Crafting and Executing Strategy The Quest for Competitive Advantage Concepts Arthur Thompson 22nd Edition- Test Bank
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Crafting and Executing Strategy, 22e (Thompson)
Chapter 3 Evaluating a Company’s External
Environment
1) The strategically relevant factors outside a company’s
industry boundaries—economic conditions, political factors, sociocultural
forces, technological factors, environmental factors, and legal/regulatory conditions—are
known as
1. A)
the industry and the competitive arena in which the company operates.
2. B)
general economic conditions plus the factors driving change in the markets
where a company operates.
3. C) a
company’s macro-environment.
4. D)
the competitive market environment that exists between a company and its
competitors.
5. E)
the dominant economic features of a company’s industry.
Answer: C
Explanation: Six principal components—political factors,
economic conditions in the firm’s general environment (local, country,
regional, worldwide), sociocultural forces, technological factors,
environmental factors (concerning the natural environment), and
legal/regulatory conditions—constitute a company’s macro-environment.
Difficulty: 1 Easy
Topic: Understanding a Firm’s External Environment
Learning Objective: 03-01 How to recognize the factors in
a company’s broad macro-environment that may have strategic significance.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
2) Managers must chart a company’s strategic course by
1. A)
focusing on the local environment in which they are operating.
2. B)
ensuring excess production capacity and/or inventory.
3. C)
competing fiercely for a share in the market.
4. D)
building a bigger dealer network.
5. E)
developing a thorough understanding of the company’s external and internal
environment.
Answer: E
Explanation: In order to chart a company’s strategic
course wisely, managers must first develop a deep understanding of the
company’s present situation. Two facets of a company’s situation are especially
pertinent: (1) its external environment, most notably, the competitive
conditions of the industry in which the company operates, and (2) its internal
environment, particularly the company’s resources and organizational
capabilities.
Difficulty: 1 Easy
Topic: Understanding a Firm’s External Environment
Learning Objective: 03-01 How to recognize the factors in
a company’s broad macro-environment that may have strategic significance.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
3) The homebuilding industry is not affected by such macro-influences
as
1. A)
changes in mortgage interest rates, rules, and regulations that make it easier/harder
for homebuyers to obtain mortgages.
2. B)
trends in household incomes and buying power.
3. C)
the distinctive competences of incumbent firms.
4. D)
disasters and other unanticipated events in the natural environment.
5. E)
shifting preferences of families for renting versus owning a home, and/or homes
of various sizes, styles, and price ranges.
Answer: C
Explanation: Every company operates in a broad
macro-environment that comprises six principal components: political factors,
economic conditions in the firm’s general environment (local, country,
regional, worldwide), sociocultural forces, technological factors,
environmental factors (concerning the natural environment), and
legal/regulatory conditions. The homebuilding industry, in this example, is
affected by such macro-influences as trends in household incomes and buying
power, rules and regulations that make it easier/harder for homebuyers to
obtain mortgages, changes in mortgage interest rates, shifting preferences of
families for renting versus owning a home, and shifts in buyer preferences for
homes of various sizes, styles, and price ranges. The distinctive competences
of incumbent firms is an internal factor, not part of the macro-environment.
Difficulty: 3 Hard
Topic: Understanding a Firm’s External Environment
Learning Objective: 03-01 How to recognize the factors in
a company’s broad macro-environment that may have strategic significance.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
4) Which of the following is not one of the principal components of
strategic significance in the PESTEL analysis?
1. A)
political factors including the extent to which government intervenes in the
economy
2. B)
economic conditions that include the general economic climate and specific
factors such as interest rates, inflation rate, and unemployment rate, as well
as conditions in the stock and bond markets that can affect consumer confidence
3. C)
sociocultural forces that include societal values, attitudes, cultural factors,
and lifestyles that impact business
4. D)
technological factors that include the pace of change and technical
developments that have the potential for impacting society
5. E)
environmental forces that include the competitive structure, the degree of
industry fragmentation, and the mobility barriers that inhibit business
Answer: E
Explanation: PESTEL analysis is an acronym that serves as
a reminder of the six principal components of the macro-environment: political,
economic, sociocultural, technological, environmental (concerning the natural
environment, not the business environment), and legal/regulatory.
Difficulty: 1 Easy
Topic: Understanding a Firm’s External Environment
Learning Objective: 03-01 How to recognize the factors in
a company’s broad macro-environment that may have strategic significance.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
5) The biggest strategy-shaping impact on on-demand
transportation providers such as Uber and Lyft is most likely to be
1. A)
Yellow Cab companies launching mobile app campaigns for community-connect and
awareness.
2. B)
Amazon launching a mobile delivery service via drones.
3. C)
Apple launching a global network of driverless cars, buses, and trucks on
demand via a mobile app.
4. D) Tesla
and ZipCar announcing a joint venture for electric automobile sharing services.
5. E)
Greyhound developing and marketing a mobile app for customers to purchase
intercity bus tickets.
Answer: C
Explanation: The factors in a company’s environment having
the biggest strategy-shaping impact typically pertain to the company’s
immediate industry and competitive environment. Apple launching a global
network of driverless transportation vehicles on demand via mobile app will
compete directly with and probably cannibalize most other transportation
businesses that remain reliant on human drivers.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-01 How to recognize the factors in
a company’s broad macro-environment that may have strategic significance.
Bloom’s: Analytical
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
6) A strategically relevant political factor in the
macro-environment that will influence the performance of all firms across the
board is most likely to
be
1. A)
the strength of the federal banking system.
2. B)
the exogenous forces related to the general environmental demand.
3. C)
social factors that could fuel a political agenda and create greater
transparency.
4. D)
bailouts and energy policies that are industry specific.
5. E)
tax policy, fiscal policy, and tariffs providing impetus for antitrust matters.
Answer: A
Explanation: Political factors include political policies,
including the extent to which a government intervenes in the economy. They
include such matters as tax policy, fiscal policy, tariffs, the political
climate, and the strength of institutions such as the federal banking system.
Some political policies affect certain types of industries more than others. An
example is energy policy, which affects energy producers and heavy users of
energy more than other types of businesses.
Difficulty: 2 Medium
Topic: Understanding a Firm’s External Environment
Learning Objective: 03-01 How to recognize the factors in
a company’s broad macro-environment that may have strategic significance.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
7) Avon Products at one point secured information about its
biggest rival, Mary Kay Cosmetics, by having its personnel search through the
garbage bins outside MKC’s headquarters. This is an example of
1. A)
how companies in an industry can sustain good track records for revenue growth
and profitability.
