Chapter 5 Strategic Management

The primary aim of strategic management at the business level is
A) maximizing risk to return trade-offs through diversification.
B) maximizing differentiation of products and/or services.
C) achieving competitive advantage.
D) achieving a low-cost position.
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The primary aim of strategic management at the business level is
A) maximizing risk to return trade-offs through diversification.
B) maximizing differentiation of products and/or services.
C) achieving competitive advantage.
D) achieving a low-cost position.
C
Primary value chain activities that involve the effective layout of receiving dock operations (inbound logistics) and support value chain activities that include expertise in process engineering (technology development) characterize which generic strategy?
A) differentiation
B) differentiation focus
C) stuck-in-the-middle
D) overall cost leadership
D
A manufacturing business pursuing cost leadership is likely to
A) focus on a narrow market segment.
B) use advertising to build brand image.
C) put heavy emphasis on product engineering.
D) rely on experience effects to raise efficiency.
D
One aspect of using a cost leadership strategy is that experience effects may lead to lower costs. Experience effects are achieved by
A) spreading out a given expense or investment over a greater volume.
B) hiring more experienced personnel.
C) repeating a process until a task becomes easier.
D) competing in an industry for a long time.
C
With experience, unit costs of production decline as ________ increases in most industries.
A) costs
B) volume
C) output
D) price
C
Research has consistently shown that firms that achieve both cost leadership and differentiation advantages tend to perform
A) at about the same level as firms that achieve either cost or differentiation advantages.
B) about the same as firms that are stuck-in-the-middle.
C) higher than firms that achieve either a cost or a differentiation advantage.
D) lower than firms that achieve differentiation advantages but higher than firms that achieve cost advantages.
C
Global logistics firms such as DHL Supply Chain and Global Forwarding or C. H. Robinson Worldwide compete using an overall cost leadership strategy in primary activities such as
A) effective layout of receiving dock operations.
B) effective use of automated technology to reduce scrappage rates.
C) minimize costs associated with employee turnover through effective policies.
D) standardized accounting practices to minimize personnel required.
A
Overhead costs associated with the number of layers of management in a firm are part of the ________ activities of the value chain.
A) human resources management
B) firm infrastructure
C) operations
D) marketing and sales
B
Primark, a fashion retailer, has found a way to keep its cost structure lower than its rivals by leveraging streamlined logistics, a low marketing budget, and negotiating bargain prices from its suppliers. They are using a(n) ________ strategy.
A) differentiation
B) overall cost leadership
C) focus
D) broad differentiation
B
Aldi, a discount supermarket retailer, has grown from its German base to the rest of Europe, Australia, and the United States by replicating a simple business format. Aldi limits the number of products in each category to ensure product turn, to ease stocking shelves, and to increase its power over supplier. This is an example of an overall cost leadership strategy because it
A) gives them competitive advantage by decreasing productivity.
B) gives them competitive advantage by tight cost and overhead control.
C) eliminates the need to compete based on its products.
D) requires the customer to recognize its efforts.
B
A business that strives for a low-cost advantage must attain a(n) ________ cost advantage over rivals. A) relative B) evolutionary C) absolute D) potentialCA firm typically achieves an absolute cost advantage by offering a ________ product or service to a ________ target market using standardization to derive the greatest benefits from economies of scale and experience. A) no frills; narrow B) complex; narrow C) no frills; broad D) complex; diverseCPrimark, an Irish clothing retailer, uses an overall cost leadership strategy. This could fail if it A) maintains parity with competitors on low cost. B) cannot maintain parity on differentiation dimensions requested by customers. C) exceeds customer expectations. D) increases its sales prices while maintaining competitor parity.BZulily, an online retailer, competes with Amazon and other online retailers by A) maintaining a large inventory of products. B) running a labor-intensive distribution system. C) ordering products from vendors to keep in stock until a customer order comes in. D) keeping little inventory and ordering only when customers purchase a product.DWhich type of competitive strategy is characterized by 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? A) differentiation B) overall low-cost leadership C) differentiation focus D) cost leadership focusBAn overall low-cost position enables a firm to achieve ________ returns despite strong competition. A) below average B) average C) no D) above averageDAn 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 pricesCAn 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-costBA 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) decreasingBA low-cost position provides ________ flexibility to cope with demands from powerful suppliers for input cost increases. A) less B) decreasing C) more D) noCThe 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; primaryAZulily protects itself from buyer power and intense rivalry from competitors by A) increasing the bargaining power of its customers. B) paying close attention to costs. C) increasing costs. D) increasing the buyer power.BWhich of the following is a risk (or potential pitfall) of cost leadership? A) Cost cutting in one area of the value chain might increase costs in another. 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.AA firm can achieve differentiation through all the following means except A) improving brand image. B) offering lower prices to frequent customers. C) better customer service. D) adding additional product features.BValue-chain support 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 middleCHigh 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.DWhich 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) Firms will enjoy high customer loyalty. B) By increasing firm margins, it avoids the need for a low-cost position. C) It reduces buyer power because buyers lack comparable alternatives. D) Supplier power is increased, because suppliers will be able to charge higher prices for their inputs.DA 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.CWhich 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.CHardware chains such as Ace and True Value are losing market share to rivals such as Lowe's and Home Depot in spite of them using a focus strategy. Why? A) Achieving parity on costs for specialty retailers is difficult. B) They have too broad a product line. C) They have equivalent purchasing power as the national chains. D) Their costs are the same as those of the national chains.AEarly pioneer in online education, University of Phoenix, has faced increasing challenges from traditional university online programs who are able to offer their programs at the same cost. This is an example of which generic strategy gone wrong: A) Differentiation. B) Overall cost leadership. C) Focus strategy. D) Low cost leadership.CMarlin Steel Wire Products is a manufacturer of commodity wire products out of Baltimore, MD. Marlin has many rivals based in China and other emerging markets. The company cannot compete on labor costs so it used a ________ strategy to automate its production and now specializes in high-end products. A) differentiation B) overall cost leadership C) focus strategy D) low cost leadershipCWhich 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.CPorsche has enhanced power over buyers because its strong reputation makes buyers more willing to pay a premium price. This ________ rivalry, since buyers become ________ price-sensitive. A) increases; more B) lessens; more C) lessens; less D) increases; lessCA 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.BWhich 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.DAt 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.AThe 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 technologyBA ________ 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 outsourcingCWhich 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-the-middle. D) Firms that miscalculate sources of revenue and profit pools in the company industry.AMass customization permits companies to manufacture unique products in relatively ________ quantities at ________ costs. A) large; higher B) large; lower C) small; higher D) small; lowerDAndersen 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.CA 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; lowerAThe Yoox algorithm permits it to predict which products will sell at which times and where, thus allowing effective stocking to meet customer needs. This a result of A) purchasing patterns. B) data analytics. C) physical plant. D) flooding the market with adsBCaterpillar collects and analyses large volumes of data about how customers use their tractors. This permits them to ________ the cost of new product development efforts and to better ________ their products. A) increase; differentiate B) reduce; differentiate C) position; understand D) identify; disperseBMany 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 advantageBOutside 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.BRyanair and Spirit Airlines depend upon revenue from services not related to the actual flight. These services increase their A) costs. B) services. C) profit pool. D) difficulties.C