Essentials of Strategic Management The Quest for Competitive Advantage John Gamble 6th Edition-Testt Bank
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Essentials of Strategic Management, 6e (Gamble)
Chapter 3 Evaluating a Company’s External
Environment
1) A company’s broad macroenvironment refers to
1. A)
the industry and competitive arena in which the company operates.
2. B)
general economic conditions plus the factors driving change in the markets
being served.
3. C)
all the strategically significant forces and factors outside a company’s
boundaries—general economic conditions, population demographics, societal
values and lifestyles, technological factors, and governmental legislation and
regulation.
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: Strictly speaking, the macroenvironment
excludes a company’s competitively valuable resources and capabilities and
instead encompasses all of the relevant factors—political factors, economic
conditions in the firm’s general environment, sociocultural forces,
technological factors, environmental forces, and legal/regulatory
factors—making up the broad environmental context in which a company operates.
See Figure 3.1, The Components of a Company’s External Environment.
Difficulty: 1 Easy
Topic: Understanding a Firm’s External Environment
Learning Objective: 03-01 Identify factors in a company’s
broad macro-environment that may have strategic significance.
Bloom’s: Remember
AACSB: Knowledge Application
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2) ________ is/are the strategically relevant factors outside a
company’s industry boundaries—economic conditions, political factors,
sociocultural forces, technological factors, environmental factors, and
legal/regulatory conditions.
1. A)
General economic conditions plus the factors driving change in the markets
where a company operates
2. B)
The competitive market environment that exists between a company and its
competitors
3. C)
The dominant economic and technological features of a company’s industry
4. D)
The industry and the competitive arena in which the company operates
5. E) A
company’s macroenvironment
Answer: E
Explanation: See Figure 3.1. Six principal components—(1)
political factors; (2) economic conditions in the firm’s general environment
(local, country, regional, worldwide); (3) sociocultural forces; (4)
technological factors; (5) environmental factors (concerning the natural
environment); and (6) legal/regulatory conditions—constitute a company’s
macroenvironment.
Difficulty: 2 Medium
Topic: Understanding a Firm’s External Environment
Learning Objective: 03-01 Identify factors in a company’s
broad macro-environment that may have strategic significance.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
3) Which of the following is not a major question to ask in
thinking strategically about industry and competitive conditions in a given
industry?
1. A)
How many companies in the industry have good track records for revenue growth
and profitability?
2. B)
What strategic moves are rivals likely to make next?
3. C)
What are the key factors for future competitive success?
4. D)
Does the outlook for the industry offer good prospects for profitability?
5. E)
What forces are driving changes in the industry, and what impact will these
changes have on competitive intensity and industry profitability?
Answer: A
Explanation: The correct answer refers to actions in a
company’s economic environment, whereas all of the other responses refer to
characteristics of a company’s industry and competitive environment, as shown
in Figure 3.1.
Difficulty: 1 Easy
Topic: Understanding a Firm’s External Environment
Learning Objective: 03-01 Identify 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)
Technological factors that include the pace of change and technical
developments possessing the potential to impact society
2. B)
Changes in laws and regulations that give rise to the birth of new industries,
new knowledge, and disruptive technologies
3. C)
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
4. D)
Sociocultural forces including societal values, attitudes, cultural factors,
and lifestyles that impact business
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 macroenvironment: (1)
political; (2) economic; (3) sociocultural; (4) technological; (5)
environmental (concerning the natural environment, not the business
environment); and (6) legal/regulatory. The correct answer refers to actions in
a company’s industry and competitive environment, whereas all of the other
responses refer to characteristics of a company’s economic environment, as
shown in Figure 3.1. The factors and forces in a company’s external environment
that have the biggest strategy-shaping impact typically pertain to the
company’s immediate inner ring industry and competitive environment—competitive
pressures, the actions of rival firms, buyer behavior, supplier-related
considerations, and so on.
Difficulty: 2 Medium
Topic: Understanding a Firm’s External Environment
Learning Objective: 03-01 Identify factors in a company’s
broad macro-environment that may have strategic significance.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
5) Which of the following is not a factor to consider in
identifying an industry’s dominant economic features?
1. A)
Market size, growth rate, and prospects
2. B)
Scope of competitive rivalry including geographic area
3. C)
Market demand-supply conditions
4. D)
Strength of both driving forces and competitive forces
5. E)
Role and pace of technological change
Answer: D
Explanation: The strength of both driving forces and
competitive forces are actions in a company’s industry and competitive
environment, whereas all of the other responses refer to characteristics of a
company’s economic environment, as shown in Figure 3.1.
Difficulty: 2 Medium
Topic: Understanding a Firm’s External Environment
Learning Objective: 03-01 Identify factors in a company’s
broad macro-environment that may have strategic significance.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
6) Which of the following is likely to
have the biggest strategy-shaping impact on on-demand transportation providers
such as Uber and Lyft?
1. A)
Tesla and ZipCar announce a joint venture for electric automobile sharing
services.
2. B)
Amazon launches a mobile delivery service via drones.
3. C)
Apple and Ford launch a global network of autonomous driverless cars, buses,
and trucks on demand via a mobile app.
4. D)
Greyhound develops and markets a mobile app for customers to purchase intercity
bus tickets.
5. E)
Yellow Cab company launches mobile app campaigns for community-connection and
awareness.
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 and Ford launching a
global network of autonomous, driverless transportation vehicles on demand via
a mobile app will compete directly with and probably cannibalize most other
transportation businesses that remain reliant on human drivers.
Difficulty: 3 Hard
Topic: Understanding a Firm’s External Environment
Learning Objective: 03-01 Identify factors in a company’s
broad macro-environment that may have strategic significance.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
7) Which of the following factors represents the strategically
relevant political factors in the macroenvironment that will influence the
performance of all firms across the board?
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: 3 Hard
Topic: Understanding a Firm’s External Environment
Learning Objective: 03-01 Identify factors in a company’s
broad macro-environment that may have strategic significance.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
8) Each of the following exemplifies the impact of the
macroenvironment on a company’s strategic opportunities except
1. A)
United States’ sales of Stolichnaya Vodka 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
new store formats that are solely for the sale of private label generic
products.
5. E)
sales of FitBit surge on account of new features that monitor the users’ blood
pressure and sleep habits.
Answer: C
Explanation: The six principal components of the
macroenvironment 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: 3 Hard
Topic: Understanding a Firm’s External Environment
Learning Objective: 03-01 Identify factors in a company’s
broad macro-environment that may have strategic significance.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
9) ________ is the most powerful and widely known tool used to
assess the state of competition in an industry.
1. A)
PESTEL analysis
2. B)
SWOT analysis
3. C)
Financial ratio analysis
4. D)
Strategic group mapping
5. E)
Porter’s five-force model
Answer: E
Explanation: See Figure 3.2, The Five-Forces Model of
Competition. 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 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
10) The nature and strength of the competitive forces that
prevail in an industry is generally a joint product of all of the
following except
1. A)
pressures associated with rivalry among sellers to attract buyer patronage.
2. B)
threats that firms outside the industry will decide to enter the market.
3. C)
attempts of companies in other industries to win buyers over to their own
substitute products.
4. D)
pressures stemming from the bargaining power of both suppliers and buyers.
5. E)
those associated with environmental forces such as climate change or water
shortages.
Answer: E
Explanation: See Figure 3.2. Industry driving forces
include all of those listed above except for forces in the natural environment
that may impact or be impacted by climate change or water shortages.
Difficulty: 1 Easy
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
11) Which of the following is not one of the five typical sources of
competitive pressures?
1. A)
The power and influence of industry-driving forces
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: See Figure 3.2. Industry-driving forces are
not among the five forces exerting competitive pressure on an industry.
Difficulty: 1 Easy
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
12) The most powerful of the five typical sources of competitive
pressures is usually
1. A)
the competitive pressures associated with the market maneuvering and jockeying
for buyer patronage that goes on among rival sellers in the industry.
2. B)
the competitive pressures that stem from the ready availability of attractively
priced substitute products.
3. C)
the benefits that emerge from close collaboration with suppliers and the
competitive pressures that such collaboration creates.
4. D)
the bargaining power and leverage that large customers are able to exercise.
5. E)
associated with the potential entry of new competitors.
Answer: A
Explanation: See Figure 3-2. 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 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
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 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.
2. B)
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.
3. C)
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.
4. 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.
5. E)
evaluating whether competition is being intensified or weakened by the
industry’s driving forces and key success factors.
Answer: B
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 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
14) The marketplace being a competitive battlefield is
primarily due to
1. A)
the ongoing race among rivals to achieve the fastest rate of growth in revenues
and profits.
2. B)
the ongoing efforts of industry members to introduce innovative
products/services as fast followers into the marketplace.
3. C)
the ability of industry rivals to build strong defenses against the industry’s
driving forces.
4. D)
the constant rivalry of firms to strengthen buyer patronage among competing
sellers of a product or service, in order to win a competitive edge over
rivals.
