nan External Analysis Exam Prep Chapter 4

Entrepreneurship, 3e (Bamford)

Chapter 4 External Analysis

1) In an external environment analysis, the first step is to research your customers. 

2) A small business owner must understand when an opportunity for a new business is truly an opportunity.

3) The key to recognizing an opportunity is completing a detailed analysis of the internal environment. 

4) In an external analysis, the first step is to determine where the business is expected to compete.

5) Basic industry information can be obtained only by participating in focus groups. 

6) Defining the firm's industry is something that can be taken lightly; the small business owner really needs to learn only about the local market. Industry information can be learned later. 

7) The North American Industry Classification System (NAICS) is a code generated by the U.S. government to gather, track, and publish data on specific industries. 

8) The easiest way to locate the NAICS (North American Industry Classification System) code is to use the Internet. 

9) One way to obtain the NAICS (North American Industry Classification System) code is to locate a direct competitor and research it through Dunn and Bradstreet, Lexis Nexis, etc. 

10) Most of the NAICS (North American Industry Classification System) data is based on the local market area. 

11) An owner, when researching a new business, needs to be aware of, and be able to describe, all potential customers. 

12) When starting a new business, an owner needs to take into account how far a customer will travel for the product or service to be sold.

13) An industry is defined as a group of companies within a specified radius that will be in direct competition for the same customers. 

14) Starting an entrepreneurial business should be based on the observance of an opportunity.

15) Industry associations have extensive data on their industry and usually are quite willing to share that with the public.

16) The greatest barrier to the spread of an application is the social media that promotes the application.

17) In determining the industry within which a new business will compete, an entrepreneur should seek to be as generalist in his or her approach as possible.

18) An NAICS (North American Industry Classification System) code is a code that is standard 15-digit in length.

19) In defining the industry, an application should be conceptualized not in its use but as a physical item.

20) The greatest factor that spreads the use of an application is how customers and potential customers communicate with each other on the application.

21) The egalitarian approach helps the small business owner clearly focus on their core customers. 

22) New business owners do not need to identify customers because they have already been identified by their competitors. All you have to do is copy your competitors. 

23) The first step in defining your customer base is to draw a geographical radius around your location; inside this radius is where you will find the majority of your potential customers. 

24) James is opening up a gourmet hamburger shop. To define his customer base, the first step is to draw a geographical radius around the proposed location.

25) Once an entrepreneur has established a reasonable radius from which he or she would draw his or her primary customers, the next step is to examine each potential competitor.

26) In the context of external analysis of competitors, if new business owners are very clear regarding their customers' needs, then the ability to identify direct competitors becomes significantly challenging.

27) Once entrepreneurs have defined the industry that interests them, determined who their potential customers might be and why they might want to buy from the business, the next step is to start understanding the competitive advantage of the business.

28) Fragmented markets are markets where no one competitor has a majority share of the market.

29) A small business can compete on a cost basis with a larger firm.

30) A competitive map is an analytical tool to organize information about direct competitors. 

31) A competitive map does not require a visit to all potential customers. 

32) One possible result of the development of a competitive map is the conclusion that the initial concept was not feasible. 

33) A trade-in is a product that performs a similar function or achieves the same result as the original product.

34) A substitute exists if the service or product performs a similar function.

35) A new small business owner does not have to be aware of substitutes or the impact they could have.

36) Elasticity of demand is the ease that exists when a customer can switch to a substitute. 

37) A product/service for which customers are willing to pay any price has an elastic demand.

38) An exit barrier keeps an entrepreneur from leaving the business he or she has invested in.

39) James has invested a large amount of money in his business; he is reluctant to just give up this investment, which he would have to do if he closed his business. This is an example of an exit barrier.

40) If the expenses incurred in operating a business are such that an entrepreneur cannot easily recoup the investment, then the level of competition will be more intense.

41) If a business owner cannot easily exit an industry, then that owner is more likely to use predatory pricing in an effort to generate cash flow and survive.

42) The ability to exit a business relatively easily tends to increase the threat posed by a new entry.

43) A major cause for failure of a new business is lack of focus on the competitive advantage.

