strategy quizzes 1
Which of the conditions prevail when an industry is at the end of its life cycle? A) The level of process innovation reaches its maximum as firms attempt to lower cost. B) The industry structure is perfectly competitive with a large number of buyers and sellers. C) The strategic objectives of businesses will involve gaining market acceptance. D) The market reaches its maximum size at this stage.
A At the end of a life cycle, the level of process innovation reaches its maximum as firms attempt to lower cost as much as possible, while the level of incremental product innovation reaches its minimum.
SonronMedia sells books by having salespeople set up appointments with potential customers and give them a sales pitch for the product. When a salesperson sells a book, he or she gets a predetermined percentage commission. This type of business model is called A) an agency. B) bundling. C) wholesale. D) a freemium.
A In the agency business model, the producer relies on an agent or retailer to sell the product at a predetermined percentage commission
Incumbent firms prefer to focus on incremental innovations which reinforce their established organizational structure and power distribution and avoid radical innovation that could disrupt their existing power distribution. This is known as A) organizational inertia. B) organization culture. C) organizational design. D) organization complexity.
A Incumbent firms, therefore, tend to favor incremental innovations that reinforce the existing organizational structure and power distribution while avoiding radical innovation that could disturb the existing power distribution
NuLiver Corp. 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? 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 NuLiver Corp. 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
The group of customers referred to as the ________ lead the wave of increased demand as the industry moves from the introduction stage to the growth stage. A) early majority B) laggards C) late majority D) early adopters
A The early majority leads the wave of increased demand as the industry moves from the introduction stage to the growth stage
Sugar Flakes and Cinnamon Texas Toast both produce similar puffed rice breakfast cereals. For both companies, the cost of producing a box of cereal is 45 cents, and it is not possible for either company to lower their production costs any further. How can one company achieve a competitive advantage over the other? A) Increase total perceived consumer benefits through differentiation. B) Raise prices above the current reservation price. C) Lower prices to the break-even price. D) Increase the number of stock market shares available to investors.
A When costs are the same, the only option to increase the amount of economic value created and achieve a competitive advantage is to increase the maximum willingness to pay, or total perceived consumer benefits, through differentiation.
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) A) 80 percent learning curve. B) 90 percent learning curve. C) 60 percent learning curve. D) 54 percent learning curve.
B 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 $70; therefore, the new per-unit cost is $63
James is a novice investor who wants to decide between purchasing shares in Captial-UP or Mainframe Inc. Captial-UP's return on invested capital (ROIC) was 15 percent, and its cost of capital was 12 percent. During the same period, Mainframe Inc.'s ROIC was 22 percent and its cost of capital was 25 percent. What does this information tell James? A) Mainframe Inc. is more likely to create value while Captial-UP is more likely to destroy value. B) Captial-UP is more likely to create value while Mainframe Inc. is more likely to destroy value. C) Both Mainframe Inc. and Captial-UP are likely to create value. D) Neither Mainframe Inc. nor Captial-UP are likely to create value.
B As a rule of thumb, if a firm's ROIC is greater than its cost of capital, it generates value; if it is less than the cost of capital, the firm destroys value. Since Captial-UP's ROIC was greater than its cost of capital, the company is more likely to create value. Mainframe Inc., on the other hand, had a cost of capital that exceeded its ROIC, and was thus more likely to destroy value. James would be wise to invest his money in Captial-UP.
Threadless allows customers to submit their own designs and to vote on which designs they would like to see printed on a T-shirt. This business uses a ________ technique. A) offshoring B) crowdsourcing C) peer-to-peer D) binge watching
B As described in Strategy Highlight 2.2, Threadless uses the crowdsourcing technique by allowing customers to perform tasks that are normally performed by employees
TalkaLot Corp. incurs a cost of $350 to produce one unit of a cell phone. The company's management has priced the product at $600 in the market. Considering the technological advancement of the cell phone, customers perceive its value to be around $800. What is the economic value created in this scenario? A) $350 B) $450 C) $800 D) $200
B Economic value creation equals consumer surplus plus firm profit, or the sum of consumer and producer surplus. In this case, the economic value created is ($800 - $600) + ($600 - $350) = $450
Hottechi Laminate has developed a new customer-oriented business model. Rather than maintain a network of showrooms across the country, the business will now let customers choose several styles that interest them from an online site, and will ship samples of each of the styles to the customer to test in their home free of charge. Once they have settled on a tile choice, Hottechi Laminate will send a representative to their home to schedule installation. The company has determined that busy middle-class customers will value the convenience of the new model, which allow them to upgrade the look of their homes without spending time browsing showrooms. The new model will be created by selling the old showrooms and shifting resources to the new online site and regional offices for sales personnel. What question remains for Hottechi Laminate to ask in order to put its strategy into action? A) Why does the business model create value? B) What activities need to be performed to create and deliver the offerings to consumers? C) How are the offerings to the customers created? D) Who are the main stakeholders who will be performing the activities?
