Firms Pursuing A Differentiation Strategy Primarily Seek To

Chapter 6: Questions

BWhen 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.
DWhich 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
CA 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.
DFirms 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.
BWhy 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.
BTrue 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.
CWear 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.
DOrganic 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.
AA 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.
CBoth 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
CBoth 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.
CWhich 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
ALush 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
CBody 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.
AA 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.
CAccuroDisk 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.
CEven 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
DWhich 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
DJuanita 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
BWhen 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
BWhen 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 $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
CDiscountHaven 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.
BWhen 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
CA 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.
ABass Watches Inc. initially spent eight man-hours to assemble a wristwatch. But as the production doubled, the number of hours spent on assembling 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
AWhich 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.
DWhat 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.
AAllure 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.
AAt 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. $6B
BAt 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 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. According to the five forces model, which of the following is viewed as a major risk to a business pursuing a costleadership 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
AA 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.
CWhich of the following 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
BWhich 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.
BPureRinse 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
BAlthough 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.
AWhich 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.
DWhich 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
CWhich 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
DProduct features, customer service, and complements are all examples of important
A. cost curves.
B. cost drivers.
C. value curves.
D. value drivers
CHandy Helper, Inc. produces decent-quality woodworking tools at a mid-range price. Master Tools, Inc. produces highquality
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
DHow 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.
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
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
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.
AA 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.
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.
dHow 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.