Instant Download PDF Contemporary Strategic Management An Australasian Perspective 2nd Edition Grant Test Bank Full Chapter
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Testbank
to accompany
Contemporary Strategic
Management 2nd edition
by Grant et al
Updated by
Martina Linnenluecke
The University of Queensland
Chapter 7:
Business-level strategies
True/False Questions
1. The intensification of competition can explain why cost advantage is more important than ever.
*a. True
b. False
General Feedback:
Difficulty: Easy
2. Cost drivers are factors that determine a firm's cost position, generally measured by the cost of output
per unit.
*a. True
b. False
General Feedback:
Difficulty: Easy
3. Economies of scale can be described as the phenomenon where proportionate increases in the amount
of inputs employed in a production process result in lower unit costs.
*a. True
b. False
General Feedback:
Difficulty: Medium
a. True
*b. False
General Feedback:
Difficulty: Medium
5. New process technology cannot reduce costs, because costs depend on the relative prices of inputs.
a. True
*b. False
General Feedback:
Difficulty: Medium
6. The value chain analysis is a tool which allows us to understand the importance, the value, and the
relationships of the elementary components constituting the firm's activities.
*a. True
b. False
General Feedback:
Difficulty: Medium
*a. True
b. False
General Feedback:
Difficulty: Easy
8. Physical characteristics of a product are one of the determinants of its potential for differentiation.
*a. True
b. False
General Feedback:
Difficulty: Easy
9. Tangible, intangible, and experience goods offer three possible forms of differentiation.
a. True
*b. False
General Feedback:
Difficulty: Medium
10. Differentiation deals with "how" a firm competes and the way in which it can offer uniqueness to its
customers.
*a. True
b. False
General Feedback:
Difficulty: Easy
11. A segmented market is partitioned according to the characteristics of the firm and its strategic
orientations.
a. True
*b. False
General Feedback:
Difficulty: Medium
12. Differentiation can be decomposed into the demand side, the supply side, and the integration
dimension.
a. True
*b. False
General Feedback:
Difficulty: Medium
13. One can synthesise the demand side of differentiation by the following statement: differentiation is
based upon the product characteristics that have the potential to create value for customers, customers'
willingness to pay for it, and a firm's optimal positioning related to its differentiation.
*a. True
b. False
General Feedback:
Difficulty: Medium
14. Multiple customer needs require the understanding of multiple attributes of a product or service.
*a. True
b. False
General Feedback:
© John Wiley & Sons Australia, Ltd 2014
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Chapter 7: Business-level strategies
Difficulty: Medium
15. Social and psychological factors have a minor impact on the demand side of differentiation.
a. True
*b. False
General Feedback:
Difficulty: Medium
16. Technology embodied in design and manufacture, skills and experience of employees, quality of
purchased inputs, and product features are fundamental drivers of the demand side of differentiation.
a. True
*b. False
General Feedback:
Difficulty: Medium
a. True
*b. False
General Feedback:
Difficulty: Easy
18. Differentiation and cost advantages are mutually exclusive and there is no way to integrate the two
approaches.
a. True
*b. False
General Feedback:
Difficulty: Easy
19. One way to reconcile differentiation with cost efficiency is modular product design.
*a. True
b. False
General Feedback:
© John Wiley & Sons Australia, Ltd 2014
5
Testbank to accompany: Contemporary strategic management 2e by Grant et al
Difficulty: Medium
a. True
*b. False
General Feedback:
Difficulty: Medium
21. If one considers commodities vs. more sophisticated products, one can conclude that:
General Feedback:
References: Chapter 7 page 226, Difficulty: Medium
22. The identification of the sources of a firm's competitive advantage is critical because:
General Feedback:
References: Chapter 7 page 225, Difficulty: Medium
General Feedback:
References: Chapter 7 page 226, Difficulty: Medium
General Feedback:
References: Chapter 7 page 226, Difficulty: Medium
General Feedback:
References: Chapter 7 page 226, Difficulty: Medium
General Feedback:
References: Chapter 7 page 226, Difficulty: Medium
a. Marketing
*b. Manufacturing
c. Production
d. Any function where human activity is present
General Feedback:
References: Chapter 7 page 226, Difficulty: Medium
General Feedback:
References: Chapter 7 page 226, Difficulty: Medium
a. The minimal size of a plant that achieves equilibrium between fixed and variable costs
*b. The optimal point in terms of size for the exploitation of economies of scale
c. The minimum size of a plant that acquires the largest market share
d. The minimum size of a plant that is required for efficient R&D
General Feedback:
References: Chapter 7 page 226, Difficulty: Hard
30. From a cost point of view, is a firm's capacity for underutilisation desirable or not desirable?
General Feedback:
References: Chapter 7 page 226, Difficulty: Hard
31. Location differences in input prices, non-union labour, and bargaining power are examples of:
General Feedback:
References: Chapter 7 page 226, Difficulty: Medium
General Feedback:
References: Chapter 7 page 239, Difficulty: Medium
33. Airlines, banking, telecommunications, and electrical power generation are all industries that
illustrate:
a. Industries where deregulation has led to more detailed marketing research to better fit their specific
needs
*b. Industries where competition has significantly increased due to deregulation, and has set a "higher
bar" for cost efficiency
c. Industries with low pace of change and long strategic cycles
d. Industries where technological innovation can take place
General Feedback:
References: Chapter 7 page 226, Difficulty: Medium
34. In packaged consumer goods such as household detergents, beer and soft drinks, the main source of
economies of scale is:
a. Indivisibilities
b. Price of inputs
*c. Specialisation
d. All of the above
General Feedback:
References: Chapter 7 page 226, Difficulty: Medium
35. Firms such as German BMW and Mercedes-Benz are proof that:
General Feedback:
References: Chapter 7 page 236, Difficulty: Medium
General Feedback:
References: Chapter 7 page 226, Difficulty: Medium
a. No limits
*b. Some limits
c. Always a positive impact on profit
d. Been discovered and implemented quite recently by many large firms
General Feedback:
References: Chapter 7 page 226, Difficulty: Hard
General Feedback:
References: Chapter 7 page 232, Difficulty: Easy
39. If one compares commodities with sophisticated products, one would conclude that commodities
offer:
General Feedback:
References: Chapter 7 page 226, Difficulty: Medium
a. Courage
*b. Creativity
c. A long time
© John Wiley & Sons Australia, Ltd 2014
10
Chapter 7: Business-level strategies
General Feedback:
References: Chapter 7 page 232, Difficulty: Medium
General Feedback:
References: Chapter 7 page 232, Difficulty: Medium
*a. A variable that covers any aspect in which a firm is related to its customers
b. A variable that emerges from benchmarking the best rivals in the industry
c. A variable related to physical characteristics of a product
d. A variable related to the intangible characteristics of the customers service
General Feedback:
References: Chapter 7 page 226, Difficulty: Medium
43. The potential to create differentiation for any product or service is only limited by:
General Feedback:
References: Chapter 7 page 226, Difficulty: Medium
a. Tangible differentiation relates to the psychological considerations of the customer in relation to the
product, whereas intangible differentiation describes the customer's perception of the ratio quality/price
b. Tangible differentiation relates to consumer goods, whereas intangible differentiation is concerned
with experience goods
*c. Tangible differentiation relates to the observable characteristics of a product or service, whereas
intangible differentiation relates to non-tangible attributes of the product or service
© John Wiley & Sons Australia, Ltd 2014
11
Testbank to accompany: Contemporary strategic management 2e by Grant et al
General Feedback:
References: Chapter 7 page 233, Difficulty: Easy
General Feedback:
References: Chapter 7 page 239, Difficulty: Medium
General Feedback:
References: Chapter 7 page 232, Difficulty: Medium
47. If social and psychological factors play a strong role in customers' needs, then:
General Feedback:
References: Chapter 7 page 235, Difficulty: Medium
General Feedback:
References: Chapter 7 page 236, Difficulty: Medium
General Feedback:
References: Chapter 7 page 232, Difficulty: Medium
General Feedback:
References: Chapter 7 page 232, Difficulty: Hard
51. Using the value chain to identify opportunities for differentiation involves the following stages:
a. Build a value chain, identify experience and search goods, select pertinent drivers of uniqueness, and
identify links between the respective value chains of the supplier and the buyer
b. Identify the drivers of uniqueness, select pertinent differentiation variables, build the experience curve,
and identify links between the respective value chains of the supplier and the buyer's industries
c. Build the experience curve, select pertinent signals of quality, select pertinent differentiation variables,
and identify links between the respective value chains of the supplier and the buyer's industries
*d. Build a value chain, identify the drivers of uniqueness, select pertinent differentiation variables, and
identify links between the respective value chains of the supplier and the buyer
General Feedback:
References: Chapter 7 page 229, Difficulty: Medium
52. How would one associate the following firms with the following attributes?
A McDonalds; B Federal Express; C American Express; D BMW; E. Sony
© John Wiley & Sons Australia, Ltd 2014
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Testbank to accompany: Contemporary strategic management 2e by Grant et al
General Feedback:
References: Chapter 7 page 239, Difficulty: Medium
General Feedback:
References: Chapter 7 page 232, Difficulty: Medium
54. Differentiation:
a. is a the activity that results from a function of product design and marketing mix
*b. infuses all activities within the organisation and is built into the identity and culture of the company
c. is limited to particular product and service industries
d. All of the above
General Feedback:
References: Chapter 7 page 232, Difficulty: Medium
55. A product that is different from competitors' products in terms of size, design, technology, durability
and reliability adds customer value through:
a. Intangible differentiation
b. Hybrid differentiation
*c. Tangible differentiation
d. Brand differentiation
General Feedback:
References: Chapter 7 page 233, Difficulty: Easy
56. Why are consumers willing to pay a premium price for brands such as Louis Vuitton or Mercedes-
Benz?
© John Wiley & Sons Australia, Ltd 2014
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Chapter 7: Business-level strategies
*a. These products offer not just physical features, but also intangible differentiation of self-identity and
social affiliation
b. These consumers have higher incomes and can afford the products
c. Because they these products are of high quality and offer many complimentary services
d. The companies producing these products have a competitive advantage
General Feedback:
Chapter 7 page 236, Difficulty: Easy
General Feedback:
References: Chapter 7 page 232, Difficulty: Easy
58. Porter identifies a number of drivers of uniqueness along the value chain. All of which are listed
below are drivers of uniqueness in value chain, except:
General Feedback:
References: Chapter 7 page 229, Difficulty: Medium
59. Using the value chain to identify opportunities for differentiation advantage involves all of the
following principal stages, except:
General Feedback:
References: Chapter 7 page 229, Difficulty: Medium
60. Companies that seek competitive advantage through differentiation but focus on a narrow
geographic or demographic customer segment pursue which of Porter's generic strategies?
General Feedback:
References: Chapter 7 page 239, Difficulty: Medium
General Feedback:
References: Chapter 7 page 232, Difficulty: Medium
62. Despite the prevalence of scale economies, small and medium-sized companies continue to prosper
in competition with much bigger rivals, because:
General Feedback:
References: Chapter 7, Difficulty: Medium
63. Which general managerial lessons can we draw from this chapter about cost advantage?
Correct Answer:
Difficulty: Easy-Medium. Cost efficiency is no longer a guarantee of high profits. However, it appears
as a prerequisite for success. Competition has become more demanding. Beyond the classic requirement
for relentless cost reduction in all industries, other requirements have emerged, requiring firms to
reconcile the pursuit of innovation, differentiation, service quality, and cost reduction.
The first lesson can be to look behind the cost accounting data to reach an in-depth understanding of the
determinants of cost efficiency. The second lesson encourages managers to think globally about cost
© John Wiley & Sons Australia, Ltd 2014
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Chapter 7: Business-level strategies
efficiency and in a creative manner: cost reduction can often be achieved by a reorganisation of the
activities and the processes of the organisation, and by innovative thinking postures. Cost reduction must
be every organisational member's concern and should be present and encouraged at different levels of
the firm.
64. Why don't firms try to maximise their economies of scale and run their operations on the largest
possible scale?
