Chapter 3 Market Overview
1) The set of all buyers of a particular commodity is known as the ________ for the
commodity.
A) market
B) segment
C) category
D) industry
Answer: A
Rationale:
A "market" refers to the overall pool of buyers interested in a specific commodity or product.
It encompasses all potential customers for that particular item, regardless of their specific
characteristics or preferences. Therefore, when referring to the collective group of buyers for
a commodity, the term "market" is the most appropriate choice.
2) Lexus are makers of luxury cars, while Hyundai manufactures mid-level utility cars. Both
Lexus and Hyundai belong to the same ________.
A) market
B) category
C) industry
D) segment
Answer: C
Rationale:
In this context, "industry" refers to the broader sector within which companies operate based
on the type of goods or services they produce. Lexus and Hyundai both manufacture
automobiles, placing them within the automotive industry despite targeting different market
segments with their respective products.
3) Microsoft's gaming console is marketed to the gaming community predominantly
composed of teenagers and college kids. Nintendo's gaming console, however, is intended for
use by entire families, from grandparents to school-going children. Therefore, Nintendo and
Microsoft are said to belong to different ________.
A) industries
B) categories
C) markets
D) standards
Answer: B
Rationale:
"Categories" refer to distinct groupings based on specific characteristics or criteria. In this
scenario, Microsoft and Nintendo are categorized differently based on the target
demographics and intended uses of their gaming consoles, despite operating within the same
gaming industry.
4) Which of the following features of the NAICS is not seen in the SIC?
A) The NAICS uses a digit-based hierarchical system for classification.
B) The NAICS uses industry data collected by the U.S. Census Bureau.
C) The NAICS was developed exclusively by the U.S. Census Bureau.
D) The NAICS codes facilitate international use.
Answer: D
Rationale:
The North American Industry Classification System (NAICS) introduced features not present
in the Standard Industrial Classification (SIC) system, including a digit-based hierarchical
structure for classification and the use of industry data collected by the U.S. Census Bureau.
However, the facilitation of international use is not a distinguishing feature between NAICS
and SIC.
5) The process of estimating the total amount of potential sales to all customers in a market
within a given time frame is known as ________.
A) marketing research
B) market segmentation
C) market sizing
D) marketing automation
Answer: C
Rationale:
"Market sizing" involves quantifying the total demand for a product or service within a
specific market over a defined period. It helps businesses understand the potential size of
their target market and plan their strategies accordingly. Therefore, market sizing accurately
describes the process of estimating total potential sales within a market.
6) Market size is defined as ________.
A) the total number of potential buyers of a product within a given market
B) the total number of available sellers of a product within a given market
C) the total annual revenue of the buyers in an established industry
D) the total annual revenue of all suppliers in an established industry
Answer: D
Rationale:
Market size refers to the total annual revenue generated by all suppliers within a specific
industry or market segment. It encompasses the financial magnitude of the market's
transactions, indicating the overall economic value generated by the suppliers operating
within it.
7) The NAICS is a classification system developed by the U.S. Census Bureau to organize
________.
A) industries
B) demographic segments
C) product categories
D) labor groups
Answer: A
Rationale:
The North American Industry Classification System (NAICS) is designed to classify and
organize industries based on similarities in production processes, products, and activities. It
serves as a comprehensive framework for categorizing economic activities, facilitating data
collection and analysis for various statistical and research purposes.
8) Which of the following is the reason why developing countries in Asia constitute a highly
sought-after market for many consumer goods companies?
A) Asian developing countries have a large growing middle class.
B) The manufacturing costs in many Asian countries are very small.
C) The average age of the consumer in Asia is greater than 50.
D) Market segmentation is easier in Asia as they have a large diverse population.
Answer: A
Rationale:
Developing countries in Asia, particularly those experiencing rapid economic growth, often
boast a burgeoning middle class with increasing purchasing power. This demographic shift
creates significant demand for consumer goods, making these markets highly attractive to
companies seeking expansion opportunities.
9) Which among the following would represent the most attractive market for new
investment?
A) printed newspapers
B) compact discs
C) video game consoles
D) typewriters
Answer: C
Rationale:
Video game consoles represent a more attractive market for new investment due to ongoing
technological advancements, evolving consumer preferences, and the potential for recurring
revenue streams through game sales and online subscriptions. In contrast, markets for printed
newspapers, compact discs, and typewriters have experienced decline or saturation in recent
years.
10) The percentage of people willing and able to buy ultra-luxury cars in China is much
lower than that of Britain. Yet Rolls Royce is marketing its cars in China far more intensely
than in any other region. Which of the following explains this phenomenon?
