Deck 6: Business Strategy: Differentiation, Cost Leadership, and Integration

Question 1

Cost drivers that are out of managerial control include the cost of input factors,economies of scale,and experience-curve effects.

Answer 1

False
Explanation: The cost of input factors, economies of scale, and experience-curve effects can all be manipulated by managers.

Question 2

The two primary competitive levers that managers can use in order to answer the question of how to compete are:

A) Cost and core competencies.
B) Value and cost.
C) Value and core competencies.
D) Cost and revenues.

Answer 2

B
Explanation: The two primary competitive levers are value and cost.

Question 3

The opening case of Chapter 6 highlights the business-level strategy of Whole Foods.All of the following are part of this strategy EXCEPT:

A) Adopting a new strategic intent to become the champion of healthy eating.
B) Reducing costs through initiatives such as expanding its private-label offerings.
C) Emphasizing its organic food offerings as the tool to compete on price.
D) Improving its logistics system in order to improve efficiencies.

Answer 3

C
Explanation: Whole Foods is no longer able to use organic food offerings as a primary tool for differentiation because many other grocers now have organic food as well.

Question 4

A firm's business-level strategy answers the question "Where should we compete?"

Question 5

In order for a firm to formulate an effective business-level strategy,it is important to remember that competitive advantage is determined by:

A) The characteristics of the industry in which a firm competes.
B) The characteristics of the firm itself.
C) The characteristics of both the industry and the firm.
D) The absolute positioning of the firm.

Question 6

Value drivers are considered to contribute to competitive advantage even if the increase in cost exceeds their value creation.

Question 7

All of the following are questions that managers answer when selecting a business-level strategy EXCEPT:

A) Who will we serve?
B) How many product markets will we be in?
C) What customer needs and desires will we satisfy?
D) Why do we want to satisfy these needs?

Question 8

A firm that is "stuck in the middle" has a competitive advantage.

Question 9

Value drivers that managers can use include input factors,economies of scale,and learning-curve effects.

Question 10

Economies of scale generally weaken a firm's ability to move down a given learning curve.

Question 11

When the CEO of Whole Foods,John Mackey,had to make decisions about the company's cost structure and value position he was:

A) Making strategic trade-offs.
B) Conducting a strategic group map evaluation.
C) Trying to improve the firm's economies of scope.
D) Leveraging the low-cost position of the company.

Question 12

As shown in the Chapter 6 opening case,Whole Foods Market had to seek new strategic initiatives such as enhancing its differentiated appeal and improving its cost structure because it was losing its competitive advantage.

Question 13

A firm's strategic position is:

A) Determined by its business-level strategy.
B) Created through strategic trade-offs.
C) An attempt to create a large gap between value creation and costs.
D) All of these.

Question 14

Applying the five forces model to business-level strategy allows managers to assess the benefits and risks of both cost-leadership and differentiation strategies.

Question 15

When pursuing a cost-leadership strategy,the focus of competition is on cost parity,while offering acceptable value.

Question 16

When pursing a differentiation strategy,the focus of competition is to add unique features in order to create a level of value creation that competitors cannot easily imitate.

Question 17

Succeeding at an integration strategy is typically easy for a firm.

Question 18

Due to the dynamic nature of business competition,a firm's strategic position should remain fixed over time.

Question 19

The goal of a strategic position is to create the largest gap possible between the value that a firm creates through its offerings and the cost required to create these offerings.

Question 20

Successfully implementing an integration strategy is particularly important in globalized industries.

Question 21

The ___________ is the difference between value creation and cost.

A) Profit gap
B) Net profit
C) Value gap
D) Revenue gap

Question 22

Combining the dimensions of a firm's __________ and __________ tells us which generic business strategy the firm will pursue.

A) Economies of scope; economies of scale
B) Five forces; economies of scope
C) Scope of competition; core capabilities
D) Strategic position; scope of competition

Question 23

Higher product value tends to go along with which of the following items?

A) Higher prices
B) A higher willingness to pay
C) Higher costs
D) All of these

Question 24

___________ and ____________ are the two focused generic business strategies.

A) Focused differentiation; focused low-cost
B) Integration; focused low-cost
C) Integration; focused differentiation
D) Cost leadership; differentiation

Question 25

_________ and __________ are two of the value drivers that managers can utilize when trying to improve a firm's differentiation strategic position.

