Answer & Question : A disadvantage of firms that successfully integrate overall cost leadership and a differentiation strategy is that they are relatively easy for competitors to imitate.

21.

A potential pitfall of a focus strategy is that focusers can become too focused to satisfy buyer needs.

TRUE

Potential pitfalls of focus strategies include focusers that become too focused to satisfy buyer needs. Some firms attempting to attain advantages through a focus strategy may have too narrow a product or service.

AACSB: Analytic
Blooms: Understand
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Level of Difficulty: 2 Medium
Topic: Types of Competitive Advantage and Sustainability

22.

A disadvantage of firms that successfully integrate overall cost leadership and a differentiation strategy is that they are relatively easy for competitors to imitate.

FALSE

Perhaps the primary benefit to firms that integrate low-cost and differentiation strategies is the difficulty for rivals to duplicate or imitate. This strategy enables a firm to provide two types of value to customers: differentiated attributes (e.g., high quality, brand identification, reputation) and lower prices (because of the lower costs for the firm in value-creating activities).

AACSB: Analytic
Blooms: Understand
Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.
Level of Difficulty: 2 Medium
Topic: Types of Competitive Advantage and Sustainability

23.

A potential pitfall of a focus strategy is that over time the cost advantages in a narrow market niche can erode, leaving the company with little profit.

TRUE

The advantages of a cost focus strategy may be fleeting if the cost advantages are eroded over time. For example, the Dell pioneering direct-selling model in the personal computer industry has been eroded by rivals such as Hewlett-Packard as they gain experience with the Dell distribution method.

24.
(p. 176)

Mass customization enables manufacturers to be more responsive to customer demands for high quality products.

TRUE

Advances in manufacturing technologies such as CAD/CAM (computer aided design and computer aided manufacturing) and information technologies allow firms to manufacture unique products in relatively small quantities at lower costs, a concept known as mass customization. Andersen Windows uses this to lower costs, enhance quality and variety, and improve response time to customers.

25.

An important idea behind the profit pool concept is that there is always a strong relationship between the generation of revenues and the capturing of profits.

FALSE

A profit pool is defined as the total profits in an industry at all points along the industry value chain. The pattern of profit concentration in an industry is very often different from the pattern of revenue generation.

26.

An important potential pitfall of an integrated overall cost leadership and differentiation strategy is that firms may fail to implement either one and become stuck-in-the-middle.

TRUE

A key issue in strategic management is the creation of competitive advantages that enable a firm to enjoy above-average returns. Some firms may become stuck in the middle, if they try to attain both cost and differentiation advantages.

27.

In technology intensive industries, the duration of competitive advantages is declining.

TRUE

Nothing is forever, when it comes to competitive advantages. Rapid changes in technology, globalization, and actions by rivals from within and outside of the industry can quickly erode company advantages. It is becoming increasingly important to recognize that the duration of competitive advantages is declining, especially in technology intensive industries.

AACSB: Analytic
Blooms: Understand
Learning Objective: 05-05 What factors determine the sustainability of a firm's competitive advantage.
Level of Difficulty: 2 Medium
Topic: Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts

28.

Competitive advantage is not affected by actions by rivals from within and outside of the industry.

FALSE

29.

Most analysts agree that use of the Internet will lower transaction costs.

TRUE

Managing costs, and even changing the cost structures of certain industries, is a key feature of the digital economy. Most analysts agree that the ability of the Internet to lower transaction costs has transformed business. Broadly speaking, transaction costs refer to all the various expenses associated with conducting business.

AACSB: Analytic
Blooms: Understand
Learning Objective: 05-06 How Internet-enabled business models are being used to improve strategic positioning.
Level of Difficulty: 2 Medium
Topic: How the Internet and Digital Technologies Affect the Competitive Strategies

30.

One way the Internet and digital technologies are creating opportunities for firms with differentiation strategies is by enabling mass customization.

TRUE

For many companies, Internet and digital technologies have enhanced their ability to build brand, offer quality products and services, and achieve other differentiation advantages. Among the most striking trends are new ways to interact with consumers. In particular, the Internet has created new ways of differentiating by enabling mass customization, which improves the response to customer wishes.

31.

The Internet offers few advantages for focusers because niche players and small companies cannot implement capabilities as effectively as their larger competitors.

FALSE

With focus strategies, the Internet offers new avenues in which to compete because they can access markets less expensively (low cost) and provide more services and features (differentiation). Some claim that the Internet has opened up a new world of opportunities for niche players who seek to access small markets in a highly specialized fashion.

32.	The Internet has provided a small subset of companies with greater tools for managing costs. FALSE The Internet has provided all companies with greater tools for managing costs. So it may be that cost management and control will become more important management tools.

33.

Incumbent firms that thought a niche market was too small to enter in the past may use Internet technologies to enter that segment with focusers.

TRUE

An incumbent firm that previously thought a niche market was not worth the effort may use Internet technologies to enter that segment for a lower cost than in the past. The larger firm can then bring its market power and resources to bear in a way that a smaller competitor cannot match.

34.

The market life cycle should be used as a short-run forecasting device because it provides a conceptual framework for understanding what changes typically occur.

