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Sample Test
Chapter 03 Evaluating a Company’s External Environment Answer
Key
Multiple Choice Questions
|
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
|
A.
|
the industry and the competitive arena in which the
company operates.
|
|
B.
|
general economic conditions plus the factors
driving change in the markets where a company operates.
|
|
C.
|
a company’s “macro-environment.”
|
|
D.
|
the competitive market environment that exists
between a company and its competitors.
|
|
E.
|
the dominant economic features of a company’s
industry.
|
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.”
|
|
AACSB: Diversity
Accessibility: Keyboard
Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective:
03-01 How to recognize the factors in a company’s broad macro-environment
that may have strategic significance.
Topic: Environmental
Scanning
|
|
2.
|
Managers must chart a
company’s strategic course by
|
A.
|
focusing on the local environment in which they are
operating.
|
|
B.
|
ensuring excess production capacity and/or
inventory.
|
|
C.
|
competing fiercely for a share in the market.
|
|
D.
|
building a bigger dealer network.
|
|
E.
|
developing a thorough understanding of the
company’s external and internal environment.
|
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.
|
|
AACSB: Diversity
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective:
03-01 How to recognize the factors in a company’s broad macro-environment
that may have strategic significance.
Topic: Environmental
Scanning
|
|
3.
|
Which of the following is
NOT part of a company’s macro-environment?
|
A.
|
legal and regulatory conditions
|
|
B.
|
European culture, values, and lifestyles
|
|
C.
|
the pace of technological change
|
|
D.
|
the natural environment
|
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.
|
|
AACSB: Diversity
Accessibility: Keyboard
Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective:
03-01 How to recognize the factors in a company’s broad macro-environment
that may have strategic significance.
Topic: Environmental
Scanning
|
|
4.
|
Which of the following is
NOT one of the principal components of strategic significance in the PESTEL
analysis?
|
A.
|
political factors including the extent to which
government intervenes in the economy
|
|
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
|
|
C.
|
sociocultural forces including societal values,
attitudes, cultural factors, and lifestyles that impact business
|
|
D.
|
technological factors that include the pace of
change and technical developments that have the potential for impacting
society
|
|
E.
|
environmental forces that include the competitive
structure, the degree of industry fragmentation, and the mobility barriers
that inhibit business
|
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.
|
|
AACSB: Diversity
Accessibility: Keyboard
Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective:
03-01 How to recognize the factors in a company’s broad macro-environment
that may have strategic significance.
Topic: Environmental
Scanning
|
|
5.
|
Which of the following is
LIKELY to have the biggest strategy-shaping impact on on-demand
transportation providers such as Uber and Lyft?
|
A.
|
Yellow Cab company launches mobile app campaigns
for community-connect and awareness.
|
|
B.
|
Amazon launches a mobile delivery service via
drones.
|
|
C.
|
Apple launches a global network of driverless cars,
buses, and trucks on demand via mobile app.
|
|
D.
|
Tesla and ZipCar announce a joint venture for
electric automobile sharing services.
|
|
E.
|
Greyhound develops and markets a mobile app for
customers to purchase inter-city bus tickets.
|
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.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective:
03-01 How to recognize the factors in a company’s broad macro-environment
that may have strategic significance.
Topic: Porter’s Five
Forces
|
|
6.
|
Which of the following
factors represents the strategically relevant political factors in the
macro-environment that will influence the performance of all firms across the
board?
|
A.
|
the strength of the federal banking system
|
|
B.
|
the exogenous forces related to the general
environmental demand
|
|
C.
|
social factors that could fuel a political agenda
and create greater transparency
|
|
D.
|
bailouts and energy policies that are
industry-specific
|
|
E.
|
tax policy, fiscal policy, and tariffs providing
impetus for anti-trust matters
|
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.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective:
03-01 How to recognize the factors in a company’s broad macro-environment
that may have strategic significance.