5. E)
the efforts of industry incumbents to lower cost products/services at a faster
rate than their rivals.
Answer: D
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 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
15) Whether buyers’ bargaining power poses a strong or weak
source of competitive pressure on industry members depends in part on
1. A)
whether most buyers possess roughly equal or varying degrees of bargaining
power.
2. B)
how many buyers are engaged in collaborative partnerships with sellers.
3. C) whether
entry barriers are high or low.
4. D)
whether the overall quality of the items being furnished by industry members is
rising or falling.
5. E)
whether buyer demand is strong or declining.
Answer: E
Explanation: See Figure 3-3. Rapid growth in buyer demand
tends to weaken the bargaining power of buyers, and slower growth in buyer
demand tends to strengthen the bargaining power of buyers. All of the other
responses have no direct impact on buyers’ bargaining power.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
16) Competitive pressures stemming from buyers’ bargaining power
tend to be weaker when
1. A)
the number of buyers is small, such that each customer’s business tends to be
particularly important to a seller.
2. B)
buyer demand is growing slowly or maybe even declining.
3. C)
the costs incurred by buyers in switching to competing brands or to substitute
products are relatively high.
4. D)
buyers are well informed about sellers’ products, prices, and costs.
5. E)
the buyer group consists of a few large buyers and the seller group consists of
numerous small firms.
Answer: C
Explanation: See Figure 3.3. High buyer-switching costs
tends to weaken the bargaining power of buyers; all of the other responses tend
to increase buyers’ bargaining power.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
17) Which of the following conditions acts to weaken buyers’
bargaining power?
1. A)
When buyers are unlikely to integrate backward into the business of sellers
2. B)
When buyers 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 buyers have the ability to postpone purchases if they do not like the
prices offered by sellers
5. E)
When buyers are few in number and/or often purchase in large quantities
Answer: A
Explanation: See Figure 3.3. The lower likelihood that
buyers would integrate backward into the business of sellers tends to weaken
the bargaining power of buyers; all of the other responses tend to increase
buyers’ bargaining power.
Difficulty: 1 Easy
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
18) Which of the following is not a factor that causes buyers’
bargaining power to be stronger?
1. A)
Some buyers are a threat to integrating backward into the business of sellers.
2. B)
The industry is composed of a few large sellers, and the customer group
consists of numerous buyers that purchase in fairly small quantities.
3. C)
Buyers have considerable discretion over whether and when they purchase the
product.
4. D)
Buyers 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: See Figure 3.3. A limited number of large sellers
tends to weaken the bargaining power of buyers; all of the other responses tend
to increase buyers’ bargaining power.
Difficulty: 1 Easy
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
19) In which of the following circumstances are competitive
pressures associated with the bargaining power of buyers not relatively strong?
1. A)
when buyer demand is growing rapidly
2. B)
when buyers are relatively well informed about sellers’ products, prices, and
costs
3. C)
when buyers pose a major threat to integrate backward into the product market
of sellers
4. D)
when sellers’ products are weakly differentiated, making it easy for buyers to
switch to competing brands
5. E)
when buyers have considerable discretion over whether and when they purchase
the product
Answer: A
Explanation: See Figure 3.3. Rapid growth in buyer demand
tends to weaken the bargaining power of buyers; all of the other responses tend
to increase buyers’ bargaining power.
Difficulty: 1 Easy
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
20) Which of the following factors is not a relevant
consideration in judging whether buyers’ bargaining power is relatively strong
or relatively weak?
1. A)
The number of buyers is small, or a customer is particularly important to the
seller.
2. B)
Buyers are relatively well informed about sellers’ products, prices, and costs.
3. C)
Buyer needs and expectations are changing slowly or rapidly.
4. D)
Buyer demand is weak or strong and slowly or rapidly growing.
5. E)
Buyers pose a credible threat of integrating backward into the business of
sellers.
Answer: C
Explanation: Figure 3.3 makes no mention of the impact of
buyers’ needs on the competitive pressures associated with the bargaining power
of buyers. All of the other possible responses are mentioned as impactful
factors.
Difficulty: 1 Easy
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
21) The competitive pressures from substitute products tend to
be stronger when
1. A)
buyers are relatively comfortable with the quality and performance of
substitutes, and the costs to buyers of switching over to the substitutes are
low.
2. B)
there are more than 10 sellers of substitute products.
3. C)
substitutes exhibit the latest in technological innovation.
4. D)
buyers have high psychic costs in severing existing brand relationships and
establishing new ones.
5. E)
demand for the industry’s product is not very price sensitive.
Answer: A
Explanation: See Figure 3.4. Generally speaking, when end
users are comfortable with purchasing substitutes, when the quality and
performance of substitutes is comparable, and when user’s switching costs are
low, the more intense are the competitive pressures posed by substitute
products.
Difficulty: 1 Easy
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
22) Just how strong the competitive pressures are from
substitute products depends on
1. A)
whether the available substitutes are strongly or weakly differentiated and
whether buyers make purchases frequently or infrequently.
2. B)
whether attractively priced substitutes are readily available and the ease with
which buyers can switch to substitutes.
3. C)
whether the available substitutes are products or services.
4. D)
whether the producers of substitutes have ample budgets for new product
R&D.
5. E)
the speed with which buyer needs and expectations are changing.
Answer: B
Explanation: See Figure 3.4. As a rule, the desirability
of substitutes, their relative quality and performance, and the end user’s
switching costs tend to impact the competitive pressures posed by substitute
products.
Difficulty: 1 Easy
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
23) Which of the following is not a good example of a substitute
product that triggers stronger competitive pressures?
1. A)
Lyft or Uber as a substitute for rental cars
2. B)
Airbnb as a substitute for hotels and motels
3. C)
Dasani water as a substitute for Aquafina water
4. D)
Smartphones as substitutes for film cameras
5. E)
Netflix and Amazon streaming video on demand as a substitute for DVD players
Answer: C
Explanation: See Figure 3.4. Both Dasani and Aquafina are
rivals in the same industry and cannot be considered substitutes for one
another. All of the remaining choices represent substitutes from different
industries.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
24) 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 is 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: See Figure 3.4. As a rule, the lower the
desirability of substitutes or the lower their quality and performance, the
higher the user’s switching costs. These factors tend to decrease the
competitive pressures posed by substitute products.
Difficulty: 1 Easy
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
25) 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 number of suppliers that each seller/industry member purchases from on
average.
3. C)
how aggressively rival industry members are trying to differentiate their
products.
4. D)
the extent to which suppliers can exercise sufficient bargaining power to
influence the terms and conditions of supply in their favor and the extent of
seller-supplier collaboration in the industry.
5. E)
whether the prices of the items being furnished by the suppliers are rising or
falling.
Answer: D
Explanation: See Figure 3.5. When suppliers have stronger
bargaining power, they can charge industry members higher prices (passing costs
on to them) and limit opportunities to find better deals via switching.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
26) The bargaining leverage of suppliers is greater when
1. A)
only a small number of suppliers exist and when it is difficult for industry
members to switch to attractive substitutes.
2. B)
industry members incur low costs in switching their purchases from one supplier
to another.
3. C)
industry members purchase in large quantities and thus are important customers
of the suppliers.
4. D) it
makes good economic sense for industry members to vertically integrate
backward.
5. E)
the supplier industry is composed of a large number of relatively small
suppliers.
Answer: A
Explanation: See Figure 3.5. When the number of suppliers
of inputs is limited, 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: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
27) In which one of the following instances is suppliers’
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 buying firms purchase in large quantities and thus are important
customers of the suppliers
4. D)
When the item being supplied is a commodity
5. E)
When the items purchased from suppliers are in short supply
Answer: E
Explanation: See Figure 3.5. 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: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
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28) Which one of the following is not a factor that
affects the strength of suppliers’ bargaining power?
1. A)
Whether needed inputs are in short or ample supply
2. B)
Whether industry members are a strong threat to integrate backward into the
business of suppliers
3. C)
Whether industry members are struggling to make good profits because of
slow-growing market demand
4. D)
Whether the costs of industry members to switch their purchases to alternative
suppliers or substitutes are high or low
5. E)
Whether the item being supplied is a commodity that is readily available from
many suppliers
Answer: C
Explanation: See Figure 3.5. All of the responses, except
incumbents’ struggles to make good profits in a slow-growth demand market, tend
to impact the bargaining leverage of suppliers.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
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29) Which one of the following is not a reason
industry members are often motivated to enter into collaborative partnerships
with key suppliers?
