Chapter 4
An interior decorator has moved his business from Los Angeles to St. Paul, Minnesota because his spouse's company transferred her to St. Paul. The decorator is distressed because the customers in his target market have, in his words, "banal and bourgeois taste." Which of the following is the decorator's problem? a. The decorator does not understand that customer needs are neither right nor wrong, and neither good nor bad. b. The decorator has no core competencies that will transfer to his new geographic market. c. The decorator has not been able to choose a strategy of cost leadership in this environment. d. The decorator is highly affiliated with the new target market and understands how he can create value for it.
ANSWER: a. The decorator does not understand that customer needs are neither right nor wrong, and neither good nor bad.
In the animal food products business, food-product needs of owners of companion animal pets (e.g., dogs and cats) differ from the needs for food and health-related products of those owning production animals (e.g., livestock). To which of the following aspects of managing customer relationships does this choice refer? a. Who: Determining the Customers to Serve b. What: Determining Which Customer Needs to Satisfy c. How: Determining Core Competencies Necessary to Satisfy Customer Needs d. When: Determining When to Satisfy Customer Needs
ANSWER: a. Who: Determining the Customers to Serve
A business model is developed first. Then the firm takes steps to understand customers in terms of who, what, and how in order to develop a business-level strategy. a. True b. False
ANSWER: False
A business model should be selected with great care because it cannot be changed, or even adjusted, once a firm begins to use the model to implement its business-level strategy. a. True b. False
ANSWER: False
A business-level strategy describes what a firm does to create, deliver, and capture value for its stakeholders. a. True b. False
ANSWER: False
A business-level strategy is a framework for how the firm will create value, while a business model creates the path a firm intends to follow to gain competitive advantage. a. True b. False
ANSWER: False
A low-cost position in the industry is not a valuable defense against rivals when competing on the basis of price. a. True b. False
ANSWER: False
Because of its focus on innovation and quality manufacturing, total quality management is not useful for firms that follow a cost leadership strategy. a. True b. False
ANSWER: False
Companies without core competencies in their value-chain activities and support functions are still able to successfully implement either a cost leadership or a differentiation strategy, although they cannot implement an integrated cost leadership/differentiation strategy. a. True b. False
ANSWER: False
Delgado is a U.S.-based firm that serves an international market. It determines product offerings and price points based on the country in which the product will be sold. Delgado is using consumption patterns as the basis for segmenting its customers. a. True b. False
ANSWER: False
Every firm uses all levels of strategy: corporate-level, merger and acquisition, international, and cooperative. a. True b. False
ANSWER: False
Flexible manufacturing systems, information networks, and total quality management are three techniques that make it possible for firms to implement the focused differentiation strategy. a. True b. False
ANSWER: False
Human resources and other support functions are not value-creating activities in the value chain, only value-chain activities create value. a. True b. False
ANSWER: False
In general, firms can be MOST effective if they develop business-level strategies that will serve the needs of the "typical customer" in the industry. a. True b. False
ANSWER: False
One of the benefits of the integrated cost leadership/differentiation strategy is that it is less risky than either the cost leadership or differentiation strategies. a. True b. False
ANSWER: False
Southwest Airlines' tightly integrated activities make its cost leadership strategy more vulnerable to imitation than if its activities were loosely integrated. a. True b. False
ANSWER: False
The activities in the value chains of companies using focus strategies are quite different than the activities in the value chains of companies using industry-wide business strategies. a. True b. False
ANSWER: False
The difference between the cost leadership and differentiation business-level strategies on the one hand, and the focused cost leadership and focused differentiation strategies on the other, are their basis for customer value. a. True b. False
ANSWER: False
The differentiation strategy is ineffective for products that are expensive, luxury consumer goods. It is best used for common, inexpensive products such as donuts. a. True b. False
ANSWER: False
The hazard of getting "stuck in the middle" applies to firms using any business strategy. a. True b. False
ANSWER: False
The key to Southwest Airlines' success has been its ability to continuously reduce costs while providing customers with superior levels of differentiation, such as an engaging culture. a. True b. False
ANSWER: False
The value-creating activities associated with the cost leadership strategy and differentiation strategy are the same. a. True b. False
ANSWER: False
A business-level strategy is an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets. a. True b. False