B Hottechi Laminate still needs to consider what activities need to be performed to create and deliver theofferings to customers. It has already answered why the new model creates value (convenience), how tocreate the new offerings (liquidate showrooms and shift resources), and who are the main stakeholders(busy middle-class homeowners). It has not yet considered the steps involved in establishing the newwebsite or hiring and training its new in-home sales force
While cell phones with holographic keyboards are currently in the introduction stage of the industry life cycle, tablet computers are in the growth stage. In the context of this scenario, which of the following statements is true? A) The industry for cell phones with holographic keyboards will face greater competition than the tablet industry. B) While the industry for cell phones with holographic keyboards will focus more on product innovation, the tablet industry will focus more on process innovation. C) While the industry for cell phones with holographic keyboards can reap the benefits of economies of scale, the tablet industry will experience no such benefits. D) The industry for cell phones with holographic keyboards will face price competition, whereas, in the tablet industry, the mode of competition will be nonprice.
B In the given scenario, while the industry for cell phones with holographic keyboards will focus on product innovation, the tablet industry will focus on process innovation. In the introductory stage, the level of product innovation is at a maximum because new features increasing perceived consumer value are critical to gaining traction in the market. During the growth stage of the industry life cycle, a standard is established in an industry, due to which the basis of competition tends to move away from product innovations toward process innovations
Finger Lickin' 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? A) lowering the quality of ingredients below what customers expect to control costs B) eliminating brick-and-mortar locations and offering delivery from a central kitchen C) raising prices without improving on the quality of food D) marketing itself as a high-end restaurant and competing with more refined restaurants in the area
B Successful value innovation requires that a firm's strategic moves lower its costs and also increase the perceived value for buyers. Lowering a firm's costs is primarily achieved by eliminating and reducing the taken-for-granted factors that the firm's industry rivals compete on. Perceived buyer value is increased by raising existing key success factors and by creating new elements that the industry has not offered previously. By eliminating its costly brick-and-mortar locations and offering delivery from a central kitchen, Finger Lickin' BBQ lowers its costs and increases value for customers seeking both convenience and quality
The leading producer of cell phone backup batteries, Progyny, has achieved great success because they produce high-quality battery backups that are not too expensive. Even so, another company that produces lower-quality batteries at the same price has also achieved some success, but not as much as Progyny. Also, in general, the price of backup batteries has declined because of economies of scale and learning. In addition, Progyny has added complementary assets, such as a carrying case. Considering all of these factors, the backup battery industry is most likely in the ________ stage. A) introduction B) growth C) shakeout D) maturity
B The backup battery industry is most likely in the growth stage. Since demand is strong during the growth phase, both efficient and inefficient firms thrive; the rising tide lifts all boats. Moreover, prices begin to fall, often rapidly, as standard business processes are put in place and firms begin to reap economies of scale and learning. Distribution channels are expanded, and complementary assets in the form of products and services become widely available
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 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.
Ticker Inc. is a wristwatch company known for its luxury watches, and it follows a differentiation strategy. In this scenario, Ticker Inc. should ideally compare its strategic position with a A) watch retailer that sells pre-owned watches. B) watch maker that sells high-end, premium watches. C) watch maker that manufactures low-priced watches. D) watch maker that follows a differentiation strategy.
B Ticker Inc. should ideally compare its strategic position with a watch company that sells high-end, premium watches. 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 Red Sapphire's strategic position with the next-best differentiator. In this case, it will be a watch maker that sells high-end luxury watches.