1. A) To
reduce the costs of switching suppliers
2. B) To
speed the availability of next-generation components
3. C) To
enhance the quality of parts and components being supplied and reduce defect
rates
4. D) To
squeeze out important cost savings for both themselves and their suppliers
5. E) To
reduce inventory and logistics costs
Answer: A
Explanation: See Figure 3.5. 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 via switching. That said, as a rule, suppliers have less
bargaining leverage when their sales to a strategic partner constitute a big
percentage of their total sales. In such cases, the well-being of suppliers is
closely tied to the well-being of that major customer/partner.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
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30) 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 sales to a strategic partner constitute a big percentage of their total
sales
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 cost of switching from one supplier to another is low
Answer: A
Explanation: See Figure 3.5. 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 via switching. Suppliers have less bargaining leverage when
their sales to a strategic partner constitute a big percentage of their total
sales. In such cases, the well-being of suppliers is closely tied to the
well-being of that major customer/partner. 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: 3 Hard
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Apply
AACSB: Analytical Thinking
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31) Which one of the following does not intensify the
competitive pressures associated with the threat of entry?
1. A)
Incumbent firms are unable or unwilling to launch competitive initiatives to
strongly contest the entry of newcomers.
2. B)
Industry members are struggling to earn good profits.
3. C)
Entry barriers are relatively low.
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)
Newcomers can expect to earn attractive profits, and a number of outsiders have
the expertise and resources to hurdle past whatever entry barriers exist.
Answer: B
Explanation: See Figure 3.6. All of the answer choices
indicate an attractive industry to enter, with increased competitive pressure,
except for the struggle of incumbent firms to earn good profits.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
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32) Which one of the following increases the competitive
pressures associated with the threat of entry?
1. A)
Incumbent firms are likely to launch competitive initiatives to strongly
contest the entry of newcomers.
2. B)
Buyers have a high degree of loyalty to the brands and product offerings of
existing industry members.
3. C)
Buyer demand for the product is growing fairly slowly.
4. D)
Few outsiders have the expertise and resources to hurdle past whatever entry
barriers exist.
5. E)
Newcomers can expect to earn attractive profits.
Answer: E
Explanation: See Figure 3.6. All of the answer choices
indicate an attractive industry to enter except the expectation of earning
attractive profits by newer entrants.
Difficulty: 1 Easy
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
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33) 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 pool of entry candidates is large, and some have resources that would make
them formidable market contenders.
3. C)
the industry’s market growth is rapid.
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: A
Explanation: See Figure 3.6. All of the answer choices
indicate an attractive industry to enter except the 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 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
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34) Which of the following is generally not considered as a
barrier to entry?
1. A)
Rapid market growth
2. B)
Sizable capital requirements and an array of regulatory requirements
3. C)
Strong buyer loyalty to existing brands
4. D)
Sizable economies of scale in production
5. E)
Difficulties in gaining access to distribution and securing adequate space of
retailers’ shelves
Answer: A
Explanation: See Figure 3.6. All of the answer choices,
except rapid market growth, deter new entrants; rapid market growth tends to
attract new entrants.
Difficulty: 1 Easy
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
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35) 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 the industry offers an opportunity for a blue ocean strategy.
5. E) to
ask if the industry’s growth and profit prospects are strongly attractive to
potential entry candidates.
Answer: E
Explanation: The strongest competitive pressures
associated with potential entry threats come not from outsiders but from
current industry participants looking for growth opportunities. Existing
industry members are often strong candidates to enter market segments or
geographic areas where they currently do not have a market presence.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
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36) The most powerful of the five competitive forces is usually
the
1. A)
competitive pressures that stem from the ready availability of attractively
priced substitute products.
2. B)
competitive pressures associated with rivalry among competing sellers in the
industry for buyer patronage.
3. C)
competitive pressures that emerge from close collaboration with suppliers.
4. D)
competitive pressures associated with the potential entry of new competitors.
5. E)
competitive pressures from the bargaining power and leverage that large
customers are able to exercise.
Answer: B
Explanation: The strongest of the five competitive forces
is nearly always the rivalry among competing sellers of a product or service.
Difficulty: 1 Easy
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Remember
AACSB: Knowledge Application
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37) Factors that cause the rivalry among competing sellers to be
weak include
1. A)
low buyer-switching costs and rival sellers that are relatively equal in size
and capability.
2. B)
rapid growth in buyer demand and high buyer-switching costs.
3. C) a
recent acquisition of a weak rival by an industry outsider with the intent of
turning the acquisition into a major contender.
4. D)
low barriers to entry and weakly differentiated products among rival sellers.
5. E)
slow growth in buyer demand and strongly differentiated products.
Answer: B
Explanation: Rivalry decreases when buyer demand
accelerates, buyers’ switching costs are high, and buyers do not have a proliferation
of choices. In this case, sellers may find themselves with capacity shortages
and/or inventory stockouts. Excess demand conditions create a “sellers’
market,” decreasing competitive pressure on industry rivals, as shown in Figure
3.7.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
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38) Which one of the following does not cause the
rivalry among competing sellers to be weak?
1. A)
High buyer switching costs
2. B)
Rapid growth in buyer demand
3. C)
Industry members are not aggressive in drawing sales and market share away from
rivals
4. D)
One or more competitors become dissatisfied with their market position
5. E)
Strongly differentiated products among rival sellers
Answer: D
Explanation: See Figure 3.7. All of the responses
characterize weak rivalry except when one or more incumbents are dissatisfied
with their position.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
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39) Rivalry among competing sellers tends to be less intense
when
1. A)
industry conditions tempt competitors to use price cuts or other competitive
weapons to boost unit sales.
2. B)
buyer demand is weak and many sellers have excess capacity and/or inventory.
3. C)
industry rivals are not particularly aggressive in drawing sales and market
share away from rivals.
4. D)
rivals have diverse strategies and objectives, and are located in different
countries.
5. E)
rival sellers have weakly differentiated products.
Answer: C
Explanation: See Figure 3.7. Rivalry is less in industries
where there is growth in demand and rivals are more or less satisfied with
their competitive and market share positions.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
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40) Rivalry among competing sellers is generally more intense
when
1. A)
buyer demand is growing rapidly.
2. B)
the industry’s driving forces are strong and rivals have strongly
differentiated products.
3. C)
barriers to entry are moderately high and the pool of likely entry candidates
is small.
4. D)
industry conditions tempt competitors to use price cuts or other competitive
weapons to boost unit volume.
5. E)
barriers to entry are high and buyer switching costs are high.
Answer: D
Explanation: See Figure 3.7. Rivalry is fierce in
industries where there is slow growth in demand and one or more rivals is using
price cuts or other tactics to undercut the competition.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
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41) Rivalry among competing firms tends to be more intense when
1. A)
demand for the product is growing slowly, one or maybe several industry members
become dissatisfied with their market position, buyers have low switching
costs, and strong companies outside the industry acquire weak firms in the
industry and launch aggressive moves to build market share.
2. B)
the products/services of rival sellers are strongly differentiated and buyer
demand is strong.
3. C)
rivals are relatively content with their market position.
4. D)
there are so many industry rivals that the impact of any one company’s actions
is spread thinly across all industry members.
5. E)
there are fewer firms in the industry that have unequal market shares.
Answer: A
Explanation: See Figure 3.7. Rivalry is stronger in
industries where there is slow growth in demand, one or more rivals is
dissatisfied with its market position, buyers have low switching costs, and the
number of players is diminishing due to acquisition by firms outside the
industry.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively weak.
Bloom’s: Understand
AACSB: Analytical Thinking
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42) A competitive environment in which 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.
3. C)
makes it hard for industry members to pursue a differentiation strategy.
4. D) is
conducive to industry members earning attractive profits.
5. E)
requires that industry members have low costs.
Answer: D
Explanation: As a rule, a weak collective impact of the
five competitive forces makes an industry more attractive and tends to raise
the combined profitability of industry participants.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
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43) A competitive environment in which 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 brand
loyalty.
4. D)
offers moderate to good prospects for achieving low costs 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: As a rule, a strong collective impact of the
five competitive forces makes an industry more unattractive and lowers the
combined profitability of industry participants.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
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44) The collective impact of the five competitive forces on
competitive pressures tends to
1. A)
strengthen the industry’s driving forces.
2. B)
lower the combined profitability of industry members.
3. C)
make it difficult to achieve a competitive advantage via anything other than
being the industry’s low-cost leader.
4. D)
increase the opportunities for industry incumbents to attain a competitive
advantage.
5. E)
raise the number of industry key success factors.
Answer: B
Explanation: 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 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
AACSB: Analytical Thinking
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45) Based on an analysis of the five forces that increase or
decrease competitive pressures in an industry, in which of the following
industries is profitability likely to be lowest?
1. A)
Pizza restaurants
2. B)
Wireless lighting systems
3. C)
Delivery services using drones
4. D)
Wearable fitness and health monitors
5. E)
Pharmaceuticals
Answer: A
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 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Apply
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46) Based on an analysis of the five forces that increase or
decrease competitive pressures in an industry, in which of the following
industries is profitability likely to be highest?
1. A)
Video streaming services
2. B)
Supermarkets
3. C)
Commercial airlines
4. D)
Electric and gas utilities
5. E)
Tire manufacturing
Answer: A
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 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Apply
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47) The driving forces in an industry
1. A)
are usually triggered by changing technology or stronger learning/experience
curve effects.
