MGMT 493 Chapter 6

As it takes less and less time to produce the same output, learning curves usually A. go up. B. go down. C. stay the same. D. fluctuate

B. go down. (As it takes less and less time to produce the same output, learning curves usually go down.)

At a certain output level, the per-unit cost incurred by a firm to manufacture a product is $5. Other factors remaining constant, what will be the new per-unit cost if the cumulative output is doubled, and the firm is able to achieve an 80 percent learning curve? A. $4 B. $5 C. $3 D. $6

A. $4 (Other factors remaining constant, if the cumulative output is doubled and the firm is able to achieve an 80 percent learning curve, the new per-unit cost will be $4. An 80 percent learning curve indicates that every time the cumulative output is doubled, the cost per unit will decline by 20 percent.)

In a successful _____ strategy, the trade-offs between differentiation and low cost are reconciled. A. blue ocean B. focused differentiation C. liquidation D. divestment

A. blue ocean (A successful blue ocean strategy requires that trade-offs between differentiation and low cost are reconciled.)

Lush Roses is a chain of premium hotels around the globe that charges higher prices for its rooms and suites when compared to the average industry standards. Yet, the hotel enjoys the largest market share in the industry. This is mainly due its highly responsive staff that has a strong commitment toward achieving a 100 percent guest satisfaction. In this scenario, which of the following is the key value driver? A. superior customer service B. low cost of input factors C. availability of complements D. economies of scale

A. superior customer service (In this scenario, the key value driver is superior customer service. The most salient value drivers that managers have at their disposal are product features, customer service, and complements. Managers can increase the perceived value of their firms' product or service offerings by focusing on customer service and responsiveness.)

Which of the following is more of a value driver than a cost driver? A. superior customer service B. economies of scale C. learning-curve effects D. experience-curve effects

A. superior customer service (The most salient value drivers that managers have at their disposal are product features, customer service, and complements.)

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? A. 9,000 units B. 11,000 units C. 13,000 units D. 15,000 units

B. 11,000 units (The firm experiences economies of scale at an output level of 11,000 units. When a firm operates at the minimum efficient scale, the returns to scale are constant. Minimum efficient scale (MES) is 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.)

Which of the following is an accurate statement about learning effects? A. Learning effects involve the dilution of output over time. B. Learning effects involve the accumulation of output over time. C. Learning effects involve the increase of output at a point in time. D. Learning effects involve the decrease of output at a point in time.

B. Learning effects involve the accumulation of output over time (Learning effects involve the accumulation of output over time.)

When a differentiator charges a similar price as its competitors in the same strategic group but offers more perceived value, it A. loses its competitive advantage. B. gains market share from other firms. C. lowers the economic value created. D. results in diseconomies of scale

B. gains market share from other firms. (When a firm is able to offer a differentiated product or service and can control its costs at the same time, it is able to gain market share from other firms by charging a similar price but offering more perceived value.)

A value curve indicates a lack of effectiveness in a firm's strategic profile when it A. stays level. B. zigzags. C. trends downward. D. trends upward.

B. zigzags. (A value curve that zigzags across the strategy canvas indicates a firm's lack of effectiveness in its strategic profile.)

The concept of a(n) _____ attempts to capture both learning effects and process improvements at firms. A. managerial grid B. growth matrix C. experience curve D. diminishing utility curve

C. experience curve (The concept of an experience curve attempts to capture both learning effects and process improvements.)

Oviyo Inc. has been successful at differentiating itself from competitors by claiming a premium price for its digital cameras based on superior image quality and advanced technology. In this scenario, which of the following is the key value driver? A. economies of scale B. low-cost input factors C. product features D. premium prices

C. product features (In this scenario, the key value driver is product features. One of the obvious but most important levers that managers can adjust is the product features and attributes, thereby increasing the perceived value of the product or service offering. Adding unique product features allows firms to turn commodity products into differentiated products commanding a premium price.)

Clean Machine Inc. produces a high-quality dishwashing machine that is reliable and durable. How would this product most likely act as a cost driver? A. reduce purchase cost B. increase after-sales service cost C. reduce the total cost of ownership D. increase shipping cost

C. reduce the total cost of ownership (Because Clean Machine's product is reliable and durable, owners will have to pay less for repairs. As a result, the product acts as a cost driver by reducing the total cost of ownership.)

How does availability of complements act as a value driver? A. Complements add value to a product by offering an inferior substitute to it. B. Complements add value to a product by competing with it. C. Complements add value to a product when they imitate it. D. Complements add value to a product when they are consumed in tandem with it.

D. Complements add value to a product when they are consumed in tandem with it. (Complements add value to a product or service when they are consumed in tandem. Finding complements, therefore, is an important task for managers in their quest to enhance the value of their offerings.)

How is differentiation parity different from cost parity? A. Differentiation parity deals with pricing not innovation. B. Differentiation parity deals with innovation not value. C. Differentiation parity deals with pricing not value. D. Differentiation parity deals with value not pricing.

D. Differentiation parity deals with value not pricing (Differentiation parity occurs when a firm creates the same value as its competitor. Cost parity means having the same costs as a competitor, which involves pricing.)

What does it mean for a firm to have an 80 percent learning curve? A. Every time the cumulative output increases by 80 percent, the cost per unit will decline by 20 percent. B. Every time the cumulative output is doubled, the cost per unit will decline by 80 percent. C. Every time the cumulative output goes up by 20 percent, the cost per unit will decline by 80 percent. D. Every time the cumulative output is doubled, the cost per unit will decline by 20 percent.

D. Every time the cumulative output is doubled, the cost per unit will decline by 20 percent (An 80 percent learning curve indicates that every time the cumulative output is doubled, the cost per unit will decline by 20 percent. Similarly, a 90 percent learning curve indicates that per-unit cost drops 10 percent every time output is doubled. A 70 percent learning curve indicates a 30 percent drop every time output is doubled.)

How did Marriott use economies of scope to achieve greater economic value than its competitors? A. Marriott increases in cost per hotel unit as number of customers increases. B. Marriott 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 its menu and thus its differentiated appeal. D. Marriott lowered its cost structure by sharing its production assets over a several types of hotels, which increased its menu and thus its differentiated appeal.

