clemsonaphistudy.weebly.com€¦ · Web viewPolitical factors include political policies, including the extent to which a government intervenes in the economy. They include such

Chapter 03 Evaluating a Company’s External Environment Answer Key

Multiple Choice Questions

1. The strategically relevant factors outside a company's industry boundaries—economic conditions, political factors, sociocultural forces, technological factors, environmental factors, and legal/regulatory conditions—are known as

A. the industry and the competitive arena in which the company operates.B. general economic conditions plus the factors driving change in the markets where a company

operates.C. a company's "macro-environment."D. the competitive market environment that exists between a company and its competitors.E. the dominant economic features of a company's industry.Six principal components—political factors, economic conditions in the firm's general environment (local, country, regional, worldwide), sociocultural forces, technological factors, environmental factors (concerning the natural environment), and legal/regulatory conditions—constitute a company's "macro-environment."

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Difficulty: 1 EasyLearning Objective: 03-01 How to recognize the factors in a company's broad macro-environment that may have strategic significance.

Topic: Environmental Scanning

2. Managers must chart a company's strategic course by

A. focusing on the local environment in which they are operating.B. ensuring excess production capacity and/or inventory.C. competing fiercely for a share in the market.D. building a bigger dealer network.E. developing a thorough understanding of the company's external and internal environment.In order to chart a company's strategic course wisely, managers must first develop a deep understanding of the company's present situation. Two facets of a company's situation are especially pertinent: (1) its external environment—most notably, the competitive conditions of the industry in which the company operates; and (2) its internal environment—particularly the company's resources and organizational capabilities.

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3. Which of the following is NOT part of a company's macro-environment?

A. legal and regulatory conditionsB. European culture, values, and lifestylesC. the pace of technological

changeD. the natural environmentE. sociocultural forcesEvery company operates in a broad "macro-environment" that comprises six principal components: political factors, economic conditions in the firm's general environment (local, country, regional, worldwide), sociocultural forces, technological factors, environmental factors (concerning the natural environment), and legal/regulatory conditions.

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4. Which of the following is NOT one of the principal components of strategic significance in the PESTEL analysis?

A. political factors including the extent to which government intervenes in the economyB. economic conditions that include the general economic climate and specific factors such as interest

rates, inflation rate, and unemployment rate, as well as conditions in the stock and bond markets that can affect consumer confidence

C. sociocultural forces including societal values, attitudes, cultural factors, and lifestyles that impact business

D. technological factors that include the pace of change and technical developments that have the potential for impacting society

E. environmental forces that include the competitive structure, the degree of industry fragmentation, and the mobility barriers that inhibit business

PESTEL analysis is an acronym that serves as a reminder of the six principal components of the macro-environment: political, economic, sociocultural, technological, environmental (concerning the natural environment, not the business environment), and legal/regulatory.

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5. Which of the following is LIKELY to have the biggest strategy-shaping impact on on-demand transportation providers such as Uber and Lyft?

A. Yellow Cab company launches mobile app campaigns for community-connect and awareness.

B. Amazon launches a mobile delivery service via drones.C. Apple launches a global network of driverless cars, buses, and trucks on demand via mobile app.D. Tesla and ZipCar announce a joint venture for electric automobile sharing services.E. Greyhound develops and markets a mobile app for customers to purchase inter-city bus tickets.The factors in a company's environment having the biggest strategy-shaping impact typically pertain to the company's immediate industry and competitive environment. Apple launching a global network of driverless transportation vehicles on demand via mobile app will compete directly with and probably cannibalize most other transportation businesses that remain reliant on human drivers.

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Difficulty: 2 MediumLearning Objective: 03-01 How to recognize the factors in a company's broad macro-environment that may have strategic significance.

Topic: Porter's Five Forces

6. Which of the following factors represents the strategically relevant political factors in the macro-environment that will influence the performance of all firms across the board?

A. the strength of the federal banking systemB. the exogenous forces related to the general environmental demandC. social factors that could fuel a political agenda and create greater transparencyD. bailouts and energy policies that are industry-specificE. tax policy, fiscal policy, and tariffs providing impetus for anti-trust mattersPolitical factors include political policies, including the extent to which a government intervenes in the economy. They include such matters as tax policy, fiscal policy, tariffs, the political climate, and the strength of institutions such as the federal banking system. Some political policies affect certain types of industries more than others. An example is energy policy, which affects energy producers and heavy users of energy more than other types of businesses.


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Learning Objective: 03-01 How to recognize the factors in a company's broad macro-environment that may have strategic significance.Topic: Environmental Scanning



7. Which of the following is NOT a major question to ask in thinking strategically about industry and competitive conditions in a given industry?

A. How many companies in the industry have good track records for revenue growth and profitability?B. What strategic moves are rivals likely to make next?C. What are the industry's key factors for future competitive success?D. Is the outlook for the industry conducive to providing attractive profitability?E. What are the driving forces in the industry, and what impact will these changes have on competitive

intensity and industry profitability?Thinking strategically about a company's industry and competitive environment entails using some well-validated concepts and analytic tools. These include the five forces framework, the value net, driving forces, strategic groups, competitor analysis, and key success factors.



Difficulty: 1 EasyLearning Objective: 03-02 How to use analytic tools to diagnose the competitive conditions in a company's industry.


8. Which of the following does NOT exemplify the impact of the macro-environment on a company's strategic opportunities?

A. Sales of Stolichnaya Vodka in the United States dwindle on account of a boycott of Russian products.

B. Consumer confidence in Volkswagen drops precipitously because of falsified emissions data.C. Netflix squares off with Amazon Prime as its most potent rival in the streaming television and film

industry.D. Traffic increases at the outlets of Whole Foods following its introduction of stores comprised solely

of generic products.E. Sales of FitBit surge on account of a new feature that monitors users' blood pressure.The six principal components of the macro-environment are political, economic, sociocultural, technological, environmental (concerning the natural environment), and legal/regulatory. Rival firms are part of the immediate industry and competitive environment.

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Difficulty: 2 MediumLearning Objective: 03-02 How to use analytic tools to diagnose the competitive conditions in a company's industry.




9. The most powerful and widely used conceptual tool for diagnosing the principal competitive pressures in a market is

A. the five forces framework.B. PESTEL.C. the driving forces model.D. strategic group mapping.E. SWOT analysis.The character and strength of the competitive forces operating in an industry are never the same from one industry to another. The most powerful and widely used conceptual tool for diagnosing the principal competitive pressures in a market is the five forces framework.





10. The competitive pressures on companies within an industry come from all of the following, EXCEPT

A. those associated with the market maneuvering and jockeying for buyer patronage that goes on among rival firms in the industry.

B. those companies in other industries attempting to win buyers over to their substitute products.C. those associated with the threat of new entrants into the

marketplace.D. those associated with the bargaining power of suppliers and customers.E. those associated with environmental factors such as water

shortages.The five forces framework holds that competitive pressures on companies within an industry come from five sources. These include (1) competition from rival sellers, (2) competition from potential new entrants to the industry, (3) competition from producers of substitute products, (4) supplier bargaining power, and (5) customer bargaining power.







11. Which of the following is NOT one of the five forces of competitive pressures?

A. the power and influence of social/demographic trendsB. the bargaining power of suppliers and seller-supplier collaborationC. the threat of new entrants into the marketD. the attempts of companies in other industries to win customers over to their own substitute productsE. the market maneuvering and jockeying for buyer patronage that goes on among rival sellers in the

industryThe five forces framework holds that competitive pressures on companies within an industry come from five sources. These include (1) competition from rival sellers, (2) competition from potential new entrants to the industry, (3) competition from producers of substitute products, (4) supplier bargaining power, and (5) customer bargaining power.





12. The most powerful of the five competitive forces is USUALLY

A. the competitive pressures that stem from the ready availability of attractively priced substitute products.

B. the competitive pressures associated with the market maneuvering and jockeying for buyer patronage that goes on among rival sellers in the industry.

C. the benefits that emerge from close collaboration with suppliers and the competitive pressures that such collaboration creates.

D. the competitive pressures associated with the potential entry of new competitors.E. the bargaining power and leverage that large customers are able to exercise.The strongest of the five competitive forces is often the rivalry for buyer patronage among competing sellers of a product or service.







13. Using the five forces model of competition to determine the character and strength of the competitive forces within a given industry involves

A. building the picture of competition in three steps: (1) identify the different parties involved, along with specific factors that bring about competitive pressures; (2) evaluate how strong the pressures stemming from each of the five forces are (strong, moderate or weak); and (3) determining whether the collective impact of the five competitive forces is conducive to earning attractive profits in the industry.

B. building the picture of competition in two steps: (1) determining which rival has the biggest competitive advantage and (2) assessing whether the competitive advantages possessed by various industry members allow most industry members to earn above-average profits.

C. evaluating whether competition is being intensified or weakened by the industry's driving forces and key success factors.

D. assessing whether the collective impact of all five forces is weak enough to allow industry members to go on the offensive or use a defensive strategy to insulate against fierce competitive pressures.

E. gauging the overall strength of competition based on how many industry rivals are operating with a competitive advantage and how many are operating at a competitive disadvantage.

Using the five forces model to determine the nature and strength of competitive pressures in a given industry involves three steps: (1) identify the different parties involved, along with specific factors that bring about competitive pressures; (2) evaluate how strong the pressures stemming from each of the five forces are (strong, moderate or weak); and (3) determine whether the collective impact of the five competitive forces is conducive to earning attractive profits in the industry.



Learning Objective: 03-02 How to use analytic tools to diagnose the competitive conditions in a company's industry.Topic: Porter's Five Forces

14. What makes the marketplace a competitive battlefield?

A. the race of industry members to build strong defenses against the industry's driving forcesB. the constant rivalry of firms to strengthen their standing with buyers and win a competitive edge

over rivalsC. the ongoing race among rival sellers to have the highest-quality productD. the ongoing efforts of industry members to introduce new and improved products/services at a faster

rate than their rivalsE. the ongoing race among rivals to achieve the fastest rate of growth in revenues and profitsThe strongest of the five competitive forces is often the rivalry for buyer patronage among competing sellers of a product or service.

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Difficulty: 3 HardLearning Objective: 03-02 How to use analytic tools to diagnose the competitive conditions in a company's industry.




15. Market maneuvering among industry rivals

A. determines whether the industry's strategic group map will be static or dynamic.B. centers around collaborative efforts to overcome the bargaining power of powerful suppliers and

powerful buyers.C. is usually an industry's strongest driving force.D. is usually one of the two or three weakest competitive forces because of the close familiarity that

rivals have for one another's likely next moves.E. is ongoing and dynamic, with moves and countermoves of rivals producing a continually evolving

competitive landscape that delivers winners and losers.When rivalry is strong, the battle for market share is generally so vigorous that the profit margins of most industry members are squeezed to bare-bones levels.





16. Rivalry among competing sellers decreases

A. when buyer demand is growing rapidly.B. as it becomes less costly for buyers to switch brands.C. as the products of rival sellers become commoditized.D. when there is excess production relative to demand.E. as the number of competitors increases.Rivalry increases and becomes a stronger force when: buyer demand is growing slowly; buyer costs to switch brands are low; the products of industry members are commodities or else weakly differentiated; the firms in the industry have excess production capacity and/or inventory; the firms in the industry have high fixed costs or high storage costs; competitors are numerous or are of roughly equal size and competitive strength; rivals have diverse objectives, strategies, and/or countries of origin; rivals have emotional stakes in the business or face high exit barriers.