Topic: Environmental
Scanning
|
|
7.
|
Which of the following is
NOT a major question to ask in thinking strategically about industry and
competitive conditions in a given industry?
|
A.
|
How many companies in the industry have good track
records for revenue growth and profitability?
|
|
B.
|
What strategic moves are rivals likely to make
next?
|
|
C.
|
What are the industry’s key factors for future
competitive success?
|
|
D.
|
Is the outlook for the industry conducive to
providing attractive profitability?
|
|
E.
|
What are the driving forces in the industry, and
what impact will these changes have on competitive intensity and industry
profitability?
|
Thinking strategically about a company’s industry and
competitive environment entails using some well-validated concepts and
analytic tools. These include the five forces framework, the value net,
driving forces, strategic groups, competitor analysis, and key success
factors.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Porter’s Five
Forces
|
|
8.
|
Which of the following does
NOT exemplify the impact of the macro-environment on a company’s strategic
opportunities?
|
A.
|
Sales of Stolichnaya Vodka in the United States
dwindle on account of a boycott of Russian products.
|
|
B.
|
Consumer confidence in Volkswagen drops
precipitously because of falsified emissions data.
|
|
C.
|
Netflix squares off with Amazon Prime as its most
potent rival in the streaming television and film industry.
|
|
D.
|
Traffic increases at the outlets of Whole Foods
following its introduction of stores comprised solely of generic products.
|
|
E.
|
Sales of FitBit surge on account of a new feature
that monitors users’ blood pressure.
|
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.
|
|
AACSB: Diversity
Accessibility: Keyboard
Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Environmental Scanning
|
|
9.
|
The most powerful and
widely used conceptual tool for diagnosing the principal competitive
pressures in a market is
|
A.
|
the five forces framework.
|
|
C.
|
the driving forces model.
|
|
D.
|
strategic group mapping.
|
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.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Porter’s Five
Forces
|
|
10.
|
The competitive pressures
on companies within an industry come from all of the following, EXCEPT
|
A.
|
those associated with the market maneuvering and
jockeying for buyer patronage that goes on among rival firms in the industry.
|
|
B.
|
those companies in other industries attempting to
win buyers over to their substitute products.
|
|
C.
|
those associated with the threat of new entrants
into the marketplace.
|
|
D.
|
those associated with the bargaining power of suppliers
and customers.
|
|
E.
|
those associated with environmental factors such as
water shortages.
|
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.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Porter’s Five
Forces
|
|
11.
|
Which of the following is
NOT one of the five forces of competitive pressures?
|
A.
|
the power and influence of social/demographic
trends
|
|
B.
|
the bargaining power of suppliers and
seller-supplier collaboration
|
|
C.
|
the threat of new entrants into the market
|
|
D.
|
the attempts of companies in other industries to
win customers over to their own substitute products
|
|
E.
|
the market maneuvering and jockeying for buyer
patronage that goes on among rival sellers in the industry
|
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.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a company’s
industry.
Topic: Porter’s Five
Forces
|
|
12.
|
The most powerful of the
five competitive forces is USUALLY
|
A.
|
the competitive pressures that stem from the ready
availability of attractively priced substitute products.
|
|
B.
|
the competitive pressures associated with the
market maneuvering and jockeying for buyer patronage that goes on among
rival sellers in the industry.
|
|
C.
|
the benefits that emerge from close collaboration
with suppliers and the competitive pressures that such collaboration
creates.
|
|
D.
|
the competitive pressures associated with the
potential entry of new competitors.
|
|
E.
|
the bargaining power and leverage that large
customers are able to exercise.
|
The strongest of the five competitive forces is often the rivalry
for buyer patronage among competing sellers of a product or service.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Porter’s Five
Forces
|
|
13.
|
Using the five forces model
of competition to determine the character and strength of the competitive
forces within a given industry involves
|
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) determining whether the collective impact of the five
competitive forces is conducive to earning attractive profits in the
industry.
|
|
B.
|
building the picture of competition in two steps:
(1) determining which rival has the biggest competitive advantage and (2)
assessing whether the competitive advantages possessed by various industry
members allow most industry members to earn above-average profits.
|
|
C.
|
evaluating whether competition is being intensified
or weakened by the industry’s driving forces and key success factors.
|
|
D.
|
assessing 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.
|
|
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.
|
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.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Porter’s Five
Forces
|
|
14.