2. B)
are usually spawned by growing demand for the product, an outbreak of price cutting,
and big reductions in entry barriers.
3. C)
are major underlying causes of change in industry and competitive conditions
and have the biggest influences in reshaping the industry landscape and
altering competitive conditions.
4. D)
appear when an industry begins to mature but are seldom present during early
stages of the industry life cycle.
5. E)
are usually triggered by shifting buyer needs and expectations or by the
appearance of new substitute products.
Answer: C
Explanation: Industry and competitive conditions change
because forces are enticing or pressuring certain industry participants
(competitors, customers, suppliers) to alter their actions in important ways.
The most powerful of the change agents are called “driving forces” because they
have the biggest influences in reshaping the industry landscape and altering
competitive conditions.
Difficulty: 1 Easy
Topic: Analyzing Industry Competition
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Remember
AACSB: Knowledge Application
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48) Industry conditions change
1. A)
because of such powerful driving forces as swings in buyer demand, changing
interest rates, ups and downs in the economy, and higher/lower entry barriers.
2. B)
because of newly emerging industry threats and industry opportunities that
alter the composition of the industry’s strategic groups.
3. C)
because new industry key success factors emerge.
4. D)
because forces create pressures or incentives for industry participants
(competitors, customers, suppliers) to alter their actions in important ways.
5. E)
chiefly because of changes in the barriers to entry and the degree of
competition from substitute products.
Answer: D
Explanation: Industry and competitive conditions change
because forces are enticing or pressuring certain industry participants
(competitors, customers, suppliers) to alter their actions in important ways.
The most powerful of the change agents are called “driving forces” because they
have the biggest influences in reshaping the industry landscape and altering
competitive conditions.
Difficulty: 1 Easy
Topic: Analyzing Industry Competition
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Remember
AACSB: Knowledge Application
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49) Steps involved in driving forces analysis include
1. A)
developing a comprehensive list of all the potential causes of changing
industry conditions.
2. B)
predicting which new driving forces will emerge next.
3. C)
making it difficult to achieve a competitive advantage via anything other than
being the industry’s low-cost leader.
4. D)
identifying the driving forces, assessing whether their impact will make the
industry more or less attractive, and determining what strategy changes are
needed to prepare for the impact of the driving forces.
5. E)
discerning which among the five competitive forces is most potent and which is
least potent.
Answer: D
Explanation: Driving forces analysis consists of three
steps: (1) identifying what the driving forces are; (2) assessing whether the
drivers of change are, individually or collectively, acting to make the
industry more or less attractive; and (3) determining what strategy changes are
needed to prepare for the impact of the driving forces.
Difficulty: 1 Easy
Topic: Analyzing Industry Competition
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Remember
AACSB: Knowledge Application
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50) Driving forces analysis
1. A)
involves identifying the driving forces, assessing whether their impact will
make the industry more or less attractive, and determining what strategy
changes a company may need to make to prepare for the impact of the driving
forces.
2. B)
identifies which strategic group is the most powerful.
3. C) helps
managers identify which industry member is likely to become (or remain) the
industry leader and why.
4. D)
helps managers identify which key success factors are most likely to help their
company gain a competitive advantage.
5. E)
helps managers identify which of the five competitive forces will be the
strongest driver of industry change.
Answer: A
Explanation: Driving forces analysis consists of three
steps: (1) identifying what the driving forces are; (2) assessing whether the
drivers of change are, individually or collectively, acting to make the
industry more or less attractive; and (3) determining what strategy changes are
needed to prepare for the impact of the driving forces.
Difficulty: 1 Easy
Topic: Analyzing Industry Competition
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Remember
AACSB: Knowledge Application
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51) Which of the following is not generally a driving force capable
of producing fundamental changes in industry and competitive conditions?
1. A)
Changes in the long-term industry growth rate
2. B)
Increasing globalization of the industry
3. C)
Product innovation and technological change
4. D)
Ups and downs in the economy and interest rates
5. E)
New government regulations or significant changes in government policy toward
the industry
Answer: D
Explanation: Most drivers of industry and competitive
change fall into one of the above categories (see Table 3.2) but not economic
cycles or interest rate changes.
Difficulty: 3 Hard
Topic: Analyzing Industry Competition
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Analyze
AACSB: Analytical Thinking
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52) Which of the following are most unlikely to qualify as
driving forces?
1. A)
Changes in the long-term industry growth rate, the entry or exit of major
firms, and changes in cost and efficiency
2. B)
Increasing globalization of the industry and product innovation
3. C)
New Internet technology applications, new government regulations, and
significant changes in government policy toward the industry
4. D)
Mounting competition from substitutes and increasing efforts to collaborate
with suppliers via strategic alliances
5. E)
Changes in who buys the industry’s product and how they use it
Answer: D
Explanation: Most drivers of industry and competitive
change fall into one of the above categories (see Table 3.2) but not
competition from substitutes or collaborative alliances.
Difficulty: 3 Hard
Topic: Analyzing Industry Competition
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Analyze
AACSB: Analytical Thinking
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53) Which of the following do not qualify as potential driving
forces capable of inducing fundamental changes in industry and competitive
conditions?
1. A)
Changes in who buys the product and how they use it, changes in the long-term
industry growth rate, and changes in cost and efficiency
2. B)
Entry or exit of major firms, product innovation, and marketing innovation
3. C)
Increases in the economic power and bargaining leverage of customers and
suppliers, growing supplier-seller collaboration, and growing buyer-seller
collaboration
4. D)
Diffusion of technical know-how and changing societal concerns, attitudes, and
lifestyles
5. E)
Changes in manufacturing processes brought on by technological change,
increasing globalization of the industry, and new Internet capabilities
Answer: C
Explanation: Most drivers of industry and competitive
change fall into one of the above categories (see Table 3.2) but not bargaining
leverage or collaborative alliances.
Difficulty: 3 Hard
Topic: Analyzing Industry Competition
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Analyze
AACSB: Analytical Thinking
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54) Which one of the following is not a common type
of driving force?
1. A)
Entry or exit of major firms
2. B)
Changing societal concerns, attitudes, and lifestyles
3. C) Diffusion
of technical know-how across more companies and more countries
4. D)
Increasing efforts on the part of industry members to collaborate closely with
their suppliers
5. E)
Technological change and manufacturing process innovation
Answer: D
Explanation: Most drivers of industry and competitive
change fall into one of the above categories (see Table 3.2) but not
collaborative alliances.
Difficulty: 3 Hard
Topic: Analyzing Industry Competition
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
55) An industry’s driving forces
1. A)
are generally determined by competitive pressures, the sizes of strategic
groups, and the power of rival firms’ competitive strategies.
2. B)
generally act in ways that will strengthen or weaken market demand, make
competition more or less intense, and lead to higher or lower industry
profitability.
3. C) frequently
cause a leveling off of industry growth and a reduction in the bargaining power
of buyers.
4. D)
are normally triggered by ups and downs in the economy, higher or lower
inflation rates, higher or lower interest rates, or important new strategic alliances.
5. E)
can be triggered by such factors as growing competitive pressures from
substitute products, greater seller-supplier collaboration, and the efforts of
rival firms to employ new or different offensive strategies.
Answer: B
Explanation: An important part of driving forces analysis
is to determine whether the individual or collective impact of the driving
forces will be to increase or decrease market demand, make competition more or
less intense, and lead to higher or lower industry profitability.
Difficulty: 3 Hard
Topic: Analyzing Industry Competition
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
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56) Increasing globalization can be a driving force in an
industry because
1. A)
market growth rates go up, product innovation speeds up, and new firms are
likely to enter the industry.
2. B)
companies need to spread their operating reach into more and more country
markets to meet consumer demand and take advantage of available operating
activities.
3. C)
foreign producers typically have lower costs, greater technological expertise,
and more product innovation capabilities than domestic firms.
4. D)
the products and services of foreign competitors are nearly always cheaper or
of better quality than those of domestic companies.
5. E) it
results in companies having fewer competitors and a strategic group map with
fewer circles.
Answer: B
Explanation: Globalization can be precipitated by such
factors as the blossoming of consumer demand in developing countries, the
availability of lower-cost foreign inputs, and the reduction of trade barriers,
as has occurred recently in many parts of Latin America and Asia. The forces of
globalization are sometimes such a strong driver that companies find it highly
advantageous, if not necessary, to spread their operating reach into more and
more country markets.
Difficulty: 3 Hard
Topic: Analyzing Industry Competition
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Apply
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57) A strategic group
1. A)
consists of those industry members that are growing at about the same rate and
have similar product line breadth.
2. B)
includes all rival firms having comparable profitability.
3. C) is
a cluster of industry rivals that have similar competitive approaches and
market positions.
4. D)
consists of those firms whose market shares are about the same size.
