Perceived value and signaling value are often an important part of a successful differentiation strategy when

the nature of differentiation is hard to quantify.

buyers are making a first-time purchase.

repurchase of the product or service is infrequent.

buyers are unsophisticated and unfamiliar with the capabilities of competing brands.

Broad differentiation strategies generally work best in market circumstances where

buyer needs and preferences are too diverse to be fully satisfied by a standardized product.

most buyers have similar needs and use the product in the same ways.

the products of rivals are weakly differentiated and most competitors are resorting to clever advertising to try to set their product offerings apart.

buyers are price sensitive and buying switching costs are quite low.

the five competitive forces are strong.

What sets focused (or market niche) strategies apart from low-cost leadership and broad differentiation strategies is

their concentrated attention on a narrow piece of the overall market.

the extra attention paid to top-notch product performance and product quality.

greater opportunity for competitive advantage.

their suitability for market situations where most industry rivals have weakly differentiated products.

their objective of delivering more value for the money.

A focused low-cost strategy seeks to achieve competitive advantage by

serving buyers in the target market niche at a lower cost and lower price than rivals.

outmatching competitors in offering niche members an absolute rock-bottom price.

delivering more value for the money than other competitors.

performing the primary value chain activities at a lower cost per unit than can the industry’s low-cost leaders.

dominating more market niches in the industry via a lower cost and a lower price than any other rival.

A focused differentiation strategy aims at securing competitive advantage

with a product or service offering carefully designed to appeal to the unique preferences and needs of a narrow, well-

by providing niche members with a top-of-the-line product at a premium price.

by catering to buyers looking for an upscale product at an attractively low price.

by developing product attributes that no other company in the industry has.

by convincing affluent buyers that the company has a true world-class product.

A firm pursuing a best-cost provider strategy

seeks to deliver superior value to buyers by satisfying their expectations on key quality/service/features/ performance attributes and beating their expectations on price (given what rivals are charging for much the same attributes).

seeks to be the low-cost provider in the largest and fastest-growing (or best) market segment.

tries to have the best cost (as compared to rivals) for each activity in the industry’s value chain.

tries to outcompete a low-cost provider by attracting buyers on the basis of charging the best price.

seeks to achieve the best costs by using the best operating practices and incorporating the best features and attributes.

The aim of the best-cost provider strategy is to create a competitive advantage by

incorporating attractive or upscale product attributes at a lower cost than rivals

offering buyers the industry’s best-performing product at the best cost and best (lowest) price in the industry.

attracting buyers on the basis of having the industry’s overall best-performing product at a price that is slightly below the industry-average price.

outcompeting rivals using low-cost provider strategies.

translating its best-cost status into achieving the highest profit margins of any firm in the industry.

For a best-cost provider strategy to be successful, a company must have

the capability to incorporate upscale attributes at lower costs than rivals whose products have similar upscale attributes.

excellent marketing and sales skills in convincing buyers to pay a premium price for the attributes/features incorporated in its product.

access to greater learning/experience curve effects and scale economies than rivals.

one of the best-known and most respected brand names in the industry.

Which of the following is not among the principal offensive strategy options that a company can employ?

Blocking the avenues open to challengers

Leapfrogging competitors by being the first adopter of next-generation technologies or being first to market with next-generation products

Offering an equally good or better product at a lower price

Attacking the competitive weakness of rivals

Capturing unoccupied or less contested territory by maneuvering around

A hit-and-run or guerrilla warfare type offensive strategies involve

unexpected attacks (usually by a small competitor) to grab sales and market share from complacent or distracted rivals.

random offensive attacks used by a market leader to steal customers away from unsuspecting smaller rivals.

undertaking surprise moves to secure an advantageous position in a fast-growing and profitable market segment; usually the guerrilla signals rivals that it will use deep price cuts to defend its newly won position.

work best if the guerrilla is the industry’s low-cost leader.

pitting a small company’s own competitive strengths head-on against the strengths of much larger rivals.

Which one of the following is not an offensive strategy option?

