[GET] Business Strategy Exam Questions And Answers
Most buyers use the product in the same ways. With common user requirements, a standardized product can satisfy the needs of buyers, in which case low selling price, not features or quality, becomes the dominant factor in causing buyers to choose...
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A low-cost leader is well positioned to use low price to induce its customers not to switch to rival brands or substitutes. Buyers are large and have significant power to bargain down prices. Low-cost providers have partial profit-margin protection in bargaining with high-volume buyers, since powerful buyers are rarely able to bargain price down past the survival level of the next most cost-efficient seller. Industry newcomers use introductory low prices to attract buyers and build a customer base. The low-cost leader can use price cuts of its own to make it harder for a new rival to win customers; the pricing power of the low-cost provider acts as a barrier for new entrants. Getting carried away with price cutting and ending up with lower profitability.
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A second big pitfall is not emphasizing avenues of cost advantage that can be kept proprietary or that relegate rivals to playing catch-up. The value of a cost advantage depends on its Sustainability. Sustainability, in turn, hinges on whether the company achieves its cost advantage in ways difficult for rivals to copy or match. A third pitfall is becoming too fixated on cost reduction. Low cost cannot be pursued so zealously that a firm's offering ends up being too features poor to generate buyer appeal. Furthermore, a company driving hard to push its costs down has to guard against misreading or ignoring increased buyer interest in added features or service, declining buyer sensitivity to price, or new developments that start to alter how buyers use the product. A low-cost zealot risks losing market ground if buyers start opting for more upscale or features-rich products. Even if these mistakes are avoided, a low-cost competitive approach still carries risk.
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Cost- saving technological breakthroughs or the emergence of still-lower-cost value chain models can nullify a low-cost leader's hard-won position. The current leader may have difficulty in shifting quickly to the new technologies or value chain approaches because heavy investments lock it in at least temporarily to its present value chain approach. In term of differentiation strategy, discuss the conditions in which it works best and the risks it could encounter. Ex: Dr. One route is to incorporate product attributes and user features that lower the buyer's overall costs of using the company's product. Making a company's product more economical for a buyer to use can be done by reducing the buyer's raw materials waste providing cut-to-size components , reducing a buyer's inventory requirements providing just-in-time deliveries , increasing maintenance intervals and product reliability so as to lower a buyer's repair and maintenance costs, using online systems to reduce a buyer's procurement and order processing costs, and providing free technical support.
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A second route is to incorporate features that raise product performance. This can be accomplished with attributes that provide buyers greater reliability, durability, convenience, or ease of use. Other performance-enhancing options include making the company's product or service cleaner, safer, quieter, or more maintenance-free than rival brands. Cell phone manufacturers are in a race to introduce next-generation phones with a more appealing, trendsetting set of user features and options. A third route to a differentiation-based competitive advantage is to incorporate features that enhance buyer satisfaction in noneconomic or intangible ways. Toyota's Prius appeals to environmentally conscious motorists who wish to help reduce global carbon dioxide emissions.
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Rolls-Royce, Ralph Lauren, Gucci, Tiffany, Cartier, and Rolex have differentiation-based competitive advantages linked to buyer desires for status, image, prestige, upscale fashion, superior craftsmanship, and the finer things in life. Bean makes its mail order customers feel secure in their purchases by providing an unconditional guarantee with no time limit: "All of our products are guaranteed to give percent satisfaction in every way.
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Return anything purchased from us at any time if it proves otherwise. We will replace it, refund your purchase price, or credit your credit card, as you wish. The fourth route is to deliver value to customers by differentiating on the basis of competencies and competitive capabilities that rivals don't have or can't afford to match. There are numerous examples of companies that have differentiated themselves on the basis of capabilities. Japanese automakers can adapt faster to changing consumer preferences for one vehicle style versus another because they have the capabilities to bring new models to market faster than American and European automakers.
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Apple's competencies in product innovation produced the iPod and the iPhone, both of which have been immensely popular with consumers and put Apple very much in the spotlight. Samsung's competencies and capabilities in liquid crystal display LCD technology have made it a global leader in LCD TVs with screen sizes of 27 -inches and larger. A differentiation strategy is always doomed when competitors are able to quickly copy most or all of the appealing product attributes a company comes up with. Rapid imitation means that no rival achieves differentiation, since whenever one firm introduces some aspect of uniqueness that strikes the fancy of buyers, fast following copycats quickly reestablish similarity.
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This is why a firm must search out sources of uniqueness that are time-consuming or burdensome for rivals to match if it hopes to use differentiation to win a competitive edge over rivals. Thus, even if a company sets the attributes of its brand apart from the brands of rivals, its strategy can fail because of trying to differentiate on the basis of something that does not deliver adequate value to buyers such as lowering a buyer's cost to use the product or enhancing a buyer's well- being. The third big pitfall of a differentiation strategy is overspending on efforts to differentiate the company 5 product offering, thus eroding profitability. Company efforts to achieve differentiation nearly always raise costs. The trick to profitable differentiation is either to keep the costs of achieving differentiation below the price premium the differentiating attributes can command in the marketplace thus increasing the profit margin per unit sold or to offset thinner profit margins per unit by selling enough additional units to increase total profits.