5. E) is
made up of those firms having comparable profit margins.
Answer: C
Explanation: A strategic group is a cluster of industry
rivals that have similar competitive approaches and market positions.
Difficulty: 1 Easy
Topic: Analyzing Industry Competition
Learning Objective: 03-03 Map the market positions of key
groups of industry rivals.
Bloom’s: Remember
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58) A strategic group consists of those firms in an industry
that
1. A)
are subject to the same driving forces.
2. B)
place about the same emphasis on each distribution channel.
3. C)
use the same key success factors to differentiate their products.
4. D)
employ similar competitive approaches and occupy similar positions in the
market.
5. E)
have similar size market shares.
Answer: D
Explanation: A strategic group is a cluster of industry
rivals that have similar competitive approaches and market positions.
Difficulty: 1 Easy
Topic: Analyzing Industry Competition
Learning Objective: 03-03 Map the market positions of key
groups of industry rivals.
Bloom’s: Remember
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59) Which of the following is not an appropriate guideline for
developing a strategic group map for a given industry?
1. A)
Variables chosen as axes for the map should indicate big differences in how
rivals have positioned themselves to compete in the marketplace.
2. B) Variables
chosen as axes for the map can be quantitative, qualitative, or discrete and
defined in terms of distinct classes and combinations.
3. C)
Variables selected as axes for the map should be highly correlated.
4. D)
Several maps should be drawn if more than one pair of variables can help
illuminate differences in the competitive positioning of industry members.
5. E)
Sizes of the circles on the map should be drawn proportional to the combined
sales of the firms in each strategic group.
Answer: C
Explanation: Observing the guidelines for creating a
strategic group map, the two variables selected as axes for the map should not
be highly correlated; if they are, the circles on the map will fall along a
diagonal, and strategy makers will learn nothing more about the relative
positions of competitors than they would by considering just one of the
variables.
Difficulty: 2 Medium
Topic: Analyzing Industry Competition
Learning Objective: 03-03 Map the market positions of key
groups of industry rivals.
Bloom’s: Understand
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60) Not all positions on a strategic group map are equally
attractive because
1. A)
entry and exit barriers are different for each strategic group.
2. B)
key success factors are usually quite different for differently positioned
industry participants.
3. C)
small strategic groups are always less profitable than large strategic groups.
4. D)
across-group rivalry is strongest at the outer edges of the strategic group
map.
5. E)
industry driving forces and competitive pressures favor some companies or
groups and hurt others, and the profit potential of different strategic groups
varies because of strengths and weaknesses in each strategic group’s position.
Answer: E
Explanation: Some strategic groups are more favorably
positioned than others because they confront weaker competitive forces and/or
because they are more favorably impacted by industry driving forces.
Difficulty: 2 Medium
Topic: Analyzing Industry Competition
Learning Objective: 03-03 Map the market positions of key
groups of industry rivals.
Bloom’s: Understand
AACSB: Analytical Thinking
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61) The payoff of good scouting reports on rivals is improved
ability to
1. A)
predict what strategic moves rivals are likely to make next, thereby allowing a
company to prepare defensive countermoves and develop strategies to exploit
rivals’ missteps.
2. B)
determine which rivals are in the best strategic group.
3. C)
figure out how many key success factors a rival has.
4. D)
determine whether a rival is gaining or losing market share, whether rivals are
increasing or decreasing R&D spending, and what new marketing promotions
are in the works.
5. E)
determine whether a rival has the best strategy and is the industry leader.
Answer: A
Explanation: Unless a company pays attention to the
strategies and situations of competitors and has some inkling of what moves
they will be making, it ends up flying blind into competitive battle. As in
sports, scouting the business opposition is an essential part of game plan
development.
Difficulty: 1 Easy
Topic: Competitive Behavior
Learning Objective: 03-03 Map the market positions of key
groups of industry rivals.
Bloom’s: Understand
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62) Having good competitive intelligence about rivals’
strategies, latest actions and announcements, resource strengths and
weaknesses, and moves to improve their situation is important because it
1. A)
identifies who the industry’s current market share leaders are.
2. B)
helps a company to anticipate what moves rivals are likely to make next and to
craft its own strategic moves.
3. C)
helps identify which rival is in which strategic group.
4. D)
enables company managers to determine which rival has the worst strategy and
how to avoid making the same strategy mistakes.
5. E)
enables more accurate predictions about how long it will take a particular
rival to copy most of what the strategy leader is doing.
Answer: B
Explanation: Studying competitors’ past behavior and
preferences provides a valuable assist in anticipating what moves rivals are
likely to make next and outmaneuvering them in the marketplace.
Difficulty: 1 Easy
Topic: Competitive Behavior
Learning Objective: 03-03 Map the market positions of key
groups of industry rivals.
Bloom’s: Understand
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63) In seeking to predict the next moves of close or key rivals,
it is not useful
to consider which of these questions?
1. A)
Which rivals badly need to increase their unit sales and market share?
2. B)
Are there predictable trends in the timing of rivals’ new-product launches or
marketing promotions?
3. C)
Which rivals have a strong incentive, along with the resources, to make major
strategic changes?
4. D)
Which rivals are likely to enter new geographic markets or expand their product
offerings?
5. E)
Which rivals have the strongest management team.
Answer: E
Explanation: Michael E. Porter’s four indicators of a
rival’s likely strategic moves include a rival’s current strategy, objectives,
capabilities, and assumptions about itself and the industry. A strategic
profile of a rival that provides good clues to its behavioral proclivities can
be constructed by characterizing the rival along these four dimensions.
Difficulty: 2 Medium
Topic: Competitive Behavior
Learning Objective: 03-03 Map the market positions of key
groups of industry rivals.
Bloom’s: Understand
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64) Angela and Jeff are co-owners of five specialty cupcake and
dessert bakeries in their region. Which of the following questions would not help them to
predict the next strategic moves and countermoves of their rivals?
1. A)
How frequently does their rival fulfill special orders for custom cupcakes and
how large are those special orders?
2. B)
How does the rival manage door-to-door deliveries at no extra cost?
3. C)
What percentage of customers frequent the rival’s store?
4. D)
Why are the rival’s cupcakes so popular among customers?
5. E)
Which mode of transport does the rival’s supplier use?
Answer: E
Explanation: Michael Porter’s framework for competitor
analysis points to four indicators of a rival’s likely strategic moves and
countermoves. These include a rival’s current strategy, objectives, resources
and capabilities, and assumptions about itself and the industry. A strategic
profile of a rival that provides good clues to its behavioral proclivities can
be constructed by characterizing the rival along these four dimensions.
Difficulty: 3 Hard
Topic: Competitive Behavior
Learning Objective: 03-03 Map the market positions of key
groups of industry rivals.
Bloom’s: Apply
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65) The key success factors in an industry
1. A)
are the strategy elements, intangible assets, and competitive capabilities that
most affect industry members’ abilities to prosper in the marketplace.
2. B)
are determined by the industry’s driving forces.
3. C)
hinge on how many different strategic groups the industry has.
4. D)
depend on how many rivals are trying to move from one strategic group to
another.
5. E)
are a function of such considerations as how many firms are in the industry,
how many have market shares above five percent, and whether the business models
being used are similar or diverse.
Answer: A
Explanation: Key success factors are the strategy
elements, product attributes, competitive capabilities, or intangible assets
with the greatest impact on future success in the marketplace.
Difficulty: 2 Medium
Topic: Strategic Group Models for Understanding Industry
Rivals
Learning Objective: 03-03 Map the market positions of key
groups of industry rivals.
Bloom’s: Remember
AACSB: Knowledge Application
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66) An industry’s key success factors
1. A)
are a function of market share, entry barriers, economies of scale, degree of
vertical integration, and industry profitability.
2. B)
vary according to whether an industry has high or low long-term attractiveness.
3. C)
can be determined through identifying an industry’s dominant economic
characteristics, assessing the five competitive forces, considering the impacts
of the driving forces, comparing the market positions of industry members, and forecasting
the likely next moves of industry rivals.
4. D)
can be determined from studying the “winning” strategies of the industry
leaders and ruling out as potential key success factors the strategy elements
of those firms considered to have “losing” strategies.
5. E)
depend on the relative competitive strengths of the industry leaders and how
vulnerable they are to competitive attack.
Answer: C
Explanation: An industry’s key success factors can usually
be deduced through identifying the industry’s dominant characteristics,
assessing the five competitive forces, considering the impacts of the driving
forces, comparing the market positions of industry members, and forecasting the
likely next moves of key rivals.
Difficulty: 2 Medium
Topic: Strategic Group Models for Understanding Industry
Rivals
Learning Objective: 03-03 Map the market positions of key
groups of industry rivals.
Bloom’s: Understand
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67) In identifying an industry’s key success factors,
strategists should
1. A)
try to single out all factors that play a major role in shaping whether buyer
demand grows rapidly or slowly.