A) Transport and shipping to Asian countries are extremely easy and costs very little.
B) People in China are more likely to pay more for ultra-luxury cars than people in developed
nations.
C) China and other Asian countries have a larger upscale potential than Europe.
D) Market segmentation is easier in Asia as they have a large diverse population.
Answer: C
Rationale:
Despite a lower percentage of potential buyers for ultra-luxury cars in China compared to
Britain, Rolls Royce intensifies its marketing efforts in China due to the large upscale
potential in Asian markets. The rapidly growing affluent class in countries like China presents
a significant opportunity for luxury car manufacturers to tap into a burgeoning consumer base
with increasing purchasing power. Therefore, focusing on the Asian market, particularly
China, aligns with Rolls Royce's strategy to capitalize on this expanding upscale market
segment.
11) Why would a country with a diverse population constitute a better market than a less
diverse country, assuming that their population size and wealth were similar?
A) The country with a diverse population would have a larger upscale potential.
B) A lack of diversity would eventually lead to a greater number of competitors in the market.
C) The number of segments available in the diverse country is greater.
D) The population growth in a country with a diverse population is always greater.
Answer: C
Rationale:
A diverse population offers a wider range of demographic, cultural, and behavioral
characteristics, leading to more distinct market segments. This diversity enables businesses to
identify and target niche markets more effectively, tailoring products and marketing strategies
to meet the specific needs and preferences of different consumer segments.
12) Which of the following is a disadvantage of using available published reports as a source
of data for market sizing?
A) extremely specific nature of the data
B) lack of coverage of a wide variety of markets
C) inability to cover market characteristics such as market size forecasts
D) high expenses of obtaining such reports
Answer: D
Rationale:
Utilizing available published reports for market sizing can be costly due to the expenses
associated with purchasing these reports. While published reports may offer valuable insights,
their acquisition often requires significant financial investment, especially when considering
multiple reports for comprehensive market analysis.
13) Which of the following is an advantage of using commissioned reports as sources of data
for market sizing?
A) Commissioned reports are the most reliable source of information.
B) Commissioned reports can be compiled at short notice and with minimal labor.
C) Commissioned reports are very inexpensive and are easily accessible.
D) Commissioned reports are industry-specific and the data is highly relevant.
Answer: D
Rationale:
Commissioned reports are advantageous for market sizing as they provide industry-specific
data tailored to the needs of the commissioning organization. This customizability ensures
that the data obtained is highly relevant and aligned with the specific objectives of the market
analysis, offering valuable insights for decision-making.
14) Why are commissioned reports an expensive source of data for market sizing?
A) They are written by industry experts and researchers.
B) They require significant labor for collection of data.
C) They are of an expansive nature and cover multiple disciplines or industries.
D) They can be compiled in a short amount of time and researchers charge a premium for the
time-efficient service.
Answer: B
Rationale:
Commissioned reports entail significant expenses due to the labor-intensive process involved
in collecting, analyzing, and synthesizing data to meet the specific requirements of the
commissioning organization. Researchers invest substantial time and effort in conducting
primary research, gathering data, and producing customized reports, leading to higher costs
compared to readily available published reports.
15) What makes market data available from industry associations attractive?
A) The data is several years old.
B) The data obtained is freely available and is inexpensive.
C) The data is collected by a specialty market research company.
D) The data obtained is of greater quality.
Answer: D
Rationale:
Market data available from industry associations is attractive because it tends to be of higher
quality. Industry associations often collect data through rigorous methodologies, ensuring
accuracy and reliability. Additionally, this data is specific to the respective industry, providing
valuable insights for market analysis and decision-making processes.
16) Which among the following is a disadvantage associated with government sources of
market sizing data?
A) The data is made available at a high price.
B) There is significant labor associated with data collection.
C) The data collected is relevant only to international markets.
D) The data collected is several years old.
Answer: D
Rationale:
Government sources of market sizing data often suffer from the disadvantage of being dated,
as the data collection processes and reporting timelines may lag behind current market
conditions. Therefore, relying on such data may not provide accurate insights into the present
state of the market.
17) Which of the following is an advantage associated with using available published reports
as a source of market sizing data?
A) Data collection becomes quick and easy.
B) Data collection is free.
C) Data collected can be customized to suit one's needs.
D) Data collected is several years old.
Answer: A
Rationale:
Published reports offer the advantage of providing readily available data that can expedite the
process of data collection for market sizing. These reports are often compiled by market
research firms and cover various industries, making them a convenient source of information
for businesses.
18) Which of the following is a major disadvantage of market data available on the Internet?
A) Blogs by individuals are often less reliable than data provided by market research firms.
