MGT Exam 2
________ is best described as decreases in cost per unit as output increases.
Economies of scale
Unlike the financial ratios based on accounting data, total return to shareholders is
an external performance metric
A watchmaking company has priced one of its wristwatches at $210. Most of its competitors sell similar watches at $180. Selling anything less than $150 would result in a loss for the company. However, the absolute maximum a customer is willing to pay for it is $170. In this scenario, what is the reservation price of the wristwatch?
$170
A firm incurs $100 to manufacture an office table. It fixes the market price of the table as $250, and discounts the price to $200. However, the maximum a person is willing to pay for it is $180. What is the amount of total perceived consumer benefits in this scenario?
$180
A firm has 30 million shares outstanding, and each share is traded at $100. Also, each shareholder gets a dividend of $2,000 annually. In this case, the market capitalization is
$3 billion, that is, 30 million shares × $100.
Mobius Electronics incurs a cost of $350 to produce one unit of a cell phone. The company's management has priced the product at $600 in the market. Considering the technological advancement of the cell phone, customers perceive its value to be around $800. What is the economic value created in this scenario?
$450
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
In the United States, the time period for the right to exclude others from the use of a patented technology is ________ from the filing date of a patent application.
20 years
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?
3,000-4,000 units
At a certain output level, the per-unit cost incurred by a firm to manufacture a product was $70. Once the cumulative output doubled, the cost per unit reduced to $63. All other factors remaining constant, the firm has been able to achieve a(n)
90 percent learning curve
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 major winter storm shuts down Gilroy's production for several days.
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 new competitor is perceived to provide similar value, but in addition offers innovative self-checkout.
AccuroDisk Inc. manufactures external hard disks for $32 per unit, and the maximum price customers are willing to pay is $47 per unit. TD Storage Inc. is a competitor of AccuroDisk Inc. that produces external hard disks for $37 per unit, and customers are willing to pay a maximum price of $50 per unit. What does this imply?
AccuroDisk creates a greater economic value than TD Storage.
How is an equity alliance different from a joint venture?
An equity alliance involves taking ownership in a partner; a joint venture involves two or more entities owning a firm.
Which of the following statements correctly compares Apple and Microsoft in 2016?
Apple had a higher return on invested capital than Microsoft.
In the context of industrial growth, which of the following statements is true of standards?
As the size of a market expands, a standard signals the market's agreement on a common set of engineering features and design choices.
Which of the following statements about competitive advantage is true?
Competitive advantage can be assessed by measuring accounting profit, shareholder value, or economic value.
Which of the following provides an example of a firm in a red ocean?
Chique Apparel offered clothing at a low price but failed to differentiate its product as being exclusive.
You are the CEO of a home appliance manufacturing company and have recently undertaken a review of your company's strategy. In comparing your stock market valuation to that of your closest competitor, you note that your firm is currently valued at $50 billion, while your competitor is valued at $40 billion. How should you proceed?
Compare the current valuations with past valuations to determine a trend.
How does availability of complements act as a value driver?
Complements add value to a product when they are consumed in tandem with it.
________ is best described as the difference between a buyer's willingness to pay for a product or service and a firm's total cost to produce it.
Economic value created
How is differentiation parity different from cost parity?
Differentiation parity deals with value not cost.
It is April 2018 and Mark is a novice investor who wants to decide between purchasing shares in EagleCorp or Myna Bird Inc. In fiscal year 2017, EagleCorp's return on invested capital (ROIC) was 15 percent, and its cost of capital was 12 percent. During the same period, Myna Bird Inc.'s ROIC was 22 percent and its cost of capital was 25 percent. What does this information tell Mark?
EagleCorp is more likely to create value while Myna Bird Inc. is more likely to destroy value.
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.
The working capital turnover of Tesva Systems Corp. is 6.0. What does this financial data suggest?
For every dollar Tesva Systems puts to work, the company realizes $6.00 of sales.
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?
Fun Frames and Highwire have achieved differentiation parity.
Elena is the CEO of Geode Technologies, a consumer electronics manufacturer. Last year, Geode's return on invested capital (ROIC) was 11.6 percent, while Geode's closest competitor, NorthWest Tech, had an ROIC of 17 percent. Which of the following factors might Elena use to convince investors to invest in Geode rather than NorthWest Tech?
Geode's intangible intensity was 6 percent, while NorthWest Tech's was 3 percent.
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?
Have a cumulative output that is greater than Playtime Inc.'s.
Ira can be categorized under the late majority customer segment. Which of the following behaviors is he most likely to exhibit?
He will prefer to buy from well-established brands rather than unknown new ventures.
Which of the following scenarios exemplifies a sustainable strategy under the triple bottom line approach?
Impervious Plastics reformulated its products to eliminate chemicals that were widely used in the industry but were being investigated for their potential negative effects on the environment.
