GBU 480 CH 6

When a firm operates at the minimum efficient scale, the: cost per unit is the highest. firm attains the highest cost position. firm experiences diseconomies of scale. returns to scale are constant.

returns to scale are constant.

6. At a certain output level, the per-unit cost incurred by a firm to manufacture a product was $60. Once the cumulative output doubled, the cost per unit reduced to $54. All other factors remaining constant, the firm has been able to achieve a(n): 54 percent learning curve. 80 percent learning curve. 90 percent learning curve. 60 percent learning curve.

90 percent learning curve.

Benefits and Risks of Cost-Leadership

Benefit: protected from competitors if price war Risk: new entrant arrives and new capabilities needed

Benefits and Risks of Differentiation

Benefit: reduced rivalry & high cost of imitation Risk: might overshoot features needed & vulnerable to price-sensitive customers

19. A cost-leader is protected from the threat of new entrants primarily due to its: superior customer service. luxury goods. premium pricing. economies of scale.

economies of scale.

11. Which of the following statements is true of a strategic position? A firm is said to have a competitive advantage when it ends up with strategic positions below the productivity frontier. Strategic positions are fixed; they do not change like the environment. Differentiation and cost leadership require similar strategic positions. Choosing a strategic position requires making important trade-offs between value and cost positions.

Choosing a strategic position requires making important trade-offs between value and cost positions.

8. Home Smart Inc. is a chain of supermarkets that sells its products at higher prices than its competitors. Yet, the supermarket chain has a large customer base due to its wide product portfolio and superior customer service. Which of the following generic business strategies has Home Smart adopted in this scenario? Differentiation Market penetration Product diversification Cost-leadership

Differentiation

Define Economies of Scale

Economies of Scale - output up, cost per unit down Spread fixed costs over large output •Specialized systems •Physical properties •Lowest cost position constant returns to scale

13. GlamorRace is a cosmetic brand that pursues a cost-leader strategy. Which of the following statements is true of the cosmetic brand? It directly competes against luxury cosmetic brands that charge premium prices. It charges a premium price for its products. It appeals to the price-conscious buyers. Its primary value driver is product uniqueness.

It appeals to the price-conscious buyers.

20. As the cumulative output in a firm increases, managers learn how to optimize the production process and improve workers' performance through repetition. This drives down the per-unit cost. Which of the following phenomena is best described here? Network effects Learning effects Diseconomies of scale Productivity frontier

Learning effects

2. Bass Watches Inc. initially spent eight man-hours to assemble a wrist watch. But as the production doubled, the number of hours spent on assembling a watch reduced by 20 percent. This increase in productivity reduced the company's cost per unit. What is this phenomenon referred to as? Network effect Time compression diseconomies Learning-curve effect Black-swan event

Learning-curve effect

12. Rosa Apparels Inc. outsources its production to contract manufacturers located in underdeveloped nations where unskilled labor is available in plenty for very low wages. This has helped the apparel brand become a price leader in the industry. Which of the following is the key driver behind Rosa Apparel's strategic position? Network effects Low-cost input factors Availability of complements Superior customer service

Low-cost input factors

List the 3 Differentiation Strategies

Product Features •Most important & clearest drivers •Unique product features >> higher price (BMW M3) Customer Service •ID unmet customer needs & satisfy them (Zappos online retailer) (Ritz-Carlton) Complements •Add value when consumed as a bundle (AT&T U-verse with a DVR add-on)

7. Oviyo Inc. has been successful at differentiating itself from competitors by claiming a premium price for its digital cameras based on superior image quality and advanced technology. In this scenario, which of the following is the key value driver? Low-cost input factors Premium prices Economies of scale Product features

Product features

5 Value and Cost Drivers of Integration Strategies

Quality Can increase perceived value & lower cost (V − C) Economies of Scope Starbucks adding hot tea to its menu Customization BMW, Threadless.com, Toyota all mass customization Innovation IKEA - stylist furniture in flat pack delivery Structure, Culture, & Routines Ambidextrous organization - Intel

5. While Aros Inc. incurs a cost of $20 for a pair of shoes, Shoes Cult Inc., its competitor, manufactures a pair of shoes at $22. Both the companies are able to sell their shoes for a maximum of $30 per pair. Which of the following statements is NOT true in this scenario? Aros is a cost leader when compared to Shoes Cult. Both Aros and Shoes Cult have achieved differentiation parity. Aros has created a greater economic value than Shoes Cult. Shoes Cult has a competitive advantage over Aros.

Shoes Cult has a competitive advantage over Aros.

17. Coral Orchids is a chain of premium hotels around the globe that charges higher prices for its rooms and suites when compared to the average industry standards. Yet, the hotel enjoys the largest market share in the industry. This is mainly due its highly responsive staff that has a strong commitment toward achieving a 100 percent guest satisfaction. In this scenario, which of the following is the key value driver? Availability of complements Economies of scale Superior customer service Low cost of input factors

Superior customer service

Define BUSINESS-LEVEL STRATEGY

The goal-directed actions managers take in their quest for competitive advantage when competing in a single product market

14. A successfully implemented integration strategy allows a firm to: charge a higher price than the cost leader in the industry. reduce its value gap beyond that created by the cost leader in the industry. create lesser economic value than the differentiator in the industry. increase its price above that of the differentiator in the industry.

charge a higher price than the cost leader in the industry.

4. BuyMart Inc. is a large chain of hypermarkets. It has cost benefits due to its extensive operation. The company's marketing and sales, logistics, administrative, and other such related costs get divided between a large number of product units stocked in its stores. This makes it difficult for smaller retail stores and supermarkets to compete against BuyMart's low prices. Thus, BuyMart has a competitive advantage due to its: superior customer service. time compression economies. learning-curve effects. economies of scale.

economies of scale.

18. The concept of a(n) _____ attempts to capture both learning effects and process improvements at firms. experience curve managerial grid growth matrix diminishing utility curve

experience curve

1. Whole Foods differentiates itself from competitors in part by offering top-quality foods obtained through sustainable agriculture. This business strategy implies that Whole Foods focuses on: lowering its costs compared to its competitors', while offering adequate value for its products and services. maintaining a less steeper learning curve as compared to its competitors. increasing the perceived value created for customers, which allows it to charge a premium price. decreasing the existing value gap by providing luxury goods to customers.

increasing the perceived value created for customers, which allows it to charge a premium price.

. In a successful _____, the trade-offs between differentiation and low cost are reconciled. focused differentiation strategy liquidation strategy integration strategy divestment strategy

integration strategy

9. A firm achieves differentiation parity ideally when: it creates the same customer value as its competitors. its cost of production is higher than that of its competitors. it successfully sells its products and services at a higher price than its competitors. its product features and services are better than that of its competitors.

it creates the same customer value as its competitors.

3. A firm is said to have a competitive advantage over its rivals when it: lowers the value gap created. experiences diseconomies of scale. reaches the productivity frontier. moves up a given learning curve.

reaches the productivity frontier.

10. An integration strategy differs from a low-cost strategy in that: an integrator's research and development focus is on process technologies, and a cost-leader's focus is on product technologies. the focus of an integrator is on lowering the economic value created, whereas a cost leader focuses on increasing the economic value created. economies of scale are more important to an integrator, while economies of scope are more important to a cost leader. the intent of an integration strategy is not to be the absolute lowest-cost provider because an integrator must also increase perceived value.

the intent of an integration strategy is not to be the absolute lowest-cost provider because an integrator must also increase perceived value.

Define Diseconomies of Scale

• Complexity of management or physical limits