4490 Chapter 6
True or false: Tesla's high stock market valuation is partly justified by the company's learning curve.
True
A tablet manufacturer that includes a free stylus with every purchase is using ______ to enhance users' experiences and increase the perceived value of its tablets.
complements
A firm's strategic profile based on value creation and cost is called its ______.
strategic position
An important requirement for increasing economic value creation under a differentiation strategy is to ______.
control costs
Economies of scale are ______.
decreases in cost per unit as output increases
strategic trade-offs
Choices between a cost or value position. Such choices are necessary because higher value creation tends to generate higher cost.
Which of the following accurately describes the relationship between value and cost that would suggest that firm A has created a competitive advantage over firm B?
(V - C)A > (V - C)B
differentiation strategy
generic business strategy that seeks to create higher value for customers than the value that competitors create, while containing costs
Why do many firms fail to successfully implement a blue ocean strategy?
because they end up being "stuck in the middle," unable to increase value and lower costs at the same time
The minimum efficient scale indicates the level of output needed to _______ the cost per unit as much as possible.
bring down
An auto manufacturer that has access to cheaper labor and raw materials than its rivals will have a competitive advantage regarding lower cost of ______ factors.
input
True or false: Formulating a business strategy is a relatively easy task because only a few strategic options are available.
False
In addition to having the lowest cost, a low-cost leader is likely to have ______.
a large market share
Which of the following are input factors? (Check all that apply.) marketing and sales capital distribution labor information technology services raw materials
capital labor information technology services raw materials
Bundling of products and services that are consumed in tandem to create value is an example of ______.
complements
A firm that pursues a differentiation strategy will often find that the added expense of offering new or unique product features offsets the increase in perceived value, and profit margins begin to erode. This underscores the importance of ______ control for firms pursuing a differentiation strategy.
cost or costs
A(n) ______ strategy attempts to increase the perceived value of a product while controlling costs.
differentiation
A successful blue ocean strategy requires strategists to reconcile the trade-offs between ______.
differentiation and cost-leadership
diseconomies of scale
increases in cost per unit when output increases
The ______ is the range of output needed to minimize the cost per unit as much as possible.
minimum efficient scale
In a focused differentiation strategy, the competitive scope is _______ than in a traditional differentiation strategy.
narrower
Tesla has an 80% learning curve, which means that ______.
per-unit cost drops 20% whenever output doubles
Products in the affordable "business-casual" clothing market have largely become commoditized, and most retailers have begun to compete mainly on price rather than product features. In this environment, it is impossible for one retailer to gain market share without another losing it. This is an example of a ______ ocean.
red
A cost leader can achieve a competitive advantage by ______.
reducing costs below those of competitors while maintaining a similar value
economies of scope
savings that come from producing two (or more) outputs at less cost than producing each output individually, despite using the same resources and technology
Economies of scale present an opportunity to increase profits because as the number of units within the relevant range increases, fixed costs ______.
stay the same
Different value drivers contribute to competitive advantage only if ______.
the increase in perceived value exceeds the corresponding cost increase
value innovation
the simultaneous pursuit of differentiation and low cost in a way that creates a leap in value for both the firm and the consumers; considered a cornerstone of blue ocean strategy
Which competitive forces can result in erosion of margins for both differentiation and cost-leadership business strategies? threat of entry power of suppliers threat of substitutes power of buyers
threat of entry power of suppliers power of buyers
In terms of business strategy, blue oceans represent which of the following? (Check all that apply.) increased competition a crowded market space untapped market space increased demand
untapped market space increased demand
Why does the learning curve go down when productivity is considered?
As workers repeatedly engage in an activity, they become more efficient, driving down costs.
Blue Ocean Strategy
Business-level strategy that successfully combines differentiation and cost-leadership activities using value innovation to reconcile the inherent trade-offs.
Red Ocean Strategy
Compete in existing market space; beat the competition; exploit existing demand; make the value-cost trade-off; align the whole system of a firm's activities with its strategic choice of differentiation or low cost.
Business-level strategy addresses which overarching question?
How should we compete?
As JetBlue grew, which of the following occurred during the years following 2007?
It suffered a competitive disadvantage.
Which capability is required to create superior product features?
R&D
What is the relationship between fixed costs and economies of scale?
The amount of fixed costs allocated to each unit of output decreases as output increases.
Which of the following best defines economies of scope?
They are the savings that come from producing two or more outputs at less cost than producing each output individually.
By using a differentiation strategy, a firm aims to ______.
add unique features that will increase the perceived value of a product
If two firms produce very similar products at the same rate of output, and firm A is able to achieve lower per-unit costs than firm B by taking advantage of a new manufacturing technology, firm A is benefiting from
an experience-curve effect based on process innovation.