Which of the following is an advantage of applying the economic value creation perspective to assess a firm's performance?
In economic value perspective, analysts not only consider historical costs, but also opportunity costs.
Using the Boston Consulting Group growth-share matrix, the managers of Xylicon International determined that their business unit devoted to personal health monitoring devices was a star. Based on this finding, which of the following strategies is likely to produce the best results?
Increase investment in the personal health monitoring unit to encourage future growth.
Happy Foods and General Grains both produce similar puffed rice breakfast cereals. For both companies, the cost of producing a box of cereal is 45 cents, and it is not possible for either company to lower their production costs any further. How can one company achieve a competitive advantage over the other?
Increase total perceived consumer benefits through differentiation.
Which of the following most accurately describes a difference between incremental innovation and radical innovation?
Incremental innovation builds on an established knowledge base; radical innovation uses an entirely different knowledge base.
________ is best described as a situation in which one party is more informed than another, because of the possession of private information.
Information asymmetry
Which of the following is an advantage of the balanced-scorecard?
It allows managers to translate a firm's vision into measureable operational goals.
How does a sustainable strategy typically help a firm?
It helps the firm achieve positive results along the social and ecological dimensions.
How is a cost-leader protected from threats from powerful suppliers?
It is more able to absorb price increases through accepting lower profit margins.
Which of the following expressions accurately describes market cap?
It is the product of the number of outstanding shares and the share price.
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.
Which of the following best explains why a blue ocean strategy is difficult to implement?
It requires the reconciliation of fundamentally different strategic positions—differentiation and low cost.
Which of the following describes an airline that is most likely stuck in the middle?
Just Right Airline offers high-quality beverages and meals, plush airport lounges, only a few connections via hubs domestically, poor customer service, and low prices.
While KFC focuses on international markets, its competitor, Chick-fil-A, focuses on the domestic U.S. market. What is the reason behind this strategic difference?
KFC has more financial resources than Chick-fil-A since it is a publicly traded stock company.
Which of the following is a disadvantage of measuring firm performance through total return to shareholders and firm market capitalization?
Market volatility makes it difficult to assess firm performance through these measures, particularly in the short-term.
How did Marriott use economies of scope to achieve greater economic value than its competitors?
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.
Which of the following scenarios best exemplifies a platform business?
Myra operates an industrial test kitchen in which local growers bring their produce to local chefs, who use the kitchen to try new recipes and determine which produce to buy.
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?
Narrow the scope of competition and focus on unique features such as the use of organic materials.
________ are best described as the value of the best forgone alternative use of the resources employed.
Opportunity costs
Which of the following businesses is most susceptible to negative network effects?
Pics Match is a social media platform where users upload photos to the site and are matched with other users who have taken similar photos.
Dominic is the founder of an innovative "impromptu catering" business that provides elegant, healthy party food and decorations on less than 24 hours' notice. The company has grown by over 150 percent in the past year. Dominic credits some of the company's success to studying the strategies of prominent social entrepreneurs, such as Wikipedia's Jimmy Wales. What can Dominic do to exemplify the social entrepreneurship model?
Provide free weekly catered meals for the homeless.
Phoenix Guitars is interested in pursuing backward integration to take greater ownership of the extraction of raw materials and production of components used in its signature line of guitars. Although this approach would lower the overall cost of producing a guitar, the costs associated with producing electronic pickups for sound amplification are far greater than those associated with sourcing pickups from a reliable supplier. Which of the following approaches is likely to produce superior results?
Pursue taper integration.
Skylark Sodas has been a market leader in the soft drink industry for several decades. However, its market research shows that consumer tastes have begun to shift to sugar-free flavored seltzer waters, a product that Skylark is capable of producing with minimal changes to its facilities and production processes. Based on your knowledge of the core competence-market matrix, which diversification strategy should Skylark pursue?
Redeploy and recombine existing core competencies to compete in markets of the future.
Both Saturn Technologies and Granite Inc. incur a cost of $200 to manufacture a single unit of a cell phone. However, Saturn Technologies charges a higher price than Granite Inc. does, but it still sells a higher number of phones. What does this imply?
Saturn Technologies creates more economic value than Granite Inc. does.
The three financial ratios that constitute return on revenue are Cost of goods sold/Revenue, Research & development expense/Revenue, and
Selling, general, & administrative expense/Revenue.
________ are the legal owners of public companies.
Shareholders
Erin is the manager of gardening supplies wholesaler SpringTime Inc. The company's vision is to become the leading supplier of gardening materials west of the Mississippi River. In assessing the firm's current state, Erin has determined that the firm could differentiate itself from competitors with an easy-to-use online ordering system and a two-day delivery guarantee. To accomplish this, Erin has determined that SpringTime must spend the next two quarters honing its capabilities for sourcing materials quickly and improving its web development competencies. According to the balanced scorecard approach, what is wrong with Erin's thinking?