2. B)
strategic moves rivals are likely to make next.
3. C)
industry key factors for future competitive success.
4. D)
lawful gathering of competitive intelligence.
5. E)
lawful but probably unethical gathering of competitive intelligence.
Answer: E
Explanation: According to Illustration Capsule 3.2, when
MKC officials learned of Avon’s actions and sued, Avon claimed it had done
nothing illegal, since a 1988 Supreme Court case had ruled that trash left on
public property (in this case, a sidewalk) was anyone’s for the taking. Avon
even produced a videotape of its removal of the trash at the MKC site. Avon won
the lawsuit—but Avon’s action, while legal, scarcely qualifies as ethical.
Difficulty: 2 Medium
Topic: Ethical Behavior in Business Strategies
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
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8) The impact of the macro-environment on a company’s strategic
opportunities is not exemplified
by the following situation?
1. A)
Sales of Stolichnaya Vodka in the United States dwindle on account of a boycott
of Russian products.
2. B)
Consumer confidence in Volkswagen drops precipitously because of falsified
emissions data.
3. C)
Netflix squares off with Amazon Prime as its most potent rival in the streaming
television and film industry.
4. D)
Traffic increases at the outlets of Whole Foods following its introduction of
stores comprised solely of generic products.
5. E)
Sales of FitBit surge on account of a new feature that monitors users’ blood
pressure.
Answer: C
Explanation: The six principal components of the
macro-environment are political, economic, sociocultural, technological,
environmental (concerning the natural environment), and legal/regulatory. Rival
firms are part of the immediate industry and competitive environment.
Difficulty: 2 Medium
Topic: Understanding a Firm’s External Environment
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
9) The most powerful and widely used conceptual tool for
diagnosing the principal competitive pressures in a market is
1. A)
the five forces framework.
2. B)
PESTEL.
3. C)
the driving forces model.
4. D)
strategic group mapping.
5. E)
SWOT analysis.
Answer: A
Explanation: The character and strength of the competitive
forces operating in an industry are never the same from one industry to
another. The most powerful and widely used conceptual tool for diagnosing the
principal competitive pressures in a market is the five forces framework.
Difficulty: 1 Easy
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
10) The competitive pressures on companies within an industry
come from all of the following except
1. A)
those associated with the market maneuvering and jockeying for buyer patronage
that goes on among rival firms in the industry.
2. B)
those companies in other industries attempting to win buyers over to their
substitute products.
3. C)
those associated with the threat of new entrants into the marketplace.
4. D)
those associated with the bargaining power of suppliers and customers.
5. E)
those associated with environmental factors such as water shortages.
Answer: E
Explanation: The five forces framework holds that
competitive pressures on companies within an industry come from five sources.
These include (1) competition from rival sellers, (2) competition from
potential new entrants to the industry, (3) competition from producers of
substitute products, (4) supplier-bargaining power, and (5) customer-bargaining
power.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
11) The five forces of competitive pressures do not include
1. A)
the power and influence of social/demographic trends.
2. B)
the bargaining power of suppliers and seller-supplier collaboration.
3. C) the
threat of new entrants into the market.
4. D)
the attempts of companies in other industries to win customers over to their
own substitute products.
5. E)
the market maneuvering and jockeying for buyer patronage that goes on among
rival sellers in the industry.
Answer: A
Explanation: The five forces framework holds that
competitive pressures on companies within an industry come from five sources.
These include (1) competition from rival sellers, (2) competition from
potential new entrants to the industry, (3) competition from producers of
substitute products, (4) supplier-bargaining power, and (5) customer-bargaining
power.
Difficulty: 1 Easy
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
12) Market maneuvering and jockeying for buyer patronage that
goes on among rival sellers in the industry
1. A) is
less strong than the competitive pressures that stem from the ready
availability of attractively priced substitute products.
2. B) is
the strongest force among the five forces that drive profitability in an
industry.
3. C)
emerges from close collaboration with suppliers and the competitive pressures
that such collaboration creates.
4. D) is
less important than competitive pressure associated with the potential entry of
new competitors.
5. E)
has about the same impact as bargaining power and leverage that large customers
are able to exercise.
Answer: B
Explanation: The strongest of the five competitive forces
is often the rivalry for buyer patronage among competing sellers of a product
or service.
Difficulty: 1 Easy
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
13) Using the five forces model of competition to determine the
character and strength of the competitive forces within a given industry
involves
1. A)
building the picture of competition in three steps: (1) identify the different
parties involved, along with specific factors that bring about competitive
pressures; (2) evaluate how strong the pressures stemming from each of the five
forces are (strong, moderate or weak); and (3) determine whether the collective
impact of the five competitive forces is conducive to earning attractive
profits in the industry.
2. B)
building the picture of competition in two steps: (1) determine which rival has
the biggest competitive advantage and (2) assess whether the competitive
advantages possessed by various industry members allow most industry members to
earn above-average profits.
3. C)
evaluating whether competition is being intensified or weakened by the
industry’s driving forces and key success factors.
4. D)
assess whether the collective impact of all five forces is weak enough to allow
industry members to go on the offensive or use a defensive strategy to insulate
against fierce competitive pressures.
5. E)
gauging the overall strength of competition based on how many industry rivals
are operating with a competitive advantage and how many are operating at a
competitive disadvantage.
Answer: A
Explanation: Using the five forces model to determine the
nature and strength of competitive pressures in a given industry involves three
steps: (1) identify the different parties involved, along with specific factors
that bring about competitive pressures; (2) evaluate how strong the pressures
stemming from each of the five forces are (strong, moderate or weak); and (3)
determine whether the collective impact of the five competitive forces is
conducive to earning attractive profits in the industry.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
14) What makes the marketplace a competitive battlefield?
1. A)
the race of industry members to build strong defenses against the industry’s
driving forces
2. B)
the constant rivalry of firms to strengthen their standing with buyers and win
a competitive edge over rivals
3. C)
the ongoing race among rival sellers to have the highest-quality product
4. D)
the ongoing efforts of industry members to introduce new and improved
products/services at a faster rate than their rivals
5. E)
the ongoing race among rivals to achieve the fastest rate of growth in revenues
and profits
Answer: B
Explanation: The strongest of the five competitive forces
is often the rivalry for buyer patronage among competing sellers of a product
or service.
