Question 1

Envelopment is a management strategy where a dominant firm acquires all the layers in its value chain to increase profitability.

Accepted Answer

Envelopment is a strategy where a company expands its product or service offerings to compete directly with competitors' products or services, not necessarily through acquiring all layers in its value chain.

Question 2

Cisco purchased Pure Digital, maker of the Flip video recorder, but ended up shutting the unit down a little over two years later. The reason for Cisco's failure was:
A) Envelopment. Smartphone manufacturers and music players began to offer video recording features, enveloping the benefit provided by Pure's gear in their offerings.
B) Network effects. Late-arriving Cisco could not compete against the dominance of existing, incompatible standards created by early-moving incumbents.
C) The Osbour Effect. Cisco preannounced a product and no one wanted its current offerings.
D) Staying power. Consumers weren't convinced a small firm like Cisco could win in the market.

Accepted Answer

The rise of smartphones and other mobile devices offering built-in video recording capabilities made Pure Digital's Flip video recorder less necessary or appealing to consumers, leading to a decline in sales and ultimately the shutdown of the unit. This is an example of envelopment, where an existing product or service is absorbed by a new or expanding market.

Question 3

Regional anti-trust authorities may consider product bundling by dominant firms to be anticompetitive.

Accepted Answer

Regional anti-trust authorities may view product bundling by dominant firms as a strategy to foreclose competition and stifle innovation, therefore they may consider it anticompetitive.

Question 4

Firms that constantly innovate do so to develop open standards for competitors to become compatible.

Accepted Answer

Firms that constantly innovate may develop open standards, but this is not their primary motivation. Their goal is usually to maintain a competitive advantage and stay ahead of competitors by offering new and improved products or services.

Question 5

Uber and PayPal used similar strategies when trying to jumpstart network effects that were vital in creating their dominance. What did each do?
A) Leveraged viral customer promotions by giving incentives to consumers who helped recruit friends to the servcie.
B) Operated in "Blue Ocean" that, to this day, remains free of competitors
C) Preannoucned their products, discouraging rivals from entering with competing offerings
D) Created services that were backward-compatible with rivals, reducing switching costs for anyone interested inleaving incumbents for their services.

Accepted Answer

Both Uber and PayPal used viral customer promotions, offering incentives to users who referred their friends to the service. This helped to quickly grow their user bases and establish network effects that made it difficult for competitors to catch up.

Question 6

Viral promotion involves:
A) offering rebates and incentives to customers for adopting a product or service.
B) paying celebrities to use a product visibly to lure customers into unwittingly buying the product.
C) emphasizing customer retention and satisfaction, rather than a dominant focus on sales transactions.
D) leveraging a firm's customers to promote a product or service.
E) sending a pre-written set of messages to customers or prospects over time.

Accepted Answer

Viral promotion involves leveraging a firm's customers to promote a product or service. This can be done through social media campaigns, referral programs, or user-generated content. The goal is to create buzz and word-of-mouth marketing to increase brand awareness and drive sales.

Question 7

Which of the following is an example of a measure taken by a firm to encourage the development of complementary goods?
A) Adobe giving away the Acrobat Reader for free
B) Microsoft bundling new products into Windows, Internet Explorer browser, and other offerings
C) The Twitter Fail Whale
D) Apple offering a regular conference and online materials for its software developers, and an online app store where they can sell their products.
E) Nintendo's Wii games targeted at families, women, and older age groups

Accepted Answer

Apple's measures of offering a regular conference and online materials for its software developers, and an online app store where they can sell their products, encourages the development of complementary goods that are compatible with Apple's products.

Question 8

Congestion effects often result when a key resource becomes increasingly scarce with the arrivals of more and more users.

Accepted Answer

Congestion occurs when there is an increase in the number of users utilizing a resource, leading to its scarcity and ensuing negative effects.

Question 9

A Blue Ocean strategy often works best when combined with operational effectiveness.

Accepted Answer

The answer of A Blue Ocean strategy often works best...

Question 10

Startup firms that find new markets attractive but do not yet have products ready for delivery preannounce efforts causing potential adaptors to delay a purchasing decision until the new effort rolls out.

Accepted Answer

The answer of Startup firms that find new markets attractive...