A) Co-opetition; complements
B) Learning-curve effects; co-opetition
C) Customer service; complements
D) Economies of scale; co-opetition

Question 26

When the focus of competition is on differentiation,a firm tends to use all of these levers EXCEPT:

A) New product launches.
B) Cost input factors.
C) Marketing and promotion.
D) Unique product features.

Question 27

A firm's strategic position reflects:

A) Whether it is competing on differentiation or cost.
B) Whether it is competing within a targeted strategic group or not.
C) Whether is has a competitive advantage or not.
D) Whether it has first-mover advantages or not.

Question 28

Rolex focuses on a small market segment,affluent consumers who want to present a certain image.What is the appropriate name for Rolex's scope of competition?

A) Broad
B) Market segmented
C) Narrow
D) Targeted

Question 29

When a firm is able to achieve higher economic value creation than its competition through differentiation,the competitive advantage is reflected by:

A) The firm's ability to move into a new strategic group.
B) The firm's ability to charge higher prices.
C) The firm's ability to charge lower prices.
D) The firm's ability to leverage complements.

Question 30

Interface is a leader in sustainable and innovative carpeting,as evidenced by its Cool Carpet product,the world's first carbon-neutral floor covering.Its product is unique and has appealing customer attributes.If Interface raw material costs increased by 12% this year,what would be the likely outcome?

A) Interface would lower profit margins to absorb this cost increase.
B) The company would launch an all-out effort to reduce other costs by 12%.
C) Interface would pass a major portion of this increase along as a price increase to its customers.
D) Interface would seek to find other materials with lower costs, even if it meant losing the carbon-neutral label on the product.

Question 31

A generic business strategy is more likely to help a cost-leadership firm achieve competitive advantage when it does which one of the following?

A) Allows a firm to perform similar activities differently than its rivals with resulting lower costs
B) Allows a firm to perform different activities than its rivals with greater value creation
C) Allows a firm to perform similar activities than its rivals with greater costs or lower value creation
D) Helps a firm create as large a gap as possible between the differential value created and the cost required

Question 32

The fact that both Rolex and Timex have a competitive advantage selling wristwatches is an indication that:

A) Following a different generic business strategy within the same industry can lead to a competitive advantage for more than one organization.
B) Following the same generic business strategy can allow for two firms competing in the same industry to have a competitive advantage at the same time.
C) In order to evaluate whether Rolex has a sustained competitive advantage it is useful to compare it to Timex from a cost perspective.
D) In order to evaluate whether Timex has a sustained competitive advantage, it is useful to compare it to Rolex from a differentiation perspective.

Question 33

OXO differentiates kitchen utensils by using a patent-protected,ergonomically designed rubber grip.By adding unique product features,OXO can:

A) Turn differentiated products into standardized products with price parity.
B) Turn differentiated products into standardized products with price disadvantages.
C) Turn commodity products into differentiated products with price disadvantages.
D) Turn commodity products into differentiated products with premium pricing.

Question 34

When management decides whether to pursue a broad market position or a narrow market position,they are defining the:

A) Economies of scale.
B) Economies of scope.
C) Scope of competition.
D) Scope of core capabilities.

Question 35

Tesla Motors,maker of electric cars,is an example of a firm using what type of generic business strategy?

A) broad low-cost
B) focused differentiation
C) focused low-cost
D) broad differentiation

Question 36

Generic business-level strategies that a firm can adopt include all of the following EXCEPT:

A) Focused cost-leadership strategy.
B) Focused differentiation strategy.
C) Market differentiation strategy.
D) Broad cost-leadership strategy.

Question 37

Value drivers are tools that help managers:

A) Increase perceived value and decrease costs.
B) Improve value chain activities and increase costs.
C) Achieve a low-cost position and maintain perceived value.
D) Achieve cost parity and maintain perceived value.

Question 38

_____ drivers are as important to a differentiation strategy as ________ drivers are to a cost-leadership strategy.

A) Scope; quality
B) Quality; learning
C) Value; cost
D) Learning; experience

Question 39

A company that uses a differentiation strategy achieves a competitive advantage as long as:

A) The economic value that the firm creates is equal to that of the competition.
B) The economic value that the firm creates is greater than that of the competition.
C) The economic value that is created is less than that of the competition.
D) The economic value that is created is dependent on strategic parity.

Question 40

When a firm offers products with unique features and higher value for customers than that of the competition,it is implementing a:

A) Product-broad strategy.
B) Differentiation strategy.
C) Cost-leadership strategy.
D) Product-focused strategy.

Question 41

When costs per unit fall as output increases,_________________ occur.

