1. When a company decides to pursue a segmentation strategy, customization can cause costs to increase and it is difficult to achieve economies of scale.
a. True b. False
2. When a company pioneers new process innovations that lead to value innovation, it effectively changes the game in an industry and may be able to outperform its rivals for a long period of time.
a. True b. False
3. Which generic business-level strategy is based on the intent to lower costs so that a company can lower prices and still make a profit?
a. Broad low-cost strategy
b. Price differentiation strategy
c. Broad differentiation strategy
d. Focus differentiation strategy
e. Focus low-cost strategy
4. The effect of value innovation on the efficiency frontier is that a product can be offered at a greater value at a lower cost than was thought possible.
a. True b. False
5. In commodity markets, competitive advantage goes to the company that has the lowest costs.
a. True b. False
6. The term value innovation is used to describe
a. the way a company decides to group customers based on important differences in their needs to gain a competitive advantage.
b. a business’s overall competitive theme, the way it positions itself in the marketplace to gain a competitive advantage, and the different positioning strategies that can be used in different industry settings.
c. what happens when innovation pushes out the efficiency frontier in an industry, allowing for greater value to be offered through superior differentiation at a lower cost than was previously thought possible.
d. what happens when a company decides to ignore different segments and produce a standardized product for the average consumer.
e. what happens when a company decides to serve many segments or even the entire market, producing different offerings for different segments.
7. Differentiation can help a company grow overall demand and capture market share from its rivals.
a. True b. False
8. Which of the following is NOT true of a company that follows a niche strategy?
a. The company is focused on just one or a few segments of the market.
b. They can try to become the low-cost player in a particular niche.
c. They can try to customize their offering to the needs of their particular segment.
d. The company is focused on serving the average customer.
e. Customization can occur through the addition of new features and functions.
9. A company develops a new innovative technique that improves efficiency within the industry. This improvement of performance through innovation causes the efficiency frontier to remain static and not deviate from its original curve.
a. True b. False
10. An efficiency frontier shows of the complete picture of all the different positions that a company can adopt with regard to differentiation and low cost, assuming that its internal functions and organizational arrangements are configured efficiently to support a particular position.
a. True b. False
11. Lucy’s Swimwear Boutique offers swimwear that is targeted at affluent people who can afford to buy expensive, handmade swimsuits. Which of the following approaches to market segmentation is Lucy’s Swimwear Boutique using?
a. Broad differentiation strategy
b. Low market segmentation strategy
c. Medium market segmentation strategy
d. Broad high-cost strategy
e. Focus differentiation strategy
12. A differentiator has the advantage of:
a. selling on non-price factors, such as design or customer service.
b. producing a large product variety without a large cost penalty.
c. producing a basic offering that is relatively inexpensive to produce and deliver.
d. being able to respond to demands for deep price discounts from powerful buyers and still make money.
e. being able to initiate a price war in order to grow volume and drive its weaker rivals out of the industry.
13. A differentiated product is a product that:
a. has a greater resale value than a rival product.
b. provides greater reliability than a rival product.
c. is offered free of cost on purchase of a company’s standard product.
d. always costs more than a rival product.
e. always costs less than a rival product.
14. Compared to a differentiator, the company that follows a low-cost strategy:
a. distinguishes its products from those of rivals by offering something that they find hard to match.
b. absorbs cost increases by powerful suppliers while keeping to their lower pricing.
c. allows the company to charge a premium price for its good or service, should it choose to do so.
d. uses perceived superior value to generate growth in demand among customers.
e. creates entry barriers for rivals with greater brand loyalty to the specific products offered.
15. Which of the following organizational arrangements does NOT support a company taking a low-cost position?
a. Incentive systems that empower employees to suggest and pursue initiatives that are consistent with productivity improvements
b. A frugal company culture that emphasizes the need to control costs
c. Measurement and control systems that focus on productivity and cost containment
d. A multi-level structure with several tiers in the management hierarchy
e. Clear lines of accountability and control
16. Define the generic business-level strategies companies pursue. Provide an example of a company that represents each type of strategy.
Indicate whether the statement is true or false.