ANSWER: True
A flexible manufacturing system is a computer-controlled process used to produce a variety of products in moderate, flexible quantities with a minimum of manual intervention. a. True b. False
ANSWER: True
A new generation of lunch trucks in cities such as New York, San Francisco, and Los Angeles is serving high-end fare such as hamburgers made from grass-fed cattle, escargot, and crème brulee, at less expensive prices than sit-down restaurants. This illustrates a focused differentiation strategy. a. True b. False
ANSWER: True
A risk of a focus strategy is that the needs of customers within a narrow competitive segment may become more similar to those of industry-wide customers as a whole over time. a. True b. False
ANSWER: True
A risk of the differentiation strategy is that a firm's means of differentiation may cease to provide value for which customers are willing to pay. a. True b. False
ANSWER: True
Almost any identifiable human or organizational characteristic can be used to subdivide a market into segments that differ from one another on a given characteristic. a. True b. False
ANSWER: True
Although it is a cost leader, IKEA also offers some differentiated features that appeal to its target customers, including its unique furniture designs, in-store playrooms for children, wheelchairs for customer use, and extended hours. a. True b. False
ANSWER: True
Changing consumer needs are illustrated by Starbucks' enabling consumers to have an experience and design their own drinks rather than just a cup of coffee. a. True b. False
ANSWER: True
Cost leaders usually concentrate on the value-chain activities of inbound logistics and outbound logistics as a means to reduce costs. a. True b. False
ANSWER: True
Effective use of the generic business strategies allows a firm to favorably position itself relative to the five competitive forces in the industry. a. True b. False
ANSWER: True
Firms implementing cost leadership strategies often sell no-frills standardized goods or services (but with competitive levels of differentiation) to the industry's most typical customers. a. True b. False
ANSWER: True
Global competition has increased the options for consumers and has made it more imperative for firms to identify the needs of customers to earn above-average returns. a. True b. False
ANSWER: True
Steak and Shake just announced that it is selling some of its stores to individuals who will then pay a fee and royalties back to the company in exchange for use of the company name and products. Steak and Shake is transitioning into a franchise business model. a. True b. False
ANSWER: True
Strategic fit among the many activities in the value chain is critical for competitive advantage because it is more difficult for a competitor to match a configuration of integrated activities than to imitate a particular activity, such as sales promotion or a process technology. a. True b. False
ANSWER: True
The generalized forms of value that goods and services provide are either low cost with acceptable features or highly differentiated features with acceptable cost. a. True b. False
ANSWER: True
To position itself differently from competitors, a firm must decide whether it intends to perform activities differently or to perform different activities. a. True b. False
ANSWER: True
When selecting a business-level strategy, the firm determines who will be served, what needs those target customers have that it will satisfy, and how those needs will be satisfied. a. True b. False
ANSWER: True
How does a firm capture value when using a franchise business model? a. By receiving fees and royalty payments b. By selling a premium version of its product or service c. By giving advertisers access to target customers d. By matching those who want a service with those who are providing it
ANSWER: a. By receiving fees and royalty payments
The use of a differentiation strategy would likely be LEAST effective in which of the following markets? a. Commodity goods b. Motion pictures c. Popular music d. Writing instruments
ANSWER: a. Commodity goods
Which of the following is NOT a value-creating activity associated with the differentiation strategy? a. Developing policies to ensure efficient hiring and retention to keep costs low and implement training to ensure high employee efficiency b. Providing accurate and timely delivery of goods to customers c. Ensuring the receipt of high-quality supplies (raw materials and other goods) d. Developing flexible systems that allow rapid response to customers' changing needs
ANSWER: a. Developing policies to ensure efficient hiring and retention to keep costs low and implement training to ensure high employee efficiency
Ever-improving levels of efficiency enhance profit margins for a cost leader. This affects which of the following forces of industry structure most directly? a. Potential entrants b. Substitutes c. Buyer power d. Supplier power
ANSWER: a. Potential entrants
Duolingo is a free app that includes in-app advertising. There is also an upgraded version that consumers can purchase. What type of business model does Duolingo use? a. Both franchise and advertising b. Both freemium and differentiation c. Both freemium and advertising d. Peer-to-peer
ANSWER: c. Both freemium and advertising
Which of the following are central to implementing value-creating strategies and thereby satisfying customers' needs? a. Firm resources b. Capabilities c. Core competencies d. None of these is correct.