D. Marriott lowered its cost structure by sharing its production assets over a several types of hotels, which increased its menu and thus its differentiated appeal. (Marriott lowered its cost structure by sharing its production assets over a several types of hotels, which increased its menu and thus its differentiated appeal. Economies of scope describe the saving that come from producing two or more outputs at less cost than producing each output individually.)

Juanita Apparels Inc. 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 apparel brand become a price leader in the industry. Which of the following is the key driver behind Juanita Apparel's strategic position? A. network effects B. superior customer service C. availability of complements D. low-cost input factors

D. low-cost input factors (The key driver behind Juanita Apparel's strategic position is low-cost input factors. One of the most basic advantages a firm can have over its rivals is access to lower-cost input factors such as raw materials, capital, labor, and IT services)

A _____ is a graphical depiction of a company's relative performance vis-à-vis its competitors across the industry's key success factors. A. value curve B. value canvas C. strategy curve D. strategy canvas

D. strategy canvas (A strategy canvas is a graphical depiction of a company's relative performance vis-à-vis its competitors across the industry's key success factors.)

Which of the following provides an example of a firm in a red ocean? A. Chique Apparel offered clothing at a low price but failed to differentiate its product as being exclusive. B. Cheap Apparel offered clothing at a price matching that of its competitors and, as a result, it had lower profit margins. C. Goode Apparel offered clothing at a mid-range price but failed to differentiate its product as being of decent quality. D. Top Drawer Apparel offered clothing at a higher price than competitors and, as a result, failed to make a profit.

A. Chique Apparel offered clothing at a low price but failed to differentiate its product as being exclusive. (Red ocean is a term used when a Blue Ocean strategy fails. Such a strategy fails when a firm fails to combine differentiation and low cost.)

Which of the following statements is true of a strategic position? A. Choosing a strategic position requires making important trade-offs between value and cost positions. B. Strategic positions are fixed; they do not change like the environment. C. Differentiation and cost leadership require similar strategic positions. D. A firm is said to have a competitive advantage when it ends up with strategic positions below the productivity frontier.

A. Choosing a strategic position requires making important trade-offs between value and cost positions. (Strategic positioning requires making important trade-offs. To achieve a desired strategic position, managers must make strategic trade-offs—choices between a cost or value position.)

. _____ is best described as decreases in cost per unit as output increases. A. Economies of scale B. Economies of scope C. Time compression economies D. Economies of replication

A. Economies of scale (Firms with greater market share might be in a position to reap economies of scale, which is described as decreases in cost per unit as output increases.)

What does blue ocean strategy attempt to reconcile? A. the conflicting requirements of two generic strategies B. the conflicting requirements of two value drivers C. the conflicting requirements of two cost drivers D. the conflicting requirements of two or more unique strategies

A. the conflicting requirements of two generic strategies (Blue ocean strategy attempts to reconcile the conflicting requirements of two generic strategies. These strategies are differentiation and low cost.)

Which of the following best describes a strategic trade-off? A. the tension between innovation and keeping manufacturing costs down B. the tension between maintaining both high-quality products and service C. the tension between value creation and the pressure to keep cost in check D. the tension between raising prices and keeping a loyal clientele

C. the tension between value creation and the pressure to keep cost in check (To achieve a desired strategic position, managers must make strategic trade-offs—choices between a cost or value position. Managers must address the tension between value creation (which tends to generate higher cost) and the pressure to keep cost in check so as not to erode the firm's economic value creation and profit margin.)

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 (To formulate an effective business strategy, managers need to keep in mind that competitive advantage is determined jointly by industry and firm effects. At the firm level, performance is determined by value and cost positions relative to competitors. This is the firm's strategic position.)

Product features, customer service, and complements are all examples of important A. cost curves. B. cost drivers. C. value curves. D. value drivers.

D. value drivers. (Product features, customer service, and complements are all examples of important value drivers.)

When a firm combines experience based learning and process innovation, the firm A. jumps to a steeper learning curve. B. experiences an increase in per-unit cost. C. loses its competitive advantage. D. moves down the existing learning curve.

A. jumps to a steeper learning curve (Learning by doing allows a firm to lower its per-unit costs by moving down a given learning curve, while combining experience based learning and process innovation allows the firm to leapfrog to a steeper learning curve, thereby further driving down its per-unit costs.)

Allure is a cosmetic brand that pursues a cost-leader strategy. Which of the following statements is true of the cosmetic brand? A. It appeals to the price-conscious buyers. B. Its primary value driver is product uniqueness. C. It charges a premium price for its products. D. It directly competes against luxury cosmetic brands that charge premium prices

A. It appeals to the price-conscious buyers. (Allure appeals to the price-conscious buyers. Cost-leaders appeal to the price-conscious buyer, whose main criterion is the price of the product or service. By attending to the reduction of costs in each value chain activity, managers aim to achieve the lowest cost position in the industry.)

How is a cost-leader protected from threats from powerful buyers? A. It is more able to absorb price increases through accepting lower profit margins. B. It is more able to absorb price increase through generating higher profit margins. C. It is able to create a significant difference between perceived value and current market prices. D. It is able to create a significant difference between actual value and future market prices.

A. It is more able to absorb price increases through accepting lower profit margins. (A cost-leader is fairly well isolated from threats of powerful suppliers to increase input prices, because it is more able to absorb price increases through accepting lower profit margins.)

_____ 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. A. Minimum efficient scale B. Break-even output C. Maximum output capacity D. Optimum sustainable yield

A. Minimum efficient scale (Minimum efficient scale (MES) is 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.)

A firm's learning curve is steeper than that of its competitor. What does this imply? A. The firm is at an advantage when compared to its competitor. B. The firm and its competitor have achieved cost parity. C. The firm experiences negative returns to scale. D. The firm experiences diseconomies of scale when compared to the competitor.

