Chapter 5: Business-Level Strategies
Chapter 5
Business-Level Strategies
TRUE/FALSE QUESTIONS
1. A business-level strategy consists of the competitive approach of a single line-of-
business instead of the entire corporation.
2. Competitive tactics are concerned with how the firm intends to position itself to
create value for its customers.
3. In general, firms create competitive advantage by offering a basic product at a
premium price and/or a preferred product at a low price.
4. Only one firm at a time can pursue a particular business-level strategy.
5. Economies of scale can contribute to reduced costs per unit.
6. In differentiation strategies, the emphasis is on creating value through uniqueness.
7. A best cost strategy combines the elements of low-cost leadership and differentiation.
8. The industry life cycle portrays how sales volume for a class of products changes
over its lifetime.
9. A competitive shakeout usually occurs at the beginning of the growth stage of the
product life cycle.
10. At the maturity stage of the life cycle, revenue growth accelerates rapidly.
11. Exporting, licensing, and franchising are international expansion tactics.
Chapter 5: Business-Level Strategies
MULTIPLE CHOICE QUESTIONS
12. Strategy formulation responsibilities at the business level include all of the following
except:
A. Establishment and communication of goals
B. Identification of strengths and weaknesses
C. Identification of opportunities and threats
D. Management of the corporate portfolio
E. Establishment of a strategic posture
13. Generic strategies are concerned with:
A. The competitive tactics firms use to protect their competitive positions
B. How the firm intends to position itself to create value for its customers
C. Selection of the business areas in which the firm will compete
D. Functional strategies the firm will pursue
E. None of the above
14. For a differentiation strategy to be considered successful:
A. The organization that is pursuing the differentiation must be highly innovative
B. Customers must be willing to pay more for the uniqueness of a product or
service than the firm paid to create that uniqueness
C. Loss of sales cannot reduce the benefits from economies of scale
D. The organization must invest heavily in differentiating its products
E. The organization that is pursuing differentiation must charge approximately
the same price as its competitors but make a higher profit
15. A firm that pursues a cost leadership strategy:
A. Seeks cost efficiency in a broad market setting
B. Is too interested in lowering costs to bother with technological advances
C. Rarely learns from experience
D. Always has the lowest price
E. Uses differentiation to attract customers
16. A strategy that is a combination of low cost leadership and differentiation is:
A. Unlikely to be successful because of limited resources
B. Very rare in today’s business climate
C. Best cost
D. Cost focus
Chapter 5: Business-Level Strategies
E. None of the above
17. Which of the following is an accurate statement about economies of scale?
A. Production costs per unit are less in a large facility than in a small facility
B. The more product a company makes, the lower its variable production costs
C. Economies of scale are identical to throughput
D. Doubling factory size typically doubles fixed costs
E. Companies with economies of scale have high capacity utilization
18. Experience effects mean:
A. An employee can easily learn to do several different jobs within a firm
B. Employees learn to do jobs more efficiently with repetition
C. Employees who are slow to learn new tasks will require additional training
time
D. The time required to complete a task will decrease as a predictable function of
the number of times the task is repeated
E. Both B and D are correct
19. Which of the following is an advantage of pursuing cost leadership?
A. Sales always increase with increasing amounts of output
B. Loss of sales does not reduce scale benefits
C. The strategy easily accommodates changes in the market
D. Firms invest heavily in differentiating their products
E. A firm may charge the same price as its competitors but make a higher profit
20. All of the following are ways that firms pursue a cost leadership strategy except:
A. Giving their product the most desirable and highest quality features
B. Using technology to cut costs
C. Fully utilizing firm production capacity
D. Experience effects
E. Economies of scale
21. The risks associated with pursuing a cost leadership strategy include all of the
following except:
A. Preoccupation with costs may lead a firm not to detect required product
changes
B. The firm’s products are likely to become targets for imitators
C. Efforts to cut costs could lead to unsafe products
Chapter 5: Business-Level Strategies
D. Cost cutting could lead to products of very poor quality
E. Large investments could cause reluctance to change
22. A best cost strategy is most like which of the other generic business strategies?
A. Differentiation
B. Differentiation focus
C. Cost leadership
D. Cost focus
E. Differentiation combined with cost leadership
23. A firm that caters to a very specific segment of its market is pursuing which generic
strategy?