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If a company goes overboard in pursuing costly differentiation efforts and then unexpectedly discovers that buyers are unwilling to pay a sufficient price premium to cover the added costs of differentiation, it ends up saddled with unacceptably thin profit margins or even losses. The need to contain differentiation costs is why many companies add little touches of differentiation that add to buyer satisfaction but are inexpensive to institute. Upscale restaurants often provide valet parking. Ski resorts provide skiers with complimentary coffee or hot apple cider at the base of the lifts in the morning and late afternoon. Over differentiating so that product quality or service levels exceed buyers ' needs. Even if buyers like the differentiating extras, they may not find them sufficiently valuable for their purposes to pay extra to get them. Many shoppers shy away from buying top-of-the-line items because they have no particular interest in all the bells and whistles, and believe that a less deluxe model or style makes better economic sense.
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Trying to charge too high a price premium. Even if buyers view certain extras or deluxe features as nice to have, they may still conclude that the added cost is excessive relative to the value they deliver. A differentiator must guard against turning off would-be buyers with what is perceived as price gouging. Normally, the bigger the price premium for the differentiating extras, the harder it is to keep buyers from switching to the lower-priced offerings of competitors. Being timid and not striving to open up meaningful gaps in quality or service or performance. Tiny differences between rivals' product offerings may not be visible or important to buyers. If a company wants to generate the fiercely loyal customer following needed to earn superior profits and open up a differentiation-based competitive advantage over rivals, then its strategy must result in strong rather than weak product differentiation.
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In markets where differentiators do no better than achieve weak product differentiation because the attributes of rival brands are fairly similar in the minds of many buyers , customer loyalty to anyone brand is weak, the costs of brand switching are fairly low, and no one company has enough of a market edge that it can get by with charging a price premium over rival brands. What is vertical integration? Briefly explain the reasons that firm may decide to integrate backwards? Thus, if a manufacturer invests in facilities to produce certain component parts that it formerly purchased from outside suppliers, it remains in essentially the same industry as before. The only change is that it has operations in two stages of the industry value chain. For example, paint manufacturer Sherwin-Williams remains in the paint business even though it has integrated forward into retailing by operating more than 3, retail stores that market its paint products directly to consumers.
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On occasion, integrating into more stages along the industry value chain can add to a company's differentiation capabilities by allowing it to build or strengthen its core competencies, better master key skills or strategy-critical technologies, or add features that deliver greater customer value. Panera Bread has been quite successful with a backward vertical integration strategy that involves internally producing fresh dough for company-owned and franchised bakery-cafes to use in making baguettes, pastries, bagels, and other types of bread-the company has earned substantial profits from producing both these items internally rather than having these supplied by outsiders.
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Furthermore, Panera Bread's vertical integration strategy makes good competitive sense because it helps lower store operating costs and facilitates consistent product quality at the company's 1, U. What are the appropriate strategy options in rapidly growing markets? Explain them briefly. What are the appropriate strategy options in emerging markets? Push to perfect the technology, improve product quality, and develop additional attractive performance features.
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Out-innovating the competition is often one of the best avenues to industry leadership. Consider merging with or acquiring another firm to gain added expertise and pool resource strengths. As technological uncertainty clears and a dominant technology emerges, try to capture any first-mover advantages by adopting it quickly. Acquire or form alliances with companies that have related or complementary technological expertise as a means of helping outcompete rivals on the basis of technological superiority.
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Pursue new customer groups, new user applications, and entry into new geographical areas perhaps using strategic partnerships or joint ventures if financial resources are constrained. Make it easy and cheap for first-time buyers to try the industry's first-generation product. As the product becomes familiar to a wide portion of the market, shift the advertising emphasis from creating product awareness to increasing frequency of use and building brand loyalty. Use price cuts to attract the next layer of price-sensitive buyers into the market. Form strategic alliances with key suppliers whenever effective supply chain management provides important access to specialized skills, technological capabilities, and critical materials or components.
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What are the appropriate strategy options in mature markets? What is related diversification? Please describe its strategic appeal and provide relevant examples. What unrelated diversification? Explain at least five factors that can affect industry attractiveness and provide relevant examples. Explain at least five factors that can affect competitive strengths and provide relevant examples. A culture that encourages actions, behaviors, and work practices supportive of good strategy execution not only provides company personnel with clear guidance regarding "how we do things around here" but also produces significant peer pressure from coworkers to conform to culturally acceptable norms. The stronger the admonishments from top executives about "how we need to do things around here" and the stronger the peer pressures from coworkers, the more the culture intluences people to display behaviors and observe operating practices that support good strategy execution.
