Strategic Market Management, European Edition , David A Aaker, Damien McLoughlin Test Bank by Ace Test Banks

Strategic Market Management, European Edition By Damien Mcloughlin ,David A. Aaker

Email: richard@qwconsultancy.com

TEST BANK for Strategic Market Management: European Edition David A. Aaker and Damien McLoughlin ESSAY QUESTIONS 1.

What is the objective of external analysis? How would you distinguish between an effective and an ineffective external analysis? What would you say would be the most useful way to conduct an external analysis? Why?

Describe and give examples of a well-developed business strategy including the four characteristics.

Discuss the advantages of a customizing rather than a standardizing marketing program in the context of a global strategy. When would customizing make sense?

Consider the implementation problems of merging Aldi and Harrods. What synergy would you expect? How could you make sure that it materialized?

Describe scenario analysis using one of the cases discussed in the course as a vehicle to illustrate. What implementation problems would you expect if scenario analysis were to be adopted at Dyson or a rapidly growing biotechnology firm?

American business has been accused of being short-sighted, looking at short term financial performance instead of taking a longer term view. Are European firms similarly shortsighted? What can a manager do to make sure that he or she is managing for the long term? How would you go about advising a nationally focused food producer to generate indicators of long-term success? Be specific.

What are assumptions underlying the growth-share matrix? When are these assumptions likely to hold? What do you see as the appropriate role of the growth-share matrix?

Discuss the considerations involved in making the decision to expand or broaden the product line.

Describe the distinctions between strategic vision, strategic stubbornness, and strategic intent.

10.

What are the six phases of hostility? How can you reduce the chances that hostility will hit your market? How do you compete in a hostile market?

11.

Describe and illustrate the following terms: -Scenario analysis -Strategic uncertainties -Synergy -Strategic opportunism

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-Strategic drift -Key success factors -Experience curve 12.

Discuss Market Analysis. In your discussion include the following: the objectives of market analysis, the elements of market analysis and tools to make market analysis more effective. Use information from the course including articles, cases, and textbook material to support your answer.

13.

Discuss Competitor Analysis. In your discussion include the following: the objectives of competitor analysis; what are the benefits of conducting a competitor analysis; what are the elements of competitor analysis. You should use information from the course including articles, cases, and textbook material to support your answer.

14.

Discuss Environmental Analysis. In your discussion include the following: the objectives of environmental analysis; the dimensions of environmental analysis; and how to deal with strategic uncertainty. Use information from the course including articles, cases, and textbook material to support your answer.

15.

Discuss External Analysis. In your discussion include the following: the objectives of external analysis; the benefits of conducting an external analysis; and the elements of external analysis. Use information from the course including articles, cases, and textbook material to support your answer.

16.

Discuss Internal Analysis. In your discussion include the following: the objectives of internal analysis; the benefits of conducting an internal analysis; and the elements of internal analysis. Use information from the course including articles, cases, and textbook material to support your answer.

17.

Discuss the concept of customer value proposition and give examples.

18.

What value does strategic positioning play in developing a firm’s marketing strategy?

19.

You have been given the task to evaluate a market opportunity for a firm. Give specific examples of the dimensions you would use to determine the attractiveness of a given market.

20.

What role does innovation have in strategy making? Give examples of firms who have a history of doing well with innovation and discuss the impact that has had on them.

OBJECTIVE QUESTIONS

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Note – These objective questions cover the material from the book. In general, a false answer is markedly at odds with material in the book. However, it may not be at odds with other written material. Therefore, it is important to position these questions as a test of a student’s competence with the book material. Chapter 1 – Business Strategy: The Concept and Trends in Its Management 1.1 A business is generally an organizational unit that has a distinct business strategy and a manager with sales and profit responsibility. Answer: True. See page 4 for discussion on the definition of a business. 1.2 Synergy occurs when two businesses can reduce costs by sharing some asset such as a sales force or logistics system. Answer: True. See page 8 for a discussion on the definition of synergy. 1.3 A strategy only can involve one strategic option – otherwise chaos will occur. Answer: False. Most successful strategies involve more than one strategic option – for example, a customer value proposition that involves innovation and brand equity such as Nokia. 1.4 A strategic market management system will have more value for an organization that is not engaged in complex markets with multiple channels and regional variation in channels and products. Answer: False. A strategic market management system is designed to help a company (complex or not) to deal with the rapid changes that can occur in a firm’s external environment. See page 12 for a discussion on strategic market management systems. 1.5 The elements of strategy can be capsulated into four core elements--the product-market investment decision, functional area strategies, the customer value proposition, and the sustainable competitive advantage. Answer: False See page 5 for a discussion the four elements which are: 1) the productmarket investment strategy 2) the customer value proposition, 3) assets and competencies, and 4) assets and competencies. So while a sustainable competitive advantage is the goal of a business strategy it is not one of the elements that make up a good business strategy. 1.6 A strategic competency is what a business unit does exceptionally well, such a manufacturing, promotion, distribution, etc. which has strategic importance to the business. Answer: True. This is the definition of a strategic competency. See page 8.

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1.7 Despite the costs and problems, strategic marketing management has the potential to do all except one of the following: (a) Precipitate the consideration of strategic choices. (b) Guarantee the success of the firm. (c) Force a long-range view. (d) Make visible the resource allocation decision. (e) Provide methods to aid in strategic analysis and decision-making. Answer: B. There is nothing that will guarantee the success of a business. In fact, it is interesting to discuss that a strategy is evaluated after implementation; that is when it is known whether a strategy is successful or not. See page 14 for a discussion on the value of strategic market management. 1.8 The four elements of a business strategy for a firm are the product-market investment decision, the functional strategies and program, the customer value proposition, and the __________ and _________. Answer: assets and competencies. See pages 5-6 for discussion on the elements of a business strategy. 1.9 The scope of a business is defined by the products it offers and chooses not to offer, by the markets it does and does not seek to serve, by the competitors it chooses to compete with or to avoid, and by its level of vertical integration. Answer: True. This is the definition of a business scope. See page 5 for a discussion on business scope. 1.10 The need for strategic analysis and decision making always occurs right at the close of the fiscal year and it is not always possible to plan strategies at that time. Answer: False. The need for strategic analysis and decision making is on-going. See page 10 for a discussion on characteristics of strategic planning. 1.11 Strategic marketing is involved in making decisions, some of which include investment decisions. Of the following which is not an investment decision: (a) Invest for growth (b) Milk (c) Maintain (d) Liquidate (e) Innovation Answer: E. Innovation is a strategic option. See page 7 for a discussion on the choices of investment options. 1.12

