MBA 705 - Exam 1 verified answers and questions 2026 (100% correct)
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}When switching costs are high, buyers often need an incentive to try a new competitor;
this raises costs for the new company and acts as a barrier. When switching costs are
low—typically the case when consumers try a new grocery store—change may not be
difficult.
Threat of Entry Factor #5 -answer-}Access to distribution channels
}Existing competitors might have distribution channel ties based on long-standing or
even exclusive relationships, requiring the new entrant to create its own channels of
distribution.
Threat of Entry Factor #6 -answer-}Cost disadvantages independent of size
}Existing competitors may have developed cost advantages not related to firm size that
cannot be easily duplicated by newcomers. These advantages discourage other firms
from entering the industry.
}Cost advantages that are dependent on size are economies of scale, an entry barrier
discussed earlier.
Threat of Entry Factor #7 -answer-}Government policy
}Governments often control entry to certain industries with licensing requirements or
other regulations. Alcohol sales are regulated in many locales in the U.S. Health care
providers, insurance companies, and banks must meet certain requirements in order to
operate.
Pressure from Substitute Products -answer-}Substitute products come from outside of
the industry, not from competitors.
}Substitutes present acceptable alternatives in some cases, but not others.
Buyers Have Bargaining Power When: -answer-1.Buyers are concentrated or each one
purchases a significant percentage of total industry sales.
2.The products that the buyers purchase represent a significant percentage of the
buyers' costs.
3.The products are standard or undifferentiated.
,4.Buyers face few switching costs.
5.Buyers earn low profits, creating pressure for them to reduce their purchasing costs.
6.Buyers have the ability to become their own suppliers (backward integration).
7.The industry's product is relatively unimportant to the quality of the buyers' products or
services.
8.Buyers have complete information.
Suppliers Have Bargaining Power When: -answer-1.The supplying industry is
dominated by one or a few companies.
2.There are few or no substitute products.
3.The buying industry is not a major customer of the suppliers.
4.Suppliers are capable of becoming their own customers (forward integration)
5.Suppliers' products are differentiated or have built-in switching costs, reducing the
ability of buyers to play one supplier against another.
Limitations of Porter's Five Forces Model -answer-}Assumes a clear, recognizable
industry and does not consider partner firms.
}Assumes that large firms cannot influence the industry structure.
}Assumes industry factors, not firm resources, are primary profit drivers.
}Difficult to apply to firms operating in multiple countries where industry environments
vary considerably.
Case Analysis Step 3: Potential Profitability of the Industry -answer-}Apply Porter's five
forces model in detail.
}Analyze the industry, not the firm. Firm-specific issues will be considered later in the
SWOT analysis.
}Make a judgment (positive, negative, or neutral) about the effect of each force on the
potential for profits.
}Provide a summary of overall industry profitability.
Case Analysis Step 4Industry Successes & Failures -answer-}What firms in the
industry have succeeded and failed in the past? The same company may have
succeeded and failed at different times in the past.
}Why did these firms succeed or fail?
}Based on these examples, identify any critical success factors (CSFs) for the industry.
Critical Success Factors (CSFs): -answer-Elements of the strategy that are essential
for success among most or all competitors within a given industry.
Exit Barriers: -answer-Economic, strategic, or emotional obstacles to leaving an
industry.
Hypercompetition: -answer-The notion that industries emerge, develop, and evolve so
rapidly that identifying the current life cycle stage may be neither possible or worthwhile.
, Relative Market Share: -answer-A firm's share of industry sales when only the firm and
its key competitors are considered (i.e., firm sales divided by sales of the key firms in
the industry).
Substitute Products -answer-Alternative offerings produced by firms in another industry
that satisfy similar consumer needs.
Switching Costs: -answer-One-time costs that buyers of an industry's outputs incur as
they switch from one company's products or services to another's.
Analysis of the Macroenvironment -answer-}Macroenvironmental forces affect
industries and individual firms within industries. The focus at this stage of analysis is on
the industry, not the firm.
}Certain forces may be more prominent in some industries than in others.
Macroenvironmental Forces -answer-}Political-Legal forces
}Economic & Ecological forces
}Social forces
}Technological forces
}Collectively, these forces are sometimes referred to by the acronym PEST.
}The first two forces are covered in this chapter. The other two chapters are covered in
the next chapter.
Political-Legal Forces -answer-}Outcomes of elections
}Legislation
}Judicial court decisions
}Governmental agency activity
Select Examples of Recent Legislation Affecting U.S. Firms (Political-Legal Forces) -
answer-Pension Security Act (2002)—Gives workers more freedom to diversify their
investments and greater access to quality investment advice concerning their 401(k)
plans.
Select Examples of Recent Legislation Affecting U.S. Firms (Political-Legal Forces) -
answer-CAN SPAM Act (2003)—Prescribes rules and penalties for e-mail "spammers,"
although enforcement is difficult.
Dodd-Frank Wall Street Reform and Consumer
Select Examples of Recent Legislation Affecting U.S. Firms (Political-Legal Forces) -
answer-Dodd-Frank Wall Street Reform and Consumer Protection Act (2010)—
Increases regulations of U.S. financial markets and credit rating agencies.
Government Regulations -answer-}Regulation can be costly to firms, but are not always
opposed. Sometimes large firms even lobby for regulations that create entry barriers.
graded a+ ||pass!!