A. The firm is at an advantage when compared to its competitor. (The steeper the learning curve, the more learning takes place. By moving further down a given learning curve than competitors, a firm can gain a competitive advantage.)

Which of the following statements accurately brings out the difference between economies of scale and learning effects? A. While there are no diseconomies to learning, there are diseconomies to scale. B. Economies of scale occur over time, whereas learning effects are captured at one point in time. C. Firms experience economies of scale when output increases, and learning effects when output decreases. D. Economies of scale reduce cost per unit, learning effects increase cost per unit.

A. While there are no diseconomies to learning, there are diseconomies to scale. (Learning effects occur over time as output is accumulated, while economies of scale are captured at one point in time when output is increased. Although learning declines at some point, there are no diseconomies to learning (unlike diseconomies to scale).)

A _____ primarily details the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market. A. business-level strategy B. code of ethics C. mission statement D. functional-level strategy

A. business-level strategy (A business-level strategy details the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market. It may involve a single product or a group of similar products that use the same distribution channel.)

A successfully implemented blue ocean strategy allows a firm to A. charge a higher price than the cost-leader in the industry. B. create lesser economic value than the differentiator in the industry. C. reduce its value gap beyond that created by the cost-leader in the industry. D. increase its price above that of the differentiator in the industry.

A. charge a higher price than the cost-leader in the industry. (A successfully implemented blue ocean strategy allows firms two pricing options: First, the firm can charge a higher price than the cost-leader, reflecting its higher value creation and thus generating greater profit margins. Second, the firm can lower its price below that of the differentiator because of its lower-cost structure.)

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? A. cost-leadership B. differentiation C. niche marketing D. product diversification

A. cost-leadership (Bargain Styles is applying the cost-leadership strategy. A cost-leadership strategy seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to its customers.)

Tangles Costume Jewelry offers slightly lowerquality merchandise than competitors at a much lower price. What strategy is Tangles using? A. cost-leadership B. differentiation C. niche marketing D. product diversification

A. cost-leadership (Tangles is applying the cost-leadership strategy. A cost-leadership strategy seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to its customers.)

A differentiator is least likely to be threatened by increases in input prices due to powerful suppliers when the A. differentiator is able to create a significant difference between perceived value and current market prices. B. differentiator is able to significantly reduce the value gap. C. source of a competitor's differential appeal is tangible rather than intangible. D. new product features added raise costs but not the perceived value in the minds of consumers.

A. differentiator is able to create a significant difference between perceived value and current market prices (If the differentiator is able to create a significant difference between perceived value and current market prices, the differentiator will not be so threatened by increases in input prices due to powerful suppliers. Although an increase in input factors could erode margins, a differentiator is likely able to pass on price increases to its customers as long as its value creation exceeds the price charged.)

A firm experiences _____ when there are increases in cost per unit as output increases. A. diseconomies of scale B. economies of scope C. time compression diseconomies D. economies of flow

A. diseconomies of scale (Diseconomies of scale can be described as increases in cost per unit when output increases.)

A company that uses a differentiation strategy can achieve a competitive advantage as long as its A. economic value created is greater than that of its competitors. B. value gap is lower than that of its competitors. C. strategic position is below the productivity frontier. D. products and services create a lower consumer surplus than that of its competitors.

A. economic value created is greater than that of its competitors. (A company that uses a differentiation strategy can achieve a competitive advantage as long as its economic value created (V-C) is greater than that of its competitors.)

A firm pursuing a differentiation strategy as opposed to a low-cost strategy will A. focus its research and development on product technologies to add uniqueness. B. concentrate on leveraging its economies of scale through process technologies. C. build an organization structure that relies on strict budget controls. D. create a lower economic value as compared to its competitors.

A. focus its research and development on product technologies to add uniqueness. (The focus of competition in a differentiation strategy tends to be on unique product features, service, and new product launches, or on marketing and promotion rather than price. A differentiator would focus research and development on product technologies in order to add uniqueness.)

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 A. gain a market share and make up the loss in margin through increased sales. B. create higher value creation and thus generate greater profit margins. C. gain a market share and make up the loss in margin through increased pricing. D. create higher value creation and thus generate greater sales.

A. gain a market share and make up the loss in margin through increased sales. (Trade Joe's was able to gain a market share and make up the loss in margin through increased sales.)

Higher value tends to require A. higher costs. B. higher quantities. C. more complements. D. more trade-offs.

A. higher costs. (Higher value tends to require higher cost. It tends to go along with higher costs in terms of higher-quality raw materials, research and development, employee training to provide superior customer service, and so on. Higher value gap, which allows a firm to charge a premium price, reflects its higher value creation.)

When a firm is successful at pursuing a blue ocean strategy, A. investments in differentiation are complements. B. value and cost exhibit a positive correlation. C. low cost acts as a substitute. D. investments in process and product technologies are substitutes.

A. investments in differentiation are complements. (When successful at a blue ocean strategy, investments in differentiation and low cost are not substitutes but are complements, providing important spillover effects. A blue ocean strategy allows a firm to offer a differentiated product or service at low cost.)

A firm achieves differentiation parity ideally when A. it creates the same customer value as its competitors. B. its cost of production is higher than that of its competitors. C. it successfully sells its products and services at a higher price than its competitors. D. its product features and services are better than that of its competitors.

A. it creates the same customer value as its competitors. (A firm achieves differentiation parity when it creates the same perceived value as its rival firm.)

Gotta Get Chocolates, Inc. has recently introduced a new production method that will make the production of their chocolates more cost-effective. Which of the following will most likely be the result of this innovation? A. jumps to a steeper learning curve B. destabilizes a steeper learning curve C. stabilizes the existing learning curve D. moves down the existing learning curve

A. jumps to a steeper learning curve (Gotta Get Chocolates has engaged in process innovation. Process innovation is a new method or technology to produce an existing product that may initiate a new and steeper learning curve.)

As the cumulative output in a firm increases, managers learn how to optimize the production process and improve workers' performance through repetition. This drives down the per-unit cost. Which of the following phenomena is best described here? A. learning effects B. network effects C. diseconomies of scale D. productivity frontier

A. learning effects (As individuals and teams engage repeatedly in an activity, whether writing computer codes, developing new medicines, or building submarines, they learn from their cumulative experiences. Thus, learning by doing can also drive down costs.)