17. Mike’s Eatery, a fast-food chain, neither customizes its product offerings nor sells new products based on market segments. Mike’s Eatery is pursuing a standardization strategy.
a. True b. False
18. Which of the following is a difference between a standardization and segmentation strategy?
a. A standardization strategy has several advantages over a segmentation strategy.
b. Standardization allows the company to capture incremental revenues by customizing its offerings while segmentation has products aimed at the average consumer.
c. A standardization strategy may lose sales from customers who desire more functions and features and are prepared to pay more for them while a segmentation strategy meets the needs of different groups of consumers and thus sells more in total.
d. A standardization strategy prices product to allow for a wider customer base while segmentation may lose sales from customers who cannot afford to purchase the average product.
e. Standardization strategy may have higher costs than a segmentation strategy.
19. When a company recognizes that the needs of one market segment is not the same as another and accordingly customizes its product offerings, it is said to be pursuing a __________ strategy.
a. stuck-in-the-middle
b. standardization
c. segmentation
d. focus
e. low-cost
20. Yankee Candle Company offers customers candles that burn for 50–60 hours, much longer than most department store candle brands. Therefore, customers are willing to pay a higher price for these candles. Which of the following strategies is Yankee Candle Company following?
a. Cost leadership strategy
b. Rapid growth strategy
c. Market segmentation strategy
d. Differentiation strategy
e. Stuck-in-the-middle strategy
Chapter 5
1. When a company decides to pursue a segmentation strategy, customization can cause costs to increase and it is difficult to achieve economies of scale.
a. True b. False
2. By focusing on a niche, and customizing the offering to that segment, a differentiated company can often outsell differentiated rivals that target a broader market.
a. True b. False
3. Which of the following is NOT true of a company that follows a niche strategy?
a. The company is focused on just one or a few segments of the market.
b. They can try to become the low-cost player in a particular niche.
c. They can try to customize their offering to the needs of their particular segment.
d. The company is focused on serving the average customer.
e. Customization can occur through the addition of new features and functions.
4. Differentiation allows a company to
a. respond to demands of deep price demands from powerful buyers and still make money.
b. lower its cost structure.
c. charge a premium price for its good or service, should it choose to do so.
d. charge low prices and still make profits.
e. initiate a price war to grow volume and drive its weaker rivals out of the industry.
5. Actions taken at the functional level should support the business-level strategy, as should the organizational arrangements of the enterprise.
a. True b. False
6. A low-cost company is often best positioned to survive price rivalry in its industry.
a. True b. False
7. Companies that follow a standardization strategy ignore the many different market segments in an industry and position their products to appeal to the average customer.
a. True b. False
8. A differentiation strategy is based on creating a product that customers perceive as being:
a. the same as other available products.
b. superior to other available products.
c. the least costly product in the industry.
d. the most expensive product in the industry.
e. cheaper but inferior to the available products.
9. Which of the following matches the correct company with the generic business-level strategy that it practices?
a. Wal-Mart practices a broad differentiation strategy.
b. Toyota practices a broad, low-cost strategy.
c. Southwest Airlines practices a focus low-cost strategy.
d. Costco practices a focus differentiation strategy.
e. Nordstrom practices a focus low-cost strategy.
10. Acknowledging the demand for healthier drinking options, a large beverage company has developed a new line of beverages with no calories and no artificial sweeteners to add to its existing product line. Which of the following approaches to market segmentation is the beverage company using?
a. Broad low-cost strategy
b. Focus differentiation strategy
c. Medium market segmentation strategy
d. Focus low-cost strategy
e. Broad differentiation strategy
11. Which of the following is NOT true about the implications for cost and revenue and market segmentation?
a. A segmentation strategy is typically associated with lower costs than a standardization strategy.
b. A standardization strategy involves a company producing one basic offering and trying to attain economies of scale by achieving high-volume sales.
c. A segmentation strategy requires that a company customize its product offering to different segments which causes it to sell less of each offering, making it harder to achieve economies of scale.
d. A segmentation strategy requires that a company customize its product offering to different segments, and products targeted at segments at the higher-income end of the market may require more functions and features, which can raise the costs of production and delivery.
e. A segmentation strategy can allow a company to capture incremental revenues by customizing its offerings to the needs of different groups of consumers and, thus, selling more in total.
