Ch 6 Practice Test: Strategy

76) Which of the following drivers simultaneously increases value while lowering cost? A) economies of scale B) superior customer service C) availability of complements D) innovation

D. Quality, economies of scope, customization, innovation, structure, culture, and routines

46) ________ 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. A) Minimum efficient scale B) Break-even output C) Maximum output capacity D) Optimum sustainable yield

a.

27) Product features, customer service, and complements are all examples of important A) cost curves. B) cost drivers. C) value curves. D) value drivers.

d.

53) Meadows Mowers initially spent nine man-hours to assemble a lawnmower. But as the production doubled, the number of hours spent on assembling a mower reduced by 20 percent. This increase in productivity reduced the company's cost per unit. What is this phenomenon referred to as? A) learning-curve effect B) network effect C) black-swan event D) time compression diseconomies

tA. hey learn from their cumulative experience. This in turn can drive down costs. - repeated interactions for learning curve

business level strategy

· Who—which customer segments—will we serve? · What customer needs, wishes, and desires will we satisfy? · Why do we want to satisfy them? · How will we satisfy our customers' needs?

62) Which of the following sources of differential appeal is least effective in helping a firm sustain its advantage? A) reputation for innovation B) reputation for quality C) superior customer experience D) observable product features

D. Competitors will find such intangible advantages time-consuming and costly, and maybe impossible, to imitate.

A value curve that zig-zags across the strategy canvas indicates a focused strategy that is likely to achieve a sustainable competitive advantage.

FAlse : A value curve that zigzags across the strategy canvas indicates a lack of effectiveness in a firm's strategic profile.Stuck in the middle

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 : makes competition irrelevant by opening uncontested markets

A differentiator will always benefit when products have become commoditized.

False:

A firm operating on a 70 percent learning curve will achieve lower per-unit costs after doubling its output than a firm operating on an 80 percent learning curve will.

True : curve indicates 30% drop everytime output is doubled

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

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

true

45) ________ is best described as decreases in cost per unit as output increases. A) Economies of scale B) Economies of scope C) Time compression economies D) Economies of replication

A.

59) When a firm combines experience based learning and process innovation, the firm A) jumps to a steeper learning curve. B) experiences an increase in per-unit cost. C) loses its competitive advantage. D) moves down the existing learning curve.

A.

15) 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? A) cost-leadership B) differentiation C) market penetration D) product diversification

B.

39) What must a cost-leadership strategy accomplish to be successful? A) It must increase the firm's cost above that of its competitors while offering adequate value. B) It must reduce the firm's cost below that of its competitors while offering adequate value. C) It must increase the firm's cost above that of its competitors while offering superior value. D) It must reduce the firm's cost below that of its competitors while offering superior value.

B.

60) Petra's Programming competes on cost with WonderWeb 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 Petra's Programming achieve a cost leadership position while maintaining customer satisfaction? A) by increasing the amount of time the company spends on each website by 25 percent without raising prices B) by eliminating costly service features like 24/7 customer support C) by reducing its client base and lowering output D) by incorporating new programming techniques to take advantage of experience curve effects

D. By introducing new programming techniques, Petra's Programming may jump to a steeper learning curve, allowing it to achieve greater cost reductions at the same level of output.

Differentiators tend to score highly on most competitive elements on a strategy canvas, while cost leaders tend to hover near the bottom of the strategy canvas.

True

Gilroy Crackers enjoys a competitive advantage as a cost leader because high demand for its products has allowed it to operate at the minimum efficient scale. Which of the following scenarios would be most concerning to the managers of Gilroy Crackers? A) Gilroy's leading competitor develops a new low-sodium product. B) Gilroy's most reliable production worker takes a job in another industry. C) A major winter storm shuts down Gilroy's production for several days. D) A wheat shortage raises input costs across the industry.

c.

Differentiation and cost leadership strategies are only effective in manufacturing industries.

false

The major value drivers that managers have at their disposal include product features, customer service, and complements.

true

65) How is a cost-leader protected from threats from powerful suppliers? A) It is more able to absorb price increases through accepting lower profit margins. B) It is more able to absorb price increases through generating higher profit margins. C) It is able to create a significant difference between perceived value and current market prices. D) It is able to create a significant difference between actual value and future market prices.

A.

68) In a successful ________ strategy, the trade-offs between differentiation and low cost are reconciled. A) blue ocean B) focused differentiation C) liquidation D) divestment

A.

36) While Fun Frames incurs a cost of $12 for a pair of eyeglasses, Highwire, its competitor, manufactures a pair of glasses at $10. Both the companies are able to sell their glasses for a maximum of $30 per pair. Which of the following statements is true in this scenario? A) Fun Frames and Highwire have achieved differentiation parity. B) Fun Frames is a cost-leader when compared to Highwire. C) Fun Frames has created a greater economic value than Highwire. D) Highwire has a higher opportunity cost than Fun Frames.