Question 11

Large firms often find new markets attractive, but might not have products ready for delivery. What strategy do such firms use to get potential adopters to delay their purchasing decisions?
A) Preannounce forthcoming efforts
B) Make their new products compatible with the leading standard
C) Spread costs across increasing units of production or in serving multiple customers
D) Give away products for half of a two-sided market to seed the market
E) Leverage customers of their other products to promote a new product

Accepted Answer

Large firms often use preannouncements to create anticipation and buzz around an upcoming product, which can entice potential adopters to delay their purchasing decisions until the product is available. By preannouncing, the firm can also gauge interest in the new product and adjust their production and marketing strategies accordingly.

Question 12

Adobe gives away the Acrobat Reader to build a market for the sale of software that creates Acrobat files. This is an example of:
A) one market attempting to conquer a new market by making it a subset, component, or feature of its primary offering.
B) firms giving away products for half of a two-sided market to seed the market.
C) markets, once considered distinctly separate, beginning to offer similar features and capabilities.
D) firms taking advantage of complementary products developed for a prior generation of technology.
E) firms spreading costs across increasing units of production or in serving multiple customers.

Accepted Answer

Adobe is giving away the Acrobat Reader as a way to seed the market for the sale of software that creates Acrobat files. In this case, the Acrobat Reader is one half of a two-sided market, and by giving it away for free, Adobe is able to build demand for the other half of the market, which is the sale of software that creates Acrobat files. This kind of strategy is common in markets where two complementary products are necessary for there to be any value in either of them individually.

Question 13

Two distinctly separate markets are said to undergo convergence when they:
A) are dominated by a small group of powerful sellers.
B) derive most of their value from two distinct categories of participants.
C) offer products and services designed to target a specific industry.
D) are characterized by many buyers, but a single, dominant seller.
E) begin to offer similar features and capabilities.

Accepted Answer

Convergence happens when two separate markets start to offer similar features and capabilities.

Question 14

Nokia is a cell phone brand that offers digital cameras as part of its cell phone products. It is now in direct competition with camera brands such as Canon and Sony, and has become the world's largest seller of cameras. This is an example of:
A) envelopment.
B) product customization.
C) market diversity.
D) product development.
E) market innovation.

Accepted Answer

Envelopment occurs when a company enters a market with a product that encompasses features of another market, thereby putting it in direct competition with companies in that market. In this case, Nokia, by integrating digital cameras into its cell phones, competes directly with traditional camera brands like Canon and Sony.

Question 15

Worldwide auction leader eBay started operations in Japan just five months after Yahoo! launched its Japanese auction service. But eBay was never able to mount a credible threat and ended up pulling out of the market. This example shows that:
A) online auction markets are characterized by constant shifts in market dominance.
B) market dominance in the global marketplace translates to an equivalent position in national markets.
C) national markets tend to be influenced by factors that are not necessarily localized.
D) it's imperative to move first in markets influenced by network effects.
E) firms should always subsidize initial adoption of their products and make them cheaper than their competitor's products.

Accepted Answer

The example of eBay's failure to establish itself in Japan against Yahoo! highlights the importance of being the first mover in markets where network effects are significant. Network effects mean that the value of a service increases as more people use it, which can create a significant advantage for companies that enter the market early.

Question 16

Microsoft's Live Maps and Virtual Earth 3D was a late entrant to the Internet mapping game. Users had already put in countless hours building resources that meshed with Google Maps and Google Earth. However, by adopting the same keyhole markup language (KML) standard used by Google, any work done by users for Google in KML could be used by Microsoft. What strategy of Microsoft has allowed it to catch up with Google?
A) Making a new market a subset of its main offering
B) Taking advantage of complementary products developed for a prior generation of technology
C) Entering an uncontested, low-profit market instead of competing in saturated, high-profit markets
D) Exchanging technical expertise in one area with another firm to effectively suit resource capabilities
E) Making a new product compatible with the leading standard

Accepted Answer

Microsoft's Live Maps and Virtual Earth 3D caught up with Google Maps and Google Earth by adopting the same keyhole markup language (KML) standard used by Google, allowing any work done by users for Google in KML to be used by Microsoft. This strategy of making a new product compatible with the leading standard enabled Microsoft to catch up with Google.

Question 17

_____ is said to occur when one market attempts to conquer a new market by making it a subset, component, or feature of its primary offering.
A) Acquisition
B) Greenfield investment
C) Envelopment
D) Market leapfrogging
E) Monopolization

Accepted Answer

Envelopment occurs when one market attempts to conquer a new market by making it a subset, component, or feature of its primary offering. This allows the company to integrate the new market into its existing operations and avoid competition with it.