She has failed to account for external factors such as customer perceptions and shareholder perceptions.
Both Bison Autos and Sparrow Inc. incur a cost of $9,000 to manufacture a vehicle. However, the economic value created by Sparrow Inc. is more than that created by Bison Autos. What does this indicate?
Sparrow Inc. can charge a premium price on its automobiles.
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?
Starfish's customers start to consider soda a commodity.
________ are best described as voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services to lead to competitive advantage.
Strategic alliances
About 20 years ago, Sturdy Light, Inc., produced a sturdy, lightweight backpack in a market that was rapidly growing. Sturdy Light became a leader in this market. Eventually, the backpack market reached the maturity stage and slowed down. However, by this time, Sturdy Light had developed a strong brand name and continued to steadily lead the market. Which of the following describes this scenario?
Sturdy Light was a star that developed into a cash cow.
Which of the conditions prevail when an industry is at the end of its life cycle?
The level of process innovation reaches its maximum as firms attempt to lower cost.
TL & Co. is following a related-linked diversification strategy, and Soar Inc. is following a related-constrained diversification strategy. How do the two firms differ from each other?
TL & Co. will share fewer common competencies and resources between its various businesses when compared to Soar Inc.
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.
Which of the following is an advantage of a triple-bottom-line approach?
The approach takes an integrative and holistic view in assessing a company's performance.
How does a conglomerate benefit from following an unrelated diversification strategy?
The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.
Which of the following is a feature of the growth stage of the industry life cycle?
The consumer demand increases.
Banana Computers has decided to procure processing chips required for its laptops from external suppliers instead of manufacturing them in their own facilities. How will this decision affect the firm?
The firm will have more flexibility in purchasing and comparing prices of goods and services.
Which of the following is a drawback of using the industry life cycle as a framework to guide strategic choice?
The framework does not explain everything about changes in industries.
In developed economies, the electric car industry is in the introduction stage, and the industry for MP3 players is in the shakeout phase. What does this imply?
The industry for electric cars will focus more on product innovation, whereas in the MP3 player industry, the focus will be on process innovation.
BestDrive Inc. is a large automobile company. The company's petrol cars strategic business unit (SBU) has been recognized as a cash cow, and its hybrid electric cars SBU has been categorized under stars. Which of the following can be inferred from this scenario?
The petrol cars SBU operates in a low-growth market, whereas the hybrid electric cars SBU operates in a high-growth market.
Which of the following statements accurately brings out the distinction between the introduction and growth stages of the industry life cycle?
There is more strategic variety in the growth stage when compared to the introduction stage.
Which of the following statements is true of the early majority section of consumers?
They weigh the benefits and costs carefully when adopting a new product.
Which of the following statements accurately brings out the difference between technology enthusiasts and early adopters?
Unlike technology enthusiasts, early adopters' demand is fueled more by intuition and vision rather than technology concerns.
________ is best described as a firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs.
Vertical integration
Rock Bottom Tiles has developed a new customer-oriented business model. Rather than maintain a network of showrooms across the country, the business will now let customers choose several styles that interest them from an online site, and will ship samples of each of the styles to the customer to test in their home free of charge. Once they have settled on a tile choice, Rock Bottom will send a representative to their home to schedule installation. The company has determined that busy middle-class customers will value the convenience of the new model, which allow them to upgrade the look of their homes without spending time browsing showrooms. The new model will be created by selling the old showrooms and shifting resources to the new online site and regional offices for sales personnel. What question remains for Rock Bottom to ask in order to put its strategy into action?
What activities need to be performed to create and deliver the offerings to consumers?
While the domestic airline industry is in the maturity stage of the industry life cycle, the internet-enabled appliance industry is in its growth stage. Which of the following can be inferred from the given data?
While the domestic airline industry is mostly free from excess capacity, the internet-enabled appliance industry will have new entrants.
________ is best described as a measure of how effectively capital is being used by a firm to generate revenue.
Working capital turnover
The tenet behind the triple-bottom-line is that
a firm should achieve positive results along the economic, social, and ecological dimensions to gain a sustainable strategy.
Airbase is a consumer electronics company known for its affordable mobile devices that follows a cost-leadership strategy. In this scenario, Airbase should ideally compare its strategic position with
a consumer electronics company popular among price-conscious customers.
Which of the following examples uses a focused differentiation strategy?
a cosmetics brand that offers superior skin lotion for sensitive skin priced at 100 dollars per bottle
Assume that the market for print book publishing has entered the maturity stage. Which of the following would most likely exist during this stage?
a few large publishers
Coastal Pharma and Brainwave Technologies have together invested and created a new organization, InnerView, to focus on developing diagnostic devices. Through this new firm, both companies are attempting to combine their core competencies to innovate and reduce their risks associated with transaction-specific investments. However, the new organization operates independent of Coastal Pharma and Brainwave Technologies. Which of the following alternatives to integration does this scenario best illustrate?
a joint venture
Which of the following best illustrates physical-asset specificity?
a machine solely designed to give a candy its trademarked shape
A primary advantage of organizing economic activity within firms is the
ability to coordinate highly complex tasks to allow for specialized division of labor.
