Chapter 6 quiz

While Cadzia Electronics Inc. incurs $450 to manufacture a laptop, its competitor, Virtue Electronics Inc., incurs $400. However, laptops of both the companies have been able to create the same value among customers. From the given scenario, it can be inferred that

A) Virtue Electronics can charge a higher price for its laptops
B) Virtue Electronics and Cadzia Electronics share a differentiation parity
C) Cadzia Electronics has a competitive advantage over Virtue Electronics
D) Cadzia Electronics is a cost leader when compared to Virtue Electronics

B) Virtue Electronics and Cadzia Electronics share a differentiation parity

A firm that follows the differentiation strategy is protected from the threat of new entrants primarily due to its

A) Low cost per unit
B) Low pricing
C) Reputation for quality
D) Diseconomies of scale

C) Reputation for quality

In a focused differentiation strategy, a firm seeks to

A) deliver products or services with unique features to a specific, narrow part of the market.
B) offer low-priced products and services with a narrow focus on a niche market.
C) focus on reducing the value gap to differentiate itself from the competitors.
D) create higher customer value than the competitors in different segments of a mass market.

A) deliver products or services with unique features to a specific, narrow part of the market.

ElectroScape Inc. and BestDigital Inc are two competitors in the consumer electronics market. The cost incurred by each company to manufacture laptops is $400 per unit. Although both the companies sell their laptops at the same price, ElectroScape has a larger market share in the laptop industry. What does this imply?

A) BestDigital has created a higher value gap than ElectroScape
B) ElectroScape has been able to offer more perceived value than BestDigital
C) ElectroScape has a cost advantage over BestDigital
D) BestDigital has a competitive advantage over ElectroScape

B) ElectroScape has been able to offer more perceived value than BestDigital

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

A) shifting to small-scale production processes in order to create highly customized products.
B) combining experience-based learning and process innovation to move onto a steeper learning curve.
C) adding unique features that turn standard commodities into differentiated products.
D) creating personalized customer service in order to minimize price sensitivity among customers.

B) Combining experience-based learning and process innovation to move onto a steeper learning curve

Good Earth Coffee Inc. is a premium cafe that is reputed for its superior customer service. The coffee shop also serves gourmet food to its customers, which allows it to charge a premium price. Coffee Basics Inc., in contrast, is a chain of coffee shops that charges the lowest price in the industry due to its self-service policy. However, Coffee Crazy Inc. has found a balance between these two strategic groups by offering acceptable levels of customer service at a price slightly above that of Coffee Basics. In this scenario, Coffee Crazy is following a

A) Product diversification strategy
B) Market penetration strategy
C) Liquidation strategy
D) Blue Ocean strategy

D) Blue Ocean strategy

Which of the following statements accurately brings out the difference between economies of scale and learning effects?
A) Economies of scale reduce cost per unit, whereas learning effects increase cost per unit.
B) While there are no diseconomies to scale, there are diseconomies to learning.
C) Firms experience economies of scale when output increases, and they experience learning effects when output decreases.
D) Learning effects occur over time, whereas economies of scale are captured at one point in time when output is increased.

D) Learning effects occur over time, whereas economies of scale are captured at one point in time when output is increased

Dr. Shetty is able to drive down the cost of complex medical procedures from $100,000 to $2,000 not by doing one big thing, but rather on doing a thousand small things. This approach focuses on driving down the cost of healthcare through

A) Process innovation
B) Product innovation
C) Value of input factors
D) Cost of input factors

A) Process innovation

An experience curve attempts to capture both:

A) Network effects and diseconomies of scale
B) Time compression diseconomies and mass customizations
C) Economies of scope and network effects
D) Learning effects and process improvements

D) Learning effects and process improvements

When a Blue Ocean strategy is successfully formulated and implemented, investments in differentiation and low costs are not

A) Value drivers but cost drivers
B) Complements but substitutes
C) Cost drivers but value drivers
D) Substitutes but complements

D) Substitutes but complements

The viability of a differentiation strategy is severely undermined when the

A) Focus of competition shifts to value-creating features rather than price
B) Differentiated products become commoditized throughout the industry
C) Difference between perceived value and costs is significant
D) Differential appeal is based more on intangible resources than tangible resources

B) Differentiated products become commoditized throughout the industry

All of the following are tools primarily used to achieve cost-leadership except:

A) Learning by doing
B) Leveraging economies of scale
C) Offering products at a premium price
D) Controlling the cost of inputs

C) Offering products at a premium price

Firms pursuing a cost-leadership strategy seek to

A) keep their cost structures at the same or similar levels as that of the competitors.
B) gain competitive advantage by reducing the value gap.
C) deliver products or services at a lower cost than competitors.
D) create higher value for customers and offer premium pricing.

C) deliver products or services at a lower cost than competitors.

Costs being equal, when a firm has a higher value gap than its competitor, it can be inferred that the firm:

A) Has lost its competitive advantage to its competitor
B) Can charge a premium price for its products and services
C) Can adopt a cost-leadership strategy
D) Has achieved a competitive parity in its chosen industry

B) Can charge a premium price for its products and services

A Blue Ocean strategy typically allows a firm to:

A) Provide unique product or service features at a premium price
B) Add product features that raise costs without raising the perceived value
C) Offer a differentiated product or service at low cost
D) Reduce the value gap created by their products

C) Offer a differentiated product or service at low cost

In the _____, firms change the underlying technology while holding cumulative output constant.

A) Learning curve
B) Maximum efficient scale
C) Experience curve
D) Minimum efficient scare

C) Experience curve

There exist important trade-offs between value creation and low cost because value creation and cost tend to be

A) Negatively correlated
B) Positively correlated
C) Independent of each other
D) Inversely related

B) Positively correlated

ItsHere.com has successfully created a higher perceived value in the e-commerce industry though it offers the same products at slightly higher prices than the competitors. This has been mainly attributed to the company’s easy-to-navigate website, simple return procedures, fast delivery, and cash on delivery option. Thus, the value driver for ItsHere.com is its

A) Superior customer service
B) Lower value gap
C) Economies of scale
D) Availability of complements

A) Superior customer service

As differentiation and cost leadership are distinct strategic positions that require important trade-offs, it is

A) Quite difficult to translate a Blue Ocean strategy into reality
B) Best for firms to avoid pursuing a generic business-level strategy
C) Easy to build an ambidextrous organization
D) Easy to increase value and lower cost at the same tim

A) Quite difficult to translate a Blue Ocean strategy into reality

Rite Shoes competes against the global leaders in the athletic shoes industry by developing and selling acceptable quality shoes at a lower price. This has been possible due to the company’s large-scale production that reduces its manufacturing expenses. Which of the following generic business strategies is Rite Shoes applying in this scenario?

A) Differentiation strategy
B) Product diversification strategy
C) Cost-leadership strategy
D) Liquidation strategy

C) Cost-leadership strategy