Which of the following situations would justify the use of manufacturing robots by a producer of packaged foods?
an increase in demand from the market
A company's goal-directed plans regarding how to compete for advantage is known as the firm's ______.
business-level strategy
Unique features and attributes that differentiate a product from competitors' offerings allow the firm to ______.
charge premium pricing
What are the three most important value drivers that managers can use to create a competitive advantage? complements product features cost savings customer service availability
complements product features customer service
The goal of a _____________ strategy is to achieve expenses below those of competitors while maintaining similar value. A firm with this strategy could or could not achieve differentiation parity.
cost leadership
A struggling retailer seeking to implement a blue ocean strategy is likely to experience difficulty with ______.
cutting costs and increasing value at the same time
economies of scale
decreases in cost per unit as output increases
A firm that increases its output of a given product and experiences a simultaneous decrease in per unit costs is taking advantage of ______.
economies of scale
When pursuing a differentiation strategy, a firm can achieve a competitive advantage by ______.
ensuring that its economic value exceeds that of its competitors
Larger output allows firms to invest in more specialized systems such as ______. (Check all that apply.) big box retail stores enterprise resource planning software a general accountant manufacturing robots
enterprise resource planning software manufacturing robots
cost leadership strategy
generic business strategy that seeks to create the same or similar value for customers at a lower cost
The cube-square rule makes it _______ for smaller stores to compete with larger retailers.
harder
Positive adjustments in product features, customer service, and complements may enable managers to ______.
improve the firm's strategic position
A producer of consumer headphones that successfully differentiates its products with a patented noise-canceling technology and celebrity endorsements will enjoy which of the following benefits? (Check all that apply.) less intense competition from imitators the ability to charge a premium price reduced per unit costs an increased exposure to the threat of price wars
less intense competition from imitators the ability to charge a premium price
Whereas the firm's strategic position can be considered either differentiated or cost-focused, the scope of competition is considered ______.
narrow or broad
Which of the following are examples of ways that a large retailing firm can increase the perceived value of its offerings by focusing on customer service? (Check all that apply.) offering a "no questions asked" return policy maintaining a domestic call center that is open 24 hours per day offering an improved version of a product at the same price by utilizing set scripts for customer service representatives to use with all customers
offering a "no questions asked" return policy maintaining a domestic call center that is open 24 hours per day
The perceived value that a company creates for consumers less the company's costs to create the value equals ______.
the economic value created
Which of the following are significant threats to a firm pursuing a cost-leadership strategy? suppliers increasing input prices value falling below the acceptable threshold competitors adopting similar business strategies replacement by innovative substitutes
value falling below the acceptable threshold competitors adopting similar business strategies replacement by innovative substitutes
What is one of the benefits of pursuing a differentiation strategy when it comes to the power of suppliers?
Differentiation provides protection against an increase in input prices.
In terms of productivity, which of the following is true of learning curves?
They go down.
What must strategic leaders keep in mind if they are going to achieve successful strategic positioning?
To achieve strategic positioning, firms must make important trade-offs.
True or false: A company that achieves differentiation parity at a lower cost has implemented a successful cost-leadership strategy.
True
A firm's strategic position is determined by the relationship of which two variables?
Value creation and cost
For a differentiation strategy to strengthen a company's strategic position and boost its competitive advantage, ______.
an increase in value creation must exceed the increase in costs
A ______ strategy requires achieving the lowest costs in the industry while maintaining a level of value that is acceptable to customers.
cost-leadership
Which of the following are considered the two generic business-level strategies? (Check all that apply.) oligopoly value gap cost-leadership differentiation monopolistic competition
cost-leadership differentiation
Which type of strategy is being used if a company offers a product at a lower cost than its competitors?
cost-leadership strategy
According to the ______ rule, increasing the surface area (size) of a storage unit or retail facility results in a disproportionate increase in volume (space).
cube square
The Ritz-Carlton provides a personalized customer experience based on sophisticated analysis of data gathered about each guest. This focus on ______ allows the hotel to increase its perceived value.
customer service
A ______ strategy attempts to create products with unique and attractive features in order to increase the price that consumers are willing to pay.
differentiation
Patti's Potato Chips is a national potato-chip manufacturer. Calpurnia's Crisps is a small-batch gourmet potato-chip maker. Based on just this information, which of the following is the greatest advantage Patti's has over Calpurnia's?
economies of scale
The concept of a(n) ______ attempts to combine both learning effects and process improvements.
experience curve
The most significant challenge JetBlue faced in implementing its business strategy was _____.
reconciling the trade-offs between cutting costs and providing superior service
A manufacturer of electronic components can use its manufacturing machines to produce many different components such as semiconductors, sensors, and capacitors. In this case, the firm benefits from an economy of _______ , reducing overall production costs by finding multiple uses for its components and facilities.
scope
A company with a cost-leadership strategy faces significant difficulties when ______.
the focus of competition shifts from price to non-price attributes
Which two of the following variables can managers primarily manipulate in order to answer the question, "How should we compete?" value style size price cost
value cost
A firm that manages to avoid competition entirely by offering a product or service that creates an uncontested market space is engaging in ______.
value innovation
Implementing a blue ocean strategy requires making competition irrelevant and creating a new market space, otherwise known as ______.
value innovation