Bass Watches Inc. initially spent eight man-hours to assemble a wristwatch. But as the production doubled, the number of hours spent on assembling a watch reduced by 20 percent. This increase in productivity reduced the company's cost per unit. What is this phenomenon referred to as? A. learning-curve effect B. network effect C. black-swan event D. time compression diseconomies

A. learning-curve effect (The phenomenon seen in this scenario is referred to as learning-curve effect. As individuals and teams engage repeatedly in an activity, whether writing computer code, developing new medicines, or building submarines, they learn from their cumulative experience. This in turn can drive down costs.)

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 A. low-cost input factors. B. economies of scale. C. superior customer service. D. availability of complements

A. low-cost input factors. (The key driver for BioThink's competitive advantage is low-cost input factors. One of the most basic advantages a firm can have over its rivals is access to lower-cost input factors such as raw materials, capital, labor, and IT services.)

When a firm operates at the minimum efficient scale, the A. returns to scale are constant. B. cost per unit is the highest. C. firm experiences diseconomies of scale. D. firm attains the highest cost position

A. returns to scale are constant. (When a firm operates at the minimum efficient scale, the returns to scale are constant. Minimum efficient scale (MES) is 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.)

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 A. stuck in the middle. B. buried at the bottom. C. burned at the top. D. caught in the transition.

A. stuck in the middle. (If a blue ocean strategy has gone bad, the firm ends up being stuck in the middle, meaning the firm has neither a clear differentiation nor a clear cost-leadership profile. Being stuck in the middle leads to inferior performance and a resulting competitive disadvantage.)

Value drivers contribute to a firm's competitive advantage only if A. the increase in value creation exceeds the increase in costs. B. they can shrink the firm's value gap. C. they can restrict the firm from claiming a premium price for its products. D. the decrease in perceived value leads to an increase in costs

A. the increase in value creation exceeds the increase in costs. (Managers must remember that the different value drivers contribute to competitive advantage only if their increase in value creation (ΔV) exceeds the increase in costs (ΔC). The condition of ΔV > ΔC must be fulfilled if a differentiation strategy is to strengthen a firm's strategic position and thus enhance its competitive advantage.)

A blue ocean strategy differs from a low-cost strategy in that A. 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. B. the focus of a blue ocean strategy is on lowering the economic value created, whereas a cost-leader focuses on increasing the economic value created. C. economies of scale are more important to a blue ocean strategy, while economies of scope are more important to a cost-leader. D. a blue ocean's research and development focus is on process technologies, and a cost-leader's focus is on product technologies.

A. 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. (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. A blue ocean strategy is difficult to implement because it requires the reconciliation of fundamentally different strategic positions—differentiation and low cost—which in turn require distinct internal value chain activities in order to allow the firm to increase value and lower cost at the same time.)

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? A. 2,000-3,000 units B. 3,000-4,000 units C. below 2,000 units D. above 4,000 units

B. 3,000-4,000 units (In this scenario, the firm's minimum efficient scale is 3,000-4,000 units. Minimum efficient scale (MES) is 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.)

At a certain output level, the per-unit cost incurred by a firm to manufacture a product was $60. Once the cumulative output doubled, the cost per unit reduced to $54. All other factors remaining constant, the firm has been able to achieve a(n) A. 80 percent learning curve. B. 90 percent learning curve. C. 60 percent learning curve. D. 54 percent learning curve.

B. 90 percent learning curve. (A 90 percent learning curve indicates that per-unit cost drops 10 percent every time output is doubled. In this case, the per-unit cost is reduced by 10 percent of $60; therefore, the new per-unit cost is $54.)

Which of the following is a key question managers must answer to formulate an appropriate business-level strategy? A. When will we satisfy our customer needs? B. How will we satisfy our customer needs? C. Where will we satisfy our customer needs? D. Can we satisfy our customer needs?

B. How will we satisfy our customer needs? (To formulate an appropriate business-level strategy, managers must answer the "who-what-why-and-how" questions of competition: • Who—which customer segments—will we serve? • What customer needs, wishes, and desires will we satisfy? • Why do we want to satisfy them? • How will we satisfy our customers' needs?)

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? A. It failed to drive up the perceived customer value. B. It failed to refine its strategic position over time. C. It failed to move into a non-contested market space. D. It failed to offer enough strategic trade-offs

B. It failed to refine its strategic position over time. (Strategic positions are not fixed, but can—and need to—change as the environment changes. Although JetBlue was able to create an initial competitive advantage, it was unable to refine its strategic position over time.)

What must a cost-leadership strategy accomplish to be successful? A. It must increase the firm's cost above that of its competitors while offering adequate value. B. It must reduce the firm's cost below that of its competitors while offering adequate value. C. It must increase the firm's cost above that of its competitors while offering superior value. D. It must reduce the firm's cost below that of its competitors while offering superior value.

B. It must reduce the firm's cost below that of its competitors while offering adequate value. (The goal of a cost-leadership strategy is to reduce the firm's cost below that of its competitors while offering adequate value. The cost-leader, as the name implies, focuses its attention and resources on reducing the cost to manufacture a product or deliver service in order to offer lower prices to its customers.)

Which of the following best explains why a blue ocean strategy is difficult to implement? A. It requires the combination of fundamentally 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 trade-offs. D. It requires the reconciliation of fundamentally different strategic positions—differentiation and strategic trade-offs.

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

Which of the following statements is true of learning curves? A. Learning curves are captured at one point in time when output is increased. B. Learning curves can be observed in manufacturing processes and professional services. C. As cumulative output increases, the learning curve becomes less steep. D. The steeper the learning curve, the lesser the learning effects.

B. Learning curves can be observed in manufacturing processes and professional services. (Learning curves are a robust phenomenon that have been observed in many industries, not only in manufacturing processes like building airplanes, cars, ships, and semiconductors; but also in alliance management, franchising, and health care.)