B) The cost of acquiring market data from the Internet is often prohibitive for smaller and
medium-sized firms.
C) The collection of data can take up several weeks and can be outdated when they are
available.
D) Significant amount of labor is involved in researching market data on the Internet and
requires technical expertise.
Answer: A
Rationale:
While the Internet provides access to vast amounts of information, a major disadvantage is
the reliability of the data, especially when sourced from individual blogs or unverified
sources. Such data may lack the rigor and accuracy of market research firm data, potentially
leading to erroneous decision-making.
19) The duty on medicinal drugs imported from Brazil is increased substantially by the U.S.
Department of Customs. This increase is an example of the effect of the ________
environmental force on the market.
A) political
B) technological
C) social
D) economic
Answer: A
Rationale:
The increase in duty on imported medicinal drugs due to governmental action by the U.S.
Department of Customs reflects a political environmental force. Political factors such as
government regulations, policies, and trade agreements can significantly impact market
dynamics and influence business operations.
20) The interest rates on loans offered by the government toward financing of industrial
buildings have been decreased. This decrease is an example of the effect of the ________
environmental force on the market.
A) political
B) technological
C) social
D) economic
Answer: D
Rationale:
The decrease in interest rates on government loans for industrial buildings reflects an
economic environmental force. Economic factors such as interest rates, inflation, and fiscal
policies can influence the cost of capital, investment decisions, and overall market conditions.
21) Sapphire Hotels is a chain of hotels with a presence in some of the most popular holiday
destinations across the globe. There has been an outbreak of cholera in one of the islands
where Sapphire has a hotel. If you were to conduct P.E.S.T analysis in this case, which of the
following environmental forces would you suggest is affecting Sapphire's market the most?
A) technological forces
B) social forces
C) economic forces
D) political forces
Answer: B
Rationale:
In this scenario, the outbreak of cholera in one of the islands directly impacts the social
environment by affecting public health perceptions and behaviors. Social forces such as
health concerns, safety perceptions, and consumer behaviors regarding travel and hospitality
services would significantly influence Sapphire Hotels' market.
22) The steam engine was replaced by the internal combustion engine using fossil fuels like
diesel and petrol. Which of the following environmental forces had the greatest influence in
this case?
A) political forces
B) social forces
C) economic forces
D) technological forces
Answer: D
Rationale:
The replacement of the steam engine by the internal combustion engine represents a
technological advancement that revolutionized transportation and industrial processes.
Technological forces drive innovation and shape industries by introducing new methods,
products, or processes, as seen in the transition from steam to internal combustion engines.
23) The Internet is a much better medium for the targeted promotion of a certain cosmetic
brand, but due to the high poverty levels in Alagaesia, newspapers have better market
penetration and are hence preferred for the promotion of the cosmetic brand. Which of the
following market forces is affecting the market the most in this case?
A) technological forces
B) social forces
C) economic forces
D) political forces
Answer: C
Rationale:
The prevalence of high poverty levels in Alagaesia influencing advertising medium choices
reflects economic forces. Economic conditions, such as the purchasing power of consumers
and overall market demand, play a significant role in shaping marketing strategies and
preferences for promotional channels.
24) The antibacterial drug Sulphonamide lost a big share of its market to a new brand of more
potent antibiotics, causing a decrease in profits for Bayer, the marketers of Sulphonamide.
Which of the following environmental forces affecting the market was most influential in this
case?
A) political forces
B) technological forces
C) social forces
D) economic forces
Answer: B
Rationale:
The introduction of more potent antibiotics represents a technological advancement that
significantly impacted the market for antibacterial drugs. Technological forces often drive
changes in product offerings, rendering existing products obsolete or less competitive, as seen
in the case of Sulphonamide losing market share to newer antibiotics.
25) Which of the following is a barrier to entry erected by a dairy product company to reduce
threats caused by incoming firms?
A) guarding trade secrets closely
B) marketing a diverse range of products to customers
C) marketing products like specialty cheese to cater to niche markets
D) entering agreements with retailers to ensure stocking of products
Answer: D
Rationale:
Entering agreements with retailers to ensure stocking of products constitutes a barrier to entry
for incoming firms by establishing strong distribution channels and relationships. This
strategy enhances brand visibility and accessibility, making it more challenging for new
entrants to secure shelf space and compete effectively in the market.
26) Which of the following is a barrier to entry to the personal computer operating system
(OS) industry?
A) a rise in demand for portable and compact computers
B) a dearth of adequately trained software engineers
C) the presence of a large corporation with an established brand name already offering OSs
D) a limited number of personal computer making companies requiring software
Answer: C
Rationale:
In this context, a barrier to entry refers to factors that make it difficult for new companies to
enter a particular industry. The presence of a large corporation with an established brand
name offering operating systems creates a significant barrier for new entrants to compete
effectively in the personal computer OS industry.