ANSWER: c. Core competencies
Zara has pioneered "cheap chic" in clothing apparel. Zara offers current and desirable fashion goods at relatively low prices. To implement the strategy, Zara uses sophisticated designers and effective means of managing costs. These are all characteristics of which of the following business-level strategies? a. Cost leadership b. Differentiation c. Integrated cost leadership/differentiation d. Stuck in the middle
ANSWER: c. Integrated cost leadership/differentiation
In order to meet and exceed customers' expectations over time, firms must: a. constantly manipulate customers' perceptions of their needs. b. answer the questions: who, what, when, where, how, and why as they apply to customers. c. continuously improve, innovate, and upgrade their core competencies. d. successfully defend their established core competencies from imitation by competitors.
ANSWER: c. continuously improve, innovate, and upgrade their core competencies.
The differentiation strategy can be effective in controlling the power of rivalry with existing competitors in an industry because: a. customers will seek out the lowest-cost product. b. customers of nondifferentiated products are sensitive to price increases. c. customers are loyal to brands that are differentiated in meaningful ways. d. the differentiation strategy benefits from rivalry because it forces the firm to innovate.
ANSWER: c. customers are loyal to brands that are differentiated in meaningful ways.
A company pursuing the differentiation or focused differentiation strategy would tend to: a. build economies of scale and efficient operations. b. develop and maintain cost-effective MIS operations. c. develop flexible systems that allow rapid response to customers' changing needs. d. have relationships with suppliers to maintain efficient flow of supplies for operations.
ANSWER: c. develop flexible systems that allow rapid response to customers' changing needs.
All of the following are ways that a good or service can be differentiated EXCEPT: a. responsive customer service. b. perceived prestige and status. c. economies of scale and efficient operations. d. engineering design and performance.
ANSWER: c. economies of scale and efficient operations.
Wholesome Pet Food has successfully specialized for 20 years in high-quality pet food made from all-natural ingredients and organically raised lamb. This brand has a strong following and is recommended by veterinarians who practice in affluent neighborhoods. If Wholesome's main supplier of lamb announces that the price for lamb will be 15 percent higher next year, which of the following is most likely? a. Wholesome will probably be able to pass the cost on to its customers because they are less sensitive to price increases than the average buyer. b. Companies pursuing Wholesome's business strategy are especially vulnerable to this risk. c. If Wholesome raises its pet food prices, customers will turn to less expensive brands such as Purina. d. Wholesome probably operates on very thin margins, and a cost increase will threaten its ability to earn average returns.
ANSWER: a. Wholesome will probably be able to pass the cost on to its customers because they are less sensitive to price increases than the average buyer.
The risks of a focus strategy include: a. a competitor's ability to use its core competencies to out-focus the focuser by serving an even more narrowly defined segment. b. a competitor's ability to use its core competencies to out-focus the focuser by serving an even more broadly defined segment. c. decisions by industry-wide competitors to use their resources to serve a wider range of customers' needs than the focuser has been serving. d. decisions by focused competitors to use their resources to serve a wider range of customers' needs.
ANSWER: a. a competitor's ability to use its core competencies to out-focus the focuser by serving an even more narrowly defined segment.
Business-level strategies are concerned specifically with: a. creating differences between the firm's position and its competitors. b. selecting the industries in which the firm will compete. c. how functional areas will be organized within the firm. d. how a business with multiple physical locations will operate one of those locations.
ANSWER: a. creating differences between the firm's position and its competitors.
