) most rivals are pursuing focused low-cost or focused differentiation strategies.
28) Being the overall low-cost provider in an industry has the attractive advantage of
A) building strong customer loyalty and locking customers into its product because customers
have high switching costs.
B) giving the firm a very appealing brand image.
C) putting a firm in the best position to win the business of price-sensitive customers and earn
profits by setting the floor on market price.
D) putting the company in a strong position to be more profitable than companies pursuing a
differentiation strategy.
E) greatly reducing the strong bargaining power of rivals with the key distributors.
29) A competitive strategy to be the low-cost provider in an industry works well when
A) price competition among rival sellers is especially sluggish.
B) there are numerous ways to achieve product differentiation that have no value to buyers.
C) buyers incur high costs in switching their purchases from one seller/brand to another.
D) industry newcomers use introductory low prices to attract buyers and build a customer base.
E) industry newcomers use high introductory prices to let buyers know they have a superior
product to build a customer base.
30) A low-cost leadership strategy becomes competitively powerful when
A) buyers of the product or service use the product or service in the same ways.
B) the offerings of rival firms are essentially unique, different, and customized to end users.
C) price competition among rivals is absent.
D) buyers prefer that the products/services of competing sellers have widely varying attributes
and prices.
E) buyers have high switching costs.
31) A generic strategy to become an industry’s overall low-cost provider would not be
particularly well-matched to a customer-market characterized by
A) offerings of rival firm that are essentially identical and readily available from many eager
sellers.
B) limited possibilities to achieve differentiation that have value to buyers.
C) price competition among rival sellers is especially vigorous.
D) widely varying buyers’ needs and special requirements, and the prices of substitute products
are relatively high.
E) a few, large-volume buyers account for the preponderance of industry sales.
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32) A strategy to be the industry’s overall low-cost provider tends to be more appealing than a
differentiation or best-cost or focus/market niche strategy when
A) there are many ways to achieve product differentiation that buyers find appealing.
B) buyers use the product in a variety of different ways and have high switching costs in
changing from one seller’s product to another.
C) the offerings of rival firms are essentially identical, standardized, commodity-like products.
D) entry barriers are high and competition from substitutes is relatively weak.
E) the market is composed of many distinct segments with varying buyer needs and expectations.
33) A major advantage afforded by a low-cost provider strategy is
A) overly aggressive price-cutting.
B) setting the industry’s price ceiling to capture volume gains and achieve economies of scale.
C) relying on an approach to reduce costs that can be easily copied.
D) becoming too fixated on cost reduction.
E) having the basis for the firm’s cost advantage undermined by cost-saving technological
breakthroughs that can be readily adopted by rival firms.
34) A major drawback of using a low-cost provider strategy is
A) industry cost leadership.
B) capturing volume gains and achieving economies of scale.
C) relying on approaches to reduce costs that can be easily copied.
D) beneficial and sustainable cost reduction.
E) development of cost-saving technological breakthrough that cannot be readily adopted by
rival firms.
35) From the list below, identify the company that is not the lowest-cost provider in its industry.
A) Southwest Airlines
B) Walmart
C) Nucor Steel
D) CNN
E) Amazon
36) Value drivers of a broad differentiation strategy tend not to include
A) creating product features that appeal to a wide range of buyers.
B) improving customer service or add extra services.
C) seeking out high-quality inputs.
D) emphasizing human resource management activities that improve the skills, expertise, and
knowledge of company personnel.
E) utilizing just-in-time inventories and made-to-order products when customer demand rises
and that buyers consider worth the cost.
37) Companies pursue closer coordination and collaboration with channel suppliers to better
address customer needs in order to
A) develop human resource management activities that improve the skills, expertise, and
knowledge of company personnel.
B) achieve low-cost provider status through the value chain system.
C) enhance differentiation through the value chain system.
D) compensate for inadequate or outdated production capacity.
E) improve their scores on the competitive assessment matrix.
38) 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) offer unique product attributes in ways that are valuable and appealing and that buyers
consider the cost worth it.