Preview Extract
Chapter 5 Industry and Competitor Analysis
1) Element Bars, the company profiled in the opening feature for Chapter 5, has a unique
position in its industry. It has positioned itself as:
A) a generic energy bar company that resells energy bars to companies who want to create their
own branded energy bars
B) a niche energy bar company that sells in high-end outlets, like 5-star hotels and spas
C) a premium energy bar company that only uses the most wholesome and healthy ingredients,
and makes special bars for vegetarians and vegans
D) a low-cost energy bar company that makes energy bars more accessible to people in all
income brackets and still offers healthy ingredients
E) a customizable energy bar company that sells to individuals online and also to companies who
want to create their own branded energy bars
Answer: E
Rationale:
Element Bars has a unique position as a customizable energy bar company that caters to both
individuals and companies looking to create their own branded bars. This differentiation sets it
apart from other energy bar companies in the industry.
2) Jeremy Banks recently started a new firm in the financial services industry. Prior to starting
his firm, he spent considerable time doing research on the potential of the industry. The research
that Jeremy was doing is called:
A) industry analysis
B) sector analysis
C) commercial analysis
D) business analysis
E) target market analysis
Answer: A
Rationale:
Jeremy Banks' research on the financial services industry is called industry analysis, which
involves examining the potential and dynamics of a specific industry.
3) A(n) ________ is a group of firms producing a similar product or service, such as soft drinks,
electronic games, or computers.
A) cluster
B) division
C) sector
D) industry
E) network
Answer: D
Rationale:
An industry is a group of firms that produce similar products or services, such as soft drinks,
electronic games, or computers.
4) Once a firm decides to enter an industry and chooses a market in which to compete, it must
gain an understanding of its competitive environment. This challenge can be undertaken by
completing a(n):
A) business analysis
B) industry analysis
C) competitor analysis
D) strategic analysis
E) market analysis
Answer: C
Rationale:
Understanding the competitive environment involves conducting a competitor analysis, which
examines the strengths and weaknesses of existing and potential competitors.
5) Each quarter, Cindy Anderson, who owns a chain of card and gift shops, does a detailed
analysis of her firm's competitors. This analysis is called:
A) competitor analysis
B) challenger analysis
C) strategic analysis
D) participant analysis
E) industry analysis
Answer: A
Rationale:
Cindy Anderson's detailed analysis of her firm's competitors is called competitor analysis, which
helps her understand the competitive landscape and make informed business decisions.
6) Which of the following is an example of an industry-level factor as opposed to a firm-level
factor?
A) a firm's assets
B) a firm's culture
C) the teamwork among a firm's employees
D) a firm's products
E) threat of substitutes
Answer: E
Rationale:
The threat of substitutes is an industry-level factor that affects the overall industry, rather than
specific to any individual firm.
7) According to the textbook, which of the following statements is accurate regarding the
importance of industry versus firm-specific factors as it pertains to firm profitability?
A) Virtually all the studies have concluded that industry-specific factors are more important than
firm-specific factors.
B) Virtually all the studies have concluded that firm-specific factors are more important than
industry-specific factors.
C) Virtually all the studies have concluded that industry-specific factors are of almost no
importance.
D) Virtually all the studies have concluded that firm-specific factors are of almost no
importance.
E) Virtually all the studies have concluded that firm-specific factors and industry-specific factors
are of equal importance.
Answer: B
Rationale:
The text indicates that firm-specific factors are generally more important than industry-specific
factors when it comes to firm profitability.
8) In various studies, researchers have found that from ________ of the variation in firm
profitability is directly attributable to the industry in which a firm competes.
A) 4 to 12 percent
B) 8 to 30 percent
C) 18 to 42 percent
D) 22 to 56 percent
E) 34 to 70 percent
Answer: B
Rationale:
Researchers have found that from 8 to 30 percent of the variation in firm profitability can be
attributed to the industry in which a firm competes.
