Deck 10: Differentiation Advantage

Question 1

Because all complex products and services serve multiple customer needs, understanding these needs requires:

A)Multivariate analysis
B)Extensive use of focus groups
C)A multidimensional analysis of all competing products' main attributes
D)Thorough statistical analyses of large customer samples

Answer 1

C

Question 2

Is differentiation costly?

Answer 2

Differentiation has a cost that can be broken down into direct and indirect costs.
Direct costs comprise higher quality inputs, better-trained employees, greater advertising, better processes of control, and better after-sales services.
Indirect costs result from the interaction of differentiation variables and cost variables. Requirements of differentiation may increase costs or limit economies. Thus, economies of scale or learning economies may be wiped out by the need to narrow the scope of a firm's segment or permanently redesign the product.
There are ways to maintain the existence of such economies, for example by postponing differentiation to later stages of the firm's value chain. Modular designs with common components allow economies of scale while maintaining product variety. New manufacturing technologies and the internet have redefined the traditional trade-off between variety and efficiency.
Differentiation has a cost that must be carefully ascertained before the choice of a business level strategy is made.

Question 3

What do Ford, Honda, Indesit, and Matsushita have in common?

A)They illustrate that the growth of international competition has shown the fragility of strategic positions built on low-cost domestic dominance
B)They illustrate the weaknesses of the automobile industry
C)They illustrate the fragility of firms suffering from managerial deficiencies
D)They all have different domestic markets

Answer 3

A

Question 4

Differentiation is a more sustainable source of competitive advantage than cost leadership because:

A)A firm can control the differentiation of its products but cannot control its costs relative to all others, whose costs may suddenly fall
B)Differentiation gives a firm more loyal customers
C)Cost leadership can only ever be an operational issue, while differentiation is a strategic choice
D)Differentiation gives you the richest customers, who can survive any recession

Question 5

How would one associate the following firms with the following attributes? A McDonalds
B Federal Express
C American Express
D BMW
E Apple
1 Reliability
2 Innovation
3 Status
4 Quality
5 Consistency

A)A1, B2, C5, D4, E3
B)A2, B1, C4, D3, E5
C)A5, B1, C3, D4, E2
D)A4, B5, C3, D1, E2

Question 6

The example of a Japanese home appliance company designing a coffee percolator demonstrates:

A)The need to focus on the expectations and desires of customers, not competitors
B)The importance of thorough market research
C)The difficulty of launching a new product
D)The need to explore water quality

Question 7

Does differentiation imply a focus strategy?

Question 8

Which statement is true, regarding the following products and services?

A)Socks, bricks, and nails satisfy simple needs but are expensive
B)Spark plugs, thermometers, and industrial equipment meet rigorous technical standards
C)Airplanes, vacations, automobiles, and shampoos are technically complex and satisfy complex needs
D)Starbucks's coffee, Dell's computers, and Pepsi's bottled water are technically simple and relatively cheap

Question 9

Why is signaling important and how can a firm implement it?

Question 10

Multidimensional scaling enables a firm to:

A)Define customer perceptions of competing products' similarities and dissimilarities
B)Represent customer perceptions graphically
C)Interpret the scaling dimensions in terms of key attributes
D)Objectively quantify how far along each dimension customers perceive a particular product to be

Question 11

Harley Davidson and MTV share:

A)The attribute of lifestyle products for their respective products
B)A critical factor in their differentiation, the ability of customers and employees to identify with one another
C)Both a and b
D)None of the above

Question 12

Hedonic price analysis:

A)Is hard to use because of the sophistication of the tool
B)Graphically represents customers' perceptions of rival products or services
C)Identifies the likely market price for individual product attributes implied by the price for the total product
D)Identifies the underlying attributes of a product or service

Question 13

Can a firm use cost leadership and differentiation simultaneously?

Question 14

Does differentiation imply segmentation?

Question 15

How can the value chain of the firm be useful for analyzing differentiation?

Question 16

Conjoint analysis has been used to:

A)Predict the cannibalization effect between two forthcoming new models of sport cars
B)Predict market shares of forthcoming new models of personal computers
C)Understand seasonal variations in sales
D)Analyze the probability of a match for people in the data base of an online dating firm

Question 17

Why is differentiation valuable?

Question 18

What if differentiation is not known by customers?