Difficulty: 3 Hard
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
15) Market maneuvering among industry rivals
1. A)
determines whether the industry’s strategic group map will be static or
dynamic.
2. B)
centers around collaborative efforts to overcome the bargaining power of
powerful suppliers and powerful buyers.
3. C) is
usually an industry’s strongest driving force.
4. D) is
usually one of the two or three weakest competitive forces because of the close
familiarity that rivals have for one another’s likely next moves.
5. E) is
ongoing and dynamic, with moves and countermoves of rivals producing a
continually evolving competitive landscape that delivers winners and losers.
Answer: E
Explanation: When rivalry is strong, the battle for market
share is generally so vigorous that the profit margins of most industry members
are squeezed to bare-bones levels.
Difficulty: 1 Easy
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
16) Rivalry among competing sellers decreases
1. A)
when buyer demand is growing rapidly.
2. B) as
it becomes less costly for buyers to switch brands.
3. C) as
the products of rival sellers become commoditized.
4. D)
when there is excess production relative to demand.
5. E) as
the number of competitors increases.
Answer: A
Explanation: Rivalry increases and becomes a stronger
force when: buyer demand is growing slowly; buyer costs to switch brands are
low; the products of industry members are commodities or else weakly
differentiated; the firms in the industry have excess production capacity
and/or inventory; the firms in the industry have high fixed costs or high storage
costs; competitors are numerous or are of roughly equal size and competitive
strength; rivals have diverse objectives, strategies, and/or countries of
origin; and/or rivals have emotional stakes in the business or face high exit
barriers.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
17) External forces in the natural environment include
1. A)
the trend toward healthier lifestyles, which can shift spending toward exercise
equipment and health clubs and away from alcohol and snack foods.
2. B)
air and/or water pollution, the depletion of irreplaceable natural resources,
or inefficient energy/resource usage.
3. C)
interest rates, exchange rates, the inflation rate, the unemployment rate, the
rate of economic growth, trade deficits or surpluses, savings rates, and
per-capita domestic product.
4. D)
tax policy, fiscal policy, tariffs, the political climate, and the strength of
institutions such as the federal banking system.
5. E)
slow growth in buyer demand.
Answer: B
Explanation: The relevance of considerations about
external forces in the natural environment stems from the fact that some
industries contribute more significantly than others to air and/or water
pollution or to the depletion of irreplaceable natural resources, or to
inefficient energy/resource usage, or are closely associated with other types
of environmentally damaging activities (unsustainable agricultural practices,
the creation of waste products that are not recyclable or biodegradable).
Growing numbers of companies worldwide, in response to stricter environmental regulations
and also to mounting public concerns about the environment, are implementing
actions to operate in a more environmentally and ecologically responsible
manner.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
18) Legal and regulatory factors in the external environment
typically do not include
1. A)
minimum wage legislation in low-wage industries (such as nursing homes and fast
food restaurants) that employ substantial numbers of relatively unskilled
workers.
2. B)
consumer protection statutes
3. C)
genetic engineering, nanotechnology, and solar energy technology.
4. D)
antitrust laws.
5. E)
occupational health and safety regulations specific to certain industries, such
as meatpacking and coalmining, where jobs are hazardous or carry high risk of
injury
Answer: C
Explanation: All of the above are legal and regulatory
factors in the external environment with the exception of the technology
factors (genetic engineering, nanotechnology, and solar energy technology).
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
19) Rivalry among competing sellers is generally less intense
when
1. A)
there are relatively more industry key success factors.
2. B)
the industry’s driving forces are weak and rivals have mostly commodity
products.
3. C)
barriers to entry are moderately low and the pool of likely entry candidates is
large.
4. D)
rivals are wary of making fresh moves to lower prices, introduce new products,
increase promotional efforts and advertising, and otherwise gain sales and
market share.
5. E)
buyers have many alternative products or services from which to choose.
Answer: D
Explanation: When rivalry is strong, the battle for market
share is generally so vigorous that the profit margins of most industry members
are squeezed to bare-bones levels.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
20) The competitive battles among rival sellers striving for
better market positions, higher sales and market shares, and competitive
advantage, suggest the rivalry force
1. A) is
stronger when firms strive to be low-cost producers than when they use
differentiation and focus strategies.
2. B) is
often weak when rivals have emotional stakes in business or face high exit
barriers.
3. C) is
largely unaffected by whether industry conditions tempt rivals to use price
cuts or other competitive weapons to boost unit sales.
4. D)
tends to intensify when strong companies with sizable financial resources,
proven competitive capabilities, and respected brand names hurdle entry
barriers looking for growth opportunities and launch aggressive, well-funded
moves to transform into strong market contenders.
5. E) is
weaker when more firms have weakly differentiated products, buyer demand is
growing slowly, and buyers have moderate switching costs.
Answer: D
Explanation: An analysis of the factors affecting the
threat of entry can help managers determine whether the threat of entry into
their industry is high or low, in general. But certain kinds of companies—those
with sizable financial resources, proven competitive capabilities, and a
respected brand name—may be able to hurdle an industry’s entry barriers even
when they are high.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
21) In analyzing the strength of competition among rival firms,
an important consideration is
1. A)
the potential for buyers to exercise strong bargaining power.
2. B)
the diversity of competitors in terms of long-term direction, objectives,
strategies, and countries of origin.
3. C)
the number of firms pursuing differentiation strategies versus the number
pursuing low-cost leadership strategies and focus strategies.
4. D)
the extent to which some rivals have more than two competitively valuable
competencies or capabilities.
5. E)
whether the industry is characterized by a strong learning/experience curve and
whether the industry is composed of many or few strategic groups.
Answer: B
Explanation: Since macro-economic factors affect different
industries in different ways and to different degrees, it is important for
managers to determine which of these represent the most strategically relevant
factors outside the firm’s industry boundaries. By strategically relevant, we
mean important enough to have a bearing on the decisions the company ultimately
makes about its long-term direction, objectives, strategy, and business model.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-01 How to recognize the factors in
a company’s broad macro-environment that may have strategic significance.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
22) The intensity of rivalry among competing sellers does not depend on
whether
1. A)
the industry has more than two strong driving forces and whether the industry
has more than two diverse and capable strategic groups.
2. B)
competitors are diverse in terms of long-term directions, objectives,
strategies, and countries of origin.