Offering an equally good or better product at a lower price

Adopting or improving on good ideas of other companies (rivals or otherwise)

Deliberately attacking those market segments where key rivals make big profits

Launching a preemptive strike to capture a rare opportunity

Introducing new features or models to fill vacant niches in its overall product offering and better match the product offerings of key rivals

The purposes of defensive strategies include

lowering the risk of being attacked by rivals, weakening the impact of any attack that occurs, and influencing challengers to aim their offensive efforts at other rivals.

discouraging deep price discounting on the part of ambitious rivals seeking to capture additional sales and market share.

insulating a company from the impact of competitive pressures and industry driving forces.

weakening competitors in ways that make them largely irrelevant.

widening a company’s competitive advantage over rivals.

Which one of the following is not a good example of a defensive strategy to protect a company’s market share and competitive position?

Engaging in a preemptive strike strategy in an effort to discourage rivals from being aggressive

Adding new features or models and otherwise broadening the product line to close off vacant niches and gaps to opportunity-seeking challengers

Thwarting the efforts of rivals to attack with lower prices by maintaining economy-priced options of its own

Signaling challengers that retaliation is likely in the event that they launch an attack

Making early announcements about impending new products or price changes to induce potential buyers to postpone switching

First-mover advantages are unlikely to be present in which one of the following instances?

When rapid market evolution (due to fast-paced changes in technology or buyer preferences) presents opportunities to leapfrog a first mover’s products with more attractive next-version products

When pioneering helps build a firm’s image and reputation with buyers

When first-time customers remain strongly loyal to pioneering firms in making repeat purchases

When early commitments to new technologies, new-style components, new or emerging distribution channels, and so on can produce an absolute cost advantage

When moving first can constitute a preemptive strike, making imitation extra hard or unlikely

In which of the following instances are first-mover disadvantages not likely to arise?

When rivals are employing offensive strategies rather than defensive strategies

When the costs of pioneering are much higher than being a follower and only negligible buyer loyalty or cost savings accrue to the pioneer

When the products of an innovator are somewhat primitive and do not live up to buyer expectations

When buyers are skeptical about the benefits of a new technology or product being pioneered by a first mover

When rapid market evolution (due to fast-paced changes in technology or buyer preferences) gives fast followers and maybe even cautious late movers the opening to leapfrog a first mover’s products with more attractive next-version products

Vertical integration strategies

extend a company’s competitive and operating scope because its operations extend across more parts of the total industry value chain.

are one of the best strategic options for helping companies win the race for global market leadership.

are a cost effective means of expanding a company’s lineup of products and services.

are particularly effective in boosting a company’s ability to expand into additional geographic markets, particularly the markets of foreign countries.

are a good strategy option for improving a company’s supply chain management capabilities, pursuing efforts to remodel a company’s value chain, achieving direct control over the costs of performing value chain activities, and gaining access to buyers.

The two most compelling reasons for a company to pursue vertical integration (either forward or backward) are to

strengthen the company’s competitive position and/or boost its profitability.

expand into foreign markets and/or control more of the industry value chain.

broaden the firm’s product line and/or avoid the need for outsourcing.

enable use of offensive strategies and/or gain a first-mover advantage over rivals in revamping the industry value chain.

achieve product differentiation and/or lengthen the company’s value chain to include more activities performed in-house and thereby gain greater ability to reduce internal operating costs.

Outsourcing strategies

involve farming out value chain activities presently performed in-house to outside specialists and strategic allies.

are nearly always a more attractive strategic option than merger and acquisition strategies.

carry the substantial risk of raising a company’s costs.

carry the substantial risk of making a company overly dependent on its suppliers.

increase a company’s risk exposure to changing technology and/or changing buyer preferences.

The big risk of employing an outsourcing strategy is

hollowing out the competitive capabilities a company needs to be a master of its own destiny.

the increased time it takes to respond effectively to the fresh strategic moves of rival firms.

impairing a company’s capability to be a leader in product innovation.

increased vulnerability to shifts in buyer demand.

increased costs of differentiating the company’s product/service from those of competitors.