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A proactive strategy attempts to influence events in the environment rather than simply react to environmental forces as they occur. Answer: True. See page 12 for a discussion on proactive strategies. Chapter 2 – Strategic Market Management: An Overview 2.1 An external analysis includes the analysis of the customers, the competitors, the markets/submarkets and the environment. Answer: True. See page 18-23 for the elements of external analysis 2.2 An opportunity is a trend or event that could lead to a significant upward change in sales and profit patterns given the appropriate strategic response. Answer: True. See page 21 for a discussion of opportunities and threats. 2.3 Among the five criteria that should be used in selecting strategies is that a strategy should maximize profits. Answer: False. The five criteria are: consider scenarios, generate an attractive ROI, pursue a sustainable competitive advantage, be consistent with organizational vision and objectives, be feasible, and consider the relationship to other firm strategies. While the maximizing profits will be an attractive answer to students, it is usually a short term strategy and not one that necessarily promotes long term success of a firm. See pages 3132 for a discussion about selecting among strategic alternatives. 2.4 The strategy development process which involves external analysis, internal analysis, identifying strategic options, selecting a strategy, and implementation should ideally be sequential. Answer: False. The process is more iterative and circular than sequential. See page 33 for a discussion about the process of strategic market management. 2.5 A business vision can play several roles for many decades including guiding the strategy and suggesting strategic plans for the business. Answer: True. A business vision can play several roles for many decades. First it can guide strategy, suggesting strategic paths for the business; second, it can help perpetuate the core of the business and ensure that its core competencies are preserved. And third, it can inspire those in the organization by providing a purpose that is worthwhile and ennobling and gets beyond maximizing shareholder wealth. See page 26 for a discussion on the role of a business vision. 2.6 The criteria for selecting strategies include considering the relationship to other firm strategies, considering scenarios, ___________, __________, __________, and __________.

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Answer: pursue a sustainable competitive advantage, be consistent with organizational vision/objectives and be feasible and generate an attractive ROI. See pages 31-32 for a discussion about selecting strategic alternatives. 2.7 A vision for a business should include three components. ________, ________, __________, and _____________. Answer: Core values, the core purpose, and BHAGS. See pages 26 for a discussion the business vision. 2.8 Environmental analysis can be divided into five components. Which of the following is not one of those components? (a) Demographic (b) Customer motivations (c) Economic (d) Cultural (e) Governmental Answer: Customer motivations. Technological, governmental, cultural, economic, and demographic make up the components of environmental analysis. Customer motivation is part of customer analysis. See page 23 for a discussion about the elements of environmental analysis. 2.9 A key success factor is any competitive asset or competence that is needed to win in the marketplace. Answer: True. This is the definition of a key success factor. A competitive advantage, while usually a KSF, is an offering of a company that is perceived as being better than the competitive offerings to the targeted customer. See page 22 for a discussion about key success factors. 2.10 To develop a strategy, it is important to understand all of the following criteria about your competitor except: (a) Strengths and weaknesses (b) Objectives (c) Current and past strategy (d) Cost structure (e) National unemployment rate Answer: National Unemployment rate. This would be part of the environmental analysis. Competitor analysis is composed of: performance, image and personality, objectives, current and past strategy, culture, cost structure, and strengths and weaknesses. See page 19-20 for a discussion on the elements of competitor analysis. 2.11 Customer analysis involves identifying the organization’s customer segments and each segment’s motivations and unmet needs. © 2005 John Wiley & Sons

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Answer: True. See page 19 for a discussion about customer analysis. 2.12 Strategic market management is a system designed to help management both precipitate and make strategic decisions, as well as create strategic visions. Answer: True. This is the definition of strategic market management. See page 17 for a discussion on strategic market management. 2.13 Non-financial performance measures that often provide better measures of long-term business health include all but one of the following: (a) Manager/employee capability and performance (b) Return on assets (c) Brand/firm association (d) Customer satisfaction/brand loyalty (e) Product/service quality Answer: Return on Assets. This is a financial performance measure. Non-financial performance measures that often provide better measures of long-term business health include: customer satisfaction/brand loyalty, product/service quality, brand/firm associations, relative cost, new product activity, and manager/employee capability and performance. See page 24 for a discussion about performance analysis as part of internal analysis. 2.14 Internal analysis includes all but one of the following: (a) Performance analysis (b) Strengths (c) Leading economic indicators. (d) Weaknesses (e) Strategic problems Answer: c) Leading economic indicators. See page 23 for a discussion on internal analysis. Leading economic indicators are part of the environmental analysis. 2.15 Key success factors are those factors that a company has that are better than all of their competitors. Answer: False. Sustainable Competitive Advantages are those factors that a company performs or has that are perceived as better than their competitors. See page 22 for a discussion about key success factors 2.16 External analysis is divided into four sections. Which of the following is not one of those sections? (a) Environmental analysis (b) Performance analysis (c) Customer analysis (d) Market analysis © 2005 John Wiley & Sons