9) Industries that sell products to seniors, such as the eyeglass industry and the hearing aid
industry, are benefiting from the aging of the population, which is an important:
A) environmental trend
B) business trend
C) commerce trend
D) statutory trend
E) competitive trend
Answer: A
Rationale:
The aging of the population is an environmental trend that is impacting industries that sell
products to seniors, such as the eyeglass and hearing aid industries.
10) The Partnering for Success feature in Chapter 5 focuses on three things that are important for
startups to become active in to learn the ins and outs of their industries. The three items focused
on in the feature are?
A) local Chambers of Commerce, trade journals, and networking events
B) Facebook, industry-related e-mail listservs, and trade shows
C) trade associations, trade shows, and trade journals
D) networking events, blogs, and Facebook
E) local Chambers of Commerce, city or university-sponsored incubators, and trade associations
Answer: C
Rationale:
The Partnering for Success feature in Chapter 5 focuses on trade associations, trade shows, and
trade journals as important avenues for startups to learn about their industries.
11) According to the textbook, the five competitive forces included in the five-forces model
determine:
A) the average rate of new business starts in an industry
B) the average growth rate for the firms in an industry
C) the average rate of return for the firms in an industry
D) the average sales for the firms in an industry
E) the average failure rate for the firms in an industry
Answer: C
Rationale:
The five competitive forces in Porter's five-forces model determine the average rate of return for
the firms in an industry by influencing the overall competitiveness and profitability of the
industry.
12) According to the textbook, how do well-managed firms respond to the five-forces that
determine industry profitability?
A) They switch industries if the forces are too compelling.
B) They focus on one force intently and excel by overcoming that force.
C) They overcome each of the forces.
D) They ignore the forces.
E) They try to position their firms in a way that avoids or diminishes the forces.
Answer: E
Rationale:
Well-managed firms respond to the five competitive forces by positioning their firms in a way
that avoids or diminishes the impact of the forces, rather than trying to overcome each force
individually.
13) In general, industries are more attractive when:
A) the majority of the threats are high
B) the majority of the threats are low
C) the threat of each of the forces is neutral—neither low nor high
D) the threat of each of the five forces is high
E) the threat of each of the five forces is low
Answer: E
Rationale:
Industries are more attractive when the threat of each of the five forces is low, indicating a more
favorable competitive environment for firms in the industry.
14) The price of prescription medicine is high, partly because when someone is sick there is no
real alternative to buying medicine if they want to get better. Which of Porter's five forces
explains how this aspect of the prescription medicine industry helps keep profitability high?
A) rivalry among existing firms
B) threat of new entrants
C) threat of substitutes
D) bargaining power of buyers
E) bargaining power of suppliers
Answer: C
Rationale:
The high price of prescription medicine, due to the lack of real alternatives, demonstrates the
influence of the threat of substitutes in the prescription medicine industry, which helps keep
profitability high.
15) Which of Porter's five forces is most closely associated with the concept "barrier to entry"?
A) bargaining power of suppliers
B) rivalry among existing firms
C) threat of new entrants
D) bargaining power of buyers
E) threat of substitutes
Answer: C
Rationale:
The threat of new entrants is most closely associated with the concept of "barrier to entry," as it
represents the challenges and obstacles that new firms face when entering an industry.
16) Which of the following is not one of the major sources of barriers to entry?
A) economies of scale
B) cost advantages independent of size
C) buyer group concentration
D) access to distribution channels
E) government and legal barriers
Answer: C
Rationale:
Buyer group concentration is not one of the major sources of barriers to entry; instead, it is a
factor that influences the intensity of competition within an industry.
17) Shelly Brunner owns a sports-themed restaurant which is located in an upscale business
district in Chicago. One advantage that Shelly has is that she bought the lot she built her
restaurant on 25 years ago when lots in the area were selling for $50,000. Shelly knows that
several potential competitors have looked at bare lots near his business but haven't been willing
to pay the asking prices, which are as high as $500,000. Which of the six major sources of
barriers to entry is causing a disincentive for new firms to enter Shelly's industry?