The big risk of employing an outsourcing strategy is

hollowing out a firm’s own capabilities and losing touch with activities and expertise that contribute fundamentally to the firm’s competitiveness and market success.

causing the company to become partially integrated instead of being fully integrated.

hurting a company’s R&D capability.

putting the company in the position of being a late mover instead of an early mover.

increasing the firm’s risk exposure to both supply chain management failures and shifts in the composition of the industry value chain.

is a formal agreement between two or more companies in which there is strategically relevant collaboration of some sort, joint contribution of resources, shared risk, shared control, and mutual dependence.

is a collaborative arrangement where companies join forces to defeat mutual competitive rivals.

involves two or more companies joining forces to pursue vertical integration.

is a partnership between two companies that is typically intended to eliminate the need to engage in outsourcing.

is usually a cheaper and more effective way for companies to join forces than is merger.

The reasons firms enter into strategic alliances is to

expedite the development of new technologies.

overcome deficits in their operation.

improve supply chain efficiency.

acquire or improve market access.

Mergers and acquisitions are often driven by such strategic objectives as to

expand a company’s geographic coverage, extend its business into new product categories, or gain quick access to new technologies or other resources and capabilities.

weaken the bargaining power of either key suppliers or key customers.

reduce the company’s vulnerability to industry driving forces.

facilitate a company’s shift from one type of competitive strategy to another.

secure a higher credit rating and better access to additional financial capital.

Mergers and acquisitions

all too frequently do not produce the hoped-for outcomes.

are nearly always successful in achieving their desired purpose (unlike strategic alliances and collaborative partnerships).

are generally more effective in securing a new competitive advantage than in protecting an existing competitive advantage.

are highly risky because of the financial drain that comes from using the company’s cash resources to pay for the costs of the merger or acquisition.

are usually more successful in helping a company’s shift from one competitive strategy to another than in improving a company’s competitive strength and resource capabilities

The reasons a company opts to expand outside its home market include

gaining access to new customers for the company’s products/services.

spreading its business risk across a wider market base.

achieving lower costs and enhancing the company’s competitiveness.

a desire to capitalize on its core competencies and capabilities.

Which of the following is not a typical reason for a company to expand into the markets of foreign countries?

To strengthen its capability to employ offensive strategies, especially those that involve preemptive strikes

To gain access to new customers

To achieve lower costs and enhance the firm’s competitiveness

To capitalize on company competencies and capabilities

To spread business risk across a wider geographic market base

Which of the following is not an accurate statement as concerns competing in the markets of foreign countries?

A multicountry strategy is generally superior to a global strategy.

There are country-to-country differences in consumer buying habits and buyer tastes and preferences.

A company must contend with fluctuating exchange rates and country-to-country variations in host-government restrictions and requirements.

Product designs suitable for one country are often inappropriate in another.

Market growth rates vary from country to country.

Competing in the markets of foreign countries entails dealing with such factors as

fluctuating exchange rates, country-to-country variations in host-government restrictions and requirements, and variations in cultural, demographic, and market conditions.

important country-to-country differences in consumer buying habits and buyer tastes and preferences.

whether to customize the company’s offerings in each different country market or whether to offer a mostly standardized product worldwide.

the fact that product designs suitable for one country are sometimes inappropriate in another.

The advantages of manufacturing goods in a particular country

are significantly impacted by where its production, distribution, and customer service activities are located.

can be affected by differences in operating costs and profitability due to wage rate and worker productivity.

can be affected by differences in energy costs, environmental regulations, tax rates, and inflation rates.

can be influenced by cheaper access to essential natural resources.

Which of the following is not one of the strategy options for expanding into markets of foreign countries?

Establish a subsidiary in a foreign market strategy

The advantages of using an export strategy to build a customer base in foreign markets include

minimizing capital requirements and involvement in foreign markets.

being able to minimize shipping costs, avoid tariffs, and curb the effects of fluctuating exchange rates.

being cheaper and more cost effective than licensing and franchising.

being cheaper and more cost effective than a multicountry strategy.

facilitating the establishment of profit sanctuaries in foreign countries and being more suited to accommodating local buyer tastes than a global strategy.

