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Chapter 03 - Business Strategies and Their Marketing Implications

Chapter 03Business Strategies and Their Marketing Implications Multiple Choice Questions

1. Strategic business units refer to: A. a set of managers in a firm that deal with market audits. B. in-house departments of a firm that are engaged in strategic planning. C. components of a firm engaged in multiple industries or businesses.D. exclusive units of businesses that perform SWOT analyses for the company.Answer: cLevel of Difficulty: EasyPage: 61

2. Which of the following is an ideal characteristic of SBUs?A. Control over those factors necessary for successful performanceB. A common set of product-marketsC. Non-accountability for their own profitsD. A heterogenous set of markets to serve with a limited number of related technologiesAnswer: aLevel of Difficulty: EasyPage: 61

3. No two SBUs within a firm compete for the same customers with similar products. Which SBU characteristic is being emphasized here?A. A heterogeneous set of marketsB. Responsibility for their own profitabilityC. Control over factors necessary for successful performanceD. A unique set of product-marketsAnswer: dLevel of Difficulty: EasyPage: 61

4. A business avoids direct confrontation with its major competitors by concentrating on narrowly defined market niches. According to Michael Porter, which of the following competitive strategies does this exemplify? A. Maintaining cost leadership in a specific market segmentB. Using market penetration strategies to gain a foothold in a saturated marketC. Focusing on an elite customer segmentD. Differentiating between competitors’ productsAnswer: cLevel of Difficulty: MediumPage: 63

5. A business pursuing a prospector strategy: A. operates within a broad product-market domain that undergoes periodic redefinition.

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B. values being a second or third entrant in product-markets related to its existing marketbase.C. responds primarily when it is forced to by environmental pressures.D. attempts to locate and maintain a secure position in relatively stable product or service areas.Answer: aLevel of Difficulty: MediumPage: 64

6. A(n) _____ strategy tries to protect its domain by offering lower prices, higher quality, or better service than competitors.A. prospector B. analyzer C. defender D. reactor Answer: cLevel of Difficulty: EasyPage: 64

7. Which of the following statements is true of a reactor strategy? A. It competes primarily by stimulating and meeting new market opportunities.B. It responds rapidly to early signals concerning areas of opportunity.C. It is more aggressive in marketing established products than its competitors.D. It lacks any well-defined competitive strategy.Answer: dLevel of Difficulty: HardPage: 64

8. In a(n) _____ strategy, a business attempts to maintain a strong position in its core product-market but also seeks to expand into new—usually closely related—product-markets.A. reactorB. analyzerC. prospectorD. defenderAnswer: bLevel of Difficulty: EasyPage: 64

9. _____ businesses have an intermediary type of business strategy that makes fewer and slower product market changes than _____ businesses but are less committed to stability and efficiency than _____ businesses. A. Prospector; defender; reactor B. Prospector; reactor; defender C. Defender; analyzer; reactor D. Analyzer; prospector; defenderAnswer: d




Level of Difficulty: HardPage: 64

10. _____ businesses usually operate in broad, dynamic domains where neither technology nor customer segments are well established. A. ProspectorB. Differentiated defenderC. Low-cost defenderD. AnalyzerAnswer: aLevel of Difficulty: EasyPage: 70

11. Which of the following businesses tends to operate in a stable domain where both the product technology and the customer segments are mature?A. ProspectorB. ReactorC. Low-cost defenderD. AnalyzerAnswer: cLevel of Difficulty: EasyPage: 70

12. Identify the performance dimension that is commonly measured in terms of sales growth relative to competitors or changes in market share.A. AdaptabilityB. EffectivenessC. SynergyD. EfficiencyAnswer: bLevel of Difficulty: EasyPage: 71

13. Which performance dimension is measured in terms of profitability as a percent of sales and return on investment?A. SynergyB. EffectivenessC. EfficiencyD. AdaptabilityAnswer: cLevel of Difficulty: EasyPage: 71

14. FirstEnergy Corp. combined several autonomous business units that worked together to make different electrical and energy products. The units shared the production facilities,




marketing activities, and had a common sales force. By sharing, the group was able to reduce the costs of both per-unit production and marketing. Which dimension does FirstEnergy exemplify in this scenario? A. Synergy of operating facilitiesB. Scope of strategic domainC. Resource deploymentD. Goals and objectivesAnswer: aLevel of Difficulty: MediumPage: 72

15. Which of the following environmental factors is favorable to a prospector strategy? A. An industry in late growth stageB. An established customer segmentC. A large number of competitorsD. An industry in early growth stageAnswer: dLevel of Difficulty: EasyPage: 73

16. An SBU has no outstanding strength in R&D or product engineering in _____ businesses.A. prospectorB. analyzerC. differentiated defenderD. low-cost defenderAnswer: cLevel of Difficulty: EasyPage: 73