27) In a typical P.E.S.T analysis, which of the following examples is considered a political
trend affecting the market?
A) allowing incentives for automobile owners for trading their old gas-based cars for more
fuel-efficient electric cars
B) placing higher import tariffs on goods manufactured by a company based in a hostile
country
C) increasing the interest rates on home and automobile loans issued by banks
D) introducing flexible work schedules for employees with families and those who commute
greater distances
Answer: B
Rationale:
Political trends encompass governmental actions, policies, and regulations that influence
business operations and market dynamics. Placing higher import tariffs on goods
manufactured by a company based in a hostile country is an example of a political trend, as it
reflects government actions impacting trade relations and market competition.
28) In a typical P.E.S.T analysis, which of the following examples is considered an economic
trend affecting the market?
A) imposing a new tax on citizens who move from one state to another
B) passing a new law that restricts the amount of carbon oxide that industries can emit
without penalties
C) waiving off part of road tax levied on automobiles which use greener fuels
D) increasing the interest rate on home and automobile loans issued by banks
Answer: D
Rationale:
Economic trends pertain to factors related to the overall economic environment, including
interest rates, inflation, employment levels, and consumer spending habits. Increasing the
interest rate on home and automobile loans issued by banks is an economic trend that can
impact consumer purchasing power and borrowing behavior, thereby affecting market
demand and business operations.
29) Which of the following factors affecting the market is considered to be a social force?
A) a raise in the interest charged for home loans taken by pensioners
B) a growing awareness of the issue of global warming
C) a rapid increase in the market demand for touch-operated computers
D) a discovery of an alternative fuel which can easily replace fossil fuels
Answer: B
Rationale:
Social forces encompass societal attitudes, values, cultural norms, and demographic trends
that influence consumer behavior and market preferences. Growing awareness of the issue of
global warming represents a social force, as it reflects changing societal attitudes toward
environmental sustainability and influences consumer choices and market demand for ecofriendly products and services.
30) Which of the following factors results in a drop in profits for sellers?
A) lack of competition between companies offering similar products
B) introduction of substitute products
C) lack of new entrants to the industry
D) low bargaining power held by buyers
Answer: B
Rationale:
The introduction of substitute products can lead to a drop in profits for sellers as consumers
may opt for alternative offerings that better meet their needs or offer greater value.
Substitutes provide consumers with choices, thereby increasing competitive pressure on
existing sellers and potentially eroding their market share and profitability.
31) Which of the following market forces is countered by differentiating a particular product
and by emphasizing its essential role in a certain process?
A) bargaining power of suppliers
B) intensity of rivalry
C) threat of entry
D) bargaining power of buyers
Answer: D
Rationale:
By differentiating a product and emphasizing its essential role in a certain process, companies
can increase its perceived value, thus reducing the bargaining power of buyers. When a
product is perceived as unique or indispensable, buyers have less leverage to negotiate prices
or demand concessions from the seller.
32) A hike in prices of petroleum by the Gulf countries results in a drop in sales of a certain
petroleum-based skincare product. The influence of which of the following market forces is
most evident in this case?
A) intensity of rivalry
B) pressure from substitute products
C) bargaining power of suppliers
D) threat of entry
Answer: C
Rationale:
The increase in petroleum prices affects the cost of raw materials for the skincare product,
impacting the bargaining power of suppliers. Suppliers gain leverage when they control
essential inputs, allowing them to dictate terms to manufacturers, potentially leading to
decreased sales or profitability for the skincare product.
33) In which of the following situations does the "intensity of rivalry" market force drive
down profits for a company?
A) the presence of one powerful company dominating a major part of a market
B) the absence of price competition within the market
C) the presence of companies perceived as near-equals in the market
D) the presence of multiple companies that share a common supplier
Answer: C
Rationale:
The intensity of rivalry among companies perceived as near-equals in the market can drive
down profits as they compete aggressively for market share. This competition often leads to
price wars, increased promotional expenses, and reduced margins, negatively impacting
profitability for all competitors involved.
34) A global fast-food chain started offering action figures and other toys for children in an
attempt to gain an edge over a rival fast-food chain of similar size. Which of the following
best describes this approach to gain an advantage?
A) introducing new products and services in order to reduce intensity of rivalry
B) demonstrating the functional superiority of one's product over rival products
C) showing that one's product is essential to successful operation
D) locating substitutes and alternatives for scarce supplies
Answer: A
Rationale:
Introducing new products and services, such as offering toys for children, is a strategy aimed
at differentiating the fast-food chain's offerings and reducing the intensity of rivalry with
competitors. By providing unique incentives or experiences, the chain seeks to attract
customers and build customer loyalty, thus gaining a competitive advantage in the market.