You are the founder of Shadow Skateboards, and you are considering methods of gaining and sustaining a competitive advantage. Which of the following changes has the best chance of quickly creating a sustainable advantage?
allowing customers to upload their own image designs and help assemble the finished product at retail locations
Mega Media sells books by having salespeople set up appointments with potential customers and give them a sales pitch for the product. When a salesperson sells a book, he or she gets a predetermined percentage commission. This type of business model is called
an agency
DigitalHealth Electronics Inc. is a company that builds diagnostic devices. It was the first company to develop a compact MRI scanner by reconfiguring the components of the MRI technology. This smaller and user-friendly version of the huge MRI scanner created demand from small hospitals, nursing homes, and private practice doctors who were earlier dependent on the scanning machines in large hospitals. Which of the following types of innovations does this scenario best illustrate?
architectural innovation
Canon was able to redesign the copying machine so that it didn't need professional service—reliability was built directly into the machine, and the user could replace parts, such as the cartridge. What Xerox had not envisioned was the possibility that the components of the copying machine could be put together in an altogether different way that was more user-friendly. This example describes
architectural innovation.
How does a firm capture its producer surplus for a good or service?
as profit per unit sold
Body Sync Inc. is a chain of gyms. It offers a fitness package that allows its members to use the gym facilities for 12 months by paying only for 10 months. Included in the package are two health checkups and a gym kit. These add-ons by themselves are not very valuable, but as a package they can enhance the perceived value of the service offerings. In this case, Body Sync's primary value driver is
availability of complements.
When wireless service providers offer free or discounted mobile phones for subscriptions to their wireless voice and data service, the perceived value of the service offering increases. In this case, the value driver would be
availability of complements.
Radial Autos currently sources components such as airbags, upholstery, and brake pads from various suppliers in the industry value chain. In order to lower costs and reduce the risk of interruptions in the supply of components, Radial should pursue
backward integration
Firms that use taper integration also use ________ when they rely on outside-market firms for some of their supplies.
backward vertical integration
In a successful ________ strategy, the trade-offs between differentiation and low cost are reconciled.
blue ocean
In the multiplex industry, Vibrant Movies Inc. is an upscale multiplex that focuses on superior customer experience. The firm charges premium prices for its movie tickets and services. Global Cine Inc., in contrast, charges the lowest price in the industry with its no-frills approach. In between these two segments is True Movies Inc., which offers a customer experience comparable to that of Vibrant Movies at a price almost as low as that of Global Cine. What strategy is True Movies pursuing in this scenario?
blue ocean strategy
The balanced-scorecard can accommodate
both short- and long-term performance metrics.
In 2007, Salesforce.com recognized an emerging market for platform as a service (PaaS) offerings and developed a new competency in delivering software development and deployment tools. This allowed its customers to either extend their existing CRM offering or build completely new types of software. This is an example of
building new core competencies to create and compete in markets of the future.
Ancho Corp. is an automobile company whose core competency lies in manufacturing petrol- and diesel-based cars. The company realizes that more of its potential customers are switching to electric cars. The R&D department of the company acquires competencies in developing electric cars and launches its first hybrid car, which uses both gas and electricity. In this scenario, Ancho is primarily
building new core competencies to protect and extend current market position.
The translation of strategy into action primarily takes place in a firm's
business model
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
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
How has Apple been able to sustain its competitive advantage in the smartphone industry?
by regularly introducing incremental improvements in its products
Which of the following is an example of social entrepreneurship? The committee approved the new formula for an all-purpose cleaner because it
cleaned as well as other cleaners and used organic ingredients.
Which of the following is primarily a value driver?
complements
When the market for standalone Global Positioning System (GPS) devices declined with the arrival of GPS-enabled mobile phones, Magnet Inc., a manufacturer of GPS devices, bought out most of its rivals that were planning to exit. This allowed the company to get rid of all the excess capacity and acquire a monopolistic market power in the declining industry. Which of the following strategies has Magnet adopted in this scenario?
consolidation strategy
Economic value creation is best expressed as
consumer surplus plus firm profit.
When a firm pursues a maintain strategy, it
continues to support marketing efforts even if the demand for the product is declining.
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?
cost-leadership
Tangles Costume Jewelry offers slightly lower quality merchandise than competitors at a much lower price. What strategy is Tangles using?
cost-leadership
HealthTech wanted its research partner, an R&D company, to develop a cancer vaccine. However, the project required huge capital investments, and its research partner was not ready to solely face the risks involved. Thus, to gain its partner's confidence and to prove its involvement, HealthTech invested $100 million in the project. This investment made by HealthTech will result in a
credible commitment.