2. B)
consider on what basis customers choose between competing brands, what
resources and competitive capabilities firms need to be competitively
successful, and what shortcomings are almost certain to put a company at a
significant competitive disadvantage.
3. C)
consider whether the number of strategic groups is increasing or decreasing and
whether the five competitive forces are powerful or relatively weak.
4. D)
consider what it will take to overtake the company with the industry’s overall
best strategy.
5. E)
focus their attention on what it will take to capitalize on impacts of the
industry’s driving forces.
Answer: B
Explanation: Key success factors are the strategy
elements, product attributes, competitive capabilities, or intangible assets
with the greatest impact on future success in the marketplace. In addition, the
answers to the following three questions help identify an industry’s key
success factors: (1) On what basis do buyers of the industry’s product choose
between the competing brands of sellers? That is, what product attributes are
crucial? (2) Given the nature of the competitive forces prevailing in the marketplace,
what resources and competitive capabilities does a company need to have to be
competitively successful? (3) What shortcomings are almost certain to put a
company at a significant competitive disadvantage?
Difficulty: 2 Medium
Topic: Strategic Group Models for Understanding Industry
Rivals
Learning Objective: 03-03 Map the market positions of key
groups of industry rivals.
Bloom’s: Understand
AACSB: Analytical Thinking
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68) Which of the following is not a good example of a
marketing-related key success factor (KSF)?
1. A)
High utilization of fixed assets
2. B) A
well-known and well-respected brand name
3. C)
Breadth of product line and product selection
4. D)
Clever advertising
5. E)
Courteous, personalized customer service
Answer: A
Explanation: Among the marketing KSFs are: (1) breadth of
product line and product selection; (2) a well-known and well-respected brand
name; (3) fast, accurate technical assistance; (4) courteous, personalized
customer service; (5) accurate filling of buyer orders (few back orders or
mistakes); (6) customer guarantees and warranties (important in mail-order and
online retailing, big-ticket purchases, and new-product introductions); and (7)
clever advertising.
Difficulty: 2 Medium
Topic: Strategic Group Models for Understanding Industry
Rivals
Learning Objective: 03-03 Map the market positions of key
groups of industry rivals.
Bloom’s: Understand
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69) Which of the following is a good example of a
manufacturing-related key success factor?
1. A)
Global distribution capabilities
2. B)
High labor productivity (especially if the production process has high labor
content)
3. C)
Low distribution costs
4. D)
Accurate filling of buyer orders
5. E) Short
delivery time capability
Answer: B
Explanation: Key success factors in manufacturing include:
(1) ability to achieve scale economies and/or capture experience curve effects
(important to achieving low production costs), (2) quality control know-how
(important in industries where customers insist on product reliability), (3)
high utilization of fixed assets (important in
capital-intensive/high-fixed-cost industries), (4) access to attractive
supplies of skilled labor, (5) high labor productivity (important for items
with high labor content), (6) low-cost product design and engineering (reduces
manufacturing costs), and (7) ability to manufacture or assemble products that
are customized to buyer specifications.
Difficulty: 2 Medium
Topic: Strategic Group Models for Understanding Industry
Rivals
Learning Objective: 03-03 Map the market positions of key
groups of industry rivals.
Bloom’s: Understand
AACSB: Analytical Thinking
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70) Which of the following factors should a company consider
when determining if an industry offers good prospects for attractive profits?
1. A)
The industry’s growth potential, whether competition appears destined to become
stronger or weaker, how the industry’s driving forces might affect overall
industry profitability, the company’s competitive position relative to rivals,
and the company’s proficiency in performing industry key success factors
2. B) An
assessment of which firms in the industry have the best and worst competitive
strategies, whether the number of strategic groups in the industry is
increasing or decreasing, and whether economies of scale and experience curve
effects are a key success factor
3. C)
Whether there are more than five key success factors and more than five
barriers to entry
4. D)
Constructing a strategic group map and assessing the attractiveness of the
competitive position of each strategic group
5. E)
Whether the market leaders enjoy competitive advantages and how hard it is to
develop a strongly differentiated product
Answer: A
Explanation: Factors that need to be determined include:
industry prospects for attractive profits, industry growth potential, power of
competitive forces to squeeze industry profitability, the degree to which
prevailing driving forces will impact profitability favorably or unfavorably,
how well a company performs relative to the industry key success factors, and a
company’s competitive position in relation to its rivals.
Difficulty: 2 Medium
Topic: Analyzing Industry Competition
Learning Objective: 03-04 Determine whether an industry’s
outlook presents a company with sufficiently attractive opportunities for
growth and profitability.
Bloom’s: Understand
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71) Evaluating whether an industry presents a sufficiently
attractive business opportunity usually does not involve a consideration of
which of the following factors?
1. A)
The industry’s growth potential
2. B)
Whether competitive pressures will likely grow stronger or weaker
3. C)
Whether the industry’s future profitability will be favorably or unfavorably
affected by the prevailing driving forces
4. D)
The company’s competitive position in the industry and its ability to perform
industry key success factors
5. E)
Whether the industry’s product is strongly or weakly differentiated
Answer: E
Explanation: The final step in evaluating the industry and
competitive environment is for company managers to determine if the industry
offers a company strong prospects for attractive profits based on the following
factors: industry growth potential, the power of competitive forces to squeeze
industry profitability, the degree to which prevailing driving forces will
impact profitability favorably or unfavorably, how the company performs the
industry key success factors, and the company’s competitive position in
relation to its rivals.
Difficulty: 2 Medium
Topic: Analyzing Industry Competition
Learning Objective: 03-04 Determine whether an industry’s
outlook presents a company with sufficiently attractive opportunities for
growth and profitability.
Bloom’s: Understand
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72) Which of the following factors usually is not a consideration
involved with evaluating whether an industry presents a sufficiently attractive
business opportunity?
1. A)
Constructing a strategic group map to assess the attractiveness of the
competitive position of each strategic group to determine the overall
attractiveness of all the strategic groups
2. B)
Using value chain analysis to determine the relative cost positions of rival
firms and who is the industry’s lowest-cost producer
3. C)
Determining which firms in the industry have a competitive advantage and how
they attained their advantage
4. D)
Determining the industry outlook for future profitability
5. E)
Determining the overall strength of the five competitive forces
Answer: D
Explanation: The final step in evaluating the industry and
competitive environment is to determine whether the industry presents the
company with strong prospects for competitive success and attractive profits.
The following are the important factors on which to base a conclusion:
- How
the company is being impacted by the state of the macroenvironment
- Whether
strong competitive forces are squeezing industry profitability to subpar
levels
- Whether
the presence of complementary, rivals and the possibility of cooperative
actions improve the company’s prospects
- Whether
industry profitability will be favorably or unfavorably affected by the
prevailing driving forces
- Whether
the company occupies a stronger market position than its rivals
- Whether
this is likely to change in the course of competitive interactions
- How
well the company’s strategy delivers on the industry key success factors
Difficulty: 3 Hard
Topic: Analyzing Industry Competition
Learning Objective: 03-04 Determine whether an industry’s
outlook presents a company with sufficiently attractive opportunities for
growth and profitability.
Bloom’s: Understand
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73) What are the key questions that form the framework of
thinking strategically about a company’s industry and competitive environment?
Answer: Questions include: (1) Do macroenvironmental
factors and industry characteristics offer sellers opportunities for growth and
attractive profits? (2) What kinds of competitive forces are industry members
facing, and how strong is each force? (3) What forces are driving industry
change, and what impact will these changes have on competitive intensity and
industry profitability? (4) What market positions do industry rivals occupy—who
is strongly positioned and who is not? (5) What strategic moves are rivals
likely to make next? (6) What are the key factors of competitive success? (7)
Does the industry outlook offer good prospects for profitability?
Difficulty: 2 Medium
Topic: Understanding a Firm’s External Environment
Learning Objective: 03-01 Identify factors in a company’s
broad macro-environment that may have strategic significance.
Bloom’s: Remember
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74) Explain the meaning and significance of each of the
following:
1. driving
forces
2. PESTEL
analysis
3. strategic
group mapping
4. key
success factors
Answer: Driving forces analysis consists of three steps:
(1) identifying what the driving forces are; (2) assessing whether the drivers
of change are, individually or collectively, acting to make the industry more
or less attractive; and (3) determining what strategy changes are needed to
prepare for the impact of the driving forces. PESTEL analysis encompasses the
six principal components of the broader macroenvironment (political factors,
economic conditions in the firm’s general environment, sociocultural forces,
technological factors, environmental forces, and legal/regulatory factors). A
strategic group map involves identifying the key competitive characteristics
that differentiate firms’ market positions, plotting firms on a two-variable
map based on their competitive approaches, assigning firms occupying the same
map location to a common strategic group, and drawing circles around each
strategic group, making the circles proportional to the group’s share of total
industry sales. Key success factors are the competitive characteristics that
differentiate firms’ market positions.