17. Factors that cause the rivalry among competing sellers to be weaker include

A. low buyer switching costs.B. low fixed costs or storage costs.C. many industry rivals of roughly equal size and competitive strength.D. weakly differentiated products among rival sellers.E. slow growth in buyer demand.Rivalry increases and becomes a stronger force when: buyer demand is growing slowly; buyer costs to switch brands are low; the products of industry members are commodities or else weakly differentiated; the firms in the industry have excess production capacity and/or inventory; the firms in the industry have high fixed costs or high storage costs; competitors are numerous or are of roughly equal size and competitive strength; rivals have diverse objectives, strategies, and/or countries of origin; rivals have emotional stakes in the business or face high exit barriers.




18. The rivalry among competing sellers tends to be less intense when

A. industry conditions tempt competitors to use price cuts or other competitive weapons to boost unit sales.

B. buyer demand is weak and many sellers have excess capacity and/or inventory.C. industry rivals are not particularly aggressive or active in making fresh moves to improve their

market standing and business performance.D. rivals have diverse strategies and objectives and are located in different

countries.E. rival sellers have weakly differentiated products.When rivalry is weak, most companies in the industry are relatively well satisfied with their sales growth and market shares and rarely undertake offensives to steal customers away from one another.






19. Rivalry among competing sellers is generally less intense when

A. there are relatively more industry key success factors.B. the industry's driving forces are weak and rivals have mostly commodity products.C. barriers to entry are moderately low and the pool of likely entry candidates is large.D. rivals are wary of making fresh moves to lower prices, introduce new products, increase

promotional efforts and advertising, and otherwise gain sales and market share.E. buyers have many alternative products or services from which to choose.When rivalry is strong, the battle for market share is generally so vigorous that the profit margins of most industry members are squeezed to bare-bones levels.




20. The competitive battles among rival sellers striving for better market positions, higher sales and market shares, and competitive advantage, suggest the rivalry force

A. is stronger when firms strive to be low-cost producers than when they use differentiation and focus strategies.

B. is often weak when rivals have emotional stakes in business or face high exit barriers.C. is largely unaffected by whether industry conditions tempt rivals to use price cuts or other

competitive weapons to boost unit sales.D. tends to intensify when strong companies with sizable financial resources, proven competitive

capabilities, and respected brand names hurdle entry barriers looking for growth opportunities and launch aggressive, well-funded moves to transform into strong market contenders.

E. is weaker when more firms have weakly differentiated products, buyer demand is growing slowly, and buyers have moderate switching costs.

An analysis of the factors affecting the threat of entry can help managers determine whether the threat of entry into their industry is high or low, in general. But certain kinds of companies—those with sizable financial resources, proven competitive capabilities, and a respected brand name—may be able to hurdle an industry's entry barriers even when they are high.






21. In analyzing the strength of competition among rival firms, an important consideration is

A. the potential for buyers to exercise strong bargaining power.B. the diversity of competitors in terms of long-term direction, objectives, strategies, and countries of

origin.C. the number of firms pursuing differentiation strategies versus the number pursuing low-cost

leadership strategies and focus strategies.D. the extent to which some rivals have more than two competitively valuable competencies or

capabilities.E. whether the industry is characterized by a strong learning/experience curve and whether the industry

is composed of many or few strategic groups.Since macro-economic factors affect different industries in different ways and to different degrees, it is important for managers to determine which of these represent the most strategically relevant factors outside the firm's industry boundaries. By strategically relevant, we mean important enough to have a bearing on the decisions the company ultimately makes about its long-term direction, objectives, strategy, and business model.



Learning Objective: 03-01 How to recognize the factors in a company's broad macro-environment that may have strategic significance.Topic: Porter's Five Forces

22. The intensity of rivalry among competing sellers does NOT depend on whether

A. the industry has more than two strong driving forces and whether the industry has more than two diverse and capable strategic groups.

B. competitors are diverse in terms of long-term directions, objectives, strategies, and countries of origin.

C. strong companies outside the industry have acquired weak firms in the industry and are launching aggressive moves to transform the acquired companies into strong market contenders.

D. one or two rivals have particularly powerful and successful strategies to grow the business, attract and retain buyers, and develop a sustained competitive advantage.

E. industry conditions attract industry members to use price cuts or other competitive weapons to boost total sales volume and market share.

Just how serious the threat of entry is in a particular market depends on two classes of factors: the expected reaction of incumbent firms to new entry and what are known as barriers to entry. The threat of entry is low when incumbent firms are likely to retaliate against new entrants with sharp price discounting and other moves designed to make entry unprofitable and when entry barriers are high.






23. In which of the following instances is rivalry among competing sellers NOT more intense?

A. when certain competitors are dissatisfied with their market position and make moves to bolster their standing

B. when strong companies outside the industry acquire weak firms in the industry and launch aggressive moves to transform their newly acquired competitors into stronger market contenders

C. when competitors are fairly equal in size and capabilityD. when the products of rivals are weakly differentiated, buyer switching costs are low, and market

demand is growing slowlyE. when there are vast numbers of small rivals so the impact of any one company's actions is spread

thinly across all industry membersRivalry increases and becomes a stronger force when: buyer demand is growing slowly; buyer costs to switch brands are low; the products of industry members are commodities or else weakly differentiated; the firms in the industry have excess production capacity and/or inventory; the firms in the industry have high fixed costs or high storage costs competitors are numerous or are of roughly equal size and competitive strength; rivals have diverse objectives, strategies, and/or countries of origin; rivals have emotional stakes in the business or face high exit barriers.





24. Competing companies deploy whatever means necessary to strengthen market position, including all of the following EXCEPT

A. marketing tactics including special sales promotions such as introducing new or improved features or increasing the number of styles to provide greater product selection.

B. differentiating their products by offering better performance features than rivals.C. improving innovation to increase product performance and quality.D. making efforts to expand dealer

networks.E. reducing distribution capabilities and market presence.Entry barriers are high under the following conditions: industry incumbents enjoy large cost advantages over potential entrants; customers have strong brand preferences and high degrees of loyalty to seller; patents and other forms of intellectual property protection are in place; there are strong "network effects" in customer demand; capital requirements are high; there are difficulties in building a network of distributors/dealers or in securing adequate space on retailers' shelves; there are restrictive regulatory policies; there are restrictive trade policies.







25. Which of the following is generally NOT considered a barrier to entry?

A. restrictive regulatory policiesB. high capital requirementsC. strong brand

preferencesD. many industry patents in placeE. weak "network effects" in customer demandEntry barriers are high under the following conditions: industry incumbents enjoy large cost advantages over potential entrants; customers have strong brand preferences and high degrees of loyalty to seller; patents and other forms of intellectual property protection are in place; there are strong "network effects" in customer demand; capital requirements are high; there are difficulties in building a network of distributors/dealers or in securing adequate space on retailers' shelves; there are restrictive regulatory policies; there are restrictive trade policies.




Topic: Barriers to Entry

26. Potential entrants are more likely to be deterred from actually entering an industry when

A. incumbent firms are willing and able to be aggressive in defending their market positions against entry.

B. incumbent firms are complacent.C. buyers are not particularly price-sensitive and the industry already contains a dozen or more rivals.D. the relative cost positions of incumbent firms are about the same, such that no one incumbent has a

meaningful cost advantage.E. buyer switching costs are moderately low because of strong product differentiation among

incumbent firms.The threat of new entry increases the competitive pressures in an industry. This is because incumbent firms typically lower prices and increase defensive actions in an attempt to deter new entry when the threat of entry is high.







27. Competitive pressures associated with the threat of entry are greater in all of the following situations, EXCEPT when

A. incumbent firms are willing to strongly contest the entry of newcomers with moves designed to make entry unprofitable.

B. a large pool of potential entrants exists, some of which have the capabilities to overcome high entry barriers.

C. entry barriers are relatively low and buyer demand for the product is growing rapidly, and newcomers can expect to earn attractive profits without inviting a strong reaction from incumbents.

D. existing industry members are looking to expand their market reach by entering product segments or geographic areas where they currently do not have a presence.

E. customers have low brand preferences and low degrees of loyalty to seller.Entry barriers are high under the following conditions: industry incumbents enjoy large cost advantages over potential entrants; customers have strong brand preferences and high degrees of loyalty to seller; patents and other forms of intellectual property protection are in place; there are strong "network effects" in customer demand; capital requirements are high; there are difficulties in building a network of distributors/dealers or in securing adequate space on retailers' shelves; there are restrictive regulatory policies; there are restrictive trade policies.





28. The best test of whether potential entry is a strong or weak competitive force is

A. the strength of buyer loyalty to existing brands.B. whether the industry's driving forces make it harder or easier for new entrants to be

successful.C. whether the strategies of industry members are well-matched to the industry's key success factors.D. whether there are any vacant spaces on the industry's strategic group map.E. to ask if the industry's growth and profit prospects are strongly attractive to potential entry

candidates.As a rule, the strongest competitive forces determine the extent of the competitive pressure on industry profitability. The threat of entry is low when incumbent firms are likely to retaliate against new entrants with sharp price discounting and other moves designed to make entry unprofitable.



Learning Objective: 03-02 How to use analytic tools to diagnose the competitive conditions in a company's industry.Topic: Barriers to Entry



29. The competitive threat that outsiders will enter a market is weaker when

A. financially strong industry members send strong signals that they will launch strategic initiatives to combat the entry of newcomers.

B. the industry's market growth is rapid.C. the pool of entry candidates is large and some have resources that would make them formidable

market contenders.D. newcomers can be expected to earn attractive profits.E. buyers have little loyalty to the brands and product offerings of existing industry members.All of these indicate an attractive industry to enter with the exception of signaling by financially strong incumbents that they will try to deter new entrants.




30. Which of the following is NOT a good example of a substitute product that triggers stronger competitive pressures?

A. a salad as a substitute for French fries

B. wireless phones as a substitute for wired telephones

C. Coca-Cola as a substitute for PepsiD. snowboards as a substitute for snow skisE. video-on-demand services from a cable TV company as a substitute for going to the moviesCompetitive pressures are stronger when: Good substitutes are readily available and attractively priced; buyers view the substitutes as comparable or better in terms of quality, performance, and other relevant attributes; and the costs that buyers incur in switching to the substitutes are low. Brands of the same basic product constitute rival products and not substitutes.




Topic: Competitive Pressures



31. The competitive pressures from substitute products tend to be stronger when

A. good substitutes are readily available.B. there are fewer number of substitute products.C. substitutes have lower performance features.D. buyers incur high costs in switching to substitutes.E. substitutes are priced above the market.Competitive pressures are stronger when: (1) Good substitutes are readily available and attractively priced. (2) Buyers view the substitutes as comparable or better in terms of quality, performance, and other relevant attributes. (3) The costs that buyers incur in switching to the substitutes are low.





32. In which of the following instances are industry members NOT subject to stronger competitive pressures from substitute products?

A. The costs to buyers of switching over to the substitutes are low.

B. Buyers are dubious about using substitutes.C. The quality and performance of the substitutes are well-matched to what buyers need to meet their

requirements.D. Buyer brand loyalty is weak.E. Substitutes are readily available at competitive prices.Competitive pressures are stronger when: (1) Good substitutes are readily available and attractively priced. (2) Buyers view the substitutes as comparable or better in terms of quality, performance, and other relevant attributes. (3) The costs that buyers incur in switching to the substitutes are low.







