Business Strategy Chapter 5
largest economic value created
competitive advantage goes to the firm that achieves 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 subscription based business model is that the
strong focus on innovation to improve current products and services
A high percentage of R&D/Revenue ratio indicates a(n)
economic value created
By selling a laptop at $1000 for which consumers are willing to pay up to $1,200, a consumer electronics firm makes a profit of $400 per unit. intros scenario, the amount $600, that is ($1200 - $1000) + $400, is the
peer to peer
Airbnb rents spaces that previously would have been unused to generate revenue, while also dramatically increasing the potential amount of accommodation space in the 191 countries. this business uses a _______________ technique
an agency
Best Cut Inc. sells cutlery by having salespeople set up appointment with potential customers and give them a sales pitch for the product. when a salesperson sells cutlery, he or she gets a predetermined percentage commission. this type of business model is called
subscription based
Best Fit Club, a chain of gyms and spas, requires its customers to pay a quarterly or an annal fee to use its services. Irrespective of whether they frequently use the services during the payment period or not, member have to pay in advance. which of the following business models does this best illustrate?
Vibrant phones sells its products at a better price than Oryxo
Both Vibrant Phones Inc. and Oryxo Inc. incur a cost of $200 to manufacture a single unit of a cell phone. however, Vibrant Pones creates more economic value than Oryxo does. what does this imply?
every dollar spent on the comp nays fixed assets generates $8.30 of revenue
The fixed asset turnover of a company is 8.3. what do you infer from this?
working capital turnover
_______ is best described as a measure of how effectively capital is being used by a firm to generate revenue
pay as you go
Free Spirit Communications Inc. is a cellular service provider that charges its customers $1 for 3 hours of talk time. so, if a customers talk time for a month is 60 hours, the company charges him or her $20 at the end of the month. which of the following business models does this best illustrate?
opportunity cost
Genevieve 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 $60,000. thus, the amount $62,000 ($50,000 + $12,000) would be Genevieves
a combination of the razor razor blade model and the subscription based business model the pay as you go business model
GlobalCom Inc. is an internet service provider. user pay in advance irrespective of whether they use the internet package during the 2 year period or not. which of the following business models does this scenario best illustrate?
wholesale and bundling
Hugo Books Inc. is a retailer that buys books at a fixed price from publishers. recently, Hugo offered a deal in which customers could buy package of 3 mystery books at a discounted rate. which of the following business models has Hugo Books combined?
freemium
Pilot Game Inc. allows users to play the trial versions of its games without any charge. users have to purchase the games to access the upgraded version of the games with advanced features. which of the following business models is Pilot Games using in this scenario?
expect her company to be socially responsible
Janet is the CEO of Far Sight Inc. which uses a triple bottom line approach. as a result, Janet will tend to
consumer surplus
Jenny liked a pair of sapphire earring and thought they would cost around $1,000. she was surprised to find that the price of the earring was $1,500. However, she's decided to buy the earrings anyway. this scenario describes
inventory turnover
Kerry the Kangaroo Inc. specializes in producing and selling a stuffed kangaroo named Kerry. the cloths that can be bought to dress Kerry have not sold as well as expected. they have a warehouse full of hats, pants, sweaters, and shoes to dress Kerry. this firm used a ___________ to determine how much of its capital is tied up in these accessory items
razor razor blade
Manufacturers of electronic fragrance diffusers sell the electric outer device at an extremely low price, sometimes even at a loss. However, they make their money on the product by charging a premium on the perfume refills that have to be replaced regularly. which of the following business models does this best illustrate?
subscription based
Mia has purchased an Internet package for 3 months, in which she can use internet speed. she needs to pay a fee of $50 in advance irrespective of whether she uses the internet during the service period or not. this arrangement best illustrates the ___________ strategy.
$200
Nicki paid $900 for a camera that she thought was worth $1100 for all the features included in it. For the consumer electronics firm selling the camera, however, the cost of producing the camera was only $350. what is the consumer surplus in this scenario?
$450
Osion Electronics Inc. incurs a cost of $350 to produce one unit of a cell phone. The companys 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?
freemium
Photohome is a file hosting service that allows users to store up to 5GB of data with no restrictions or charges. users have to pay a fee for advanced features on the cloud storage system and additional storage space. which of the following business models does this best illustrate?