12. Describe how business-level strategies give a company a competitive advantage over actual and potential rivals.
13. Nick, a professional magician, is often invited to perform magic tricks at birthday parties and other social gatherings from across the country. However, he offers his services only to clients who stay in the same city as him. He is also known to charge less than other magicians in the city. Nick is pursuing which generic business-level strategy?
a. Broad differentiation strategy
b. Focus differentiation strategy
c. Focus low-cost strategy
d. Broad low-cost strategy
e. Medium market segmentation strategy
14. The basic proposition of the blue ocean strategy is that many successful companies have built their competitive advantage by
a. redefining their product offering through value innovation and creating a new market space.
b. initiating a price war to grow volume and drive their weaker rivals out of the industry.
c. developing brand loyalty to protect them from intense price rivalry within their industry.
d. charging premium prices for their goods or services.
e. adopting lean production and flexible manufacturing technologies.
15. In what situation can a company have both differentiation and a low-cost position?
a. With innovation, a company can push out the efficiency frontier in its industry and can deliver more differentiation at a lower cost than its rivals.
b. The company chooses to focus on the commodity market.
c. The company focuses on improving the reliability of its product.
d. The company improves its customer service on point-of sale and after-sale customer interactions.
e. It is impossible to achieve both differentiation and a low-cost position.
16. A differentiated company is protected from intense price rivalry within its industry by its brand loyalty which is built through marketing campaigns and expensive product development efforts.
a. True b. False
17. How does value innovation achieve sustained competitive advantage for the innovating company?
a. It shifts the basis of competition.
b. It can catch rivals off guard and make it difficult for them to catch up.
c. It forces the innovative company to think differently than rivals in order to create an offering and strategic position that is unique.
d. Rivals are unable to change focus from prior strategic commitments.
e. All of these are reasons why value innovation can achieve sustained competitive advantage for an innovating company.
18. Lilly’s Beauty Company sells general haircare products such as shampoo, conditioner, and hairspray. The company does not sell new or customized products to meet the specific needs of certain groups of people. Which of the following approaches is illustrated in this scenario?
a. Standardization strategy
b. Focus strategy
c. Medium market segmentation strategy
d. High market segmentation strategy
e. Focus market segmentation strategy
19. Which of the following is a functional-level strategy designed to improve differentiation?
a. Designing products that can be produced and delivered at as low a cost as possible
b. Standardization of the product offering and marketing mix to different market segments
c. Hiring and employee development strategies designed to ensure that employees act in a manner that is consistent with the image that the company is trying to project to the world
d. Initiation of a price war to grow volume and drive its weaker rivals out of the industry
e. Products that have lower prices to allow a company to erect an economic moat around its business that thwarts higher-cost rivals
20. Lucy’s Swimwear Boutique offers swimwear that is targeted at affluent people who can afford to buy expensive, handmade swimsuits. Which of the following approaches to market segmentation is Lucy’s Swimwear Boutique using?
a. Broad differentiation strategy
b. Low market segmentation strategy
c. Medium market segmentation strategy
d. Broad high-cost strategy
e. Focus differentiation strategy
Chapter 6
1. Later entrants to embryonic industries have the advantage over earlier entrants because they do not have the development or educational costs of figuring out how to produce the technology or teaching consumers about its’ benefits.
a. True b. False
2. A franchisor does not benefit from the franchisee’s incentive to receive a return on their capital investments.
a. True b. False
3. Development of a mass market is the stimulus for an industry to change from growth to embryonic.
a. True b. False
4. Which of the following represents the difference in strategies for the innovators and early majority versus the mass market?
a. Companies serving innovators and the early majority must engage in large-scale mass production to ensure that a high-quality product can be reliably produced at a low price point while serving the rapidly growing mass market typically is to pursue a focus model.
b. Companies serving innovators and the early majority must pay more attention to increasing the performance of a product while mass market strategies focus on the product’s ease of use and reliability.
c. Companies serving innovators and the early majority requires mass-market distribution channels and mass-media advertising campaigns while the mass market is typically reached through specialized distribution channels, and products are often sold by word of mouth.
d. Companies serving innovators and the early majority typically pursue a focus model while serving the rapidly growing mass market takes large-scale mass production to ensure that a high-quality product can be reliably produced at a low price point.
e. Product development strategies required for success do not vary as a market develops over time.