Question 19

Frozen TV dinners, wine, and medical services are:

A)Intangible goods
B)Technology-embedded items
C)Experience goods
D)Lifestyle products

Question 20

For both sides of differentiation sources, implementing a successful differentiation requires:

A)Common sense and knowledge of customers' needs
B)A strong commitment from top managers and from the marketing department
C)Strong financial resources for the marketing department
D)A match between the customer's demand for differentiation and a firm's internal ability to supply differentiation

Question 21

The ability to combine internal and external integrity is especially important for:

A)Highly-priced products, where customers' expectations are extremely high
B)Large firms where coordination, control, and integration appear to be a real challenge
C)Small firms that are more prone to failure
D)The so-called "lifestyle" products whose differentiation is based on customers' social and psychological needs

Question 22

Which of the following is not a potential "driver of uniqueness"?

A)Your product's features and performance
B)The quality of your purchased inputs
C)Your organization's structure
D)The skills and experience of your employees

Question 23

The value curve:

A)Maps the performance characteristics of competing products
B)Maps customers' psychological needs
C)Maps different strategic groups
D)Maps customer segments

Question 24

Can differentiation of the product and differentiation of ancillary services be distinguished?

A)Yes
B)No
C)This question does not make sense
D)The customer does not perceive different types of differentiation

Question 25

To get out of the prisoners' dilemma of experience goods:

A)A firm should initially charge a low price then increase it
B)A firm needs a third-party warranty of product quality
C)A firm needs to signal its commitment to the industry and the customer
D)All of the above

Question 26

Harley Davidson demonstrates that differentiating lifestyle products requires:

A)A deep understanding of customers' social and psychological needs
B)Answers A and D
C)The power of tradition and of being the first mover in your market
D)A firm to live its values - e.g. a firm that sells individuality must treat customers and staff as valued individuals

Question 27

Why is the "prisoners' dilemma" a good model of experience goods markets with no signaling of commitments?

A)Because it can be likened to a win-lose game
B)Because this is a two-person game with clearly defined options, as in the prisoners' situation
C)Because the producer cannot communicate true quality at the time of buying and the customer cannot work out true quality until after buying, a low quality solution minimizes risks in this low-trust situation
D)Because both are in a closed situation where they have an obligation to make a deal

Question 28

Product integrity can be defined as:

A)The ability of a product to withstand rough use
B)The consistency of a firm's differentiation
C)The extent to which the product meets ethical standards
D)Both a and b

Question 29

The collapse of Bernard L. Madoff Investment Securities LLC illustrates that:

A)Firms are extremely fragile
B)True performance attributes can be slow to reveal themselves
C)The corporate governance system was a failure
D)Human beings are fundamentally bad

Question 30

The value curve:

A)Is identical to the product life-cycle curve
B)Identifies the sources of variations of the cost for delivering a product or a service over time
C)Describes the evolution of the value of a product or service over time for customers
D)Allows analysts to see the key performance attributes that deliver value to customers, and any gaps in the market

Question 31

Who proposed a theory that human needs progress through a "pyramid" of successive levels of needs?

A)Frederick Herzberg
B)Abraham Maslow
C)Herbert Simon
D)Paul Simon

Question 32

The best way to understand customer demand for a heavily differentiated product is to:

A)Organize heavy market studies
B)Carefully observe customers so that you understand how the product relates to their lifestyles
C)Amass a vast volume of data about consumer behavior from the internet and specialized agencies
D)Ask them directly

Question 33

Ultimately a firm's ability to maintain the integrity of its differentiated products depends on:

A)Total Quality Control
B)The quality of the connections a firm has with its markets
C)Its culture: the ability of its managers and employees to live the values that embody its products' qualities
D)Its ability to remain profitable

Question 34

The decline of European tour operators that organize vacations through bundling different services, can be explained by:

A)The dynamism of US and Asian tour operators that captured their markets
B)Customer preferring to use online systems to provide unbundled services
C)Political crises taking place in different zones of the world
D)Fears linked with terrorism

Question 35

The idea behind product integrity is that.

A)All aspects of a product's impact on a customer must be consistent
B)Differentiation can only be realized on a piecemeal basis
C)External and internal integrity are the 'yin and yang' of successful product differentiation
D)Quality differentiation requires quality marketing

Question 36

As markets mature:

A)Products become more unique
B)Products become commodities and services become non-commodities
C)Systems comprising product and ancillary services tend to bundle
D)Systems comprising product and ancillary services tend to unbundle

Question 37

External product integrity means how well a product's structure and function fit:

A)The customer's use patterns, production system or lifestyle
B)Your firm's use patterns, production system and values
C)Your firm's objectives, values and production system
D)Your employees' objectives, values, lifestyle and self-identity

Question 38

If social and psychological factors play a strong role in customers' needs, then:

A)The implications for differentiation are far reaching
B)Customers' lifestyles, aspirations, and many other factors must be analyzed
C)A firm's senior managers should regularly meet with customers in order to understand how customers currently use and value product attributes
D)All of the above

Question 39

Why is "the degree of vertical integration" one of the drivers of uniqueness?