You are the CEO of a tech company and have recently undertaken a review of your company's strategy. In comparing your stock market valuation to that of your closest competitor, you note that your firm is currently valued at $50 billion, while your competitor is valued at $40 billion. How should you proceed? A) Consider this evidence of a sustainable competitive advantage and maintain your current strategy. B) Compare the current valuations with past valuations to determine a trend. C) Assume your current strategy has failed and begin to formulate a new one. D) Compare your valuation to firms in another industry.
B When assessing and evaluating competitive advantage, a comparison of rival firms' share price development or market capitalization provides a helpful yardstick when used over the long term. In order for this comparison of market capitalization to yield useful information, you must consider how it has changed over time. If your competitor has seen significant growth in market cap over the preceding year while your firm has seen its valuation decline slightly, for example, you would have evidence that your firm has begun to lose its competitive advantage
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 A focused cost-leadership strategy is the same as the cost-leadership strategy except with a narrow focus on a niche market.
Bioplex requires its members to pay a quarterly or an annual fee to use its services. Irrespective of whether they frequently use the services during the payment period or not, members have to pay in advance. Which of the following business models does this best illustrate? A) razor-razor-blade B) pay-as-you-go C) subscription-based D) freemium
C Bioplex uses the subscription-based business model in this scenario. In the subscription-based model,users pay for access to a product or service whether they use the product or service during the paymentterm or not. Industries that use this model presently are cable television, cellular service providers,satellite radio, Internet service providers, and health clubs
2) Blackzim Wireless is a cellular service provider that charges its customers $1 for three hours of talk time. So, if a customer's talk time for a month is 60 hours, the company charges him or her $20 at the end of the month. Which of the following business models does this best illustrate? A) razor-razor-blade B) subscription-based C) pay-as-you-go D) freemium
C In this scenario, Blackzim Wireless uses the pay-as-you go business model. In the pay-as-you-go businessmodel, the user pays for only the services he or she consumes. The pay-as-you go model is most widelyused by utilities providing power and water and cell phone service plans but is gaining momentum inother areas such as rental cars and cloud computing
Pete's Bikes 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 Pete's Bikes? A) Pete's leading competitor develops a new low-sodium product. B) Pete's most reliable production worker takes a job in another industry. C) A major winter storm shuts down Pete's production for several days. D) A wheat shortage raises input costs across the industry.
C Operating at the minimum efficient scale means that Pete's level of output allows it to stake out the lowest-cost position that is achievable through economies of scale. If a firm's cost advantage is due to economies of scale, a manager should worry about drops in production runs. By shutting down production for several days, Pete's output may fall to the point where per-unit costs start to rise
Susan is the founder of the restaurant chain Right and Fresh. She ensures that the products in her stores are ethically and responsibly sourced. Most products are therefore 100 percent organic and all packaging is manufactured from recycled material. Also, her company sources ingredients from farms within 100 miles from her locations. Susan's belief is that her restaurants should be able to support the community at large. Which of the following terms best describes Susan? A) headhunter B) category captain C) social entrepreneur D) trade creditor
C Susan can be best described as a social entrepreneur. Social entrepreneurs evaluate the performance of their ventures not only by financial metrics but also by ecological and social contribution. They use a triple-bottom-line approach to assess performance
A firm incurs $100 to manufacture an office table. It fixes the market price of the table as $250, and discounts the price to $200. However, the maximum a person is willing to pay for it is $180. What is the amount of total perceived consumer benefits in this scenario? A) $250 B) $200 C) $180 D) $100
C The amount of total perceived consumer benefits equals the maximum willingness to pay, which in this case is $180
Which of the following is not an advantage when it comes to "first-mover advantages"? A) First movers may be able to lock-in key suppliers. B) First movers may benefit from network effects. C) First movers must educate potential customers about the product. D) First movers may hold important intellectual property such as critical patents
C having to educate potential customers would be considered a disadvantage
When a firm is able to successfully employ a blue ocean strategy, it will create a competitive advantage by A) combining high quality and product features to provide service that customers truly value. B) using a first-mover advantage to be the lowest price in the market. C) winning market share with a highly differentiated product. D) beating rivals on product attributes while offering a better price
D A successful blue ocean strategy will provide a firm with a competitive advantage by integrating low cost and some level of differentiation
How does a sustainable strategy typically help a firm? A) It helps the firm focus solely on its financial goals. B) It reduces the need for corporate social responsibility within the firm. C) It facilitates the firm in effectively isolating its external stakeholders. D) It helps the firm achieve positive results along the social and ecological dimensions.