}When switching costs are high, buyers often need an incentive to try a new competitor;
this raises costs for the new company and acts as a barrier. When switching costs are
low—typically the case when consumers try a new grocery store—change may not be
difficult.
Threat of Entry Factor #5 -answer-}Access to distribution channels
}Existing competitors might have distribution channel ties based on long-standing or
even exclusive relationships, requiring the new entrant to create its own channels of
distribution.
Threat of Entry Factor #6 -answer-}Cost disadvantages independent of size
}Existing competitors may have developed cost advantages not related to firm size that
cannot be easily duplicated by newcomers. These advantages discourage other firms
from entering the industry.
}Cost advantages that are dependent on size are economies of scale, an entry barrier
discussed earlier.
Threat of Entry Factor #7 -answer-}Government policy
}Governments often control entry to certain industries with licensing requirements or
other regulations. Alcohol sales are regulated in many locales in the U.S. Health care
providers, insurance companies, and banks must meet certain requirements in order to
operate.
Pressure from Substitute Products -answer-}Substitute products come from outside of
the industry, not from competitors.
}Substitutes present acceptable alternatives in some cases, but not others.
Buyers Have Bargaining Power When: -answer-1.Buyers are concentrated or each one
purchases a significant percentage of total industry sales.
2.The products that the buyers purchase represent a significant percentage of the
buyers' costs.
3.The products are standard or undifferentiated.
,4.Buyers face few switching costs.
5.Buyers earn low profits, creating pressure for them to reduce their purchasing costs.
6.Buyers have the ability to become their own suppliers (backward integration).
7.The industry's product is relatively unimportant to the quality of the buyers' products or
services.
8.Buyers have complete information.
Suppliers Have Bargaining Power When: -answer-1.The supplying industry is
dominated by one or a few companies.
2.There are few or no substitute products.
3.The buying industry is not a major customer of the suppliers.
4.Suppliers are capable of becoming their own customers (forward integration)
5.Suppliers' products are differentiated or have built-in switching costs, reducing the
ability of buyers to play one supplier against another.
Limitations of Porter's Five Forces Model -answer-}Assumes a clear, recognizable
industry and does not consider partner firms.
}Assumes that large firms cannot influence the industry structure.
}Assumes industry factors, not firm resources, are primary profit drivers.
}Difficult to apply to firms operating in multiple countries where industry environments
vary considerably.
Case Analysis Step 3: Potential Profitability of the Industry -answer-}Apply Porter's five
forces model in detail.
}Analyze the industry, not the firm. Firm-specific issues will be considered later in the
SWOT analysis.
}Make a judgment (positive, negative, or neutral) about the effect of each force on the
potential for profits.
}Provide a summary of overall industry profitability.
Case Analysis Step 4Industry Successes & Failures -answer-}What firms in the
industry have succeeded and failed in the past? The same company may have
succeeded and failed at different times in the past.
}Why did these firms succeed or fail?
}Based on these examples, identify any critical success factors (CSFs) for the industry.
Critical Success Factors (CSFs): -answer-Elements of the strategy that are essential
for success among most or all competitors within a given industry.
Exit Barriers: -answer-Economic, strategic, or emotional obstacles to leaving an
industry.
Hypercompetition: -answer-The notion that industries emerge, develop, and evolve so
rapidly that identifying the current life cycle stage may be neither possible or worthwhile.
, Relative Market Share: -answer-A firm's share of industry sales when only the firm and
its key competitors are considered (i.e., firm sales divided by sales of the key firms in
the industry).
Substitute Products -answer-Alternative offerings produced by firms in another industry
that satisfy similar consumer needs.
Switching Costs: -answer-One-time costs that buyers of an industry's outputs incur as
they switch from one company's products or services to another's.
Analysis of the Macroenvironment -answer-}Macroenvironmental forces affect
industries and individual firms within industries. The focus at this stage of analysis is on
the industry, not the firm.
}Certain forces may be more prominent in some industries than in others.
Macroenvironmental Forces -answer-}Political-Legal forces
}Economic & Ecological forces
}Social forces
}Technological forces
}Collectively, these forces are sometimes referred to by the acronym PEST.
}The first two forces are covered in this chapter. The other two chapters are covered in
the next chapter.
Political-Legal Forces -answer-}Outcomes of elections
}Legislation
}Judicial court decisions
}Governmental agency activity
Select Examples of Recent Legislation Affecting U.S. Firms (Political-Legal Forces) -
answer-Pension Security Act (2002)—Gives workers more freedom to diversify their
investments and greater access to quality investment advice concerning their 401(k)
plans.
Select Examples of Recent Legislation Affecting U.S. Firms (Political-Legal Forces) -
answer-CAN SPAM Act (2003)—Prescribes rules and penalties for e-mail "spammers,"
although enforcement is difficult.
Dodd-Frank Wall Street Reform and Consumer
Select Examples of Recent Legislation Affecting U.S. Firms (Political-Legal Forces) -
answer-Dodd-Frank Wall Street Reform and Consumer Protection Act (2010)—
Increases regulations of U.S. financial markets and credit rating agencies.
Government Regulations -answer-}Regulation can be costly to firms, but are not always
opposed. Sometimes large firms even lobby for regulations that create entry barriers.