Difficulty: 2 Medium
Topic: Understanding a Firm’s External Environment
Learning Objective: 03-01 Identify factors in a company’s
broad macro-environment that may have strategic significance.; 03-02 Recognize
the factors that cause competition in an industry to be fierce, more or less
normal, or relatively weak.; 03-03 Map the market positions of key groups of
industry rivals.; 03-04 Determine whether an industry’s outlook presents a
company with sufficiently attractive opportunities for growth and
profitability.
Bloom’s: Understand
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75) What are the relevant factors and forces comprising the
environmental context in which a pizza restaurant company operates. Which of
these factors and forces constitute the company’s macroenvironment, and which
constitute the industry and competitive environment? Explain.
Answer: As shown in Figure 3.1, a pizza restaurant’s broad
macroenvironment encompasses all of the relevant factors—political factors,
economic conditions in the firm’s general environment, sociocultural forces,
technological factors, environmental forces, and legal/regulatory
factors—whereas its industry and competitive environment represent the “inner
ring” or narrower part of that operating environment.
Difficulty: 1 Easy
Topic: Understanding a Firm’s External Environment
Learning Objective: 03-01 Identify factors in a company’s
broad macro-environment that may have strategic significance.
Bloom’s: Apply
AACSB: Analytical Thinking
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76) Identify and describe the interactions among the competitive
forces that comprise the five-forces model of competition. Which of these
competitive forces is typically the strongest? Explain.
Answer: See Figure 3.2. These interactions stem from
competitive pressures with respect to supplier bargaining power, buyer
bargaining power, the threat of new entrants, and the threat of substitutes.
These, in turn, influence competitive pressures among rival sellers, which is
typically the strongest of the five forces.
Difficulty: 1 Easy
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Remember
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77) Identify and briefly explain any three factors that lead to
strong bargaining power on the part of buyers.
Answer: See Figure 3.3. Among these factors are: (1) low
cost of buyers switching to competing brands or substitutes; (2) large number
of buyers, and a single customer or customer group is particularly important to
a seller; (3) low level of buyer demand; (4) buyers are well informed about
competing products and prices; and (5) the degree to which buyers pose a
credible threat to integrating backward into the business of sellers.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Remember
AACSB: Knowledge Application
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78) Identify and briefly explain any three factors that lead to
weak bargaining power on the part of buyers.
Answer: See Figure 3.3. Among these factors are: (1) high
cost of buyers switching to competing brands or substitutes; (2) small number
of buyers, and a customer is not particularly important to a seller; (3) high
level of buyer demand; (4) low degree to which buyers are well informed about
competing products and prices; and (5) the degree to which buyers do not pose a
credible threat to integrating backward into the business of sellers.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Remember
AACSB: Analytical Thinking
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79) Identify and briefly discuss any three of the factors that
influence the bargaining strength and leverage of buyers.
Answer: See Figure 3.3. Among these factors are: (1) cost
of buyers switching to competing brands or substitutes, (2) number of buyers or
if a customer is particularly important to a seller, (3) level of buyer demand,
(4) degree to which buyers are well informed about competing products and prices,
and (5) degree to which buyers pose a credible threat to integrating backward
into the business of sellers.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Remember
AACSB: Knowledge Application
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80) Identify and briefly explain any two of the factors that
influence the strength of competition from substitute products.
Answer: See Figure 3.4. Among these factors are: (1) good
substitutes are available and are attractively priced, (2) substitutes have
comparable or superior performance features, (3) end users have high or low switching
costs, and (4) end users adapt to using substitutes.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Remember
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81) Identify and briefly explain any three factors that lead to
strong bargaining power on the part of suppliers.
Answer: See Figure 3.5. Among these factors are: (1) item
being supplied is facing shortages, (2) high seller switching costs to other
suppliers, (3) zero to low threat of backward integration by sellers, and (4)
few substitute inputs exist or are expected to emerge, and those inputs are
highly differentiated.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Remember
AACSB: Analytical Thinking
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82) Identify and briefly explain any three factors that lead to
weak bargaining power on the part of suppliers.
Answer: See Figure 3.5. Among these factors are: (1) item
being supplied is a commodity, (2) low seller switching costs to other
suppliers, (3) moderate to high threat of backward integration by sellers, (4)
good or new substitute inputs exist or are emerging, (5) surges in the
availability of supply, and (6) industry incumbents represent a large fraction
of supplier sales and continued high-volume purchases are critical to the
survivability of suppliers.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Remember
AACSB: Knowledge Application
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83) Identify and briefly explain any three factors that
intensify competitive pressures stemming from the threat that new firms will
enter the industry.
Answer: See Figure 3.6. Among these factors are: (1) the
number of firms poised to enter is large, (2) low entry and exit barriers, (3)
existing rivals are enjoying good profits, (4) industry outlook is stable or
growing, (5) steady or high growth in buyer demand, (6) unlikely (or
incapability of) retaliation from industry incumbents to a new entrant, and (7)
incumbents are expanding into geographic or market segments where they do not
currently have a presence.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively weak.
Bloom’s: Remember
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84) Identify and briefly explain any three factors that weaken
the competitive pressures stemming from the threat that new firms will enter
the industry.
Answer: See Figure 3.6. Among these factors are: (1) the
number of firms poised to enter is small, (2) high entry and exit barriers, (3)
existing rivals are struggling to earn good profits, (4) industry outlook is
risky or uncertain, (5) slow growth in buyer demand, and (6) likely retaliation
of industry incumbents to a new entrant.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
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85) Identify and briefly describe five common barriers to
entering an industry.
Answer: See Figure 3.6. The most significant barriers include
knowledge, technological capability, access to markets, the level of capital
requirements for new entrants related to manufacturing facilities and
equipment, the costs of introductory advertising and sales promotion campaigns,
the need for working capital to finance inventories and customer credit, and
sufficient cash to cover start-up costs.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
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86) Identify and briefly explain any four of the factors that
influence the strength or intensity of competitive rivalry among an industry’s
member firms.
Answer: Rivalry determinants (shown in Figure 3.7)
associated with competitive intensity include: (1) jockeying for position, (2)
industries concentration or fragmentation, (3) size and scale of incumbents,
(4) level of consumer demand, (5) industry growth rate, (6) buyer switching
costs, and (7) degree of standardization or differentiation among rivals,
products, and services.
Difficulty: 2 Medium
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
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87) Identify five factors that tend to weaken the intensity of
competitive rivalry among an industry’s member firms.
Answer: Rivalry determinants (shown in Figure 3.7)
associated with weaker competitive pressures include: (1) industries consisting
of vast numbers of small rivals, (2) industries composed of fewer than five
rivals, (3) slow-growing markets, (4) incumbents who are not aggressive in
drawing sales and market share away from other incumbents, (5) significantly
differentiated products and high customer loyalty, (6) high buyer switching
costs, and (7) high buyer demand.
Difficulty: 3 Hard
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively weak.
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88) Identify five factors that tend to intensify competitive
rivalry among an industry’s member firms.
Answer: Rivalry determinants (shown in Figure 3.7) associated
with intensified competitive pressures include: (1) competing sellers regularly
launch fresh actions to boost their market standing and business performance,
(2) competitors are equal in size and capability, (3) markets are slow growing,
(4) abating buyer demand and sellers find themselves with excess capacity
and/or inventory, (5) periods where it is less costly for buyers to switch
brands, (6) industry conditions that tempt competitors to use price cuts or
other competitive weapons to boost unit volume, (7) periods when one or more
competitors become dissatisfied with their market position, and (8) periods
when strong companies outside the industry acquire weak firms in the industry
and launch aggressive, well-funded moves to build market share.
Difficulty: 3 Hard
Topic: Five Forces Model of Industry Attractiveness
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
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89) Identify at least five common driving forces, and briefly
explain how each one can produce important changes in industry and competitive
conditions.
Answer: Most drivers of industry and competitive change
fall into one of the categories in Table 3.2.
Difficulty: 2 Medium
Topic: Analyzing Industry Competition
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Understand
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90) In doing driving forces analysis, is it sufficient to simply
identify the driving forces that are operating to alter industry and
competitive conditions? Why or why not? If not, then explain what else is
required for a complete driving forces assessment.
Answer: Driving forces analysis consists of not one but
three steps: (1) identifying what the driving forces are; (2) assessing whether
the drivers of change are, individually or collectively, acting to make the
industry more or less attractive; and (3) determining what strategy changes are
needed to prepare for the impact of the driving forces.
Difficulty: 3 Hard
Topic: Analyzing Industry Competition
Learning Objective: 03-02 Recognize the factors that cause
competition in an industry to be fierce, more or less normal, or relatively
weak.
Bloom’s: Analyze
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91) Identify at least three benefits of constructing a strategic
group map.
Answer: A strategic group consists of those industry
members with similar competitive approaches and positions in the market.