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(e) Competitor analysis Answer: Performance analysis is part of internal analysis. See page 18 and figure 2.1 for a discussion about the elements of strategic analysis. Chapter 3 – External and Customer Analysis 3.1 A strategic uncertainty identifies the most important strategic options. Answer: False. Strategic uncertainties focus on specific unknown elements that will affect the outcome of strategic decisions. See page 39 for a discussion on strategic uncertainties. 3.2 An external analysis process should be able to affect strategy and to generate or evaluate strategic options. Answer: True. The external analysis process should not be an end in itself. It should be motivated throughout by a desire to affect strategy, to generate or evaluate strategies options. 3.3 The benefits sought from a product is a very useful segmentation variable, because the selection of benefits can determine a total business strategy. Answer: True. See page 44 for a discussion on benefit segmentation. 3.4 A scenario is an alternative view of the future environment that is usually prompted by an alternative possible answer to a strategic uncertainty or by a prospective future event or trend. Answer: True. This is the definition of a scenario. See page 39 for the discussion of analysis and scenarios. 3.5 In a strategic context, segmentation means the identification of customer groups that respond differently from other groups to competitive offerings. Answer: True. This is the definition of segmentation. See page 42 for a discussion on segmentation. 3.6 One of the tasks in customer motivation analysis is to determine the relative importance of the motivations. Answer: True. The importance of the motivation will help determine the strategic role that motivation will play in the business strategy. See pages 46-50 for a discussion on determining motivations. 3.7 A customer analysis consists of three components; segmentation, customer motivation, and ________________. © 2005 John Wiley & Sons

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Answer: Unmet needs. This is the definition of customer analysis. Customer analysis can be usefully partitioned into an understanding of how the market segments, an analysis of customer motivations, and an exploration of unmet needs. See page 41 for the scope of customer analysis. 3.8 Uncertainty can be handled by precipitating a strategic decision, by obtaining information to reduce the uncertainty, and by ___________. Answer: Scenario analysis. The three ways of handling uncertainty are: 1) a strategic decision can be precipitated because the logic for a decision is compelling and/or because a delay would be costly or risky. Second, it may be worthwhile to attempt to reduce the uncertainty by information acquisition and analysis of an information-need area. Third, the uncertainty could be modeled by a scenario analysis. 3.9 To gain customers as active partners, managers should do all of the following except: (a) Co-create personalized experiences (b) Encourage active dialogue (c) Ignore the complainers (d) Mobilize customer communities (e) Manage customer diversity Answer: c) ignore the complainers. Customers are increasing becoming active partners in the buying process, rather than being seen as passive targets of product development and advertising. Chapter 4 – Competitor Analysis 4.1 One way to identify competitors is to group competitors according to the degree they compete for a buyer’s choice. Answer: True. There are two ways to group competitors; one based on the customer’s perspective and the other is based on competitor’s strategies. See page 57 for the discussion on identifying competitors. 4.2 A strategic group is a customer segment that is strategically important to the business. Answer: False. A strategic group is a group of firms that over time pursue similar competitive strategies, have similar characteristics, and have similar assets and competencies. See pages 59-62 for a discussion about strategic groups. 4.3 One of the benefits of competitor analysis is that an understanding of the current strategy and the strengths and weaknesses of a competitor can suggest opportunities and threats that will merit a response. Answer: True. See page 63 for a discussion on the benefits of competitor analysis.

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4.4 Mobility barriers are barriers inhibiting the movement of a company from one strategic group to another. Answer: True. Each strategic group has mobility barriers that inhibit or prevent businesses from moving from one strategic group to another. See page 61 for a discussion about strategic groups and mobility barriers. 4.5 The competitive strength grid lists the product-markets served by each competitor and identifies for each product market the strengths of each competitor. Answer: False. The competitive strength grid is a scale of the major competitors based on assets and competencies. It serves to summarize the position of the competition with respect to assets and competencies. 4.6 The value chain analysis is based upon the cost-benefit of the product as perceived by the customer. Answer: False. The value chain is a tool to identify the value-add components of competitor. A business’s value chain consists of two types of value-creating activities that should be considered in assessing a competitor – support activities and primary activities. 4.7 The eight dimensions of competitor analysis include: current and past strategies; cost structure; exit barriers; objectives and commitment; size, growth and profitability; ______ and ______, ________, and ________; and _____ and _________. Answer: Image and positioning, organization and culture, strengths and weaknesses. See page 63-66 for a discussion on understanding competitor analysis. 4.8 In conducting a competitor analysis, which of the following is not relevant: (a) Accounting methodologies (b) Market share (c) Image (d) Positioning strategy (e) Objectives and commitments Answer: Accounting methodologies. Competitor analysis consists of an analysis of a competitor’s: image and positioning; objectives and commitment; current and past strategies; organization and culture; exit barriers; strengths and weaknesses; size, growth and profitability. See pages 63-66 for a discussion about competitor analysis. 4.9 Exit barriers are crucial to a firm’s ability to exercise an exit alternative. Which of the following is not an exit barrier? (a) Managerial pride (b) Government or social barriers (c) Specialized assets © 2005 John Wiley & Sons

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(d) High market growth rate (e) Fixed costs Answer: D is the answer. High growth markets in most cases would not be an exit barrier. Exit barriers include: specialized assets, fixed costs, relationships with other business units, government or social barriers, and managerial pride. See page 66 for a discussion on exit barriers. 4.10 In completing a checklist on competitor assets and competencies, some of the areas to be considered include all but one of the following: (a) Company culture (b) Innovation (c) Manufacturing (d) Management (e) Strategic programming Answer: e) Strategic programming. Analysis of a competitor’s strengths and weaknesses include: innovation, manufacturing, finance-access to capital, management, marketing, and customer base. See page 67 for a discussion on analysis of strengths and weaknesses. 4.11 In addition to current competitors, it is important to consider potential market entrants such as firms that might engage in all but one of the following: (a) Retaliatory or defensive strategies (b) Market expansion (c) Forward integration (d) Price fixing (e) Backward integration Answer: d) price fixing. Potential market entrants might engage in the following: market expansion, product expansion, backward integration, forward integration, the export of assets and competencies or retaliatory or defensive strategies. See page 62 for a discussion on potential market entrants. 4.12 The competitor analysis in almost all cases will benefit from considering both direct and indirect competitors. Answer: True. By explicitly considering indirect competitors, the strategic horizon is expanded, and the analysis more realistically mirrors what the customer sees. 4.13 Potential market entrants might use all but one of the following to enter a market: (a) Market expansion (b) Market penetration (c) Product expansion (d) Backward/forward integration (e) Export assets or competencies © 2005 John Wiley & Sons