Why are differentiation and cost-leadership strategies referred to as generic business strategies? A. They can be simultaneously pursued by a firm without any trade-offs. B. They can be used by any organization independent of industry context. C. They require similar strategic positions in order to increase a firm's chances to gain competitive advantage. D. They can be applied only by businesses, which have a competitive advantage.

B. They can be used by any organization independent of industry context. (Differentiation and cost-leadership strategies are called generic strategies because they can be used by any organization—manufacturing or service, large or small, for-profit or nonprofit, public or private, U.S. or non-U.S.—in the quest for competitive advantage, independent of industry context.)

True Empire Autos Inc. is an automobile company known for its luxury cars and follows a differentiation strategy. In this scenario, True Empire Autos should ideally compare its strategic position with a(n) A. automobile company that sells pre-owned cars. B. automobile company that sells high-end, premium cars. C. automobile company that manufactures economy cars. D. pen manufacturing company that follows a differentiation strategy.

B. automobile company that sells high-end, premium cars. (True Empire Autos should ideally compare its strategic position with an automobile company that sells high-end, premium cars. A differentiation strategy seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping costs at the same or similar levels. The idea is to compare True Empire Autos' strategic position with the next-best differentiator. In this case, it will be an automobile company that sells high-end luxury cars.)

Home Smart Inc. is a chain of supermarkets that sells its products at higher prices than its competitors. Yet, the supermarket chain has a large customer base due to its wide product portfolio and superior customer service. Which of the following generic business strategies has Home Smart adopted in this scenario? A. cost-leadership B. differentiation C. market penetration D. product diversification

B. differentiation (Home Smart has adopted the differentiation strategy. A differentiation strategy seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping costs at the same or similar levels.)

When Jean Cult Inc. was operating at the minimum efficient scale of 10,000-12,000 units per month, the firm's cost per unit was $20. However, when the output level was increased beyond 12,000 units, the cost per unit increased to $22. This increase was attributed to the wear-and-tear of the machinery, and complexities of managing and coordinating. What is this phenomenon known as? A. resource ambiguity B. diseconomies of scale C. network effect D. learning-curve effect

B. diseconomies of scale (The phenomenon seen in this scenario is referred to as diseconomies of scale. Diseconomies of scale can be described as increases in cost per unit when output increases. As firms get too big, the complexity of managing and coordinating raises the cost, negating any benefits to scale. Large firms tend to become overly bureaucratic, with too many layers of hierarchy. They grow inflexible and slow in decision making.)

What is a value gap? A. real versus perceived value B. economic value creation C. lack of perceived value D. economic value differentiation

B. economic value creation (Economic value creation, V-C, is also called the value gap. A firm achieves a competitive advantage when it has a higher value gap than its competitors, which allows it to charge a premium price, reflecting its higher value creation.)

KitchenThings Inc. is a company that manufactures plastic kitchenware. It operates at an output level that allows it to keep its unit cost per output to the lowest in the industry. This in turn allows KitchenThings to be the price leader. Other competing companies cannot operate at the same level due to a lack of consumer demand for their products. This puts them at a competitive disadvantage. In this scenario, the cost driver behind KitchenThings's strategic position is A. superior customer service. B. economies of scale. C. availability of complements. D. learning-curve effects.

B. economies of scale. (In this scenario, the cost driver behind KitchenThings's strategic position is economies of scale. Firms with greater market share might be in a position to reap economies of scale, decreases in cost per unit as output increases)

PureRinse Inc. is a brand reputed for its wide variants of body wash that introduced its range of shampoos and skin moisturizers 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 PureRinse applying? A. mass customization B. economies of scope C. learning-curve effect D. network effect

B. economies of scope (PureRinse is applying the strategy of economies of scope in this scenario. The concept economies of scope describes the savings that come from producing two (or more) outputs at less cost than producing each output individually, even though using the same resources and technology.)

Diseconomies of scale refer to A. decreases in cost as profit increases. B. increases in cost as output increases. C. increases in economic value as per-unit cost decreases. D. decreases in profit when consumer demand decreases

B. increases in cost as output increases. (Diseconomies of scale refer to increases in cost per unit when output increases)

According to the five forces model, which of the following is viewed as a major risk to a business pursuing a cost-leadership strategy? A. competition switching from non-price attributes to pricing B. innovation that allows competitors to emerge with more economical replacements C. new entrants with small production scale D. suppliers requesting a 2% price increase across the industry

B. innovation that allows competitors to emerge with more economical replacements (The risk of replacement for a firm pursuing a low-cost strategy is particularly pertinent if a potent substitute emerges due to an innovation.)

Combining economies of learning with the existing production technology allows a firm to A. move up a given experience curve. B. move down a given learning curve. C. jump to a less steeper learning curve. D. jump to a flatter experience curve.

B. move down a given learning curve. (Economies of learning allow movement down a given learning curve based on current production technology. Learning by doing allows a firm to lower its per-unit costs by moving down a given learning curve, while combining experience based learning and process innovation allows the firm to leapfrog to a steeper learning curve, thereby further driving down its per-unit costs.)

To be cost-competitive, a firm should A. position itself below the productivity frontier. B. operate at the minimum efficient scale. C. attain the highest cost position. D. avoid moving on to a steeper experience curve.

B. operate at the minimum efficient scale. (When a firm operates at the minimum efficient scale, the returns to scale are constant. Minimum efficient scale (MES) is 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.)

When a firm makes choices between a cost or value position to achieve competitive advantage, it is primarily involved in A. collective bargaining. B. strategic trade-offs. C. arbitration. D. mediation.

B. strategic trade-offs. (To achieve a desired strategic position, managers must make strategic trade-offs—choices between a cost or value position.)

Cool Cat Inc. has dominated the high-end refrigerator market by producing a reliable refrigerator with many bonus features that appeal to customers. Recently, a competitor has developed a refrigerator that offers many of the same features as Cool Cat's refrigerator. Which of the following will most likely help Cool Cat to keep its competitive advantage? A. a reduction of price B. the loyalty of its customers C. an increase of price D. the loyalty of its retail stores

B. the loyalty of its customers (Cool Cat has developed a strong differentiated position. Such a position reduces the threat of substitutes, because the unique features of the product have been created to appeal to customer preferences, keeping them loyal to the product.)

