BUS J401 Practice Exam 2
SMCh5-8
SMCh5-8 Key
1. The primary aim of strategic management at the business level is .
A. maximizing risk-return tradeoffs through diversification
B. achieving a low cost position
C. maximizing differentiation of products and/or services
D. achieving competitive advantage
How firms compete with each other and how they attain and sustain competitive advantages goes
to the heart of strategic management. In short, the key issue becomes to identify why some firms
outperform others and enjoy such advantages over time.
AACSB: Analytic
Blooms: Remember
Dess - Chapter 05 #47
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management; and the three generic strategies: overall cost leadership;
differentiation; and focus.
Level of Difficulty: 1 Easy
Topic: Types of Competitive Advantage and Sustainability
2. Primary value chain activities that involve the effective layout of receiving dock operations (inbound
logistics) and support value chain activities that include expertise in process engineering (technology
development) characterize what generic strategy?
A. differentiation
B. differentiation focus
C. overall cost leadership
D. stuck-in-the-middle
Examples of overall cost leadership within primary value chain activities may involve the effective
layout of receiving dock operations (inbound logistics) and support value chain activities may include
expertise in process engineering (technology development).
AACSB: Analytic
Blooms: Understand
Dess - Chapter 05 #48
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management; and the three generic strategies: overall cost leadership;
differentiation; and focus.
Level of Difficulty: 2 Medium
Topic: Types of Competitive Advantage and Sustainability
3. A manufacturing business pursuing cost leadership is likely to .
A. focus on a narrow market segment
B. use advertising to build brand image
C. rely on experience effects to raise efficiency
D. put heavy emphasis on product engineering
Key to an overall cost leadership strategy is the experience curve, which refers to how business
learns to lower costs as it gains experience with production processes. With experience, unit costs of
production decline as output increases in most industries.
AACSB: Analytic
Blooms: Understand
Dess - Chapter 05 #49
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management; and the three generic strategies: overall cost leadership;
differentiation; and focus.
Level of Difficulty: 2 Medium
Topic: Types of Competitive Advantage and Sustainability
,BUS J401 Practice Exam 2
4. One aspect of using a cost leadership strategy is that experience effects may lead to lower costs.
Experience effects are achieved by .
A. repeating a process until a task becomes easier
B. hiring more experienced personnel
C. spreading out a given expense or investment over a greater volume
D. competing in an industry for a long time
Key to an overall cost leadership strategy is the experience curve, which refers to how business
learns to lower costs as it gains experience with production processes. With experience, unit costs of
production decline as output increases in most industries.
AACSB: Analytic
Blooms: Understand
Dess - Chapter 05 #50
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management; and the three generic strategies: overall cost leadership;
differentiation; and focus.
Level of Difficulty: 2 Medium
Topic: Types of Competitive Advantage and Sustainability
5. With experience, unit costs of production decline as increases in most industries.
A. costs
B. output
C. price
D. volume
With experience, unit costs of production decline as output increases in most industries. The
experience curve, developed by the Boston Consulting Group in 1968, is a way of looking at
efficiency gains that come with experience. For a range of products, as cumulative experience
doubles, costs and labor hours needed to produce a unit of product decline by 10 to 30 percent.
AACSB: Analytic
Blooms: Understand
Dess - Chapter 05 #51
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management; and the three generic strategies: overall cost leadership;
differentiation; and focus.
Level of Difficulty: 2 Medium
Topic: Types of Competitive Advantage and Sustainability
6. Research has consistently shown that firms that achieve both cost leadership and differentiation
advantages tend to perform .
A. at about the same level as firms that achieve either cost or differentiation advantages
B. about the same as firms that are stuck-in-the-middle
C. higher than firms that achieve either a cost or a differentiation advantage
D. lower than firms that achieve differentiation advantages but higher than firms that achieve cost
advantages
Research supports the notion that firms that identify with one or more of the forms of competitive
advantage outperform those that do not. There has been a rich history of strategic management
research addressing this topic. One study found that businesses combining multiple forms of
competitive advantage (differentiation and overall cost leadership) outperformed businesses that used
only a single form.
AACSB: Analytic
Blooms: Understand
Dess - Chapter 05 #52
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management; and the three generic strategies: overall cost leadership;
differentiation; and focus.
