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Answer Key
1. False
2. True
3. False
4. True
5. False
6. False
7. True
8. False
9. False
10. True
11. False
12. True
13. False
14. True
15. False
16. False
17. False
18. True
19. True
20. False
21. False
22. True
23. False
24. False
25. False
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26. True
27. True
28. False
29. False
30. True
31. False
32. False
33. True
34. True
35. True
36. True
37. True
38. a
39. d
40. b
41. c
42. c
43. c
44. c
45. c
46. a
47. c
48. c
49. d
50. d
51. d
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52. b
53. d
54. b
55. a
56. a
57. c
58. a
59. c
60. a
61. a
62. a
63. b
64. d
65. b
66. d
67. a
68. a
69. b
70. a
71. b
72. a
73. d
74. c
76. c
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77. d
78. d
79. b
80. d
81. a
82. c
83. a
84. b
85. c
86. b
87. b
88. a
89. c
90. c
91. b
92. b
93. a
94. d
95. b
96. b
97. b
98. a
99. d
100. a
101. b
102. b
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103. d
104. b
105. a
106. a
107. a
108. c
109. a
110. a
111. d
112. b
113. d
114. d
115. a
116. c
117. a
118. b
119. b
120. a
121. a
122. c
needs. Additionally, differentiation may cease to provide value for which customers are willing to pay. This can occur if
rivals imitate the firm’s product and offer it at a lower price. A third risk is that customer learning can narrow the
customer’s perception of the value of the firm’s differentiated product. If customers have positive experience with low-cost
products, they may decide the additional cost for the differentiated product is too high. Finally, counterfeit products are a
risk to a differentiation strategy if these products provide the same differentiated features to customers at significantly
reduced prices.
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advantageous position, especially in logistics, rivals cannot reduce their costs lower than the cost leaders’, and so they
cannot earn above-average returns. 2) Buyers: The cost leadership strategy also protects against the power of customers.
Powerful customers can drive prices lower, but they are not likely to be driven below that of the next-most-efficient
industry competitor. Prices below this would cause the next-most-efficient competitor to leave the market, leaving the
costleader in a stronger position relative to the buyer. 3) Suppliers: The cost leadership strategy also allows a firm to better
absorb any cost increases forced on it by powerful suppliers, because the cost leader has greater margins than its
competitors. In fact, a cost leader may be able to force its suppliers to keep prices low for them. 4) Entrants: The cost
leadership strategy also discourages new entrants because the new entrant must be willing to accept no better than average
returns until they gain the experience and core competencies required to approach the efficiency of the cost leader. 5)
Substitutes: For substitutes to be used, they must not only perform a similar function but also be cheaper than the cost
leader’s product. When faced with substitute products, the cost leader can reduce its price.
125. Focus strategies target specific industry segments or niche rather than the entire market. The market can be
segmented into 1) a particular buyer group, 2) a different part of a product line, or 3) different geographic areas. The firm
using a focus strategy hopes to meet the needs of a particular target market better than firms with a more broad-based
approach. Or, they hope to meet needs of a market niche that has been overlooked or neglected by broad-based rivals.
126. Customers have increasingly high expectations for products, wanting products that are both low-priced and
differentiated. So a number of firms are trying to simultaneously follow both a costleadership and a differentiation
strategy. This requires the firm to perform the primary and support activities required of both strategies, which is
challenging. Successful integration of strategies allows firms to adapt quickly to environmental changes, and learn new
technologies. The firm gains more skills which makes it more flexible. Evidence suggests that successful use of integrated
strategies is related to above-average returns. A number of firms such as Target Stores and European-based Zara owe their
success to the integrated cost leadership/differentiation strategy.
127. Students will most likely choose a firm with a cost-leader or differentiation strategy because they are simpler to
describe. The risks of each strategy can be found on pages 117, 121, 123, and 126.
128. Focus firms face three additional risks beyond the general risks of industry-wide strategies. First, a competitor may
be able to focus on a more narrowly defined competitive segment and “outfocus” the focuser. Second, a firm competing
on an industry-wide basis may decide the targeted market segment is attractive and worthy of competitive pursuit. Finally,
the needs of the firm’s customer group may become more similar to the needs of industry-wide customers as a whole,
thereby eliminating the advantages of a focus strategy.