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Answer: Market penetration. A company practicing market penetration is already in the market (market penetration involves increasing customer usage in an existing market). See page 62 for a discussion about potential market entrants. 4.14 Some of the benefits of strategic groups include all but one of the following: (a) Makes the process of competitor analysis more manageable. (b) Refines the strategic investment decision. (c) Includes a set of mobility barriers. (d) They will be affected by and react to industry developments in similar ways. (e) They produce strategic options. Answer: e) they produce strategic options. Strategic groups do not themselves produce strategic options because strategic groups are tools used by the strategist to group similar competitors for analysis purposes. See pages 59-62 for a discussion about strategic groups. 4.15 In order to develop positioning alternatives, it is helpful to determine the image and brand personality of the major competitors. Answer: True. Positioning is how the customers see the various alternative offerings. See page 64 for a discussion about image and positioning strategy. Chapter 5 – Market/Submarket Analysis 5.1 A user gap is caused when one segment uses more of a product than another segment. Answer: False. A new use, new user group, or more frequent usage could dramatically change the size and prospects for the market. It is not an evaluation of one segment versus another. See page 80 for further discussion on the potential market and The User Gap. 5.2 The goal of strategy development is to identify growth areas and invest in them and to identify declining areas and divest Answer: True. See page 76 for further discussion on the objectives of market analysis. 5.3 An analysis of the industry structure provides insight into the present and future profitability of an industry. Answer: True. See page 76 for further discussion on market analysis. 5.4 Key success factors are assets and/or competencies that provide the basis for any firm to be successful in an industry. Answer: True. See page 89 for a definition of key success factors.

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5.5 One of the most serious risks of high growth markets is the fact that the number of competitors attracted is likely to be high. Answer: True. See pages 90-91 for further discussion on competitive overcrowding. 5.6 Avoiding the small market can mean that a firm must later overcome the first-mover advantage of others. Answer: True. See page 81 for further discussion on small market advantages. 5.7 An industry structure analysis involves five components--the intensity of competition, competition among existing firms, _________, _________, and __________. Answer: Threat of substitute products, bargaining power of suppliers and bargaining power of customers. See pages 83-84 for a discussion on Porter’s Five-Factor model. 5.8 Ghost potential occurs when competitors get scared from competitive intensity and abandon a market. False. Ghost potential occurs when a market seems so topical that the need is so apparent that growth seems assured but in fact the potential has ghost-like qualities caused by factors inhibiting or preventing its realization. 5.9 Which of the following is not an indicator of market maturity or decline? (a) Customer disinterest (b) Price Pressure (c) Saturation (d) Predictions for high growth (e) Buyer sophistication and knowledge Answer: d) predictions for high growth. The fact that the market is in the maturity stage would suggest that growth trends have diminished. See page 83 for a discussion on detecting market maturity and decline. 5.10 Which of the following is not a risk of a high growth market? (a) Overcrowding (b) Superior competitive entry (c) Projected high growth (d) Changing KSFs (e) Resource constraints Answer: c) projected high growth. High growth isn’t a risk; it is a positive force that should drive the market. Chapter 6 – Environmental Analysis and Strategic Uncertainty © 2005 John Wiley & Sons

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6.1 One of the five components of environmental analysis is internal analysis. Answer: False. The components of environmental analysis are: technological, governmental, economic, cultural, and demographic. See page 96 for further discussion on environmental analysis. 6.2 Disruptive technologies appeal to customers who tend to be unattractive to incumbents because they are not high-volume, high margin. Answer: True. See page 96 for a discussion about disruptive technologies. 6.3 Demographic trends can be a strong indicator of the growth of a market and it can be predictable. Answer: True. See page 102 for a discussion about demographics and their impact on strategy. 6.4 To participate in disruptive innovations, a firm needs to recognize that its existing organization is likely to be a liability. Answer: True. See page 96 for a discussion on disruptive technologies. 6.5 The ideal number of scenarios to work with is three to five. Answer: False. Experience has shown that two or three scenarios are the ideal number to work with. Any more and the process becomes unwieldy and any value is largely lost. See pages 106-108 for a discussion on scenario analysis. 6.6 A strategic uncertainty should be evaluated with respect to its impact and immediacy. Answer: True. See pages 103-106 for a discussion on impact analysis. 6.7 The five components of environmental analysis are technological, governmental, economic, ________, _________, and _____________. Answer: Culture, and demographics, general external analysis questions and scenarios. See page 96 for the elements of external analysis. 6.8 Scenario analysis provides an alternative to investing in information to reduce uncertainty that is often an expensive and futile process. Answer: True. See page 108 for a discussion about scenario analysis. 6.9 There are two types of scenario analyses: strategy-developing scenarios and decision-driven scenarios. © 2005 John Wiley & Sons

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Answer: True. See pages 106-108 for a discussion about type of scenario analyses. 6.10 In order to gain value from scenario analysis it is helpful to identify scenarios, relate the scenarios to existing or proposed strategies and estimate their probabilities. Answer: True See pages 106-108 for a discussion on scenario analysis. Chapter 7- Internal Analysis 7.1 The goal of internal analysis is to understand a business in depth. Answer: True. See page 111 for a discussion about the goals of internal analysis. 7.2 The goal of analysis is to develop strategies that either exploit a firm’s strengths or correcting or compensating for weaknesses. Answer: True. See page 111 for a discussion on the goals of strategy development. 7.3 ROA is return on sales times asset turnover. Answer: True. It can also be expressed by dividing profits by the assets. See page 113 for a discussion about profitability 7.4 ________________ is comparing the performance of a business component such as warehouse operations with similar operations in other companies. Answer: Benchmarking. See side bar on page 119 for a discussion about benchmarking. 7.5 A business internal analysis is similar to a competitor analysis, but it has a greater focus on performance assessments and is much richer and deeper. Answer: True. See discussion on page 111 about internal analysis. 7.6 Performance measures reflecting long-term profitability include all but one of the following: (a) Using robotics for production (b) Product/service quality (c) Customer satisfaction (d) New product activity (e) Relative cost Answer: (a) using robotics for production. See Figure 7.1 on page 115 and the discussion about performance metrics on pages 115-118. 7.7 One of the more important assets of many firms is the loyalty of the customer.

