Management Chapter 6
The concept of a(n) ________ attempts to capture both learning effects and process improvements at firms.
experience curve
When a blue ocean strategy goes bad, a firm has neither a clear differentiation nor a clear cost-leadership profile. This situation is referred to as
stuck in the middle
Product features, customer service, and complements are all examples of important
value drivers
Which of the following best explains why a blue ocean strategy is difficult to implement?
It requires the reconciliation of fundamentally different strategic positions—differentiation and low cost.
The pursuit of both differentiation and low cost at the same time in a way that creates a leap in value for both the firm and consumers is called
value innovation
Value drivers contribute to a firm's competitive advantage only if
the increase in value creation exceeds the increase in costs
Which of the following is primarily a value driver
complements
________ is best described as decreases in cost per unit as output increases.
economies of scale
To initiate a strategic move that allows a firm to open up new and uncontested market space through value innovation, managers must address four key questions when formulating a blue ocean business strategy. These questions focus on
lowering cost and increasing perceived customer benefits.
Combining economies of learning with the existing production technology allows a firm to
move down a given learning curve.
Which of the following sources of differential appeal is least effective in helping a firm sustain its advantage?
observable product features
A blue ocean strategy differs from a low-cost strategy in that
the intent of a blue ocean strategy is not to be the absolute lowest-cost provider because a blue ocean must also increase perceived value.
which of the following best describes a strategic trade off?
the tension between value creation and the pressure to keep costs in check
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)
90% learning curve
What does it mean for a firm to have an 80 percent learning curve
Every time the cumulative output increases by 80 percent, the cost per unit will decline by 20 percent.
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?
Fun Frames and Highwire have achieved differentiation parity.
Although JetBlue used a blue ocean strategy to achieve an initial competitive advantage, it failed to maintain this advantage. Which of the following provides the best reason for this development?
It failed to refine its strategic position over time
Which of the following describes an airline that is most likely stuck in the middle?
Just Right Airline offers high-quality beverages and meals, plush airport lounges, only a few connections via hubs domestically, poor customer service, and low prices.
Which of the following is an accurate statement about learning effects?
Learning effects occur over time as output accumulates.
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?
Sparrow Inc. can charge a premium price on its automobiles
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?
Starfish's customers start to consider soda a commodity
) 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?
Take advantage of economies of scale and scope by opening a chain of lower-priced economy hotels that leverage the Costal Haven brand image
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
availability of complements
a ___ primarily details the goal directed actions a manager takes in their quest for competitive advantage the competing in a single product market
business-level strategy
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?
cost leadership
In a focused cost-leadership strategy, a firm
delivers low-cost products and services to a specific, narrow part of the market.
beach grub is a chain of fast casual restaurants......
differentiation
A differentiator is least likely to be threatened by increases in input prices due to powerful suppliers when the
differentiator is able to create a significant difference between perceived value and current market prices.
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?
diseconomies of scale
Differentiation and cost leadership strategies are only effective in manufacturing industries
false
Trader Joe's successfully used a blue ocean strategy by offering lower cost food than Whole Foods for the same market of patrons. By doing this, Trader Joe's was able to
gain a market share and make up the loss in margin through increased sales
The strategy canvas for movie theaters includes factors such as prices, comfort, customer service, concessions variety, and hours of operation. Which of the following value curves is most likely to represent a theater that successfully positions itself as a differentiator?
high price, high comfort, high customer service, high concessions variety, low hours of operation
Whole Foods differentiates itself from competitors by offering top-quality foods obtained through sustainable agriculture. This business strategy implies that Whole Foods focuses on
increasing the perceived value created for customers, which allows it to charge a premium price.
Which of the following drivers simultaneously increases value while lowering cost?
innovation
According to the five forces model, which of the following is viewed as a major risk to a business pursuing a cost-leadership strategy?
innovation that allows competitors to emerge with more economical replacements
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?
jumps to a steeper learning curve
When a firm combines experience based learning and process innovation, the firm
jumps to a steeper learning curve.