Threadless allows customers to submit their own designs and to vote on which designs they would like to see printed on a T-shirt. This business uses a ________ technique.
crowdsourcing
The demand for flip phones has drastically reduced, and there are only a few consumer electronics companies selling them at extremely low prices. Also, the current buyers of flip phones are mainly categorized under laggards. Which of the following stages of the industry life cycle is the flip phone industry in currently?
decline stage
In a focused cost-leadership strategy, a firm
delivers low-cost products and services to a specific, narrow part of the market.
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?
differentiation
A differentiator is least likely to be threatened by increases in input prices due to powerful suppliers when the
differentiator is able to create a significant difference between perceived value and current market prices.
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?
diseconomies of scale
A(n) ________ leverages new technologies to attack existing markets.
disruptive innovation
When Japanese carmakers entered the existing U.S. automobile market by first offering small fuel-efficient cars, and then leveraging their low-cost and high-quality advantages into high-end luxury segments, they were engaging in
disruptive innovation.
Win Goods Inc. is a large multinational conglomerate. As a single business unit, the company's stock price is estimated to be $200. However, by adding the actual market stock prices of each of its individual business units, the stock price of the company as one unit would be $300. What is Win Goods experiencing in this scenario?
diversification discount
ESB Group is the parent company of many related businesses under its banner. Each share of the parent company is quoted at $220. However, if this had to be assessed by adding the stock prices of each of its strategic business units, the value would only be $200 per share. In this scenario, what has ESB Group created?
diversification premium
In the context of the Boston Consulting Group (BCG) growth-share matrix, if one of the strategic business units of a conglomerate is categorized under dogs, the management should
divest the strategic business unit.
ElectraSync Inc., a large consumer electronics company, has divided each product in its portfolio into a separate strategic business unit (SBU). The desktop SBU has been experiencing drastic decline in its cash flow, and its market share has also reduced to an insignificant 10 percent. This has been attributed to the low growth in the desktop market after the arrival of tablet computers and laptops. In the context of the Boston Consulting Group (BCG) growth-share matrix, the desktop SBU will be categorized under
dogs
The customers entering the market in the growth stage are primarily
early adopters.
At the time when Ellen decided to purchase a tablet computer, the product had just become accessible to the mass market. She did not purchase the tablet until after she was convinced that the benefits it would offer her would far exceed its price. Also, she waited for her friends to try the product and popular gadget television shows to endorse it. Which of the following customer segments does Ellen best represent? Group of answer choices
early majority
Marble Inc. is a new firm that entered the smartwatch industry during the growth stage of the industry life cycle. It managed to become one of the top-three smartwatch manufacturers during the shakeout stage due to its low-cost structure. What features should Marble emphasize in its product marketing to ensure it successfully crosses the chasm into the maturity stage?
ease of use
A firm incurs $400 to manufacture a television. In the market, customers are willing to pay a maximum of $600 for the television priced at $500. The difference of $200 ($600 minus $400) is the
economic value created
By selling a laptop at $1,000 for which consumers are willing to pay up to $1,200, a consumer electronics firm makes a profit of $400 per unit. In this scenario, the amount $600, that is ($1200 - $1000) + $400, is the
economic value created
Heirloom Furniture is a brand reputed for its wide variants of sofas that introduced a new range of mattresses and bed frames 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 Heirloom applying?
economies of scope
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
It is important for a firm to win over the early majority section of the market to ensure the commercial success of an innovation because they
enter into the market in large numbers, creating a herding effect.
As a research scholar, Denise had built a helicam as part of her project. The helicam could capture aerial images. Realizing the potential use of this product in movie production and military and rescue operations, she started a new venture where she could customize these helicams to fit the specific needs of the buyers and sell them. Denise can be best described as a(n)
entrepreneur.
A differentiation strategy works best when a
firm has intangible resources, is able to pass on increases in supplier cost to the customer, and its differentiation appeal creates customer loyalty.
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.
Swan Song is a spa that caters to the needs of a small percentage of highly health-conscious consumers. It offers state-of-the-art treatments in a luxurious setting. Since there are very few spas that offer the same unique services, customers are willing to pay a premium price for its products and services. In this scenario, Swan Song is following a
focused differentiation strategy.
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
gain a market share and make up the loss in margin through increased sales.
To be successful and to survive the shakeout stage of the industry life cycle, a firm should
gain economies of scale.
When a differentiator charges a similar price as its competitors in the same strategic group but offers more perceived value, it
gains market share from other firms.
