Business Strategy: Differentiation, Cost Leadership, and Blue Oceans
For a differentiation strategy to strengthen a company's strategic position and boost its competitive advantage, ______.
an increase in value creation must exceed the increase in costs
Which two of the following variables can managers primarily manipulate in order to answer the question, "How should we compete?"
cost value
How is a cost-leader protected from threats from powerful suppliers?
It is more able to absorb price increases through accepting lower profit margins.
What is the relationship between fixed costs and economies of scale?
The amount of fixed costs allocated to each unit of output decreases as output increases.
What must strategic leaders keep in mind if they are going to achieve successful strategic positioning?
To achieve strategic positioning, firms must make important trade-offs.
A ______ outlines the steps a manager will take to achieve competitive advantage in a single product market.
business-level strategy
Bundling of products and services that are consumed in tandem to create value is an example of ______.
complements
Value drivers known as ______ add value to a product or service when they are consumed in tandem with the focal product.
complements
Positive adjustments in product features, customer service, and complements may enable managers to ______.
improve the firm's strategic position
A value curve indicates a lack of effectiveness in a firm's strategic profile when it
zig-zags.
Which of the following are components of a cost-leadership strategy?
acceptable value lowest costs in the industry
Unique features and attributes that differentiate a product from competitors' offerings allow the firm to ______.
charge premium pricing
Economies of scale present an opportunity to increase profits because as the number of units within the relevant range increases, fixed costs ______.
stay the same
The perceived value that a company creates for consumers less the company's costs to create the value equals ______.
the economic value created
A manufacturer of electronic components can use its manufacturing machines to produce many different components such as semiconductors, sensors, and capacitors. In this case, the firm benefits from an economy of [ __________________ ] , reducing overall production costs by finding multiple uses for its components and facilities.
scope
The Ritz-Carlton provides a personalized customer experience based on sophisticated analysis of data gathered about each guest. This focus on ______ allows the hotel to increase its perceived value.
customer service
Which of the following scenarios would result in strengthening a firm's strategic position?
A firm adds a new product feature that greatly increases the perceived value of the product at a minimal cost to the firm.
Which of the following best defines economies of scope?
They are the savings that come from producing two or more outputs at less cost than producing each output individually.
Tindel Inc. competes on cost with Nirvana Sites in the web design industry. Both firms operate on a 90 percent learning curve, and neither firm is capable of increasing its cumulative output any further. How might Tindel Inc. achieve a cost-leadership position while maintaining customer satisfaction?
by incorporating new programming techniques to take advantage of experience-curve effects
A ______ strategy requires achieving the lowest costs in the industry while maintaining a level of value that is acceptable to customers.
cost-leadership
Which of the following are considered the two generic business-level strategies?
differentiation cost-leadership
A successful blue ocean strategy requires strategists to reconcile the trade-offs between ______.
differentiation and cost-leadership
A differentiator is least likely to be threatened by increases in input prices due to powerful suppliers when the
differentiator is able to create a significant difference between perceived value and current market prices.
Which of the following drivers simultaneously increases value while lowering cost?
innovation
A producer of consumer headphones that successfully differentiates its products with a patented noise-canceling technology and celebrity endorsements will enjoy which of the following benefits?
less intense competition from imitators the ability to charge a premium price
Which of the following are examples of ways that a large retailing firm can increase the perceived value of its offerings by focusing on customer service?
offering a "no questions asked" return policy maintaining a domestic call center that is open 24 hours per day
Products in the affordable "business-casual" clothing market have largely become commoditized, and most retailers have begun to compete mainly on price rather than product features. In this environment, it is impossible for one retailer to gain market share without another losing it. This is an example of a ______ ocean.
red
Economies of scale are ______.
decreases in cost per unit as output increases
Different value drivers contribute to competitive advantage only if ______.
the increase in perceived value exceeds the corresponding cost increase
As JetBlue grew, which of the following occurred during the years following 2007?
It suffered a competitive disadvantage.
