Chapter 4 Quiz

About six months ago, a mid-sized manufacturer of athletic shoes decided to pursue an integrated cost leadership and differentiation strategy. The company reduced its internal costs by consolidating the number of colors and variations it offers to customers. At the same time, the R&D team added a patented sole to all of its shoes. Which of these represents the best argument for the company to continue pursuing its current business-level strategy?

It's true we've seen our net sales decline, however, our gross profit has increased and our volumes are up year-over-year. Our patent for the sole has been approved and the legal department says we're good to go on our advertising claims about the new sole.

Which of these strategies represents a company that has selected a differentiation strategy?

A grocery store chain that is converting their local neighborhood stores to warehouses. The chain eliminates shopping in the aisles and instead has customers select items online or through an app. The customer can then pick up their items in a drive through without having to leave their vehicles.

Which of these might be an alternative definition of business-level strategy?

A plan for how the company will compete in its industry against its rivals to achieve a competitive advantage

A company president for a software firm has chosen to implement a differentiation strategy, offering his product in a Software as a Service (SaaS) platform with a monthly subscription. Most of his competitors are selling their products as a one-time purchase. Which of these represents the greatest risk to the strategy?

An established competitor has announced it will begin offering its programs in an SaaS model next quarter.

Michelle opens a residential heating company dedicated to geothermal heating systems. She is pursuing a focused differentiation strategy, serving the needs of customers who are looking for environmentally-friendly solutions to heat and cool their homes. Which of these represents a risk to the company because Michelle is using a focused strategy rather than a broad strategy?

As renewable energy continues to gain popularity, mainstream residential heating and cooling companies that are larger and have more resources decide to offer more geothermal options.

Which of these represents a risk for companies pursuing a differentiation strategy?

Buyers choosing to purchase lower priced products during a recession

Which of these represents a risk for companies pursuing a cost leadership strategy?

Competitors' innovations resulting in their ability to drive costs lower

An oil company develops an innovative refining process that reduces the time required to produce gasoline by 25 percent. The company has identified its unique process as a core competency. Which of these strategies would be most beneficial for the company to pursue and would best be aligned with the firm's internal analysis?

Cost leadership strategy

An apparel company is considering a change in its business-level strategy. The company has been making premium T-shirts known for their catchy slogans aimed at millennial customers. It wants to expand operations to include multiple casual clothing lines that will appeal across generations. The Board of Directors wants to clearly understand the risks of moving forward with this change. Which of these would be a risk for the firm's new strategy?

Customers not placing enough value on the product to warrant premium prices

A company is working through its strategic management process to develop a long-term strategic plan that will help it to achieve a competitive advantage. The company's leaders have completed the work of developing a mission, a vision, and core values. They have also researched and conducted a thorough SWOT analysis identifying general, industry, and competitor environments, as well as internal resources, capabilities, and core competencies. As they determine the business-level strategy they will pursue for their core business unit, which of these steps would they take?

Determine if the company will compete by reducing the cost structure or by focusing on generating greater perceived value by its customers - or both - based on conclusions reached in the research and decisions up to this point

Market segmentation is a part of all business-level strategies and is used to determine which customers to serve. This is most critical for which business-level strategies?

Focused differentiation and focused cost leadership strategies

Often a company's business-level strategy can be easily identified by reviewing its marketing materials. Consider the marketing slogans of the following companies and identify which one is pursuing a business-level strategy of differentiation

HBO - It's not TV, It's HBO

An industry-leading technology firm utilizing a differentiation strategy has decided to increase prices on its patented product to bolster profit margins and deliver a higher return to investors. Consider the impact of this decision in light of the Five Forces of Competition. Which of these situations should the firm prioritize?

Industry rivalry

When pursuing a business-level strategy, sometimes a company is unable to fulfill elements of the strategy because it has a split focus, resulting in a strategy that fails to satisfy customers' needs. This is a major risk of which business-level strategy?

Integration cost leadership/differentiation strategy

As a company works to build relationships with its customers, its leaders must determine which customer needs they will seek to satisfy. The company's leaders must also recognize that customer needs change over time. What might these leaders focus on to ensure they anticipate customers' changing needs?

Monitoring customer trends in the industry and of consumers as a whole

Which of these strategies could be implemented to improve a company's richness in its customer relationships?

Provide email updates on shipping status and satisfaction surveys following the arrival of a produce

Research indicates that a competitive advantage in logistics is a primary strategy that creates the most value for a cost leadership strategy. Choose which of these value-creating activities should be a focus for a company pursuing a cost leadership strategy.

Supply chain

A construction company is pursuing a focused differentiation strategy, and after reviewing its core competencies, the leaders have decided to specialize in hospital construction. Which of these is an example of how that strategy is addressing the bargaining power of buyers - customers?

The company participates in competitive bidding processes, and despite often submitting a higher bid than competitors, it is awarded the job based on its expertise.

In a focused strategy:

a company selects a more narrow group, or niche, of customers on which to concentrate its efforts.

A business-level strategy is

an integrated and coordinated set of commitments and actions to gain an advantage by exploiting core competencies.

A retail company feels that it has a mixed identity. Some of the leadership is focused on promoting the company as offering the highest quality, and other leaders argue they should be lowering prices to attract customers. The team is working through a strategic management process and determines that it needs better definition for the way it will compete against its rivals within the same industry and product category. This company needs to formulate and implement a(n)

business-level strategy

A cost leadership strategy is one in which

companies use process innovations, such as advanced production or distribution methods, to operate efficiently.

A differentiation strategy is one in which

firms create products that have features customers value and are willing to pay a higher price for.

As part of its selection of a business-level strategy, a firm will decide which customers it will serve and what goods or services it will use to satisfy customers' needs. It must determine:

how it will satisfy those customers' needs using its core competencies to implement value-creating strategies.

Many companies pursue an integrated cost leadership/differentiation strategy, working to lower cost structures while also enhancing their products and services. To successfully pursue this strategy, companies could:

invest in developing total quality management systems and improving marketing effectiveness.

Cost leadership strategies can be attractive to companies looking to address the competitive forces of rivalry with existing competitors because:

rivals are hesitant to slash their own prices, and often their profitability, to compete with a low cost leader.

Differentiation strategies are successful in addressing the competitive force of the bargaining power of suppliers because:

the higher margins of the firm can reduce the influence of increases in supplier costs.

The effectiveness of a business-level strategy is contingent on:

the opportunities and threats in a firm's external environment and the strengths and weaknesses of a firm's resources.

An integrated cost leadership/differentiation strategy is able to address the competitive forces because:

the strategy, when executed effectively, offers the strengths of both the cost leadership strategy and the differentiation strategy.

Companies must effectively manage their relationships with customers because

they must satisfy customers' needs to achieve a competitive advantage