17. A defender strategy is most useful for: A. business units with a profitable share of one or more major segments in a relatively mature and stable industry.B. unstable, rapidly changing environments resulting from new technology, shifting customer needs, or both.C. industry structures that are still evolving with one or more competitors holding large shares in major segments.D. business units with strong research and development, product engineering, and marketing capabilities.Answer: aLevel of Difficulty: HardPage: 74

18. A _____ policy relates to the breadth or diversity of product lines, their level of technical sophistication, and the target level of product quality relative to competitors.A. pricingB. product




C. promotionD. distributionAnswer: bLevel of Difficulty: EasyPage: 77

19. Which of the following businesses seldom adheres to a policy of low competitive prices?A. ReactorB. ProspectorC. Low-cost defenderD. AnalyzerAnswer: bLevel of Difficulty: MediumPage: 79

20. Which of the following statements is true of distribution policies?A. Prospectors rely more heavily on independent channel members than defenders to distribute their products.B. Maintaining tight control over the behavior of channel members is an appropriate policy for prospectors. C. Defender businesses are likely to devote a larger percentage of sales to trade promotions than prospector businesses. D. Defenders rely on trade promotion tools and other incentives to induce support from their independent channel members. Answer: aLevel of Difficulty: HardPage: 79

21. High advertising and sales promotion expenditures have a negative impact on ROI for _____ businesses.A. prospector B. differentiated defenderC. low-cost defenderD. analyzerAnswer: cLevel of Difficulty: MediumPage: 80

Essay Questions

22. Explain the characteristics of strategic business units. Answer: Ideally, strategic business units have the following characteristics:1) A homogeneous set of markets to serve with a limited number of related technologies.Minimizing diversity across an SBU’s product-market entries enables the unit’s manager to better formulate and implement a coherent and internally consistent business strategy.




2) A unique set of product-markets, in the sense that no other SBU within the firm competes for the same customers with similar products. Thus, the firm avoids duplication of effort and maximizes economies of scale within its SBUs.3) Control over those factors necessary for successful performance, such as production, R&D and engineering, marketing, and distribution. This does not mean an SBU should not share resources, such as a manufacturing plant or a sales force, with one or more other business units. But the SBU should determine how its share of the joint resource is used to effectively carry out its strategy.4) Responsibility for their own profitability.Level of Difficulty: MediumPage: 61 23. Discuss the appropriate conditions for a low-cost defender strategy. Answer: Successful implementation of a low-cost defender strategy requires the business to be more efficient than its competitors. Thus, the business must establish the groundwork for such a strategy early in the growth stage of the industry. Achieving and maintaining the lowest per-unit cost usually means that the business has to seek large volume from the beginning—through some combination of low prices and promotional efforts—to gain economies of scale and experience.At the same time, such businesses must also invest in more plant capacity in anticipation of future growth and in state-of-the-art equipment to minimize production costs.The low-cost defender’s need for efficiency also forces the standardization of product offerings and marketing programs across customer segments to achieve scale effects.Thus, such a strategy is usually not so effective in fragmented markets desiring customized offerings as it is in commodity industries such as basic chemicals, steel, or flour or in industries producing low-technology components such as electric motors or valves.Although low-cost defenders emphasize efficiency and low price as the primary focus of their competitive strategy, it is important to keep in mind that businesses pursuing other strategies should also operate as efficiently as possible given the functional activities necessary to implement those strategies. Some of the most effective businesses are those that work simultaneously to lower costs and improve quality and service.Level of Difficulty: MediumPage: 76

24. Briefly discuss pricing and distribution policies. Answer: Pricing Policies: Success in offering low prices relative to those of competitors should be positively related to the performance of low-cost defender businesses—for low price is the primary competitive weapon of such a strategy. However, such a policy is inconsistent with both differentiated defender and prospector strategies. The higher costs involved in differentiating a business’s products on either a quality or service basis require higher prices to maintain profitability. Differentiation also provides customers with additional value for which higher prices can be charged. Similarly, the costs and benefits of new product and market development by prospector businesses require and justify relatively high prices. Thus, differentiated defenders and prospectors seldom adhere to a policy of low competitive




prices.




Distribution Policies: Attempting to maintain tight control over the behavior of channel members is a more appropriate policy for defenders who are trying to maintain strong positions in established markets. This is particularly true for defenders who rely on good customer service to differentiate themselves from competitors. Thus, it seems more likely that a relatively high degree of forward vertical integration is found among defender businesses, particularly differentiated defenders, whereas prospectors rely more heavily on independent channel members—such as manufacturer’s representatives or wholesale distributors—to distribute their products.Because prospectors focus on new products where success is uncertain and sales volumes are small in the short run, they are likely to devote a larger percentage of sales to trade promotions than are defender businesses. Prospectors rely on trade promotion tools such as slotting allowances, quantity discounts, liberal credit terms, and other incentives to induce cooperation and support from their independent channel members.Level of Difficulty: MediumPage: 79



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