BUS 499 FINAL UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS
Question:
1. What are the two fundamental questions strategy answers?
Answer:
Where and how should we compete?
Question:
2. What does Figure 1 Average Economic Profits teach about where to compete
Answer:
pharmaceuticals and oil have more economic profit and airlines and automotive have less
Question:
3. What are the 5+1Forces and how do they help me know where to compete (note which two forces are
typically the most impactful)
Answer:
Threat of New Entrants Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitutes
Intensity of Rivalry Complements
Question:
4. What is the threat of new entrants
Answer:
How easily can new competitors enter? Low barriers to entry (no economies of scale, weak brand loyalty,
little proprietary knowledge) mean profits get competed away quickly. Example: app development, where
anyone with a few developers and an idea can enter.
Question:
5. What is the bargaining power of suppliers?
Answer:
Can suppliers raise prices on you? Suppliers are powerful if they offer something unique, make switching
costly, or are more concentrated than the industry they supply. Example: Coca-Cola's proprietary
concentrate vs. its many bottlers.
Question:
6. What is the bargaining power of buyers?
Answer:
Can your customers push your prices down? Buyers are powerful if they're concentrated or can easily take
business elsewhere. Example: Walmart/Target squeezing supplier margins
Question:
7. What is the threat of substitutes?
Answer:
Are there alternative products/services that cap what you can charge? Example: public transit limiting how
high taxi fares can go.
, Question:
8. What is the intensity of rivalry?
Answer:
How aggressively do existing competitors fight for share? Most intense when rivals are similar in size,
products are undifferentiated, growth is slow, fixed costs are high, or there's overcapacity. Example: the
global auto industry.
Question:
9. What are complements?
Answer:
How aggressively do existing competitors fight for share? Most intense when rivals are similar in size,
products are undifferentiated, growth is slow, fixed costs are high, or there's overcapacity. Example: the
global auto industry.
Question:
10. What are the eight basic sources of barriers to entry
Answer:
Economies of Scale Network Effects Customer Switching Costs Capital Requirements Incumbency
Advantages Independent of Size Unequal Access to Distribution Channels or Supplier Networks
Restrictive Government Policy High Barriers to Exit
Question:
11. Label the value bar
Answer:
Question:
12. What are the four levers and 3 outcomes? and which are the most important?
Answer:
Scope Scale Asset Design
Value Proposition Cost Structure Bargaining Power
Question:
13. What companies typically win competitively in sustaining circumstances and what types of customers
are served?
Answer:
established, high-end
CORRECT ANSWERS
Question:
1. What are the two fundamental questions strategy answers?
Answer:
Where and how should we compete?
Question:
2. What does Figure 1 Average Economic Profits teach about where to compete
Answer:
pharmaceuticals and oil have more economic profit and airlines and automotive have less
Question:
3. What are the 5+1Forces and how do they help me know where to compete (note which two forces are
typically the most impactful)
Answer:
Threat of New Entrants Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitutes
Intensity of Rivalry Complements
Question:
4. What is the threat of new entrants
Answer:
How easily can new competitors enter? Low barriers to entry (no economies of scale, weak brand loyalty,
little proprietary knowledge) mean profits get competed away quickly. Example: app development, where
anyone with a few developers and an idea can enter.
Question:
5. What is the bargaining power of suppliers?
Answer:
Can suppliers raise prices on you? Suppliers are powerful if they offer something unique, make switching
costly, or are more concentrated than the industry they supply. Example: Coca-Cola's proprietary
concentrate vs. its many bottlers.
Question:
6. What is the bargaining power of buyers?
Answer:
Can your customers push your prices down? Buyers are powerful if they're concentrated or can easily take
business elsewhere. Example: Walmart/Target squeezing supplier margins
Question:
7. What is the threat of substitutes?
Answer:
Are there alternative products/services that cap what you can charge? Example: public transit limiting how
high taxi fares can go.
, Question:
8. What is the intensity of rivalry?
Answer:
How aggressively do existing competitors fight for share? Most intense when rivals are similar in size,
products are undifferentiated, growth is slow, fixed costs are high, or there's overcapacity. Example: the
global auto industry.
Question:
9. What are complements?
Answer:
How aggressively do existing competitors fight for share? Most intense when rivals are similar in size,
products are undifferentiated, growth is slow, fixed costs are high, or there's overcapacity. Example: the
global auto industry.
Question:
10. What are the eight basic sources of barriers to entry
Answer:
Economies of Scale Network Effects Customer Switching Costs Capital Requirements Incumbency
Advantages Independent of Size Unequal Access to Distribution Channels or Supplier Networks
Restrictive Government Policy High Barriers to Exit
Question:
11. Label the value bar
Answer:
Question:
12. What are the four levers and 3 outcomes? and which are the most important?
Answer:
Scope Scale Asset Design
Value Proposition Cost Structure Bargaining Power
Question:
13. What companies typically win competitively in sustaining circumstances and what types of customers
are served?
Answer:
established, high-end