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Answer: True. See page 115 for a discussion about customer satisfaction and brand loyalty. 7.8 Determinants of strategic options and choices consist of all but one of the following: (a) Strengths/weaknesses (b) Organizational capabilities/constraints (c) Marketing myopia (d) Strategic problems (e) Past and current strategies Answer: (a) marketing myopia. See pages 119-121 for further discussion about determinants of strategic options. 7.9 In internal analysis, organizational strengths and weaknesses need not only to be identified but also related to competitors and the market. Answer: True. See page 121 for a discussion about from analysis to strategy. 7.10 Business portfolio analysis provides a structured way to evaluate business units on two key dimensions: the attractiveness of the market involved and the strengths of competitor’s in that market. Answer: False. The two key dimensions are attractiveness of the market involved and the strength of the firm’s position in that market. 7.11 Shareholder value analysis holds that the flow of profits emanating from an investment should exceed the cost of capital. Answer: True. See page 113 for a discussion about shareholder value analysis. 7.12 One danger of shareholder value analysis is that it reduces the priority given to other stakeholders. Answer: True. See pages 113-115 for a discussion about shareholder value analysis. Chapter 8 – Creating Advantage – Synergy, and Vision versus Opportunism 8.1 Among the critical determinants of an SCA is the choice of the product-market and the identity and nature of competitors. Answer: True. The sustainable competitive advantage is determined by: the way a firm competes, the basis of competition, where a firm competes, and whom the firm competes against. See page 141 for a discussion about SCAs. 8.2 An effective sustainable competitive advantage needs to be both meaningful and sustainable. And it should be substantial to make a difference. © 2005 John Wiley & Sons

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Answer: True. See page 141 for a discussion about sustainable competitive advantages. 8.3 In the survey of business managers, the most frequently mentioned SCA was financial resources. Answer: False. Quality reputation is the correct answer. See pages 144-145 for a discussion about SCAs. 8.4 The assets and competencies of an organization represent the most sustainable element of a business strategy, because these are usually difficult to copy or counter. Answer: True. See page 142 for a discussion about the basis of competition. 8.5 A strategic option is a particular value proposition for a product-market with supporting assets and competencies and functional area strategies and programs. Answer: True. See page 146 for a discussion about strategic options. 8.6 If two businesses have synergy, their profitability operating together will be higher than if they operated separately. Answer: True. See page 147 for further discussion about synergy. 8.7 Synergy will result in one or more of the following: decreased revenues, increased operating costs or increased investment. Answer: False. As a result of synergy, the combined SBUs will have one or more of the following: (1) increased sales; (2) lower operating costs; and (3) reduced investment requirements. See page 147 for discussion about synergy. 8.8 Synergy in practice is difficult because it can be difficult to predict whether synergy will actually emerge. Answer: True. See page 147 for a discussion about synergy. 8.9 Strategic vision is superior to strategic opportunism. Answer: False. Both may work but require different systems, people and culture. See page 149 for a discussion on strategic vision versus strategic opportunism. 8.10 Strategic intent is a sustained obsession with winning which involves a stretch of the organization and real innovation. Answer: True. See pages 157-158 for a discussion about strategic intent. 8.11

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An organization implementing a strategic vision should have an on-line information system and be capable of fast response. Answer: False. The response time is long term and not fast. Strategic vision is based on forward thinking and a long term perspective. See pages 156 for a discussion about strategic vision. 8.12 Strategic drift is associated with an orientation toward the present. Answer: True. Strategic drift results in investment decisions being made incrementally in response to opportunities (the present) versus being directed by a vision (long term). See page 155 for a discussion about strategic drift. 8.13 To successfully manage a strategic vision, a firm should have four characteristics--a clear future strategy, assets, competencies, and resources to implement the strategy, and _________, and _________. Answer: Buy-in throughout the organization and patience. See page 150 for a discussion on strategic vision. 8.14 Strategic flexibility can be obtained by participating in multiple product-markets and technologies, having resource slack, and _______________. Answer: Creating an organizational system and culture that supports change. See page 158 for a discussion about strategic flexibility. 8.15 To successfully manage a strategic vision, a firm should have four characteristics. Which of the following is not one of the four? (a) Senior management with MBAs (b) Buy-in throughout the organization (c) Assets, competencies, and resources to implement it (d) Patience (e) A clear future strategy Answer: (a) Senior management with MBAs. See page 150 for the discussion on strategic vision. 8.16 A sustainable competitive advantage has several characteristics. Which of the following is not one of them? (a) Sustainability (b) They can be leveraged (c) They should be supported by assets and competencies (d) They cannot easily be neutralized by competitors (e) They are easily copied Answer: (e) they are easily copied. An SCA should not be easy to match or be neutralized by a competitor. See page 142 for additional characteristics of SCAs. © 2005 John Wiley & Sons

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8.17 Synergy between firms can provide an SCA that is truly sustainable because it is based on the characteristics of a firm that are probably unique. Answer: True. See page 147 for a discussion on the role of synergy. 8.18 Four factors are required for the creation of a sustainable competitive advantage. Which of the following is not one of those factors? (a) Whom you compete against (b) Basis of competition (c) Where you compete (d) Your strategic intent (e) The way you compete Answer: (d) Your strategic intent. See pages 142 for a discussion about sustainable competitive advantages. 8.19 In developing strategies, it is useful to consider all except one of the following concepts: (a) Strategic flexibility (b) Strategic stubbornness (c) Who came up with the strategy? (d) Strategic vision (e) Strategic opportunism Answer: (c) who came up with the strategy. This is irrelevant. See discussion on pages 150-156. Chapter 9 – Strategic Options 9.1 Strategic options should offer a clear value proposition to customers and be supported by assets and competencies and functional strategies and programs. Answer: True. See page 165 for a discussion about strategic options. 9.2 Strategic options should be challenged with respect to whether it contains a real and perceived value proposition and whether it is relevant, sustainable, and feasible. Answer: True. See page 165-167 for a discussion about strategic options. 9.3 Value should be determined by the firm and not by the customer. Answer: False. Value is more likely to be real if it is driven from the customer’s perspective rather than from the perspective of the business. See page 163 for a discussion on the customer value proposition. 9.4 © 2005 John Wiley & Sons