A) Economies of scope
B) Diseconomies of scale
C) Economies of efficiency
D) Economies of scale

Question 42

A low-cost leader optimizes all of its ___________ in order to achieve a low-cost position.

A) Five forces activities
B) Strategic group activities
C) Value chain activities
D) Economic chain activities

Question 43

When a business drives costs down as its cumulative output increases,it is referred to as:

A) A learning curve.
B) An output curve.
C) A demand curve.
D) A distribution curve.

Question 44

Achieving economies of scale is an important cost driver for certain low-cost leaders.However,there is a saying that "sometimes bigger is worse" because at some point costs increase as output increases.This is referred to as:

A) External economies
B) Diseconomies of scale
C) Economic inefficiencies
D) Integration diseconomies

Question 45

When pursuing a cost-leadership strategy,a business must remember that:

A) Buyers will be reluctant to pay for a product unless the quality is acceptable.
B) Buyers will be reluctant to pay for a product unless the quality is superior.
C) Buyers will be reluctant to pay for the product unless it is customized.
D) Product quality is more important in a broad market than in a narrow one.

Question 46

Achieving differentiation parity can be difficult for a cost leader firm because:

A) Creating value generally means higher costs.
B) Achieving parity in the market is always hard.
C) Cost leaders typically add too much value to their products.
D) Value chain activities should not be altered.

Question 47

In 2010,Levi Strauss & Co introduced a new line of jeans called Levi's Curve ID.Levi's launched this product based on research that found that 80 percent of women fall into three distinct body shapes.Customers can now go to Levi's website and use a product configurator in order to determine their "Curve ID" and purchase jeans most appropriate for their body type.Levi's is using what tool to improve their strategic position?

A) A product differentiation strategy with complements as a value driver.
B) A product differentiation strategy with customization as a value driver.
C) A focused cost leadership with economies of scale as a cost driver.
D) A focused cost leadership with economies of learning as a cost driver.

Question 48

A company that uses a cost-leadership strategy achieves a competitive advantage as long as:

A) The economic value that is created is less than that of the competition.
B) The economic value that the firm creates is equal to that of the competition.
C) The economic value that the firm creates is greater than that of the competition.
D) The economic value that is created is dependent on strategic parity.

Question 49

There are several cost drivers that can be managed in order to establish a low-cost leadership advantage.One of the basic cost drivers is:

A) Access to unique features that turn commodities into differentiated products.
B) Access to lower-cost input factors including raw materials and labor.
C) Creating personalized customer service in order to minimize price-sensitivity.
D) Shifting to small-scale production processes in order to create customized products.

Question 50

A low-cost firm can still gain a competitive advantage even without differentiation parity as long as:

A) Its differentiation appeal is in parity with the competition.
B) Its costs are higher than the competition.
C) Its economic value creation exceeds that of the competition.
D) Its economic value creation is the same as the competition.

Question 51

Spreading fixed costs over larger output,employing specialized systems and equipment,and ________________ are three primary ways that achieving economies of scale can help a business.

A) Increasing capital investments in input factors
B) Producing two or more outputs using common resources
C) Taking advantage of certain physical properties
D) Spreading marginal costs over smaller units

Question 52

When competing on the basis of low-cost leadership,a primary objective is to:

A) Lower manufacturing costs.
B) Lower production costs.
C) Lower supplier costs.
D) Lower overall costs.

Question 53

In Strategy Highlight 6.2,Ryanair is aggressively pursuing a cost-leadership position in Europe.Which of the following cost drivers are primarily used by Ryanair in the text?

A) Economies of scale
B) Cost of input factors
C) Experience-curve effects
D) Learning-curve effects

Question 54

Achieving differentiation parity along with lower costs is important to a low-cost leader because:

A) The firm is then able to target a less price-sensitive customer market.
B) Creating the same value as the competition, combined with lower costs, gives the firm a competitive advantage.
C) The firm is then able to incorporate differentiating features that cause buyers to prefer its products.
D) All of these.

Question 55

GM and Hyundai offer certain car models that directly compete with each other.Hyundai is able to produce their models at a lower cost while providing similar value at the same time.It can be said that:

A) GM and Hyundai have both achieved differentiation parity and competitive advantages.
B) GM has achieved differentiation parity and a competitive advantage over Hyundai.
C) Hyundai has achieved differentiation parity and a competitive advantage over GM.
D) Neither GM nor Hyundai have achieved differentiation parity since they are not in the same strategic group.