33. Determining how strong the threat of substitutes will be entails

A. identifying the relative price/performance relationship of the substitutes, the switching costs, and the overall buyer demand for the substitute.

B. identifying the attractiveness of other industries.C. measuring Coke as a substitute for Pepsi and applying dynamic simulation modeling techniques.D. adopting a substitute product concentration factor to the buyer volume.E. judging whether industry members are capable of self-manufacturing their products.Competitive pressures are stronger when: (1) Good substitutes are readily available and attractively priced. (2) Buyers view the substitutes as comparable or better in terms of quality, performance, and other relevant attributes. (3) The costs that buyers incur in switching to the substitutes are low.





34. The lower the user's switching costs, the

A. harder it is for the sellers of attractive substitutes to lure buyers to their offering.B. more intense the competitive pressures posed by substitute products.C. less intense the competitive pressures posed by substitute products.D. greater the bargaining power from both suppliers and influential

customers.E. lesser the bargaining power from both suppliers and influential customers.Good substitutes are readily available and attractively priced. The presence of readily available and attractively priced substitutes creates competitive pressure by placing a ceiling on the prices industry members can charge without risking sales erosion. This price ceiling, at the same time, puts a lid on the profits that industry members can earn unless they find ways to cut costs.



Learning Objective: 03-02 How to use analytic tools to diagnose the competitive conditions in a company's industry.Topic: Competitive Pressures



35. Whether supplier-seller relationships in an industry represent a strong or weak source of competitive pressure is a function of

A. whether the profits of suppliers are relatively high or low.

B. the average number of suppliers that each seller/industry member purchases from.

C. how aggressively rival industry members are trying to differentiate their products.D. whether demand for supplier products is high and they are in short supply.E. whether the prices of the items being furnished by the suppliers are rising or

falling.Whether the suppliers of industry members represent a weak or strong competitive force depends on the degree to which suppliers have sufficient bargaining power to influence the terms and conditions of supply in their favor. Suppliers with strong bargaining power can erode industry profitability by charging industry members higher prices, passing costs on to them, and limiting their opportunities to find better deals.




36. The strength of competitive pressures that suppliers can exert on industry members is MAINLY a function of

A. whether needed inputs are in short supply and whether suppliers provide differentiated input that enhances performance of the product.

B. whether suppliers self-manufacture what they supply or source their items from other manufacturers.

C. whether the industry's position in the growth cycle is favorable.D. whether technological change in the businesses of suppliers is rapid or

slow.E. whether the needs and expectations of supplier-seller relationships are changing slowly or rapidly.Supplier power is stronger when: demand for suppliers' products is high and the products are in short supply; suppliers provide differentiated inputs that enhance the performance of the industry's product; it is difficult or costly for industry members to switch their purchases from one supplier to another; the supplier industry is dominated by a few large companies and it is more concentrated than the industry it sells to; industry members are incapable of integrating backward to self-manufacture items they have been buying from suppliers; suppliers provide an item that accounts for no more than a small fraction of the costs of the industry's product; good substitutes are not available for the suppliers' products; industry members are not major customers of suppliers.






37. The bargaining leverage of suppliers is greater when

A. the suppliers' products/services account for a small percentage of industry members' costs.

B. industry members incur low costs in switching their purchases from one supplier to another.C. industry members account for a big fraction of supplier's sales.D. there is extensive seller-supplier collaboration.E. the supplier industry is composed of a large number of relatively small suppliers.As a rule, suppliers have less bargaining leverage when their sales to members of the industry constitute a big percentage of their total sales.




38. In which one of the following instances is supplier bargaining power and leverage not weakened?

A. when industry members pose a credible threat of backward integration into the business of suppliersB. when the cost of switching from one supplier to another is lowC. when the items purchased from suppliers are in short supplyD. when the buying firms purchase in large quantities and thus are important customers of the suppliersE. when the item being supplied is a commodityWhen inputs are in short supply, suppliers tend to have stronger bargaining power, and can charge industry members higher prices (passing costs on to them) and limit opportunities to find better deals via switching.






39. When an industry member is a major customer of the supplier, and the relationship (partnership) is unusually effective and mutually advantageous

A. it is rare for such partnerships to have much competitive impact on those industry members not having such partnerships.

B. one unfortunate outcome is that it tends to give the supply partners much enhanced bargaining power in their dealings with these industry members.

C. there is a strong likelihood such partnerships will put increased competitive pressure on those industry members who lack productive collaborative relationships with their suppliers.

D. there is a high likelihood of such partnerships reducing competitive pressures on ALL industry members, provided technological change in the suppliers' business is rapid and the item being supplied is a commodity.

E. the usual result is to reduce competitive pressures on all industry members, provided the costs of the items furnished by supply chain partners amount to 50 percent or more of total cost.

Industry incumbents enjoy large cost advantages over competitors and potential entrants by forming exclusive partnerships with the best and cheapest suppliers of raw materials and components.





40. The higher the switching costs for industry members, the more it can

A. limit supplier bargaining power.B. enhance supplier bargaining power.C. enhance the quality of parts and components being supplied, and in effect reduce defect rates.D. provide important cost savings for the collaborative supplier-seller relationship.E. limit the supply of products and/or services.Low switching costs limit supplier bargaining power by enabling industry members to change suppliers if any one supplier attempts to raise prices by more than the costs of switching. Thus, the higher the switching costs of industry members, the stronger the bargaining power of their suppliers.







41. Whether buyer-seller relationships in an industry represent a strong or weak source of competitive pressure is a function of

A. the speed with which general economic conditions and interest rates are changing.B. the extent to which buyers can exercise enough bargaining power to influence the conditions of sale

in their favor and whether strategic partnerships between certain industry members can adversely affect other industry members.

C. how many buyers purchase all of their requirements from a single seller versus how many purchase from several sellers.

D. the number of buyers versus the number of sellers.

E. whether industry members are spending more or less on advertising.Buyers with strong bargaining power can limit industry profitability by demanding price concessions, better payment terms, or additional features and services that increase industry members' costs. Buyer price sensitivity limits the profit potential of industry members by restricting the ability of sellers to raise prices without losing revenue due to lost sales.





42. Whether buyer bargaining power poses a strong or weak source of competitive pressure on industry members depends in part on

A. the degree to which buyers have any bargaining preferences and the extent to which buyers are price-sensitive.

B. how many buyers are engaged in collaborative partnerships with sellers.C. whether entry barriers are high or low and the size of the pool of likely entry candidates.D. whether the overall quality of the items being furnished by industry members is rising or falling.E. whether demand-supply conditions represent a buyer's market or a seller's market.Weak or declining demand and the resulting excess supply create a "buyers' market," in which bargain hunting buyers are able to press for better deals and special treatment.






43. Which of the following is NOT a factor that causes buyer bargaining power to be stronger?

A. Some buyers are a threat to integrate backward into the business of sellers and become an important competitor.

B. Buyers are small and numerous relative to sellers.C. Buyers have considerable discretion over whether and when they purchase the

product.D. Buyers purchase the item frequently and are well-informed about sellers' products, prices, and

costs.E. The costs incurred by buyers in switching to competing brands or to substitute products are

relatively low.Competitive pressures from buyers increase when they have strong bargaining power and are price-sensitive. Buyer bargaining power is stronger when buyers are large and few in number relative to the number of industry sellers.





44. Buyer bargaining power is stronger when

A. winning the business of certain high-profile customers offers a seller important market exposure or prestige.

B. the extent and importance of collaborative partnerships and alliances between particular sellers and buyers are credible.

C. buyers cannot integrate backward into the product market of sellers.

D. sellers' products are differentiated, making it easy and inexpensive for buyers to switch to competing brands.

E. the industry's products are standardized or undifferentiated.Buyer bargaining power is stronger when: buyer demand is weak in relation to industry supply; the industry's products are standardized or undifferentiated; buyers' costs of switching to competing products are low; buyers are large and few in number relative to the number of industry sellers; buyers pose a credible threat of integrating backward into the business of sellers; buyers are well informed about the quality, prices, and costs of sellers; buyers have the ability to postpone purchases.






45. Which of the following factors is NOT a relevant consideration in determining the strength of buyer bargaining power?

A. the relationship between the buyer market and seller marketB. the degree to which the seller is a manufacturer of goods and services in substantial quantitiesC. the degree to which buyers pose a credible threat to integrate backward into the product market of

sellersD. the degree to which buyers are well-informed about a seller's products, prices, and

costsE. the degree to which industry goods are standardized and undifferentiatedBuyer bargaining power is stronger when: buyer demand is weak in relation to industry supply; the industry's products are standardized or undifferentiated; buyers' costs of switching to competing products are low; buyers are large and few in number relative to the number of industry sellers; buyers pose a credible threat of integrating backward into the business of sellers; buyers are well informed about the quality, prices, and costs of sellers; buyers have the ability to postpone purchases.




46. Collaborative relationships between particular sellers and buyers in an industry can represent a source of strong competitive pressure when

A. virtually all buyers have strong brand attachments and are highly brand loyal.B. demand for the product is growing rapidly.C. sales are made to buyer groups with either strong bargaining power or high sensitivity.D. sellers are racing to add the latest and greatest performance features so as to attract the patronage of

important or prestigious buyers.E. buyers are very quality

conscious.Buyers with strong bargaining power can limit industry profitability by demanding price concessions, better payment terms, or additional features and services that increase industry members' costs. Buyer price sensitivity limits the profit potential of industry members by restricting the ability of sellers to raise prices without losing revenue due to lost sales.






47. In which of the following circumstances are competitive pressures associated with the bargaining power of buyers relatively moderate-to-weak?

A. The supply of soccer balls increases during the World Cup season.B. Consumers can easily compare different smartphones' features over the Internet before buying

them.C. Apple designs and manufactures its chip processors rather than buying them from Intel.D. Dairy products are usually standardized and therefore differentiated only by price.E. Buyers tend to delay purchases of luxury goods, such as home entertainment systems, until they are

on sale.Buyer bargaining power is stronger when: buyer demand is weak in relation to industry supply; the industry's products are standardized or undifferentiated; buyers' costs of switching to competing products are low; buyers are large and few in number relative to the number of industry sellers; buyers pose a credible threat of integrating backward into the business of sellers; buyers are well informed about the quality, prices, and costs of sellers; buyers have the ability to postpone purchases.





48. Competitive pressures stemming from buyer bargaining power tend to be weakest in which of the following circumstances?

A. Most consumers vary the brands they choose for their cookware and kitchen gadgets.B. There is a global decline in the demand for cable television

services.C. The commercial jet aviation manufacturing industry offers highly differentiated products.D. The Internet offers a huge amount of information on a variety of products.E. Heinz owns a metal-can manufacturing subsidiary to cut back on supplier costs.Buyer bargaining power tends to be weakest when: buyer demand is strong in relation to industry supply; the industry's products are highly differentiated—as is surely the case in commercial jet aviation; buyers' costs of switching to competing products are high; buyers are plentiful in number relative to the number of industry sellers (which is also the case in the commercial jet manufacturing industry); buyers pose no or a very limited threat of integrating backward into the business of sellers; buyers are not well informed about the quality, prices, and costs of sellers; and buyers have a limited ability to postpone purchases.