A. A firm achieves differentiation parity when it creates the same perceived value as its rival firm.

51) 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? A) minimum efficient scale B) diseconomies of scale C) experience curve effect D) learning-curve effect

B

61) According to the five forces model, which of the following is viewed as a major risk to a business pursuing a cost-leadership strategy? A) competition switching from non-price attributes to pricing B) innovation that allows competitors to emerge with more economical replacements C) new entrants with small production scale D) suppliers requesting a 2% price increase across the industry

B.

64) Starfish Sodas has successfully achieved a competitive advantage in the soft drink industry as a differentiator. Which of the following scenarios would undermine Starfish's position? A) Starfish improves the recipe for its most popular soda without increasing the price. B) Starfish introduces a new biodegradable bottle that raises cost and perceived value. C) Starfish's customers start to consider soda a commodity. D) Starfish's product has not established an acceptable standard of quality.

C

58) The concept of a(n) ________ attempts to capture both learning effects and process improvements at firms. A) managerial grid B) growth matrix C) experience curve D) diminishing utility curve

C.

85) 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 A) gain a market share and make up the loss in margin through increased sales. B) create higher value creation and thus generate greater profit margins. C) gain a market share and make up the loss in margin through increased pricing. D) create higher value creation and thus generate greater sales.

D

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

true : cost leadership is defined by obtaining the lowest-cost position in industry

74) Which of the following provides an example of a firm in a red ocean? A) Chique Apparel offered clothing at a low price but failed to differentiate its product as being exclusive. B) Cheap Apparel offered clothing at a price matching that of its competitors and, as a result, it had lower profit margins. C) Goode Apparel offered clothing at a mid-range price but failed to differentiate its product as being of decent quality. D) Top Drawer Apparel offered clothing at a higher price than competitors and, as a result, failed to make a profit.

A. when blue ocean fails = red ocean

71) 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? A) lowering the quality of ingredients below what customers expect to control costs B) eliminating brick-and-mortar locations and offering delivery from a central kitchen C) raising prices without improving on the quality of food D) marketing itself as a high-end restaurant and competing with more refined restaurants in the area

B.

82) Although JetBlue used a blue ocean strategy to achieve an initial competitive advantage, it failed to maintain this advantage. Which of the following provides the best reason for this development? A) It failed to drive up the perceived customer value. B) It failed to refine its strategic position over time. C) It failed to move into a contested market space. D) It failed to offer enough strategic trade-offs.

B.

17) Which of the following examples uses a focused differentiation strategy? A) a tennis pro shop that sells low-quality racquets priced at 150 dollars per racquet B) a coffee shop that offers mediocre lattes at a price of five dollars for a small latte C) a hotel chain that offers high-quality furnishings and service with room rates of under 75 dollars per night D) a cosmetics brand that offers superior skin lotion for sensitive skin priced at 100 dollars per bottle

D

54) What does it mean for a firm to have an 80 percent learning curve? A) Every time the cumulative output increases by 80 percent, the cost per unit will decline by 20 percent. B) Every time the cumulative output is doubled, the cost per unit will decline by 80 percent. C) Every time the cumulative output goes up by 20 percent, the cost per unit will decline by 80 percent. D) Every time the cumulative output is doubled, the cost per unit will decline by 20 percent.

D.

When a firm operates at the minimum efficient scale, there is still opportunity for it to further reduce its cost per unit through economies of scale.

FAlse : : When a firm operates at the minimum efficient scale, the returns to scale are constant and the cost per unit cannot be reduced any further

84) 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 A) cost driving. B) cost innovation. C) value driving. D) value innovation.

d.

35) Value drivers contribute to a firm's competitive advantage only if A) the increase in value creation exceeds the increase in costs. B) they can shrink the firm's value gap. C) they can restrict the firm from claiming a premium price for its products. D) the decrease in perceived value leads to an increase in costs.

A.

14) When a firm makes choices between a cost or value position to achieve competitive advantage, it is primarily involved in A) collective bargaining. B) strategic trade-offs. C) arbitration. D) mediation.

B.

57) Combining economies of learning with the existing production technology allows a firm to A) move up a given experience curve. B) move down a given learning curve. C) jump to a less steeper learning curve. D) jump to a flatter experience curve.

B.

73) Which of the following best explains why a blue ocean strategy is difficult to implement? A) It combines the benefits of similar strategic positions—differentiation and low cost. B) It requires the reconciliation of fundamentally different strategic positions—differentiation and low cost. C) It requires the combination of fundamentally similar strategic positions—differentiation and strategic innovation. D) It requires the reconciliation of fundamentally different strategic positions—differentiation and strategic innovation.

B.

44) In order to achieve a competitive advantage, the Coastal Haven Hotels, a chain of luxury beach resorts, wants to increase its market share. Which of the following strategies is most likely to do so? A) Maintain prices but significantly increase spending on customer service and other amenities. B) Lower prices but eliminate several of the features that have come to define Coastal Haven properties for consumers, such as complimentary meals and in-room massages. C) Take advantage of economies of scale and scope by opening a chain of lower-priced economy hotels that leverage the Costal Haven brand image. D) Raise prices without increasing spending on customer service or resort features.