Revolution Watches, a Swiss-based premium watch brand, has recently started selling its watches through company-owned retail outlets in major cities of developing nations. Which of the following types of diversification strategies is the firm pursuing?
geographic diversification strategy
In which of the following stages of the industry life cycle is a standard first established?
growth stage
The leading producer of cell phone backup batteries, Jumpstart, has achieved great success because they produce high-quality battery backups that are not too expensive. Even so, another company that produces lower-quality batteries at the same price has also achieved some success, but not as much as Jumpstart. Also, in general, the price of backup batteries has declined because of economies of scale and learning. In addition, Jumpstart has added complementary assets, such as a carrying case. Considering all of these factors, the backup battery industry is most likely in the
growth stage.
Intel's Celeron chip and Atom chip are initiatives to
guard the company against disruptive innovation by protecting the low end of the market.
Although Mountaintop Electronics still sells its DVD players, a product in its decline stage, the investments made by the company on improving or marketing the product are very low. The company has allocated the least amount of human and financial capital to this department. Which of the following strategies has Mountaintop Electronics adopted in this scenario?
harvest strategy
In the decline stage, which of the following strategies involves a reduction of investments in product support?
harvest strategy
The strategy canvas for movie theaters includes factors such as prices, comfort, customer service, concessions variety, and hours of operation. Which of the following value curves is most likely to represent a theater that successfully positions itself as a differentiator?
high price, high comfort, high customer service, high concessions variety, low hours of operation
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.
Foot Friendly is a manufacturer of athletic shoes. It has released an improved version of its premier running shoe in markets in which the company already operates. Which of the following types of innovations does this scenario best illustrate?
incremental innovation
A factor favoring the success of disruptive innovation is that
incumbent firms are slow to change.
Each stage of the vertical value chain typically represents a distinct ________ in which a number of different firms are competing.
industry
Nina is in an interview for a sales job that requires no experience. She is trying to portray herself as a highly enthusiastic, energetic person with high-level communication and interpersonal skills. The interviewer is convinced that Nina should be hired as a salesperson in the company. However, in her resume, Nina had not mentioned her previous work experience as she was fired from that job because of her frequent absenteeism. Which of the following does this scenario best illustrate?
information asymmetry
Which of the following drivers simultaneously increases value while lowering cost?
innovation
A. G. Lafley at Procter & Gamble (P&G) had implemented an open-innovation model, which had greatly benefitted the company. In the light of this information, we can conclude that A. G. Lafley is a(n)
intrapreneur.
General Electric (GE) disrupted itself in the healthcare industry by
introducing inexpensive and smaller diagnostic devices in developing countries.
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?
jumps to a steeper learning curve
When a firm combines experience based learning and process innovation, the firm
jumps to a steeper learning curve.
While the personal computer industry is flooded and growing with laptops and tablets, Malik recently bought a desktop, his first personal computer. He realized that a computer at home would be helpful for his children for their school projects, and he could use it to maintain the simple accounts of his plumbing business. Which of the following customer segments does Ivan best represent?
laggards
Competitive advantage goes to the firm that achieves the
largest economic value created.
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?
learning-curve effect
Quick Clean Chemicals outsources its production to contract manufacturers located in underdeveloped nations where unskilled labor is available in plenty for very low wages. This has helped the company become a price leader in the chemicals industry. Which of the following is the key driver behind Quick Clean's strategic position?
low-cost input factors
To initiate a strategic move that allows a firm to open up new and uncontested market space through value innovation, managers must address four key questions when formulating a blue ocean business strategy. These questions focus on
lowering cost and increasing perceived customer benefits
________ 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.
minimum efficient scale
Combining economies of learning with the existing production technology allows a firm to
move down a given learning curve.
Which of the following sources of differential appeal is least effective in helping a firm sustain its advantage?
observable product features
The primary goal of a firm pursuing a blue ocean strategy should be to
offer a differentiated product or service at a low cost
When SW International declared a dividend of $20,000,000, its market value increased from $8 billion to $8.5 billion. However, it lost a chance to reinvest $20,000,000 in the research and development of a new product which would have earned a profit of $200 million. Thus, this $200 million is referred to as SW International's
opportunity cost
Zelda is a recent fashion graduate. She started her own apparel store with an investment of $300,000. In the first year she made a profit of $60,000. If she had taken up a job as a fashion editor for a magazine, she would have earned $50,000 as salary per year. Also, she could have invested her capital, $300,000, in treasury bonds and earned an interest of $12,000. Thus, the amount $62,000 ($50,000 + $12,000) would be Genevieve's
opportunity cost.
A firm's resistance to changes in the status quo is referred to as
organizational inertia.
Bulldog Holdings is a U.S.-based consumer electronics company. It owns smaller firms in Japan and Taiwan where most of its cell phone technology is developed and manufactured before being released worldwide. Which of the following alternatives to integration does this best illustrate?
parent-subsidiary relationship
When ReGen Pharmaceuticals released a new drug to treat insomnia, its chemical composition was disclosed at the back of the drug's cover. However, any attempts by competitors to copy the chemical composition would result in infringement of ReGen Pharmaceuticals intellectual property rights. Thus, the drug is protected by a
patent
A firm's business strategy can lead to a competitive advantage if it allows the firm to
perform different activities than its rivals.
