Question 1

One reason that the value chain analysis is a valuable tool for cost analysis is that cost drivers tend to be very different between the different activities of the firm.

Accepted Answer

The value chain analysis breaks down a firm's activities into primary and support activities, each of which has its own cost drivers. The analysis identifies where costs are being incurred in each activity and helps management to understand the nature of the cost drivers in each activity. This enables management to focus cost reduction efforts on areas where the biggest cost savings can be made. Therefore, it is true that cost drivers tend to be very different between the different activities of the firm.

Question 2

The principal distinction between segmentation and differentiation is that segmentation is a strategic choice by a firm while differentiation is a feature of market structure.

Accepted Answer

The statement is false. Segmentation and differentiation are both strategic choices made by firms to achieve a competitive advantage. Segmentation is the process of dividing a larger market into smaller groups of consumers with similar needs or characteristics, while differentiation is the process of creating a unique product or service that stands out from competitors in the market.

Question 3

Designing a differentiation strategy requires understanding every possible interaction between a firm and its customers

Accepted Answer

To design a differentiation strategy, a firm needs to thoroughly understand and analyze its customers' needs, preferences, and behaviors. This requires examining every possible interaction between the firm and its customers, from marketing and sales to product design and customer service. Only with this comprehensive understanding can a firm develop a differentiation strategy that effectively sets it apart from its competitors and provides unique value to its customers.

Question 4

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

Accepted Answer

Product integrity refers to the consistency of a firm's differentiation across all differentiated features and how it creates an overall impression on customers.

Question 5

To understand customer' willingness to pay for differentiation,it is important to know what motivates customers,and the criteria they apply when choosing among competing products.

Accepted Answer

It is important to understand customer motivations and criteria for choosing products in order to determine their willingness to pay for differentiation.

Question 6

Tangible differentiation comprises observable product features such as shape,color,size,and style;it does not include performance dimensions such of the product - for instance its reliability and durability.

Accepted Answer

Tangible differentiation includes both observable product features like shape, color, size, and style, as well as performance dimensions such as the product's reliability and durability.

Question 7

When an industry is subject to externally generated changes,the firms which are most likely to establish a competitive advantage are:

Accepted Answer

Having a high market share does not necessarily mean that a firm will be able to adapt to externally generated changes. The firms that respond quickly and have resources and capabilities aligned with emerging success factors are more likely to establish a competitive advantage. Also, agility and capacity for innovation are essential for success in dynamically changing industries. Therefore, option (B) is the most suitable choice.

Question 8

Achieving productivity gains from process innovation usually requires that new production processes are matched by other management changes-including changes in human resource management.

Accepted Answer

Process innovation alone may not be sufficient to achieve productivity gains. Other management changes, such as changes in human resource management, may also be necessary to fully realize the benefits of the new processes.

Question 9

Competitive advantage can be defined as:

Accepted Answer

Competitive advantage is the ability of a firm to generate higher profits or achieve greater market share than its competitors. Option C defines competitive advantage as a firm's potential to earn a rate of profit that is persistently higher than its rivals, which accurately describes the key concept of competitive advantage. Options A, B, and D may contribute to a firm's competitive advantage, but they do not fully capture the essence of the term.

Question 10

Cost and differentiation strategies are similar in terms of their potential to confer sustainable competitive advantage.

Accepted Answer

Cost and differentiation strategies differ fundamentally in how they achieve competitive advantage: cost leadership focuses on becoming the lowest cost producer, while differentiation seeks to provide unique value that allows for premium pricing. Their sustainability depends on different factors such as the ability to continuously lower costs or innovate.

Question 11

The predominance of large companies in most manufacturing industries is mainly the result of economies of scale.

Accepted Answer

Economies of scale refer to the cost advantages that come with increased production, which large companies can achieve more easily than smaller ones. As a result, they are often able to produce goods more efficiently and at a lower cost, giving them a competitive advantage in the marketplace. This often results in smaller companies being unable to compete effectively and being forced out of the market, leading to the predominance of large companies in many industries.

Question 12

In highly concentrated industries such as passenger jet aircraft,microprocessors,construction equipment,and video game consoles,the scale economies in production are more important than scake economies in product developmnet.

Accepted Answer

In industries like passenger jet aircraft, microprocessors, construction equipment, and video game consoles, scale economies in product development are often more important than in production because the initial costs of research, design, and development are very high, but can be spread over many units sold.

Question 13

29,Commodity products lack the potential for differentiation: competitive strategy is limited to exploiting the sources of cost advantage.

Accepted Answer

Commodity products can still be differentiated through branding, quality, service, and supply chain efficiencies, allowing companies to develop competitive strategies beyond just cost leadership.

Question 14

The potential for spreading fixed costs over a greater volume of output means that unit cost continues to decline even after full capacity utilization has been reached.

Accepted Answer

Once full capacity utilization is reached, spreading fixed costs over a greater volume of output is no longer possible without increasing capacity, so unit cost will not continue to decline and may actually increase due to the costs associated with overutilization or the need for expansion.

Question 15

Physical characteristics of a product are of little importance in determining its potential for differentiation

Accepted Answer

Physical characteristics such as design, packaging, quality, and features can all contribute to a product's potential for differentiation in the market. These factors can make a product stand out from competitors and appeal to specific target audiences.

Question 16

A firm's competitive advantage is not necessarily revealed in higher profitability;it may be reflected in:

Accepted Answer

A firm's competitive advantage can manifest in various ways beyond just profitability. Expanding market share indicates a firm is outperforming competitors in attracting customers, while increasing employee bonuses can reflect a strategy to retain top talent, which contributes to maintaining or enhancing competitive advantage.

Question 17

A basic principle of Business Process Reengineering is that dramatic improvements in cost efficiency are better achieved through incremental improvements rather than fundamental redesign.

Accepted Answer

The statement is false. Business Process Reengineering involves fundamental redesign of business processes to achieve dramatic improvements in cost efficiency, rather than incremental improvements.

Question 18

Business Process Reengineering that starts with a "clean sheet of paper" runs the risk of destroying some valuable organizational capabilities which have taken many years to build

Accepted Answer

Starting with a "clean sheet of paper" in Business Process Reengineering means completely rethinking and redesigning processes from scratch, which can lead to the elimination of some existing organizational capabilities that may still have value. This is why it is important to carefully consider the potential risks and benefits of such an approach before implementing it.

Question 19

Achieving a differentiation means making your offering unique in a way that makes it more valuable to customers,irrespective of the costs of creating that differentiation.

Accepted Answer

Differentiation does indeed aim to make an offering unique and more valuable to customers, but it must also consider the costs of creating that differentiation. If the costs outweigh the perceived value to customers, the differentiation strategy may not be sustainable or profitable.

Question 20

The difference between "search goods" and "experience goods" depends upon whether customers can ascertain the product's true attributes: on inspection or only after consuming the product

Accepted Answer

The statement is true. Search goods are products whose attributes can be easily evaluated by customers before purchase, such as clothing or electronics. On the other hand, experience goods have attributes that can only be evaluated after purchase or consumption, such as restaurant meals or vacation packages.

Quiz 7: A : The Sources and Dimensions of Competitive Advantage