49. Which of the following conditions acts to weaken buyer bargaining power?

A. when buyers are unlikely to integrate backward into the business of sellersB. when buyers purchase the item frequently and are well-informed about sellers' products, prices, and

costsC. when the costs incurred by buyers in switching to competing brands or to substitute products are

relatively lowD. when the products of rival sellers are weakly differentiated and buyers have considerable discretion

over whether and when they purchase the productE. when buyers are few in number and/or often purchase in large

quantitiesBuyer bargaining power is stronger when: buyer demand is weak in relation to industry supply; the industry's products are standardized or undifferentiated; buyers' costs of switching to competing products are low; buyers are large and few in number relative to the number of industry sellers; buyers pose a credible threat of integrating backward into the business of sellers; buyers are well informed about the quality, prices, and costs of sellers; buyers have the ability to postpone purchases.





50. Buyers are in position to exert strong bargaining power in dealing with sellers when

A. their costs to switch to competing brands or to substitute products are relatively high.B. a particular seller's product delivers quality or performance that is very important to the buyer and is

not matched by other brands.C. they buy the product infrequently or in small quantities and are not particularly well-informed about

sellers' products, prices, and costs.D. buyer demand is growing rapidly.E. buyers are price-sensitive because the product represents a significant portion of their purchasing

budget.Price is a critical factor in the purchase decisions of low-income consumers and companies that are barely scraping by. In such cases, their high price sensitivity limits the ability of sellers to charge high prices.







51. Which of the following factors is NOT a relevant consideration in judging whether buyer bargaining power is relatively strong or relatively weak?

A. Whether certain customers offer sellers important market exposure or prestigeB. Whether customers are relatively well-informed about sellers' products, prices, and costsC. Whether buyer needs and expectations are changing rapidly or

slowlyD. Whether sellers' products are highly differentiated, making it troublesome or costly for buyers to

switch to competing brands or to substitute productsE. Whether buyers pose a major threat to integrate backward into the product market of sellersBuyer bargaining power is stronger when: buyer demand is weak in relation to industry supply; the industry's products are standardized or undifferentiated; buyers' costs of switching to competing products are low; buyers are large and few in number relative to the number of industry sellers; buyers pose a credible threat of integrating backward into the business of sellers; buyers are well informed about the quality, prices, and costs of sellers; buyers have the ability to postpone purchases.





52. Not all buyers of an industry's product have equal degrees of bargaining power with sellers, because

A. sellers in an industry provide similar products and generally their cost structures are different because of competitive advantages in their operation.

B. some sellers may be less sensitive than others to price, quality, or service differences.C. along the various stages of the value chain sellers are conducive to earning attractive

profits.D. the industry is a highly cohesive structure with limited fragmentation and few industry members.E. sellers are large and few in number relative to the number of buyers.Buyer bargaining power is stronger when: buyer demand is weak in relation to industry supply; the industry's products are standardized or undifferentiated; buyers' costs of switching to competing products are low; buyers are large and few in number relative to the number of industry sellers; buyers pose a credible threat of integrating backward into the business of sellers; buyers are well informed about the quality, prices, and costs of sellers; buyers have the ability to postpone purchases.






53. A competitive environment where there is weak to moderate rivalry among sellers, high entry barriers, weak competition from substitute products, and little bargaining leverage on the part of both suppliers and customers

A. lacks powerful driving forces.B. gives each industry competitor the best potential for building sustainable competitive advantage

over rival firms.C. makes it challenging for industry members to compete successfully unless they can strongly

differentiate their products.D. is conducive to industry members earning attractive profits.E. requires that industry members have low costs in order to be competitively successful.When the overall impact of the five competitive forces is moderate to weak, an industry is "attractive" in the sense that the average industry member can reasonably expect to earn good profits and a nice return on investment.





54. A competitive environment where there is strong rivalry among sellers, low entry barriers, strong competition from substitute products, and considerable bargaining leverage on the part of both suppliers and customers

A. is competitively unattractive from the standpoint of earning good profits.B. offers little ability to build a sustainable competitive advantage.C. is highly conducive to achieving strong product differentiation and high customer loyalty to the

company's brand.D. offers moderate to good prospects for making a reasonable profit and building a sustainable

competitive advantage.E. requires that industry members have a strongly differentiated product offering in order to be

profitable.The most extreme case of a "competitively unattractive" industry occurs when all five forces are producing strong competitive pressures: Rivalry among sellers is vigorous, low entry barriers allow new rivals to gain a market foothold, competition from substitutes is intense, and both suppliers and buyers are able to exercise considerable leverage.







55. The stronger the collective impact of competitive pressures associated with the five competitive forces,

A. the stronger are the industry's driving forces.B. the greater number of companies that can achieve a competitive advantage via differentiation.C. the larger the number of competitive advantage opportunities for industry members.D. the greater the number of industry key success

factors.E. the fewer companies that can achieve a competitive advantage via anything other than being the

industry's low-cost leader.All other things being equal and as a rule, the stronger the collective impact of the five competitive forces, the lower the combined profitability of industry participants.





56. Based on an analysis of the five competitive forces, in which of the following industries is profitability likely to be lowest?

A. pharmaceuticalsB. wireless lighting systemsC. wearable fitness and health monitorsD. pizza restaurantsE. delivery services using dronesAs a rule, the strongest competitive forces determine the extent of the competitive pressure on industry profitability. All other things being equal and as a rule, the stronger the collective impact of the five competitive forces, the lower the combined profitability of industry participants—and this is particularly true of the saturated, mature pizza restaurant industry in comparison with the others listed, each of which have mitigated the power of some competitive forces to achieve above-average returns.







57. Based on an analysis of the five competitive forces, in which of the following industries is profitability likely to be highest?

A. apparelB. tire manufacturingC. electric and gas utilitiesD. commercial airlinesE. video streaming servicesAll other things being equal and as a rule, the weaker the collective impact of the five competitive forces, the higher the combined profitability of industry participants—and this is particularly true of the streaming video industry in comparison with the others listed, each of which face tremendous competitive pressures that dampen profits.





58. As a rule, the collective impact of competitive pressures associated with the five competitive forces

A. determines the strength of the industry's driving forces.B. determines the extent of the competitive pressure on industry profitability.C. means that fewer companies can achieve a competitive advantage via anything other than being the

industry's low-cost leader.D. means there will be a larger number of competitive advantage opportunities for industry members.E. means there will be a greater number of industry key success factors.As a rule, the strongest competitive forces determine the extent of the competitive pressure on industry profitability.







59. A company's strategy is increasingly effective the more it can match the company strategy to competitive conditions, so the firm can

A. pursue avenues that expose the firm to as many of the different competitive pressures as possible.B. shift the competitive battle in favor of the firm by altering the underlying factors driving the five

forces.C. pursue ways to identify and complement the five forces contradictions and inferences to attract

competitive growth opportunities.D. pursue avenues that promote strategic thinking about how to contest competitor strengths and

weaknesses and to create a checklist of potential profitability preferences.E. shift societal concerns, attitudes, and lifestyles by altering the pattern of competition.Effectively matching a company's business strategy to prevailing competitive conditions has two aspects: (1) Pursuing avenues that shield the firm from as many of the different competitive pressures as possible. (2) Initiating actions calculated to shift the competitive forces in the company's favor by altering the underlying factors driving the five forces.





60. The value net framework includes an analysis of

A. the firm, substitutes, suppliers, customers, and competitors.B. the firm, suppliers, customers, competitors, and driving forces.C. substitutes, suppliers, customers, competitors, and driving forces.D. the firm, suppliers, customers, competitors, and complementors.E. substitutes, suppliers, customers, competitors, and potential entrants.The value net framework conceptual model focuses on the industry interactions with a particular company. The components of the framework are competitors (which include entrants and substitutes), customers, suppliers, and complementors. The new category not found in the five forces framework, complementors, are those producers of complementary products that enhance the value of an individual firm.



Learning Objective: 03-02 How to use analytic tools to diagnose the competitive conditions in a company's industry.Topic: Product Development Plan



61. Which of the following is NOT an example of a complementor?

A. microprocessors and laptopsB. automobiles and gasoline stationsC. theme parks and hotels theme parks Theme parks and hotelsD. gyms and fitness equipmentE. newspapers and Internet news providersComplementors are the producers of complimentary products, not direct substitutes (as is the case for newspapers and Internet news providers). Complementors produce products that enhance the value of the focal firm's product when they are used together.




Topic: Product Development Plan

62. The "driving forces" in an industry

A. are usually triggered by changing technology or stronger learning/experience curve effects.B. usually are spawned by growing demand for the product, the outbreak of price-cutting, and big

reductions in entry barriers.C. are major underlying causes of changing industry and competitive conditions and have the biggest

influences in reshaping the industry landscape and altering competitive conditions.D. appear when an industry begins to mature but are seldom present during early stages of the industry

life cycle.E. are usually triggered by shifting buyer needs and expectations or by the appearance of new

substitute products.The most powerful of the change agents are called driving forces because they have the biggest influences in reshaping the industry landscape and altering competitive conditions.







63. Industry conditions change because of

A. such powerful driving forces as swings in buyer demand, changing interest rates, ups and downs in the economy, and higher/lower entry barriers.

B. newly emerging industry threats and industry opportunities that alter the composition of the industry's strategic groups.

C. newly emerging industry key success factors.D. important forces enticing or pressuring certain industry participants (competitors, customers,

suppliers) to alter their actions in important ways.E. changes in the barriers to entry and the degree of competition from substitute products.Industry and competitive conditions change because forces are enticing or pressuring certain industry participants (competitors, customers, suppliers, complementors) to alter their actions in important ways.





64. The task of driving-forces analysis is to

A. develop a comprehensive list of all the potential causes of changing industry conditions.B. predict which new driving forces will emerge next.C. determine which of the five competitive forces is the biggest driver of industry change.D. identify the driving forces, assess whether their impact will make the industry more or less

attractive, and determine what strategy changes are needed to prepare for the impacts of the driving forces.

E. learn what the industry key success factors are and how they might change in the future.Driving-forces analysis has three steps: (1) identifying what the driving forces are, (2) assessing whether the drivers of change are, on the whole, acting to make the industry more or less attractive, and (3) determining what strategy changes are needed to prepare for the impact of the driving forces.




Topic: Competitive Advantage



65. One of the steps of driving-forces analysis is to identify which

A. strategy changes a company may need to make to prepare for the impacts of the driving forces.

B. strategic group is the most powerful.C. industry member is likely to become (or remain) the industry leader and

why.D. key success factors are most likely to help their company gain a competitive

advantage.E. of the five competitive forces will be the strongest driver of industry change.Driving-forces analysis has three steps: (1) identifying what the driving forces are, (2) assessing whether the drivers of change are, on the whole, acting to make the industry more or less attractive, and (3) determining what strategy changes are needed to prepare for the impact of the driving forces. All three steps merit further discussion.





66. Which of the following is NOT generally a "driving force" capable of producing fundamental changes in industry and competitive conditions?

A. changes in the long-term industry growth rateB. increasing globalization of the industryC. product innovation and technological changeD. movement in the economy and in interest ratesE. regulatory influences and government policy changesSome drivers of change are unique and specific to a particular industry situation, but most drivers of industry and competitive change fall into one of the following categories: changes in an industry's long-term growth rate; increasing globalization; emerging new Internet capabilities and applications; shifts in buyer demographics; technological change and manufacturing process innovation; product innovation; entry or exit of major firms; diffusion of technical know-how across companies and countries; changes in cost and efficiency; reductions in uncertainty and business risk; regulatory influences and government policy changes; changing societal concerns, attitudes, and lifestyles.







