Business-level strategies detail commitments and actions taken to provide value to customers and gain
competitive advantage by exploiting core competencies in
a. the selection of industries in which the firm will compete.
b. specific product markets.
c. primary value chain activities.
d. particular geographic locations.
ANS: B
PTS: 1
DIF: Medium
REF: 98
DIF: Easy
REF: 98
PTS: 1
5. When selecting a business level strategy, the firm must determine all of the following EXCEPT
a. How will the customers needs be satisfied?
b. Who is the customer?
c. What are the customers needs?
d. Why should these customers needs be satisfied?
ANS: D
PTS: 1
DIF: Medium
REF: 99
PTS: 1
DIF: Medium
REF: 100
8. Although both companies have Internet access to potential customers, the most striking difference
between Barnes and Nobles access to customers and Amazon.coms access to customers is the
difference in the ____ dimension of relationships with customers.
a. responsiveness
b. richness
c. affiliation
d. reach
ANS: D
PTS: 1
DIF: Medium
REF: 100
9. Amazon has built capabilities around Internet technology and e-commerce to facilitate information
exchanges with its customers in a cost effective manner. This represents which of the three service
dimension?
a. Reach
b. Richness
c. Affiliation
d. None of the above
ANS: B
PTS: 1
DIF: Medium
REF: 100-101
10. Viewing the world through the customers eyes and constantly seeking ways to create more value for
the company enhances
a.
b.
c.
d.
ANS: D
PTS: 1
DIF: Medium
REF: 100-101
11. 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 customers needs should be satisfied.
c. what needs the firm should satisfy.
d. what core competencies are needed to satisfy customer needs.
ANS: B
PTS: 1
DIF: Medium
REF: 101-103
12. Subway is targeting a more narrow market segment among college students than the segment on which
McDonalds focuses. Subway is focusing on students interested in healthy fast food. To select this
business strategy, Subway would have used information from all the following categories EXCEPT
a. demographic factors.
b. psychological factors.
c. consumption-pattern factors.
d. end-use segments.
ANS: D
PTS: 1
DIF: Hard
13. Demographic segments include generational identifications. Which segment of the population was
previously financially conservative, but is now willing to spend money?
a. Baby Boomers
b. Swing Generation
c. World War II Generation
d. Generation X
ANS: B
PTS: 1
DIF: Easy
14. Because of their sensitivity to hype, and their insistence that products deliver as promised, ____ would
be less likely to develop product loyalties that would protect a differentiating firm from potential
entrants.
a. members of the Swing generation
b. Baby Boomers
c. members of the Lost Generation
d. Generation Xers
ANS: D
PTS: 1
DIF: Medium
REF: 101-102
15. An interior decorator has moved his business from Los Angeles to St. Paul, Minnesota, because his
spouses company transferred her to St. Paul. The decorator is distressed because the customers in his
target market have, in his words, banal and bourgeois taste. What is the decorators problem?
a. The decorator does not understand that customer needs are neither right nor wrong, good
nor bad.
b. The decorator has no core competencies that will transfer to his new geographic market.
c. The decorator should choose a strategy of cost-leadership in this environment.
d. The decorator is highly affiliated with the new target market and understands how he can
create value for it.
ANS: A
PTS: 1
DIF: Hard
REF: 102-103
PTS: 1
DIF: Medium
REF: 103
PTS: 1
DIF: Medium
REF: 103
18. 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.
ANS: B
PTS: 1
DIF: Medium
REF: 103
PTS: 1
DIF: Medium
REF: 103-104
20. 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 of the profit pool in an industry indicates to companies where aboveaverage returns can be earned.
c. it is hard for rivals to match an array of interlocked activities.
d. the primary and support activities of a successful company capture value all along the
value chain.
ANS: C
PTS: 1
DIF: Hard
REF: 104
21. 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, highly productive ground and gate crews, and so forth.
a. activity map
b. profit pool
c. value diagram
d. five forces model
ANS: A
PTS: 1
DIF: Medium
REF: 104
22. 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
easily merged into the Southwest culture.
c. there would be no impact on Southwests profitability because Southwests 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.
ANS: D
PTS: 1
DIF: Hard
REF: 104
23. Michael Porter points out that strategic fit among many activities is fundamental to
a. the development of core competencies for a firm.
b. the breadth of competitive scope for a firm.
c. sustainability of a firms competitive advantage.
d. the integrity of the firms value chain.