|
What makes the marketplace
a competitive battlefield?
|
A.
|
the race of industry members to build strong
defenses against the industry’s driving forces
|
|
B.
|
the constant rivalry of firms to strengthen their
standing with buyers and win a competitive edge over rivals
|
|
C.
|
the ongoing race among rival sellers to have the
highest-quality product
|
|
D.
|
the ongoing efforts of industry members to
introduce new and improved products/services at a faster rate than their
rivals
|
|
E.
|
the ongoing race among rivals to achieve the fastest
rate of growth in revenues and profits
|
The strongest of the five competitive forces is often the
rivalry for buyer patronage among competing sellers of a product or service.
|
|
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Porter’s Five
Forces
|
|
15.
|
Market maneuvering among
industry rivals
|
A.
|
determines whether the industry’s strategic group
map will be static or dynamic.
|
|
B.
|
centers around collaborative efforts to overcome
the bargaining power of powerful suppliers and powerful buyers.
|
|
C.
|
is usually an industry’s strongest driving force.
|
|
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.
|
|
E.
|
is ongoing and dynamic, with moves and countermoves
of rivals producing a continually evolving competitive landscape that
delivers winners and losers.
|
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.
|
|
AACSB: Reflective Thinking
Accessibility: Keyboard
Navigation
Blooms: Apply
Difficulty: 1 Easy
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Porter’s Five
Forces
|
|
16.
|
Rivalry among competing sellers
decreases
|
A.
|
when buyer demand is growing rapidly.
|
|
B.
|
as it becomes less costly for buyers to switch
brands.
|
|
C.
|
as the products of rival sellers become
commoditized.
|
|
D.
|
when there is excess production relative to demand.
|
|
E.
|
as the number of competitors increases.
|
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; rivals have
emotional stakes in the business or face high exit barriers.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Porter’s Five
Forces
|
|
17.
|
Factors that cause the
rivalry among competing sellers to be weaker include
|
A.
|
low buyer switching costs.
|
|
B.
|
low fixed costs or storage costs.
|
|
C.
|
many industry rivals of roughly equal size and
competitive strength.
|
|
D.
|
weakly differentiated products among rival sellers.
|
|
E.
|
slow growth in buyer demand.
|
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; rivals have
emotional stakes in the business or face high exit barriers.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Porter’s Five
Forces
|
|
18.
|
The rivalry among competing
sellers tends to be less intense when
|
A.
|
industry conditions tempt competitors to use price
cuts or other competitive weapons to boost unit sales.
|
|
B.
|
buyer demand is weak and many sellers have excess
capacity and/or inventory.
|
|
C.
|
industry rivals are not particularly aggressive or
active in making fresh moves to improve their market standing and business
performance.
|
|
D.
|
rivals have diverse strategies and objectives and
are located in different countries.
|
|
E.
|
rival sellers have weakly differentiated products.
|
When rivalry is weak, most companies in the industry are
relatively well satisfied with their sales growth and market shares and
rarely undertake offensives to steal customers away from one another.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Porter’s Five
Forces
|
|
19.
|
Rivalry among competing
sellers is generally less intense when
|
A.
|
there are relatively more industry key success
factors.
|
|
B.
|
the industry’s driving forces are weak and rivals
have mostly commodity products.
|
|
C.
|
barriers to entry are moderately low and the pool
of likely entry candidates is large.
|
|
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.
|
|
E.
|
buyers have many alternative products or services
from which to choose.
|
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.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Porter’s Five
Forces
|
|
20.
|
The competitive battles among
rival sellers striving for better market positions, higher sales and market
shares, and competitive advantage, suggest the rivalry force
|
A.
|
is stronger when firms strive to be low-cost
producers than when they use differentiation and focus strategies.
|
|
B.
|
is often weak when rivals have emotional stakes in
business or face high exit barriers.
|
|
C.
|
is largely unaffected by whether industry
conditions tempt rivals to use price cuts or other competitive weapons to
boost unit sales.
|
|
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.
|
|
E.
|
is weaker when more firms have weakly
differentiated products, buyer demand is growing slowly, and buyers have
moderate switching costs.
