BUS491 - Chapter 6 Review Questions

A cost leader is the firm most likely to survive a price war.

True

Which of the following sources of differential appeal is least effective in helping a firm sustain its advantage?

observable product features

A blue ocean strategy differs from a low-cost strategy in that

the intent of a blue ocean strategy is not to be the absolute lowest-cost provider because a blue ocean must also increase perceived value.

Which of the following best describes a strategic trade-off?

the tension between value creation and the pressure to keep costs in check

_____ is best described as decreases in cost per unit as output increases.

Economies of scale

A differentiator will always benefit when products have become commoditized.

False

The goal of the differentiator is to have a smaller value gap than competitors.

False

When a firm combines experience based learning and process innovation, the firm

jumps to a steeper learning curve.

Quick Clean Chemicals 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 company become a price leader in the chemicals industry. Which of the following is the key driver behind Quick Clean's strategic position?

low-cost input factors

Swan Song is a spa that caters to the needs of a small percentage of highly health-conscious consumers. It offers state-of-the-art treatments in a luxurious setting. Since there are very few spas that offer the same unique services, customers are willing to pay a premium price for its products and services. In this scenario, Swan Song is following a

focused differentiation strategy.

Product features, customer service, and complements are all examples of important

value drivers.

The pursuit of both differentiation and low cost at the same time in a way that creates a leap in value for both the firm and consumers is called

value innovation.

When pursuing a Blue Ocean strategy, a firm in a crowded marketplace attempts to out-compete rivals on both cost and product features with the goal of gaining market share at the expense of other competitors in the same industry.

False

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

blue ocean

Which of the following is primarily a value driver?

complements

In a focused cost-leadership strategy, a firm

delivers low-cost products and services to a specific, narrow part of the market.

Beach Grub is a chain of "fast casual" restaurants that sells its menu items at higher prices than its competitors. Yet, the restaurant has a large customer base due to its wide product portfolio and superior customer service. Which of the following generic business strategies has Beach Grub adopted in this scenario?

differentiation

_____ is best described as the output range needed to bring down the cost per unit as much as possible, allowing a firm to stake out the lowest-cost position that is achievable through economies of scale.

Minimum efficient scale

Thomas is the owner of a landscaping company that caters to a very wealthy clientele. His company has struggled to differentiate itself from the other high-end landscapers in the area, but because he has hired several expensive but highly-qualified team members, Thomas is unable to shift to a cost leadership strategy. Which strategy is most likely to achieve a competitive advantage?

Narrow the scope of competition and focus on unique features such as the use of organic materials.

Both Bison Autos and Sparrow Inc. incur a cost of $9,000 to manufacture a vehicle. However, the economic value created by Sparrow Inc. is more than that created by Bison Autos. What does this indicate?

Sparrow Inc. can charge a premium price on its automobiles.

Which of the following examples uses a focused differentiation strategy?

a cosmetics brand that offers superior skin lotion for sensitive skin priced at 100 dollars per bottle

When Simple Semiconductors was operating at the minimum efficient scale of 10,000-12,000 units per month, the firm's cost per unit was $45. However, when the output level was increased beyond 12,000 units, the cost per unit increased to $47. This increase was attributed to the wear-and-tear of the machinery, and complexities of managing and coordinating. What is this phenomenon known as?

diseconomies of scale

Backyard BBQ is a chain of casual restaurants that promises affordable barbecue using top-quality local ingredients. However, the company has struggled to achieve a competitive advantage because of its high overhead costs. Which of the following scenarios is most likely to result in a competitive advantage?

eliminating brick-and-mortar locations and offering delivery from a central kitchen

Trader Joe's successfully used a blue ocean strategy by offering lower cost food than Whole Foods for the same market of patrons. By doing this, Trader Joe's was able to

gain a market share and make up the loss in margin through increased sales.

Whole Foods differentiates itself from competitors by offering top-quality foods obtained through sustainable agriculture. This business strategy implies that Whole Foods focuses on

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

Which of the following is a firm effect that has an impact on the competitive advantage of a firm?

the value and the cost position of the firm relative to its competitors

Red Sapphire is a wristwatch company known for its luxury watches and that follows a differentiation strategy. In this scenario, Red Sapphire should ideally compare its strategic position with a

watch maker that sells high-end, premium watches.