5. A technology upgrading strategy is utilized by incumbent companies in a mature industry to deter entry by investing in costly technology upgrades that potential entrants would have trouble matching.
a. True b. False
6. Laggards are technologically sophisticated customers willing to tolerate the limitations of the product.
a. True b. False
7. Customers who understand a new technology may have important future applications and are willing to experiment with it to see if they can pioneer new uses for the technology are called:
a. early adopters.
b. the early majority.
c. innovators.
d. laggards.
e. the late majority.
8. Market penetration involves the creation of new or improved products to replace existing products.
a. True b. False
9. Gadgetbug, an electronic gadgets company, has established itself as one of the industry leaders. The company has been facing competition from new entrants. The new entrants offer gadgets in different colors, with compelling artwork embossed on the cases. Seeing the interest in this market, Gadgetbug introduced its own range of uniquely designed gadgets. In this scenario, Gadgetbug’s attempt to cater to the different segments of customers to deter competition demonstrates
a. price signaling.
b. product proliferation.
c. a harvest strategy.
d. a limit price strategy.
e. diseconomies of scale.
10. Laggards are the customers who are the first ones to try and adopt a new technology.
a. True b. False
11. Intensifying competition in a declining industry is dependent on which four factors? Explain how these factors are considered when a company chooses a strategy in a declining industry.
12. Innovators and early adopters make up the largest market share percentage of the total market. The highest market demand and industry profits arise when they enter the market.
a. True b. False
13. Which of the following is an advantage of franchising?
a. It gives the franchisor the same level of tight control over franchisees as does chaining.
b. It allows the franchisor to earn all the profits made by franchisees.
c. It is beneficial for franchisees because they do not have to face higher capital costs.
d. It helps the franchisees by relieving them of the responsibility of running operations.
e. It can help the franchisor expand his or her business rapidly.
14. When a company decides to exit an industry by selling its business assets to another company, it is said to be using which of the following strategies?
a. Market penetration
b. Divestment
c. Niche
d. Downsizing
e. Outsourcing
15. Which of the following factors in an industry is most likely to cause excess capacity?
a. Technologically outdated production units
b. High customer demand
c. A company’s investments in newer production technology
d. Lack of competition from new entrants
e. Limited number of outlets in certain locations
16. Which of the following statements about customer categories in growing industries is true?
a. Laggards frequently adopt new products even when the benefits are not obvious.
b. Innovators are the customers who are the last ones to adopt a new product.
c. A typical late majority customer group is a behaviorally conservative set of customers.
d. Customers in the early majority generally do not understand the value of new technology.
e. Laggards form the leading wave or edge of the mass market.
17. Which of the following statements about horizontal mergers is true?
a. Horizontal mergers enable companies to achieve economies of scale.
b. Horizontal mergers result in the fragmentation of the industry.
c. The horizontal merger strategy has been very successful in businesses with zero cases of failure.
d. Companies that establish a network of distributor outlets to obtain the advantages of a low-cost position are known as horizontal mergers.
e. Companies that adopt the strategy of centralization to gain control over all business units are known as horizontal mergers.
18. The franchisor typically owns and funds each of its franchisees.
a. True b. False
19. A company uses which of the following when it focuses on pockets of demand that are declining more slowly than the industry as a whole to maintain profitability?
a. An acquisition strategy
b. Chaining
c. A divestment strategy
d. A niche strategy
e. Franchising
20. Which of the following statements about growing industries is true?
a. Innovators and early adopters have the same customer needs as the early majority.
b. Innovators and early adopters are typically reached through specialized distribution channels.
c. Reaching the early majority rarely requires advertising and is usually achieved through word of mouth.
d. Companies serving innovators need to have large-scale mass production and very low prices.
e. Companies competing in an embryonic market typically pay more attention to increasing the reliability of a product than to its performance.