3. C)
strong companies outside the industry have acquired weak firms in the industry
and are launching aggressive moves to transform the acquired companies into
strong market contenders.
4. D)
one or two rivals have particularly powerful and successful strategies to grow
the business, attract and retain buyers, and develop a sustained competitive
advantage.
5. E)
industry conditions attract industry members to use price cuts or other
competitive weapons to boost total sales volume and market share.
Answer: A
Explanation: Just how serious the threat of entry is in a
particular market depends on two classes of factors: the expected reaction of
incumbent firms to new entry and what are known as barriers to entry. The
threat of entry is low when incumbent firms are likely to retaliate against new
entrants with sharp price discounting and other moves designed to make entry
unprofitable, and when entry barriers are high.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
23) In which of the following instances is rivalry among
competing sellers not more
intense?
1. A)
when certain competitors are dissatisfied with their market position and make
moves to bolster their standing
2. B)
when strong companies outside the industry acquire weak firms in the industry
and launch aggressive moves to transform their newly acquired competitors into
stronger market contenders
3. C)
when competitors are fairly equal in size and capability
4. D)
when the products of rivals are weakly differentiated, buyer switching costs
are low, and market demand is growing slowly
5. E)
when there are vast numbers of small rivals so the impact of any one company’s
actions is spread thinly across all industry members
Answer: E
Explanation: Rivalry increases and becomes a stronger force
when: buyer demand is growing slowly; buyer costs to switch brands are low; the
products of industry members are commodities or else weakly differentiated; the
firms in the industry have excess production capacity and/or inventory; the
firms in the industry have high fixed costs or high storage costs; competitors
are numerous or are of roughly equal size and competitive strength; rivals have
diverse objectives, strategies, and/or countries of origin; and/or rivals have
emotional stakes in the business or face high exit barriers.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
24) Competing companies deploy whatever means necessary to
strengthen market position, including all of the following except
1. A)
marketing tactics that include special sales promotions such as introducing new
or improved features or increasing the number of styles to provide greater
product selection.
2. B)
differentiating their products by offering better performance features than
rivals.
3. C)
improving innovation to increase product performance and quality.
4. D)
making efforts to expand dealer networks.
5. E)
reducing distribution capabilities and market presence.
Answer: E
Explanation: Entry barriers are high under the following
conditions: industry incumbents enjoy large cost advantages over potential entrants;
customers have strong brand preferences and high degrees of loyalty to seller;
patents and other forms of intellectual property protection are in place; there
are strong network effects in customer demand; capital requirements are high;
there are difficulties in building a network of distributors/dealers or in
securing adequate space on retailers’ shelves; there are restrictive regulatory
policies; and/or there are restrictive trade policies.
Difficulty: 1 Easy
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
25) Which of the following is generally not considered a
barrier to entry?
1. A)
restrictive regulatory policies
2. B)
high capital requirements
3. C)
strong brand preferences
4. D)
many industry patents in place
5. E)
weak network effects in customer demand
Answer: E
Explanation: Entry barriers are high under the following
conditions: industry incumbents enjoy large cost advantages over potential
entrants; customers have strong brand preferences and high degrees of loyalty
to seller; patents and other forms of intellectual property protection are in place;
there are strong network effects in customer demand; capital requirements are
high; there are difficulties in building a network of distributors/dealers or
in securing adequate space on retailers’ shelves; there are restrictive
regulatory policies; there are restrictive trade policies.
Difficulty: 1 Easy
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
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26) Potential entrants are more likely to be deterred from
actually entering an industry when
1. A)
incumbent firms are willing and able to be aggressive in defending their market
positions against entry.
2. B)
incumbent firms are complacent.
3. C)
buyers are not particularly price-sensitive and the industry already contains a
dozen or more rivals.
4. D)
the relative cost positions of incumbent firms are about the same, such that no
one incumbent has a meaningful cost advantage.
5. E)
buyer switching costs are moderately low because of strong product
differentiation among incumbent firms.
Answer: A
Explanation: The threat of new entry increases the
competitive pressures in an industry. This is because incumbent firms typically
lower prices and increase defensive actions in an attempt to deter new entry
when the threat of entry is high.
Difficulty: 3 Hard
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
27) Competitive pressures associated with the threat of entry
are greater in all of the following situations except when
1. A)
incumbent firms are willing to strongly contest the entry of newcomers with
moves designed to make entry unprofitable.
2. B) a
large pool of potential entrants exists, some of which have the capabilities to
overcome high entry barriers.
3. C)
entry barriers are relatively low and buyer demand for the product is growing
rapidly, and newcomers can expect to earn attractive profits without inviting a
strong reaction from incumbents.
4. D)
existing industry members are looking to expand their market reach by entering
product segments or geographic areas where they currently do not have a
presence.
5. E)
customers have low brand preferences and low degrees of loyalty to seller.
Answer: E
Explanation: Entry barriers are high under the following
conditions: industry incumbents enjoy large cost advantages over potential
entrants; customers have strong brand preferences and high degrees of loyalty
to seller; patents and other forms of intellectual property protection are in
place; there are strong network effects in customer demand; capital
requirements are high; there are difficulties in building a network of
distributors/dealers or in securing adequate space on retailers’ shelves; there
are restrictive regulatory policies; and/or there are restrictive trade
policies.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
28) The best test of whether potential entry is a strong or weak
competitive force is
1. A)
the strength of buyer loyalty to existing brands.
2. B)
whether the industry’s driving forces make it harder or easier for new entrants
to be successful.
3. C)
whether the strategies of industry members are well-matched to the industry’s
key success factors.
4. D)
whether there are any vacant spaces on the industry’s strategic group map.
5. E) to
ask if the industry’s growth and profit prospects are strongly attractive to
potential entry candidates.
Answer: E
Explanation: As a rule, the strongest competitive forces
determine the extent of the competitive pressure on industry profitability. The
threat of entry is low when incumbent firms are likely to retaliate against new
entrants with sharp price discounting and other moves designed to make entry
unprofitable.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
29) The competitive threat that outsiders will enter a market is
weaker when
1. A)
financially strong industry members send strong signals that they will launch
strategic initiatives to combat the entry of newcomers.
2. B)
the industry’s market growth is rapid.
3. C)
the pool of entry candidates is large and some have resources that would make
them formidable market contenders.
4. D)
newcomers can be expected to earn attractive profits.
5. E)
buyers have little loyalty to the brands and product offerings of existing
industry members.