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?
learning curve effect
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?
low-cost input factors
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
low-cost input factors.
a firms business strategy can lead to a competitive advantage if it allows the firm to...?
perform different activities than its rivals
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?
product features
when a firm makes choices between a cost or value position to achieve competitive advantage, it is primarily involved in...?
strategic trade-offs
which of the following is a firm effect that has a completive advantage of a firm
the value and cost position of the firm relative to its competitors
a cost leader is the firms most likely to survive a price war
true
a firm operating on a 70% learning curve will achieve lower per unit costs after doubling its output than a firm operating on an 80% learning curve will
true
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
true
the major value drivers that managers have at their disposal include product features, customer service and complements.
true
Red Sapphire is a wristwatch company known for its luxury watches...
watch maker that sells high-end, premium watches
when pursuing a blue ocean strategy, a firm in a crowded marketplace of 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
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 major winter storm shuts down Gilroy's production for several days.
Which of the following provides an example of a firm in a red ocean
Chique Apparel offered clothing at a low price but failed to differentiate its product as being exclusive.
How is a cost-leader protected from threats from powerful suppliers?
It is more able to absorb price increases through accepting lower profit margins.
What must a cost-leadership strategy accomplish to be successful?
It must reduce the firm's cost below that of its competitors while offering adequate value.
which of the following examples uses a focused differentiation strategy?
a cosmetics brand that offers superior skin lotion for sensitive skin priced at $100 per bottle
Tangles Costume Jewelry offers slightly lowerquality merchandise than competitors at a much lower price. What strategy is Tangles using?
cost leadership
a differentiator will always benefit when products have become commoditized
false
a value curve that zig zags across the strategy canvas indicated a focused strategy that is likely to achieve a sustainable competitive advantage
false
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
false
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
focused differentiation strategy.
The primary goal of a firm pursuing a blue ocean strategy should be to
offer a differentiated product or service at a low cost.
A firm experiences diseconomies of scale when it
produces at an output level beyond the minimum efficient scale
A value curve indicates a lack of effectiveness in a firm's strategic profile when it
zigzags
How did Marriott use economies of scope to achieve greater economic value than its competitors?
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.
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 consumer electronics company popular among price-conscious customers
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
availability of complements
In a successful ________ strategy, the trade-offs between differentiation and low cost are reconciled.
blue ocean
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
economies of scale
Heirloom Furniture is a brand reputed for its wide variants of sofas that introduced a new range of mattresses and bed frames a few years ago. Since most of its products could be produced using the same resources and technology, the company's cost structure lowered, while its product portfolio widened. In this scenario, which of the following value and cost drivers is Heirloom applying?
economies of scope
Backyard BBQ is a chain of casual restaurants that promises affordable barbecue using top-quality local ingredients. However, the company has struggled to achieve a competitive advantage because of its high overhead costs. Which of the following scenarios is most likely to result in a competitive advantage?
eliminating brick-and-mortar locations and offering delivery from a central kitchen
A differentiation strategy works best when a
firm has intangible resources, is able to pass on increases in supplier cost to the customer, and its differentiation appeal creates customer loyalty.
How does availability of complements act as a value driver?
Complements add value to a product when they are consumed in tandem with it.
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?
11,000 units
When a differentiator charges a similar price as its competitors in the same strategic group but offers more perceived value, it
gains market share from other firms.
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
3000-4000 units
Due to its large sales volume and low cost structure, Quick Serve Mini-Marts enjoys a cost leadership position. Which of the following scenarios might threaten Quick Serve's competitive advantage?
A new competitor is perceived to provide similar value, but in addition offers innovative self-checkout.
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?
AccuroDisk creates a greater economic value than TD Storage
How is differentiation parity different from cost parity?
Differentiation parity deals with value not cost.
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?
Have a cumulative output that is greater than Playtime Inc.'s.
In the multiplex industry, Vibrant Movies Inc. is an upscale multiplex that focuses on superior customer experience. The firm charges premium prices for its movie tickets and services. Global Cine Inc., in contrast, charges the lowest price in the industry with its no-frills approach. In between these two segments is True Movies Inc., which offers a customer experience comparable to that of Vibrant Movies at a price almost as low as that of Global Cine. What strategy is True Movies pursuing in this scenario?
blue ocean strategy
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?
by incorporating new programming techniques to take advantage of experience curve effects
the goal of the differentiator is to have a smaller value gap than competitors
false
________ 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.
minimum efficient scale
thomas is the owner of a landscaping company that caters to a wealthy clientele...
narrow the scope of competition and focus on unique features such as the use of organic materials
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
focus on adding unique features to her product that customers will value.