True Tomato Inc. makes organic ketchup. To promote its products, this firm decided to make bottles in the shape of tomatoes. To accomplish this, True Tomato worked with its bottle manufacture to create a set of unique molds for its bottles. Which of the following specialized assets does this example demonstrate?
physical-asset specificity
Managers in a firm hired to improve the firm's profitability and ultimately the shareholders' value will add to the overall costs if they pursue their own self-interests. What does this best illustrate?
principal-agent problem
The ratio Cost of goods sold/Revenue indicates how efficiently a company can
produce a good
The difference between the price charged for a product and the cost to manufacture it is referred to as the
producer surplus
A firm experiences diseconomies of scale when it
produces at an output level beyond the minimum efficient scale.
WellMade Manufacturing is a large conglomerate that operates only in its home country. The company competes in industries like the consumer electronics, health care, hotel, airlines, education, and steel industries. Which of the following diversification strategies does this best illustrate?
product diversification
Fleet Foot Shoes has been successful at differentiating itself from competitors by claiming a premium price for its athletic footwear based on superior design and high-quality materials. In this scenario, which of the following is the key value driver?
product features
Groundswell Industries, a U.S.-based large conglomerate, competes in the hospitality, education, telecommunications, entertainment, airlines, and chemical industries. It currently operates in about 30 nations, and is planning to expand its portfolio by investing in rapidly developing countries. Which of the following strategies is Groundswell Industries pursuing?
product-market diversification strategy
Best Burger is a major fast food chain. Its managers are motivated to grow the firm in order to increase their market power and change the industry structure in their favor. Which of the following strategies is most associated with their motive for growth?
purchasing competitors
The strategic objective of a first mover during the introduction stage of the industry life cycle is to
pursue a harvest strategy.
TimeEnough Inc. entered the low-priced digital watch market several years ago. This firm's earnings have been unsteady, but might be growing. According to the BCG growth matrix, TimeEnough is a
question mark.
Incumbent firms favor incremental innovation over radical innovation because
radical innovation will disturb the existing power distribution within the firms.
The core competency of GoGo Motors is its fuel-efficient engine found in its cars. These engines are developed and built in-house. The company realizes that the growing demand for "green" vehicles has created a new market opportunity. Thus, it uses its existing technology to develop an engine that improves the fuel efficiency of recreational motorhomes. In this scenario, GoGo Motors is
redeploying and recombining existing core competencies to compete in future markets.
Beagle Autos is known for its affordable and reliable brand of consumer vehicles. Because its shareholders expect to see an improved rate of growth in the coming years, Beagle's executives have decided to diversify the company's range of products so that at least 40 percent of the firm's revenue is generated by new business units. However, the company's resources, capabilities, and competencies are limited to producing other forms of motorized vehicles, such as motorcycles and all-terrain vehicles (ATVs). Which type of corporate diversification strategy should Beagle pursue?
related-constrained
When executives of a firm consider business opportunities only where they can leverage their existing competencies and resources, it can be concluded that the firm is using
related-constrained diversification.
A strategy of ________ will be most beneficial for a firm to enhance its overall corporate performance.
related-linked diversification
Nocturnal Products started as a luxury brand for designer apparel. Soon, the company expanded by launching its own line of premium perfumes, watches, bags, and home furnishings. This expansion allowed the businesses under the company to share a few of the common competencies in products, services, technology, and distribution. Which of the following corporate strategies is Nocturnal pursuing in this scenario?
related-linked strategy
WJ Group Inc., a large multinational conglomerate, had begun to experience declining revenues over the years. The top management at the headquarters of the company decided that it was important for the company to avoid deviating from its core competencies. Thus, a few of the company's key businesses like energy, telecommunications, and automobiles were centralized, giving the top management more control over them. Also, relatively newer businesses like beverages and food processing were divested. In this scenario, WJ Group is involved in
restructuring.
From an investors' or shareholders' perspective, the measure of competitive advantage that matters most is the
return on risk capital
CordKing Electronics has entered a stage in which the demand for their innovative fax machines has declined. Now most customers are buying replacement parts or buying their second fax machine from the firm. What stage in the industry life cycle does this scenario describe?
shakeout stage
Edna Gomez is the founder of the restaurant chain Good and Green. She ensures that the products in her stores are ethically and responsibly sourced. Most products are therefore 100 percent organic and all packaging is manufactured from recycled material. Also, her company sources ingredients from farms within 100 miles from her locations. Edna's belief is that her restaurants should be able to support the community at large. Which of the following terms best describes Edna Gomez?
social entrepreneur
Edna Gomez is the founder of the restaurant chain Good and Green. She ensures that the products in her stores are ethically and responsibly sourced. Most products are therefore 100 percent organic and all packaging is manufactured from recycled material. Also, her company sources ingredients from farms within 100 miles from her locations. Edna's belief is that her restaurants should be able to support the community at large. Which of the following terms best describes Edna Gomez? Group of answer choices
social entrepreneur
The smartphone division of the large consumer electronics company, True Electra Inc., has a significant market share in the fast-growing cell phone market. If the company invests further into this division, it will be able to reap increased cash flows. In the Boston Consulting Group (BCG) growth-share matrix, the smartphone division of True Electra will be categorized under
stars.