Question 56

All of the following are tools typically used to achieve cost-leadership EXCEPT:

A) Controlling the cost of inputs.
B) Leveraging economies of scale.
C) Offering products that have superior value.
D) Learning by doing.

Question 57

Between 2007 and 2009,Microsoft spent close to $25 billion on R&D,the majority of which went to its new Windows 7 operating system.These costs were fixed.However,after Windows 7 hit the market,the marginal costs were basically zero.Since Microsoft expects to sell several hundred million copies of Windows 7,it can be said that:

A) Microsoft has a competitive advantage because it has already spent the capital required for its new offering.
B) Microsoft has a competitive advantage because it will be able to drive down per-unit costs of Windows 7 with each additional copy it sells.
C) Since Microsoft will sell so many units of Windows 7, it has attained competitive parity within its strategic group.
D) Microsoft will be at a competitive disadvantage unless it exceeds its sales forecasts because its marginal costs will change.

Question 58

One of the reasons that big box retailers like Home Depot are able to achieve economies of scale is that:

A) They have both broad and narrow economies of scope.
B) They are able to take advantage of physical properties and maximize their scale efficiencies by stocking more merchandise and handling inventory more efficiently.
C) They are able to take advantage of market size and spread investment losses over many locations.
D) They have been able to protect themselves from the threat of buyer power by increasing input prices.

Question 59

The concept of differentiation parity is important in low-cost leadership.A cost leader can gain a competitive advantage when it has lower costs than the competition AND has achieved differentiation parity.What is differentiation parity?

A) Creating value that is lower than the competition.
B) Creating value that is higher than the competition.
C) Creating the same value as the competition.
D) Creating products that are highly differentiated relative to the competition.

Question 60

Strategy Highlight 6.1 discusses Toyota's recall challenges with its Lexus brand.All of the following are true EXCEPT:

A) Toyota used the value driver of customer service when it called each owner individually for recommended repairs.
B) By exceeding customer expectations, Toyota turned a serious threat into an opportunity by establishing brand reputation for superior customer service.
C) Toyota's customer responsiveness enabled the firm to influence early adopters who became opinion leaders for influencing others to purchase a Lexus.
D) Since the Lexus recall of the 1990s, Toyota leveraged firm experience effects and has successfully maintained quality leadership in the automobile industry with no major challenges.

Question 61

Avon has been able to raise the perceived value of its products while lowering production costs.It has also been able to create more value in relationship to its costs over rivals Revlon and L'Oreal.It can be said that:

A) Avon has successfully moved from a differentiation to a cost-leadership strategy.
B) Avon has a competitive advantage because it has the features customers value most in the cosmetics industry.
C) Avon has successfully achieved an integration strategy and has a competitive advantage because it has higher value creation.
D) Avon is the low cost leader of the cosmetics industry with their "sell at home" sales approach.

Question 62

There are two generic strategic positions that require managers to make trade-offs between,in order to achieve success at an integration strategy.They are:

A) Service-oriented and low cost.
B) Product-oriented and high cost.
C) High cost and commodity.
D) Low cost and differentiation.

Question 63

Learning curves were first used by aircraft manufacturers in the 1930s.Companies found a predictable relationship between increasing production output and cost per unit.What does it mean for a firm to have an 80% learning curve?

A) Every time the cumulative output increases by 80%, the cost per unit will decrease by 20%.
B) Every time the cumulative output is doubled, the cost per unit will decline by 80%.
C) Every time the cumulative output goes up 20%, the cost per unit will decline by 80%.
D) Every time the cumulative output is doubled, the cost per unit will decline by 20%.

Question 64

Under the five forces model,a risk to a business with a cost-leadership strategy is:

A) Competition switches from customer service to pricing.
B) When technological innovations open up cost reductions for substitutes or competitors.
C) New entrants are all start-up firms with low volumes.
D) Suppliers request a 2% price increase across the industry.

Question 65

Experience curves attempt to capture both _______________ and learning effects.

A) Customization
B) Economies of scale
C) Economies of scope
D) Competitive position

Question 66

When pursuing an integration strategy,managers use levers to help them simultaneously increase perceived value and lower costs.Which of the following is NOT one of these levers?