Level of Difficulty: 2 Medium
Topic: Types of Competitive Advantage and Sustainability
,BUS J401 Practice Exam 2
7. Convincing rivals not to enter a price war, protection from customer pressure to lower prices, and
the ability to better withstand cost increases from suppliers characterize which type of competitive
strategy?
A. differentiation
B. overall cost leadership
C. differentiation focus
D. cost leadership focus
An overall low-cost position enables a firm to achieve above-average returns despite strong
competition. It protects a firm against rivalry from competitors, because lower costs allow a firm
to earn returns even if its competitors eroded their profits through intense rivalry. It protects firms
against powerful buyers, who can only drive down prices to the level of the next most efficient
producer. A low-cost position provides more flexibility to cope with supplier demands for input cost
increases.
AACSB: Analytic
Blooms: Remember
Dess - Chapter 05 #53
Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firms relative power vis-à-vis the five forces that determine an
industrys average profitability.
Level of Difficulty: 1 Easy
Topic: Types of Competitive Advantage and Sustainability
8. Which of the following is a risk (or potential pitfall) of cost leadership?
A. Cost cutting may lead to the loss of desirable features.
B. Attempts to stay ahead of the competition may lead to gold plating.
C. Cost differences increase as the market matures.
D. Producers are more able to withstand increases in supplier costs.
Potential pitfalls of overall cost leadership strategy include too much focus on one or a few value-
chain activities; all rivals share a common input or raw material; the strategy is imitated too easily;
a lack of parity on differentiation; and erosion of cost advantages when the pricing information
available to customers increases.
AACSB: Analytic
Blooms: Understand
Dess - Chapter 05 #54
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Level of Difficulty: 2 Medium
Topic: Types of Competitive Advantage and Sustainability
9. A firm can achieve differentiation through all of the following means EXCEPT .
A. improving brand image
B. better customer service
C. adding additional product features
D. offering lower prices to frequent customers
A differentiation strategy consists of creating differences in the product or service offering of the
firm by creating something that is perceived industrywide as unique and valued by customers.
Differentiation can take many forms, including prestige or brand image, technology, innovation,
features, customer service, or a dealer network.
AACSB: Analytic
Blooms: Understand
Dess - Chapter 05 #55
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Level of Difficulty: 2 Medium
Topic: Types of Competitive Advantage and Sustainability
, BUS J401 Practice Exam 2
10. Support value chain activities that involve excellent applications engineering support (technology
development) and facilities that promote a positive firm image (firm infrastructure) characterize what
generic strategy?
A. overall cost leadership
B. differentiation
C. differentiation focus
D. stuck-in-the middle
Examples of value chain activities for differentiation include support value chain activities like
excellent applications engineering support (technology development) and facilities that promote a
positive firm image (firm infrastructure).
AACSB: Analytic
Blooms: Remember
Dess - Chapter 05 #56
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Level of Difficulty: 1 Easy
Topic: Types of Competitive Advantage and Sustainability
11. High product differentiation is generally accompanied by .
A. higher market share
B. higher profit margins and lower costs
C. decreased emphasis on competition based on price
D. significant economies of scale
Differentiation provides protection against rivalry since brand loyalty lowers customer sensitivity to
price and raises customer switching costs. By increasing company margins, differentiation also avoids
the need for a low-cost position.
AACSB: Analytic
Blooms: Understand
Dess - Chapter 05 #57
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Level of Difficulty: 2 Medium
Topic: Types of Competitive Advantage and Sustainability
12. Which of the following is FALSE regarding how a differentiation strategy can help a firm to improve
its competitive position relative to the Porter five forces model?
A. By increasing firm margins, it avoids the need for a low cost position.
B. It reduces buyer power because buyers lack comparable alternatives.
C. Supplier power is increased, because suppliers will be able to charge higher prices for their inputs.
D. Firms will enjoy high customer loyalty.
Supplier power is also decreased, because there is a certain amount of prestige associated with being
the supplier to a producer of highly differentiated products and services.