Return on risk capital primarily includes
stock price appreciation plus dividends received over a specific period.
When a firm makes choices between a cost or value position to achieve competitive advantage, it is primarily involved in
strategic trade-offs.
A high percentage of R&D/Revenue ratio indicates a(n)
strong focus on innovation to improve current products and services.
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
stuck in the middle
Shark Fin Golf Club requires its members to pay a quarterly or an annual fee to use its services. Irrespective of whether they frequently use the services during the payment period or not, members have to pay in advance. Which of the following business models does this best illustrate?
subscription-based
Fortress International, a large conglomerate, procures a few component parts from external suppliers and also manufactures some of the key raw materials in its own subsidiaries. Aside from this, the company does not solely depend on outside distributors to reach its customers. In fact, it has its own retail stores to distribute its products. In this scenario, which of the following alternatives to vertical integration is Fortress International applying?
taper integration
Which of the following frameworks used to measure competitive advantage relies on both an internal and an external view of a firm?
the balanced-scorecard model
Value drivers contribute to a firm's competitive advantage only if
the increase in value creation exceeds the increase in costs.
A blue ocean strategy differs from a low-cost strategy in that
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.
The typical four-step innovation process begins with
the presentation of an idea as findings derived from basic research.
Which of the following best describes a strategic trade-off?
the tension between value creation and the pressure to keep costs in check
Which of the following approaches to assess competitive advantage is based on the view that noneconomic factors can have a significant impact on a firm's financial performance?
the triple-bottom-line approach
After trying on a dress, a consumer assesses it to be worth a maximum of $100 and is willing to pay that amount for the dress. However, the dress was priced at $80. What is the amount, $100, referred to as?
the value (V) the consumer attaches to the dress
Which of the following is a firm effect that has an impact on the competitive advantage of a firm?
the value and the cost position of the firm relative to its competitors
Which of the following is an external performance metric?
total return to shareholders
During the process of formulating an effective business model, a firm's managers should first
transform their strategy of how to compete into a blueprint of actions and initiatives.
The top management at Sunshine Vitamins, through rigorous testing, ensures that the company develops and sells vitamins that are free of harmful side effects. Also, the company ensures that the chemical waste generated in the manufacturing process is kept to a bare minimum and is disposed of according to the regulations of the Environmental Protection Agency. The management assesses its overall performance based on these dimensions. Thus, the managers at Sunshine Vitamins are applying the ________ approach to measure firm performance.
triple-bottom-line
The management team for Volcanic Batteries came up with the following vision statement: "Volcanic Batteries will conscientiously track its financial performance to ensure profits for its investors, enhance its community through employment and supporting charities, and dispose of waste in a manner that will not harm the environment." This vision statement is most likely based on the
triple-bottom-line approach.
The cost of capital to create a product is a fixed cost because it is
unaffected by consumer demand
A firm follows a(n) ________ when less than 70 percent of its revenues come from a single business and there are few, if any, linkages among its businesses.
unrelated diversification strategy
A defining characteristic of the subscription-based business model is that the
user pays for access to a product or service whether he or she uses it during the payment term or not.
A defining characteristic of the pay-as-you-go business model is that the
users pay for only the services they consume.
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 innovatoin
Decisions relating to "what stages of the industry value chain to participate in" determine a firm's
vertical integration.
Gold Leaf Computers sources the components for its laptops from various suppliers on the market. The firm pays $100 for processors, $35 for disk drives, $50 for screens, $10 for memory, and $40 for graphics and wireless internet cards. Gold Leaf has determined that it would cost $200 per unit to produce all of the necessary components in its in-house manufacturing facility. In this scenario, Gold Leaf should
vertically integrate.
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.
Anita has been named CEO of a popular sports apparel company. As CEO, she is tasked with setting the firm's corporate strategy. Which of the following decisions is Anita most likely to make?
what range of products the firm should offer
When does a firm fall into the large competitive chasm between early adopters and early majority?
when it fails to successfully launch a mass-market version of its product
________ is a business model in which the manufacturer sets a fixed price on a product, but the retailer is free to set it's own price.
wholesale
A value curve indicates a lack of effectiveness in a firm's strategic profile when it
zigzags