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In the business-to-business space more companies are trying to move from being component suppliers to being systems solution players because systems-based organizations will more likely control the customer relationship. Answer: True. See page 166 for a discussion about product line breadth. 9.5 It is believed that corporate social responsibility does not create shareholder value but rather just enhances a brand image. Answer: False. In one survey more than 90% thought that socially responsible management creates shareholder value. See pages 166-167 for a discussion about corporate social responsibility. 9.6 The Datsun name was just as strong as the Nissan name four years after the name change primarily because brand awareness is an asset that can be extremely durable and thus sustainable. Answer: True. See page 172 for a discussion about brand equity. 9.7 The six quality dimensions include: performance, conformance to specifications, features, customer support, process quality, and _________. Answer: Aesthetic design. See page 167 for a discussion on quality dimensions. 9.8 In order for the quality option to be effective, a firm doesn’t need senior management commitment, because the quality department is in charge of the total quality management program. Answer: False. See pages 170-171 for a discussion on total quality management. 9.9 Most quality dimensions, such as performance, durability, reliability, and serviceability, are easy for buyers to evaluate. Answer. False. See page 171 for a discussion about signals of high quality. Chapter 10 – Strategic Options: Value, Focus and Innovation 10.1 With the experience curve, the total cost of a product will decline at a predictable rate as experience in building the product accumulates. Answer: True. The experience curve suggests that a firm accumulates experience in building a product, its costs in real dollars (net of inflation) will decline at a predictable rate. See pages 186 for a discussion about the experience curve. 10.2 The experience curve is based on the fact that the more customers use your product/service the more product/service they’ll purchase in the future. © 2005 John Wiley & Sons

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Answer: False. See page 186 for a discussion on the experience curve. 10.3 With an experience curve-based strategy, it is usually the first market entry that attains a large market share and will have a continuing cost advantage. Answer: True. See page 186 for a discussion on the experience curve. 10.4 The experience curve is automatic and occurs over time. Answer: False. The experience curve is not automatic. It must be proactively managed. See page 186 for a discussion on the issues related to the experience curve. 10.5 A successful low cost strategy is usually multifaceted and supported by a cost-oriented culture. Answer: True. See page 184 for a discussion about a low-cost culture. 10.6 A focus strategy concentrates on one part of the market or product line. Answer: True. See page 192 for a discussion on the focus strategy. 10.7 A focus strategy can be used to bypass competitor’s assets and competencies. Answer: True. See page 192 for a discussion on focus strategy. 10.8 To capture a first-mover advantage, it is important to hit the market first and invest to build the firm’s position in the market. Answer: True. See page 197 for a discussion on first-mover advantage. 10.9 To obtain significant operational economies, it is useful to examine the value chain and look for inherently high-cost components that could be eliminated or reduced. Answer: True. See page 188-189 for a discussion on operational economies. 10.10 To pursue an experience curve-based strategy, it is crucial to have the largest market share. Answer: False. See page 186 for a discussion on the experience curve. 10.11 An experience curve strategy will usually enhance product innovation. Answer: True. See page 186 for a discussion on the experience curve 10.12 The low-cost strategic option consists of all of the approaches below except: (a) Scale economies (b) No-frills product/service © 2005 John Wiley & Sons

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(c) Delivery of superior customer service (d) Production/operations (e) Experience curve Answer: c) Delivery of superior customer service. Customer service costs money. See pages 184-191 for a discussion on the value option Chapter 11 – Global Strategies 11.1 A global strategy is a multinational strategy in which separate strategies are developed for different countries. Answer: False. A global strategy is conceived and implemented in a worldwide setting. See page 206 for a discussion on global strategies versus multi-domestic and multinational strategies. 11.2 Among the eight motivations for global strategies is to cross-subsidize businesses and to obtain scale economies. Answer: True. See pages 207-209 for a list of the eight motivations for global strategies. 11.3 Accessing low-cost labor and materials is not a motivation for global strategies. Answer: False. See page 207-209 for a discussion on global strategy motivations. 11.4 Strong motivations for a standardized global brand and position are media spillover and crosscountry customer travel. Answer: True. See pages 211 for a discussion on standardization versus customization as it relates to global brand management. 11.5 A strategic alliance is a collaboration leveraging the strengths of two or more organizations to achieve strategic goals. Answer: True. See page 218 for a discussion on strategic alliances. 11.6 One of the benefits of a strategic alliance is that it can help a firm overcome trade barriers. Answer: True. See page 218 for advantages of strategic alliances. 11.7 The key to success of strategic alliances is to maintain strategic value for each of the participants. Answer: True. See page 222 for a discussion on making strategic alliances work. 11.8 A strategic alliance is commonly used to compensate for the absence of or weakness in any of the needed key success factors for a market. © 2005 John Wiley & Sons