Answer: E
Explanation: All of these indicate an attractive industry
to enter with the exception of signaling by financially strong incumbents that
they will try to deter new entrants.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
30) Which of the following is not a good example of a substitute
product that triggers stronger competitive pressures?
1. A) a
salad as a substitute for French fries
2. B)
wireless phones as a substitute for wired telephones
3. C)
Coca-Cola as a substitute for Pepsi
4. D)
snowboards as a substitute for snow skis
5. E)
video-on-demand services from a cable TV company as a substitute for going to
the movies
Answer: C
Explanation: Competitive pressures are stronger when: (1)
good substitutes are readily available and attractively priced; (2) buyers view
the substitutes as comparable or better in terms of quality, performance, and
other relevant attributes; and (3) the costs that buyers incur in switching to
the substitutes are low. Brands of the same basic product constitute rival
products and not substitutes.
Difficulty: 1 Easy
Topic: Analyzing Industry Competition
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
31) The competitive pressures from substitute products tend to
be stronger when
1. A)
good substitutes are readily available.
2. B)
there are fewer number of substitute products.
3. C)
substitutes have lower performance features.
4. D)
buyers incur high costs in switching to substitutes.
5. E)
substitutes are priced above the market.
Answer: A
Explanation: Competitive pressures are stronger when: (1)
good substitutes are readily available and attractively priced; (2) buyers view
the substitutes as comparable or better in terms of quality, performance, and
other relevant attributes; and (3) the costs that buyers incur in switching to
the substitutes are low.
Difficulty: 2 Medium
Topic: Analyzing Industry Competition
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
32) In which of the following instances are industry
members not subject
to stronger competitive pressures from substitute products?
1. A) The
costs to buyers of switching over to the substitutes are low.
2. B)
Buyers are dubious about using substitutes.
3. C)
The quality and performance of the substitutes are well-matched to what buyers
need to meet their requirements.
4. D)
Buyer brand loyalty is weak.
5. E)
Substitutes are readily available at competitive prices.
Answer: B
Explanation: Competitive pressures are stronger when: (1)
good substitutes are readily available and attractively priced; (2) buyers view
the substitutes as comparable or better in terms of quality, performance, and
other relevant attributes; and (3) the costs that buyers incur in switching to
the substitutes are low.
Difficulty: 2 Medium
Topic: Analyzing Industry Competition
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
33) Determining how strong the threat of substitutes will be
entails
1. A)
identifying the relative price/performance relationship of the substitutes, the
switching costs, and the overall buyer demand for the substitute.
2. B)
identifying the attractiveness of other industries.
3. C)
measuring Coke as a substitute for Pepsi and applying dynamic simulation modeling
techniques.
4. D)
adopting a substitute product concentration factor to the buyer volume.
5. E)
judging whether industry members are capable of self-manufacturing their
products.
Answer: A
Explanation: Competitive pressures are stronger when: (1) good
substitutes are readily available and attractively priced; (2) buyers view the
substitutes as comparable or better in terms of quality, performance, and other
relevant attributes; and (3) the costs that buyers incur in switching to the
substitutes are low.
Difficulty: 2 Medium
Topic: Analyzing Industry Competition
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
34) The lower the user’s switching costs, the
1. A)
harder it is for the sellers of attractive substitutes to lure buyers to their
offering.
2. B)
more intense the competitive pressures posed by substitute products.
3. C)
less intense the competitive pressures posed by substitute products.
4. D)
greater the bargaining power from both suppliers and influential customers.
5. E)
lesser the bargaining power from both suppliers and influential customers.
Answer: B
Explanation: Good substitutes are readily available and
attractively priced. The presence of readily available and attractively priced
substitutes creates competitive pressure by placing a ceiling on the prices
industry members can charge without risking sales erosion. This price ceiling,
at the same time, puts a lid on the profits that industry members can earn
unless they find ways to cut costs.
Difficulty: 2 Medium
Topic: Analyzing Industry Competition
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
35) Whether supplier-seller relationships in an industry
represent a strong or weak source of competitive pressure is a function of
1. A) whether
the profits of suppliers are relatively high or low.
2. B)
the average number of suppliers that each seller/industry member purchases
from.
3. C)
how aggressively rival industry members are trying to differentiate their
products.
4. D)
whether demand for supplier products is high and they are in short supply.
5. E)
whether the prices of the items being furnished by the suppliers are rising or
falling.
Answer: D
Explanation: Whether the suppliers of industry members
represent a weak or strong competitive force depends on the degree to which
suppliers have sufficient bargaining power to influence the terms and
conditions of supply in their favor. Suppliers with strong bargaining power can
erode industry profitability by charging industry members higher prices,
passing costs on to them, and limiting their opportunities to find better
deals.
Difficulty: 2 Medium
Topic: Analyzing Industry Competition
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
36) The strength of competitive pressures that suppliers can
exert on industry members is MAINLY a function of
1. A)
whether needed inputs are in short supply and whether suppliers provide
differentiated input that enhances performance of the product.
2. B)
whether suppliers self-manufacture what they supply or source their items from
other manufacturers.
3. C)
whether the industry’s position in the growth cycle is favorable.
4. D)
whether technological change in the businesses of suppliers is rapid or slow.
5. E)
whether the needs and expectations of supplier-seller relationships are
changing slowly or rapidly.
Answer: A
Explanation: Supplier power is stronger when: demand for
suppliers’ products is high and the products are in short supply; suppliers
provide differentiated inputs that enhance the performance of the industry’s
product; it is difficult or costly for industry members to switch their
purchases from one supplier to another; the supplier industry is dominated by a
few large companies and it is more concentrated than the industry it sells to;
industry members are incapable of integrating backward to self-manufacture
items they have been buying from suppliers; suppliers provide an item that
accounts for no more than a small fraction of the costs of the industry’s
product; good substitutes are not available for the suppliers’ products; and/or
industry members are not major customers of suppliers.
Difficulty: 2 Medium
Topic: Analyzing Industry Competition
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
37) The bargaining leverage of suppliers is greater when
1. A)
the suppliers’ products/services account for a small percentage of industry
members’ costs.
2. B)
industry members incur low costs in switching their purchases from one supplier
to another.
3. C)
industry members account for a big fraction of supplier’s sales.
4. D)
there is extensive seller-supplier collaboration.
5. E)
the supplier industry is composed of a large number of relatively small
suppliers.