35) European car manufacturers like Mercedes-Benz, Volkswagen, etc. faced stiff
competition from cheaper, more reliable cars made by Japanese and Korean car-makers.
Which of the following would best help the European manufacturers maintain their market
share?
A) locating alternatives for their raw materials
B) showing that their cars are essential to successful operation
C) introducing new kinds of products and services
D) demonstrating the superiority of the technology used in their products
Answer: D
Rationale:
Demonstrating the superiority of the technology used in their products would best help
European manufacturers maintain their market share. Highlighting advanced features,
engineering excellence, and innovations can differentiate their cars from those of their
competitors, appealing to consumers who value quality and performance over price.
36) Dairy Day, an ice-cream maker, launches an ad campaign that shows that its products
have lower fat content than the frozen dessert products promoted by Dreamland, its main
competitor. This is best described as an attempt at ________.
A) negating the threat of new entrants
B) reducing pressure from substitute products
C) counteracting increased bargaining power of suppliers
D) neutralizing increased bargaining power of buyers
Answer: B
Rationale:
Dairy Day's ad campaign aims to differentiate its product from its competitor's offerings by
highlighting a unique selling point—lower fat content. By doing so, Dairy Day seeks to
reduce the pressure from substitute products by emphasizing the health benefits of its ice
cream compared to other frozen desserts.
37) Which of the following companies would be most vulnerable to reduced profits as a
result of increased consumer bargaining power?
A) a sports shoes seller
B) an LCD TV maker
C) a refined sugar manufacturer
D) a provider of spares for trucks
Answer: C
Rationale:
A refined sugar manufacturer would be most vulnerable to reduced profits due to increased
consumer bargaining power. In industries where products are commodities or have low
differentiation, consumers have more power to negotiate prices downward, potentially
eroding the manufacturer's profit margins.
38) According to the five forces model proposed by Michael Porter, which of the following
constitutes a threat of entry to a company manufacturing LCD TVs?
A) the invention of Plasma TVs which are much cheaper than LCD TVs
B) an increase in the bargaining power held by the supplier of LCD screens to the company
C) a foreign maker of LCD TVs setting up its retail showrooms in the same country as the
company
D) the lack of government support in terms of subsidies and tax exemptions to the LCD TV
industry
Answer: C
Rationale:
A foreign maker of LCD TVs setting up its retail showrooms in the same country as the
company constitutes a threat of entry according to Porter's five forces model. This increases
the competitive landscape by introducing a new competitor, potentially impacting the market
share and profitability of existing manufacturers.
39) In which of the following situations is the influence of bargaining power of buyers on the
market the greatest?
A) end users of cosmetic products buying from a range of choices
B) a government agency that buys most of the newsprint produced in that country
C) many medium-sized companies buying raw material from a single source
D) a large organization buying material from another large corporation
Answer: B
Rationale:
The influence of bargaining power of buyers on the market is greatest when a single buyer or
a small group of buyers holds significant purchasing volume or controls access to distribution
channels. In this scenario, a government agency that buys most of the newsprint produced in
the country exerts substantial influence over suppliers, giving it considerable bargaining
power.
40) A subset of a market is a category.
Answer: False
Rationale:
A subset of a market refers to a smaller segment within the broader market, which may share
specific characteristics or preferences. A category, on the other hand, typically refers to a
classification or grouping of products or services based on shared attributes or functions.
While categories may exist within markets, they are not synonymous terms.
41) One must focus on the customer need for a product rather than the physical format of the
product while defining a market.
Answer: False
Rationale:
While customer needs are important considerations in defining a market, the focus should
extend beyond the physical format of the product to encompass various aspects such as
customer demographics, preferences, purchasing behavior, and competitive landscape.
Defining a market solely based on the physical format of a product may overlook important
market segments or opportunities.
42) The NAICS code allows for more specific categories and recognizes more service
categories than the SIC.
Answer: True
Rationale:
The North American Industry Classification System (NAICS) provides more detailed and upto-date classification of industries compared to the Standard Industrial Classification (SIC)
system. It includes a broader range of industries and recognizes more service-based
categories, reflecting changes in the economy and business landscape over time.
43) The NAICS codes are volumes of highly sensitive industry data stored by the
government.
Answer: False
Rationale:
While the NAICS codes are used by government agencies to classify industries for statistical
and data collection purposes, they do not constitute volumes of highly sensitive industry data
stored by the government. Instead, NAICS codes provide a standardized framework for
organizing and analyzing industry data collected through various sources, including surveys
and administrative records.