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Answer: True. See pages 218-222 for a discussion about strategic alliances. 11.9 The seven motivations for global strategies are: to cross-subsidize, to dodge trade barriers, to access low cost labor/materials, to create global associations, _________, __________, and ___________. Answer: Obtain scale economies, access strategic markets, and access national incentives. See page 207 for a discussion about the motivations for global strategies. 11.10 A frequently unforeseen consequence of global expansion is that healthy markets, especially the home market, are put at risk by the diversion of resources. Answer: True. See page 207 for a discussion on global strategies. Chapter 12 – Strategic Positioning 12.1 Strategic positioning should include all but one of the following: (a) Be strategic. (b) Be the face of the business strategy. (c) Be defined relative to the competitors and the market. (d) Be logically or emotionally resonant with customers and relevant to the market. (e) Be used to provide a key success factors for an industry. Answer: (e) be used to provide a key success factor for an industry. See pages 225-226 for a discussion about the elements of strategic positioning. 12.2 Strategic positioning should drive and guide strategic initiatives, drive the communication program, and _______________. Answer: Express the values and culture of an organization. See page 226 for a discussion on the role of strategic positions. 12.3 Virgin Atlantic’s success is due, in part, to its strategic positioning. Which of the following was not one of those elements? (a) Extraordinary service quality (b) Value for money (c) They were the underdog (d) The Virgin personality (e) Under supply and over demand in the market Answer: (e) under supply and over demand in the market. See pages 227-230 for a discussion on the strategic positioning of Virgin Atlantic Airlines. 12.4 In the 1980s IBM suffered from its lack of strategic positioning. It has succeeded in the 1990s because a strategic positioning was created. © 2005 John Wiley & Sons

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Answer: True. See pages 230-233 for a discussion on IBM and their strategic positioning. 12.5 Ryanair has reinvented itself several times since its inception. But it changed rather than extended its strategic positioning. Answer: False. See pages 232-233 for a discussion on the Ryanair strategic positioning. 12.6 Strategic position options can be based on all but one of the following: (a) A targeted segment focus (b) Be the pioneer (c) A narrow product focus (d) The value option (e) Highest profit in the industry Answer: (e) highest profit in the industry. See page 233 for a discussion on strategic position options. 12.7 The strategic position often requires three to six dimensions to be expressed. Answer: True. See page 233 on capturing the essence of the strategic position. 12.8 The strategic position should do all except one of the following: (a) Reflect the culture of the organization (b) Reflect the strategy of the business (c) Reflect the competitors’ position (d) Resonate with the target market (e) Differentiate from competitors Answer: (c) reflect the competitors’ position. See pages 242-244 on developing and selecting a strategic position. 12.9 Proof points are programs, initiatives, and assets already in place that provide substance to the strategic position Answer: True. See page 243 for a discussion on proof points and strategic imperatives. 12.10 A strategic imperative is an investment in an asset or program that is essential if the promise to the customers is to be delivered. Answer: True. See page 243 for a discussion on proof points and strategic imperatives. 12.11 Trend drivers are firms who actually propel the trends that define the category. Answer: True. See page 235-236 for a discussion on trend drivers.

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Chapter 13 – Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea 13.1 Existing product markets are often attractive growth avenues because a firm has a base on which to build and momentum that can be exploited Answer: True. See page 259 for a discussion on growth in existing markets. 13.2 Firms can generate a more permanent market share gain by delivering solid value and thereby creating customer satisfaction and loyalty. Answer: True. See page 259 for a discussion on increasing market share. 13.3 Growth in existing markets can be achieved by implementing all of the following except: (a) Increasing market share (b) Increasing product usage (c) Diversification (d) Revitalize the brand (e) New applications Answer: (c) Diversification. Diversification means going into new markets as opposed to existing markets. See pages 259-264 for a discussion on growth in existing markets. 13.4 Market development is based on the premise that the business is operating successfully. Answer: True. See page 267 for a discussion about market development using existing products. 13.5 Forward integration occurs when a firm moves downstream with respect to product flow, such as a manufacturer buying a retail chain. Answer: True. See page 269 for a discussion on forward integration. 13.6 Vertical integration involves adding an operation whose required organizational assets and competencies may differ markedly from those of the firm’s other business areas. Answer: True. See page 272 for a discussion on risks of managing a different business. 13.7 Alternatives to vertical integration include long-term contracts, exclusive dealing agreements, asset ownership, joint ventures, strategic alliances, technology licenses, and franchising. Answer: True. See page 272 for a discussion on alternatives to integration. 13.8 Creativity and innovation comes from a diversity of ideas and idea sources. Answer: True. See page 273 for a discussion about the big idea. © 2005 John Wiley & Sons

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13.9 Incremental growth strategies can and should be the foundation of growth, but it is wise to consider significant growth initiatives and big ideas, especially if searching for a breakthrough strategy. Answer: True. See page 273 for a discussion on the big idea. Chapter 14 - Diversification 14.1 Diversification is the strategy of entering more product markets where the firm has great strengths and acceptance. Answer: False. Diversification is the strategy of entering product markets different from those in which a firm is currently engaged. See page 277 for a discussion about diversification. 14.2 Related diversification means that the new business area has some meaningful commonalities with the core business. Answer: True. See page 278 for a discussion about related diversification. 14.3 Vertical integration is usually a related diversification because it shares many commonalities with the firm. Answer: False. Vertical integration is usually UNRELATED diversification because it typically lacks any area of commonality. See page 289 for a discussion about vertical integration. 14.4 An important issue to consider in any diversification is whether, in fact, there is a real and meaningful area of commonality that will affect the ultimate ROI. Answer: True. See page 289 for a discussion on vertical integration. 14.5 Related diversification provides the potential to attain synergies by sharing assets or competencies across businesses. Answer: True. See page 278 for a discussion about related diversification. 14.6 A frequent motive for diversification is to export or import marketing skills. Answer: True. See page 282 for a discussion on marketing skills as a motive for diversification. 14.7 Synergy is often more mirage than reality because it does not exist, cannot be realized because of implementation problems or was vastly overextended. Answer: True. See page 283 for a discussion on the mirage of synergy. © 2005 John Wiley & Sons