A)Because it influences the ability of your firm to control processes, and so the final product's quality
B)Because it measures the concentration ratio of the industry
C)Because customers prefer firms that are present at several stages of the value chain of the industry
D)Because you understand your suppliers' problems better

Question 40

The difference between search goods and experience goods is that:

A)The quality of search goods can be evaluated by inspection, whereas experience goods require consumption to ascertain their true quality
B)Search goods need to be found and inspected, whereas experience goods are those you have tried already
C)Search goods are newly launched products, whereas experience products are mature goods, ahead in their product-lifecycle
D)The quality of experience goods can be evaluated by inspection, whereas search goods require consumption to ascertain their true quality

Question 41

When discussing the role of brands as signals of quality and consistency, one can conclude that brands:

A)Act as incentives to provide consistent or high quality
B)Act as disincentives to provide high-quality products
C)Act as signals for high prices
D)Act as incentives for elitism

Question 42

Compared with simple products like flour or toilet paper, sophisticated products like cars or computers offer:

A)Few opportunities for differentiation
B)More potential for differentiation
C)Little profit potential, because of their high costs
D)We do not have enough information to answer the question

Question 43

To use the value chain to identify differentiation opportunities you start by building two value chains for your firm and your customers, and then:

A)Identify competitive strengths in your customers' value chain, and tell them how they could do these activities even better
B)Identify the drivers of uniqueness in your value chain, select pertinent differentiation variables, then build them quickly into your new product or service
C)Build an experience curve, select pertinent signals of quality, select pertinent differentiation variables, and then maximize production volumes
D)Identify and select your uniqueness drivers, and then identify the vital links between your two respective value chains

Question 44

If differentiation is about creating uniqueness, then establishing differentiation requires:

A)Good industry knowledge
B)Creativity
C)A long time
D)Awareness of a firm's existing capabilities

Question 45

The main lesson of differentiation is that:

A)Differentiation is about offering standard high quality product features
B)Differentiation means identifying all possible interactions between the firm and its customer and questioning how these interactions can be modified to deliver greater value to the customer
C)Differentiation means distinguishing between different customers
D)All of the above

Question 46

The two sides of the potential sources of differentiation are:

A)The customers' side and the suppliers' side
B)The demand and the supply sides
C)The customers' and the employees' sides
D)The structural side and the cultural side

Question 47

What are the costs of differentiation?

A)There are no specific costs associated with differentiation
B)Differentiation induces direct and indirect costs
C)Differentiation induces design and marketing costs
D)Both c and d

Question 48

Examples of tangible differentiation attributes include:

A)Size, shape, weight and design
B)Texture, color and taste (if edible)
C)Technology and material
D)All of the above

Question 49

A brand can be seen as

A)A guarantee that reduces search costs
B)An insurance policy that reduces uncertainty about a product's quality
C)Proof that a particular firm produced that product and will take some responsibility if its performance falls short of public expectations
D)All of the above

Question 50

Word-of-mouth marketing is an example of?

A)All of the answers below
B)Viral marketing
C)Stealth marketing
D)Marketing deploying web-based social networks

Question 51

The supply-side and the demand-side of differentiation refer respectively to:

A)A firm's potential to create uniqueness; and customers' needs, values, expectations, and willingness-to-pay
B)A firm's customers' needs, values, expectations, and willingness-to-pay; and its potential to create uniqueness
C)The size and wealth of the market; and the combination of a firm's resources and capabilities
D)All of the above

Question 52

In the case of consumer goods:

A)Value chain concepts are applicable, but with a much smaller probability of success
B)No analytical tools are available
C)Consumers are still involved in a chain of activities from research to consumption, particularly for durable goods, so value chain analysis can still be insightful
D)Forget value chain analysis and use 'coarse marketing' techniques

Question 53

The proliferation of brands for products such as shampoo, toilet paper, and bottled water, shows that:

A)Even the most basic products can be differentiated
B)With online shopping the future for generic 'commodity' products looks bleak; soon all end-consumer products will be differentiated
C)Answers a and b
D)None of the above

Question 54

Starbucks' ability to charge up to $4 for a cup of coffee reflects:

A)The quality of their marketing
B)The quality of their beans
C)The retail environment and sense of customer community they create
D)All of the above

Question 55

What is a differentiation variable?