67. Which of the following is most UNLIKELY to qualify as driving forces?

A. changes in the long-term industry growth rate, the entry or exit of major firms, and changes in cost and efficiency

B. increasing globalization of the industry and product innovationC. new Internet technology applications, new government regulations, and significant changes in

government policy toward the industryD. increasing efforts to collaborate with suppliers via strategic alliances and partnerships, escalating

risk levels and normalization of cost and efficiency in the industryE. marketing innovations and changes in who buys the industry's product and how they use itSome drivers of change are unique and specific to a particular industry situation, but most drivers of industry and competitive change fall into one of the following categories: changes in an industry's long-term growth rate; increasing globalization; emerging new Internet capabilities and applications; shifts in buyer demographics; technological change and manufacturing process innovation; product innovation; entry or exit of major firms; diffusion of technical know-how across companies and countries; changes in cost and efficiency; reductions in uncertainty and business risk; regulatory influences and government policy changes; changing societal concerns, attitudes, and lifestyles.



Learning Objective: 03-02 How to use analytic tools to diagnose the competitive conditions in a company's industry.Topic: Competitive Advantage

68. Which of the following does NOT qualify as potential driving forces capable of inducing fundamental changes in industry and competitive conditions?

A. changes in who buys the product and how they use it, and changes in the long-term industry growth rate

B. changes brought about by the entry or exit of major firms, product innovation, and marketing innovation and cost efficiency

C. changes in the economic power and bargaining leverage of customers and suppliers, growing supplier-seller collaboration, and growing buyer-seller collaboration

D. changes in buyer preferences for differentiated products instead of mostly standardized or identical products

E. changes in economies of scale and experience curve effects brought on by changes in manufacturing technology and new Internet capabilities

Some drivers of change are unique and specific to a particular industry situation, but most drivers of industry and competitive change fall into one of the following categories: changes in an industry's long-term growth rate; increasing globalization; emerging new Internet capabilities and applications; shifts in buyer demographics; technological change and manufacturing process innovation; product innovation; entry or exit of major firms; diffusion of technical know-how across companies and countries; changes in cost and efficiency; reductions in uncertainty and business risk; regulatory influences and government policy changes; changing societal concerns, attitudes, and lifestyles.







69. Which of the following is MOST likely to qualify as a driving force?

A. increases in price-cutting by rival sellers and the launch of major new advertising campaigns by one or more rivals

B. successful introduction of innovative new products or new ways to market products

C. an increase in the prices of substitute productsD. decisions on the part of industry's three biggest competitors not to pursue a strategy of striving to be

the industry's low-cost leaderE. decisions by one or more outsiders not to attempt to enter the industryAn ongoing stream of product innovations tends to alter the pattern of competition in an industry by attracting more first-time buyers, rejuvenating industry growth, and/or increasing product differentiation, with concomitant effects on rivalry, entry threat, and buyer power. Product innovation has been a key driving force in industries such as smartphones, video games, and prescription drugs.





70. Which of the following is NOT a common type of driving force?

A. reductions in uncertainty and business riskB. changing societal concerns, attitudes, and lifestylesC. diffusion of technical know-how across companies and

countriesD. increasing efforts to collaborate closely with suppliersE. advances in technology and manufacturing process innovationSome drivers of change are unique and specific to a particular industry situation, but most drivers of industry and competitive change fall into one of the following categories: changes in an industry's long-term growth rate; increasing globalization; emerging new Internet capabilities and applications; shifts in buyer demographics; technological change and manufacturing process innovation; product innovation; entry or exit of major firms; diffusion of technical know-how across companies and countries; changes in cost and efficiency; reductions in uncertainty and business risk; regulatory influences and government policy changes; changing societal concerns, attitudes, and lifestyles.







71. Increasing globalization of the industry can be a driving force because

A. the products of foreign competitors are nearly always cheaper or of better quality than those of domestic companies.

B. foreign producers typically have lower costs, greater technological expertise, and more product innovation capabilities than domestic firms.

C. companies need to spread their operating reach into more and more country markets to meet consumer demand and take advantage of available operating activities.

D. it results in companies having fewer competitors and a strategic group map with fewer circles.

E. market growth rates go up, product innovation speeds up, and new firms are likely to enter the industry.

Globalization can be precipitated by such factors as the blossoming of consumer demand in developing countries, the availability of lower-cost foreign inputs, and the reduction of trade barriers, as has occurred recently in many parts of Latin America and Asia. The forces of globalization are sometimes such a strong driver that companies find it highly advantageous, if not necessary, to spread their operating reach into more and more country markets.





72. Driving-forces analysis helps managers identify whether

A. the collective impact of the driving forces will act to increase/decrease market demand, increase/decrease competition, and raise/lower industry profitability in the years ahead.

B. it will become more or less important to aim the company's strategy at being the industry's low-cost producer.

C. the driving forces will have a bigger impact on company profitability than competitive forces.D. the industry is likely to become more or less vertically integrated and why.E. competitive advantages are likely to grow or diminish in importance.The most important part of driving-forces analysis is to determine whether the collective impact of the driving forces will increase or decrease market demand, make competition more or less intense, and lead to higher or lower industry profitability.






73. Evaluating the industry's driving forces, as a whole, requires understanding their influence on the attractiveness of industry environment and generally are

A. determined by the sizes of strategic groups and the power of rival firms' competitive strategies.B. defined in ways that will strengthen or weaken market demand, competition, and industry

profitability in future years.C. the cause of a reduction in the bargaining power of

buyers.D. triggered by movement in the economy, higher or lower interest rates, or important new strategic

alliances.E. triggered by such factors as growing competitive pressures from substitute products, and the efforts

of rival firms to employ new or different offensive strategies.The most important part of driving-forces analysis is to determine whether the collective impact of the driving forces will increase or decrease market demand, make competition more or less intense, and lead to higher or lower industry profitability.




74. In analyzing driving forces, the strategist's role is to

A. identify the driving forces and evaluate their impact on (1) demand for the industry's product, (2) the intensity of competition, and (3) industry profitability.

B. predict future marketing innovations and how fast the industry is likely to globalize.C. evaluate what stage of the life cycle the industry is in and when it is likely to move to the next stage.D. determine who is likely to exit the industry and what changes can be expected in the industry's

strategic group map.E. forecast fluctuations in product demand and how buyer needs will most likely change.The most important part of driving-forces analysis is to determine whether the collective impact of the driving forces will increase or decrease market demand, make competition more or less intense, and lead to higher or lower industry profitability.







75. Which of the following is NOT an integral part of driving-forces analysis?

A. determining whether forces are acting to cause fundamental changes in industry conditions and/or the industry's competitiveness

B. determining whether forces are acting to cause industry rivals to shift to a different strategic groupC. determining whether forces are acting to strengthen or weaken market demandD. determining whether forces are acting to make competition more or less intenseE. determining whether forces are acting to raise or lower industry

profitabilitySome drivers of change are unique and specific to a particular industry situation, but most drivers of industry and competitive change fall into one of the following categories: changes in an industry's long-term growth rate; increasing globalization; emerging new Internet capabilities and applications; shifts in buyer demographics; technological change and manufacturing process innovation; product innovation; entry or exit of major firms; diffusion of technical know-how across companies and countries; changes in cost and efficiency; reductions in uncertainty and business risk; regulatory influences and government policy changes; changing societal concerns, attitudes, and lifestyles.





76. The real payoff of driving forces is to help managers understand

A. what strategy changes are needed to prepare for the impacts of the driving forces.

B. the overall strength of the five competitive forces.C. whether the industry's strategic group map will be static or dynamic.D. what conditions exist in the economy at large.E. the extent to which rivals have more than two competitively valuable competencies or capabilities.The real payoff of driving-forces analysis is to help managers understand what strategy changes are needed to prepare for the impacts of the driving forces.







77. Driving-forces analysis has

A. speculative value because it compels the firm to drive strategic intent and collective choice into operating practices.

B. theoretical value because it allows managers to visualize the many different dimensions of the preferred forces that allow for industry functionality.

C. practical value and is basic to the task of thinking strategically about where the industry is headed and how to prepare for the changes ahead.

D. no real analytical value because the driving forces are already established in the marketplace and it is too late to make astute and timely strategy adjustments.

E. perceived value and is associated with identifying the close and distant rivals within an operating industry.

Driving-forces analysis is not something to take lightly; it has practical value and is basic to the task of thinking strategically about where the industry is headed and how to prepare for the changes ahead.





78. Which of the following driving forces would have the LEAST impact on the attractiveness of the automobile industry?

A. changes in the long-term industry growth rateB. entry or exit of major firmsC. shifts in who buys the product and how the product is usedD. changes in costs and

efficiencyE. regulatory influences and government policy changesOf the forces listed above, all except social/demographic changes would have a major impact on the attractiveness of the automobile industry. There is no apparent likelihood of a shift in who purchases automotive vehicles or what people are likely to purchase for personal travel.







79. What is the best technique for revealing the different market or competitive position that rival firms occupy in the industry?

A. strategic group mappingB. PESTEL analysisC. five forces frameworkD. the value net frameworkE. competitor analysisUnderstanding which companies are strongly positioned and which are weakly positioned is an integral part of analyzing an industry's competitive structure. The best technique for revealing the market positions of industry competitors is strategic group mapping.



Difficulty: 1 EasyLearning Objective: 03-03 How to map the market positions of key groups of industry rivals.


80. A strategic group

A. consists of those industry members that are growing at about the same rate and have similar product line breadth.

B. includes all rival firms having comparable profitability.C. is a cluster of industry members with similar competitive approaches and market positions in the

market.D. consists of those firms whose market shares are about the same size.E. is made up of those firms having comparable profit margins.A strategic group consists of those industry members with similar competitive approaches and positions in the market. Companies in the same strategic group can resemble one another in a variety of ways.





81. Not all positions on a strategic group map are equally attractive because

A. small strategic groups are always less profitable than large strategic groups.B. entry and exit barriers are different for each strategic group.C. across-group rivalry is always weakest at the outer edge of the strategic group map.D. industry driving forces and competitive pressures favor some groups and disadvantage others.E. key success factors are substantially different for differently positioned industry participants.Some strategic groups are more favorably positioned than others because they confront weaker competitive forces and/or because they are more favorably impacted by industry driving forces.


Accessibility: Keyboard Navigation



Blooms: UnderstandDifficulty: 2 Medium

Learning Objective: 03-03 How to map the market positions of key groups of industry rivals.Topic: Porter's Five Forces

82. An industry contains one strategic group when all sellers

A. are subject to the same driving forces.

B. place about the same emphasis on various distribution channels.C. use the same key success factors to differentiate their

products.D. pursue essentially identical strategies and have similar market positions.E. pursue varying distribution channels and product attributes, and have customer service attributes

that differentiate them in the marketplace.A strategic group consists of those industry members with similar competitive approaches and positions in the market. Companies in the same strategic group can resemble one another in a variety of ways.





83. Strategic group mapping is a visual technique for displaying

A. how many rivals are pursuing each type of strategy.

B. which companies have the biggest market share and who the industry leader really is.C. the different market or competitive positions that rival firms occupy in an industry and for

identifying each rival's closest competitors.D. which companies have the highest degrees of brand loyalty.E. which companies have failing business models.Evaluating strategy options entails examining what strategic groups exist, identifying the companies within each group, and determining if a competitive "white space" exists where industry competitors are able to create and capture altogether new demand.



Difficulty: 2 MediumLearning Objective: 03-03 How to map the market positions of key groups of industry rivals.