When a firm is able to produce nonstandardized (i.e., distinctive) products for customers who value differentiated features more than they value low cost, the firm is successfully implementing a(n): a. differentiation strategy. b. cost leadership strategy. c. integrated cost leadership/differentiation strategy. d. single-product strategy.
ANSWER: a. differentiation strategy.
The three dimensions of a firm's relationships with customers include all the following EXCEPT: a. exclusiveness. b. affiliation. c. richness. d. reach.
ANSWER: a. exclusiveness.
Chico's is a clothing retailer that targets middle-aged women who want stylish and appealing clothes that are suitable for the mature figure. Chico's has an extensive customer list, a frequent-buyer discount card, and frequent sales promotions to Chico's customers based on their spending levels. Chico's uses a(n) __________ strategy. a. focused differentiation based on a buyer group b. focused differentiation based on a product line segment c. generic differentiation d. integrated cost leadership/differentiation
ANSWER: a. focused differentiation based on a buyer group
The integration of a cost leadership and a differentiation strategy: a. is challenging because it increases the number of value-chain activities and support functions in which the firm must become competent. b. forces a firm to adapt more slowly to changes in its environment. c. allows the firm to avoid being "stuck in the middle." d. requires such a large customer base that it is most practical for firms in the global marketplace.
ANSWER: a. is challenging because it increases the number of value-chain activities and support functions in which the firm must become competent
Starbucks determined that all of the following customer needs were important EXCEPT: a. low price. b. the experience associated with drinking coffee, not just the coffee. c. the actual product of service (e.g., a cup of coffee), not the experience. d. allowing customers to design their own drinks.
ANSWER: a. low price.
A cost leadership strategy targets the industry's __________ customers. a. most typical b. poorest c. least educated d. most frugal
ANSWER: a. most typical
The products or services that are differentiated from others have qualities that are: a. perceived by the customer to add value that they will pay a premium to purchase. b. valued by the typical industry customer. c. perceived as standardized by the customer. d. seen as classic attributes rather than passing fads.
ANSWER: a. perceived by the customer to add value that they will pay a premium to purchase.
Blind taste-tests have shown that the taste of premium-priced vodkas and inexpensive vodkas are indistinguishable even to regular drinkers of vodka. But the sales of premium vodkas are thriving. This is an example of the: a. perception of perceived prestige and status as a means of differentiating a product. b. importance of high-quality raw materials when using the differentiation strategy. c. risk of product imitation by competitors. d. danger counterfeiting holds for firms pursuing the differentiation strategy.
ANSWER: a. perception of perceived prestige and status as a means of differentiating a product.
All of the following are considered generic business-level strategies EXCEPT: a. product diversification. b. cost leadership. c. focused differentiation. d. integrated cost leadership/differentiation.
ANSWER: a. product diversification.
The __________ dimension of relationships with customers is particularly important for social networking sites such as Facebook and Instagram. a. reach b. richness c. affiliation d. social
ANSWER: a. reach
By examining the activity map of Southwest Airlines, one can identify the areas of __________ around which it has developed its business strategy. These themes include limited passenger service, high aircraft utilization, and highly productive ground and gate crews. a. strategic intent b. core competency c. differentiation d. data analytics
ANSWER: a. strategic intent
Before a firm decides what products to offer and what benefits and features they will have, it must determine all of the following EXCEPT: a. who the firm should serve. b. when the customers' needs should be satisfied. c. what needs the firm should satisfy. d. how to use core competencies to satisfy customer needs.
ANSWER: b. when the customers' needs should be satisfied.
A __________ is a framework for how a firm will create, deliver, and capture value. a. segmentation b. basis for value c. business-level strategy d. business model
ANSWER: d. business model
Suppose another firm found a way to offer IKEA's customers (young buyers interested in stylish furniture at low cost) additional sources of differentiation while charging the same price or to provide the same service with the same sources of differentiation at a lower price. Which of the following categories of competitive risk to a focus strategy would this be? a. An industry-wide competitor decides that the market segment served by IKEA is worth entering. b. A competitor may focus on a more narrowly defined segment and thereby "out-focus" the focuser. c. The needs of the customers in this narrow segment have become more similar to those of industry-wide competitors. d. Experience can narrow customer's perceptions of value of the firm's differentiated features.
