1.C 2.B 3.C 4. B 5. D 6. B 7. B 8. D 9.B 10.

D
11. B 12. A 13. B 14. D 15. A 16.A 17.C 18.C 19. A 20. B
21. B 22. C 23. B 24. D 25. A 26. B 27. D 28. A 29.D 30.C

STRATEGIC MANAGEMENT LECTURE 4 QUIZ

1. Cost leadership strategies can be attractive to companies looking to address the competitive
force of rivalry with existing competitors because:
a. it is easier to cut costs than it is to generate greater differentiation among products or
services.
b. brand loyalty is a byproduct of this strategy, leading customers to choose the company's
product over its rivals' products.
c. rivals are hesitant to slash their own prices to compete with a low-cost leader.
d. rivals are forced to compete using substitute products rather than with their core offering.

2. A software firm has chosen to implement a differentiation strategy, offering its product in a
Software as a Service (SaaS) platform with a monthly subscription. Most of the firm's
competitors are selling their products as a one-time purchase. Which of the following
represents the greatest risk to the strategy?
a. There's a shortage of technical workers to maintain the software platform, causing human
resources to increase wages to attract quality employees.
b. An established competitor has announced it will begin offering its programs in a SaaS model
next quarter.
c. As the number of users increases, the company will need to invest resources to scale the SaaS
platform.
d. The biggest competitor in this software market is slashing its prices to below the company's
annual rate.

3. About six months ago, a mid-sized manufacturer of athletic shoes decided to pursue an
integrated cost leadership/differentiation strategy. The company reduced its internal costs by
consolidating the number of colors and variations it offers to customers, savings that the
company passed on to consumers. At the same time, the research and development (R&D)
team added a patented sole to all of its shoes. Which of the following represents the best
argument for the company to continue pursuing its current business-level strategy?
a. "We're getting some complaints from long-standing customers about the fact that they can
only get shoes in hot pink or lime green."
b. "Our women's shoes are selling at higher volumes and at greater margins than our children's
and men's shoes. However, women represent 50 percent of the population but only 25 percent
of our business."
c. "It's true we've seen our net sales decline, but our gross profit has increased and our volumes
are up year-over-year. Our patent for the sole has been approved, and the legal department
says we're good to go on our advertising claims about the new sole."
d. "We're getting a lot of pressure from our suppliers. They're telling us that they're going to
increase the raw materials cost for our soles. Even comparing against other suppliers, we simply
can't get a better price at the volumes that we're purchasing."

4. The effectiveness of a business-level strategy is contingent on:

a. selection of the best business-level strategy—an integrated cost leadership/differentiation
strategy.
b. the opportunities and threats in a firm's external environment and the strengths and
weaknesses of a firm's resources.
c. a firm's decision to pursue a focus strategy developed through market segmentation.
d. the external communication of the strategy to a company's customers.

5. To be successful, a firm utilizing an integrated cost leadership/differentiation strategy must:

a. focus exclusively on improving its competence in all value chain activities.
b. focus exclusively on innovative product design.
c. reduce the number of customer segments it is trying to serve.
d. increase the number of primary value chain activities and support functions in which it
becomes competent.

6. Which of the following might be an alternative definition of business-level strategy?

a. A picture of what the firm wants to be in broad terms and what it hopes to achieve
b. A plan for how the company will compete in its industry against its rivals to achieve a
competitive advantage
c. The inputs into a firm's production process, including physical, human, and organizational
capital
d. The source of competitive advantage for a firm to deliver above-average returns

7. Often a company's business-level strategy can be easily identified by reviewing its marketing
materials. Consider the marketing slogans of the following companies and identify which one is
pursuing a business-level strategy of differentiation.
a. Walmart - Save Money. Live Better.
b. Whole Foods - America's Healthiest Grocery Store
c. Days Inn - The Best Value Under the Sun
d. Ross Stores - Dress for Less

8. Which of the following represents a risk for companies pursuing a cost leadership strategy?
a. Failure to provide crisp and identifiable differentiation to customers in the form of a firm's
product
b. Counterfeit versions of a company's products
c. Pricing that is higher than customers' perceived value of a quality product
d. Competitors' innovations resulting in their ability to drive costs lower

9. Dan Jones, the owner of Harbor Home Remodeling, has been researching demographic
information on homeowners in his area. He has learned that younger people are moving out of
the region—a trend that's expected to continue—while middle-aged and older people are
remaining in their homes. In order to differentiate his firm and better compete against rival,
general remodeling firms in this environment, which strategy would best enable Dan to fulfill
his purpose?
a. Dan should "perform activities differently" and pursue a cost leadership strategy. By using
less expensive materials and cheaper labor, he could reduce the cost of his remodeling services.
b. Dan should "perform activities differently" and pursue a focused differentiation strategy. He
could specialize in remodeling homes to meet the unique needs of aging people, such as
installing wheelchair ramps and low-threshold showers.
c. Dan should "perform different activities" and transition into building new, custom homes for
the segment of the market that interests him—retirees and the elderly.
d. Dan should "perform activities differently" and pursue a differentiation strategy. In addition
to his remodeling services, he could offer other home repair services, such as plumbing and
electrical repair.