C. By opening another chain of hotels that leverage the Coastal Haven brand image, the company can increase the perceived value of its products and improve market share while

13) A firm's business strategy can lead to a competitive advantage if it allows the firm to A) execute the same activities performed by the rivals in a similar manner. B) reduce the value gap. C) perform different activities than its rivals. D) position itself below the productivity frontier.

C. * more likely to lead to a competitive advantage if a firms similar actities differently or different activities

56) Unicorn Toys faces stiff competition from Playtime Inc., a rival firm with which Unicorn Toys has achieved differentiation parity. Both firms have invested in state-of-the art production facilities and have similar learning curves of 85 percent. Assuming neither firm can reduce the cost of its input factors, how can Unicorn Toys achieve a competitive advantage as a cost leader? A) Reduce the manufacturing staff by half to save on labor costs. B) Increase spending on product features. C) Have a cumulative output that is greater than Playtime Inc.'s. D) Eliminate several features that customers value to cut costs.

C. By increasing its cumulative output, Unicorn Toys will move down the learning curve more quickly than Playtime Inc., reducing its per-unit costs and achieving a cost-leadership position.

43) Both BioThink Inc. and GD Pharma Inc. have discovered similar vaccines to prevent cancer. While GD Pharma's vaccine sells at $100 per unit, BioThink sells its vaccine at $90 per unit. This price differentiation has mainly been attributed to the companies' capital decisions. While BioThink used its retained earnings to develop the vaccine, GD Pharma borrowed funds from banks to develop the vaccine. Thus, GD Pharma pays a higher interest on its capital, which makes it necessary to price its vaccine higher. Thus, the key driver for BioThink's competitive advantage is A) low-cost input factors. B) economies of scale. C) superior customer service.

a.

21) 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 A) watch retailer that sells pre-owned watches. B) watch maker that sells high-end, premium watches. C) watch maker that manufactures low-priced watches. D) watch maker that follows a differentiation strategy.

b.

52) A firm experiences diseconomies of scale when it A) has a constant return to scale. B) moves down the experience curve. C) produces at an output level beyond the minimum efficient scale. D) has a steep learning curve when compared to its competitors.

c.

12) Which of the following is a firm effect that has an impact on the competitive advantage of a firm? A) the exit barriers within the industry in which the firm operates B) the number of companies operating in the industry in which the firm operates C) the intensity of rivalry among existing companies in the firm's chosen industry D) the value and the cost position of the firm relative to its competitors

d.

42) Which of the following is an accurate statement about learning effects? A) Learning effects are captured at one point in time. B) Learning effects occur over time as output accumulates. C) Learning effects are significant in all production processes. D) Learning effects can produce diseconomies.

B. Learning curves = over time

18) 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? A) Offer similar services as competitors but raise prices to increase profits. B) Lower prices but continue employing high-paid expert gardeners. C) Narrow the scope of competition and focus on unique features such as the use of organic materials. D) Maintain prices but replace all the expert employees with less-skilled workers to control costs.

C

41) Heartbeat Industries has recently introduced a new production method that will make the production of their medical devices more cost-effective. Which of the following will most likely be the result of this innovation? A) jumps to a steeper learning curve B) destabilizes a steeper learning curve C) stabilizes the existing learning curve D) moves down the existing learning curve

A. Heartbeat Industries has engaged in process innovation. Process innovation is a new method or technology to produce an existing product that may initiate a new and steeper learning curve.

47) When a firm manufactures 2,000-3,000 units of a product, it incurs an average cost of $10 per unit. When it manufactures 3,000-4,000 units of the same product, the average cost per unit reduces to $7. However, manufacturing beyond 4,000 units will raise the average cost per unit to $9. Which of the following is the firm's minimum efficient scale? A) 2,000-3,000 units B) 3,000-4,000 units C) below 2,000 units D) above 4,000 units

B)

79) A value curve indicates a lack of effectiveness in a firm's strategic profile when it A) stays level. B) zigzags. C) trends downward. D) trends upward.

B.

72) How did Marriott use economies of scope to achieve greater economic value than its competitors? A) Marriott sees increases in cost per hotel unit as number of customers increases. B) Marriott sees decreases in cost per hotel unit as number of customers increases. C) Marriott lowered its cost structure by focusing its production assets on one type of hotel, which increased the diversity of its hotel line and thus its differentiated appeal. D) Marriott lowered its cost structure by sharing its production assets over several types of hotels, which increased the diversity of its hotel line and thus its differentiated appeal.

D/

66) Due to its large sales volume and low cost structure, Quick Serve Mini-Marts enjoys a cost leadership position. Which of the following scenarios might threaten Quick Serve's competitive advantage? A) Existing competitors in the mini-mart industry lower their prices to match those of Quick Serve. B) Industry suppliers raise their prices. C) Competitors engage in an all-out price war. D) A new competitor is perceived to provide similar value, but in addition offers innovative self-checkout.

D.

40) How is differentiation parity different from cost parity? A) Differentiation parity deals with pricing not innovation. B) Differentiation parity deals with innovation not value. C) Differentiation parity deals with pricing not value. D) Differentiation parity deals with value not cost.

D. Differentiation parity occurs when a firm creates the same value as its competitor. Cost parity means having the same costs as a competitor.