Companies in the same strategic group can resemble one another in a variety of
ways. For example, they may have comparable product-line breadth, emphasize the
same distribution channels, depend on identical technological approaches, or
offer buyers essentially the same product attributes or similar services and
technical assistance. Among the benefits of constructing a strategic group map
are: (1) examining what strategic groups exist; (2) identifying the companies
within each group; (3) determining if a competitive “white space” exists, that
is, where industry competitors are able to create and capture altogether new
demand; (4) tabulating the number of strategic groups in an industry; and (5)
determining their respective market positions.
Difficulty: 2 Medium
Topic: Analyzing Industry Competition
Learning Objective: 03-03 Map the market positions of key
groups of industry rivals.
Bloom’s: Understand
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92) What is the analytical value of studying competitors and
trying to predict what moves rivals will make next?
Answer: Michael E. Porter’s four indicators of a rival’s
likely strategic moves include a rival’s current strategy, objectives,
capabilities, and assumptions about itself and the industry. A strategic
profile of a rival that provides good clues to its behavioral proclivities can
be constructed by characterizing the rival along these four dimensions. Unless
a company pays attention to the strategies and situations of competitors and
has some inkling of what moves these rivals will be making, it ends up flying
blind into competitive battle.
Difficulty: 2 Medium
Topic: Competitive Behavior
Learning Objective: 03-03 Map the market positions of key
groups of industry rivals.
Bloom’s: Understand
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93) What are industry key success factors (KSFs)? Why is it
important for strategy makers to have a clear understanding of an industry’s
KSFs?
Answer: KSFs are the strategy elements, product
attributes, competitive capabilities, or intangible assets with the greatest impact
on future success in the marketplace. KSFs by their very nature are so
important to future competitive success that all firms in the industry must pay
close attention to them or risk an eventual exit from the industry.
Difficulty: 2 Medium
Topic: Strategic Group Models for Understanding Industry
Rivals
Learning Objective: 03-03 Map the market positions of key
groups of industry rivals.
Bloom’s: Understand
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94) Identify four key success factors (KSFs) that affect whether
an industry does or does not present a company with a good business
opportunity.
Answer: An industry’s KSFs are those competitive factors
that most affect industry members’ ability to survive and prosper in the
marketplace. These include: (1) the particular strategy elements, (2) product
attributes, (3) operational approaches, and (4) resources and competitive
capabilities that spell the difference between being a strong competitor and a
weak competitor—and between profit and loss.
Difficulty: 3 Hard
Topic: Analyzing Industry Competition
Learning Objective: 03-04 Determine whether an industry’s
outlook presents a company with sufficiently attractive opportunities for
growth and profitability.
Bloom’s: Understand
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95) Can an industry be attractive to one company and
unattractive to another company? Why or why not?
Answer: The degree to which an industry is attractive or
unattractive is not the same for all industry participants and potential new
entrants. The attractiveness of an industry depends on the degree of fit
between a company’s competitive capabilities and industry key success factors.
Difficulty: 2 Medium
Topic: Analyzing Industry Competition
Learning Objective: 03-04 Determine whether an industry’s
outlook presents a company with sufficiently attractive opportunities for
growth and profitability.
Bloom’s: Analyze
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Essentials of Strategic Management, 6e (Gamble)
Chapter 5 The Five Generic Competitive Strategies
1) The objective of competitive strategy is to
1. A)
provide detail to the company’s business model.
2. B)
build a competitive advantage in the marketplace by giving buyers superior
value relative to the offerings of rival sellers.
3. C)
get the company into the best strategic group and then dominate it.
4. D)
establish a competitively powerful value chain.
5. E)
grow revenues at a faster annual rate than rivals are able to grow their
revenues.
Answer: B
Explanation: A company’s competitive strategy deals
exclusively with the specifics of management’s game plan for competing
successfully—its specific efforts to please customers, strengthen its market position,
counter the maneuvers of rivals, respond to shifting market conditions, and
achieve a particular competitive advantage.
Difficulty: 1 Easy
Topic: Competitive Behavior
Learning Objective: 05-01 Understand what distinguishes
each of the five generic strategies and why some of these strategies work
better in certain kinds of industry and competitive conditions than in others.
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2) While there are many routes to competitive advantage, they
all involve
1. A)
building a brand name image that buyers trust.
2. B)
delivering superior value to a broad or narrow market of buyers in ways rivals
cannot readily match.
3. C)
achieving lower costs than rivals and becoming the industry’s sales and market
share leader.
4. D)
finding effective and efficient ways to strengthen the company’s competitive
assets and to reduce its competitive liabilities.
5. E)
getting in the best strategic group and dominating it.
Answer: B
Explanation: The two biggest factors that distinguish one
competitive strategy from another boil down to: (1) whether a company’s market
target is broad or narrow and (2) whether the company is pursuing a competitive
advantage linked to lower costs or differentiation, thereby delivering superior
value to buyers.
Difficulty: 2 Medium
Topic: Competitive Behavior
Learning Objective: 05-01 Understand what distinguishes
each of the five generic strategies and why some of these strategies work
better in certain kinds of industry and competitive conditions than in others.
Bloom’s: Understand
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3) A company’s competitive strategy deals with
1. A)
management’s game plan for securing a competitive advantage relative to rivals.
2. B)
what its strategy will be in such functional areas as R&D, production,
sales and marketing, distribution, finance and accounting, and so on.
3. C)
its efforts to change its position on the industry’s strategic group map.
4. D)
its plans for entering into strategic alliances, utilizing mergers or
acquisitions to strengthen its market position, outsourcing some in-house
activities to outside specialists, and integrating forward or backward.
5. E)
tweaking the value chain drivers to make them more cost competitive with
rivals.
Answer: A
Explanation: A company’s competitive strategy deals
exclusively with the specifics of management’s game plan for competing
successfully—its specific efforts to please customers, strengthen its market
position, counter the maneuvers of rivals, respond to shifting market
conditions, and achieve a particular competitive advantage.
Difficulty: 1 Easy
Topic: Competitive Behavior
Learning Objective: 05-01 Understand what distinguishes
each of the five generic strategies and why some of these strategies work
better in certain kinds of industry and competitive conditions than in others.
Bloom’s: Remember
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4) A company’s competitive strategy should
1. A) be
well attuned to doing an outstanding job of satisfying the needs and
expectations of niche buyers.
2. B)
support its objective to become at least an average performer within its
industry.
3. C)
ensure it is designed to concentrate on a small range of products so it can
react quickly to competitive moves.
4. D) be
well matched to its resources and capabilities in order to incorporate standard
attributes into its product offering.
5. E) be
well matched to its internal situation and be predicated on leveraging its
collection of competitively valuable resources and competencies.
Answer: E
Explanation: A company’s competitive strategy should be
well matched to its internal situation and be predicated on leveraging its
collection of competitively valuable resources and competencies.
Difficulty: 2 Medium
Topic: Competitive Behavior
Learning Objective: 05-01 Understand what distinguishes
each of the five generic strategies and why some of these strategies work
better in certain kinds of industry and competitive conditions than in others.
Bloom’s: Apply
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5) Although there are many routes to competitive advantage, the
two biggest factors that distinguish one competitive strategy from another are
1. A)
whether a company’s overall costs are lower than a competitors’ and whether the
company can achieve strong product differentiation.
2. B)
whether a company can offer the lowest possible prices and whether the company
can get the best suppliers in the market.
3. C)
whether a company’s target market is broad or narrow and whether the company is
pursuing a low cost or differentiation strategy.
4. D)
whether a company can achieve lower costs than its rivals and whether the
company is pursuing the industry’s sales and market share leader’s role.
5. E)
whether a company can build a brand name and an image that buyers trust.
Answer: C
Explanation: The primary determinants of a company’s
profitability are whether the company chooses to compete on cost advantage or
product differentiation and the scope of its target market—narrow or broad.
Defining a target market allows a company to create products to suit the target
customers and generates the need to devise a strategy that is best suited for
generating profitability for customers and the company alike.
Difficulty: 2 Medium
Topic: Competitive Behavior
Learning Objective: 05-01 Understand what distinguishes
each of the five generic strategies and why some of these strategies work
better in certain kinds of industry and competitive conditions than in others.
Bloom’s: Understand
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6) Which of the following is not one of the five generic types
of competitive strategy?
1. A)
Best-cost provider strategy
2. B)
Broad low-cost provider strategy
3. C)
Focused differentiation provider strategy
4. D)
Focused low-cost provider strategy
5. E)
Focused best-cost provider strategy
Answer: E
Explanation: See Figure 5.1. Low-cost (broad or focused)
differentiation (broad or focused) and a hybrid or best-cost provider are the
five generic types of competitive strategies. “Focused best-cost provider” is
not a generic strategy.
Difficulty: 1 Easy
Topic: Competitive Behavior
Learning Objective: 05-01 Understand what distinguishes
each of the five generic strategies and why some of these strategies work
better in certain kinds of industry and competitive conditions than in others.
Bloom’s: Remember
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