44) A normal or ordinary competitive factor is some kind of standard practice in the industry, and it is necessary for the business to succeed.

45) Unusual or unique competitive factors are the means by which a business can differentiate itself from competitors. 

46) Orthodox and unusual or unique competitive factors do not vary by industry.

47) To have a competitive advantage, the unusual products or services of a business need to meet these four criteria: rare, durable, valuable, and nonsubstitutable. 

48) Resource-based analysis is ineffective because it fails to define a business's competitive advantages and differentiate these from their competitors.

49) The first part of an external analysis is to

A) research potential substitutes.

B) develop a competitive edge.

C) identify potential customers.

D) determine in which industry the new business will compete.

50) The information from the North American Industry Classification System (NAICS) can be found from

A) the government.

B) the library.

C) the Internet.

D) all of these.

51) A(n) ________ is defined as those companies within a specified geographic radius that will be in direct competition for the same customers and sales as that of the new business.

A) industry

B) competitor's files

C) tracking system

D) U.S. Government Blue Book

52) Identify a true statement about the North American Industry Classification System (NAICS).

A) It is generally used by entrepreneurs to get detailed information about local competitive environment.

B) It provides potential entrepreneurs with data related to industry categorization.

C) It provides an entrepreneur with a standard 15-digit industry code.

D) It is unable to provide any information about national trends of specific industries.

53) Gerald is planning on setting up a burger joint in his hometown. He finds out the NAICS (North American Industry Classification System) code for his business. From this information, he is able to understand that his immediate area contains virtually no competitors and has the potential to do very well. In the context of the critical steps involved in conducting an external analysis, Gerald is ________.

A) starting to develop an understanding of his competitive advantage

B) drawing a set of competitive maps

C) defining the industry in which he is competing

D) examining and developing insights about substitutes

54) Once a business is broadly defined, the next step is to

A) visit all competitors.

B) define the fragment markets.

C) define a narrow group of customers.

D) define a larger group of customers.

55) When defining potential customers, an owner must

A) visit all competitors.

B) use NAICS data.

C) define a specified radius around the business.

D) analyze normal or ordinary competitive factors.

56) What are the two things that a new business owner should keep in mind when defining a customer base?

A) Efficiency and accuracy

B) Accuracy and diligence

C) Thoroughness and efficiency

D) Intelligence and diligence

57) According to the book, a clear understanding of the business's customers is important because it

A) aids in keeping a strategic distance between itself and its competitors.

B) helps in focusing on the core customers.

C) provides a way to control expenses.

D) all of these.

58) Mary has established a reasonable geographic radius for her flower shop. As a result, she should be able to

A) examine potential customers.

B) predict her price point.

C) define normal or ordinary competitive factors.

D) predict sale price.

59) The benefits of ________ and ________ are the insights to provide the owner that performs the activities with a greater chance of success.

A) analyzing; researching

B) planning; analyzing

C) researching; planning

D) coordinating; planning

60) Hiring a consultant is expensive, but it also ________ the insights that could be obtained.

A) increases

B) makes no difference to

C) limits

D) distracts

61) Fragmented markets have

A) few potential competitors.

B) many potential customers.

C) no clear dominant competitors.

D) clear dominant competitors.

62) When small businesses compete with large firms, a main disadvantage is

A) analyzing unusual or unique competitive factors.

B) operating at a cost level.

C) lacking flexibility.

D) reaching break-even point quicker.

63) A tool to better understand competitors and their capabilities is

A) competitive map.

B) deficit analysis.

C) benchmarking.

D) resource-based analysis.

64) Mark is setting up his new business. He has defined the industry in which he is competing and has also defined his customers. In the context of conducting an external analysis, which of the following should be Mark's next step?

A) Mark should examine and develop insights about substitutes.

B) Mark should draw a set of competitive maps.

C) Mark should research the industry.

D) Mark should develop an understanding of his competitive advantage.

65) Which of the following is likely to occur if entrepreneurs fail to define a radius from which they believe their business will draw a majority of its customers?

A) It will distort the entrepreneur's advertising efforts.