ANSWER: b. A competitor may focus on a more narrowly defined segment and thereby "out-focus" the focuser.
Which of the following statements is true? a. As customer loyalty increases, customers are more sensitive to price increases. b. Customer satisfaction has a positive relationship with firm profitability. c. Customer loyalty is fragile and cannot reliably be considered a factor in firm success. d. Customer loyalty is of importance only to firms using the differentiation strategy.
ANSWER: b. Customer satisfaction has a positive relationship with firm profitability.
The new generation of lunch trucks serving high-end fare in cities such as New York, San Francisco, and Los Angeles share which of the following business strategies? a. Cost leadership b. Focused differentiation c. Integrated cost leadership/differentiation d. Differentiation
ANSWER: b. Focused differentiation
Amazon has built capabilities around Internet technology and e-commerce to facilitate information exchanges with its customers in a cost-effective manner. This represents which of the following service dimension? a. Reach b. Richness c. Affiliation d. None of these is correct.
ANSWER: b. Richness
Netflix offers products to customers on demand. What type of business model does Netflix use? a. Freemium b. Subscription c. Franchise d. Advertising
ANSWER: b. Subscription
Hyundai allows customers to return their cars if they lose their job within 12 months of purchase. Hyundai is engaged in which of the following aspects of managing customer relationships? a. Who: Determining the Customers to Serve b. What: Determining Which Customer Needs to Satisfy c. How: Determining Core Competencies Necessary to Satisfy Customer Needs d. When: Determining When to Satisfy Customer Needs
ANSWER: b. What: Determining Which Customer Needs to Satisfy
New Balance Athletic Shoes target baby boomers' needs for well-fitting shoes. The company is unique in that it offers a very broad range of shoe widths. A realistic potential risk New Balance runs in this focused differentiation strategy includes the possibility that: a. baby boomers may find that they do not need well-fitting shoes, because they will become increasingly sedentary as they age. b. a competitor may be able to better use flexible manufacturing systems to make shoes with an individualized fit. c. athletic shoes may go out of style. d. New Balance shoes may begin to appeal to a wider market, thus losing New Balance's focus advantage.
ANSWER: b. a competitor may be able to better use flexible manufacturing systems to make shoes with an individualized fit.
A firm's core strategy is its __________ strategy. a. corporate-level b. business-level c. pricing d. international
ANSWER: b. business-level
Monteleone Company pays large fees to a highly recognizable, prestigious individual to be the spokesperson for the company's luxury private jets. Monteleone is probably following the: a. focused cost leadership strategy. b. focused differentiation strategy. c. integrated cost leadership/differentiation strategy. d. total quality strategy.
ANSWER: b. focused differentiation strategy.
As the television industry has changed in the last few decades from just three major networks to a multiplicity of networks, one of the major aspects of business strategy for the newer networks is a(n) __________ than the traditional networks. a. broader target market b. narrower target market c. increased use of primary activities to capture value d. increased use of support activities to capture value
ANSWER: b. narrower target market
The typical risks of a cost leadership strategy include: a. the inability to balance high differentiation and low price. b. production and distribution processes becoming obsolete. c. excessive differentiation to the point where the customer base is too small. d. loss of customer loyalty.
ANSWER: b. production and distribution processes becoming obsolete.
An entrepreneur is investigating starting a company that provides tax advice to small companies. In order to position his company differently from the existing competitors, the entrepreneur must: a. analyze the reach, richness, and affiliation the company must have with its customers. b. provide tax advice either in a different manner or provide a different kind of tax service than competitors. c. offer tax advice at a price lower than the cheapest competitor. d. offer tax advice at a higher quality than the best competitor.
ANSWER: b. provide tax advice either in a different manner or provide a different kind of tax service than competitors.
A business-level strategy is an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in: a. the selection of industries in which the firm will compete. b. specific product markets. c. primary value-chain activities. d. particular geographic locations.
ANSWER: b. specific product markets.
