MGT 491: CH. 6

Why is keeping its costs the lowest in the industry not the only focus of a firm pursuing cost-leadership strategy?

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How does availability of complements act as a value driver?

Complements add value to a product when they are consumed in tandem with it.

What does it mean for a firm to have an 80 percent learning curve?

Every time the cumulative output is doubled, the cost per unit will decline by 20 percent.

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

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

Learning effects occur over time as output accumulates.

When a firm operates at an output level of 9,000 units, the per-unit cost is $5. When the production is between 10,000-12,000 units, the per-unit cost is $4. At a production level of 13,000 units, the production cost is again $5 per unit. At 14,000 units and above, the production cost increases further. At what output level does the firm experience economies of scale?

11,000 units

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

False

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

False

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

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

What must a cost-leadership strategy accomplish to be successful?

It must reduce the firm's cost below that of its competitors while offering adequate value.

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?

Take advantage of economies of scale and scope by opening a chain of lower-priced economy hotels that leverage the Costal Haven brand image.

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?

by incorporating new programming techniques to take advantage of experience curve effects

Tangles Costume Jewelry offers slightly lower quality merchandise than competitors at a much lower price. What strategy is Tangles using?

cost-leadership

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?

eliminating brick-and-mortar locations and offering delivery from a central kitchen

Nendry is the owner of a firm that produces sports drinks. Since there are a number of firms in the industry competing on cost, Nendry has decided to pursue a differentiation strategy. In this case, she should

focus on adding unique features to her product that customers will value.

Whole Foods differentiates itself from competitors by offering top-quality foods obtained through sustainable agriculture. This business strategy implies that Whole Foods focuses on

increasing the perceived value created for customers, which allows it to charge a premium price.

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

innovation

A firm experiences diseconomies of scale when it

produces at an output level beyond the minimum efficient scale.

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

value drivers.

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

watch maker that sells high-end, premium watches.