FALSE

The industry life cycle refers to the stages of introduction, growth, maturity, and decline that occur over the life of an industry. In considering the industry life cycle, it is useful to think in terms of broad product lines such as personal computers, photocopiers, or long-distance telephone service. Changes tend to be slower than what is needed for forecasting.

AACSB: Analytic
Blooms: Understand
Learning Objective: 05-07 The importance of considering the industry life cycle to determine a firm's business-level strategy and its relative emphasis on functional area strategies and value-creating activities.
Level of Difficulty: 2 Medium
Topic: Industry Life Cycle Stages: Strategic Implications

35.

An important advantage of first movers in a market is that they may establish brand recognition that may later serve as an important switching cost.

TRUE

There is an advantage to being the first mover in a market. It led to the success of Coca Cola in becoming the first soft-drink company to build a recognizable global brand and enabled Caterpillar to get a lock on overseas sales channels and service capabilities.

36.

During the growth stage of the market life cycle, customers are very likely to establish brand loyalty.

FALSE

In the growth stage, the primary key to success is to build consumer preferences for specific brands. This requires strong brand recognition, differentiated products, and the financial resources to support a variety of value-chain activities such as marketing and sales, and research and development.

37.

Given the attractiveness of premium pricing during the growth stage of the market life cycle, managers should emphasize short-term results to increase profits.

FALSE

In the growth stage, revenues increase at an accelerating rate because new consumers are trying the product and a growing proportion of satisfied consumers are making repeat purchases. Since repeat purchases are necessary, a long-term strategy is desirable.

38.

As markets mature, competition on the basis of differentiation is preferable to price competition.

TRUE

In the mature stage, rivalry among existing rivals intensifies because of fierce price competition at the same time that expenses associated with attracting new buyers are rising. Advantages based on efficient manufacturing operations and process engineering become more important for keeping costs low as customers become more price sensitive.

39.

As markets mature the magnitude of differentiation and cost leadership advantages among competitors decrease.

TRUE

In the mature stage, rivalry among existing rivals intensifies because of fierce price competition at the same time that expenses associated with attracting new buyers are rising. It also becomes more difficult for firms to differentiate their offerings, because users have a greater understanding of products and services.

40.

With reverse positioning, a strategy to be used during the mature stage of the industry life cycle, a product escapes its category by deliberately associating with a different one.

FALSE

Two positioning strategies that managers can use to affect consumer mental shifts are reverse positioning, which strips away sacred product attributes while adding new ones, and breakaway positioning, which associates the product with a radically different category.

AACSB: Analytic
Blooms: Remember
Learning Objective: 05-07 The importance of considering the industry life cycle to determine a firm's business-level strategy and its relative emphasis on functional area strategies and value-creating activities.
Level of Difficulty: 1 Easy
Topic: Industry Life Cycle Stages: Strategic Implications

41.

Businesses that compete in markets that are in decline should simply be harvested or divested since they are no longer profitable.

FALSE

Four basic strategies are available in the decline phase: maintaining, harvesting, exiting, or consolidating. Managers must carefully monitor the actions and intentions of competitors before deciding on a course of action.

42.

During the decline stage of the product life cycle, a harvesting strategy means that a firm keeps a product going without significantly reducing marketing support, technological development, or other investments, while hoping that competitors will exit the market.

FALSE

Harvesting involves obtaining as much profit as possible and requires that costs be reduced quickly. Maintaining refers to keeping a product going without significantly reducing marketing support, technological development, or other investments, in the hope that competitors will eventually exit the market.

43.

The decline stage of the industry life cycle stage is inevitably followed by death.

FALSE

Old technologies that are in decline do not always quickly fade away. Research shows that in a number of cases, old technologies actually enjoy a very profitable last gasp, and can become resilient survivors in some circumstances.

44.

Many firms facing a turnaround situation try to reduce their costs by outsourcing the production of many inputs.

TRUE

Firms in turnaround situations try to aggressively cut administrative expenses and inventories and speed up collection of receivables. Costs also can be reduced by outsourcing production of various inputs for which market prices may be cheaper than in-house production costs.

AACSB: Analytic
Blooms: Understand
Learning Objective: 05-08 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.
Level of Difficulty: 2 Medium
Topic: Industry Life Cycle Stages: Strategic Implications

45.	A need for turnaround occurs only during the maturity or declining stage of the life cycle. FALSE A need for turnaround may occur at any stage in the life cycle but is more likely to occur during maturity or decline.

46.

The software maker, Intuit, successfully implemented a turnaround strategy by discontinuing product lines and focusing all resources on a few core profitable areas.

TRUE

Software maker Intuit is a case of a quick but well-implemented turnaround strategy. After stagnating and stumbling during the dot-com boom, the company discontinued its offers in online finance, insurance, and bill-paying operations that were losing money and focused on software for small businesses that employ less than 250 people. The company also instituted a performance-based reward system that greatly improved employee productivity.

Answer & Question

Monday 3 June 2019

A disadvantage of firms that successfully integrate overall cost leadership and a differentiation strategy is that they are relatively easy for competitors to imitate.

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