D A sustainable strategy is a strategy that can be pursued over time without detrimental effects on people or the planet. A sustainable strategy produces not only positive financial results, but also positive results along the social and ecological dimensions
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 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
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 A) economies of scale. B) learning-curve effects. C) experience-curve effects. D) availability of complements.
D 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.
Digital photography replacing film photography is an example of which type of innovation? A) incremental B) architectural C) radical D) disruptive
D Disruptive innovation leverages new technologies to attack existing markets such as the digital camera in what was once a polaroid & film driven industry.
Which of the following is a competitive benefit experienced by the first-mover firm in an industry? A) The first mover will be able to achieve a less steep learning curve. B) The first mover will be able to reduce the switching costs. C) The first mover will not have to patent its products or technology. D) The first mover will be able to reduce costs through economies of scale.
D Economies of scale refer to the decreases in cost per unit as output increases. First movers may hold important intellectual property such as critical patents. They may also be able to lock-in key suppliers as well as customers through increasing switching costs
Which of the following examples uses a focused differentiation strategy? A) a tennis pro shop that sells low-quality racquets priced at 150 dollars per racquet B) a coffee shop that offers mediocre lattes at a price of five dollars for a small latte C) a hotel chain that offers high-quality furnishings and service with room rates of under 75 dollars per night D) a cosmetics brand that offers superior skin lotion for sensitive skin priced at 100 dollars per bottle
D 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
Jerry is the owner of All Hinges Inc. and has recently modified his firm's strategic objective based on a shift in his industry. Jerry is responding to a(n) ________ life cycle. A) entrepreneurial B) economic C) growth D) industry
D Jerry has modified his firm's strategic objective in response to which stage of the industry life cycle his firm is competing in
At the time when Laura decided to purchase a tablet computer, the product had just become accessible to the mass market. She did not purchase the tablet until after she was convinced that the benefits it would offer her would far exceed its price. Also, she waited for her friends to try the product and popular gadget television shows to endorse it. Which of the following customer segments does Laura best represent? A) laggards B) technology enthusiasts C) early adopters D) early majority
D Laura represents the early majority section of the market. The customers coming into the market in the growth stage belong to the early majority group. Early majority customers rely on endorsements by others. They seek out reputable references such as reviews in prominent trade journals or in magazines. As the early majority makes up almost one third of the entire market potential, winning them over is critical to the commercial success of the innovation.
Afya Limited is a new firm that entered the smartwatch industry during the growth stage of the industry life cycle. It managed to become one of the top-three smartwatch manufacturers during the shakeout stage due to its low-cost structure. What features should Afya Limited emphasize in its product marketing to ensure it successfully crosses the chasm into the maturity stage? A) advanced capabilities B) the company's outsider status C) sleek and trendy design D) ease of use
D The customer segment associated with the maturity stage of the industry life cycle is known as the late majority. Although members of the early majority are confident in their ability to master the new technology, the late majority is not. They prefer to wait until standards have emerged and are firmly entrenched, so that uncertainty is much reduced. The late majority also prefers to buy from well- established firms with a strong brand image rather than from unknown new ventures. By emphasizing the ease of use associated with Afya Limited smartwatches, the company may attract late majority customers who are uncertain of their ability to use the new technology
LinkedIn, a professional social media website, allows its users to create their profiles for free, but charges a premium price for additional services. This is an example of a ________ business model. A) subscription-based B) peer-to-peer C) crowdsourcing D) freemium
D The freemium (free + premium) business model provides the basic features of a product or service free ofcharge, but charges the user for premium services such as advanced features or add-ons.
The question that business-level strategy answers is ________ the firm will compete. A) when B) where C) who D) how
D The question of "how" to compete relates to what relative position a firm will take - namely, differentiation or cost-leadership