Question 18

Customers who owned Nintendo's 8-bit video game console were unable to play the same games on the firm's new 16-bit Super Nintendo system. There was little incentive for existing Nintendo fans to stick with the firm. In this case, Nintendo's new offering suffered from a lack of:
A) switching costs.
B) backward compatibility.
C) staying power.
D) effective pricing.
E) network effects.

Accepted Answer

The inability to play games from the previous system suggests a lack of backward compatibility, which is a key factor in retaining existing customers when introducing new products.

Question 19

While Sony and Microsoft focused on the graphics and raw processing power favored by hard-core male gamers, Nintendo chose to develop a machine to appeal to families, women, and age groups that normally shunned violent games. The strategy adopted by Nintendo in this example is the _____ strategy.
A) straddling
B) customer engagement
C) Blue Ocean
D) mass customization
E) convergence

Accepted Answer

The strategy adopted by Nintendo in this example is the Blue Ocean strategy, which focuses on creating a new market space with uncontested market space where the competition is irrelevant. Nintendo chose to develop a machine that targeted a new market segment, rather than competing for the same market as Sony and Microsoft. By targeting families, women, and age groups that normally shunned violent games, Nintendo created a new market space with less competition and greater potential for growth.

Question 20

You are at a packed stadium for the big game and you want to upload a photo of your team's touchdown using Instagram. Your mobile phone shows five bars of service, but you still can't access the Internet. This is likely an example of ______.
A) The Osborne Effect
B) Envelopment
C) Network effects
D) Congestion effects

Accepted Answer

The fact that the mobile phone is showing five bars of service but still can't access internet is likely an example of congestion effects. This occurs when there are too many users trying to access the same network at the same time, leading to decreased performance and slower data transfer speeds. In this case, the packed stadium is likely causing congestion on the network, making it difficult to access the internet even with a strong signal.

Quiz 8: Understanding Network Effects: Strategies for Competing in a Platform-Centric, Winner-Take-All World

Envelopment is a management strategy where a dominant firm acquires all the layers in its value chain to increase profitability.

Cisco purchased Pure Digital, maker of the Flip video recorder, but ended up shutting the unit down a little over two years later. The reason for Cisco's failure was:

Regional anti-trust authorities may consider product bundling by dominant firms to be anticompetitive.

Firms that constantly innovate do so to develop open standards for competitors to become compatible.

Uber and PayPal used similar strategies when trying to jumpstart network effects that were vital in creating their dominance. What did each do?

Viral promotion involves:

Which of the following is an example of a measure taken by a firm to encourage the development of complementary goods?

Congestion effects often result when a key resource becomes increasingly scarce with the arrivals of more and more users.

A Blue Ocean strategy often works best when combined with operational effectiveness.

Startup firms that find new markets attractive but do not yet have products ready for delivery preannounce efforts causing potential adaptors to delay a purchasing decision until the new effort rolls out.

Large firms often find new markets attractive, but might not have products ready for delivery. What strategy do such firms use to get potential adopters to delay their purchasing decisions?

Adobe gives away the Acrobat Reader to build a market for the sale of software that creates Acrobat files. This is an example of:

Two distinctly separate markets are said to undergo convergence when they:

Nokia is a cell phone brand that offers digital cameras as part of its cell phone products. It is now in direct competition with camera brands such as Canon and Sony, and has become the world's largest seller of cameras. This is an example of:

Worldwide auction leader eBay started operations in Japan just five months after Yahoo! launched its Japanese auction service. But eBay was never able to mount a credible threat and ended up pulling out of the market. This example shows that:

_____ is said to occur when one market attempts to conquer a new market by making it a subset, component, or feature of its primary offering.

Customers who owned Nintendo's 8-bit video game console were unable to play the same games on the firm's new 16-bit Super Nintendo system. There was little incentive for existing Nintendo fans to stick with the firm. In this case, Nintendo's new offering suffered from a lack of:

While Sony and Microsoft focused on the graphics and raw processing power favored by hard-core male gamers, Nintendo chose to develop a machine to appeal to families, women, and age groups that normally shunned violent games. The strategy adopted by Nintendo in this example is the _____ strategy.

You are at a packed stadium for the big game and you want to upload a photo of your team's touchdown using Instagram. Your mobile phone shows five bars of service, but you still can't access the Internet. This is likely an example of ______.