The effectiveness of any of the generic business-level strategies is contingent on both: a. customer needs and competitors' strategies. b. the opportunities and threats in a firm's external environment and the strengths and weaknesses derived from the firm's resource portfolio. c. the trends in the general consumer base and the robustness of the global and industry economy. d. the firm's competitive scope and its competitive advantage
ANSWER: b. the opportunities and threats in a firm's external environment and the strengths and weaknesses derived from the firm's resource portfolio.
A firm successfully implementing a differentiation strategy would expect: a. customers to be sensitive to price increases. b. to charge premium prices. c. customers to perceive the product as standard. d. to have high levels of power over suppliers.
ANSWER: b. to charge premium prices
Recently, the only type of car available for Anthony to rent on a business trip was a compact, fuel-efficient Japanese import. Anthony was surprised at the comfort and performance of the car. He is in the market for a new car and had previously considered only buying another luxury SUV. Now, he is thinking about the significant cost savings he would have if he bought the compact vehicle rather than a new SUV. This is an example of the competitive risk that: a. a competitor's products can convey a product's differentiated features to a customer at a significantly reduced price. b. a product imitation can cause customers to perceive that competitors offer essentially the same goods. c. experience can narrow a customer's perceptions of the value of a product's differentiated features. d. brand loyalty insulates a company from rivalry with competitors.
ANSWER: c. experience can narrow a customer's perceptions of the value of a product's differentiated features
Focus strategies are: a. sheltered from the risks associated with industry-wide strategies because of their niche focus. b. able to avoid global risk by focusing on niches in national or regional markets. c. faced with more types of risks than are industry-wide strategies. d. more subject to failure than industry-wide strategies.
ANSWER: c. faced with more types of risks than are industry-wide strategies.
The focused differentiation strategy differs from the differentiation strategy in that: a. the focused differentiators have a broader competitive scope. b. the value-creating activities of focused differentiators are more constrained. c. focused differentiators target a narrower customer market. d. there are fewer risks with the focused differentiation strategy.
ANSWER: c. focused differentiators target a narrower customer market.
An analysis of the activity map of a successful company such as Southwest Airlines emphasizes how: a. the organizational culture of Southwest Airlines is the key to its success. b. understanding the profitability in an industry indicates to companies where above-average returns can be earned. c. it is harder for rivals to match a configuration of integrated activities than to imitate a single activity. d. the primary and support activities of a successful company capture value all along the value chain.
ANSWER: c. it is harder for rivals to match a configuration of integrated activities than to imitate a single activity.
A company using a narrow target market in its business strategy is: a. following a cost leadership business strategy. b. focusing on a broad array of geographic markets. c. limiting the group of customer segments served. d. decreasing the number of activities on its value chain.
ANSWER: c. limiting the group of customer segments served.
Research suggests that having a competitive advantage in __________ creates more value with a cost leadership strategy than with a differentiation strategy. a. marketing and sales b. technology development c. logistics d. human resource management
ANSWER: c. logistics
Strategic fit among many activities (often illustrated in an activity map) is fundamental to: a. the development of core competencies for a firm. b. the breadth of competitive scope for a firm. c. sustainability of a firm's competitive advantage. d. the integrity of the firm's value chain.
ANSWER: c. sustainability of a firm's competitive advantage.
A river barge company can offer cheaper, although slower, per-pound transportation of products to companies when compared with transportation by air, truck, or rail. The river barge company should first target customers whose companies use: a. the integrated cost leadership/differentiation strategy. b. either of the focus strategies. c. the cost leadership strategy. d. any of the strategies except the focused differentiation strategy.
ANSWER: c. the cost leadership strategy
Durable Ceramics, Inc., provides inexpensive ceramic tile to builders of institutional buildings such as schools, prisons, and public administration buildings. It has always competed on a cost leadership basis. Most of its products are purchased by a few commercial construction firms, so it is fairly dependent on these construction firms for selling its product. Durable Ceramics' next-most-efficient competitor, Cost-Less Ceramics, Inc., earns average returns, whereas Durable earns above-average returns. The commercial construction firms are putting pressure on Durable to reduce its prices. If Durable reduces its prices below those of Cost-Less's prices, it is likely that: a. both Durable and Cost-Less will devise additional ways to become more efficient in their production processes. b. Durable will be unable to absorb the lower cost and will go out of business. c. both Cost-Less and Durable will go out of business, leaving the customers with fewer alternative sources of low-cost tile. d. Cost-Less will go out of business, and Durable will gain higher power over its customers.
