Strategic Management Exam 2

T/F: The goal of the differentiator is to have a smaller value gap than competitors.

False

Transactions costs tend to be high when:

- The future is highly uncertain - There are only one or a small number of suppliers - One party to the transaction has superior information - Asset specificity--asset investment that can be used for only one purpose

Advantages of concentration:

1. Allows an organization to master one business 2. Less strain on resources, allowing more of an opportunity to develop a sustainable competitive advantage

Disadvantages of concentration:

1. Dependence on one area is problematic if the industry is unstable 2. Significant changes in the industry can be very hard to deal with

The four Business-level Strategy Formulation Responsibilities?

1. Direction setting 2. Analysis of Business Situation 3. Selection of Strategy 4. Management of Resources

Porter's 3 Generic Business Strategies?

Low cost leadership, Differentiation, Best Value Strategy

methods of diversification:

internal venturing, acquisitions, joint ventures

What is the best Value Strategy?

A combination of strategic elements from differentiation and low cost

Firms that use taper integration also use ________ when they rely on outside-market firms for some of their supplies. A) backward vertical integration B) forward vertical integration C) backward horizontal integration D) forward horizontal integration

A) backward vertical integration

Strategies that Reflect Competitive Dynamics:

Aggressive Competition, First-mover Advantage, Collaboration, Threat of Retaliation, Government Intervention, Create Barriers to Imitation, Strategic Flexibility, Avoid Direct Competition

Which of the following best explains why a blue ocean strategy (best value strategy) is difficult to implement? A) It combines the benefits of similar strategic positions—differentiation and low cost. B) It requires the reconciliation of fundamentally different strategic positions—differentiation and low cost. C) It requires the combination of fundamentally similar strategic positions—differentiation and strategic innovation. D) It requires the reconciliation of fundamentally different strategic positions—differentiation and strategic innovation.

B) It requires the reconciliation of fundamentally different strategic positions—differentiation and low cost.

Polygon sells its e-book readers at the cost price of $15 each. However, the company makes its profits when users have to download or buy books online. Which of the following business models is Polygon implementing? A) subscription-based B) razor-razor-blade C) pay-as-you-go D) direct sales

B) razor-razor-blade

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. D) focuses on reducing the economic value created to drive down costs.

C) delivers low-cost products and services to a specific, narrow part of the market.

The primary goal of a firm pursuing a blue ocean strategy (best value strategy) should be to... A) create the highest perceived value in its respective industry. B) build a reputation of being the lowest-cost producer in its chosen industry. C) offer a differentiated product or service at a low cost. D) achieve a less steep learning curve.

C) offer a differentiated product or service at a low cost.

How did Marriott use economies of scope to achieve greater economic value than its competitors? A) Marriott sees increases in cost per hotel unit as number of customers increases. B) Marriott sees decreases in cost per hotel unit as number of customers increases. C) Marriott lowered its cost structure by focusing its production assets on one type of hotel, which increased the diversity of its hotel line and thus its differentiated appeal. D) 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.

D) 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 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) a cosmetics brand that offers superior skin lotion for sensitive skin priced at 100 dollars per bottle

A differentiation strategy works best when a... A) firm has tangible resources, its focus of competition shifts to price, and equivalent substitutes are readily available. B) firm's focus of competition shifts to price, and when increasing differentiation of product features do not create additional value. C) firm's differentiated products are commoditized, and costs of providing uniqueness do not rise above the customer's willingness to pay. D) firm has intangible resources, is able to pass on increases in supplier cost to the customer, and its differentiation appeal creates customer loyalty.

D) firm has intangible resources, is able to pass on increases in supplier cost to the customer, and its differentiation appeal creates customer loyalty.

T/F: A sustainable strategy is one that produces a competitive advantage that can be maintained over time.

False

T/F: Once a firm chooses a business model, it must stick with it for the life of the firm.

False

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) the value and the cost position of the firm relative to its competitors

T/F: 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.

False

What is the value chain?

The value chain describes the Internal activities a firm engages in when transforming inputs into outputs, through primary and support activities

What Are Core Competencies?

They are unique strengths, embedded deep within a firm. Core competencies allows a firm to differentiate its products and services from those of its rivals.

T/F: A differentiation strategy could have sustainable differentiation based on brand or reputation.

True

T/F: A firm that decides to stop purchasing components from suppliers and start producing them in-house is pursuing backward vertical integration.

True

VIRO stands for...

Value, Rarity, Imitability, and Organization

Tangible Resources:

Visible, Physical Attributes - Labor - Capital - Land - Buildings - Plant - Equipment - Supplies

Which of the following best illustrates forward vertical integration?A) A firm that manufactures and sells car engines to major automobile companies launches its own line of cars. B) A chain of ice cream parlors launches a brand of toys and accessories for children. C) A multinational coffee chain sources its coffee beans from plantations in Brazil and Vietnam. D) A designer shoe company that previously purchased leather from external suppliers establishes its own leather tannery.

a) A firm that manufactures and sells car engines to major automobile companies launches its own line of cars.

There are many reasons why firms need to grow. Which of the following reasons is strongly influenced by economies of scale? A) increasing profits B) lowering costs C) reducing risk D) motivating managers

b) lowering costs

Which of the following is an example of an external transaction cost? A) the cost of setting up a production unit B) the cost of searching for a contract manufacturer C) the cost of recruiting and retaining employees D) the cost of maintaining plant and machinery

b) the cost of searching for a contract manufacturer

Which of the following is a drawback of vertical integration? A) It increases the difficulty of securing critical supplies. B) It impedes scheduling and planning. C) It increases the potential of legal repercussions. D) It impedes investments in special assets.

c) it increases the potential of legal repercussions

Which of the following stakeholders of a company would most likely be responsible for formulating a corporate strategy? A) the first-line employees B) the creditors C) the chief executive officer D) the middle manager

c) the chief executive officer

The strategy used when a firm targets a particular market segment is called a. Low-cost leadership strategy b. Differentiation c. Focus strategy d. Best-value strategy e. Market strategy

c. Focus strategy

Intangible resources:

invisible, no physical attributes - culture, knowledge, brand equity, reputation, intellectual property

Primary activity:

to add value directly by transforming inputs into outputs.

Support activity:

to add value indirectly but are necessary to sustain primary activities.