Test 7: answer key

Question 1 · 2 marks · Strategic Analysis: External Environment · medium

Scenario. StreamLine OTT operates in the streaming entertainment industry. Ready-made content is available for licensing, viewers can switch apps easily and many platforms chase the same subscribers with similar releases and heavy advertising. Exclusive sports rights and local-language originals require large sunk content spending, but cloud distribution is accessible to new platforms.

Which condition most appropriately raises the threat of new entrants for StreamLine OTT?

1. Exclusive sports rights held by existing platforms
2. Large sunk content spending by incumbents
3. Strong brand loyalty of existing platforms
4. Ready-made content licensing and low viewer switching costs (correct answer)

Answer: D — Ready-made content licensing and low viewer switching costs

Working. Threat of entry is higher when capital requirements, product differentiation, switching costs and access to distribution are low. Ready-made licensing and low switching costs reduce entry barriers.

Explanation. The threat of new entrants increases when entry barriers are low. Ready-made content licensing reduces the need for original content creation, and low viewer switching costs make it easier for a new platform to attract subscribers. Therefore option d is correct. Options a, b and c are entry barriers that reduce the threat of new entrants.

Where it goes wrong. Students may treat exclusive rights and brand loyalty as factors that increase entry threat, whereas they actually raise entry barriers.

Authority. Chapter 2: Strategic Analysis - External Environment - Porter Five Forces Model

Question 2 · 2 marks · Strategic Analysis: External Environment · medium

Which factor most appropriately increases buyer bargaining power in the OTT industry?

1. Exclusive bundled telecom and OTT packages
2. Easy switching among apps and low differentiation in monthly subscription offers (correct answer)
3. High fixed content costs incurred by platforms
4. Regulatory licensing requirements for platforms

Answer: B — Easy switching among apps and low differentiation in monthly subscription offers

Working. Buyer power is higher when switching costs are low, products are standardised, buyers are price sensitive and buyers can compare alternatives easily.

Explanation. Buyer power increases when buyers can switch easily, compare prices and perceive little differentiation. Easy switching among apps and low differentiation in subscription offers increase buyer bargaining power. Option b is correct. Exclusive bundles reduce buyer power, high fixed content costs affect rivalry and cost structure, and licensing requirements affect entry rather than buyer power directly.

Where it goes wrong. Confusing supplier or entry barriers with buyer power can lead to selecting a cost or regulatory factor.

Authority. Chapter 2: Strategic Analysis - External Environment - Porter Five Forces Model

Question 3 · 2 marks · Strategic Analysis: External Environment · medium

Which condition most appropriately increases competitive rivalry among OTT platforms?

1. Many platforms pursuing the same subscribers with similar releases and heavy advertising (correct answer)
2. Only one platform with exclusive rights to all content
3. A single dominant supplier of content
4. Absence of substitutes for streaming entertainment

Answer: A — Many platforms pursuing the same subscribers with similar releases and heavy advertising

Working. Rivalry among existing firms increases with many competitors, slow growth, high fixed costs, low differentiation and high strategic stakes.

Explanation. Rivalry is intense when many competitors pursue the same buyers with similar offerings and high advertising or content spending. Option a is correct. Option b reduces rivalry, option c relates to supplier power and option d reduces substitute pressure rather than directly increasing rivalry among existing platforms.

Where it goes wrong. Selecting substitute pressure or supplier power when the question asks specifically about rivalry among existing firms.

Authority. Chapter 2: Strategic Analysis - External Environment - Porter Five Forces Model

Question 4 · 2 marks · Strategic Analysis: Internal Environment · medium

Scenario. Vayu Drone Tech has developed flight-control algorithms, battery-management know-how and systems-integration skills. Its competences allow it to serve surveillance, agricultural spraying and mapping drone markets. Customers pay a premium for longer flight time and lower downtime. Some algorithms are patented and the integration know-how is tacit and difficult to replicate.

Which feature of Vayu Drone Tech most appropriately satisfies the market access test of a core competence under the Prahalad-Hamel framework?

1. Customers value longer flight time and lower downtime
2. Competitors find the tacit integration know-how difficult to copy
3. The competence enables participation in surveillance, agricultural spraying and mapping drone markets (correct answer)
4. The company uses low-cost components

Answer: C — The competence enables participation in surveillance, agricultural spraying and mapping drone markets

Working. Prahalad-Hamel core competency tests include market access, customer-perceived value and competitor imitability. The multiple market applications satisfy market access.

Explanation. The market access test asks whether a competence opens access to a wide variety of markets. Vayu Drone Tech uses its competence across surveillance, agricultural spraying and mapping markets, so option c is correct. Option a relates to customer-perceived value, option b relates to competitor imitability and option d is a cost attribute rather than the market access test.