129. The firm must decide (1) who are the customers who will be served, (2) what needs do the target customers have that
must be satisfied, and (3) how will those needs be satisfied by the firm. The choice of target customer (who) usually
involves segmenting the market to cluster people with similar needs into groups. The target customers’ needs drive “what”
benefits and features the firm’s product will have. This involves a choice and balance between cost and differentiation of
the product. Finally, firms use their core competencies (how) to implement value-creating strategies and satisfy customers’
needs.
130. Integrated strategies present risks that go beyond those that arise from the pursuit of any single strategy by itself.
Principal among these risks is that a firm becomes “stuck in the middle.” In such a situation a firm fails to implement
either the differentiation or the cost leadership strategy effectively. The firm will not be able to earn above-average
returns, and without favorable conditions, it will earn below-average returns. Recent research suggests that firms using
either cost leadership or differentiation often outperform firms attempting to use a “hybrid” strategy (i.e., integrated cost
leadership/differentiation). This research suggests the risks associated with the integrated strategy.
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b.
False
8. The best of the generic business strategies is the integrated cost leadership/differentiation strategy.
a.
True
b.
False
9. The difference between the cost leadership and differentiation business-level strategies, and the focused cost leadership
and focused differentiation strategies, are their basis for customer value.
a.
True
b.
False
10. When selecting a business-level strategy, the firm determines who will be served, what customer needs will be
satisfied, and how those needs will be satisfied.
a.
True
b.
False
11. Research shows that firms using a hybrid strategy (i.e., integrated cost leadership/differentiation) often outperform
firms using pure strategies ( i.e., cost leadership or differentiation).
a.
True
b.
False
12. Almost any identifiable human or organizational characteristic can be used to subdivide a market into segments that
differ from one another on a given characteristic.
a.
True
b.
False
13. Southwest Airlines’ tightly integrated activities make its cost leadership strategy more vulnerable to imitation than if
its activities were loosely integrated.
a.
True
b.
False
14. A risk of the differentiation strategy is that the firm’s means of differentiation may eventually not provide value for
which customers are willing to pay.
a.
True
b.
False
15. The hazard of getting “stuck in the middle” applies to firms using any business strategy.
a.
True
b.
False
16. Unlike a cost leadership and a differentiation strategy, both focus strategies are less dependent on the completion of
various value chain and support activities to compete in a superior manner.
a.
True
b.
False
17. The value-creating activities associated with the cost leadership strategy and differentiation strategy are the same.
a.
True
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b.
False
18. Low-cost leaders usually concentrate on the value chain activities of inbound logistics and outbound logistics as a
means to reduce costs.
a.
True
b.
False
19. Although it is a cost leader, IKEA also offers differentiated features that appeal to its target customers, including its
unique furniture designs, in-store playrooms for children, and extended hours.
a.
True
b.
False
20. Every firm uses all levels of strategy: corporate, acquisition and restructuring, international and cooperative.
a.
True
b.
False
21. A low-cost position in the industry is not a valuable defense against rivals when competing on the basis of price.
a.
True
b.
False
22. A new generation of lunch trucks in cities such as New York, San Francisco, and Los Angeles serving high-end fare
such as hamburgers made from grass-fed cattle, escargot, and crème brulee, at less expensive prices than sit-down
restaurants. This illustrates a focus cost leadership strategy.
a.
True
b.
False
23. In general, firms can be most effective if they develop business-level strategies that will serve the needs of the “typical
customer” in the industry.
a.
True
b.
False
24. One of the benefits of the integrated cost leadership/differentiation strategy is that it is less risky than either the cost
leadership or differentiation strategies.
a.
True
b.
False
25. Walmart’s change in strategy to attract more upscale customers will likely succeed because cost leaders are good at
differentiating.
a.
True
b.
False
26. Firms implementing cost leadership strategies often sell no-frills standardized goods or services (but with competitive
levels of differentiation) to the industry’s most typical customers.
a.
True
b.
False
27. A risk of a focus strategy is that the needs of the customer within a narrow competitive segment may become more
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similar to those needs of customers in the whole market.
a.
True
b.
False
28. The activities in the value chains of companies using focus strategies are quite different than the activities in the value
chains of companies using industry-wide business strategies.
a.
True
b.
False
29. The differentiation strategy is effective for products that are expensive, luxury consumer goods. It is not effective for
common, inexpensive products such as donuts.
a.
True
b.