A) capital requirements
B) economies of scale
C) product differentiation
D) government and legal barriers
E) cost advantage independent of size
Answer: E
Rationale:
The cost advantage independent of size, in this case, the significantly lower cost of acquiring
land for Shelly compared to potential competitors, acts as a barrier to entry for new firms in the
industry.
18) Some industries, like the athletic shoe industry, are dominated by a small number of firms
with strong brands. These industries are difficult to break into without spending heavily on
advertising. The barrier to entry that the firms in these types of industries have erected is referred
to as:
A) government and legal barriers
B) capital requirements
C) product differentiation
D) cost advantages independent of size
E) access to distribution channels
Answer: C
Rationale:
The barrier to entry in industries dominated by firms with strong brands, such as the athletic shoe
industry, is product differentiation, as new entrants must spend heavily on advertising to
establish their brands and compete effectively.
19) Which of Porter's five forces is most directly influenced by the following factors: number
and balance of competitors, degree of difference between products, growth rate of an industry,
and level of fixed costs?
A) threat of new entrants
B) rivalry among existing firms
C) threat of substitutes
D) bargaining power of buyers
E) bargaining power of suppliers
Answer: B
Rationale:
Rivalry among existing firms is most directly influenced by the number and balance of
competitors, degree of difference between products, growth rate of an industry, and level of fixed
costs, as these factors determine the intensity of competition within an industry.
20) If a startup pioneers an industry or a new concept within an industry, the name recognition
the startup establishes may create a formidable nontraditional barrier to entry referred to as a(n):
A) unique business model
B) aggressive supremacy
C) competitive superiority
D) first-mover advantage
E) aggressive tactical advantage
Answer: D
Rationale:
The name recognition and market dominance established by a startup that pioneers an industry or
a new concept create a first-mover advantage, which acts as a nontraditional barrier to entry for
potential competitors.
21) According to the example provided in Chapter 5, www.1800contacts.com possesses a
nontraditional barrier to entry referred to as:
A) unique business model
B) strength of management team
C) access to distribution channels
D) Internet domain name
E) first-mover advantage
Answer: D
Rationale:
www.1800contacts.com possesses a nontraditional barrier to entry in the form of its Internet
domain name, which is a valuable asset and can help establish brand recognition and customer
loyalty.
22) Which of the following was not identified in the textbook as a nontraditional barrier to entry?
A) inventing a new approach to an industry and executing the idea in an exemplary fashion
B) unique business model
C) capital requirements
D) strength of management team
E) passion of management team and employees
Answer: C
Rationale:
Capital requirements are a traditional barrier to entry, not a nontraditional one, as they represent
the financial resources needed to enter a market.
23) Supplier concentration, switching costs, attractiveness of substitutes, and threat of forward
integration are factors that have a direct impact on:
A) threat of new entrants
B) bargaining power of buyers
C) rivalry among existing firms
D) threat of substitutes
E) bargaining power of suppliers
Answer: E
Rationale:
These factors affect the bargaining power of suppliers, as they determine the extent to which
suppliers can influence prices, terms, and conditions in the industry.
24) John Petersen is thinking about starting a firm in the specialty chemical industry. In the
industry analysis John has been conducting, one thing he has noticed is that the specialty
chemical industry is characterized by the following factors: high supplier concentration, high
switching costs for buyers when they switch from one supplier to another, and no attractive
substitutes for the products that most of the suppliers provide. These factors concern John
because they tell him that the profitability of the specialty chemical industry is suppressed by
the:
A) threat of substitutes
B) bargaining power of buyers
C) rivalry among existing firms
D) bargaining power of suppliers
E) threat of new entrants
Answer: D
Rationale:
The factors John has identified, such as high supplier concentration and high switching costs,
indicate that suppliers have significant bargaining power, which can suppress industry
profitability.