A. Differentiation
B. Focus
C. Cost leadership
D. Best cost
E. None of the above
24. The most important elements in a business model include all of the following except:
A. Selecting a growth strategy
B. Verifying that sufficient demand exists for a given product at a given price in
a particular market
C. Selecting unique features and technologies to be imbedded into the products
or services
D. Determining how to capture a portion of the value created in terms of
revenues and profits
E. Identifying market segments to be targeted
25. Market penetration entails:
A. Vertical integration combined with horizontal integration
B. Modification of existing products to create new market segments
C. Acquisition of an organization in the same line of business
D. Forming a strategic alliance with a firm in a new business
E. Increasing market share in the current business through advertising,
promotions, or a stepped-up sales effort
26. Market development entails:
A. Seeking new market segments or new applications for existing products
Chapter 5: Business-Level Strategies
B. Modification of existing products to create new market segments
C. Acquisition of an organization in the same line of business
D. Forming a strategic alliance with a firm in a new business
E. Investments in resources that may increase market share in the current
business
27. Offensive competitive tactics include:
A. Threat of retaliation
B. Creating barriers to imitation
C. Seeking first-mover advantages
D. Collaborative tactics
E. Avoiding direct competition
28. A firm pursuing a “blue ocean” strategy:
A. Will collaborate with competitors to create a stronger market position
B. Will utilize a best cost generic strategy, but in a completely unique way
C. Will threaten to retaliate against competitive actions
D. Will erect huge barriers to competition
E. Will pursue political lobbying
29. An organization would like to expand overseas. Its managers have considered pursing
the expansion through a joint venture, but they are concerned that using a joint
venture would limit the amount of profits they can make and also limit their control
of the venture. Which of the following global expansion tactics should you suggest to
these managers?
A. Exporting
B. Transnational symbiotic venturing
C. A greenfield venture
D. Franchising
E. Licensing
30. A multidomestic approach to international markets:
A. Involves the production and marketing of one product design throughout the
world
B. Involves custom tailoring of products and services around individual market
needs
C. Is almost always preferable to a global strategy
D. Is almost always less costly than a global strategy
E. Is only appropriate when economic efficiencies are possible
Chapter 5: Business-Level Strategies
31. During the introduction stage of the industry life cycle:
A. Demand for a product is fairly steady
B. Research and development activities are less important than activities to gain
market share
C. Firms have an opportunity to create barriers to entry
D. Producers are generally highly profitable
E. First-mover advantages are unimportant
32. Toward the end of the growth stage of the industry life cycle:
A. Demand for products falls
B. A competitive shakeout usually occurs
C. Entry barriers play no role
D. Competition tends to focus on tight cost controls
E. Differentiation is not possible
33. During the maturity stage of the industry life cycle:
A. Product differentiation becomes easier to establish
B. Customers focus on product quality and availability
C. Firms have an opportunity to create entry barriers
D. High-volume production tends to dominate manufacturing strategy
E. First-mover advantages are commonly available
34. During the decline stage of the industry life cycle:
A. Tight cost controls leading to efficiency are essential
B. Products are highly differentiated
C. Competition is no longer based on price
D. New entrants are common
E. Demand is increasing
ESSAY QUESTIONS
35. How can a firm be successful by pursuing a differentiation strategy? What are some
of the risks associated with a differentiation strategy?
36. What is a cost leadership strategy? How might a firm pursue it? What are some of the
risks associated with this strategy?
37. What are the key elements in defining a business model?
38. Describe the strategic flexibility tactic and how it is pursued.
39. When does a global approach to an international product/market strategy make the
most sense?