10. Differentiation strategies are successful in addressing the competitive force of the
bargaining power of suppliers because:
a. the company is operating at such high volumes that it can leverage its buying position to
receive lower prices.
b. they prevent new companies from entering into the industry through economies of scale.
c. brand loyalty is a byproduct of this strategy, leading customers to choose the company's
product over its rivals' products.
d. the higher margins of the firm can reduce the influence of increases in supplier costs.

11. How is a business model different from a business-level strategy?

a. A business model focuses on capturing internal value for stakeholders while a business-level
strategy focuses on creating external value for customers.
b. A business model describes what a firm does while a business-level strategy describes how it
does it.
c. A business model defines the products or services a firm offers while a business-level strategy
describes how the firm earns a profit.
d. A business model is a path forward while a business-level strategy is a framework.

12. As part of its selection of a business-level strategy, a firm will decide which customers it will
serve, what needs those customers have that it will satisfy, and:
a. how it will satisfy those customers' needs using its core competencies to implement value-
creating strategies.
b. when it will implement its strategies to best optimize its exposure to customers and achieve
a competitive advantage.
c. where it will locate its resources and facilities to best serve its targeted customers and obtain
the lowest costs of production.
d. which functional teams and strategic leaders will be responsible for implementation of the
business-level strategy.

13. A differentiation strategy is one in which a firm:

a. concentrates on ways to reduce cost as its primary focus.
b. creates products that have features that customers value and are willing to pay a higher price
for.
c. has core competencies in production and distribution efficiencies to reduce required inputs.
d. divides its customers into clusters of people with similar needs.
14. An industry-leading technology firm utilizing a differentiation strategy has decided to
increase prices on its patented product to bolster profit margins and deliver a higher return to
investors. Consider the impact of this decision in light of the forces of competition. Which of the
following situations should the firm prioritize?
a. Potential entrants
b. Bargaining power of suppliers
c. Bargaining power of buyers
d. Rivalry with existing competitors

15. Which of the following represents a risk for companies pursuing a differentiation strategy?
a. Competitors' imitation of a product at a lower price causing customers to purchase their
product
b. Failing to meet customers' minimal level of acceptable service
c. Competitors' imitation of the value chain activities that make up the company's strategy
d. Competitors' innovations resulting in their ability to drive costs lower

16. Which of the following scenarios represents a company that has selected a differentiation
strategy?
a. A grocery store chain is converting its local neighborhood stores to warehouses. The chain
eliminates shopping in the aisles and instead has customers select items online or through an
app. The customers can then pick up their items in a drive-through without having to leave
their vehicles.
b. A company is developing a tablet device that sells features, such as speed and memory, as
add-ons to produce a base model of its device that is below the typical market cost.
c. A tool manufacturer is investing in research and development (R&D) to develop modifications
to existing tools so that they can be used more effectively and safely in the oil and gas industry.
d. A restaurant entrepreneur announces a new fast-food chain where every item on the menu
is just $1.

17. Companies must effectively manage their relationships with customers because:
a. customers are the only stakeholders that matter.
b. their rivals are managing customer relationships.
c. companies must satisfy customers' needs to achieve a competitive advantage.
d. customer relationship management is the most effective use of companies' core
competencies.

18. With a focus strategy, a company:

a. focuses on a broad, integrated group of customers.
b. produces products with features that are acceptable to customers at the lowest cost.
c. selects a more narrow group, or niche, of customers on which to concentrate its efforts.
d. produces products that customers perceive as being different in ways that are important to
them.
19. Research indicates that a competitive advantage in logistics is a primary strategy that
creates the most value for a cost leadership strategy. Which of the following value-creating
activities should be a focus for a company pursuing a cost leadership strategy?
a. Supply-chain management
b. Human resources
c. Marketing
d. Follow-up service

20. A business-level strategy is:

a. a marketing and positioning program designed to explain a business to its customers.
b. an integrated and coordinated set of commitments and actions the firm uses to gain a
competitive advantage by exploiting core competencies in a specific product market.
c. the actions the firm takes by selecting and managing a group of different businesses
competing in different product markets.
d. a set of actions and commitments through which the firm sells its products outside of its
domestic market.

21. A cost leadership strategy is one in which:

a. customers perceive a company's products to be superior to competitor products.
b. a company uses process innovations, such as advanced production or distribution methods,
to operate efficiently.
c. a firm produces nonstandardized products that deliver superior value to customers through
innovation.
d. a firm must consistently upgrade its product features to keep pace with customers'
expectations for value.

