CHAPTERONE 
BUSINESS STRATEGIES 
Porter's Generic Strategy Models 
1.	According to Porter a sustainable 
competitive advantage is related to: 
a)	The amount ofvalue a firm creates for 
its customers. 
2.	Companies create superior value when they 
offer one of the following options: 
a)	A basic product that is produced at the 
lowest possible cost, through: 
- An efficient production. 
- Low levels of administrative 
overhead. 
- High production volumes. 
b)	A preferred product or service at a 
somewhat higher price whose: 
- Additional value exceeds the 
additional cost of obtaining it. 
3. Porter's generic strategies models: 
a)	Are very popular. 
b)	Outline cornmon and generic strategic 
characteristics. 
e)	Imply different organizational 
arrangements, control procedures, 
incentive systems, etc. 

Porter's Cost Leadership Strategy 

1. 	Basic purposes of the cost leadership 	
	strategy are: 	
	a) 	To achieve an efficient cost production. 	
	b) 	To become the lowest-price provider of 	
		a good or service. 	
	c) 	To gain market share and sales. 	
	d) 	To drive some competitors out of the 	
		market. 	
	e) 	To serve a very large percentage of the 	
		total market. 	
2. 	Some important activities to reach a low- 	
	cost position are: 	
	a) 	Accurate demand forecasting. 	
	b) 	High production capacity utilization. 	
	c) 	Economies of scale. 	
	d) 	Introduction of technological advances. 	
	e) 	Outsourcing. 	
	f) 	Utilization of the leaming and 	
		experience curve effects. 	
3. 	A low cost strategy can be specially 	
	effective when: 	
a)	Many price-sensitive buyers compose 
the market. 
b)	There are few ways to achieve product 
differentiation. 
c)	Buyers do not care much about 
differences from brand to brand. 
d)	There are a large number of buyers with 
significant bargaining power. 

Porter's Cost Leadership Strategy 
Continued ... 
4.	A cost leadership strategy usually involves 
the entire firm and demands: 
a) High efficiency of all areas and jobs. 
b) Low overhead. 
e) Limited benefits. 
d)	Intolerance of waste. 
e)	Intensive screening of budget 
requests. 
f)	Wide and precise control measures. 
g)	Broad employee participation in cost 
control efforts. 
h)	Rewards linked with cost containment. 
5.	Some risks ofpursuing a cost leadership 
strategy are: 
a)	Competitors may imitate the strategy 
soon. 
b)	Carelessness about other important 
factors due to preoccupation with costs. 
e)	Unexpected technological 
breakthroughs that may make the 
strategy ineffective. 
d)	Customers may swing to other 
differentiating features be si de the 
pnce. 
e)	Reduction of quality or safety that may 
endanger customers or employees. 

Porter's Differentiation Strategy 

l. 	Differentiation strategies focus on creating 	
	value through uniqueness. 	
2. 	Differentiation distinguishes a product on 	
	the basis of some attribute, such as: 	
	a) 	Higher quality or better performance. 	
	b) 	More innovative features, greater 	
		flexibility or compatibility. 	
	c) 	Less maintenance, spare parts 	
		availability or longer warranty. 	
	d) 	Ease to use or better service. 	
	e) 	Extended usefullife. 	
3. 	A differentiation strategy: 	
	a) 	Allows charging higher prices for its 	
		products, based on differences. 	
	b) 	Promotes customer loyalty. 	
	c) 	Requires a careful study of the needs of 	
		the buyers. 	
	d) 	Is appropriate for organizations with a 	
		broad market share. 	
4. 	A differentiation strategy can be especially 	
	effective when: 	
a)	There is a feasible way to achieve 
important product differentiation. 
b)	The market is not very price-sensitive. 
e) The product is of durable nature. 
d)	There are barriers against quick copying 
by competitors. 
e)	Product appeals to many market 
sectors. 
f)	It is possible to keep low costs in the 
areas not directly related to the 

