Chapter 5 Business Level Strategy: Creating and Sustaining Competitive Advantages True/False Questions 1. According to the text, Food Lion's fundamental problem was that it based its strategy on an organizational strength that did not create a sustainable competitive advantage. Answer: True 2. Michael Porter's three generic strategies can be depicted on two dimensions: competitive advantage and product life cycle. Answer: False 3. Concentrating solely on one form of competitive advantage generally leads to the highest possible level of profitability. Answer: False 4. A firm striving for cost leadership will typically spend relatively more on product related R&D than on process related R&D. Answer: False 5. The focus strategy refers to focusing on the “non-price” attributes of a company's products. Answer: False 6. To generate above average returns, a firm following an overall cost leadership position should not be concerned with attaining parity or proximity on the basis of differentiation relative to its peers. Answer: False 7. The experience curve concept suggests that production costs tend to decrease as production increases regardless of where an industry is at in its life cycle. Answer: False 8. Firms that compete on overall cost are vulnerable if all rivals share a common input or raw material that contributes a significant amount to total costs. Answer: True 317
Creating and Sustaining Competitive Advantages 9. One of the advantages of high differentiation is that even if many competitors follow the same strategy, differentiation still exists for all. Answer: False 10. The example of Lexus automobiles in the text points out that a firm can strengthen its differentiation strategy by achieving integration at multiple points along the value chain. Answer: True 11. A successful differentiation strategy lowers entry barriers because of customer loyalty and the firm's ability to provide uniqueness in its products and services. Answer: False 12. A successful differentiation strategy increases rivalry since buyers become more price-sensitive. Answer: False 13. If a firm has a successful differentiation strategy, it is not necessary to attain parity on cost. Answer: False 14. One pitfall of a differentiation strategy is that a brand's identification in the marketplace may become diluted through excessive product line extensions. Answer: True 15. In an undifferentiated product market where companies compete solely on the basis of cost, the second most cost efficient producer has little difficulty competing with the most efficient manufacturer. Answer: False 16. Creating a niche by differentiating one's product or service often allows small firms to compete successfully with market leaders. Answer: True
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