Smart Feet will gain market share
Smart Feet Inc. produces shoes that are better quality and cost more to make than the shoes of its competitors. Smart Fee realizes that there will be a large difference between the cost to produce the shoes and the consumers willingness to pay for them. Even so, Smart Feet decides to charge the same price as its competitors. which of the following will most likely be the result of this action?
disruption
Taking advantage of the pricing flexibility inherent in the wholesale model, Amazon offered many books below the cost that other retailers had to pay to publishers. by doing this, Amazon showed how business models can be affected through
both short and long term performance metrics
The balanced scorecard can accommodate
producer surplus
The difference between the price charged for a product and the cost to manufacture it is referred to as the
triple bottom line approach
The management team for SafeCare Chemical Inc. came up with the following vision statement: "SafeCare Chemicals will conscientiously track its financial performance to ensure profits for its investors, enhance it 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
produce a good
The ratio cost of goods sold/Revenue indicates how efficiently a company can
business model
The translation of strategy into action takes place in the firms __________, which details the firms competitive tactics and initiatives
pay as you go
TravelCheap Inc. is a car rental business that charges customers based on how many miles they put on a car on a daily basis. a person who uses a car to travel fro Chicago to Denver during a week is charged much more than a person who uses a car only to travel one mile to the grocery store six times a week. TravelCheap uses a business model called
shareholders
_________ are the legal owners of public companies
consumer surplus plus firm profit
economic value creation is best expressed as
the triple bottom line takes a more integrative and holistic view in assessing a company's performance than traditional approaches do
how is the triple bottom line approach different from the traditional approaches to measuring competitive advantage?
ecological
triple bottom line is a combination of economic, social, and __________ concerns that can lead to a sustainable strategy
stock price appreciation plus dividends received over a specific period
return on risk capital primarily includes
an external performance metric
unlike the financial ratios based on accounting data, total return to shareholders is
Revenue/Fixed assets
which of the following best expresses fixed asset turnover?
it attempts to provide a holistic perspective on firm performance
which of the following statements is true of the balanced scorecard?
three dimension, economic, social, and ecological, makeup the triple bottom line
which of the following statements is true of the triple-bottom-line?
3, that is $600,000/$200,000
The working capital of a small home based business is $200,000. the revenues generated account to $600,000 and the profits incurred are $300,000. what wold be the comp nays working capital turnover?
For every dollar Tesva Systems puts to work, the company realizes $6.00 of sales
The working capital turnover of Tesva systems corp. is 6.0. what does tis financial data suggest?
competitive advantage can be assessed by measuring accounting profit, shareholder value, or economic value
which of the following statements about competitive advantage is true?
it provides limited guidance about which metrics to choose
which of the following is a disadvantage of the balanced scorecard approach?
how do we create value
which of the following questions challenges managers to come up with strategic objectives that ensure future competitiveness?
the firms number of outstanding shares is 25 million
The market capitalization of a public company is $5 billion. Each share of the company is traded at $200. What do you infer from this financial data?
marketing to promote its products and services
The ratio of SG&A/Revenue is an indicator of a firms focus on
VK Products collects accounts receivables faster than AP Goods does
The receivables turnover of VK products INc. is 13.6 and that of its competitor DL Goods Inc. is 6.0. What does this financial data primarily imply?
triple bottom line
The top management at Parallela Pharma Inc., through rigorous testing, ensures that the company develops and sells drugs that are free of harmful side effects. the management assesses its overall performance based on these dimensions. thus, the managers at Parallela Pharma are applying the ________ approach to measure firm performance.
buyer
Value is determined by the perceived benefits a good or service provides to a(n)
opportunity cost
When GD Inc. declared a dividend of $20,000,000, its market value increased from $8 billion to $8.5. 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 GD Incs
opportunity costs
______ are best described as the value of the best forgone alternative use of the resources employed.
wholesale
_______ is a business model in which the manufacturer sets a fixed price on a product, but the retailers is to free set its own price
total return to shareholders
__________, which is the return on risk capital, includes stock price appreciation plus dividends received over a specific period
fixed asset turnover
___________ most precisely measures how well a company leverages its fixed assets, particularly property, plant, and equipment (PPE)
value
____________ denotes the dollar amount a consumer would attach to a good or service
payables turnover
____________ indicates how much a firm benefits from interest-free loans extended by its suppliers and creditors
risk capital
____________ is the money shareholders provide in return for an equity share, which they cannot recover if the firm goes bankrupt
Receivables turnover
_____________ indicates how fast a firm is collecting the credit amount extended by a firm to its customers
higher ratios
_______________ of receivable turnover imply more efficient management in collecting accounts receivable and shorter durations of interest free loans to customers
return on revenue
_______________ precisely indicates how much of a firms sales is converted into profits
transform their strategy of how to compete into a blueprint of actions and initiatives
during the process of formulating an effective business model, a firms managers should first
unaffected by consumer demand
the cost of capital to create a product is a fixed cost because it is
a firm should achieve positive results along the economic, social, and ecological dimensions to gain a sustainable strategy
the tenet behind the triple bottom line is that
Selling, general, and administrative expense/Revenue.
the three financial ratios that constitute return on revenue are Cost of goods sold/Revenue, Research and Development expenses/Revenue, and
market volatility makes it difficult to assess firm performance through these measures, particularly in the short term
which of the following is a disadvantage of measuring firm performance through total return to shareholders and firm market capitalization?
