Chap 6

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

A differentiation strategy can be threatened when

a product becomes commoditized, and the focus of the competition shifts to price

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.

When pursuing a differentiation strategy, a firm can achieve a competitive advantage by

ensuring that its economic value exceeds that of its competitors

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

A ______ outlines the steps a manager will take to achieve competitive advantage in a single product market.

business-level strategy

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

Bundling of products and services that are consumed in tandem to create value is an example of

complements

In the ________, firms change the underlying technology while holding cumulative output constant.

experience curve

The concept of a(n) ______ attempts to combine both learning effects and process improvements.

experience curve

A firm's strategic profile based on value creation and cost is called its

strategic position

High-end pen manufacturer Mont Blanc pursues a differentiation strategy pursuing only those who need or want an expensive writing instrument. What scope of competition does this represent?

narrow

When a blue ocean strategy is successfully formulated and implemented, investments in differentiation and low costs are not

substitutes but complements

Implementing a blue ocean strategy requires making competition irrelevant and creating a new market space, otherwise known as

value innovation

Which of the following determine a firm's competitive advantage?

- value position relative to competitors - cost position relative to competitors

Choosing a business-level strategy helps to define a firm's ______ in a given product market.

strategic position

A firm's strategic position is determined by the relationship of which two variables?

value creation and cost

The minimum efficient scale indicates the level of output needed to _______ the cost per unit as much as possible.

bring down

If costs are equal, when a firm has a higher value gap than its competitor, it can be inferred that the firm

can charge a premium price for its products and services.

There are several cost drivers that can be managed in order to establish a low-cost leadership advantage. One of the primary cost drivers is

combining experience-based learning and process innovation to move onto a steeper learning curve.

An important requirement for increasing economic value creation under a differentiation strategy is to

control costs

Which value driver would be the focus of a company that sells products that are similar to competing products and that provides a 60-day guarantee with no questions asked?

customer service

Which of the following are components of a cost-leadership strategy?

- acceptable value - lowest costs in industy

A firm pursuing a blue ocean strategy can increase its profit margins by implementing which of the following pricing options?

- Charge a lower price than the differentiator. - Charge a higher price than the cost leader.

In terms of business strategy, blue oceans represent which of the following?

- increased demand - untapped market space

In order for a firm to successfully implement a business-level strategy, it must limit the impact of ______.

- internal weaknesses - external threats

Which of the following scenarios would result in strengthening a firm's strategic position?

A firm adds a new product feature that greatly increases the perceived value of the product at a minimal cost to the firm.

In addition to having the lowest cost, a low-cost leader is likely to have

a large market share

Which type of strategy is being used if a company offers a product at a lower cost than its competitors?

cost leadership strategy

A ______ strategy aims to create higher value for customers by offering products with unique features but a similar level of costs to those of competing products.

differentiation

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

ACME Inc. has retained you to review their low-cost strategy for their company. Based on several consultations with the client, you realize that their per unit costs are actually increasing as their business grows and expands. You conclude that this firm is experiencing

diseconomies of scale

Marriott offers different hotels that cater to different types of travelers (e.g., Residence Inn, Marriott Courtyard, Marriott Fairfield Inn). What is this an example of?

how a firm can compete by offering more perceived value at a similar price

In the relationship between per-unit cost and output, the minimum efficient scale

is where the per-unit cost is lowest

An experience curve attempts to capture both

learning effects and process improvements.

In a focused cost-leadership strategy, a firm provides

low-cost products to a niche market

All of the following are tools primarily used to achieve cost-leadership except

offering products at a premium price.

Rodney is making decisions about his newly formed business. He wants to focus on producing the highest-quality product in the market so he can maximize the product's value to customers. This will cause his product to have higher costs than others already in the market, but Rodney believes customers will pay more for the higher-quality product. Rodney's choice to use a differentiation business-level strategy is determining his company's strategic

position

There exist important trade-offs between value creation and low cost because value creation and cost tend to be

positively correlated

A differentiation strategy is typically associated with ______ pricing.

premium

Dr. Shetty is able to drive down the cost of complex medical procedures from $100,000 to $2,000 not by doing one big thing, but rather by doing a thousand small things. This approach focuses on driving down the cost of health care through

process innovation

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 company with a cost-leadership strategy faces significant difficulties when

the focus of competition shifts from price to non-price attributes

Different value drivers contribute to competitive advantage only if

the increase in perceived value exceeds the corresponding cost increase

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?

- maintaining a domestic call center that is open 24 hours per day - offering a "no questions asked" return policy

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

The two factors upon which the success of strategy of either cost leadership or differentiation is built are ______.

- the firm's internal strengths - external opportunities in the market

Which of the following are significant threats to a firm pursuing a cost-leadership strategy?

- value falling below the acceptable threshold - replacement by innovative substitutes - competitors adopting similar business strategies

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

Learning effects occur over time, whereas economies of scale are captured at one point in time when output is increased.

Baby Buggy Baby sells high-end baby strollers. In an attempt to maintain its competitive advantage, the firm began adding additional features to its strollers. Customers liked these features and sales increased, but the company's profit margins shrank. Which of the following is the likely reason for this?

The firm neglected to control costs.

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

A firm's competitive advantage is determined jointly by _____________ and firm effects.

industry effects

Business-level strategy addresses which overarching question?

How should we compete?