Answer: A
Explanation: As a rule, suppliers have less bargaining
leverage when their sales to members of the industry constitute a big
percentage of their total sales.
Difficulty: 2 Medium
Topic: Analyzing Industry Competition
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
38) In which one of the following instances is supplier
bargaining power and leverage not weakened?
1. A)
when industry members pose a credible threat of backward integration into the
business of suppliers
2. B)
when the cost of switching from one supplier to another is low
3. C)
when the items purchased from suppliers are in short supply
4. D)
when the buying firms purchase in large quantities and thus are important
customers of the suppliers
5. E)
when the item being supplied is a commodity
Answer: A
Explanation: When inputs are in short supply, suppliers
tend to have stronger bargaining power and can charge industry members higher
prices (passing costs on to them) and limit opportunities to find better deals
via switching.
Difficulty: 2 Medium
Topic: Analyzing Industry Competition
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
39) When an industry member is a major customer of the supplier,
and the relationship (partnership) is unusually effective and mutually
advantageous
1. A) it
is rare for such partnerships to have much competitive impact on those industry
members not having such partnerships.
2. B)
one unfortunate outcome is that it tends to give the supply partners much
enhanced bargaining power in their dealings with these industry members.
3. C)
there is a strong likelihood such partnerships will put increased competitive
pressure on those industry members who lack productive collaborative
relationships with their suppliers.
4. D)
there is a high likelihood of such partnerships reducing competitive pressures
on all industry
members, provided technological change in the suppliers’ business is rapid and
the item being supplied is a commodity.
5. E)
the usual result is to reduce competitive pressures on all industry members,
provided the costs of the items furnished by supply chain partners amount to 50
percent or more of total cost.
Answer: C
Explanation: Industry incumbents enjoy large cost
advantages over competitors and potential entrants by forming exclusive
partnerships with the best and cheapest suppliers of raw materials and
components.
Difficulty: 3 Hard
Topic: Analyzing Industry Competition
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
40) The higher the switching costs for industry members, the
more it can
1. A)
limit supplier bargaining power.
2. B)
enhance supplier bargaining power.
3. C)
enhance the quality of parts and components being supplied, and in effect
reduce defect rates.
4. D)
provide important cost savings for the collaborative supplier-seller
relationship.
5. E)
limit the supply of products and/or services.
Answer: B
Explanation: Low switching costs limit supplier bargaining
power by enabling industry members to change suppliers if any one supplier
attempts to raise prices by more than the costs of switching. Thus, the higher
the switching costs of industry members, the stronger the bargaining power of
their suppliers.
Difficulty: 1 Easy
Topic: Analyzing Industry Competition
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
41) Whether buyer-seller relationships in an industry represent
a strong or weak source of competitive pressure is a function of
1. A)
the speed with which general economic conditions and interest rates are
changing.
2. B)
the extent to which buyers can exercise enough bargaining power to influence
the conditions of sale in their favor and whether strategic partnerships
between certain industry members can adversely affect other industry members.
3. C)
how many buyers purchase all of their requirements from a single seller versus
how many purchase from several sellers.
4. D)
the number of buyers versus the number of sellers.
5. E)
whether industry members are spending more or less on advertising.
Answer: B
Explanation: Buyers with strong bargaining power can limit
industry profitability by demanding price concessions, better payment terms, or
additional features and services that increase industry members’ costs. Buyer
price sensitivity limits the profit potential of industry members by restricting
the ability of sellers to raise prices without losing revenue due to lost
sales.
Difficulty: 2 Medium
Topic: Analyzing Industry Competition
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
42) Whether buyer bargaining power poses a strong or weak source
of competitive pressure on industry members depends in part on
1. A)
the degree to which buyers have any bargaining preferences and the extent to
which buyers are price sensitive.
2. B)
how many buyers are engaged in collaborative partnerships with sellers.
3. C)
whether entry barriers are high or low and the size of the pool of likely entry
candidates.
4. D)
whether the overall quality of the items being furnished by industry members is
rising or falling.
5. E)
whether demand-supply conditions represent a buyer’s market or a seller’s
market.
Answer: E
Explanation: Weak or declining demand and the resulting
excess supply create a buyers’ market, in which bargain hunting buyers are able
to press for better deals and special treatment.
Difficulty: 2 Medium
Topic: Analyzing Industry Competition
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
43) Which of the following is not a factor that causes buyer
bargaining power to be stronger?
1. A)
Some buyers are a threat to integrate backward into the business of sellers and
become an important competitor.
2. B)
Buyers are small and numerous relative to sellers.
3. C)
Buyers have considerable discretion over whether and when they purchase the
product.
4. D)
Buyers purchase the item frequently and are well-informed about sellers’
products, prices, and costs.
5. E)
The costs incurred by buyers in switching to competing brands or to substitute
products are relatively low.
Answer: B
Explanation: Competitive pressures from buyers increase
when they have strong bargaining power and are price sensitive. Buyer
bargaining power is stronger when buyers are large and few in number relative
to the number of industry sellers.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
44) Buyer bargaining power is stronger when
1. A)
winning the business of certain high-profile customers offers a seller
important market exposure or prestige.
2. B)
the extent and importance of collaborative partnerships and alliances between
particular sellers and buyers are credible.
3. C) buyers
cannot integrate backward into the product market of sellers.
4. D)
sellers’ products are differentiated, making it easy and inexpensive for buyers
to switch to competing brands.
5. E)
the industry’s products are standardized or undifferentiated.
Answer: E
Explanation: Buyer bargaining power is stronger when:
buyer demand is weak in relation to industry supply; the industry’s products
are standardized or undifferentiated; buyers’ costs of switching to competing
products are low; buyers are large and few in number relative to the number of
industry sellers; and/or buyers pose a credible threat of integrating backward
into the business of sellers; and/or buyers are well informed about the
quality, prices, and costs of sellers; and/or buyers have the ability to
postpone purchases.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
45) Which of the following factors is not a relevant
consideration in determining the strength of buyer bargaining power?