ANS: C
PTS: 1
DIF: Medium
REF: 105
24. All of the following are considered generic business-level strategies EXCEPT
a. product diversification.
b. cost leadership.
c. focused differentiation.
d. integrated cost leadership/differentiation.
ANS: A
PTS: 1
DIF: Easy
PTS: 1
DIF: Hard
26. 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 competitive scope
b. narrower competitive scope
c. increased use of primary activities to capture value
d. increased use of support activities to capture value
ANS: B
PTS: 1
DIF: Medium
REF: 105
27. The effectiveness of any of the generic business-level strategies is contingent upon
a. customer needs and competitors strategies.
b. the match between the opportunities and threats in its external market and the strengths of
its internal environment.
c. the trends in the general consumer base and the robustness of the global and industry
economy.
d. the firms competitive scope and its competitive advantage.
ANS: B
PTS: 1
DIF: Medium
REF: 105-106
28. A cost leadership strategy provides goods or services with features that are
a. acceptable.
b. unique.
c. substandard.
d. mediocre.
ANS: A
PTS: 1
DIF: Easy
REF: 106
PTS: 1
DIF: Easy
REF: 106
30. 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 Ceramics next most-efficient
competitor, Cost-Less Ceramics, Inc., earns average returns, while 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-Lesss 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.
ANS: D
PTS: 1
DIF: Hard
REF: 106-110
31. Big Lots is able to compete against Wal-Mart with a cost leadership strategy because of its strengths in
highly disciplined merchandise cost and inventory management system. This illustrates the
a. ability of Big Lots to imitate Wal-Marts tightly integrated activity map.
b. ability to survive against a dominant competitor by changing from a broad competitive
scope to a narrow competitive scope.
c. fact that support activities in the firm can provide sources of cost reduction.
d. importance of effective use of primary activities in the value chain.
ANS: C
PTS: 1
DIF: Hard
REF: 107
32. Research suggests that having a competitive advantage in ____ creates more value in the cost
leadership strategy than it does in the differentiation strategy.
a. marketing and sales
b. technology development
c. inbound and outbound logistics
d. human resource management
ANS: C
PTS: 1
DIF: Medium
REF: 107
33. A river barge company can offer cheaper, although slower, per pound transportation of products to
companies when compared with transportation by air, truck, or rail. The river barge company should
first target customers whose companies use
a. the integrated cost leadership/differentiation strategy.
PTS: 1
DIF: Easy
34. A company pursuing the differentiation or focused differentiation strategy would tend to
a. have highly efficient systems linking suppliers products with the firms production
processes.
b. use economies of scale.
c. have strong capabilities in basic research.
d. make investments in easy-to-use manufacturing technologies.
ANS: C
PTS: 1
DIF: Medium
35. 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 aboveaverage returns.
ANS: D
PTS: 1
DIF: Hard
REF: 109
36. Ever improving levels of efficiency enhance profit margins for a cost leader. This effects which of the
five forces of industry structure most directly?
a. Potential entrants
b. Substitutes
c. Buyer power
d. Supplier power
ANS: A
PTS: 1
DIF: Medium
REF: 109
PTS: 1
DIF: Medium
REF: 109
38. When a products unique attributes provide value to customers, the firm is implementing
a. a differentiation strategy.
b. a cost leadership strategy.
c. an integrated cost leadership/differentiation strategy.
d. a single-product strategy.
ANS: A
PTS: 1
DIF: Medium
REF: 110
ANS: B
PTS: 1
DIF: Medium
REF: 110
40. The products or services that are differentiated from others have qualities that are
a. perceived by the customer to add value for which they will pay a premium.
b. valued by the typical industry customer.
c. perceived as standardized by the customer.
d. seen as classic attributes rather than passing fads.
ANS: A
PTS: 1
DIF: Hard
REF: 110
41. Blind taste-tests have shown that the taste of premium-priced vodkas and inexpensive vodkas are
indistinguishable even to regular drinkers of vodka. But the sales of premium vodkas are thriving. This
is an example of
a. the perception of uniqueness being important to firms following the differentiation
strategy.
b. the importance of high-quality raw materials when using the differentiation strategy.
c. the risk of product imitation by competitors.
d. the danger counterfeiting holds for firms pursuing the differentiation strategy.