A blue ocean strategy tends to be successful only if a firm is able to rely on a _____ that allows it to reconcile trade-offs. A. value driver B. value innovation C. product feature D. product complement

B. value innovation (A blue ocean strategy tends to be successful only if a firm is able to rely on a value innovation that allows it to reconcile trade-offs.)

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? A. AccuroDisk and TD Storage share differentiation parity. B. TD Storage has a competitive advantage over AccuroDisk in terms of perceived value. C. AccuroDisk creates a greater economic value than TD Storage. D. TD Storage is a cost-leader when compared to AccuroDisk

C. AccuroDisk creates a greater economic value than TD Storage (AccuroDisk creates a greater economic value than TD Storage. A cost-leader can achieve a competitive advantage as long as its economic value created is greater than that of its competitors.)

Evia Cycles Inc. incurs $400 to manufacture a bicycle, and the maximum price customers are willing to pay is $550 per unit. Archer Cycles Inc., its competitor, incurs $450 to manufacture a similar bicycle, and customers are willing to pay a maximum price of $620 for it. What does this indicate? A. Both Evia Cycles and Archer Cycles have achieved differentiation parity. B. Evia Cycles has a competitive advantage over Archer Cycles. C. Archer Cycles has created a greater economic value than Evia Cycles. D. Both Evia Cycles and Archer Cycles have achieved cost parity.

C. Archer Cycles has created a greater economic value than Evia Cycles. (Archer Cycles has created a greater economic value than Evia Cycles. A cost-leader can achieve a competitive advantage as long as its economic value created is greater than that of its competitors)

Which of the following statements accurately brings out the difference between economies of scale and economies of scope? A. Economies of scale refer to the decreases in per-unit cost with decreases in output, whereas economies of scope refer to the increases in per-unit cost with increases in output. B. Economies of scale result in decreasing returns to scale, and economies of scope result in constant returns to scale. C. Economies of scope are the savings that come from producing two or more outputs from the same resources, whereas economies of scale are decreases in per-unit cost with increases in output. D. Economies of scope are realized when a firm operates at the minimum efficient scale, whereas economies of scale are realized when the firm operates beyond the minimum efficient scale.

C. Economies of scope are the savings that come from producing two or more outputs from the same resources, whereas economies of scale are decreases in per-unit cost with increases in output. (The concept economies of scope describes the savings that come from producing two (or more) outputs at less cost than producing each output individually, even though using the same resources and technology. Economies of scale are decreases in cost per unit as output increases.)

Help Yourself Inc. publishes many types self-help books. Recently, the consumer demand for winter gardening books has increased significantly. Although Help Yourself has limited production facilities, it has increased the production of these books to meet this demand. It hopes to get books to the market faster than its closest competitor, who is also increasing the production of winter gardening books. Which of the following aspects of business-level strategy has Help Yourself accomplished? A. It has enhanced its internal strengths. B. It has eliminated its weaknesses. C. It has exploited external opportunities. D. It has avoided external threats

C. It has exploited external opportunities. (Help Yourself has exploited external opportunities by increasing the production of winter gardening books to meet consumer demand. It has not enhanced its internal strengths or eliminated its weaknesses. Help Yourself still has limited production facilities. Also, it has not avoided the external threat of its closest competitor.)

Both Viten Electronics Inc. and JL Electronics Inc. incur a cost of $400 to manufacture a LED television. However, the economic value created by JL Electronics is more than that created by Viten Electronics. What does this indicate? A. Viten Electronics has a competitive advantage over JL Electronics. B. Both Viten Electronics and JL Electronics have achieved competitive parity. C. JL Electronics can charge a premium price on its televisions. D. Viten Electronics has created a higher value gap than JL Electronics.

C. JL Electronics can charge a premium price on its televisions. (JL Electronics can charge a premium price on its televisions. A company that uses a differentiation strategy can achieve a competitive advantage as long as its economic value created (V-C) is greater than that of its competitors. This allows the firm to charge a premium price, reflecting its higher value creation.)

Which of the following describes an airline that is most likely stuck in the middle? A. Red Carpet Airline that offers complimentary drinks and meals, coast-to-coast coverage via connecting hubs, plush airport lounges, and high prices. B. Plush Airline that offers international routes and global coverage, high customer service, high reliability, and high prices. C. 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. D. Bottom Line Airline that offers no assigned seating, no in-flight amenities, no drinks or meals, no airport lounges, and low prices.

C. 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 (Just Right Airline is most likely stuck in the middle because it is attempting to reconcile fundamentally different strategic positions—high-quality features with low price. The other airlines consistently follow either a differentiation or low-cost strategy)

Which of the following scenarios would threaten a firm that uses a differentiation strategy? A. The firm increases the uniqueness of its product without increasing its price. B. The firm adds product features that raise cost and perceived value. C. The firm's focus shifts to price rather than value-creating features. D. The firm's product has not established an acceptable standard of quality

C. The firm's focus shifts to price rather than value-creating features. (The viability of a differentiation strategy is severely undermined when the focus of competition shifts to price rather than value-creating features. This can happen when differentiated products become commoditized, and an acceptable standard of quality has emerged across rival firms.)

Handy Helper, Inc. produces decent-quality woodworking tools at a mid-range price. Master Tools, Inc. produces high-quality tools also at a mid-range price. Master Tools gained a competitive advantage because it has ______ than Handy Helper. A. higher economies of scope B. lower economies of scope C. a higher value gap D. a lower value gap

C. a higher value gap (Master Tools has a competitive advantage over Handy Helper because it has a higher value gap. Master Tools produces higher-quality tools than Handy Helper for a similar price, which means it creates greater economic value (higher value gap) for its customers.)