B) It will dramatically reduce the entrepreneur's costs.

C) It will be easier for the entrepreneur to identify direct and indirect competition.

D) It will force the entrepreneur to forego business unnecessarily.

66) Larry has set up a new burger joint in his hometown. He has obtained information about who will most likely be customers at his joint. Because his joint is located near a college, he knows that a majority of his customers are going to be students. In the context of the critical steps involved in conducting an external analysis, which of the following should be Larry's next step?

A) Larry should start developing an understanding of his competitive advantage.

B) Larry should gain thorough information about the elasticity of demand for his product.

C) Larry should develop insights about benchmarking.

D) Larry should conduct research to know his exact competitors.

67) When completing a conceptual map, an entrepreneur needs to visit ________ of the potential competitors.

A) 50 percent

B) 60 percent

C) 75 percent

D) 100 percent

68) A(n) ________ is an analytical tool to organize information about direct competitors on all points of competition.

A) analysis gap

B) competitive map

C) completion map

D) deficient map

69) A(n) ________ is an analytical tool to organize information about direct competitors on all points of competition.

A) It is less expensive.

B) It helps in developing insights regarding pricing.

C) It provides knowledge about each competitor and allows the entrepreneur to better position the new business.

D) All of these.

70) In developing a competitive map, an owner should review

A) population of the area.

B) household income.

C) average number of customers per hour.

D) all of these.

71) In the context of conducting an external analysis, which of the following steps should an entrepreneur take next after identifying and researching competitors within an industry?

A) Develop an understanding of one's own competitive edge.

B) Examine and develop insights about benchmarking.

C) Examine and develop insights about elasticity of demand.

D) Draw a set of competitive maps.

72) Which of the following is an example of the list of items that an entrepreneur should include while visiting and making comparisons to his/her potential competitors?

A) Access from road

B) Size of the facility

C) Nearby attraction for customers

D) All of these

73) According to the book, which of the following is an example of an economic issue that a new business should consider?

A) Industry trends

B) Case of entry/exit

C) Elasticity of demand

D) All of these

74) A(n) ________ exists if the service or product performs a similar function.

A) trade-in

B) substitute

C) elasticity of demand

D) product/service flexibility

75) A substitute can assist in forming a(n) ________ on the price that can be charged for product or service.

A) elastic demand

B) schedule

C) competitive map

D) ceiling

76) An entrepreneur cannot leave his or her business because of the amount of money that was invested. This is called a(n) ________.

A) harvest plan

B) exit strategy

C) benchmarking

D) exit barrier

77) ________ keeps an entrepreneur from leaving the business.

A) Exit barrier

B) Exit strategy

C) Exit restrictions

D) None of these

78) Competitors will often ________ their knowledge if your business is not a potential direct competitor.

A) share

B) not share

C) hide

D) distort

79)  _____ is working with and learning from a company outside of your industry that has a skill that is critical to the firm's operation.

A) Fragmenting

B) Substitute-based

C) Benchmarking

D) Tag lines

80) The ability to exit a business relatively easily

A) tends to limit the intensity of competition in the industry.

B) increases the threat posed by a new entry.

C) makes it difficult for an entrepreneur to recoup the initial investment.

D) encourages entrepreneurs to use predatory pricing in order to survive.

81) Which of the following products is likely to have an inelastic demand?

A) Cancer medicine

B) Rounds of golf

C) A Rolex watch

D) A luxury car

82) Which of the following products is likely to have an elastic demand?

A) Gasoline

B) Diamond

C) Food

D) Water

83) Keith has set up a new burger joint in his locality. He is planning on introducing craft beers and milkshakes to the existing menu. Thus, the customers who visit his joint will have a range of options to choose from. This scenario exemplifies ________.

A) identifying substitutes

B) understanding elasticity of demand

C) benchmarking

D) analyzing industry trends

84) Initech is a computer manufacturing company. Janice, a senior manager at Initech, is given the task of developing the company's after-sales services. Janice researches information about companies that have been pioneers in this domain. She learns that Massive Dynamic, a car manufacturing company, has the best after-sales service in the country. She gets in touch with senior managers in Massive Dynamic and learns about their in-house operational processes that enable them to be leaders in the industry. She introduces new policies in her company with the knowledge gained from Massive Dynamic to improve their after-sales service. This scenario exemplifies ________.