AACSB: Analytic
Blooms: Understand
Dess - Chapter 05 #58
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Level of Difficulty: 2 Medium
Topic: Types of Competitive Advantage and Sustainability
SMCh5-8
SMCh5-8 Key
1. The primary aim of strategic management at the business level is .
A. maximizing risk-return tradeoffs through diversification
B. achieving a low cost position
C. maximizing differentiation of products and/or services
D. achieving competitive advantage
How firms compete with each other and how they attain and sustain competitive advantages goes
to the heart of strategic management. In short, the key issue becomes to identify why some firms
outperform others and enjoy such advantages over time.
AACSB: Analytic
Blooms: Remember
Dess - Chapter 05 #47
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management; and the three generic strategies: overall cost leadership;
differentiation; and focus.
Level of Difficulty: 1 Easy
Topic: Types of Competitive Advantage and Sustainability
2. Primary value chain activities that involve the effective layout of receiving dock operations (inbound
logistics) and support value chain activities that include expertise in process engineering (technology
development) characterize what generic strategy?
A. differentiation
B. differentiation focus
C. overall cost leadership
D. stuck-in-the-middle
Examples of overall cost leadership within primary value chain activities may involve the effective
layout of receiving dock operations (inbound logistics) and support value chain activities may include
expertise in process engineering (technology development).
AACSB: Analytic
Blooms: Understand
Dess - Chapter 05 #48
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management; and the three generic strategies: overall cost leadership;
differentiation; and focus.
Level of Difficulty: 2 Medium
Topic: Types of Competitive Advantage and Sustainability
3. A manufacturing business pursuing cost leadership is likely to .
A. focus on a narrow market segment
B. use advertising to build brand image
C. rely on experience effects to raise efficiency
D. put heavy emphasis on product engineering
Key to an overall cost leadership strategy is the experience curve, which refers to how business
learns to lower costs as it gains experience with production processes. With experience, unit costs of
production decline as output increases in most industries.
AACSB: Analytic
Blooms: Understand
Dess - Chapter 05 #49
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management; and the three generic strategies: overall cost leadership;
differentiation; and focus.
Level of Difficulty: 2 Medium
Topic: Types of Competitive Advantage and Sustainability
,BUS J401 Practice Exam 2
4. One aspect of using a cost leadership strategy is that experience effects may lead to lower costs.
Experience effects are achieved by .
A. repeating a process until a task becomes easier
B. hiring more experienced personnel
C. spreading out a given expense or investment over a greater volume
D. competing in an industry for a long time
Key to an overall cost leadership strategy is the experience curve, which refers to how business
learns to lower costs as it gains experience with production processes. With experience, unit costs of
production decline as output increases in most industries.
AACSB: Analytic
Blooms: Understand
Dess - Chapter 05 #50
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management; and the three generic strategies: overall cost leadership;
differentiation; and focus.
Level of Difficulty: 2 Medium
Topic: Types of Competitive Advantage and Sustainability
5. With experience, unit costs of production decline as increases in most industries.
A. costs
B. output
C. price
D. volume
With experience, unit costs of production decline as output increases in most industries. The
experience curve, developed by the Boston Consulting Group in 1968, is a way of looking at
efficiency gains that come with experience. For a range of products, as cumulative experience
doubles, costs and labor hours needed to produce a unit of product decline by 10 to 30 percent.
AACSB: Analytic
Blooms: Understand
Dess - Chapter 05 #51
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management; and the three generic strategies: overall cost leadership;
differentiation; and focus.
Level of Difficulty: 2 Medium
Topic: Types of Competitive Advantage and Sustainability
6. Research has consistently shown that firms that achieve both cost leadership and differentiation
advantages tend to perform .
A. at about the same level as firms that achieve either cost or differentiation advantages
B. about the same as firms that are stuck-in-the-middle
C. higher than firms that achieve either a cost or a differentiation advantage
D. lower than firms that achieve differentiation advantages but higher than firms that achieve cost
advantages
Research supports the notion that firms that identify with one or more of the forms of competitive
advantage outperform those that do not. There has been a rich history of strategic management
research addressing this topic. One study found that businesses combining multiple forms of
competitive advantage (differentiation and overall cost leadership) outperformed businesses that used
only a single form.
AACSB: Analytic
Blooms: Understand
Dess - Chapter 05 #52
Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management; and the three generic strategies: overall cost leadership;
differentiation; and focus.