Wear Crush Inc. is an apparel company known for its affordable clothes that follows a cost-leadership strategy. In this scenario, Wear Crush should ideally compare its strategic position with A. a company that sells wristwatches at affordable prices. B. a luxury apparel company that sells designer clothes. C. an apparel company popular among price-conscious customers. D. an online company that sells customized pet clothing.

C. an apparel company popular among price-conscious customers. (In this scenario, Wear Crush should ideally compare its strategic position with an apparel company popular among price-conscious customers. A cost-leadership strategy seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to its customers. The idea is to compare Wear Crush Inc.'s strategic position with another cost-leader. In this case, it will be an apparel company popular among price-conscious customers.)

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 A. economies of scale. B. learning-curve effects. C. availability of complements. D. experience-curve effects.

C. availability of complements. (Body Sync's primary value driver is availability of complements. Complements add value to a product or service when they are consumed in tandem. Finding complements, therefore, is an important task for managers in their quest to enhance the value of their offerings.)

Both Blue Horizons Electronics Inc. and CLR Inc. have achieved cost parity in the television market. To gain and sustain a competitive advantage against CLR, Blue Horizons Electronics should A. achieve differentiation parity with CLR. B. keep its value gap lower than that of CLR. C. create greater perceived economic value than CLR. D. increase its cost of production to more than that of CLR.

C. create greater perceived economic value than CLR. (To gain and sustain a competitive advantage against CLR, Blue Horizons Electronics should create greater perceived economic value than CLR. A company that uses a differentiation strategy can achieve a competitive advantage as long as its economic value created is greater than that of its competitors.)

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 (A focused cost-leadership strategy is the same as the cost-leadership strategy except with a narrow focus on a niche market.)

Even without differentiation parity, a firm pursuing a cost-leadership strategy can still gain a competitive advantage as long as its A. learning curve is not steeper than that of its competitors. B. per-unit costs are higher than that of its competitors. C. economic value creation exceeds that of its competitors. D. value gap is lower than that of its competitors.

C. economic value creation exceeds that of its competitors. (Even without differentiation parity, a firm pursuing a cost-leadership strategy can still gain a competitive advantage as long as its economic value creation exceeds that of its competitors. Even if a firm fails to create differentiation parity, it can still gain a competitive advantage as long as its economic value creation exceeds that of its competitors.)

A cost-leader is protected from the threat of new entrants primarily due to its A. superior customer service. B. luxury goods. C. economies of scale D. premium pricing.

C. economies of scale (Since reaping economies of scale is critical to reaching a low-cost position, the cost-leader is likely to have a large market share, which in turn reduces the threat of entry.)

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 A. superior customer service. B. time compression economies. C. economies of scale. D. learning-curve effects.

C. economies of scale. (DiscountHaven has a competitive advantage due to its economies of scale. Economies of scale allow firms to spread their fixed costs over a larger output, employ specialized systems and equipment, and take advantage of certain physical properties)

In contrast to a differentiator, a cost-leader will A. charge a premium price for its products and services. B. build an organizational culture where creativity and customer responsiveness thrive. C. focus its research and development on process technologies to improve efficiency. D. avoid an organizational structure that relies on strict budget controls.

C. focus its research and development on process technologies to improve efficiency (The cost-leader, as the name implies, focuses its attention and resources on reducing the costs to manufacture a product or deliver service in order to offer lower prices to its customers. The cost-leader optimizes all of its value chain activities to achieve a low-cost position.)

Whole Foods differentiates itself from competitors by offering top-quality foods obtained through sustainable agriculture. This business strategy implies that Whole Foods focuses on A. decreasing the existing value gap by providing luxury goods to customers. B. maintaining a less steeper learning curve as compared to its competitors. C. increasing the perceived value created for customers, which allows it to charge a premium price. D. lowering its costs compared to its competitors,' while offering adequate value for its products and services.

C. increasing the perceived value created for customers, which allows it to charge a premium price (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 will hamper a differentiator's ability to achieve a competitive advantage? A. lower production costs B. premium prices C. lower value gap D. customized goods

C. lower value gap (A higher value gap enables a differentiator to achieve a competitive advantage, which allows it to charge a premium price, reflecting its higher value creation. A lower value gap, however, will hamper a differentiator's ability to achieve a competitive advantage.)

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 A. increasing cost and maintaining perceived customer benefits. B. lowering cost and maintaining perceived customer benefits. C. lowering cost and increasing perceived customer benefits. D. increasing cost and increasing perceived customer benefits.

C. lowering cost and increasing perceived customer benefits. (When formulating a blue ocean business strategy, managers address questions that focus on lowering cost and increasing perceived customer benefits.)

The primary goal of a firm pursuing a blue ocean 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 steeper learning curve.

C. offer a differentiated product or service at a low cost. (Being successful at a blue ocean strategy doesn't imply that the firm must be the highest value creator and the lowest-cost producer in its respective industry. The goal of an integration strategy is therefore to offer a differentiated product or service at a low cost.)

A firm's business strategy will lead to a competitive advantage if it allows the firm to A. execute the same activities performed by the rivals in a similar manner. B. reduce the value gap. C. perform different activities than its rivals. D. position itself below the productivity frontier.

C. perform different activities than its rivals. (Business strategy is more likely to lead to a competitive advantage if it allows firms to either perform similar activities differently, or perform different activities than their rivals that result in creating more value or offering similar products or services at lower cost.)

A firm experiences diseconomies of scale when it A. has a constant return to scale. B. moves down the experience curve. C. produces at an output level beyond the minimum efficient scale. D. has a steep learning curve when compared to its competitors.

C. produces at an output level beyond the minimum efficient scale (Diseconomies of scale can be described as increases in cost per unit when output increases. A firm experiences diseconomies of scale when it produces at an output level beyond the minimum efficient scale. Benefits to scale cannot go on indefinitely.)

DFS Electronics Inc. ensures that all its products are highly durable and reliable by using techniques like zero-defect and lean manufacturing systems. These efforts not only add to the products' differential appeal, but also help the company save costs during production and avoid expenses due to after-sales services. Thus, the common value and cost driver responsible for DFS Electronics' strategic position as an integrator is the A. network effect. B. availability of complements. C. quality. D. diseconomies of scale.