44) Market size is expressed as the total annual revenue of all suppliers in an industry.
Answer: True
Rationale:
Market size refers to the total annual revenue generated by all suppliers within a specific
industry or market segment. It quantifies the financial magnitude of the market's transactions
and reflects the overall economic value generated by the suppliers operating within it.
45) The fewer segments in a given market, the greater the potential for generating revenue.
Answer: False
Rationale:
In many cases, having fewer segments in a market may limit revenue potential as it indicates
less diversity in customer needs and preferences. A market with multiple segments allows
businesses to target specific customer groups more effectively, tailoring products and
marketing strategies to meet their unique requirements and potentially increasing revenue
opportunities.
46) The advantage of using available published reports as a source of market information is
that it is customized and inexpensive.
Answer: False
Rationale:
While published reports may provide valuable market information, they are often
standardized and may not be customized to specific business needs. Additionally, obtaining
high-quality published reports can be costly, especially those produced by reputable market
research firms.
47) The Internet is one of the sources for availing data regarding the size of a market.
Answer: True
Rationale:
The Internet serves as a valuable source of market data, offering access to a wide range of
information including industry reports, market research studies, government publications, and
company websites. Online databases, research portals, and data aggregator platforms provide
convenient access to market size estimates and other relevant insights.
48) Bottom-up approaches to market sizing are used while selling a specialized product to a
small number of customers.
Answer: True
Rationale:
Bottom-up approaches involve estimating market size by analyzing individual customer
segments or specific product categories and then aggregating these estimates to derive the
total market size. This approach is particularly suitable when selling specialized products or
targeting niche markets with a limited number of customers.
49) A P.E.S.T analysis identifies important market trends that affect a particular market.
Answer: True
Rationale:
P.E.S.T analysis examines the Political, Economic, Social, and Technological factors that
influence a particular market or industry. By identifying and analyzing these key trends,
businesses can better understand the external forces shaping their operating environment and
develop strategies to respond effectively to market opportunities and challenges.
50) The imposition of new taxes and import tariffs by a national government is an example of
a political force affecting the market.
Answer: True
Rationale:
Political forces encompass government actions, policies, regulations, and geopolitical events
that impact businesses and market dynamics. The imposition of new taxes and import tariffs
by a national government represents a political force that can affect market conditions, trade
relations, and business operations, influencing pricing, production costs, and competitive
positioning within the market.
51) A change in a country's political leadership cannot affect the market for a particular
product or service.
Answer: False
Rationale:
A change in political leadership can have significant implications for markets, as new
policies, regulations, and priorities may be introduced, impacting businesses, consumer
behavior, and market dynamics. Political changes can influence factors such as taxation, trade
agreements, government spending, and regulatory environments, all of which can affect
market conditions and business operations.
52) The imposition of new taxes on the import of a particular material is an example of an
economic force affecting the market.
Answer: False
Rationale:
The imposition of new taxes on imports is typically considered a political force rather than an
economic force. Economic forces encompass broader economic factors such as inflation,
interest rates, currency exchange rates, and overall economic growth, which can influence
consumer spending, investment decisions, and market demand.
53) Global warming is an example of a social force issue affecting the market for
automobiles.
Answer: True
Rationale:
Global warming, driven by environmental concerns and societal attitudes toward
sustainability, influences consumer preferences and government regulations related to
automobile emissions and fuel efficiency standards. This social force impacts the automotive
market by driving demand for environmentally-friendly vehicles and promoting the
development of alternative energy technologies.
54) The Five Forces model is an alternative to the P.E.S.T analysis for gauging the effect of
environmental forces on a market.
Answer: False
Rationale:
The Five Forces model, proposed by Michael Porter, and the P.E.S.T analysis serve different
purposes in analyzing market dynamics. While the Five Forces model focuses on industry
structure and competitive forces, the P.E.S.T analysis examines broader environmental factors
including Political, Economic, Social, and Technological influences. They are complementary
frameworks rather than alternatives.
55) Threat of regulation is one of the five forces proposed under the industry analysis
framework by Michael Porter.
Answer: False
Rationale:
Threat of regulation is not explicitly included as one of the five forces in Michael Porter's
Five Forces model. The five forces include the bargaining power of buyers, the bargaining
power of suppliers, the threat of new entrants, the threat of substitute products or services,
and the intensity of competitive rivalry within the industry.
56) Brand building lessens the loss of profits experienced by an organization due to new
entrants.
