Differentiation, Cost Leadership, and Integration Part 1

Business Strategy: Differentiation, Cost Leadership, and Integration Multiple Choice Questions 1. A _____ primarily details the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market. A. business-level strategy B. code of ethics C. mission statement D. functional-level strategy 2. Which of the following is a firm effect that has an impact on the competitive advantage of a firm? A. The exit barriers within the industry in which the firm operates B. The number of companies operating in the industry in which the firm operates C. The intensity of rivalry among existing companies in the firm's chosen industry D. The value and the cost position of the firm relative to its competitors 3. A firm's business strategy will lead to a competitive advantage if it allows the firm to: A. execute the same activities performed by the rivals in a similar manner. B. reduce the value gap. C. perform different activities than its rivals. D. position itself below the productivity frontier. 4. When a firm makes choices between a cost or value position to achieve competitive advantage, it is primarily involved in _____. A. collective bargaining B. strategic tradeoffs C. arbitrati on D. mediati on 5. Firms pursuing a differentiation strategy primarily seek to: A. keep their cost structures lower than that of the cost leader. B. reduce the value gap to gain a competitive advantage. C. provide products that are a direct imitation of the competitors' products. D. create higher customer perceived value than the value that competitors create. 6. Home Smart Inc. is a chain of supermarkets that sells its products at higher prices than its competitors. Yet, the supermarket chain has a large customer base due to its wide product portfolio and superior customer service. Which of the following generic business strategies has Home Smart adopted in this scenario? A. Costleadership B. Differentiati on C. Market penetration D. Product diversification 7. Free Color Inc. is an apparel company that caters to the highly price-conscious customers. Through its simple apparel designs, acceptable quality levels, and minimal customer service, the company has been able to sell its merchandise at the lowest prices in the industry. Which of the following generic business strategies is Free Color applying? A. Costleadership B. Differentiati on C. Niche marketing D. Product diversification 8. Why are differentiation and cost-leadership strategies referred to as generic business strategies? A. They can be simultaneously pursued by a firm without any trade-offs. B. They can be used by any organization independent of industry context. C. They require similar strategic positions in order to increase a firm's chances to gain competitive advantage. D. They can be applied only by businesses which have a competitive advantage. 9. True Empire Autos Inc. is an automobile company known for its luxury cars and follows a differentiation strategy. In this scenario, True Empire Autos should ideally compare its strategic position with a(n) _____. A. automobile company that sells preowned cars B. automobile company that sells high-end, premium cars C. automobile company that manufactures economy cars D. pen manufacturing company that follows a differentiation strategy 10. Wear Crush Inc. is an apparel company known for its affordable clothes that follows a cost-leadership strategy. In this scenario, Wear Crush should ideally compare its strategic position with: A. a company that sells wristwatches at affordable prices. B. a luxury apparel company that sells designer clothes. C. an apparel company popular among price-conscious customers. D. an online company that sells customized pet clothing. 11. In a focused cost-leadership strategy, a firm: A. caters to the segment of the market that is least costsensitive. B. provides high-priced products for many different segments of the mass market. C. delivers low-cost products and services to a specific, narrow part of the market. D. focuses on reducing the economic value created to drive down costs. 12. Green Curry is a restaurant that caters to the needs of a small percentage of highly health-conscious consumers. It has an all-organic, vegan menu. Since there are very few restaurants that offer the same unique services, customers are willing to pay a premium price for its products and services. In this scenario, Green Curry is following a _____. A. product diversification strategy B. liquidation strategy C. mass market strategy D. focused differentiation strategy 13. A company that uses a differentiation strategy can achieve a competitive advantage as long as its: A. economic value created is greater than that of its competitors. B. value gap is lower than that of its competitors. C. strategic position is below the productivity frontier. D. products and services create a lower consumer surplus than that of its competitors. 14. Both Viten Electronics Inc. and JL Electronics Inc. incur a cost of $400 to manufacture an LED television. However, the economic value created by JL Electronics is more than that created by Viten Electronics. What does this indicate? A. Viten Electronics has a competitive advantage over JL Electronics. B. Both Viten Electronics and JL Electronics have achieved competitive parity. C. JL Electronics can charge a premium price on its televisions. D. Viten Electronics has created a higher value gap than JL Electronics. 15. A firm pursuing a differentiation strategy as opposed to a low-cost strategy will: A. focus its research and development on product technologies to add uniqueness. B. concentrate on leveraging its economies of scale through process technologies. C. build an organization structure that relies on strict budget controls. D. create a lower economic value as compared to its competitors. 16. When a differentiator charges a similar price as its competitors in the same strategic group but offers more perceived value, it: A. loses its competitive advantage. B. gains market share from other firms. C. lowers the economic value created. D. results in diseconomies of scale. 17. Both Myoco Electronics Inc. and Electra Series Inc. have achieved cost parity in the television market. To gain and sustain a competitive advantage against Electra Series, Myoco Electronics should: A. achieve differentiation parity with Electra Series. B. keep its value gap lower than that of Electra Series. C. create greater perceived economic value than Electra Series. D. increase its cost of production to more than that of Electra Series. 