|
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.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Porter’s Five
Forces
|
|
21.
|
In analyzing the strength
of competition among rival firms, an important consideration is
|
A.
|
the potential for buyers to exercise strong
bargaining power.
|
|
B.
|
the diversity of competitors in terms of long-term direction,
objectives, strategies, and countries of origin.
|
|
C.
|
the number of firms pursuing differentiation
strategies versus the number pursuing low-cost leadership strategies and
focus strategies.
|
|
D.
|
the extent to which some rivals have more than two
competitively valuable competencies or capabilities.
|
|
E.
|
whether the industry is characterized by a strong
learning/experience curve and whether the industry is composed of many or
few strategic groups.
|
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.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective:
03-01 How to recognize the factors in a company’s broad macro-environment
that may have strategic significance.
Topic: Porter’s Five
Forces
|
|
22.
|
The intensity of rivalry
among competing sellers does NOT depend on whether
|
A.
|
the industry has more than two strong driving
forces and whether the industry has more than two diverse and capable
strategic groups.
|
|
B.
|
competitors are diverse in terms of long-term
directions, objectives, strategies, and countries of origin.
|
|
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.
|
|
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.
|
|
E.
|
industry conditions attract industry members to use
price cuts or other competitive weapons to boost total sales volume and
market share.
|
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.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Porter’s Five
Forces
|
|
23.
|
In which of the following
instances is rivalry among competing sellers NOT more intense?
|
A.
|
when certain competitors are dissatisfied with
their market position and make moves to bolster their standing
|
|
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
|
|
C.
|
when competitors are fairly equal in size and
capability
|
|
D.
|
when the products of rivals are weakly
differentiated, buyer switching costs are low, and market demand is growing
slowly
|
|
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
|
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; rivals have
emotional stakes in the business or face high exit barriers.
|
|
AACSB: Reflective Thinking
Accessibility: Keyboard
Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Porter’s Five
Forces
|
|
24.
|
Competing companies deploy
whatever means necessary to strengthen market position, including all of the
following EXCEPT
|
A.
|
marketing tactics including special sales
promotions such as introducing new or improved features or increasing the
number of styles to provide greater product selection.
|
|
B.
|
differentiating their products by offering better
performance features than rivals.
|
|
C.
|
improving innovation to increase product
performance and quality.
|
|
D.
|
making efforts to expand dealer networks.
|
|
E.
|
reducing distribution capabilities and market
presence.
|
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.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Porter’s Five
Forces
|
|
25.
|
Which of the following is
generally NOT considered a barrier to entry?
|
A.
|
restrictive regulatory policies
|
|
B.
|
high capital requirements
|
|
C.
|
strong brand preferences
|
|
D.
|
many industry patents in place
|
|
E.
|
weak “network effects” in customer demand
|
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.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Barriers to Entry
|
|
26.
|
Potential entrants are more
likely to be deterred from actually entering an industry when
|
A.
|
incumbent firms are willing and able to be
aggressive in defending their market positions against entry.
|
|
B.
|
incumbent firms are complacent.
|
|
C.
|
buyers are not particularly price-sensitive and the
industry already contains a dozen or more rivals.
|
|
D.
|
the relative cost positions of incumbent firms are
about the same, such that no one incumbent has a meaningful cost advantage.
|
|
E.
|
buyer switching costs are moderately low because of
strong product differentiation among incumbent firms.
|
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.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 3 Hard
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Barriers to Entry
|
|
27.
|
Competitive pressures
associated with the threat of entry are greater in all of the following
situations, EXCEPT when
|
A.
|
incumbent firms are willing to strongly contest the
entry of newcomers with moves designed to make entry unprofitable.
|
|
B.
|
a large pool of potential entrants exists, some of
which have the capabilities to overcome high entry barriers.
|
|
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.
|
|
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.
|
|
E.
|
customers have low brand preferences and low
degrees of loyalty to seller.
|
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.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Barriers to Entry
|
|
28.
|
The best test of whether
potential entry is a strong or weak competitive force is
|
A.
|
the strength of buyer loyalty to existing brands.
|
|
B.
