SEVI 3013 EXAM #2 QUESTIONS AND
ANSWERS
What is meant by "stuck in the middle." - Answer-Firms that fail to attain both overall
low-cost and differentiation strategies end up "stuck in the middle"
Focus - Risk - Answer-Erosion of cost advantages within narrow segments
Highly focused products and services still subject to competition from new entrants and
from imitation
Focusers become too focused to satisfy buyer needs
Differentiation - Risk - Answer-Uniqueness is not valued by customers
Too much differentiation
Too high a price premium
Differentiation that is easily imitated
Dilution of brand identity through product line extensions
Perceptions of differentiation may vary between buyers and sellers
How do the different strategies help companies deal with adverse industry conditions
(Five Forces) - COST LEADERSHIP - Answer-Protects a firm against rivalry from
competitors
Protects the firm against powerful buyers
Provides more flexibility to cope with increased input costs from powerful suppliers*
Provides substantial entry barriers through economies of scale, cost advantages
Puts the firm in a favorable position with respect to substitutes
How do the different strategies help companies deal with adverse industry conditions
(Five Forces)? - Differentiation - Answer-Creates higher entry barriers due to customer
loyalty
Provides higher margins that enable the firm to deal with supplier power
Reduces buyer power because buyers lack suitable alternatives
Establishes customer loyalty, reducing threats from substitutes
How do the different strategies help companies deal with adverse industry conditions
(Five Forces)? - Focus - Answer-Creates higher entry barriers due to cost leadership or
differentiation or both
Can provide higher margins that enable the firm to deal with supplier power
Reduces buyer power because the firm provides specialized products or services
Focused niches less vulnerable to substitutes
What is meant by the experience curve? - Answer-Refers to how business "learns" to
lower cost as it gains experience with production processes
Cost of Production needs to decline as output increases
ANSWERS
What is meant by "stuck in the middle." - Answer-Firms that fail to attain both overall
low-cost and differentiation strategies end up "stuck in the middle"
Focus - Risk - Answer-Erosion of cost advantages within narrow segments
Highly focused products and services still subject to competition from new entrants and
from imitation
Focusers become too focused to satisfy buyer needs
Differentiation - Risk - Answer-Uniqueness is not valued by customers
Too much differentiation
Too high a price premium
Differentiation that is easily imitated
Dilution of brand identity through product line extensions
Perceptions of differentiation may vary between buyers and sellers
How do the different strategies help companies deal with adverse industry conditions
(Five Forces) - COST LEADERSHIP - Answer-Protects a firm against rivalry from
competitors
Protects the firm against powerful buyers
Provides more flexibility to cope with increased input costs from powerful suppliers*
Provides substantial entry barriers through economies of scale, cost advantages
Puts the firm in a favorable position with respect to substitutes
How do the different strategies help companies deal with adverse industry conditions
(Five Forces)? - Differentiation - Answer-Creates higher entry barriers due to customer
loyalty
Provides higher margins that enable the firm to deal with supplier power
Reduces buyer power because buyers lack suitable alternatives
Establishes customer loyalty, reducing threats from substitutes
How do the different strategies help companies deal with adverse industry conditions
(Five Forces)? - Focus - Answer-Creates higher entry barriers due to cost leadership or
differentiation or both
Can provide higher margins that enable the firm to deal with supplier power
Reduces buyer power because the firm provides specialized products or services
Focused niches less vulnerable to substitutes
What is meant by the experience curve? - Answer-Refers to how business "learns" to
lower cost as it gains experience with production processes
Cost of Production needs to decline as output increases