False
30. Effective use of the generic business strategies allows a firm to favorably position itself relative to the five forces.
a.
True
b.
False
31. Because of its focus on innovation and quality manufacturing, Total Quality Management is not useful for firms that
follow a cost leadership strategy.
a.
True
b.
False
32. The key to Southwest Airlines’ success has been its ability to continuously reduce costs while providing customers
with superior levels of differentiation, such as an engaging culture.
a.
True
b.
False
33. To position itself differently from competitors, a firm must decide to either perform activities differently or to perform
different activities.
a.
True
b.
False
34. Strategic fit among the many activities in the value chain is critical for competitive advantage because it is more
difficult for a competitor to match a configuration of integrated activities than to imitate a particular activity, such as sales
promotion or a process technology.
a.
True
b.
False
35. A flexible manufacturing system is a computer-controlled process used to produce a variety of products in moderate,
flexible quantities with minimal manual intervention.
a.
True
b.
False
36. Global competition has increased the options for consumers and has made it more imperative for firms to identify the
needs of customers to earn above-average returns.
a.
True
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b.
False
37. A business-level strategy is an integrated and coordinated set of commitments and actions designed to exploit core
competencies and gain a competitive advantage in specific product markets.
a.
True
b.
False
Indicate the answer choice that best completes the statement or answers the question.
38. The use of a differentiation strategy would be expected to be LEAST effective in which of the following markets?
a.
Commodity goods
b.
Mmotion pictures
c.
Popular music
d.
Writing instruments
39. A differentiation strategy can be effective in controlling the power of substitutes in an industry because:
a.
customers have low switching costs.
b.
substitute products are lower quality.
c.
a differentiating firm can always lower prices.
d.
customers develop brand loyalty.
40. All of the following describe strategies EXCEPT:
a.
they are purposeful.
b.
they cannibalize the old strategy.
c.
they precede the taking of actions to which they apply.
d.
they demonstrate a shared understanding of the firm’s vision and mission.
41. Which of the following are central to implementing value-creating strategies and thereby satisfying customers’ needs?
a.
Firm resources
b.
Capabilities
c.
Core competencies
d.
None of the the above
42. A firm using a(n) ______ strategy generally needs to operate “below the radar” of larger and more resource rich firms
that serve the broader market.
a.
cost leadership
b.
differentiation
c.
focused
d.
integrated cost leadership/differentiation
43. Firms use the integrated cost leadership/differentiation strategy because:
a.
other firms have established unassailable market dominance with the other four strategies.
b.
global markets allow for much broader competitive scope.
c.
most consumers want to pay a low price for products with somewhat highly differentiated features.
d.
one strategy is not enough for most large firms.
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44. The analysis of the activity map of a successful company such as Southwest Airlines emphasizes how:
a.
the organizational culture of Southwest Airlines is the key to the success of the organization.
b.
understanding the profit ability in an industry indicates to companies where above-average returns can be
earned.
c.
it is hard for rivals to match a configuration of integrated activities than to imitate a single activity.
d.
the primary and support activities of a successful company capture value all along the value chain.
45. The book The Dyslexic Advantage appeals to a market of educators, people with dyslexia, their friends, family, and
coworkers. This is customer segmentation by ______ factors.
a.
demographic
b.
socioeconomic
c.
psychological
d.
consumption
46. The three dimensions of a firm’s relationships with customers include all the following EXCEPT:
a.
exclusiveness.
b.
affiliation.
c.
richness.
d.
reach.
47. All of the following are examples of differentiated products EXCEPT:
a.
Mont Blanc pens.
b.
Caterpillar’s heavy-duty earth-moving equipment.
c.
Great Value brand at Walmart.
d.
Prada fashion.
48. In order to meet and exceed customer’s expectations, firms must:
a.
constantly manipulate customers’ perceptions of their needs.
b.
answer the questions: who, what, when, where, how, and why as they apply to customers.
c.
continuously improve, innovate, and upgrade their core competencies.
d.
successfully defend their established core competencies from imitation by competitors.
49. A manufacturer of jewelry imitates the style of a popular and expensive brand using manufactured stones rather than
real gemstones and lesser grade metals rather than silver and gold. The manufacturer packages the jewelry in boxes of the
same color imprinted with an almost identical logo. About 85 percent of the company’s sales are through Internet sales.