The advantages of using a licensing strategy to participate in foreign markets include

being able to leverage the company’s technical know-how or patents without committing significant additional resources to markets that are unfamiliar, politically volatile, economically uncertain, or otherwise risky.

being especially well suited to the use of cross-market subsidization.

being able to charge lower prices than rivals.

enabling a company to achieve competitive advantage quickly and easily.

being able to achieve higher product quality and better product performance than with an export strategy.

A “think local, act local” multidomestic type of strategy

is more appealing the bigger the country-to-country differences in buyer tastes, cultural traditions, and marketing methods.

is very risky, given fluctuating exchange rates and the propensity of foreign governments to impose tariffs on imported goods.

is usually defeated by a “think global, act global” type of strategy.

is generally an inferior strategy when one or more foreign competitors is pursuing a global low-cost strategy.

can defeat a global strategy if the “think local, act local” multidomestic strategist concentrates its efforts exclusively in those foreign markets where it has profit sanctuaries.

A “think local, act local” multidomestic strategy works particularly well when

host governments enact regulations requiring that products sold locally meet strictly defined manufacturing specifications or performance standards.

there are significant country-to-country differences in customer preferences and buying habits.

diverse and complicated trade restrictions of host governments preclude the use of a uniform strategy from country to country.

there are significant country-to-country differences in distribution channels and marketing methods.

A “think global, act global” approach to crafting a global strategy involves

pursuing the same basic competitive strategy theme (low-cost, differentiation, best-cost, focused) in all countries where the firm does business.

selling much the same products under the same brand names everywhere and expanding into most, if not all, nations where there is significant buyer demand.

integrating and coordinating the company’s strategic moves worldwide.

utilizing the same competitive capabilities, distribution channels, and marketing approaches worldwide.

To use location to build competitive advantage, a company that operates multinationally or globally must

consider (1) whether to concentrate each activity it performs in a few select countries or disperse performance of the activity to many nations and (2) in which countries to locate particular activities.

employ either an export strategy or a franchising strategy.

scatter its production plants across many countries in different parts of the world so as to minimize transportation costs.

locate production plants in those countries having suppliers that can supply all the necessary raw materials and components so as to avoid inbound shipping costs.

concentrate all of its value chain activities in a single country—the one that has the best combination of low wage rates, low shipping costs, and low tax rates on profits.

Which one of the following is not one of the elements of crafting corporate strategy for a diversified company?

Choosing the appropriate value chain for each business the company has entered

Picking new industries to enter and deciding on the means of entry

Pursuing opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage

Steering corporate resources into the most attractive business units

Initiating actions to boost the combined performance of the businesses the firm has entered

The three tests for judging whether a particular diversification move can create value for shareholders are

the attractiveness test, the cost-of-entry test, and the better-off test.

the attractiveness test, the profitability test, and the shareholder value test.

the strategic fit test, the competitive advantage test, and the return on investment test.

the resource fit test, the profitability test, and the shareholder value test.

the shareholder value test, the cost-of-entry test, and the profitability test.

The cost-of-entry test for evaluating whether diversification into a particular industry is likely to build shareholder value involves

considering whether a company’s costs to enter the target industry are so high that the potentials for good profitability and return on investment are eroded.

determining whether a newly entered business presents opportunities to cost-efficiently transfer competitively valuable skills or technology from one business to another.

determining whether the cost to enter the target industry will strain the company’s credit rating.

determining whether the cost to enter the target industry will raise or lower the company’s total profits.

determining whether the cost a company incurs to enter the target industry will raise or lower production costs.

The most popular strategy for entering new businesses and accomplishing diversification is

acquisition of an existing business already in the chosen industry.

forming a joint venture with another company to enter the target industry.

forming a strategic alliance with another company to enter the target industry.

None of the above; strategic alliances and joint ventures are equally popular and rank well ahead of acquisition and internal start-up in terms of frequency of use.

