MGMT 434 Final Exam Ch. 6

Which of the following statements is true of a strategic position?

A. Choosing a strategic position requires making important trade-offs between value and cost positions.

_____ is best described as decreases in cost per unit as output increases.

A. Economies of scale

How is a cost-leader protected from threats from powerful buyers?

A. It is more able to absorb price increases through accepting lower profit margins.

_____ 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

Which of the following statements accurately brings out the difference between economies of scale and learning effects?

A. While there are no diseconomies to learning, there are diseconomies to scale.

In a successful _____ strategy, the trade-offs between differentiation and low cost are reconciled.

A. blue ocean

A _____ primarily details the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market.

A. business-level strategy

Bargain Styles Inc. is an apparel company that caters to the highly price-conscious customers. Through its simple apparel designs, acceptable quality levels, and minimal customer service, the company has been able to sell its merchandise at the lowest prices in the industry. Which of the following generic business strategies is Bargain Styles applying?

A. cost-leadership

A company that uses a differentiation strategy can achieve a competitive advantage as long as its

A. economic value created is greater than that of its competitors.

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.

When a firm is successful at pursuing a blue ocean strategy,

A. investments in differentiation are complements.

A firm achieves differentiation parity ideally when

A. it creates the same customer value as its competitors.

When a firm combines experience based learning and process innovation, the firm

A. jumps to a steeper learning curve.

As the cumulative output in a firm increases, managers learn how to optimize the production process and improve workers' performance through repetition. This drives down the per-unit cost. Which of the following phenomena is best described here?

A. learning effects

Bass Watches Inc. initially spent eight man-hours to assemble a wristwatch. But as the production doubled, the number of hours spent on assembling a watch 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

When a blue ocean strategy goes bad, a firm has neither a clear differentiation nor a clear cost-leadership profile. This situation is referred to as

A. stuck in the middle.

Lush Roses is a chain of premium hotels around the globe that charges higher prices for its rooms and suites when compared to the average industry standards. Yet, the hotel enjoys the largest market share in the industry. This is mainly due its highly responsive staff that has a strong commitment toward achieving a 100 percent guest satisfaction. In this scenario, which of the following is the key value driver?

A. superior customer service

Which of the following is more of a value driver than a cost driver?

A. superior customer service

A blue ocean strategy differs from a low-cost strategy in that

A. the intent of a blue ocean strategy is not to be the absolute lowest-cost provider because a blue ocean must also increase perceived value.

Which of the following is a key question managers must answer to formulate an appropriate business-level strategy?

B. How will we satisfy our customer needs?

Which of the following best explains why a blue ocean strategy is difficult to implement?

B. It requires the reconciliation of fundamentally different strategic positions—differentiation and low cost.

Which of the following is an accurate statement about learning effects?

B. Learning effects involve the accumulation of output over time.

Home Smart Inc. is a chain of supermarkets that sells its products at higher prices than its competitors. Yet, the supermarket chain has a large customer base due to its wide product portfolio and superior customer service. Which of the following generic business strategies has Home Smart adopted in this scenario?

B. differentiation

What is a value gap?

B. economic value creation

PureRinse Inc. is a brand reputed for its wide variants of body wash that introduced its range of shampoos and skin moisturizers a few years ago. Since most of its products could be produced using the same resources and technology, the company's cost structure lowered, while its product portfolio widened. In this scenario, which of the following value and cost drivers is PureRinse applying?

B. economies of scope

According to the five forces model, which of the following is viewed as a major risk to a business pursuing a cost-leadership strategy?

B. innovation that allows competitors to emerge with more economical replacements

To be cost-competitive, a firm should

B. operate at the minimum efficient scale.

When a firm makes choices between a cost or value position to achieve competitive advantage, it is primarily involved in

B. strategic trade-offs.

Cool Cat Inc. has dominated the high-end refrigerator market by producing a reliable refrigerator with many bonus features that appeal to customers. Recently, a competitor has developed a refrigerator that offers many of the same features as Cool Cat's refrigerator. Which of the following will most likely help Cool Cat to keep its competitive advantage?

B. the loyalty of its customers

A blue ocean strategy tends to be successful only if a firm is able to rely on a _____ that allows it to reconcile trade-offs.

B. value innovation

Which of the following statements accurately brings out the difference between economies of scale and economies of scope?

C. Economies of scope are the savings that come from producing two or more outputs from the same resources, whereas economies of scale are decreases in per-unit cost with increases in output.