the approach takes na integrative and holistic view in assessing a company's performance
which of the following is an advantage of a triple bottom line approach
in economic value perspective, analysts not only consider historical costs, but also opportunity costs
which of the following is an advantage of applying the economic value creation perspective to assess a firms performance
it allows managers to translate a firms vision into measurable operational goals
which of the following is an advantage of the balanced scorecard?
total return to shareholders
which of the following is an external performance metric?
the unpredictability of return on revenue
which of the following is not a factor that makes total return to shareholders and market capitalization unreliable measure of company performance?
the framework fails to provide the foundation that will help firms decide between cost leadership or differentiation strategies
which of the following is not a limitation of the economic value creation framework?
the difference between the price charged and the firms cost
which of the following is not an accurate expression of the economic value created per unit of a product sold?
the value (V) the consumer attaches to the dress
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?
315
Apple Watch retailed for $349 in 2015, and the firm was predicted to sell million of units. the firms total cost in terms of material and labor for the Apple Watch was no more than $84. Thus, Apple's profit for each watch sold is an estimated $265, with a profit margin of ______________
razor razor blade
True Vibgyor Inc. sells its ebook 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 True Vibgyor implementing?
economic value created
_______ is best described as the difference between a buyers willingness to pay for a product or service and a firms total cost to produce it
users pay for only the services they consumer
a defining character of the pay as you go business model is that the
$3 billion, that is, 30 million shares * $100
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
$180
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?
economic value created
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
$170
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?
$10,000
andrew invested $200,000 in shares of a company. at the end of a year, he had earned $7,000 as dividends on his shares along with a $1,000 appreciation in the overall value of his shares. which of following is andrews opportunity cost?
return on risk capital
from an investors or shareholders perspective, the measure of competitive advantage that matters most is the
as profit per unit sold
how does a firm capture its producer surplus for a good or service
it helps the firm achieve positive results along the social and ecological dimensions
how does a sustainable strategy typically help a firm?
20 million
if a firms market capitalization is $1 billion and the share price is $50, how many shares outstanding does the firm have?
Apple was able to charge a much higher margin for its products and services than microsoft
in 2014, Apple had a return on revenue of 29.3 percent and microsoft had a return on revenue of 32 percent. even so, Apple had a higher return on invested capital than microsoft. why did this happen?
Apple had a more effective management of its global supply chain than microsoft
in 2014, Apple turned over its inventory more than 53 times. in stark contrast, Microsoft turned over its inventory only about 10 times during the year. which of the following best explains this difference?
capturing the economic value created as much as possible
in an economic context, strategy for producers is primarily about
increase the difference between the value created and the cost to produce it
in order to achieve a competitive, a firm should be able to
razor razor blade
in the _____ business model, the initial product is often sold at a loss or given away for free in order to drive demand for complementary goods
users are not charged of the basic features of a product or service, but the user must pay for premium advanced features or add ons
in the freemium business model, the
business model
the translation of strategy into action primarily takes place in a fimrs
consumers maximum willingness to pay for it
the value a consumer attaches to a product or service is captured in the
a triple bottom line
using the ______ approach, managers audit their comp nays fulfillment of its social and ecological obligations to stakeholders such as employees, customers, suppliers, and communities as conscientiously as they track its financial performance
how do we reduce the economic value created?
when using the balanced scorecard approach to assess a firms performance, which of the following is not a key question that managers need to answer?
the triple bottom line approach
which of the following approaches to assess competitive advantage is biased on the view that non economies factors can have a significant impact on a firms financial performance?
subscription based
which of the following business models has been traditionally used by the magazine and newspaper industry?
customer experience
which of the following competitively important assets is typically excluded from a firms balance sheet?
a company matches an individual with a cleaning service
which of the following describes a peer to peer technique
it is the product of the number of outstanding shares and the share price
which of the following expression accurately describes market cap?
the balanced scorecard model
which of the following frameworks used to measure competitive advantage relies on both an internal and an external view of a firm?
it is a tool which can be effetely used by managers for both strategic implementations and strategic formulation
which of the following is not an advantage of the balanced scorecard approach to assess firm performance
risk capital invested in a firm can be legally recovered if the firm goes bankrupt
which of the following is not true of risk capital?
an approach to understanding a firm as embedded in a network of internal and external constituencies that each make contributions and expect consideration in return
which of the following is the most accurate characterization of stakeholder theory?
cost of goods sold/Inventory
which of the following ratios best expresses inventory turnover?
Fresh Seeds Inc. sells seed packages, in which a person can buy a package of three types of seeds at a discounted price compared to buying the seeds individually
which of the following scenarios best illustrates bundling?
competitive advantage is an absolute measure
which of the following statements is not true of competitive advantage?
accounting data are historical data and thus backward looking
which of the following statements is true of accounting data?