Porters Differentiation Strategy 
Continued ... 
5.	The risks of differentiation strategies are 
that: 
a)	Differentiation mainly depends on the 
perception by the customers. 
b)	Customers may not value enough 
differences to justify a higher price. 
e)	Differentiation may increase the costs 
too much for the company. 
d)	Competitors may copy the 
differentiation attributes. 
e)	Customers may stop perceiving an 
attribute as a valuable difference. 
6.	A successful differentiation cornmonly 
requires: 
a)	Strong coordination between research 
and development, and marketing 
functions. 
b)	Substantial efforts to attract scientists 
and creative people. 
7.	The intangible resources of an 
organization: 
a)	Are more likely to lead to a sustainable 
differentiation. 
b)	Can be: reputation, brand, customer 
service culture, organizational 
philosophy, etc. 

Porter's Best Value Strategy 
1. Best Value strategies: 
a)	Combine cost leadership and 
differentiation strategies 
simultaneously. 
b)	Assume that customers seek the best 
product at the best price. 
c)	Seek to increase sales by offering 
differentiation attributes at a low 
pnce. 
d)	Pursue profits derived from low costs 
and high volumes. 
2.	The logic within a Best Value strategy is as 
follows: 
a)	The immediate effect of differentiation 
may be an increase ofunit costs. 
b)	However, demand of the product will 
increase due to differentiation. 
c)	Finally, as volume increases, costs 
decrease and profits increase. 
3. This strategy combination requires: 
a)	A differentiation that leads to a 
considerable increase of sales 
volume. 
b)	Precise sales predictions and unit costs. 
c)	Very well coordinated and balanced 
efforts to achieve both strategies. 

Porter's Focus Strategy 
1. The key elements of a focus strategy are: 
a)	Consumers with very distinctive 
differences or requirements. 
b)	A product that caters to a particular 
segment of the market. 
e)	Awell-defined and narrow market 
segment. 
d)	The possibility of serving the market 
segment better than competitors who 
serve a broader market. 
e)	Rivals that do not attempt to specialize 
in the same target segmento 
2. A focus strategy can be achieved through: 
a)	Cost leadership, differentiation or best 
value. 
3. The risks of a focus strategy are: 
a)	Due to the narrow market focus, it is 
difficult to: 
- Detect meaningful differentiation 
attributes. 
- Achieve high volumes. 
b)	Competitors may recognize the 
successful focus strategy and copy it. 
e)	Consumers may drift towards the 
desires of the whole market. 

Product Life Cycle 
1. Industries and products tend to: 
a) Evolve along similar paths. 
b) Create predictable conditions or stages. 
2. The Product Life Cycle Model: 
..la) Shows the different stages ofthe life of 
products. 
b)	Portrays how sales volume for a product 
changes over lifetime. 
e)	Helps to understand demando 
3.	The study of the product life is important 
because: 
a)	Expectations of customers and 
actions of competitors change 
constantly. 
b)	Different strategies are appropriate in 
each point of the life cycle. 
e)	Strategists may understand the context 
of the implementation of the strategies. 
4. The stages of a product life are: 
J a) Introduction . 
..lb) Growth . 
.J e) Maturity. 
J d) Decline. 

Product Life Cycle 
Continued ... 
5. At the introduction stage: 
a)	Customers begin to understand the 
product and its uses. 
b)	Is primordial to establish a good 
reputation in the market. 
e)	R~search and development and market 
penetration are very important. 
6. At the gro~ stage: 
a) Demand greatly increases. 
b) Product variations proliferate. 
e)	New customer groups are 
developed. 
d)	New competitors emerge. 
e)	Differentiation becomes very 
important. 
7. At the maturity stage: 
a)	Demand levels-off. 
b)	Price is one of the most important 
factors in purchase decision. 
e)	Differentiation becomes difficult. 
d)	Production costs reduction becomes 
primordial. 
8. At the decline stage: 
a)	Demand decreases. 
b)	The product is very standardized. 
e)	Price is still a very important basis for 
competition. 
d)	There is an intense market-share 
struggle. 
e)	Some firms may begin to drop out.