Chapter 5: Competitive Advantage, Firm Performance, and Business Models

For a product that has a large economic value, a firm can choose to charge the same price as competitors in order to

gain market share

Which of the following are elements of the social dimension of the triple bottom line?

human sustainability achieving work/life balance

Which of the following industries use a subscription model?

magazines cellphone providers Internet providers

Economic value creation is calculated as ______.

the sum of consumer and producer surplus

Fixed costs are ______ consumer demand.

independent of

Opportunity costs refer to the value of what could have been gained had a person pursued ______.

an alternative use of available resources

When a company offers video-game consoles at a steep discount, but charges customers high fees for games, they are operating on a Blank______ business model.

razor-razor blade

The subjectively determined maximum amount a customer would pay for a product is its ______ price.

reservation

When a trade occurs, the consumer and producer both capture ______.

some of the economic value

True or false: When companies commit to sustainable strategies, they do so purely out of a spirit of charity.

False Reason: Recall that companies such as Interface Inc. have seen sustainable strategies lead to improved overall profits.

If Firm A and Firm B both produce a laptop at the same total cost, but the reservation price for Firm A's laptop is $1,000 and the reservation price for Firm B's laptop is $1,200, who has the competitive advantage?

Firm A Reason: The reservation price is the absolute maximum one would be willing to pay for the laptop. In this case, people are willing to pay a higher maximum price for Firm B's laptop while it doesn't cost Firm B more to produce it. Hence, Firm B is able to create more economic value and therefore has the competitive advantage.

Which statements about creating and implementing an effective business model are true?

Firms must transform their competitive strategy into a blueprint of initiatives and actions that support their goals. Firms must implement their competitive strategy blueprint through processes, procedures, culture, and structure.

Which of the following statements are true concerning a firm's business model? (Check all that apply.)

It essentially explains how the firm intends to make money. It indicates the way the firm works with buyers and suppliers. It details the firm's competitive tactics and initiatives.

When a person decides to quit their job and start a company, the salary that person gave up when quitting can be considered

an opportunity cost

Under a wholesale model, RETAILERS (not the wholesalers) sell goods for

any price they want Reason: Wholesalers might sell products to retailers at a fixed price. Retailers, however, are free to set their own price on these products and profit from the difference between their selling price and the cost to buy the product from the wholesaler.

Combining the razor-razor blade model and the subscription model means that telecom providers make their money through lengthy service plans, which in turn means that it is crucial that they keep their Blank______ rate, or the proportion of subscribers who leave, down.

churn

At 3M, one strategic objective that has been implemented is that 30% of revenues must be obtained from new product introductions. This is an objective that would arise as an answer to which of the following balanced scored questions? How do we create value? How do customers view us? How do shareholders view us? What core competencies do we need?

How do we create value?

Which of the following are considered disadvantages of the shareholder value creation approach?

Overall macroeconomic factors have a direct bearing on stock prices. Stock prices can be highly volatile. Stock prices are influenced by the psychological mood of investors.

Which of the following dimensions make up the triple bottom line?

ecological economic social

The business model used by telecommunication companies when they provide a basic cell phone at no charge when the customer signs a two-year contract is a combination of which of the following types of business models?

subscription razor-razor blade

When managers analyze a wide variety of internal and external performance metrics in order to set financial and strategic goals, they often turn to a framework known as

the balanced scorecard

Which business model evolved from the razor-razor blade model and involves a firm providing a base product for free, then finding ways to monetize the usage?

the freemium business model

The most a consumer is willing to pay for a product is equivalent to the product's ______.

total perceived consumer benefits Reason: Economic value created is the difference between a buyer's willingness to pay for a product or service (V) and the firm's total cost to produce it (C) (i.e., V-C).

Select all that apply Which statements about the disadvantages of the value creation perspective are true?

The value that a consumer places on a good can vary according to how the consumer feels at a particular moment. For large firms, it is difficult to estimate the economic value created for all products and services offered by the firm. It is difficult to determine the value that consumers place on a given good.

Select all that apply The balanced scorecard framework enables managers to do which of the following?

communicate and link the strategic vision implement feedback and organizational learning translate the strategic vision into operational goals

Select all that apply Achieving competitive advantage means maximizing the difference between which two of the following?

consumers' willingness to pay the cost to produce the good or service

Compared to the past, the importance of firms' intangibles has increased. Therefore the importance of a firm's book value has ______ as part of the firm's total stock market valuation.

decreased Reason: Relative to intangibles, the importance of a firm's tangibles has decreased.

The difference between the cost of producing a product and the price consumers are willing to pay for that product is known as ______.

economic value created

To measure firm-level competitive advantage, a company must

estimate the economic value created for all products and services offered by the firm

To determine the value of a good in the eyes of consumers, a firm can

examine consumers' purchasing habits for their revealed preferences

The money a firm spends to set up a sales website can be considered a ______ cost.

fixed Reason: The cost of setting up the website does not vary with the amount of product sold.

Premium services that cost money, with complementary basic services, is a description of which type of business model?

freemium

Answering the balanced scorecard question of "how do we create value?" challenges managers to develop strategic objectives that ensure which of the following?

future organizational learning future competitiveness future innovation

Which of the following are offered by a balanced scorecard?

operational measures on customer satisfaction measures of internal processes common financial metrics

To determine a product's producer surplus, which of the following must be compared? price charged total cost of production the overhead costs sunk costs

price charged total cost of production