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Individual test

Part 1. CHOOSE ONE CORRECT ANSWER FOR EACH QUESTION.

Q1 In the 5 Forces Model developed by Michael Porter, _______ is not defined narrowly as a firm's closest
competitors but rather more broadly to include other factors in an industry like buyers, suppliers, potential new entry
of other firms, and the threat of substitutes.
a. strategy
b. industry
c. competition
d. value chain

Q2 Which of the following is a primary feature of the five forces model?

a. It is concerned exclusively about the intensity of rivalry among direct competitors.
b. It views competition within an industry broadly to include forces such as buyers, suppliers, and the threat of
substitutes.
c. It takes into account a firm's internal resources, capabilities, and core competencies.
d. It helps managers determine the changing speed of an industry or the rate of innovation.

Q3 In the aircraft manufacturing industry, at least for large commercial jets, Boeing and Airbus are the only
competitors. There is not a significant threat of entry because:
a. there is no credible threat of retaliation from the incumbents.
b. entering the aircraft manufacturing industry means violating government policies.
c. entering the aircraft manufacturing industry requires huge capital investments.
d. there is expected to be a huge return on investment within this industry.

Q4 When fashion magazines face competition from fashion blogs on the web, which of the following forces in
Michael Porter's five forces model primarily gets stronger?
a. The threat of substitutes
b. The emergence of entry barriers
c. The bargaining power of suppliers
d. The availability of complements

Q5 A certain marble quarry provides a unique type of marble that is richly colored and strikingly veined. It has been
used for churches and public buildings throughout the world. The architect of a new headquarters for a prestigious
Fortune 500 firm has specified the use of this marble, and this marble only, for this project. Which of the following
statements is most likely to be true?
a. The cost of the marble will be moderate because of the bargaining power of the buyer.
b. The cost of the marble will be moderate because of economies of scale.
c. The cost of the marble will be expensive because of the bargaining power of the supplier.
d. The cost of the marble will be expensive because of the high strategic stakes involved.

Q6 The aircraft industry has long been dominated by two large aircraft manufacturers, Boeing and Airbus. The
demand for major aircraft is low, and Boeing and Airbus aggressively compete for orders from airlines. What effect
will these conditions have on the domestic airline industry?
a. It will make the airline industry less attractive because of decreased supplier power.
b. It will make the airline industry more attractive because of increased supplier power.
c. It will make the airline industry more attractive because of a new entrant.
d. It will make the airline industry more attractive because of decreased supplier power.
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Q7 Buyers are powerful when

a. switching costs are low.
b. there is a threat of forward integration.
c. they purchase a small proportion of the supplier's output.
d. the buyers' industry is fragmented.

Q8 The threat from substitutes is high when

a. switching costs are high.
b. the quality of the substitute product is lower than the quality of the industry's product.
c. the substitute product stimulates new process innovations within the industry.
d. the substitute product's price is lower than the industry product's price.

Q9 All of the following are forces that create high rivalry within an industry EXCEPT
a. numerous or equally balanced competitors.
b. high fixed costs.
c. fast industry growth.
d. high storage costs.

Q10 Understanding the competitive forces in an industry is:

a. A largely futile exercise for managers
b. Is of academic interest, but does not bring any value for strategic management
c. A way to enable managers to allocate their resources where competition is the strongest
d. A way to enable managers to position the firm where its particular capabilities can be deployed to best
advantage

Part 2. CASE STUDY.

Even when times are good, the department store industry is one of the toughest industries to compete in. Like many of
its competitors, Kohl’s Corporation struggles to find a way to continue its successes even when faced with a drastically
changed external environment. Based in Menomonee Falls, Wisconsin, Kohl’s has more than 1,050 discount
department stores in 49 states. The company has aggressively moved into the western and southern United States,
although nearly a quarter of its stores are located in the Midwest. In 2010, the company had revenues of over $17.1
billion and profits of $991 million. One analyst has described Kohl’s as “the best-positioned department store in this
economy and one of the leading retailers with respect to inventory management, technological innovation, and
merchandising and marketing execution.” However, to continue its successes, it’s important that Kohl’s understand its
external environment.

The retail shopping environment has changed. Customers became disenchanted with the shopping experience at many
retail establishments. Long checkout lines, missing or vague product information, out-of-stock products, incorrect price
tags, and scarce and often unknowledgeable sales staff made the shopping experience quite unpleasant. Local shopping
malls and their anchor department stores lost much of their popularity with shoppers. Coupled with the economic and
demographic shifts taking place, department stores faced big challenges.

Kohl’s has done business differently than most department stores. Its approach is built around convenience and price.
Its typical store is a box-like structure with one floor of merchandise under inexpensive lighting where shoppers use
carts as they browse through the simple racks and shelves of clothing, shoes, and home apparel merchandise. The
company is especially selective about its locations. Everything about the way Kohl’s does business—who it sells to
and how those customers shop—hinges on where it puts its stores. Its goal is to set up shop in the heart of “soccer mom
country.” It tries to avoid malls when looking at store sites, believing that its target customers—young mothers
typically don’t have the time for a long drive to a mall location and certainly don’t want the parking hassles when they
do go shopping.
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Kohl’s approach has been free-standing buildings with smaller parking lots in retailing power centers (a retailing
destination where several large, specialty brand retailers often locate together) and other kinds of strip malls. For
instance, the Kohl’s store in Springfield, Missouri, is located adjacent to a Walmart Super Center, a Home Depot, a
McDonald’s, a Michael’s hobby and crafts store, and other casual dining restaurants. The company’s target market is
women ages 25 to 54 who have children and whose annual household income is moderate ranging from $35,000 to
$75,000. Even the merchandise selection offered at Kohl’s is aimed at this target demographic by selling casual brands
(such as Sag Harbor, Villager, Union Bay, Haggar, Jockey, HealthTex, and others) at low prices. To continue attracting
this segment, Kohl’s added a home furnishings collection called Casa Cristina (named for Cristina Saralegui, the
host of a Spanish-language television show on Univision) and its own Food Network brand of dinnerware and
cooking tools. In addition, the company has brought on board popular designers—including Vera Wang and
Lauren Conrad—with lines of clothing, shoes, and home goods. Kohl’s believed that their customers wanted to
and were willing to purchase more fashionable merchandise selections.

As one retail expert put it, “The chains have decided to design apparel on their own, ensuring that their lower-income
customers can buy skinny jeans and satchel bags at the same time as shoppers at higher-end stores.”
Although Kohl’s has done well so far in a difficult industry, it faces some serious challenges. In addition to
the uncertain external environment, competitors ranging from JCPenney and Sears to Macy’s have copied its
approach. Even specialty retailers such as Old Navy (a unit of Gap, Inc.) and American Eagle have shifted from
trendy teenage fashion toward clothing that appeals to moms. And on the discount end, Walmart Stores has
added national brands and improved the quality of its apparel.

Questions:
1. Which forces in 5 Forces Model were mentioned in this case?
2. Apply 5 Forces Model to analyze the industry environment of Kohl in this case.

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