Correct Answer:
Difficulty: Medium. For the reason that economies of scale have limits. Otherwise, industries would be
constituted of giant firms, and, in theory, of only one large firm dominating the entire market. That type
of firms would benefit from such large economies of scale that nobody else could ever challenge it. In
fact, several factors constitute limits that keep firms from growing indefinitely: a/ the ability of smaller
firms to differentiate their products and to compete on dimensions other than price, b/ the ability of
smaller firms to change more rapidly and to adapt to their environment faster than large and heavier
organisations, c/ the difficulties linked to size and, especially, the problems emerging from coordination,
integration, and control of a giant organisation.
Growth is not always possible in a market, and there is always a limit to that growth. Therefore, size
maximisation translates into size optimisation. In some cases, the structure of the industry does not
confer an attribute of "scale sensitivity" to the industry.
Correct Answer:
Difficulty: Medium. Differentiation provides customers with a product or a service whose characteristics
appear to be unique and are perceived by them as valuable. Differentiation is concerned with "how" a
firm competes. Segmentation deals with "where" the firm competes in terms of targets (customer groups,
localities, and product types). To implement differentiation, different techniques exist, but all techniques
rely on a deep understanding of the identity, the needs and expectations, the location, the psychological
and behavioural attributes of a firm's customers.
Establishing a segmentation of the market and deciding a differentiation strategy are independent in
theory, because a firm may locate itself within a particular segment without achieving differentiation.
However, the two concepts go hand-in-hand because the segmentation step is a preparatory step in the
differentiation decision, since it provides a tool to understand and classify customers' characteristics,
upon which differentiation is based. Moreover, by offering uniqueness in its products or services, a firm
may inevitably target certain market niches.
66. When understanding differentiation, why do we analyse tangible vs. intangible differentiation,
customer side vs. supply side, and search goods vs. experience goods?
Correct Answer:
Difficulty: Medium-Hard. Differentiation includes every aspect of the way a company relates to its
customers. Beyond some regulatory or technical dimensions that may constrain differentiation, the
potential for differentiation appears to be bounded only by the limits of human imagination, because
© John Wiley & Sons Australia, Ltd 2014
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Testbank to accompany: Contemporary strategic management 2e by Grant et al
every aspect or attribute of a product or service can serve as a foundation for differentiation. Therefore,
to explore and integrate all the potential dimensions for differentiation, different perspectives have been
elaborated as guides for reflection.
In the first perspective, tangible differentiation looks at the observable characteristics of a product or
service that are relevant to customers' preferences and choice processes. Intangible differentiation is
concerned with the social, emotional, and psychological considerations present in choices over all
products and services.
The second perspective (demand side vs. supply side) aims at matching customers' demand for
differentiation with the firm's capacity to supply it. The demand side analyses which product
characteristics have the potential to create value for customers, whereas the supply side identifies drivers
of uniqueness that are decision variables for the firm. Finally, the third perspective focuses on the timing
of customers' perceptions of differentiation. Search goods' quality can be ascertained by inspection,
whereas experience goods have to be consumed to allow the identification of their intrinsic qualities.
Correct Answer:
Difficulty: Medium-Hard. Using cost leadership and differentiation simultaneously implies providing
the product or service at a lower cost than rivals on a permanent basis, and being able at the same time to
offer attributes perceived positively and as unique by the same customers. This strategy allows a firm to
benefit from both advantages related to the basic strategies, cost and differentiation. It achieves an
increase in its market share by selling at very reasonable price compared to rivals, but more importantly,
is able to offer more than its rivals for the same price. It gains on both sides. Toyota and Dell are
following this strategy.
In fact, few firms are trying (or succeeding at) this strategy, because it appears to be more difficult to
implement and entails higher risk. The major risk is failing to be excellent on both dimensions, and then
excelling in neither. Differentiation has a cost, and low cost generally implies trade-offs with quality and
other valuable attributes. Even if new technologies and the internet allow more flexibility relative to this
trade-off, fundamentally the conflict still exists and appears as the main difficulty for being successful in
the integrated differentiation-cost strategy.