Where it goes wrong. Confusing customer value or imitability with the market access test of core competence.

Authority. Chapter 3: Strategic Analysis - Internal Environment - Core Competency

Question 5 · 2 marks · Strategic Analysis: Internal Environment · medium

Which feature of Vayu Drone Tech most appropriately satisfies the customer-perceived value test of a core competence?

1. The competence opens multiple product markets
2. Customers pay a premium for longer flight time and lower downtime (correct answer)
3. Patents and tacit know-how make imitation difficult
4. The company uses low-cost components

Answer: B — Customers pay a premium for longer flight time and lower downtime

Working. Customer-perceived value requires that the competence contribute to a benefit that influences the customer purchase decision and supports premium or loyalty.

Explanation. The customer-perceived value test asks whether the competence delivers a fundamental benefit that customers value and for which they are willing to pay. A premium for longer flight time and lower downtime satisfies this test. Option b is correct. Option a is market access, option c is imitability and option d is a cost input rather than customer-perceived value.

Where it goes wrong. Treating low-cost inputs as customer value without linking the competence to a benefit perceived by customers.

Authority. Chapter 3: Strategic Analysis - Internal Environment - Core Competency

Question 6 · 2 marks · Strategic Analysis: Internal Environment · medium

Which feature of Vayu Drone Tech most appropriately satisfies the competitor imitability test of a core competence?

1. The competence opens access to multiple markets
2. Customers pay a premium for the product
3. The company uses inexpensive labour
4. Patented flight-control algorithms and tacit integration know-how are difficult to replicate (correct answer)

Answer: D — Patented flight-control algorithms and tacit integration know-how are difficult to replicate

Working. A competence satisfies the imitability test when it is protected by patents, tacit knowledge, complexity, path dependence or other isolating mechanisms.

Explanation. The imitability test asks whether competitors can readily replicate the competence. Patented algorithms and tacit integration know-how are difficult to replicate, so option d is correct. Option a is market access, option b is customer-perceived value and option c is a general cost factor rather than a source of hard-to-imitate competence.

Where it goes wrong. Selecting customer value or multiple market access when the question specifically asks about competitor imitability.

Authority. Chapter 3: Strategic Analysis - Internal Environment - Core Competency

Question 7 · 2 marks · Strategic Analysis: External Environment · medium

Scenario. PrintMedia Ltd operates in the print and publishing industry. The market has slowed, competition is tough, prices are stable and cash generation is important. Some product lines are now facing a sharp decline because digital substitutes are replacing print products. The management is considering strategic choices for the maturity and decline phases of the industry life cycle.

In the maturity phase of the industry life cycle, which strategic emphasis is most appropriate for PrintMedia Ltd?

1. Maintain stability, defend market share and focus on cost efficiency and cash generation (correct answer)
2. Expand capacity aggressively for rapid market growth
3. Diversify immediately without assessing cash flows
4. Exit the industry immediately in all product lines

Answer: A — Maintain stability, defend market share and focus on cost efficiency and cash generation

Working. Maturity phase characteristics include slow growth, intense competition, stable market and pressure on profits. Strategic emphasis shifts to stability, efficiency and cash generation.

Explanation. In maturity, sales growth slows, competition is tough and the market stabilises. The appropriate emphasis is on maintaining stability, defending share, improving cost efficiency and generating cash. Option a is correct. Aggressive capacity expansion suits growth, immediate diversification without cash assessment is imprudent and immediate exit is not appropriate for all product lines in maturity.

Where it goes wrong. Applying growth-phase expansion strategies during maturity can lead to overcapacity and weak cash flows.

Authority. Chapter 2: Strategic Analysis - External Environment - Product Life Cycle

Question 8 · 1 marks · Strategic Analysis: External Environment · medium

Which strategic response is most appropriate for a product line of PrintMedia Ltd that has entered the decline phase because of digital substitution?

1. Expand production capacity aggressively
2. Increase prices without any differentiation
3. Use selective harvesting or retrenchment and consider diversification if cash flows permit (correct answer)
4. Invest heavily in research and development for the old print product without reviewing demand

Answer: C — Use selective harvesting or retrenchment and consider diversification if cash flows permit

Working. Decline phase responses include divestment, retrenchment, selective harvesting and diversification. The choice depends on cash generation, competitive position and alternative opportunities.

Explanation. In decline, sales and profits fall because of substitutes or changing demand. Appropriate responses include selective harvesting, retrenchment or diversification when cash flows and capabilities permit. Option c is correct. Capacity expansion, undifferentiated price increases and heavy research spending on an obsolete product without demand review are generally inappropriate.

Where it goes wrong. Continuing to invest heavily in a declining product line ignores the strategic implication of substitute products and declining demand.

Authority. Chapter 2: Strategic Analysis - External Environment - Product Life Cycle