18. Which of the following will hamper a differentiator's ability to achieve a competitive advantage? A. Lower production costs B. Premium prices C. Lower value gap D. Customized goods 19. Whole Foods differentiates itself from competitors by offering top-quality foods obtained through sustainable agriculture. This business strategy implies that Whole Foods focuses on: A. decreasing the existing value gap by providing luxury goods to customers. B. maintaining a less steeper learning curve as compared to its competitors. C. increasing the perceived value created for customers, which allows it to charge a premium price. D. lowering its costs compared to its competitors', while offering adequate value for its products and services. 20. Which of the following is more of a value driver than a cost driver? A. Superior customer service B. Economies of scale C. Learning-curve effects D. Experience-curve effects 21. Oviyo Inc. has been successful at differentiating itself from competitors by claiming a premium price for its digital cameras based on superior image quality and advanced technology. In this scenario, which of the following is the key value driver? A. Economies of scale B. Low-cost input factors C. Product features D. Premium prices 22. Coral Orchids is a chain of premium hotels around the globe that charges higher prices for its rooms and suites when compared to the average industry standards. Yet, the hotel enjoys the largest market share in the industry. This is mainly due its highly responsive staff that has a strong commitment toward achieving a 100 percent guest satisfaction. In this scenario, which of the following is the key value driver? A. Superior customer service B. Low cost of input factors C. Availability of complements D. Economies of scale 23. When Internet service providers offer free routers for subscriptions to their wireless Internet packs, the perceived value of the service offering increases. In this case, the value driver would be: A. economies of scale. B. learning-curve effects. C. experience-curve effects. D. availability of complements. 24. Body Sync Inc. is a chain of gyms. It offers a fitness package that allows its members to use the gym facilities for 12 months by paying only for 10 months. Included in the package are two health check-ups and a gym kit. These add-ons by themselves are not very valuable, but as a package they can enhance the perceived value of the service offerings. In this case, Body Sync's primary value driver is: A. economies of scale. B. learning-curve effects. C. availability of complements. D. experience-curve effects. 25. Value drivers contribute to a firm's competitive advantage only if: A. the increase in value creation exceeds the increase in costs. B. they can shrink the firm's value gap. C. they can restrict the firm from claiming a premium price for its products. D. the decrease in perceived value leads to an increase in costs. 26. A firm achieves differentiation parity ideally when: A. it creates the same customer value as its competitors. B. its cost of production is higher than that of its competitors. C. it successfully sells its products and services at a higher price than its competitors. D. its product features and services are better than that of its competitors. 27. While Aros Inc. incurs a cost of $20 for a pair of shoes, Shoes Cult Inc., its competitor, manufactures a pair of shoes at $22. Both the companies are able to sell their shoes for a maximum of $30 per pair. Which of the following statements is NOT true in this scenario? A. Both Aros and Shoes Cult have achieved differentiation parity. B. Aros is a cost leader when compared to Shoes Cult. C. Aros has created a greater economic value than Shoes Cult. D. Shoes Cult has a competitive advantage over Aros. 28. TrueDisk Inc. manufactures external hard disks for $32 per unit, and the maximum price customers are willing to pay is $47 per unit. SW Storage Inc. is a competitor of TrueDisk Inc. that produces external hard disks for $37 per unit, and customers are willing to pay a maximum price of $50 per unit. What does this imply? A. TrueDisk and SW Storage share differentiation parity. B. SW Storage has a competitive advantage over TrueDisk in terms of perceived value. C. TrueDisk creates a greater economic value than SW Storage. D. SW Storage is a cost leader when compared to TrueDisk. 29. Evia Cycles Inc. incurs $400 to manufacture a bicycle, and the maximum price customers are willing to pay is $550 per unit. Archer Cycles Inc., its competitor, incurs $450 to manufacture a similar bicycle, and customers are willing to pay a maximum price of $620 for it. What does this indicate? A. Both Evia Cycles and Archer Cycles have achieved differentiation parity. B. Evia Cycles has a competitive advantage over Archer Cycles. C. Archer Cycles has created a greater economic value than Evia Cycles. D. Both Evia Cycles and Archer Cycles have achieved cost parity. 30. Even without differentiation parity, a firm pursuing a cost-leadership strategy can still gain a competitive advantage as long as its: A. learning curve is not steeper than that of its competitors. B. per-unit costs are higher than that of its competitors. C. economic value creation exceeds that of its competitors. D. value gap is lower than that of its competitors. 31. Which of the following factors contributes to the success of the cost-leadership strategy of Ryanair airlines? A. The high input costs B. The luxury services C. The lower value gap D. The rock-bottom air fares 32. In contrast to a differentiator, a cost leader will: A. charge a premium price for its products and services. B. build an organization culture where creativity and customer responsiveness thrive. C. focus its research and development on process technologies to improve efficiency. D. avoid an organizational structure that relies on strict budget controls. 33. Rosa Apparels Inc. outsources its production to contract manufacturers located in underdeveloped nations where unskilled labor is available in plenty for very low wages. This has helped the apparel brand become a price leader in the industry. Which of the following is the key driver behind Rosa Apparel's strategic position? A. Network effects B. Superior customer service C. Availability of complements D. Low-cost input factors