Help Yourself Inc. publishes many types self-help books. Recently, the consumer demand for winter gardening books has increased significantly. Although Help Yourself has limited production facilities, it has increased the production of these books to meet this demand. It hopes to get books to the market faster than its closest competitor, who is also increasing the production of winter gardening books. Which of the following aspects of business-level strategy has Help Yourself accomplished?

C. It has exploited external opportunities.

Both Viten Electronics Inc. and JL Electronics Inc. incur a cost of $400 to manufacture a LED television. However, the economic value created by JL Electronics is more than that created by Viten Electronics. What does this indicate?

C. JL Electronics can charge a premium price on its televisions.

Which of the following scenarios would threaten a firm that uses a differentiation strategy?

C. The firm's focus shifts to price rather than value-creating features.

Handy Helper, Inc. produces decent-quality woodworking tools at a mid-range price. Master Tools, Inc. produces high-quality tools also at a mid-range price. Master Tools gained a competitive advantage because it has ______ than Handy Helper.

C. a higher value gap

Both Blue Horizons Electronics Inc. and CLR Inc. have achieved cost parity in the television market. To gain and sustain a competitive advantage against CLR, Blue Horizons Electronics should

C. create greater perceived economic value than CLR.

In a focused cost-leadership strategy, a firm

C. delivers low-cost products and services to a specific, narrow part of the market.

DiscountHaven Inc. is a large chain of hypermarkets. It has cost benefits due to its extensive operation. The company's marketing and sales, logistics, administrative, and other such related costs get divided between a large number of product units stocked in its stores. This makes it difficult for smaller retail stores and supermarkets to compete against DiscountHaven's low prices. Thus, DiscountHaven has a competitive advantage due to its

C. economies of scale.

The concept of a(n) _____ attempts to capture both learning effects and process improvements at firms.

C. experience curve

In contrast to a differentiator, a cost-leader will

C. focus its research and development on process technologies to improve efficiency.

Which of the following will hamper a differentiator's ability to achieve a competitive advantage?

C. lower value gap

A firm experiences diseconomies of scale when it

C. produces at an output level beyond the minimum efficient scale

DFS Electronics Inc. ensures that all its products are highly durable and reliable by using techniques like zero-defect and lean manufacturing systems. These efforts not only add to the products' differential appeal, but also help the company save costs during production and avoid expenses due to after-sales services. Thus, the common value and cost driver responsible for DFS Electronics' strategic position as an integrator is the

C. quality.

Clean Machine Inc. produces a high-quality dishwashing machine that is reliable and durable. How would this product most likely act as a cost driver?

C. reduce the total cost of ownership

Economies of scale do not allow firms to

C. spread their variable costs over a larger output.

Which of the following situations will have greater effects from economies of scale than from learning effects?

C. when mass manufacturing pens

How is differentiation parity different from cost parity?

D. Differentiation parity deals with value not pricing

How did Marriott use economies of scope to achieve greater economic value than its competitors?

D. Marriott lowered its cost structure by sharing its production assets over a several types of hotels, which increased its menu and thus its differentiated appeal.

Which of the following examples uses a focused differentiation strategy?

D. a cosmetics brand that offers superior-quality skin lotion priced at 100 dollars per bottle

When Internet service providers offer free routers for subscriptions to their wireless Internet packs, the perceived value of the service offering increases. In this case, the value driver would be

D. availability of complements.

Which of the following is primarily a value driver?

D. complements

Firms pursuing a differentiation strategy primarily seek to

D. create higher customer perceived value than the value that competitors create.

Which of the following is primarily a cost driver?

D. economies of scale

Which of the following contributed the most to JCPenny's failed blue ocean strategy?

D. failure to combine a cost-leadership position with a differentiation position

A differentiation strategy works best when a

D. firm has intangible resources, is able to pass on increases in supplier cost to the customer, and its differentiation appeal creates customer loyalty.

Organic Eats is a restaurant that caters to the needs of a small percentage of highly health-conscious consumers. It has an all-organic, vegan menu. Since there are very few restaurants that offer the same unique services, customers are willing to pay a premium price for its products and services. In this scenario, Organic Eats is following a

D. focused differentiation strategy.

Which of the following drivers simultaneously increases value while lowering cost?

D. innovation

Which of the following is a firm effect that has an impact on the competitive advantage of a firm?

D. the value and the cost position of the firm relative to its competitors

Product features, customer service, and complements are all examples of important

D. value drivers.

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

D. value innovation. 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 value innovation.

Red Ocean

is a term used when a Blue Ocean strategy fails. Such a strategy fails when a firm fails to combine differentiation and low cost.