25) The five industry types discussed in the book include:
A) launching, fragmented, leveled-off, declining, and global
B) emerging, climbing, mature, declining, and worldwide
C) emerging, fragmented, mature, declining, and global
D) climbing, peaking, plateaued, declining, and international
E) launching, consolidated, plateaued, mature, and worldwide
Answer: C
Rationale:
The book discusses emerging, fragmented, mature, declining, and global industries as the five
industry types.
26) Windspire is starting a firm in the small-scale wind-generated power industry. This industry
is still so new that no standard operating procedures have been developed. Small-scale windgenerated power is an example of a(n) ________ industry.
A) mature
B) declining
C) emerging
D) global
E) fragmented
Answer: C
Rationale:
Small-scale wind-generated power is an emerging industry, as it is still new and lacks standard
operating procedures.
27) The primary opportunity existing for startups in emerging industries is to:
A) consolidate the industry and establish industry leadership as a result of doing so
B) win customers by placing an emphasis on service and process innovation
C) pursue a niche strategy, which focuses on a narrow segment of the industry that might be
encouraged to grow through product or process innovation
D) capture a first-mover advantage
E) pursue a cost reduction strategy, which is accomplished through achieving lower costs than
industry incumbents through process innovation
Answer: D
Rationale:
The primary opportunity for startups in emerging industries is to capture a first-mover advantage
by being the first to enter the market and establish a strong position.
28) A(n) ________ industry is one that is characterized by a large number of firms of
approximately equal size.
A) fragmented
B) mature
C) declining
D) emerging
E) global
Answer: A
Rationale:
A fragmented industry is characterized by a large number of firms of approximately equal size,
none of which dominates the market.
29) The primary opportunity existing for startups in fragmented industries is to:
A) pursue a niche strategy, which focuses on a narrow segment of the industry that might be
encouraged to grow through product or process innovation
B) win customers by placing an emphasis on service and process innovation
C) capture a first-mover advantage
D) pursue a cost reduction strategy, which is accomplished through achieving lower costs than
industry incumbents through process innovation
E) consolidate the industry and establish industry leadership as a result of doing so
Answer: E
Rationale:
The primary opportunity for startups in fragmented industries is to consolidate the industry and
establish industry leadership by acquiring smaller firms and increasing market share.
30) A(n) ________ industry is an industry that is experiencing slow or no increase in demand.
A) declining
B) global
C) mature
D) emerging
E) fragmented
Answer: C
Rationale:
A mature industry is one that is experiencing slow or no increase in demand, with most of the
market already being served.
31) According to the textbook, InstyMeds in prescription drug sales, Fresh Healthy Vending in
food vending, and Daisy Rock in guitars are examples of entrepreneurial firms that are exploiting
opportunities in ________ industries.
A) emerging
B) fragmented
C) declining
D) mature
E) emerging
Answer: D
Rationale:
These firms are operating in mature industries, which are well-established and characterized by
stable growth and competition.
32) According to the textbook, Nucor in steel, JetBlue in airlines, and Cirque du Soleil in
circuses are examples of entrepreneurial firms that are exploiting opportunities in ________
industries.
A) fragmented
B) emerging
C) declining
D) global
E) mature
Answer: C
Rationale:
These firms are operating in declining industries, where demand is decreasing and competition is
intense. They have found ways to innovate and succeed despite the industry challenges.
33) Opportunities for leadership, niche, harvest, and divestment are associated with ________
industries.
A) mature
B) emerging
C) declining
D) fragmented
E) global
Answer: C
Rationale:
In declining industries, firms have opportunities to lead the market, focus on niche markets,
harvest profits, or divest from the industry altogether.
34) According to the textbook, PharmaJet, in needleless injection systems, and d'light, in solarpowered lanterns, are examples of entrepreneurial firms that are exploiting opportunities in
________ industries.
A) global
B) declining
C) mature
D) emerging
E) fragmented
Answer: A
Rationale:
These firms are operating in global industries, where they can benefit from significant
international sales and market reach.