1. A)
the relationship between the buyer market and seller market
2. B)
the degree to which the seller is a manufacturer of goods and services in
substantial quantities
3. C)
the degree to which buyers pose a credible threat to integrate backward into
the product market of sellers
4. D)
the degree to which buyers are well-informed about a seller’s products, prices,
and costs
5. E)
the degree to which industry goods are standardized and undifferentiated
Answer: B
Explanation: Buyer bargaining power is stronger when:
buyer demand is weak in relation to industry supply; the industry’s products
are standardized or undifferentiated; buyers’ costs of switching to competing
products are low; buyers are large and few in number relative to the number of
industry sellers; and/or buyers pose a credible threat of integrating backward
into the business of sellers; and/or buyers are well informed about the
quality, prices, and costs of sellers; and/or buyers have the ability to
postpone purchases.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
46) Collaborative relationships between particular sellers and
buyers in an industry can represent a source of strong competitive pressure
when
1. A)
virtually all buyers have strong brand attachments and are highly brand loyal.
2. B)
demand for the product is growing rapidly.
3. C)
sales are made to buyer groups with either strong bargaining power or high
sensitivity.
4. D)
sellers are racing to add the latest and greatest performance features so as to
attract the patronage of important or prestigious buyers.
5. E)
buyers are very quality conscious.
Answer: C
Explanation: Buyers with strong bargaining power can limit
industry profitability by demanding price concessions, better payment terms, or
additional features and services that increase industry members’ costs. Buyer
price sensitivity limits the profit potential of industry members by
restricting the ability of sellers to raise prices without losing revenue due
to lost sales.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
47) In which of the following circumstances are competitive
pressures associated with the bargaining power of buyers relatively
moderate-to-weak?
1. A) The
supply of soccer balls increases during the World Cup season.
2. B)
Consumers can easily compare different smartphones’ features over the Internet
before buying them.
3. C)
Apple designs and manufactures its chip processors rather than buying them from
Intel.
4. D)
Dairy products are usually standardized and therefore differentiated only by
price.
5. E)
Buyers tend to delay purchases of luxury goods, such as home entertainment
systems, until they are on sale.
Answer: A
Explanation: Buyer bargaining power is stronger when:
buyer demand is weak in relation to industry supply; the industry’s products
are standardized or undifferentiated; buyers’ costs of switching to competing
products are low; buyers are large and few in number relative to the number of
industry sellers; and/or buyers pose a credible threat of integrating backward
into the business of sellers; and/or buyers are well informed about the
quality, prices, and costs of sellers; and/or buyers have the ability to
postpone purchases.
Difficulty: 2 Medium
Topic: Analyzing Industry Competition
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
48) Competitive pressures stemming from buyer bargaining power
tend to be weakest in which of the following circumstances?
1. A)
Most consumers vary the brands they choose for their cookware and kitchen
gadgets.
2. B)
There is a global decline in the demand for cable television services.
3. C)
The commercial jet aviation manufacturing industry offers highly differentiated
products.
4. D)
The Internet offers a huge amount of information on a variety of products.
5. E)
Heinz owns a metal-can manufacturing subsidiary to cut back on supplier costs.
Answer: C
Explanation: Buyer bargaining power tends to be weakest
when: buyer demand is strong in relation to industry supply; the industry’s
products are highly differentiated—as is surely the case in commercial jet
aviation; buyers’ costs of switching to competing products are high; buyers are
plentiful in number relative to the number of industry sellers (which is also
the case in the commercial jet manufacturing industry); buyers pose no or a
very limited threat of integrating backward into the business of sellers;
buyers are not well informed about the quality, prices, and costs of sellers;
and buyers have a limited ability to postpone purchases.
Difficulty: 2 Medium
Topic: Analyzing Industry Competition
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
49) Which of the following conditions acts to weaken buyer
bargaining power?
1. A)
when buyers are unlikely to integrate backward into the business of sellers
2. B)
when buyers purchase the item frequently and are well-informed about sellers’
products, prices, and costs
3. C)
when the costs incurred by buyers in switching to competing brands or to
substitute products are relatively low
4. D)
when the products of rival sellers are weakly differentiated and buyers have
considerable discretion over whether and when they purchase the product
5. E)
when buyers are few in number and/or often purchase in large quantities
Answer: A
Explanation: Buyer bargaining power is stronger when:
buyer demand is weak in relation to industry supply; the industry’s products
are standardized or undifferentiated; buyers’ costs of switching to competing products
are low; buyers are large and few in number relative to the number of industry
sellers; and/or buyers pose a credible threat of integrating backward into the
business of sellers; and/or buyers are well informed about the quality, prices,
and costs of sellers; and/or buyers have the ability to postpone purchases.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
50) Buyers are in position to exert strong bargaining power in
dealing with sellers when
1. A)
their costs to switch to competing brands or to substitute products are relatively
high.
2. B) a
particular seller’s product delivers quality or performance that is very
important to the buyer and is not matched by other brands.
3. C)
they buy the product infrequently or in small quantities and are not
particularly well-informed about sellers’ products, prices, and costs.
4. D)
buyer demand is growing rapidly.
5. E)
buyers are price sensitive because the product represents a significant portion
of their purchasing budget.
Answer: E
Explanation: Price is a critical factor in the purchase
decisions of low-income consumers and companies that are barely scraping by. In
such cases, their high price sensitivity limits the ability of sellers to
charge high prices.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
51) Which of the following factors is not a relevant
consideration in judging whether buyer bargaining power is relatively strong or
relatively weak?
1. A)
whether certain customers offer sellers important market exposure or prestige
2. B)
whether customers are relatively well-informed about sellers’ products, prices,
and costs
3. C)
whether buyer needs and expectations are changing rapidly or slowly
4. D)
whether sellers’ products are highly differentiated, making it troublesome or
costly for buyers to switch to competing brands or to substitute products
5. E)
whether buyers pose a major threat to integrate backward into the product
market of sellers
Answer: C
Explanation: Buyer bargaining power is stronger when:
buyer demand is weak in relation to industry supply; the industry’s products
are standardized or undifferentiated; buyers’ costs of switching to competing
products are low; buyers are large and few in number relative to the number of
industry sellers; and/or buyers pose a credible threat of integrating backward
into the business of sellers; and/or buyers are well informed about the
quality, prices, and costs of sellers; and/or buyers have the ability to
postpone purchases.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
52) Not all buyers of an industry’s product have equal degrees
of bargaining power with sellers because
1. A) sellers
in an industry provide similar products and generally their cost structures are
different because of competitive advantages in their operation.
2. B)
some sellers may be less sensitive than others to price, quality, or service
differences.
3. C)
along the various stages of the value chain sellers are conducive to earning
attractive profits.
4. D)
the industry is a highly cohesive structure with limited fragmentation and few
industry members.