84. Which of the following pairs of variables are LEAST likely to be useful in drawing a strategic group map?

A. geographic market scope and degree of vertical integration

B. brand name reputation and distribution channel emphasisC. product quality and product-line breadthD. level of profitability and size of market shareE. price/perceived quality and image range and the extent of buyer appealTypical variables used in creating strategic group maps are price/quality range (high, medium, low), geographic coverage (local, regional, national, global), product-line breadth (wide, narrow), degree of service offered (no frills, limited, full), use of distribution channels (retail, wholesale, Internet, multiple), degree of vertical integration (none, partial, full), and degree of diversification into other industries (none, some, considerable).




85. The concept of strategic groups is relevant to industry and competitive analysis because

A. firms in the same strategic groups are rarely close competitors—a firm's closest competitors are usually in distant strategic groups.

B. strategic group maps help identify how each competing firm is positioned and the relationship to their closest competitors.

C. competition grows in intensity as the number and diversity of the strategic groups in an industry increases.

D. the profit potential of firms in the same strategic group is usually very similar.E. competitive pressures tend to be weaker within strategic groups than across strategic groups.Evaluating strategy options entails examining what strategic groups exist, identifying the companies within each group, and determining if a competitive "white space" exists where industry competitors are able to create and capture altogether new demand.






86. In mapping, strategic groups

A. one strategic variable and one financial variable should be used as axes for the map.B. it is important for the variables used as axes to be highly correlated.C. the best variables to use as axes for the map are those that identify the competitive characteristics

that delineate strategic approaches used in the industry.D. it is important to use price as the variable for the vertical axis.E. the primary objective is to determine which strategic groups are profitable and which are

not.Several guidelines need to be observed in creating strategic group maps. First, the two variables selected as axes for the map should not be highly correlated. Second, the variables chosen as axes for the map should reflect important differences among rival approaches. Third, the variables used as axes don't have to be either quantitative or continuous. Fourth, drawing the sizes of the circles on the map proportional to the combined sales of the firms in each strategic group allows the map to reflect the relative sizes of each strategic group. Fifth, if more than two good variables can be used as axes for the map, then it is wise to draw several maps to give different exposures to the competitive positioning relationships present in the industry's structure.




87. Which of the following is NOT an appropriate guideline for developing a strategic group map for a given industry?

A. The variables chosen as axes for the map should indicate important differences among rival approaches.

B. The variables chosen as axes for the map don't have to be either quantitative or continuous. They can be discrete variables.

C. The variables chosen as axes for the map should be highly correlated.D. Several maps should be drawn if more than one pair of variables give different exposures to the

competitive positioning relationships present in the industry structure.E. The sizes of the circles on the map should be drawn proportional to the combined sales of the firms

in each strategic group.Several guidelines need to be observed in creating strategic group maps. First, the two variables selected as axes for the map should not be highly correlated. Second, the variables chosen as axes for the map should reflect important differences among rival approaches. Third, the variables used as axes don't have to be either quantitative or continuous. Fourth, drawing the sizes of the circles on the map proportional to the combined sales of the firms in each strategic group allows the map to reflect the relative sizes of each strategic group. Fifth, if more than two good variables can be used as axes for the map, then it is wise to draw several maps to give different exposures to the competitive positioning relationships present in the industry's structure.







88. With the aid of a strategic group map, one can

A. identify easily the entry and exit barriers for each strategic group.B. pinpoint precisely which firms are in profitable strategic groups and which are not.C. identify which competitive forces are strong and which are

weak.D. measure accurately whether across-group rivalry is stronger than within-group rivalry, and vice

versa.E. reveal which companies are close competitors and which are distant rivals, and that not all positions

on the map are equally attractive.Strategic group maps are revealing in several respects. The most important has to do with identifying which industry members are close rivals and which are distant rivals. Firms in the same strategic group are the closest rivals; the next closest rivals are in the immediately adjacent groups. Often, firms in strategic groups that are far apart on the map hardly compete at all.





89. One of the things that can be gleaned from a strategic group map of industry rivals is

A. which rivals have been in business longer and thus have greater access to experience curve effects.

B. which rivals have newer manufacturing facilities and thus have achieved greater product quality.

C. which strategic groups have the highest profit margins and the highest customer switching costs and thus represent key operating characteristics.

D. that some strategic groups are more favorably positioned than others because they confront weaker competitive forces and/or because they are more favorably impacted by industry driving forces.

E. which strategic groups are currently being shunned by customers because of high prices and relatively low product quality.

Some strategic groups are more favorably positioned than others because they confront weaker competitive forces and/or because they are more favorably impacted by industry driving forces.






90. Strategic group map analysis does NOT entail drawing conclusions about

A. where on the map is the best place to be and why.B. which companies/strategic groups are destined to prosper because of their

positions.C. which companies/strategic groups seem destined to struggle.D. what accounts for why some parts of the map are better than others.E. where on the map is the easiest position to shift from to a more favorably situated position.Part of strategic group map analysis always entails drawing conclusions about where on the map is the "best" place to be and why. Which companies/strategic groups are destined to prosper because of their positions? Which companies/strategic groups seem destined to struggle? What accounts for why some parts of the map are better than others?




91. The payoff of good scouting reports on rivals is an improved ability to

A. anticipate what moves rivals are likely to make next.B. determine which rivals are in the best strategic group.C. figure out how many key success factors a rival has.D. determine whether a rival is gaining or losing market share.E. determine whether a rival has the best strategy and is the industry leader.Studying competitors' past behavior and preferences provides a valuable assist in anticipating what moves rivals are likely to make next and outmaneuvering them in the marketplace.







92. To succeed in predicting a competitor's next moves, company strategists need to appraise a rival's

A. current strategy, financial health, market share, resources and capabilities.

B. strategic group, assumptions, resources and capabilities, financial health.C. current strategy, assumptions, resources and capabilities,

objectives.D. market share, strategic group, driving forces, assumptions.E. resources and capabilities, assumptions, current strategy,

objectives.The four indicators that help company strategists predict a competitor's next moves are: (1) a rival's current strategy, (2) objectives, (3) resources and capabilities, and (4) its assumptions about itself and the industry. According to Michael Porter, a strategic profile of a rival that provides good clues to its behavioral proclivities can be constructed by characterizing the rival along these four dimensions.



Learning Objective: 03-03 How to map the market positions of key groups of industry rivals.Topic: Competitor Analysis

93. Having good competitive intelligence about rivals' strategies and moves to improve their situation is important because

A. it identifies who the industry's current market share leaders are.

B. it allows a company to anticipate what moves rivals are likely to make next and to craft its own strategic moves with some confidence.

C. it helps identify which rival is in which strategic group.D. it enables company managers to determine which rival has the worst strategy and how to avoid

making the same strategy mistakes.E. it enables more accurate predictions about how long it will take a particular rival to copy most of

what the strategy leader is doing.Doing the necessary detective work can be time consuming, but scouting competitors well enough to anticipate their next moves allows managers to prepare effective countermoves (perhaps even beat a rival to the punch) and to take rivals' probable actions into account in crafting their own best course of action.




Topic: Competitor Analysis



94. Good intelligence about the strategic direction and likely moves of key competitors allows a company to determine which competitors have all of the following, EXCEPT

A. the best strategy.B. flawed or weak strategies.C. strong performance objectives.D. reliable resources and capabilities.E. similar competitive approaches.Michael Porter's Framework for Competitor Analysis points to four indicators of a rival's likely strategic moves and countermoves. These include a rival's current strategy, objectives, resources and capabilities, and assumptions about itself and the industry. A strategic profile of a rival that provides good clues to its behavioral proclivities can be constructed by characterizing the rival along these four dimensions.





95. Angela and Jeff are co-owners of five specialty baking stores in their region. Which of the following questions would NOT help them to predict the next strategic moves and countermoves of their rivals?

A. Which mode of transport does the rival's supplier use?

B. How does the rival manage door-to-door deliveries at no extra cost?

C. What percentage of customers frequent the rival's store?D. Why are the rival's cupcakes so popular among customers?E. How frequently does their rival fulfill special orders for custom cupcakes and how large are those

special orders?Michael Porter's Framework for Competitor Analysis points to four indicators of a rival's likely strategic moves and countermoves. These include a rival's current strategy, objectives, resources and capabilities, and assumptions about itself and the industry. A strategic profile of a rival that provides good clues to its behavioral proclivities can be constructed by characterizing the rival along these four dimensions.



Difficulty: 3 HardLearning Objective: 03-03 How to map the market positions of key groups of industry rivals.




96. A rival's strategic moves and countermoves are

A. indicators for the visualization of strategic mapping techniques.B. enabled and constrained by the set of capabilities they have at hand.C. measured by the extent to which they can unveil financial

objectives.D. responses to the broader definition of the industry opportunities.E. signs of the competitive pressures from the industry.A rival's strategic moves and countermoves are both enabled and constrained by the set of resources and capabilities the rival has at hand. Thus a rival's resources and capabilities (and efforts to acquire new resources and capabilities) serve as a strong signal of future strategic actions (and reactions to your company's moves). Assessing a rival's resources and capabilities involves sizing up not only its strengths in this respect but its weaknesses as well.




97. The extent to which firms are meeting objectives suggests they

A. are likely to prosper in the future.B. are likely to continue their present strategy with only minor fine-tuning.C. are virtually certain to make fresh strategic moves.D. recognize "status quo" as the best course of action to adopt.E. realize refocusing will ensure competitive gains.Rivals with good financial performance are likely to continue their present strategy with only minor fine tuning. Poorly performing rivals are virtually certain to make fresh strategic moves.






98. Competitive intelligence can be gleaned from

A. company press releases, company websites, management presentations, and annual reports and 10-K filings.

B. SWOT analysis, PESTLE analysis, KSF analysis, and driving forces analysis.C. strategic group maps, Value Net analysis, and five force

analysis.D. financial ratio analysis, KSF analysis, driving forces analysis, and five forces analysis.E. KSF analysis, Value Net analysis, and driving forces analysis.Routes to gathering intelligence on competitors include perusing company websites, company press releases, management presentations and annual reports and 10-K filings.




99. The key success factors in an industry

A. are those competitive factors that most affect industry members' abilities to prosper in the marketplace—the particular strategy elements, product attributes, operational approaches, resources, and competitive capabilities that spell the difference between being a strong competitor and a weak one, and between profit and loss.

B. are determined by the industry's driving forces, which are essential to surviving and thriving in the industry.

C. hinge on how many different strategic groups the industry has operating within the industry and their level of profitability and sustainable advantages.

D. depend on how many rivals are trying to move from one strategic group to another without losing momentum.

E. are a function of such considerations as how many firms are in the industry, how many have market shares above 5 percent, and whether the business models being used are similar or diverse.

An industry's key success factors (KSFs) are those competitive factors that most affect industry members' ability to survive and prosper in the marketplace: the particular strategy elements, product attributes, operational approaches, resources, and competitive capabilities that spell the difference between being a strong competitor and a weak competitor—and between profit and loss.




Topic: Performance Management



100. An industry's key success factors can always be deduced by asking what factors

A. are a function of market share, entry barriers, and economies of scale, degree of vertical integration, and industry profitability that are advantageous.

B. vary according to whether an industry has high or low long-term attractiveness.C. such as product attributes and service characteristics are crucial, and what resources and competitive

capabilities are needed, and what shortcomings are evident to put a company at a competitive disadvantage.

D. can be determined from studying the "winning" strategies of the industry leaders and ruling out as potential key success factors the strategy elements of those firms considered to have "losing" strategies.

E. depend on the relative competitive strengths of the industry leaders and how vulnerable they are to competitive attack.