A) convergence

B) benchmarking

C) elasticity of demand

D) bootstrap marketing

85) Harold is the owner of a beer cafe in his locality. His beer cafe is not the only one in the area. In order to improve business, Harold decides to make a few changes to his cafe. He installs state-of-the-art music system, a karaoke machine, and a snooker table in his cafe. Customers flock to his cafe every evening because it is the only cafe in the locality with these facilities. Which of the critical steps involved in conducting an external analysis has helped Harold improve his business?

A) Defining the customers

B) Examining and developing insights about elasticity of demand

C) Developing an understanding of the competitive advantage

D) Drawing a set of competitive maps

86) Which of the following should be an entrepreneur's last step in external analysis?

A) Identifying competitors within the industry

B) Understanding the competitive advantage

C) Defining the customers

D) Developing competitive maps

87) In the context of external analysis, once an entrepreneur has examined and developed insights about substitutes, elasticity of demand, ease of entry and exit, benchmarking, and industry trends, he or she should ________.

A) identify competitors within the defined industry

B) define the industry in which he or she is competing

C) develop an understanding of his or her competitive advantage

D) draw a set of competitive maps

88) The term ________ is defined as a theoretical approach and practical methodology that examines the functioning of a business in terms of whether a product or service simultaneously meets the criteria of being rare, durable, nonsubstitutable, and valuable.

A) "competitive map"

B) "deficit analysis"

C) "benchmarking"

D) "resource-based analysis"

89) ________ is the edge a business has over competing businesses.

A) Competitive advantage

B) Benchmarking

C) Criteria-related advantage

D) Competitive map

90) A competitive advantage in a business could be ________.

A) location

B) product selection

C) activity of the firm

D) all of these

91) ________ is an area of business that uses standards that are necessary for the business.

A) Competitive map

B) Benchmarking

C) Unusual or unique competitive factor

D) Normal or ordinary competitive factor

92) ________ describes those areas of a business that are unique or unusual as compared to standard practices of the industry.

A) Competitive map

B) Benchmarking

C) Unusual or unique competitive factor

D) Normal or ordinary competitive factors

93) A business owner will gain an increased understanding of the unusual or unique competitive factors and capabilities of a business through

A) gap analysis.

B) competitive map.

C) resource-based analysis.

D) benchmarking.

94) All of these are criteria to be an unusual or unique service/product EXCEPT ________.

A) valuable

B) consistent

C) durable

D) rare

95) Which of the following provides the new business with the opportunity to make more money than the competition?

A) External analysis

B) Market trends

C) Competitive advantage

D) Industry trends

96) A(n) ________ consists of direct competitors selling similar products or services within a specified geographic radius.

97) In ________ markets, no one competitor has a substantial share of the market and the means of competition vary widely within the same market space.

98) A(n) ________ is an analytical tool used to provide information to organize information about direct competitors on all points of competition.

99) As the prices of luxury items increase, the demand usually declines as these goods are not essential and their purchase can be delayed. This would be called_____.

100) ________ markets are areas in which no one competitor has a substantial share of the market.

101) A(n) ________ is a product that performs a similar function, or it achieves the same result.

102) ________ is studying and learning from a company outside of your industry that has a particular skill that is potentially critical to the company's operation.

103) Competitive ________ is the edge that a firm has over competing businesses.

104) Describe the critical steps in examining the external environment of a new business.

105) Dennis wants to open up a bowling alley in his community. What types of questions would be used in the research of the industry?

106) What are fragmented markets and how do they affect a small business owner?

107) What are the reasons for developing a competitive map?

108) When an owner visits a competitor to gather information, what information should be reviewed?

109) Describe and give examples of economic issues that founders of a new business will want to consider in their external analysis.

110) Why does a new business need to develop a competitive advantage?

111) Describe the four criteria that unorthodox products or services develop into a competitive advantage.