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Mass markets tend to be characterized by low profit margins. True b. A key proposition of the five forces framework is that industry structure is unrelated to firm performance and the strength of the five forces. A key indicator of intense rivalry among firms is low cost competitive actions and reactions. High exit costs from an industry tend to reduce the intensity of rivalry. Product proliferation is a potential strategy used to reduce the threat of potential entry.
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Substantial switching costs reduce the threat of potential entry. The threat of substitutes products from different industries that satisfy customer needs being met by focal firms is greater if there are low switching costs. Core features of the five forces model remain remarkably insightful when analyzing old industries but not new phenomena, such as e-commerce. These patents represented a significant barrier to entry for other firms wanting to enter the lucrative semiconductor business. One of the benefits of having a cost advantage is that it serves as barrier to entry. A focused firm avoids being either a specialized differentiator or a specialized cost leader. Choosing whether to perform activities differently than rivals or to perform different activities than competitors is the essence of the Three Generic Strategies. Telecommunications is an example of one industry in which one can determine exact boundaries.
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Strategic alliances are on the decline. The five forces model overemphasizes threats and downplays opportunities. Strategies of firms within a strategic group tend to be differentand so does their performance. Recent success of firms in unattractive industries suggests that firm-specific resources and capabilities are not needed to determine firm performance. The industry-based view ignores the impact of industry history and institutions on firm performance.
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The traditional view recommends avoidance of integration. Which of the following is true of the industrial organization IO economics model? Industry structure determines firm performance, which determines strategy and conduct. Original goal — help regulators set policy to minimize the ability of firms to earn excess profits. Strategists avoid the IO model to try to earn above-average returns excess profits.
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All of the above are true. Which of the following tends to reduce the intensity of rivalry? Similarity of firms in terms of size, market influence and product offerings. Products are big-ticket items and purchased infrequently. New capacity can be added in small increments. Slow industry growth or decline in demand. Which of the following are scale-based low cost advantages? Experience curves. Proprietary technology. Favorable access to raw materials and distribution channels. Favorable locations. Which of the following would tend to reduce the bargaining power of suppliers? Dominance of the supplier industry by a few firms. Suppliers provide unique, differentiated products with few or no substitutes. Focal firm is not an important customer. Unwillingness and inability of suppliers to integrate forward.
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Which of the follow would tend to reduce the bargaining power of buyers? Large number of buyers. Products of the industry do not produce clear cost advantages or enhance the quality of life for buyers. Purchase standard, undifferentiated commodity products from suppliers. Willingness and ability of buyers to integrate backward. Which of the following are true concerning cost leadership? Targets average customers for mass market — little differentiation.
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Key functional areas are manufacturing and materials management. Relentless drive to cut costs might compromise value that customers desire. All of the above. Which is generally NOT true of differentiation? Relentless efforts of competitors to duplicate differentiation. It is a challenge to identify attributes that are valued by customers in each market segment. Complementors b. Supporters c. Customizers d. One controversial issue with strategic groups is: a. Stability of strategic groups. Lack of mobility barriers between strategic groups. How easy it is to obtain large quantities of objective data. All of the above are controversial issues.
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The industry-based view recommends: a. Backward integration as a way to defend against the power of suppliers. Backward integration as a way to defend against the power of buyers. Forward integration as a way to defend against the power of suppliers. Backward or forward integration as a way to defend against the power of suppliers and buyers. Which is a reason for choosing integration as opposed to outsourcing? Decreased expense. Strategic flexibility is enhanced. Those within the firm are often more competitive.
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The activity is not crucial to the core business. Which is a reason for choosing outsourcing as opposed to integration? More expensive. Those inside the firm are often more competitive. The activity is crucial to the core business. Which of the following is NOT true regarding supplier relationships? Supplier relationships that are too close may introduce rigidities, including loss of flexibility. In Japan suppliers may become trusted members of the keiretsu. In Japan, instead of treating suppliers as adversaries, they are treated as collaboration partners. Supplier relationships in Japan tend to be ineffective. A systematic foundation for industry and competitor analysis is best provided by: a. The industry-based view. Resource-based view. Historical view. Macro analysis. An industry-based view provides some answers to which of the following questions?
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Why do firms differ? How do firms behave? What determines the scope of the firm? An intense focus on above-average firm performance is shared by IO economists and those involved in the strategy of firms and yet their perspective is opposite of each other. The name of the game, from the perspective of strategists in charge of the profit-maximizing firm, is exactly the opposite—to try to earn above-average returns of course, within legal and ethical boundaries. How can high exit costs increase the chance that firms may continue to operate for at least a while when operating at a loss? Explain by giving examples. ANSWER: Specialized equipment and facilities that are of little or no alternative use, or that cannot be sold off, pose as exit barriers. In addition, emotional, personal, and career costs, especially on the part of executives admitting failure, may be high.
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In Japan and Germany, managers may be legally prosecuted if their firms file for bankruptcy. Thus, it is not surprising that these executives will try everything before admitting failure and taking their firms to exit the industry. Many high-technology industries are characterized by network externalities. What are those externalities and how can they pay off?
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