Regardless of the circumstances, an industry's key success factors can always be deduced by asking the same three questions:

1. On what basis do buyers of the industry's product choose between the competing brands of sellers? That is, what product attributes and service characteristics are crucial?2. Given the nature of competitive rivalry prevailing in the marketplace, what resources and competitive capabilities must a company have to be competitively successful?3. What shortcomings are almost certain to put a company at a significant competitive disadvantage?



Learning Objective: 03-03 How to map the market positions of key groups of industry rivals.Topic: Performance Management

101. In identifying an industry's key success factors, strategists should

A. try to single out all factors that play a major role in shaping whether buyer demand grows rapidly or slowly.

B. consider on what basis customers choose between competing brands, what resources and competitive capabilities firms need to be competitively successful, and what shortcomings are almost certain to put a company at a significant competitive disadvantage.

C. consider whether the number of strategic groups is increasing or decreasing and whether the five competitive forces are powerful or relatively weak.

D. consider what it will take to overtake the company with the industry's overall best strategy.E. focus their attention on what it will take to capitalize on the impacts of the industry's driving forces.Regardless of the circumstances, an industry's key success factors can always be deduced by asking the same three questions:








102. Which of the following is NOT a question asked to deduce a marketing-related key success factor?

A. What are the industry product R&D capabilities and expertise in product design?B. On what basis do buyers choose between the competing brands of sellers?C. What product attributes and service characteristics are crucial?D. What resources must a company have to be competitive?E. What shortcomings are almost certain to put a company at a significant disadvantage?Regardless of the circumstances, an industry's key success factors can always be deduced by asking the same three questions:






103. Which of the following can aid company strategists in identifying key success factors in their industry?

A. global distribution capabilities of suppliersB. product attributes and service characteristics that buyers consider to be crucialC. low switching costs of buyers and suppliersD. accurate filling of buyer

ordersE. short delivery time capabilityAn industry's key success factors (KSFs) are those competitive factors that most affect industry members' ability to survive and prosper in the marketplace: the particular strategy elements, product attributes, operational approaches, resources, and competitive capabilities that spell the difference between being a strong competitor and a weak competitor—and between profit and loss. Of those, strategists must consider what is crucial to buyers in an industry in making the purchase decision among competing brands products and services.






104. Correctly diagnosing an industry's key success factors

A. points to those things that every firm in the industry needs to attend to in order to develop product propositions.

B. hints at the firm's ability to generate above-average profitability.C. reveals that the firm's capabilities and resources are aligned with operating practices of industry

participants.D. raises a company's chances of crafting a sound strategy.E. raises a company's sustainability dimensions and market characteristics in line with industry

dynamics.Correctly diagnosing an industry's KSFs raises a company's chances of crafting a sound strategy. The key success factors of an industry point to those things that every firm in the industry needs to attend to in order to retain customers and weather the competition. If the company's strategy cannot deliver on the key success factors of its industry, it is unlikely to earn enough profits to remain a viable business.




105. Which of the following is particularly pertinent in evaluating whether an industry presents a sufficiently attractive business opportunity?

A. the industry's growth potential, whether competition appears destined to become stronger or weaker, and whether the industry's overall profit prospects are above average, average, or below average

B. an assessment of which firms in the industry have the best and worst competitive strategies, whether the number of strategic groups in the industry is increasing or decreasing, and whether economies of scale and experience curve effects are a key success factor

C. whether there are more than five key success factors and more than five barriers to entryD. constructing a strategic group map and assessing the attractiveness of the competitive position of

each strategic groupE. whether the market leaders enjoy competitive advantages and how hard it is to develop a strongly

differentiated productAs a general proposition, the anticipated industry environment is fundamentally attractive if it presents a company with good opportunity for above-average profitability; the industry outlook is fundamentally unattractive if a company's profit prospects are unappealingly low.



Learning Objective: 03-04 How to determine whether an industry's outlook presents a company with sufficiently attractive opportunities for growth and profitability.




106. In evaluating whether the industry and competitive environment presents sufficiently attractive prospects for both competitive success and attractive profits usually does NOT involve a consideration of which of the following factors?

A. the industry's growth potential and whether competitive pressures will likely grow stronger or weaker, and whether strong competitive forces are squeezing industry profitability to subpar levels

B. whether the company occupies a stronger market position than rivals

C. whether the industry's future profitability will be favorably or unfavorably affected by the prevailing driving forces

D. the severity of the macro-environment problems confronting the industry

E. whether the industry's product is strongly or weakly differentiatedThe final step in evaluating the industry and competitive environment is to use the results of each of the analyses performed to determine whether the industry presents the company with strong prospects for competitive success and attractive profits. The important factors on which to base a conclusion include:

• How the company is being impacted by the state of the macro-environment.• Whether strong competitive forces are squeezing industry profitability to subpar levels.• Whether the presence of complementors and the possibility of cooperative actions improve the company's prospects.• Whether industry profitability will be favorably or unfavorably affected by the prevailing driving forces.• Whether the company occupies a stronger market position than rivals.• Whether this is likely to change in the course of competitive interactions.• How well the company's strategy delivers on the industry key success factors.







107. When evaluating whether an industry's environment presents a company with an above-average profitability and an attractive business opportunity, it primarily involves

A. determining the industry outlook for future profitability.B. determining which firms in the industry have a competitive advantage and how they got their

advantage.C. determining the overall strength of the five competitive

forces.D. constructing a strategic group map and assessing the attractiveness of the competitive position of

each strategic group to determine the overall attractiveness of all the strategic groups.E. using value chain analysis to determine the relative cost positions of rival firms and to learn who the

industry's low-cost producer is.The final step in evaluating the industry and competitive environment is to use the results of each of the analyses performed to determine whether the industry presents the company with strong prospects for competitive success and attractive profits. The important factors on which to base a conclusion include:

• How the company is being impacted by the state of the macro-environment.• Whether strong competitive forces are squeezing industry profitability to subpar levels.• Whether the presence of complementors and the possibility of cooperative actions improve the company's prospects.• Whether industry profitability will be favorably or unfavorably affected by the prevailing driving forces.• Whether the company occupies a stronger market position than rivals.• Whether this is likely to change in the course of competitive interactions.• How well the company's strategy delivers on the industry key success factors.







108. Which of the following factors should a company consider when determining if an industry offers good prospects for attractive profits?

A. the industry's growth potential, whether competition appears destined to become stronger or weaker, how the industry's driving forces might affect overall industry profitability, the company's competitive position relative to rivals, and the company's proficiency in performing industry key success factors

B. an assessment of which firms in the industry have the best and worst competitive strategies, whether the number of strategic groups in the industry is increasing or decreasing, and whether economies of scale and experience curve effects are a key success factor

C. whether there are more than five key success factors, more than five barriers to entry, and more than five industry drivers

D. whether the market leaders enjoy competitive advantages and how difficult it is to promote innovation to develop a strongly differentiated product or service for which a price premium may be charged

E. constructing a strategic group map and assessing the attractiveness of the competitive position of each strategic group

Factors that need to be determined include: industry prospects for attractive profits, industry growth potential, power of competitive forces to squeeze industry profitability, the degree to which prevailing driving forces will impact profitability favorably or unfavorably, how well a company performs relative to the industry key success factors, and a company's competitive position in relation to its rivals.





Essay Questions

109. What are the six key questions that form the framework of thinking strategically about a company's industry and competitive environment?

Every company operates in a broad "macro-environment" that comprises six principal components: political factors, economic conditions in the firm's general environment (local, country, regional, worldwide), sociocultural forces, technological factors, environmental factors (concerning the natural environment), and legal/regulatory conditions. Each of these components has the potential to affect the firm's more immediate industry and competitive environment, although some are likely to have a more important effect than others.


Blooms: RememberDifficulty: 1 Easy

Learning Objective: 03-01 How to recognize the factors in a company's broad macro-environment that may have strategic significance.Topic: Environmental Scanning



110. Draw the five forces model of competition and briefly describe the relevance of each of the five forces in determining the overall strength of competitive pressures a company faces. Which of the five competitive forces is typically the strongest?

The five forces framework holds that competitive pressures on companies within an industry come from five sources. These include (1) competition from rival sellers, (2) competition from potential new entrants to the industry, (3) competition from producers of substitute products, (4) supplier bargaining power, and (5) customer bargaining power.The strongest of the five competitive forces is often the rivalry for buyer patronage among competing sellers of a product or service.




111. What are the five competitive forces that comprise the five forces model of competition?

The five forces framework holds that competitive pressures on companies within an industry come from five sources. These include (1) competition from rival sellers, (2) competition from potential new entrants to the industry, (3) competition from producers of substitute products, (4) supplier bargaining power, and (5) customer bargaining power.


Blooms: RememberDifficulty: 1 Easy


112. Competitive markets are economic battlefields. True or false? Explain.

When rivalry is strong, the battle for market share is generally so vigorous that the profit margins of most industry members are squeezed to bare-bones levels. When rivalry is moderate, a more normal state, the maneuvering among industry members, while lively and healthy, still allows most industry members to earn acceptable profits. When rivalry is weak, most companies in the industry are relatively well satisfied with their sales growth and market shares and rarely undertake offensives to steal customers away from one another. Weak rivalry means that there is no downward pressure on industry profitability due to this particular competitive force.


Blooms: ApplyDifficulty: 1 Easy




113. Identify and briefly explain any four of the factors that influence the strength or intensity of competitive rivalry among an industry's member firms.

Rivalry among competing sellers increases and becomes a stronger force when:

• Buyer demand is growing slowly.• Buyers' costs to switch brands are low.• The products of industry members are commodities or else weakly differentiated.• The firms in the industry have excess production capacity and/or inventory.• The firms in the industry have high fixed costs or high storage costs.• Competitors are numerous or are of roughly equal size and competitive strength.• Rivals have diverse objectives, strategies, and/or countries of origin.• Rivals have emotional stakes in the business or face high exit barriers.


Blooms: RememberDifficulty: 2 Medium


114. Identify five factors that tend to intensify competitive rivalry among an industry's member firms.

Rivalry among competing sellers increases and becomes a stronger force when:

• Buyer demand is growing slowly.• Buyers' costs to switch brands are low.• The products of industry members are commodities or else weakly differentiated.• The firms in the industry have excess production capacity and/or inventory.• The firms in the industry have high fixed costs or high storage costs.• Competitors are numerous or are of roughly equal size and competitive strength.• Rivals have diverse objectives, strategies, and/or countries of origin.• Rivals have emotional stakes in the business or face high exit barriers.






115. Identify five factors that tend to weaken the intensity of competitive rivalry among an industry's member firms.

Rivalry among competing sellers decreases and becomes a weaker force when:

• Buyer demand is growing quickly.• Buyers' costs to switch brands are high.• The products of industry members are not commodities or else strongly differentiated.• The firms in the industry do not have excess production capacity and/or inventory.• The firms in the industry have low fixed costs or low storage costs.• Competitors are few or are of unequal size and competitive strength.• Rivals have similar objectives, strategies, and/or countries of origin.• Rivals have few emotional stakes in the business or face low exit barriers.




116. Identify and briefly describe five common barriers to entering an industry.

Threat of entry is a stronger force when incumbents are unlikely to make retaliatory moves against new entrants and entry barriers are low. Entry barriers are high (and threat of entry is low) when:

• Incumbents have large cost advantages over potential entrants due to:

- High economies of scale- Significant experience-based cost advantages or learning curve effects- Other cost advantages (e.g., favorable access to inputs, technology, location, or low fixed costs)

• Customers have strong brand preferences and/or loyalty to incumbent sellers.• Patents and other forms of intellectual property protection are in place.• There are strong network effects.• Capital requirements are high.• There is limited new access to distribution channels and shelf space.• Government policies are restrictive.• There are restrictive trade policies.