A)A measure of any aspect of how a firm interacts with its customers
B)A variable that emerges from benchmarking the best rivals in the industry
C)A variable related to physical characteristics of a product
D)A variable related to the intangible characteristics of the customers service

Question 56

Examples of intangible differentiation include:

A)The image of the product
B)Whether the product is a limited edition or individually tailored to a particular customer (a bespoke product)
C)Both of the above (A and B)
D)Both A and B, and the product's safety record

Question 57

Commodities are:

A)Goods which are easy to differentiate
B)Goods in which differentiation is difficult but still possible
C)Goods which are only sold in wholesale markets
D)Goods which are only sold in financial derivatives markets

Question 58

A producer can address the difficulty of assessing an experience of good quality by:

A)Just hoping that customers are willing to take the risk of purchasing with limited information
B)Proving the superiority of its products relative to its rivals' products
C)Signaling its good faith to the customer
D)Signaling quality to the customer

Question 59

A product is differentiated from its rivals when:

A)It provides something valuable and unique to customers
B)It provides goods or services at a lower price
C)It provides high quality
D)None of the above

Question 60

Which of the following industries offers more potential for differentiation?

A)Clothes and restaurants
B)Cement and wheat
C)Jet fuel for airline jets
D)Sulfur and ethylene

Question 61

If key aspects of a firm's successfully differentiated product are copied by 2 or 3 rivals' products, but not the whole industry:

A)We can say this differentiation seems to have been accepted by some customers
B)We can say this differentiated product was an unproven experiment until it was imitated
C)We can say a new market segment has been opened
D)A and C are true

Question 62

To make an IT analogy, you can differentiate either your product's tangible features (the hardware) or the intangible services that come with it (its software)

Question 63

What is the difference between differentiation and segmentation?

A)There is no difference between the two
B)Differentiation deals with "how" a firm chooses to compete, while segmentation describes "where" in the entire market a firm chooses to compete
C)Differentiation is a firm's strategic choice, whereas segmentation is given by its environment
D)Segmentation is the head of the marketing department's responsibility, whereas the CEO is in charge of differentiation

Question 64

Differentiation can be decomposed into the demand side, the supply side, and the integration of them

Question 65

Low cost and differentiation strategies are equally easy to sustain

Question 66

Multidimensional scaling is a statistical technique that can yield a perceptual or product space map like Fig.10.1,which can help you understand customers' multidimensional needs, or perceptions of their needs

Question 67

Complex products have customer needs that require the understanding of many attributes, or 'dimensions', of the product or service

Question 68

Physical characteristics of a product are one of the determinants of its potential for differentiation

Question 69

Segmentation is a strategic choice by a firm while differentiation is a feature of the market.

Question 70

Differentiation means making your product or service unique in some way that customers will pay extra for

Question 71

Product integrity refers to the consistency of a firm's differentiation across all differentiated features - it is the balance of the overall impression left on most customers' minds

Question 72

On the demand side of differentiation the key questions to ask about customers are what motivates them, and what criteria do they choose when selecting products

Question 73

External integrity means how well a firm's objectives, structure, and values fit the customer's objectives, culture and values

Question 74

You can usually ignore social and psychological factors when planning to differentiate a product or service

Question 75

One can synthesize the demand side of differentiation by the following statement: differentiation is based upon the product characteristics that have the potential to create value for customers, customers' willingness to pay for it, and a firm's optimal positioning related to its differentiation

Question 76

"Experience goods" are those which:

A)Have qualities or performance that are difficult to ascertain at the moment of purchase
B)Only customers with previous experience of using these goods would rationally consider purchasing
C)Only firms with wide experience in an industry would rationally consider making
D)Have been produced by the firm furthest down the Learning Curve

Question 77

Differentiation is about understanding every possible interaction between a firm and its products

Question 78

Differentiation deals with "how" a firm competes and the way in which it can offer uniqueness to its customers

Question 79

Hedonic price analysis, conjoint analysis and value curve analysis are three marketing techniques for comparing the relative importance of different attributes or dimensions of a product to customers

Question 80

Tangible differentiation includes the performance of the product - for instance its reliability, durability and taste (for foods) - as well as its shape, color, size etc.