Level of Difficulty: 2 Medium
Topic: Types of Competitive Advantage and Sustainability
,BUS J401 Practice Exam 2
7. Convincing rivals not to enter a price war, protection from customer pressure to lower prices, and
the ability to better withstand cost increases from suppliers characterize which type of competitive
strategy?
A. differentiation
B. overall cost leadership
C. differentiation focus
D. cost leadership focus
An overall low-cost position enables a firm to achieve above-average returns despite strong
competition. It protects a firm against rivalry from competitors, because lower costs allow a firm
to earn returns even if its competitors eroded their profits through intense rivalry. It protects firms
against powerful buyers, who can only drive down prices to the level of the next most efficient
producer. A low-cost position provides more flexibility to cope with supplier demands for input cost
increases.
AACSB: Analytic
Blooms: Remember
Dess - Chapter 05 #53
Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firms relative power vis-à-vis the five forces that determine an
industrys average profitability.
Level of Difficulty: 1 Easy
Topic: Types of Competitive Advantage and Sustainability
8. Which of the following is a risk (or potential pitfall) of cost leadership?
A. Cost cutting may lead to the loss of desirable features.
B. Attempts to stay ahead of the competition may lead to gold plating.
C. Cost differences increase as the market matures.
D. Producers are more able to withstand increases in supplier costs.
Potential pitfalls of overall cost leadership strategy include too much focus on one or a few value-
chain activities; all rivals share a common input or raw material; the strategy is imitated too easily;
a lack of parity on differentiation; and erosion of cost advantages when the pricing information
available to customers increases.
AACSB: Analytic
Blooms: Understand
Dess - Chapter 05 #54
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Level of Difficulty: 2 Medium
Topic: Types of Competitive Advantage and Sustainability
9. A firm can achieve differentiation through all of the following means EXCEPT .
A. improving brand image
B. better customer service
C. adding additional product features
D. offering lower prices to frequent customers
A differentiation strategy consists of creating differences in the product or service offering of the
firm by creating something that is perceived industrywide as unique and valued by customers.
Differentiation can take many forms, including prestige or brand image, technology, innovation,
features, customer service, or a dealer network.
AACSB: Analytic
Blooms: Understand
Dess - Chapter 05 #55
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Level of Difficulty: 2 Medium
Topic: Types of Competitive Advantage and Sustainability
, BUS J401 Practice Exam 2
10. Support value chain activities that involve excellent applications engineering support (technology
development) and facilities that promote a positive firm image (firm infrastructure) characterize what
generic strategy?
A. overall cost leadership
B. differentiation
C. differentiation focus
D. stuck-in-the middle
Examples of value chain activities for differentiation include support value chain activities like
excellent applications engineering support (technology development) and facilities that promote a
positive firm image (firm infrastructure).
AACSB: Analytic
Blooms: Remember
Dess - Chapter 05 #56
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Level of Difficulty: 1 Easy
Topic: Types of Competitive Advantage and Sustainability
11. High product differentiation is generally accompanied by .
A. higher market share
B. higher profit margins and lower costs
C. decreased emphasis on competition based on price
D. significant economies of scale
Differentiation provides protection against rivalry since brand loyalty lowers customer sensitivity to
price and raises customer switching costs. By increasing company margins, differentiation also avoids
the need for a low-cost position.
AACSB: Analytic
Blooms: Understand
Dess - Chapter 05 #57
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Level of Difficulty: 2 Medium
Topic: Types of Competitive Advantage and Sustainability
12. Which of the following is FALSE regarding how a differentiation strategy can help a firm to improve
its competitive position relative to the Porter five forces model?
A. By increasing firm margins, it avoids the need for a low cost position.
B. It reduces buyer power because buyers lack comparable alternatives.
C. Supplier power is increased, because suppliers will be able to charge higher prices for their inputs.
D. Firms will enjoy high customer loyalty.
Supplier power is also decreased, because there is a certain amount of prestige associated with being
the supplier to a producer of highly differentiated products and services.
AACSB: Analytic
Blooms: Understand
Dess - Chapter 05 #58
Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.
Level of Difficulty: 2 Medium
Topic: Types of Competitive Advantage and Sustainability