117. Identify and briefly explain any three factors that intensify competitive pressures stemming from the threat that new firms will enter the industry.

Threat of entry is a stronger force when incumbents are unlikely to make retaliatory moves against new entrants and entry barriers are low. Entry barriers are high (and threat of entry is low) when:







118. Identify three conditions that tend to make potential entry a potentially potent competitive force.

Threat of entry is a stronger force when incumbents are unlikely to make retaliatory moves against new entrants and entry barriers are low. Entry barriers are low (and threat of entry is high) when:

• Incumbents have small cost advantages over potential entrants due to:

- Low economies of scale- Insignificant experience-based cost advantages or learning curve effects- No cost advantages (e.g., favorable access to inputs, technology, location, or low fixed costs)

• Customers have weak brand preferences and/or loyalty to incumbent sellers.• No patents and other forms of intellectual property protection are in place.• There are weak network effects.• Capital requirements are low.• There are no limits to new access to distribution channels and shelf space.• Government policies are not restrictive.• There are no restrictive trade policies.






119. Identify and briefly explain any three factors that weaken the competitive pressures stemming from the threat that new firms will enter the industry.

Threat of entry is a weaker force when incumbents are likely to make retaliatory moves against new entrants and entry barriers are high. Entry barriers are high (and threat of entry is low) when:







120. Identify and briefly explain any two of the factors that influence the strength of competition from substitute products.

Competitive pressures from substitutes are stronger when:

• Good substitutes are readily available and attractively priced.• Substitutes have comparable or better performance features.• Buyers have low costs in switching to substitutes.






121. Identify and briefly explain any three of the factors that influence the bargaining strength and leverage of suppliers.

Supplier bargaining power is stronger when:

• Suppliers' products and/or services are in short supply.• Suppliers' products and/or services are differentiated.• Industry members incur high costs in switching their purchases to alternative suppliers.• The supplier industry is more concentrated than the industry it sells to and is dominated by a few large companies.• Industry members do not have the potential to integrate backward in order to self-manufacture their own inputs.• Suppliers' products do not account for more than a small fraction of the total costs of the industry‘s products.• There are no good substitutes for what the suppliers provide.• Industry members do not account for a big fraction of suppliers' sales.




122. Explain the meaning and significance of each of the following and their relationship to one another.

a. driving forcesb. strategic group mappingc. key success factors

The most powerful of the change agents are called driving forces because they have the biggest influences in reshaping the industry landscape and altering competitive conditions. The best technique for revealing the market positions of industry competitors is strategic group mapping. An industry's key success factors (KSFs) are those competitive factors that most affect industry members' ability to survive and prosper in the marketplace: the particular strategy elements, product attributes, operational approaches, resources, and competitive capabilities that spell the difference between being a strong competitor and a weak competitor—and between profit and loss.


Blooms: ApplyDifficulty: 2 Medium

Learning Objective: 03-02 How to use analytic tools to diagnose the competitive conditions in a company's industry.Learning Objective: 03-03 How to map the market positions of key groups of industry rivals.




123. Identify and briefly explain any three factors that lead to strong bargaining power on the part of suppliers.

Supplier bargaining power is stronger when:

• Suppliers' products and/or services are in short supply.• Suppliers' products and/or services are differentiated.• Industry members incur high costs in switching their purchases to alternative suppliers.• The supplier industry is more concentrated than the industry it sells to and is dominated by a few large companies.• Industry members do not have the potential to integrate backward in order to self-manufacture their own inputs.• Suppliers' products do not account for more than a small fraction of the total costs of the industry‘s products.• There are no good substitutes for what the suppliers provide.• Industry members do not account for a big fraction of suppliers' sales.



Learning Objective: 03-02 How to use analytic tools to diagnose the competitive conditions in a company's industry.Topic: Performance Management

124. Identify and briefly explain any three factors that lead to weak bargaining power on the part of suppliers.

Supplier bargaining power is weaker when:

• Suppliers' products and/or services are plentiful.• Suppliers' products and/or services are undifferentiated.• Industry members incur low costs in switching their purchases to alternative suppliers.• The supplier industry is less concentrated than the industry it sells to and is not dominated by a few large companies.• Industry members have the potential to integrate backward in order to self-manufacture their own inputs.• Suppliers' products account for a significant fraction of the total costs of the industry‘s products.• There are good substitutes for what the suppliers provide.• Industry members account for a big fraction of suppliers' sales.






125. Explain why low switching costs and weakly differentiated products tend to give buyers a high degree of bargaining power.

Switching costs put a cap on how much industry producers can raise prices or reduce quality before they will lose the buyer's business. When industry goods are standardized or differentiation is weak, buyers make their selections on the basis of price, which increases price competition among vendors.




126. Not all buyers of an industry's product are likely to possess the same degree of bargaining power or leverage over the terms and conditions under which they purchase the product. True or false? Explain.

Competitive pressures from buyers increase when they have strong bargaining power and are price-sensitive. Buyer bargaining power is stronger when:

• Buyer demand is weak in relation to industry supply.• The industry's products are standardized or undifferentiated.• Buyers' costs of switching to competing products are low.• Buyers are large and few in number relative to the number of industry sellers.• Buyers pose a credible threat of integrating backward into the business of sellers.• Buyers are well informed about the quality, prices, and costs of sellers.• Buyers have the ability to postpone purchases.

Buyers are price-sensitive and increase competitive pressures when:

• Buyers earn low profits or low income.• The product represents a significant fraction of their purchases.

Competitive pressures from buyers decrease and become a weaker force under the opposite conditions.






127. Identify and briefly discuss any three of the factors that influence the bargaining strength and leverage of buyers.


• Buyer demand is weak in relation to industry supply.• The industry's products are standardized or undifferentiated.• Buyer costs of switching to competing products are low.• Buyers are large and few in number relative to the number of industry sellers.• Buyers pose a credible threat of integrating backward into the business of sellers.• Buyers are well informed about the quality, prices, and costs of sellers.• Buyers have the ability to postpone purchases.







128. Identify and briefly explain any three factors that lead to strong bargaining power on the part of buyers.


• Buyer demand is weak in relation to industry supply.• The industry's products are standardized or undifferentiated.• Buyer costs of switching to competing products are low.• Buyers are large and few in number relative to the number of industry sellers.• Buyers pose a credible threat of integrating backward into the business of sellers.• Buyers are well informed about the quality, prices, and costs of sellers.• Buyers have the ability to postpone purchases.









129. Identify and briefly explain any three factors that lead to weak bargaining power on the part of buyers.

Competitive pressures from buyers decrease when they have weak bargaining power and are not price-sensitive. Buyer bargaining power is weaker when:

• Buyer demand is strong in relation to industry supply.• The industry's products are differentiated.• Buyer costs of switching to competing products are high.• Buyers are small and many in number relative to the number of industry sellers.• Buyers don't pose a credible threat of integrating backward into the business of sellers.• Buyers are not well informed about the quality, prices, and costs of sellers.• Buyers don't have the ability to postpone purchases.

Buyers are not price-sensitive and decrease competitive pressures when:

• Buyers earn high profits or high income.• The product doesn't represent a significant fraction of their purchases.




130. Identify and briefly explain the components of the value net framework.

First, the analysis focuses on the interactions of industry participants with a particular company. Thus it places that firm in the center of the framework.Second, the category of "competitors" is defined to include not only the focal firm's direct competitors or industry rivals but also the sellers of substitute products and potential entrants.Third, the value net framework introduces a new category of industry participant that is not found in the five forces framework—that of "complementors."The inclusion of complementors draws particular attention to the fact that success in the marketplace need not come at the expense of other industry participants. Interactions among industry participants may be cooperative in nature rather than competitive.






131. Explain what else is required for a complete assessment of the driving-forces in an industry.

Driving-forces analysis has three steps: (1) identifying what the driving forces are, (2) assessing whether the drivers of change are, on the whole, acting to make the industry more or less attractive, and (3) determining what strategy changes are needed to prepare for the impact of the driving forces.


Blooms: UnderstandDifficulty: 3 Hard


132. Identify at least five common driving forces and briefly explain how each one can produce important changes in industry and competitive conditions.

The most common drivers of industry change:

• Changes in the long-term industry growth rate• Increasing globalization• Emerging new Internet capabilities and applications• Shifts in buyer demographics• Technological change and manufacturing process innovation• Product and marketing innovation• Entry or exit of major firms• Diffusion of technical know-how across companies and countries• Changes in cost and efficiency• Reductions in uncertainty and business risk• Regulatory influences and government policy changes• Changing societal concerns, attitudes, and lifestyles






133. Identify at least three benefits of constructing a strategic group map.

A strategic group consists of those industry members with similar competitive approaches and positions in the market. Companies in the same strategic group can resemble one another in a variety of ways. For example, they may have comparable product-line breadth, emphasize the same distribution channels, depend on identical technological approaches, or offer buyers essentially the same product attributes or similar services and technical assistance. Evaluating strategy options entails examining what strategic groups exist, identifying the companies within each group, and determining if a competitive "white space" exists where industry competitors are able to create and capture altogether new demand. As part of this process, the number of strategic groups in an industry and their respective market positions can be displayed on a strategic group map.




134. What is the analytical value of studying competitors and trying to predict what moves rivals will make next?

Michael Porter's Framework for Competitor Analysis points to four indicators of a rival's likely strategic moves and countermoves. These include a rival's current strategy, objectives, resources and capabilities, and assumptions about itself and the industry. Doing the necessary detective work can be time-consuming, but scouting competitors well enough to anticipate their next moves allows managers to prepare effective countermoves (perhaps even beat a rival to the punch) and to take rivals' probable actions into account in crafting their own best course of action.




135. What is the strategy-making value of identifying an industry's key success factors?

KSFs by their very nature are so important to competitive success that all firms in the industry must pay close attention to them or risk becoming an industry laggard or failure. To indicate the significance of KSFs another way, how well the elements of a company's strategy measure up against an industry's KSFs determines whether the company can meet the basic criteria for surviving and thriving in the industry. Identifying KSFs, in light of the prevailing and anticipated industry and competitive conditions, is therefore always a top priority in analytic and strategy-making considerations. Company strategists need to understand the industry landscape well enough to separate the factors most important to competitive success from those that are less important.






136. Identify four factors that affect whether an industry does or does not present a company with a good business opportunity.

An industry's key success factors (KSFs) are those competitive factors that most affect industry members' ability to survive and prosper in the marketplace: the particular strategy elements, product attributes, operational approaches, resources, and competitive capabilities that spell the difference between being a strong competitor and a weak competitor—and between profit and loss.




137. Can an industry be attractive to one company and unattractive to another company? Why or why not?

It is a mistake to think of a particular industry as being equally attractive or unattractive to all industry participants and all potential entrants. Attractiveness is relative, not absolute, and conclusions one way or the other have to be drawn from the perspective of a particular company. For instance, a favorably positioned competitor may see ample opportunity to capitalize on the vulnerabilities of weaker rivals even though industry conditions are otherwise somewhat dismal. At the same time, industries attractive to insiders may be unattractive to outsiders because of the difficulty of challenging current market leaders or because they have more attractive opportunities elsewhere.







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