Answer: True
Rationale:
Brand building can create barriers to entry by fostering customer loyalty, brand recognition,
and perceived differentiation, which can mitigate the impact of new entrants on market share
and profitability. Strong brands may command premium pricing, attract repeat business, and
deter competitors, thus reducing the loss of profits experienced by an organization facing new
market entrants.
57) When rivalry between two organizations is bringing down prices in a market, the
situation is improved by the entrance of a third organization into the market.
Answer: False
Rationale:
The entrance of a third organization into a market characterized by intense rivalry between
two competitors may further exacerbate competitive pressures rather than improving the
situation. Additional competition can intensify price competition, erode profit margins, and
increase marketing expenses as companies vie for market share. The entry of new
competitors often heightens rivalry rather than alleviating it.
58) The market for detergent soaps is more likely to suffer from a decrease in profits due to
higher bargaining power of buyers than the market for mobile phones.
Answer: True
Rationale:
The market for detergent soaps typically involves products with low differentiation and low
switching costs for buyers, which can increase their bargaining power. In contrast, the market
for mobile phones often includes products with higher brand loyalty, technological features,
and network effects, which may mitigate the bargaining power of buyers compared to
detergent soaps.
59) An organization buying its raw material from many suppliers is likely to face a decrease
in profits due to the bargaining power held by suppliers.
Answer: False
Rationale:
An organization buying its raw materials from many suppliers may actually benefit from
reduced supplier power, as it can leverage multiple sourcing options to negotiate favorable
terms, prices, and delivery schedules. By diversifying its supplier base, the organization can
reduce dependency on any single supplier and mitigate the risk of supply disruptions or price
fluctuations.
60) Define the terms industry, category, and customer need.
Answer: Marketers use the term market to describe the collective set of customers buying
products or services from sellers; the sellers making products or services that are substitutes
for each other constitute the industry. A subset of an industry is a category, which is a group
of competing firms in a segment of an industry. Customer need is the need that a certain
product actually fulfils in a market. It is a better way of defining a particular market, than
actual physical format.
61) What is the NAICS code? Explain its six-digit hierarchical structure.
Answer: The North American Industrial Classification System (NAICS) code is a
classification system used by the U.S. Census Bureau to organize industries. The NAICS
system starts out with 20 industry groups and appends digits on to those codes as the
industries become more specific, resulting in a six-digit hierarchical structure that covers
(virtually) every industry.
62) What advantages does the NAICS system have over the older SIC system of
classification?
Answer: The NAICS system replaces the older standard industrial classification (SIC) codes
developed in 1987 for a similar purpose. The newer NAICS system permits more specific
categories (NAICS codes can contain six digits, whereas SIC codes only contain four), it
recognizes more service categories, and it facilitates international use because it was
developed jointly by the U.S., Canada, and Mexico.
63) What are the characteristics of large, growing markets which make them desirable?
Answer:
• Consumer Demand Validation - stagnant or declining markets (like printed newspapers,
thanks to declining readership) are not seen as a good place to invest scarce company
resources.
• Larger Upside Potential - capturing 50 percent of a $1 billion market produces more
revenue than 50 percent of a $1 million market.
• More Available Segments - markets with more segments often generate more revenue,
because each segment can be targeted with different types of products and services. For
example, the multibillion dollar video game market boasts six major segments, from heavy
gamers to portable gamers.
64) What are commissioned reports? What are are the advantages and disadvantages of a
commissioned report?
Answer: If a market is unusual and the information is not available from sources such as
available published reports and the Internet, then a custom market research study can be
commissioned from a specialty market research company. Such specialty research companies
often focus on one particular industry, or industry niche, and can be very knowledgeable
about their area.
The advantage of this approach is that the data is highly relevant. The approach has two
disadvantages. The first is speed—research firms often take weeks to collect data. The other
disadvantage is cost. Custom reports usually require research on a niche topic. With the
significant labor associated with that task, such a bespoke report can be very expensive, often
costing tens of thousands of dollars.
65) Describe the Internet's role as a source of industry data.
Answer: To save money, a thorough search of available literature over the Internet using
search engines such as Bing, Google, or Yahoo! will often reveal satisfactory results without
having to purchase a report. For example, press releases and advertisements with "teaser
data," published by some marketing research firms to entice readers to purchase research
reports, can reveal the desired information for free. Market data are also available from
industry associations, which operate websites that aggregate articles relating to the industry.
Searching the organization's database can often lead to high-quality market data at bargain
prices (members often get data for free). One should consider the source of the data when
searching. An established market research firm or industry association is likely to be more
reputable than an individual's blog.
66) What are niche markets and what is the approach taken by marketers for assessing such
markets?