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14.8 Unrelated diversification lacks enough commonality in brands, marketing, distribution, channels, manufacturing, or R&D thrust to provide the opportunity for synergy through the exchange or sharing of assets or competencies. Answer: True. See page 285 for a discussion on unrelated diversification. 14.9 The most common market entry routes are internal development and acquisition. Answer: True. See page 290 for entry strategies. 14.10 The selection of the right entry strategy depends on the level of a firm’s familiarity with the productmarket to be entered and the technology or service embodied in the product. Answer: True. See page 292 for selecting the right entry strategy. Chapter 15 – Strategies in Declining and Hostile Markets 15.1 One alternative in a declining market is to create a growth context by turning the declining industry into a growth industry. Answer: True. See page 297 for discussing on creating growth in declining industries. 15.2 A declining market involves a fall in demand often caused by an external event such as the creation of a competing technology, a change in customer needs or tastes, or a shift in government policy. Answer: True. See page 296 for a discussion about declining markets. 15.3 Hostile markets are those with intense, unsavory executives who create hostile competition. Answer: False. See page 306 for a discussion on hostile markets. 15.4 Hostile markets are those with overcapacity, low margins, intense competition, and management in turmoil. Answer: True. See page 306 for a discussion on hostile markets. 15.5 Some of the routes to revitalizing stagnant markets include all but one of the following: (a) New markets (b) New products (c) Reduced pricing (d) New applications (e) Revitalized marketing

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Answer: (c) Reduced pricing. If the market is stagnant, competitors will already have gone through price pressure. In addition, reducing price will have a negative impact on the existing profit (what little there is) structure. See page 306 for a discussion about routes to revitalizing stagnant markets. 15.6 A milk or harvest strategy aims to generate cash flow by reducing investment and operating expenses. Answer: True. See page 300 for a discussion about the milk or harvest strategy. 15.7 Some of the conditions that favor a milking strategy include a price structure that is stable at a level that is profitable for efficient firms. Answer: True. See page 300 for a discussion about conditions favoring a milking strategy. 15.8 When a business environment and business position are both unfavorable, then the final alternative is divestment or liquidation. Answer: True. See page 302 for a discussion on divestment or liquidation. 15.9 Hostile markets can also occur in growth contexts if there is overcapacity caused by too many competitors. Answer: True. See page 306 for a discussion about hostile markets. 15.10 Which of the following was not one of the phases of hostile markets? (a) Rescue (b) Margin pressure (c) Product scarcity (d) Share shifts (e) Self-defeating cost reductions Answer: (c) product scarcity. Instead there is product proliferation. See page 306-308 for a discussion about the six phases of hostile markets. 15.11 One of the phases of hostility is entrance by multinational players. Answer: False. In general, multinational players will not be attracted to hostile markets because the market is in decline and therefore unattractive. See page 306-308 for a discussion on the six phases of hostile industries. 15.12 In a hostile industry, a “Gold” competitor tends to be a smaller firm who offers above-standard service and higher price points. Answer: False. “Gold” competitors hold the number one or two positions in the market and therefore are by definition the larger firms. See page 308 for a discussion on strategies that win in hostile markets. © 2005 John Wiley & Sons

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15.13 The six phases of hostility are margin pressure, share shifts, product proliferation, _________, _________, and _________. Answer: Self-defeating cost reduction, consolidation and shakeout, and rescue. See pages 306-308 for a discussion on the six phases of a hostile industry. Chapter 16 – Organizational Issues 16.1 One dimension of organizational structure is the budgeting system. Answer: False. The four key components of the organizational structure are: structure, systems, people, and culture. See page 322 for a discussion on the conceptual framework involving the organization. 16.2 The assessment of any strategy should include a careful analysis of organizational risks and a judgment about the natural of any required organizational changes and their associated costs and feasibility. Answer: True. See pages 321 and 322 for a discussion on strategy implementation. 16.3 The virtual corporation is a team of people and/or organization formed for a particular client or job. Answer: True. See page 324 for a discussion on the virtual corporation. 16.4 An organizational culture involves three elements: a set of shared values, a set of norms of behavior, and a set of symbols/symbolic activities. Answer: True. See page 329 for a discussion on corporate culture. 16.5 Because a culture is so hard to change, a strategy's fit with the organization's culture is of greater concern than the strategy's fit with other organization components. Answer: True. See pages 329-331 for a discussion on corporate culture and strategy. 16.6 In the hit industry model, “pumpers” operate best in a decentralized organization and generally involve marketing people. Answer: False. “Pumpers” operate best in centralized organizations and involve people who are disciplined, cost- and production-oriented in production jobs and are risk-avoiders. See pages 334-336 for a discussion about hit-industry topology. 16.7 Norms can vary with respect to their intensity and with respect to the degree of consensus or consistency with which they are shared. Answer: True. See pages 330 for a discussion on norms. © 2005 John Wiley & Sons

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16.8 Organizational culture provides the key to strategy implementation because it is such a powerful force for providing focus, motivation, and norms. Answer: True. See page 332 for a discussion about corporate culture and strategy. 16.9 The hit industry topology includes drillers, pumpers, and distributors. Answer: True. See pages 334-336. 16.10 Kaizen means to start from a clean sheet of paper and to search for and implement radical change to achieve breakthrough results. Answer: False. Kaizen means on-going improvement, not radical change. See page 337 for a discussion of Kaizen. 16.11 The four constructs that are at the core of the framework for analyzing organizations are people, structure, __________ and _________. Answer: systems and culture. See pages 322 for a discussion on the conceptual framework for an organization. 16.12 High congruence among an organization’s components and strategy can also inhibit desirable and even necessary change. Answer: True. See page 336 for a discussion organizing for innovation. 16.13 Reengineering is the search for and implementation of radical change in business operations to achieve breakthrough results. Answer: True. See page 338 for a discussion about reengineering. 16.14 Four key constructs that describe the organization include all but one of the following: (a) People (b) Competitor’s commitment (c) Systems (d) Culture (e) Structure Answer: B. Competitor’s commitment. See page 322 for a discussion on the conceptual framework for organizational components. 16.15 An organization’s culture involves all but one of the following: (a) Symbolic actions (b) Shared values © 2005 John Wiley & Sons

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(c) Norms of behavior (d) Political party affiliation (f) Symbols Answer: D. Political party affiliation. See page 329 for a discussion on organizational culture elements.

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