A) Quality
B) Complements
C) Economies of scope
D) Structure, culture, and routines

Question 67

Buy Us is a big box retailer who is in direct competition with Walmart and Target.Buy Us initially tried to respond to Walmart by cutting its prices and reducing costs.Walmart has greater buying power and a more efficient supply chain,therefore Buy Us was not able to compete on costs.The company then tried to differentiate itself by signing a celebrity to create an in-house line of clothing.However,Target has a celebrity clothing line that has a more differentiated appeal.The economic value created by Buy Us is currently less than Target and Walmart.It can be said that:

A) Buy Us is successful in creating an integration strategy positioned between Walmart and Target.
B) Buy Us is "stuck in the middle" and has a competitive disadvantage.
C) Buy Us is still creating an integration strategy positioned between Walmart and Target and is on the right track. It should continue this business strategy.
D) Buy Us is "stuck in the middle" and has a competitive advantage.

Question 68

When it comes to pursuing an integration strategy,managers manipulate both _____ and ________ drivers.

A) Cost; value
B) Cost; core capability
C) Value; core capability
D) Market; economic

Question 69

A firm's structure,culture,and routines are very important when pursuing an integration strategy because organizations have to control costs and allow for creativity that can lead to differentiation.Therefore,managers should try to build an organization that is _________.

A) Hierarchical
B) Bureaucratic
C) Ambidextrous
D) Dynamic

Question 70

One of the risks of pursuing an integration strategy is:

A) That a firm could lose sight of its mission.
B) That this strategy is easy for rivals to imitate.
C) That the firm may get "stuck in the middle."
D) That it is ineffective when competing on a global scale.

Question 71

Under the five forces model,a differentiation strategy works best when:

A) The firm has intangible resources, supplier cost increases can be passed on to the customer, and equivalent substitutes are readily available.
B) The firm has tangible resources, supplier cost increases can be passed on to the customer, and equivalent substitutes are readily available.
C) The firm has tangible resources, supplier cost increases can be passed on to the customer, and the differentiation appeal creates customer loyalty.
D) The firm has intangible resources, supplier cost increases can be passed on to the customer, and the differentiation appeal creates customer loyalty.

Question 72

_________ is when a firm is searching for new knowledge that could enhance future performance.

A) Boundary spanning
B) Channel communication
C) Exploitation
D) Exploration

Question 73

When a firm applies its current knowledge in order to enhance short-term performance,it is using _________.

A) Exploitation
B) Learning-curve effects
C) Economies of scope
D) Strategic trade-offs

Question 74

An integration strategy differs from a low-cost strategy in that:

A) The intent of an integration strategy is not to be the absolute lowest-cost provider because of the added costs of increased value in its products/service.
B) A successful integration strategy requires that the business be the lowest-cost provider in order to drive higher value creation than the competition.
C) Economy of scale is more important to an integrator, while economy of scope is more important to a low-cost strategy.
D) An integration strategy requires first that the business be stuck in the middle, while a low-cost strategy avoids this condition.

Question 75

Relative to the five-forces model,a low-cost strategy is beneficial when:

A) Competition is based on product features, suppliers may increase costs, and buyers have bargaining power.
B) Competition is based on product features, suppliers have very limited power, and buyers have bargaining power.
C) Price competition is vigorous, suppliers may increase costs, and buyers have bargaining power.
D) Price competition is vigorous, suppliers have very limited power, and buyers have bargaining power.

Question 76

Essentially,a successful integration strategy:

A) Gives customers more perceived value while exceeding their price expectation.
B) Allows a firm to make strategic trade-offs effectively.
C) Enables a firm to increase value creation while keeping costs in check.
D) All of these.

Question 77

Innovation is important when pursuing an integration strategy because:

A) It helps a firm resolve existing trade-offs between price and quality.
B) Without innovation a firm can get "stuck in the middle."
C) Innovation is the most important component regardless of strategy.
D) It is the only way that a firm can improve its value chain activities.

Question 78

Under the five forces model,a risk to a firm with a differentiation strategy is:

A) When the focus of competition switches to price rather than features and new acceptable levels of quality have emerged due to innovation.
B) When the focus of competition switches to price rather than features and the substitute products are considered below acceptable levels of quality.
C) When the focus of competition switches to features rather than price, the substitute products are considered below acceptable levels of quality.
D) When the focus of competition switches to features rather than price and new acceptable levels of quality have emerged due to innovation.

Question 79

When pursuing a differentiation strategy,a firm must remember that:

A) Buyers will be willing to pay for value that is not perceived.
B) Buyers will be reluctant to pay for value that is not perceived.
C) Perceived value is not as important as the price of the product.
D) Perceived value is more important in a broad market than in a narrow one.

Question 80

When a firm is able to successfully employ an integration 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.