A cost leader can achieve a competitive advantage by ______.
reducing costs below those of competitors while maintaining a similar value
AcerWare Inc. manufactures external hard disks for $32 per unit, and the maximum price customers are willing to pay is $47 per unit. Data Driver Inc. is a competitor of AcerWare Inc. that produces external hard disks for $37 per unit, and customers are willing to pay a maximum price of $50 per unit. What does this imply?
AcerWare creates a greater economic value than Data Driver.
A blue ocean strategy differs from a low-cost strategy in that
a blue ocean's research and development focus is on process technologies, and a cost-leader's focus is on product technologies.
If two firms produce very similar products at the same rate of output, and firm A is able to achieve lower per-unit costs than firm B by taking advantage of a new manufacturing technology, firm A is benefiting from Blank______.
an experience-curve effect based on process innovation
Which of the following situations would justify the use of manufacturing robots by a producer of packaged foods?
an increase in demand from the market
A tablet manufacturer that includes a free stylus with every purchase is using ______ to enhance users' experiences and increase the perceived value of its tablets.
complements
The goal of a _____________ strategy is to achieve expenses below those of competitors while maintaining similar value. A firm with this strategy could or could not achieve differentiation parity.
cost leadership
According to the ______ rule, increasing the surface area (size) of a storage unit or retail facility results in a disproportionate increase in volume (space).
cube square
Which value driver would be the focus of a company that sells products that are similar to competing products and that provides a 60-day guarantee with no questions asked?
customer service
A struggling retailer seeking to implement a blue ocean strategy is likely to experience difficulty with ______.
cutting costs and increasing value at the same time
A ______ strategy attempts to create products with unique and attractive features in order to increase the price that consumers are willing to pay.
differentiation
Which of the following are business strategies JetBlue pursued in order to gain a competitive advantage?
differentiation and cost-leadership
The concept of a(n) ______ attempts to combine both learning effects and process improvements.
experience curve
In terms of business strategy, blue oceans represent which of the following?
increased demand untapped market space
An auto manufacturer that has access to cheaper labor and raw materials than its rivals will have a competitive advantage regarding lower cost of ______ factors.
input
Why does the learning curve go down when productivity is considered?
As workers repeatedly engage in an activity, they become more efficient, driving down costs.
Why do many firms fail to successfully implement a blue ocean strategy?
because they end up being "stuck in the middle," unable to increase value and lower costs at the same time
A ________ primarily details the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market.
business-level strategy
What are the three most important value drivers that managers can use to create a competitive advantage?
complements product features customer service
A(n) ______ strategy attempts to increase the perceived value of a product while controlling costs.
differentiation
Patti's Potato Chips is a national potato-chip manufacturer. Calpurnia's Crisps is a small-batch gourmet potato-chip maker. Based on just this information, which of the following is the greatest advantage Patti's has over Calpurnia's?
economies of scale
Larger output allows firms to invest in more specialized systems such as which of the following?
manufacturing robots enterprise resource planning software
Economies of ______ are the savings that come from producing two or more different outputs at a lower cost than producing each output individually.
scope
A firm that manages to avoid competition entirely by offering a product or service that creates an uncontested market space is engaging in ______.
value innovation
Implementing a blue ocean strategy requires making competition irrelevant and creating a new market space, otherwise known as ______.
value innovation
A differentiation strategy works best when a
firm has intangible resources, is able to pass on increases in supplier cost to the customer, and its differentiation appeal creates customer loyalty.
The cube-square rule makes it _______ for smaller stores to compete with larger retailers.
harder
Which of the following are input factors?
labor capital information technology services raw materials
Which of the following best exemplifies a company that successfully uses a differentiation strategy?
Company X strengthens its brand by marketing a product with an innovative feature.
What is one of the benefits of pursuing a differentiation strategy when it comes to the power of suppliers?
Differentiation provides protection against an increase in input prices.
Both Tom's Car Repair and Fast Engines. incur a cost of $9,000 to manufacture a vehicle. However, the economic value created by Fast Engines. is more than that created by Tom's Car Repair. What does this indicate?
Fast Engines can charge a premium price on its automobiles.
Which of the following competitive forces can result in the erosion of margins for both differentiation and cost-leadership business strategies?
Power of suppliers Threat of entry Power of buyers
In terms of productivity, which of the following is true of learning curves?
They go down.