A joint venture is an attractive way for a company to enter a new industry when

the opportunity is too risky or complex for a company to pursue alone or when a company lacks some important resources or competencies and needs a partner to supply them.

the pool of attractive acquisition candidates in the target industry is relatively small.

it needs better access to economies of scope in order to be cost-competitive.

the industry is growing slowly and adding too much capacity too soon could create oversupply conditions.

the firm has no prior experience with diversification and the industry is on the verge of explosive growth.

The three tests for judging whether a particular diversification move can create value for shareholders are

the attractiveness test, the cost-of-entry test, and the better-off test.

the attractiveness test, the profitability test, and the shareholder value test.

t he strategic fit test, the competitive advantage test, and the return on investment test.

the resource fit test, the profitability test, and the shareholder value test.

A. the shareholder value test, the cost-of-entry test, and the profitability test.

The essential requirement for different businesses to be “related” is that

their value chains possess competitively valuable cross-business relationships.

the products of the different businesses are bought by much the same types of buyers.

the products of the different businesses are sold in the same types of retail stores.

the businesses have several key suppliers in common.

the productions methods that they employ both entail economies of scale.

Which of the following is an important appeal of a related diversification strategy?

Offersopportunitiestotransferskills,expertise,technicalknow-how,or other capabilities from one business to another

Represents an effective way of capturing valuable financial fit benefits

Offers significant opportunities to strongly differentiate a company’s product offerings from those of rivals

Is more likely to pass the cost-of-entry test and the capital gains test than unrelated diversification

Is typically more profitable than unrelated diversification, which is a major factor in helping related diversification pass the attractiveness test.

Competitive Strategies Quiz

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57 questions

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MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Which of the following is not one of the five generic types of competitive strategy?

Focused low-cost provider strategy

Broad differentiation strategy

Overall low-cost provider strategy

Focused differentiation strategy

Market share dominator strategy

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

The generic types of competitive strategies include

build market share, maintain market share, and slowly surrender market share.

offensive strategies and defensive strategies.

low-cost provider, broad differentiation, focused low-cost, focused differentiation, and best-cost provider strategies.

low-cost/low-price strategies, high-quality/high-price strategies, medium-quality/medium-price strategies, low-cost/high-price strategies.

price leader strategies, price follower strategies, technology leader strategies, first-mover strategies, offensive strategies, and defensive strategies.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

A company’s competitive strategy deals with

management’s game plan for securing a competitive advantage relative to rivals.

what its strategy will be in such functional areas as R&D, production, sales and marketing, distribution, finance and accounting, and so on.

its efforts to change its position on the industry’s strategic group map.

its plans for entering into strategic alliances, utilizing mergers or acquisitions to strengthen its market position, outsourcing some in-house activities to outside specialists, and integrating forward or backward.

All of these

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

A low-cost leader’s basis for competitive advantage is

lower prices than rival firms.

using a low-cost/low-price approach to gain the biggest market share.

high buyer switching costs.

lower overall costs than competitors.

higher unit sales than rivals.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

A competitive strategy of striving to be the low-cost provider is particularly attractive when

buyers are not price sensitive.

the industry is made up of a large number or equal-sized rivals.

there are many ways to achieve product differentiation that have value to buyers.

price competition is especially vigorous, buyers have low switching costs, and the majority of industry sales are made to a few, large volume buyers.

switching costs are high, price competition is strong, and buyers tend to use the industry’s products in many different ways.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Succeed with a low-cost provider strategy, company managers have to

pursue backward or forward integration to detour suppliers or buyers with considerable bargaining power and leverage.

move the performance of most all value chain activities to low-wage countries.

sell direct to users of their product or service and eliminate use of wholesale and retail intermediaries.

do two things: (1) perform value chain activities more cost-effectively than rivals and (2) be proactive in revamping the firm’s overall value chain to eliminate or bypass 'nonessential' cost-producing activities.

outsource the majority of value chain activities.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Successful differentiation allows a firm to

command the largest market share in the industry.

set the industry ceiling on price.

avoid being overly concerned about whether entry barriers into the industry are high or low.

command a premium price for its product and/or increase unit sales and/or gain buyer loyalty to its brand.

take sales and market share away from rivals by undercutting them on price.

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