ST

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.

C

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.

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

A

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

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

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

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

28) Which of the following is primarily a value driver? A) cost of input factors B) economies of scope C) experience-curve effects D) complements

D

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

F

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

F

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

F

4) 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.

F

6) A differentiator will always benefit when products have become commoditized.

F

5) 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.

T

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

T

9) 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.

T

59) When a firm combines experience based learning and process innovation, the firm A) jumps to a steeper learning curve.

A

11) 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 B) code of ethics C) mission statement D) functional-level strategy

A

19) Tangles Costume Jewelry offers slightly lower quality merchandise than competitors at a much lower price. What strategy is Tangles using? A) cost-leadership B) differentiation C) niche marketing D) product diversification

A

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

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

B

33) 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 A) economies of scale. B) learning-curve effects. C) experience-curve effects. D) availability of complements.

D

32) 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 A) focus on adding unique features to her product that customers will value. B) concentrate on improving process technologies to achieve economies of scale.

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.

A

23) In a focused cost-leadership strategy, a firm A) caters to the segment of the market that is least cost-sensitive. B) provides high-priced products for many different segments of the mass market. C) delivers low-cost products and services to a specific, narrow part of the market.

C

16) 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 B) differentiation

A

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.

A

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.

A

45) ________ is best described as decreases in cost per unit as output increases. A) Economies of scale

A

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

A

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

A

63) A differentiator is least likely to be threatened by increases in input prices due to powerful suppliers when the A) differentiator is able to create a significant difference between perceived value and current market prices.

A

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.

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

B

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.

B

26) When a differentiator charges a similar price as its competitors in the same strategic group but offers more perceived value, it A) loses its competitive advantage. B) gains market share from other firms.

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.

B

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.

B

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

B

48) 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? A) 9,000 units B) 11,000 units

B

55) 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) A) 80 percent learning curve. B) 90 percent learning curve.

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.

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

B

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

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.

C

20) Which of the following best describes a strategic trade-off? A) the tension between innovation and keeping manufacturing costs down B) the tension between maintaining both high-quality products and service C) the tension between value creation and the pressure to keep costs in check

C

22) 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) a company that sells small kitchen appliances at affordable prices. B) a consumer electronics company that sells high-end devices. C) a consumer electronics company popular among price-conscious customers.

C

25) 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? A) Bison Autos has a competitive advantage over Sparrow Inc. B) Both Bison Autos and Sparrow Inc. have achieved competitive parity. C) Sparrow Inc. can charge a premium price on its automobiles.

C

30) Whole Foods differentiates itself from competitors by offering top-quality foods obtained through sustainable agriculture. This business strategy implies that Whole Foods focuses on A) decreasing the existing value gap by providing luxury goods to customers. B) maintaining a less steeper learning curve as compared to its competitors. C) increasing the perceived value created for customers, which allows it to charge a premium price.

C

31) 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? A) economies of scale B) low-cost input factors C) product features

C

34) 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 A) economies of scale. B) learning-curve effects. C) availability of complements.

C

37) 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? A) AccuroDisk and TD Storage share differentiation parity. B) TD Storage has a competitive advantage over AccuroDisk in terms of perceived value. C) AccuroDisk creates a greater economic value than TD Storage.

C

49) 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.

C

50) 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 A) superior customer service. B) time compression economies. C) economies of scale.

C

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.

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

C

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.

C

24) 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 A) product diversification strategy. B) liquidation strategy. C) broad differentiation strategy. D) focused differentiation strategy.

D

29) How does availability of complements act as a value driver? A) Complements add value to a product by offering an inferior substitute to it. B) Complements add value to a product by competing with it. C) Complements add value to a product when they imitate it. D) Complements add value to a product when they are consumed in tandem with it.

D

38) 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? A) network effects B) superior customer service C) availability of complements D) low-cost input factors

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

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

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

8) 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.

F

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

T