C. quality. (The common value and cost driver responsible for DFS Electronics' strategic position as an integrator is the quality. The quality of a product denotes its durability and reliability. Quality not only can increase a product's perceived value, but also can lower its cost. Through techniques like total quality management, companies design and build products with quality in mind, while increasing their differentiated appeal. By building in better quality, companies lower the cost of both production and after-sales service requirements.)

Economies of scale do not allow firms to A. spread their fixed costs over a larger output. B. employ specialized systems and equipment. C. spread their variable costs over a larger output. D. take advantage of certain physical properties.

C. spread their variable costs over a larger output. (Economies of scale allow firms to spread their fixed costs over a larger output, employ specialized systems and equipment, and take advantage of certain physical properties.)

Which of the following situations will have greater effects from economies of scale than from learning effects? A. when conducting surgeries B. when practicing corporate law C. when mass manufacturing pens D. when making business decisions

C. when mass manufacturing pens (In some production processes (e.g., a simple one-step process in the mass manufacture of pens), effects from economies of scale can be quite significant, while learning effects are minimal. In contrast, in some professions (brain surgery or the practice of estate law), learning effects can be substantial, while economies of scale are minimal.)

While Aros Inc. incurs a cost of $20 for a pair of shoes, Shoes Cult Inc., its competitor, manufactures a pair of shoes at $22. Both the companies are able to sell their shoes for a maximum of $30 per pair. Which of the following statements is true in this scenario? A. Both Aros and Shoes Cult have achieved differentiation parity. B. Aros is a cost-leader when compared to Shoes Cult. C. Aros has created a greater economic value than Shoes Cult. D. Shoes Cult has a competitive advantage over Aros.

D. Shoes Cult has a competitive advantage over Aros. (Shoes Cult does not have a competitive advantage over Aros. A cost-leader can achieve a competitive advantage as long as its economic value created is greater than that of its competitors. A firm achieves differentiation parity when it creates the same perceived value as its rival firm.)

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 service with room rates of under 75 dollars per night D. a cosmetics brand that offers superior-quality skin lotion priced at 100 dollars per bottle

D. a cosmetics brand that offers superior-quality skin lotion priced at 100 dollars per bottle (In a focused differentiation strategy, a firm seeks to create higher value for customers than the value that competitors create, by delivering products or services with high-quality features at a high price. This description applies to the cosmetic brand.)

When Internet service providers offer free routers for subscriptions to their wireless Internet packs, the perceived value of the service offering increases. In this case, the value driver would be A. economies of scale. B. learning-curve effects. C. experience-curve effects. D. availability of complements

D. availability of complements (Complements add value to a product or service when they are consumed in tandem. Finding complements, therefore, is an important task for managers in their quest to enhance the value of their offerings.)

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? A. liquidation strategy B. product diversification strategy C. market penetration strategy D. blue ocean strategy

D. blue ocean strategy (True Movies is pursuing the blue ocean strategy. A successful blue ocean strategy requires that trade-offs between differentiation and low cost are reconciled. A blue ocean strategy allows a firm to offer a differentiated product or service at low cost.)

Which of the following is primarily a value driver? A. cost of input factors B. economies of scope C. experience-curve effects D. complements

D. complements (Complements are an important value driver. Other value drivers include product features and customer service.)

Firms pursuing a differentiation strategy primarily seek to A. keep their cost structures lower than that of the cost leader. B. reduce the value gap to gain a competitive advantage. C. provide products that are a direct imitation of the competitors' products. D. create higher customer perceived value than the value that competitors create

D. create higher customer perceived value than the value that competitors create. (A differentiation strategy seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping costs at the same or similar levels.)

Which of the following is primarily a cost driver? A. product features B. customer service C. complements D. economies of scale

D. economies of scale (Economies of scale are an important cost driver. Other cost drivers include cost on input factors, learning-curve effects, and experience-curve effects.)

Which of the following contributed the most to JCPenny's failed blue ocean strategy? A. failure to win legal battles against its closest competitors B. failure to conduct an accurate pretest in the market C. failure to apply the strategy to enough stores at the same time D. failure to combine a cost-leadership position with a differentiation position

D. failure to combine a cost-leadership position with a differentiation position (In Strategy Highlight 6.2, it is seen that JC Penny failed with its blue ocean strategy mainly because it failed to combine a cost-leadership position with a differentiation position.)

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. (When a firm differentiates itself through intangible resources that increase its differentiation appeal and provide for customer loyalty, it will be able to pass on cost increases to the customer.)

Organic Eats is a restaurant that caters to the needs of a small percentage of highly health-conscious consumers. It has an all-organic, vegan menu. Since there are very few restaurants that offer the same unique services, customers are willing to pay a premium price for its products and services. In this scenario, Organic Eats is following a A. product diversification strategy. B. liquidation strategy. C. mass market strategy. D. focused differentiation strategy.

D. focused differentiation strategy (Organic Eats is following a focused differentiation strategy. The focused differentiation strategy is same as the differentiation strategy except with a narrow focus on a niche market. A differentiation strategy seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping costs at the same or similar levels.)

Which of the following drivers simultaneously increases value while lowering cost? A. economies of scale B. superior customer service C. availability of complements D. innovation

D. innovation (Quality, economies of scope, customization, innovation, structure, culture, and routines are drivers that simultaneously increase value while lowering cost (used for integration strategies). Availability of complements, superior customer service, and economies of scale are drivers that uniquely affect either value creation or low cost (used for differentiation or cost-leadership strategies).)

Which of the following sources of differential appeal is least effective in helping a firm sustain its advantage? A. reputation for innovation B. reputation for quality C. superior customer experience D. observable product features

D. observable product features (If the source of the differential appeal is intangible rather than tangible (e.g., reputation rather than observable product and service features), a differentiator is even more likely to sustain its advantage. Competitors will find such intangible advantages time-consuming and costly, and maybe impossible, to imitate.)

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 A. cost driving. B. cost innovation. C. value driving. D. value innovation.

D. value innovation. (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.)