This example illustrates the competitive risk of ____ that threatens companies that use the differentiation strategy.
a.
customer sensitive to price differentials
b.
threat by the cost leader
c.
customer experience
d.
counterfeiting
50. Religious beliefs are an example of customer segmentation by ______ factors.
a.
demographic
b.
socioeconomic
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c.
geographic
d.
psychological
51. Durable Ceramics, Inc., provides inexpensive ceramic tile to builders of institutional buildings such as schools,
prisons, and public administration buildings. It has always competed on a cost leadership basis. Most of its products are
purchased by a few commercial construction firms, so it is fairly dependent on these construction firms for selling its
product. Durable Ceramic’s next most-efficient competitor, Cost-Less Ceramics, Inc., earns average returns, whereas
Durable earns above-average returns. The commercial construction firms are putting pressure on Durable to reduce its
prices. If Durable reduces its prices below those of Cost-Less’s prices, it is likely that:
a.
both Durable and Cost-Less will devise additional ways to become more efficient in their production
processes.
b.
Durable will be unable to absorb the lower cost, and will go out of business.
c.
both Cost-Less and Durable will go out of business, leaving the customers with fewer alternative sources of
low-cost tile.
d.
Cost-Less will go out of business, and Durable will gain higher power over its customers.
52. Suppose another firm found a way to offer IKEA’s customers (young buyers interested in stylish furniture at low cost)
additional sources of differentiation while charging the same price or to provide the same service with the same sources of
differentiation at a lower price. What category of competitive risk to a focus strategy would this be?
a.
An industry-wide competitor decides that the market segment served by IKEA is worth entering.
b.
Focusing on a more narrowly defined segment and “outfocusing” the focuser.
c.
The needs of the customers in this narrow segment have become more similar to those of industry-wide
competitors.
d.
Experience can narrow customer’s perceptions of value of the firm’s differentiated features.
53. Walmart’s same store sales have been declining and those of rivals Family Dollar and Amazon have been increasing.
What could explain this recent change?
a.
Walmart was too aggressive with its low-cost position and lost customers who wanted more upscale products.
b.
Walmart changed its strategy to focused differentiation.
c.
Amazon and Family Dollar changed their strategies to attract more upscale customers.
d.
Walmart changed its strategy to attract more upscale customers.
54. An entrepreneur is investigating starting a company that provides tax advice to small companies. In order to position
his company differently from the existing competitors, the entrepreneur must:
a.
analyze the reach, richness, and affiliation the company must have with its customers.
b.
provide tax advice either in a different manner or provide a different kind of tax service than competitors.
c.
offer tax advice at a price lower than the cheapest competitor.
d.
offer tax advice at a higher quality than the best competitor.
55. By examining the ____ of Southwest Airlines, one can identify the strategic themes around which it has developed its
business strategy. These themes include limited passenger service, high aircraft utilization, and highly productive ground
and gate crews.
a.
activity map
b.
profit sharing
c.
value diagram
d.
five forces model
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56. The risks of a focus strategy include:
a.
a competitor’s ability to use its core competencies to outfocus the focuser by serving an even more narrowly
defined segment.
b.
a competitor’s ability to use its core competencies to outfocus the focuser by serving an even more broadly
defined segment.
c.
decisions by industry-wide competitors to use their resources to serve a wider range of customers’ needs than
the focuser has been serving.
d.
decisions by focused competitors to use their resources to serve a wider range of customers’ needs.
57. Customer ratings of products they bought online is an example of:
a.
loyalty.
b.
reach.
c.
richness.
d.
affiliation.
58. J.C. Penney attempted the strategy ______ . But it couldn’t out ______ Walmart, nor could it ______ Macy’s and
Target.
a.
of integrated cost leadership; price; compete with
b.
of focused differentiation; cost; differentiate between
c.
of cost leadership; cost; differentiate between
d.
of focused cost leadership; price; differentiate between
59. Focus strategies are:
a.
sheltered from the risks associated with industry-wide strategies because of their niche focus.
b.
able to avoid global risk by focusing on niches in national or regional markets.
c.
faced with additional types of risks than are industry-wide strategies.
d.
more subject to failure than industry-wide strategies.