35) The What Went Wrong? feature in Chapter 5 focuses on Eclipse Aviation. What was Eclipse
Aviation's goal?
A) to create a new segment in the private jet industry called very light jets.
B) to create a more affordable line of private two-seat and four-seat propeller planes
C) to create ultra-luxurious private jets
D) to create a low-cost airline to compete head-to-head with Southwest Airlines
E) to create a new segment in the passenger jet industry called very heavy jets
Answer: A
Rationale:
Eclipse Aviation's goal was to create a new segment in the private jet industry with very light
jets, aiming to make private jet travel more accessible and affordable.
36) A(n) ________ industry is an industry that is experiencing significant international sales.
A) global
B) mature
C) fragmented
D) declining
E) emerging
Answer: A
Rationale:
A global industry is characterized by significant international sales and operations, indicating a
broad market reach and presence.
37) The two most common strategies pursued by firms in global industries are the ________
strategy and the ________ strategy.
A) inclusive, multidomestic
B) multidomestic, global
C) multidomestic, worldwide
D) inclusive, global
E) home, worldwide
Answer: B
Rationale:
In global industries, firms often pursue either a multidomestic strategy, adapting products and
services to local markets, or a global strategy, offering standardized products worldwide.
38) Firms that pursue a(n) ________ strategy compete for market share on a country-by-country
basis and vary their product or service offerings to meet the demands of the local market.
A) inclusive
B) universal
C) multidomestic
D) contemporary
E) worldwide
Answer: C
Rationale:
Firms pursuing a multidomestic strategy tailor their products and services to meet the specific
demands of local markets, competing on a country-by-country basis.
39) Shelly James recently launched a firm in the fruit drink industry, and has already exported
her fruit drinks to 9 different countries. One thing that Shelly's firm is doing is that it is varying
the tastes of the fruit drinks it sells on a country-by-country basis to meet the demands of the
local markets. Shelly's firm is pursuing a ________ strategy.
A) global
B) home
C) universal
D) contemporary
E) multidomestic
Answer: E
Rationale:
Shelly's firm is pursuing a multidomestic strategy by adapting its product offerings to meet the
specific tastes and demands of local markets.
40) Katherine Chapman recently launched a firm in the clothing industry, targeting teens ages
13-17. One thing Katherine thinks she has accomplished is producing products that have
universal appeal, so she will not vary her approach from country to country. Katherine is
pursuing a ________ strategy.
A) universal
B) multidomestic
C) contemporary
D) global
E) home
Answer: D
Rationale:
Katherine is pursuing a global strategy by offering products with universal appeal and
maintaining a consistent approach across different countries.
41) According to the textbook, the first step in a competitor analysis is to:
A) develop a marketing plan
B) develop the strategic plan
C) study the strength of the industry
D) study the external environment
E) determine who the competition is
Answer: E
Rationale:
Determining who the competition is sets the foundation for a competitor analysis by identifying
the key players in the market.
42) According to the textbook, the three different types of competitors a business will face are:
A) potential, direct, and upcoming
B) indirect, fleeting, and future
C) serious, cautious, and future
D) direct, indirect, and future
E) potential, fleeting, and indirect
Answer: D
Rationale:
The three types of competitors are direct competitors (offer identical or similar products),
indirect competitors (offer close substitutes), and future competitors (could become direct or
indirect competitors).
43) In the context of competitor analysis, businesses that offer identical or similar products are
referred to as:
A) immediate competitors
B) direct competitors
C) indirect competitors
D) straight competitors
E) urgent competitors
Answer: B
Rationale:
Direct competitors offer identical or similar products and compete for the same customers.