5. E)
sellers are large and few in number relative to the number of buyers.
Answer: B
Explanation: Buyer bargaining power is stronger when:
buyer demand is weak in relation to industry supply; the industry’s products
are standardized or undifferentiated; buyers’ costs of switching to competing
products are low; buyers are large and few in number relative to the number of
industry sellers; and/or buyers pose a credible threat of integrating backward
into the business of sellers; and/or buyers are well informed about the
quality, prices, and costs of sellers; and/or buyers have the ability to
postpone purchases.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
53) A competitive environment where there is weak to moderate
rivalry among sellers, high entry barriers, weak competition from substitute
products, and little bargaining leverage on the part of both suppliers and
customers
1. A)
lacks powerful driving forces.
2. B)
gives each industry competitor the best potential for building sustainable
competitive advantage over rival firms.
3. C)
makes it challenging for industry members to compete successfully unless they
can strongly differentiate their products.
4. D) is
conducive to industry members earning attractive profits.
5. E)
requires that industry members have low costs in order to be competitively
successful.
Answer: D
Explanation: When the overall impact of the five
competitive forces is moderate to weak, an industry is attractive in the sense
that the average industry member can reasonably expect to earn good profits and
a nice return on investment.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
54) A competitive environment where there is strong rivalry
among sellers, low entry barriers, strong competition from substitute products,
and considerable bargaining leverage on the part of both suppliers and
customers
1. A) is
competitively unattractive from the standpoint of earning good profits.
2. B)
offers little ability to build a sustainable competitive advantage.
3. C) is
highly conducive to achieving strong product differentiation and high customer
loyalty to the company’s brand.
4. D)
offers moderate to good prospects for making a reasonable profit and building a
sustainable competitive advantage.
5. E)
requires that industry members have a strongly differentiated product offering
in order to be profitable.
Answer: A
Explanation: The most extreme case of a competitively
unattractive industry occurs when all five forces are producing strong
competitive pressures: rivalry among sellers is vigorous, low entry barriers
allow new rivals to gain a market foothold, competition from substitutes is
intense, and both suppliers and buyers are able to exercise considerable
leverage.
Difficulty: 3 Hard
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
55) The stronger the collective impact of competitive pressures
associated with the five competitive forces,
1. A)
the stronger are the industry’s driving forces.
2. B)
the greater number of companies that can achieve a competitive advantage via
differentiation.
3. C)
the larger the number of competitive advantage opportunities for industry
members.
4. D)
the greater the number of industry key success factors.
5. E)
the fewer companies that can achieve a competitive advantage via anything other
than being the industry’s low-cost leader.
Answer: A
Explanation: All other things being equal and as a rule,
the stronger the collective impact of the five competitive forces, the lower
the combined profitability of industry participants.
Difficulty: 3 Hard
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
56) Based on an analysis of the five competitive forces, in
which of the following industries is profitability likely to be lowest?
1. A)
pharmaceuticals
2. B)
wireless lighting systems
3. C) wearable
fitness and health monitors
4. D)
pizza restaurants
5. E)
delivery services using drones
Answer: D
Explanation: As a rule, the strongest competitive forces
determine the extent of the competitive pressure on industry profitability. All
other things being equal and as a rule, the stronger the collective impact of
the five competitive forces, the lower the combined profitability of industry
participants—and this is particularly true of the saturated, mature pizza
restaurant industry in comparison with the others listed, each of which have
mitigated the power of some competitive forces to achieve above-average
returns.
Difficulty: 3 Hard
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
57) Based on an analysis of the five competitive forces, in
which of the following industries is profitability likely to be highest?
1. A)
apparel
2. B)
tire manufacturing
3. C)
electric and gas utilities
4. D)
commercial airlines
5. E)
video streaming services
Answer: E
Explanation: All other things being equal and as a rule,
the weaker the collective impact of the five competitive forces, the higher the
combined profitability of industry participants—and this is particularly true
of the streaming video industry in comparison with the others listed, each of
which face tremendous competitive pressures that dampen profits.
Difficulty: 3 Hard
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
58) As a rule, the collective impact of competitive pressures
associated with the five competitive forces
1. A)
determines the strength of the industry’s driving forces.
2. B)
determines the extent of the competitive pressure on industry profitability.
3. C)
means that fewer companies can achieve a competitive advantage via anything
other than being the industry’s low-cost leader.
4. D)
means there will be a larger number of competitive advantage opportunities for
industry members.
5. E)
means there will be a greater number of industry key success factors.
Answer: B
Explanation: As a rule, the strongest competitive forces
determine the extent of the competitive pressure on industry profitability.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
59) A company’s strategy is increasingly effective the more it
can match the company strategy to competitive conditions, so the firm can
1. A)
pursue avenues that expose the firm to as many of the different competitive
pressures as possible.
2. B)
shift the competitive battle in favor of the firm by altering the underlying
factors driving the five forces.
3. C)
pursue ways to identify and complement the five forces’ contradictions and
inferences to attract competitive growth opportunities.
4. D)
pursue avenues that promote strategic thinking about how to contest competitor
strengths and weaknesses and to create a checklist of potential profitability
preferences.
5. E)
shift societal concerns, attitudes, and lifestyles by altering the pattern of
competition.
Answer: B
Explanation: Effectively matching a company’s business
strategy to prevailing competitive conditions has two aspects: (1) pursuing
avenues that shield the firm from as many of the different competitive
pressures as possible and (2) initiating actions calculated to shift the competitive
forces in the company’s favor by altering the underlying factors driving the
five forces.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
60) The value net framework includes an analysis of
1. A)
the firm, substitutes, suppliers, customers, and competitors.
2. B) the
firm, suppliers, customers, competitors, and driving forces.
3. C)
substitutes, suppliers, customers, competitors, and driving forces.
4. D)
the firm, suppliers, customers, competitors, and complementors.
5. E)
substitutes, suppliers, customers, competitors, and potential entrants.
Answer: B
Explanation: The value net framework conceptual model
focuses on the industry interactions with a particular company. The components
of the framework are competitors (which include entrants and substitutes),
customers, suppliers, and complementors. The new category not found in the five
forces framework, complementors, are those producers of complementary products
that enhance the value of an individual firm.
Difficulty: 2 Medium
Topic: Value Net Framework
Learning Objective: 03-02 How to use analytic tools to
diagnose the competitive conditions in a company’s industry.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
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