60. Historically, women have paid more for dry cleaning than men. Signature Cleaners advertises “equal price” for all
customers. Signature Cleaners appeals to women, which is market segmentation by ______ factors.
a.
demographic
b.
socioeconomic
c.
geographic
d.
consumption pattern
61. When a firm is able to produce nonstandardized (that is, distinctive) products for customers who value differentiated
features more than they value low cost, the firm is successfully implementing:
a.
a differentiation strategy.
b.
a cost leadership strategy.
c.
an integrated cost leadership/differentiation strategy.
d.
a single-product strategy.
62. Wholesome Pet Food has successfully specialized for 20 years in high-quality pet food made from all-natural
ingredients and organically raised lamb. This brand has a strong following and is recommended by veterinarians who
practice in affluent neighborhoods. Wholesome’s main supplier of lamb has announced that the price for lamb will be 15
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percent higher next year. Which one of the following is true?
a.
Wholesome will probably be able to pass the cost on to its customers because they are less sensitive to price
increases than the average buyer.
b.
Companies pursuing Wholesome’s business strategy are especially vulnerable to this risk.
c.
If Wholesome raises its pet food prices, customers will turn to less expensive brands such as Purina.
d.
Wholesome probably operates on very thin margins, and a cost increase will threaten its ability to earn average
returns.
63. Walmart went against business-level strategy and made changes to attract upscale customers. These changes had
which of the following results?
a.
It strengthened Walmart’s position against rivals such as Dollar Stores and Amazon.
b.
It made Walmart vulnerable to Dollar Store and Amazon.
c.
It attracted significant numbers of new customers.
d.
Family Dollar, Dollar Tree, and Dollar General all experienced losses in sales as many of their customers went
to Walmart.
64. If Southwest Airlines employees lost their high enthusiasm and commitment to the company:
a.
the airline could continue without problems because its cost leadership strategy is dependent on its efficient
internal procedures.
b.
replacement employees could be hired from rival airlines that are laying off employees and easily be merged
into the Southwest culture.
c.
there would be no impact on Southwest’s profitability because Southwest’s customers value the low fares
rather than being “entertained” by the employees.
d.
Southwest would have lost one of its competitive advantages, and its performance would be threatened.
65. As the television industry has changed in the last few decades from just three major networks to a multiplicity of
networks, one of the major aspects of business strategy for the newer networks is ____ than the traditional networks.
a.
broader target market
b.
narrower target market
c.
increased use of primary activities to capture value
d.
increased use of support activities to capture value
66. 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 above-average returns.
67. More choices and easily accessible information about the functionality of firms’ products are creating increasingly
______ customers.
a.
sophisticated and knowledgeable
b.
loyal
c.
dissatisfied
d.
content
68. Ever-improving levels of efficiency enhance profit margins for a cost-leader. This effects which of the five forces of
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industry structure most directly?
a.
Potential entrants
b.
Substitutes
c.
Buyer power
d.
Supplier power
69. Before the firm decides what products to offer and what benefits and features they will have, the firm must decide all
the following questions EXCEPT:
a.
who the firm should serve.
b.
when the customer’s needs should be satisfied.
c.
what needs the firm should satisfy.
d.
what core competencies are needed to satisfy customer needs.
70. A cost leadership strategy targets the industry’s ____ customers.
a.
most typical
b.
poorest
c.
least educated
d.
most frugal
71. New Balance Athletic Shoes target Baby Boomers’ needs for well-fitting shoes. The company is unique in that it offers
a very broad range of shoe widths. A realistic potential risk New Balance runs in this focused differentiation strategy
includes the possibility that:
a.
Baby Boomers may find that they do not need well-fitting shoes, because they will become increasingly
sedentary as they age.
b.
a competitor may be able to better use flexible manufacturing systems to make shoes with an individualized
fit.
c.
athletic shoes may go out of style.
d.
New Balance shoes may begin to appeal to a wider market, thus losing New Balance’s focus advantage.
72. The ________dimension of relationships with customers is particularly important for social networking sites such as
Facebook and Twitter.
a.
reach
b.
richness
c.
affiliation
d.
social
73. When selecting a business level strategy, the firm must determine all of the following EXCEPT:
a.
how will the customer’s needs be satisfied?
b.
who is the customer?
c.
what are the customers’ needs?
d.
why should these customers’ needs be satisfied?
74. The focused differentiation strategy differs from the differentiation strategy in that:
a.
the focused differentiators have a broader competitive scope.
b.
the value-creating activities of focused differentiators are more constrained.