ANSWER: d. Cost-Less will go out of business, and Durable will gain higher power over its customers.
Airbnb matches people wanting to rent out their properties with individuals seeking properties to rent. What type of business model does Airbnb use? a. Franchise b. Subscription c. Advertising d. Peer-to-peer
ANSWER: d. Peer-to-peer
If Southwest Airlines' employees lost their high enthusiasm and commitment to the company: a. the airline could continue without problems because its cost leadership strategy is dependent on its efficient internal procedures. b. replacement employees could be hired from rival airlines that are laying off employees and easily be merged into the Southwest culture. c. there would be no impact on Southwest's profitability because Southwest's customers value the low fares rather than being "entertained" by the employees. d. Southwest would have lost one of its competitive advantages, and its performance would be threatened.
ANSWER: d. Southwest would have lost one of its competitive advantages, and its performance would be threatened.
The typical risks of a differentiation strategy do NOT include which of the following? a. Customers may find the price differential between the low-cost product and the differentiated product too large. b. Customers' experience with other products may narrow customers' perception of the value of a product's differentiated features. c. Counterfeit goods are widely available and acceptable to customers. d. Suppliers of raw materials erode the firm's profit margin with price increases.
ANSWER: d. Suppliers of raw materials erode the firm's profit margin with price increases.
Viewing the world through the customer's eyes and constantly seeking ways to create more value for the company enhances: a. the reach of the company toward the customer. b. the ability to identify the customer. c. the richness of the relationship with the customer. d. affiliation with the customer.
ANSWER: d. affiliation with the customer.
A manufacturer of jewelry imitates the style of a popular and expensive brand using manufactured stones rather than real gemstones and lesser grade metals rather than silver and gold. The manufacturer packages the jewelry in boxes of the same color imprinted with an almost identical logo. About 85 percent of the company's sales are through Internet sales. This example illustrates the competitive risk of __________ that threatens companies that use the differentiation strategy. a. customer sensitivity to price differentials b. threat by the cost leader c. customer experience d. counterfeiting
ANSWER: d. counterfeiting
A differentiation strategy can be effective in controlling the power of substitutes in an industry because: a. customers have low switching costs. b. substitute products are lower quality. c. a differentiating firm can always lower prices. d. customers develop brand loyalty.
ANSWER: d. customers develop brand loyalty
Target's brand promise "Expect More. Pay Less" and appeal to higher-income, fashion-conscious discount shoppers illustrates the __________ strategy. a. cost leadership b. differentiation c. focused differentiation d. integrated cost leadership/differentiation
ANSWER: d. integrated cost leadership/differentiation
When the costs of supplies increase in an industry, the cost leader: a. may continue competing with rivals on the basis of product features. b. will lose customers as a result of price increases. c. will be unable to absorb higher costs because cost leaders operate on very narrow profit margins. d. may be the only firm able to pay the higher prices and continue to earn average or above-average returns.
ANSWER: d. may be the only firm able to pay the higher prices and continue to earn average or above-average returns.
When selecting a business-level strategy, the firm must determine all of the following EXCEPT: a. how the customers' needs will be satisfied. b. who the customer is. c. what the customers' needs are. d. why these customers' needs should be satisfied.
ANSWER: d. why these customers' needs should be satisfied.
Firms use the integrated cost leadership/differentiation strategy because: a. other firms have established unassailable market dominance with the other four strategies. b. global markets allow for much broader competitive scope. c. most consumers want to pay a low price for products with somewhat highly differentiated features. d. one strategy is not enough for most large firms.
ANSWER: most consumers want to pay a low price for products with somewhat highly differentiated features.