ANS: A
PTS: 1
DIF: Hard
REF: 110-111
PTS: 1
DIF: Medium
REF: 110-111
43. The use of a differentiation strategy would be expected to be LEAST effective in which of the
following markets?
a. Commodity goods
b. Motion pictures
c. Popular music
d. Writing instruments
ANS: A
PTS: 1
DIF: Medium
REF: 110-111
44. The differentiation strategy can be effective in controlling the power of rivalry with existing
competitors in an industry because
a. customers will seek out the lowest cost product.
b. customers of non-differentiated products are sensitive to price increases.
c. customers are loyal to brands that are differentiated in meaningful ways.
d. the differentiation strategy benefits from rivalry because it forces the firm to innovate.
ANS: C
PTS: 1
DIF: Medium
REF: 110-111
45. Wholesome Pet Food has successfully specialized for 20 years in high-quality pet food made from allnatural ingredients and organically-raised lamb. This brand has a strong following and is
recommended by veterinarians who practice in affluent neighborhoods. Wholesomes main supplier of
lamb has announced that the price for lamb will be 15 percent higher next year.
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 Wholesomes 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.
ANS: A
PTS: 1
DIF: Medium
REF: 110-111
46. Which of the following is NOT a value-creating activity associated with the differentiation strategy?
a. intensive training programs to improve employee effectiveness and efficiency
b. strong capability in basic research
c. rapid and timely deliveries to customers
d. procurement systems focused on finding the highest quality raw materials
ANS: A
PTS: 1
DIF: Hard
47. 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.
ANS: D
PTS: 1
DIF: Medium
REF: 113
48. Recently, the only type of car available for Anthony to rent on a business trip was a compact, fuelefficient Japanese import. Anthony was surprised at the comfort and performance of the car. He is in
the market for a new car and had previously considered only buying another luxury SUV. Now, he is
thinking about the significant cost savings he would have if he bought the compact vehicle rather than
a new SUV. This is an example of the competitive risk that
a. a competitors products can convey a products differentiated features to a customer at a
significantly reduced price.
b. a product imitation can cause customers to perceive that competitors offer essentially the
same good.
c. experience can narrow a customers perceptions of the value of a products differentiated
features.
d. brand loyalty insulates a company from rivalry with competitors.
ANS: C
PTS: 1
DIF: Medium
REF: 113
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 companys 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
ANS: D
PTS: 1
DIF: Medium
REF: 113
50. The typical risks of a differentiation strategy do NOT include which of the following?
a. Customers may find the price differential between the low-cost product and the
differentiated product too large.
b. Customers experience with other products may narrow customers perception of the value
of a products differentiated features.
c. Counterfeit goods are widely available and acceptable to customers.
d. Suppliers of raw materials erode the firms profit margin with price increases.
ANS: D
PTS: 1
DIF: Hard
REF: 113
51. Caribou Coffee, with 430 stores, is the nations second largest chain of coffee shops behind Starbucks.
Both chains seek to provide the highest quality product and service. Which of the following statements
is accurate?
a. Because Caribou has fewer outlets, it is using a focused strategy.
b. Because Starbucks was first in the market, it is the differentiated firm.
c. Both Caribou and Starbucks are using the cost leadership strategy based on economies of
scale.
d. Caribou is trying to out differentiate Starbucks based on store atmosphere, being
environmentally friendly, and free WiFi.
ANS: D
PTS: 1
DIF: Medium
REF: 114
PTS: 1
DIF: Easy
REF: 115-116
53. Ikea offers young customers a limited selection of standardized home furnishings featuring good
design, function, and acceptable quality at low prices. Ikea is using which business level strategy?
a. Cost leadership
b. Focused cost
c. Differentiation
d. Focused differentiation
ANS: B
PTS: 1
DIF: Easy
REF: 115-116
54. 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.
c. focused differentiators target a narrower customer market.
d. there are fewer risks with the focused differentiation strategy.
ANS: C
PTS: 1
DIF: Medium
REF: 116-117
55. Chicos is a clothing retailer that targets middle-aged women who want stylish and appealing clothes
that are suitable for the mature figure. Chicos has an extensive customer list, a frequent-buyer
discount card, and frequent sales promotions to Chicos customers based on their spending levels.
Chicos uses a ____ strategy.
a. focused differentiation based on a buyer group
b. focused differentiation based on a product line segment
c. generic differentiation
d. integrated cost leadership/differentiation
ANS: A
PTS: 1
DIF: Medium
REF: 116
56. Although they are radically different companies, Godiva (chocolate) and Maserati (cars) share a
business strategy, which is
a. cost leadership.
b. focused differentiation.