|
whether the industry’s driving forces make it
harder or easier for new entrants to be successful.
|
|
C.
|
whether the strategies of industry members are
well-matched to the industry’s key success factors.
|
|
D.
|
whether there are any vacant spaces on the industry’s
strategic group map.
|
|
E.
|
to ask if the industry’s growth and profit
prospects are strongly attractive to potential entry candidates.
|
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.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Barriers to Entry
|
|
29.
|
The competitive threat that
outsiders will enter a market is weaker when
|
A.
|
financially strong industry members send strong
signals that they will launch strategic initiatives to combat the entry of
newcomers.
|
|
B.
|
the industry’s market growth is rapid.
|
|
C.
|
the pool of entry candidates is large and some have
resources that would make them formidable market contenders.
|
|
D.
|
newcomers can be expected to earn attractive
profits.
|
|
E.
|
buyers have little loyalty to the brands and
product offerings of existing industry members.
|
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.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Barriers to Entry
|
|
30.
|
Which of the following is
NOT a good example of a substitute product that triggers stronger competitive
pressures?
|
A.
|
a salad as a substitute for French fries
|
|
B.
|
wireless phones as a substitute for wired
telephones
|
|
C.
|
Coca-Cola as a substitute for Pepsi
|
|
D.
|
snowboards as a substitute for snow skis
|
|
E.
|
video-on-demand services from a cable TV company as
a substitute for going to the movies
|
Competitive pressures are stronger when: Good substitutes are
readily available and attractively priced; buyers view the substitutes as
comparable or better in terms of quality, performance, and other relevant
attributes; and the costs that buyers incur in switching to the substitutes
are low. Brands of the same basic product constitute rival products and not
substitutes.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 1 Easy
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Competitive
Pressures
|
|
31.
|
The competitive pressures
from substitute products tend to be stronger when
|
A.
|
good substitutes are readily available.
|
|
B.
|
there are fewer number of substitute products.
|
|
C.
|
substitutes have lower performance features.
|
|
D.
|
buyers incur high costs in switching to
substitutes.
|
|
E.
|
substitutes are priced above the market.
|
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. (3) The costs that buyers incur in switching to
the substitutes are low.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Competitive
Pressures
|
|
32.
|
In which of the following
instances are industry members NOT subject to stronger competitive pressures
from substitute products?
|
A.
|
The costs to buyers of switching over to the
substitutes are low.
|
|
B.
|
Buyers are dubious about using substitutes.
|
|
C.
|
The quality and performance of the substitutes are
well-matched to what buyers need to meet their requirements.
|
|
D.
|
Buyer brand loyalty is weak.
|
|
E.
|
Substitutes are readily available at competitive
prices.
|
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. (3) The costs that buyers incur in switching to
the substitutes are low.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Competitive
Pressures
|
|
33.
|
Determining how strong the
threat of substitutes will be entails
|
A.
|
identifying the relative price/performance
relationship of the substitutes, the switching costs, and the overall buyer
demand for the substitute.
|
|
B.
|
identifying the attractiveness of other industries.
|
|
C.
|
measuring Coke as a substitute for Pepsi and
applying dynamic simulation modeling techniques.
|
|
D.
|
adopting a substitute product concentration factor
to the buyer volume.
|
|
E.
|
judging whether industry members are capable of
self-manufacturing their products.
|
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. (3) The costs that buyers incur in switching to
the substitutes are low.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Competitive
Pressures
|
|
34.
|
The lower the user’s
switching costs, the
|
A.
|
harder it is for the sellers of attractive
substitutes to lure buyers to their offering.
|
|
B.
|
more intense the competitive pressures posed by
substitute products.
|
|
C.
|
less intense the competitive pressures posed by
substitute products.
|
|
D.
|
greater the bargaining power from both suppliers
and influential customers.
|
|
E.
|
lesser the bargaining power from both suppliers and
influential customers.
|
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.
|
|
AACSB: Analytical Thinking
Accessibility: Keyboard
Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective:
03-02 How to use analytic tools to diagnose the competitive conditions in a
company’s industry.
Topic: Competitive
Pressures
|
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