44) Aquafina operates in the bottled water industry. The companies that offer identical or similar
products and go after the same customers that Aquafina does are Dasani and Zephyrhills. Dasani
and Zephyrhills are Aquafina's:
A) direct competitors
B) indirect competitors
C) future competitors
D) impending competitors
E) potential competitors
Answer: A
Rationale:
Dasani and Zephyrhills are direct competitors of Aquafina because they offer similar products
and target the same customers.
45) In the context of competitor analysis, ________ offer close substitutes to the product sold by
the firm completing the analysis.
A) potential competitors
B) direct competitors
C) indirect competitors
D) impending competitors
E) future competitors
Answer: C
Rationale:
Indirect competitors offer products that are close substitutes to the product being analyzed, but
they are not identical.
46) In the beverage industry, soda, fruit juice, and sports drinks are ________ competitors of
bottled water.
A) occasional
B) infrequent
C) indirect
D) direct
E) future
Answer: C
Rationale:
Soda, fruit juice, and sports drinks are indirect competitors of bottled water because they offer
alternatives but are not identical products.
47) In the context of competitor analysis, ________ are companies that are not yet direct or
indirect competitors but could move into one of these roles at any time.
A) stable competitors
B) roundabout competitors
C) impending competitors
D) approximate competitors
E) future competitors
Answer: E
Rationale:
Future competitors are companies that could become direct or indirect competitors in the future.
48) The Savvy Entrepreneurial Firm feature in Chapter 5 focuses on three firms that are doing
well in crowded industries for two reasons:
A) they have effectively differentiated themselves from their competitors and they have captured
a first-mover advantage
B) they have passionate leaders and they run savvy promotional campaigns
C) they have captured a first-mover advantage and they have unique business models
D) they create meaningful value for customers at a fair price and they have differentiated
themselves from their competitors
E) they are low-cost leaders and they run savvy promotional campaigns
Answer: D
Rationale:
The firms' success is attributed to creating value for customers at a fair price and effectively
differentiating themselves from competitors.
49) The information that is gathered by a firm to learn about its competitors is referred to as:
A) a feasibility appraisal
B) a workable appraisal
C) a practical assessment
D) a viable assessment
E) competitive intelligence
Answer: E
Rationale:
Competitive intelligence refers to the information gathered by a firm to understand its
competitors' strategies, strengths, and weaknesses.
50) Amy has just launched a firm in the sports drink industry. She has decided to complete a grid
to see how she stacks up against her competitors. Along the horizontal axis of the grid, she lists
her firm along with her major competitors. Along the vertical axis of the grid, she lists the main
competitive factors in her industry. Amy is completing a:
A) strategic analysis spreadsheet
B) tactical analysis framework
C) competitive analysis grid
D) strategic analysis grid
E) behavioral analysis spreadsheet
Answer: C
Rationale:
Amy is completing a competitive analysis grid, which helps her compare her firm against
competitors based on key competitive factors.
51) Industry analysis is business research that focuses on the potential of an industry.
Answer: True
Rationale:
Industry analysis involves examining factors such as market size, growth potential, profitability,
and competitive dynamics within an industry to assess its attractiveness and potential for
investment or entry.
52) A comparison analysis is a detailed evaluation of a firm's competitors.
Answer: False
Rationale:
A comparison analysis typically involves comparing a firm's performance, financials, strategies,
and other relevant aspects against its competitors to identify strengths, weaknesses,
opportunities, and threats.
53) Virtually all studies have concluded that firm-specific factors are more important than
industry-specific factors in terms of firm profitability.
Answer: True
Rationale:
Various studies have found that firm-specific factors, such as internal capabilities, strategies, and
execution, have a greater impact on firm profitability than industry-specific factors.
54) The two trends that are most important to focus on in an industry analysis are business trends
and environmental trends.
Answer: True
Rationale:
Business trends, such as market growth and competition, and environmental trends, such as
regulatory changes and technological advancements, are critical factors to consider in industry
analysis as they can significantly impact industry dynamics and firm performance.