PTS: 1
DIF: Medium
REF: 116
57. The Monteleone Company pays large fees to a highly-recognizable, prestigious individual to be the
spokesperson for the companys products, luxury private jets. Monteleone is probably following the
a. focused cost-leadership strategy.
b. focused differentiation strategy.
c. integrated cost leadership/differentiation strategy.
d. total quality strategy.
ANS: B
PTS: 1
DIF: Medium
REF: 116
PTS: 1
DIF: Medium
REF: 117
PTS: 1
DIF: Medium
REF: 117
60. 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, since 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 Balances
focus advantage.
ANS: B
PTS: 1
DIF: Medium
REF: 117
61. Zara has developed capabilities to compete in the fast fashion portion of the clothing market,
including quickly copying runway fashions; vertical integration from design to point of sale; flexible,
just-in-time manufacturing systems; and a time to market for new items of just three weeks compared
to an industry average of nine months. These are all characteristics of what business level strategy?
a. Cost leadership
b. Differentiation
c. Integrated, low-cost differentiated
d. Stuck-in-the-middle
ANS: C
PTS: 1
DIF: Medium
62. It is more common for firms to attempt to use the integrated cost leadership/differentiation strategy
now than in the past because
a. other firms have established unassailable market dominance with the other four strategies.
b. global markets allow for much broader competitive scope.
c. customers have increasingly high expectations when purchasing a good or service.
d. one strategy is not enough for most large firms.
ANS: C
PTS: 1
DIF: Hard
PTS: 1
DIF: Hard
64. Target has been able to flourish in locations with Wal-Mart stores because
a. Wal-Mart has suffered from the inertia that comes with long success and reliance on the
same core competencies.
b. Target is using a focused cost-leadership strategy and has a much narrower competitive
scope than Wal-Mart.
c. Target is able to offer lower prices than Wal-Mart through capturing more value in the
value chain.
d. Target uses an integrated cost leadership/differentiation strategy and appeals to a different
customer than does Wal-Mart.
ANS: D
PTS: 1
DIF: Medium
65. Companies successfully implementing an integrated cost leadership/differentiation strategy are better
positioned than firms pursuing the other four business strategies to do all of the following EXCEPT
a. learn new skills.
b. adapt quickly to a changing environment.
c. reduce the risks for stakeholders of the firm.
d. have more primary and support activities in which they are competent.
ANS: C
PTS: 1
DIF: Hard
66. Three sources of flexibility in completing primary and support activities are particularly useful for
firms using the integrated strategy. These are
a. Flexible Manufacturing Systems, Reengineering, and Total Quality Management.
b. Outsourcing, Reengineering, and Flexible Manufacturing Systems.
c. Outsourcing, Total Quality Management, and Information Networks.
d. Flexible Manufacturing Systems, Total Quality Management, and Information Networks.
ANS: D
PTS: 1
DIF: Medium
REF: 119-120
PTS: 1
DIF: Medium
REF: 119-120
PTS: 1
DIF: Medium
REF: 119
69. Lands End offers jeans personally tailored to the customers individual body measurements, resulting
in a garment that is uniquely sized. This is an example of
a. Total Quality Management.
b. an enterprise resource planning system.
c. a flexible manufacturing system.
d. a customer relationship management system.
ANS: C
PTS: 1
DIF: Medium
REF: 119
70. A nationwide chain of pet stores wishes to identify the tradeoffs that its customers are willing to make
between low-cost products such as generic pet foods and differentiated features such as pick-up and
delivery of pets for grooming. The best technique for this firm to learn this information would be to
use
a. customer relationship management.
b. a flexible manufacturing system.
c. differentiation development planning.
d. Enterprise Resource Planning.
ANS: A
PTS: 1
DIF: Easy
REF: 119
71. By linking companies with their suppliers, distributors, and customers, ____ provide a company with
flexibility.
a. Flexible manufacturing systems
b. Information networks
c. Total quality management systems
d. Capabilities
ANS: B
PTS: 1
DIF: Medium
REF: 119-120
72. TQM is most helpful to firms following the ____ business strategy.
a. cost-leadership
b. integrated cost-leadership/differentiation
c. focused cost-leadership
d. focused differentiation
ANS: B
PTS: 1
DIF: Medium
REF: 120
product quality.
d. describes a firm that fails to optimally perform its primary and support activities.
ANS: D
PTS: 1
DIF: Medium
REF: 120-121