22. Among firms utilizing a differentiation strategy, which of the following best exemplifies the
typical relationship between consumers' brand loyalty and price sensitivity, and the effect it has
on a brand's rivalry with competitors?
a. Granny Smith's Frozen Dinners are recognized as superior products, and the brand has a
dedicated, loyal following. However, the firm's customers are also extremely price sensitive, so
Granny Smith must keep product prices low to compete against its rivals.
b. Consumers are so devoted to Nike footwear that they are willing to pay any price for these
products. Nike has so thoroughly differentiated its footwear products that it is completely
insulated from competition against rivals.
c. Apple's customers tend to be extremely brand loyal and are thus more tolerant of price
increases. However, as Samsung creates increasingly similar products, Apple will have to
respond by improving the perceived value of its products.
d. All-Star Tires has an excellent reputation for quality, and car owners have demonstrated their
loyalty to the brand by making it the top tire manufacturer in the nation. A recent price
increase sent sales plummeting, however, so All-Star has no choice but to pursue a new
integrated cost leadership/differentiation strategy.
23. An oil company develops an innovative refining process that reduces the time required to
produce gasoline by 25 percent. The company has identified its unique process as a core
competency. Which of the following strategies would be most beneficial for the company to
pursue?
a. Differentiation
b. Cost leadership
c. Focused differentiation
d. Integrated cost leadership/differentiation

24. Michelle opens a residential heating company dedicated to geothermal heating systems.
She is pursuing a focused differentiation strategy, serving the needs of customers who are
looking for environmentally friendly solutions to heat and cool their homes. Which of the
following represents a risk to the company because Michelle is using a focus strategy rather
than a broad strategy?
a. Competitor residential heating and cooling companies offer mainstream options at lower
prices.
b. The cost of geothermal technology comes down and becomes more aligned with mainstream
options, increasing the number of customers who consider geothermal options.
c. New technology in the solar energy business is developed that makes efficient heating and
cooling solutions based on power available to customers.
d. As renewable energy continues to gain popularity, mainstream residential heating and
cooling companies that are larger and have more resources decide to offer more geothermal
options.

25. Which of the following is an example of a subscription business model?

a. We Craft Box, which delivers monthly craft supplies and instructions for children for about
$25 per month
b. Mint finance tracking software, which is offered at no cost as an introduction to QuickBooks'
other subscription services
c. KFC, which licenses individuals to use its trademark and processes when selling its branded
fried chicken and other fast-food products
d. The Facebook social media platform, which is available to users at no cost and earns its
income from paid advertising aimed at those users

26. A construction company is pursuing a focused differentiation strategy, and after reviewing
its core competencies, the leaders have decided to specialize in hospital construction. Which of
the following is an example of how that strategy is addressing the bargaining power of buyers
(customers)?
a. The company accepts a lower profit margin rather than raise prices after its supplier of
medical regulators raises prices.
b. The company participates in competitive bidding processes, and despite often submitting a
higher bid than competitors, it is awarded the job based on its expertise.
c. In a year where only a few hospitals are being built, the company's leaders decide to offer
discounted pricing to customers to ensure that they have a steady stream of work.
d. Seeing the success of the hospital construction company, other construction firms decide to
narrow their focus and create business units dedicated to this customer segment.

27. Southwest Airlines' decision to "perform activities differently" has allowed the organization
to differentiate itself from competitors and made it a low-cost leader. Which of the following
activities is NOT contributing to the firm's ability to fulfill the purpose of this business strategy?
a. Having short-haul, point-to-point routes between mid-sized cities and secondary airports
b. Maintaining low ticket prices
c. Training lean and productive ground and gate crews
d. Offering free in-flight meals

28. Many companies pursue an integrated cost leadership/differentiation strategy, working to

lower cost structures while also enhancing their products and services. To successfully pursue
this strategy, companies could:
a. invest in developing total quality management (TQM) systems and improving marketing
effectiveness.
b. concentrate all efforts on cost-saving projects within their production processes.
c. increase exposure and brand awareness through digital and print marketing campaigns.
d. develop new products every year to continue attracting customers and meet their upgrade
expectations.

29. Which of the following strategies could be implemented to improve a company's richness in
its customer relationships?
a. A radio and billboard advertising campaign featuring a celebrity endorsing the company's
product
b. A customer loyalty program with multiple fine-print requirements
c. A baby products sale announced through a mailed postcard to the company's entire database
of customers
d. Satisfaction surveys following the arrival of a product

30. Which of the following statements regarding firms following a differentiation strategy is
NOT true?
a. Although a firm that has successfully differentiated its products typically develops a loyal
following that is less price sensitive, it must always be aware of rival products and respond by
continuing to improve the value of its own products.
b. A firm that has successfully differentiated its products may have to pay higher costs for high-
quality components, but these costs are offset by the firm's higher margins.
c. When a firm succeeds at differentiating its products, it acts as a magnet attracting potential
new entrants into the market.
d. When a firm has successfully differentiated its products from other competing products, it
decreases the likelihood that consumers will opt for product substitutes.