55) Business trends include economic trends, social trends, technological advances, and political
and regulatory changes.
Answer: False
Rationale:
Business trends typically refer to factors directly related to the industry, such as market demand,
competitive landscape, and industry growth, while environmental trends encompass broader
factors like economic conditions, social shifts, technological developments, and regulatory
changes.
56) The five competitive forces model is a framework for understanding the structure of an
industry.
Answer: True
Rationale:
The five competitive forces model, developed by Michael Porter, helps analyze the competitive
intensity and attractiveness of an industry by examining five key forces: threat of new entrants,
bargaining power of buyers, bargaining power of suppliers, threat of substitute products or
services, and rivalry among existing competitors.
57) The best industry to enter is an industry where the threat of each of Porter's five-forces is
low.
Answer: True
Rationale:
A low threat from each of Porter's five forces indicates that an industry may be more attractive
and potentially more profitable for new entrants, as there is less competition and fewer barriers to
entry.
58) There are four factors that determine the threat of new entrants: number and balance of
competitors, degree of difference between products, growth rate of an industry, and level of fixed
costs.
Answer: False
Rationale:
The threat of new entrants is determined by factors such as barriers to entry, economies of scale,
product differentiation, capital requirements, and access to distribution channels, among others.
59) In most industries, the major determinant of industry profitability is the level of competition
among the firms already competing in the industry.
Answer: True
Rationale:
The intensity of competition among existing firms in an industry, as reflected in factors like price
competition, product differentiation, and industry concentration, often plays a significant role in
determining industry profitability.
60) If the buyers are concentrated and they buy from a large number of suppliers, then the
bargaining power of buyers is increased.
Answer: True
Rationale:
Buyer concentration and the availability of alternative suppliers can influence the bargaining
power of buyers. When buyers are concentrated and have few alternative suppliers, their
bargaining power tends to increase.
61) An emerging industry is a new industry in which standard operating procedures have yet to
be developed.
Answer: True
Rationale:
Emerging industries are characterized by their newness and lack of established norms or
procedures. Companies operating in these industries often face uncertainty and must be
innovative in developing strategies and operations.
62) A fragmented industry is one that is characterized by a large number of firms of
approximately equal size.
Answer: True
Rationale:
A fragmented industry typically has many small or medium-sized companies, none of which
dominate the market. This results in intense competition and challenges in achieving economies
of scale.
63) The primary opportunity available to firms in fragmented industries is consolidation. The
most common way to do this is through a geographic roll-up strategy, in which one firm starts
acquiring similar firms that are located in different geographic areas.
Answer: True
Rationale:
Consolidation is a common strategy in fragmented industries as it allows firms to achieve
economies of scale, reduce competition, and increase market share. Geographic roll-up strategy
is one approach to consolidation in which firms acquire competitors in different geographic
regions.
64) A mature industry is an industry that is experiencing slow increases in demand, numerous
repeat customers, and limited product innovation.
Answer: True
Rationale:
Mature industries are characterized by stable demand, a large base of repeat customers, and a
focus on incremental product improvements rather than radical innovation.
65) Firms that pursue a global strategy use the same basic approach in all foreign markets.
Answer: True
Rationale:
A global strategy involves standardizing products, marketing, and operations across different
markets to achieve economies of scale and consistent branding. This approach assumes that the
basic needs and preferences of customers are similar across markets.
66) The first step in a competitor analysis is to determine who the competition is.
Answer: True
Rationale:
Identifying competitors is the starting point for competitor analysis, as it provides the foundation
for understanding the competitive landscape and formulating competitive strategies.
67) A firm's future competitors are its most important ones.
Answer: False
Rationale:
While it is important to anticipate and prepare for future competitors, a firm's current
competitors, who are already operating in the market and vying for market share, are typically
more immediate and pressing concerns.
68) The three types of competitors a business will face are direct competitors, indirect
competitors, and future competitors.