Answer: Niche markets are a special case for market sizing. Niche market vendors sell highly
specialized services and products, generally to a small set of customers. In such markets,
marketers can employ a bottom-up approach, adding up the number of customers who would
have the need, income, and access for the particular equipment being sold.
67) Explain the impact of changes in political parties on markets.
Answer: Changes in political parties, such as changes in the constituency of the U.S. Senate
from a majority of Republicans to a majority of Democrats, can cause changes in markets
such as defense and health care.
68) Explain pressure exerted on an organization due to introduction of substitute products.
Answer: Industry profits can decrease if new products or services delivering the same
function are introduced to the industry, especially if they cost less than existing offerings.
Incumbent companies can reduce the pressure by showing how their product or service is
superior to those of substitutes.
69) Explain how the bargaining power of buyers can drive down profits for a particular
product. What measures can be taken by an organization to counter this?
Answer: Powerful buyers (such as organizations that purchase much of the industry's
capacity) can drive down profits by demanding lower prices on products and services,
especially those that buyers see as undifferentiated, commodity items. Industry firms can
counter the bargaining power of buyers through various means such as showing that the
product or service is essential to successful operation.
70) Discuss the "available published reports" as a source for industry information.
Answer: The most common approach to obtaining industry data, often viewed as the most
reliable, is via available published market reports written by industry analysts and market
research services. Industry research firms cover a wide variety of markets and publish reports
on them on a regular basis, knowing that a demand for such information exists. Industry
analyst reports often cover many other market characteristics, including market size forecasts
and trends. In addition, discipline-specific academic journals can be useful, especially for
specific market areas. The advantages of this approach are speed and convenience. To get the
reports, the user simply goes to the industry analyst's website, searches for one of the many
available reports on their industry, and purchases it. The disadvantage to this approach is the
price—the reports are expensive, often costing thousands of dollars. Many research firms
offer annual subscription services, which can prove cost-effective in the long run if the
organization requires many reports.
71) What is a P.E.S.T analysis? What are the factors studied in a P.E.S.T analysis?
Answer: A P.E.S.T analysis studies the effect of environmental forces on the market. It
studies the impact of the following forces on a market:
1) Political - The impact of political legislation, taxes, governmental agencies, and special
interest groups can dramatically affect markets.
2) Economic - Economic forces affect markets by changes in employment income, savings
amounts, debt levels, interest rates, and availability of credit. Interest rates have a significant
impact on investment, because cost of investment rises with interest rates.
3) Social - Social attitudes can affect markets because society's beliefs, values, and norms
largely define consumer tastes and preferences.
4) Technological - Technological trends can devastate markets. The invention of the transistor
virtually annihilated the vacuum tube market. The popularity of the automobile almost ended
passenger transport on trains.
72) Explain the market force of "threat of entry," as detailed by Porter's Five Forces model,
with an example.
Answer: New entrants into an industry can decrease profitability for incumbent firms due to
increased competition. For example, multiple entrants in the extra-large (over 70 inches)
liquid crystal display (LCD) television industry caused prices (and profits) to drop.
Companies can reduce the threat of incoming firms by erecting barriers to entry, such as by
establishing a strong brand or controlling access to distribution channels. For example,
Samsung invests heavily in its brand, so it will be perceived as an industry leader and attract
buyers away from competitors.
73) Explain the market force of "pressure from substitute products," as detailed by Porter's
Five Forces model, with an example.
Answer: Industry profits can decrease if new products or services delivering the same
function are introduced to the industry, especially if they cost less than existing offerings. For
example, the sugar industry saw a drop in sales with the introduction of high fructose corn
syrup as a substitute sweetener. Incumbent companies can reduce the pressure by showing
how their product or service is superior to those of substitutes. For example, fans of natural
foods perceived high fructose corn syrup so negatively that the Corn Refiners Association
petitioned the U.S. Food and Drug Administration to change the name to ""corn sugar"" to
reduce the negative connotation.
74) Explain the market force of "bargaining power of suppliers," as detailed by Porter's Five
Forces model, with an example.
Answer: Powerful suppliers (such as companies with controlling interests in vital resources
necessary for production) can reduce profitability by charging more for their products and
services. For example, 70 percent of the world's low-cost lithium (required for lithium-ion
batteries in -hybrid and electric automobiles) comes from a salt flat in Chile's Atacama
Desert, controlled by Soquimich, based in Santiago, Chile, and Rockwood Holdings, based in
Princeton, New Jersey. One means of countering supplier power is by locating substitutes for
scarce supplies. For example, Toyota is conducting research in magnesium-sulfate batteries as
a replacement for lithium-ion technology.
Test Bank for Marketing Planning
Stephan Sorger
9780132544702