Answer: True
Rationale:
Direct competitors are those that offer similar products or services to the same customers,
indirect competitors are those that offer different products or services but compete for the same
customers' budgets, and future competitors are those that may enter the market in the future and
disrupt the industry.
69) The information that is gathered by a firm to learn about its competitors is referred to as
tactical intelligence.
Answer: False
Rationale:
The information gathered about competitors is typically referred to as competitive intelligence,
which includes both strategic and tactical information.
70) A competitive analysis grid is a tool for organizing the information a firm collects about its
competitors.
Answer: True
Rationale:
A competitive analysis grid, also known as a competitor matrix or competitor analysis
framework, is a tool that helps organize and compare information about competitors, such as
their strengths, weaknesses, strategies, and market positions.71) What is industry analysis? Why
is it important for a new venture to complete a thorough analysis of the industry it is entering?
Answer: Industry analysis is business research that focuses on the potential of an industry. An
industry is a group of firms producing a similar product, such as MP3 players, fitness drinks, or
electronic games. Once it is determined that a new venture is feasible in regard to the industry
and market in which it will compete, a more in-depth analysis is needed to learn the ins and outs
of the industry the firm plans to enter. This analysis helps a firm determine if the target market(s)
it identified during its feasibility analysis are accessible and which ones represent the best point
of entry for a new firm.
72) Identify the five competitive forces that determine industry profitably. Explain the purpose of
analyzing these forces?
Answer: The five competitive forces that determine industry profitability are the threat of
substitutes, the threat of new entrants, rivalry among existing firms, bargaining power of
suppliers, and bargaining power of buyers. The five competitive forces model is a framework for
understanding the structure of an industry and was developed by Harvard professor Michael
Porter. Each of Porter's five-forces impacts the average rate of return for the firms in an industry
by applying pressure on industry profitability. Companies analyze the five-forces to try to
position their firms in a way that avoids or diminishes the negative impacts of these forces.
73) Discuss the nontraditional barriers to entry identified in the chapter. Why is it important that
entrepreneurial firms utilize one or more of these forms of barriers to entry?
Answer: The nontraditional barriers to entry, which are particularly suitable for entrepreneurial
firms, are strength of management team, first-mover advantage, passion of management team
and employees, unique business model, a unique Internet domain name, and inventing a new
approach to an industry and executing the idea in an exemplary fashion. It is important that
startups utilize one or more of these forms of barriers to entry because many of the traditional
barriers to entry, like economies of scale, are expensive. It is difficult for startups to erect
expensive barriers to entry because money is usually tight.
74) What is an emerging industry? What is the primary opportunity available to entrepreneurial
firms in emerging industries? Name three examples of firms in emerging industries.
Answer: An emerging industry is a new industry in which standard operating procedures have
yet to be developed. The firm that pioneers or takes the leadership of an emerging industry often
captures a first-mover advantage, which is a sometimes insurmountable advantage gained by the
firm initiating the first significant move into a new market. Examples of firms in emerging
industries include Apple with its iTunes music store, Windspire in small-scale wind-generated
power, and PharmaSecure's process for detecting counterfeit pharmaceutical products.
75) What is competitive intelligence? What are some of the ways that a firm can ethically obtain
information about its competitors?
Answer: The information that is gathered by a firm to learn about its competitors is referred to as
competitive intelligence. There are a number of ways that a firm can ethically obtain information
about its competitors. These ways include: attend conferences and trade shows, read industry
related books, magazines, and Web sites, along with general business magazines, talk to
potential customers about what motivated them to buy your product as opposed to your
competitor, purchase competitors' products to understand their features, benefits, and
shortcomings, study competitors' Web sites, and study Web sites that provide information about
competitors.
Test Bank for Entrepreneurship: Successfully Launching New Ventures
Bruce R. Barringer, R. Duane Ireland
9780132555524, 9780131393905, 9780134729534, 9780133797190
