Strategy Cost, Differentiation Chapter.6 Exam Prep

Student name:__________

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

true
false

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-04 Assess the benefits and risks of differentiation and cost-leadership strat
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > TF Qu. 01 Applying the five forces model to business-l...

Due to the dynamic nature of business competition, firms must constantly evaluate and adjust their strategic position over time.
1. ______

true
false

Differentiation and cost-leadership strategies are only effective in manufacturing industries.
1. ______

true
false

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > TF Qu. 03 Differentiation and cost-leadership strategi...

The goal of the differentiator is to have a smaller value gap than competitors.
1. ______

true
false

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 2 Medium
Learning Objective : 06-02 Examine the relationship between value drivers and differentiation strateg
Topic : Gaining Competitive Advantage Through Differentiation
Source : Chapter 06 Test Bank > TF Qu. 04 The goal of the differentiator is to have a ...

The major value drivers that managers have at their disposal include product features, customer service, and complements.
1. ______

true
false

Question Details
AACSB : Reflective Thinking
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 06-02 Examine the relationship between value drivers and differentiation strateg
Topic : Gaining Competitive Advantage Through Differentiation
Source : Chapter 06 Test Bank > TF Qu. 05 The major value drivers that managers have a...

When a firm operates at the minimum efficient scale, there is still opportunity for it to further reduce its cost per unit through economies of scale.
1. ______

true
false

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 2 Medium
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Economies and Diseconomies of Scale
Source : Chapter 06 Test Bank > TF Qu. 06 When a firm operates at the minimum efficien...

A firm operating on an 80 percent learning curve will achieve lower per-unit costs after doubling its output than a firm operating on a 70 percent learning curve will.
1. ______

true
false

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 3 Hard
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > TF Qu. 07 A firm operating on an 80 percent...

A differentiator will always benefit when products have become commoditized.
1. ______

true
false

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 06-04 Assess the benefits and risks of differentiation and cost-leadership strat
Topic : Gaining Competitive Advantage Through Differentiation
Source : Chapter 06 Test Bank > TF Qu. 08 A differentiator will always benefit when pr...

A cost leader is the firm least likely to survive a price war.
1. ______

true
false

When pursuing a blue ocean strategy, a firm in a crowded marketplace attempts to out-compete rivals by providing a leap in value creation, thereby opening new and uncontested market spaces.
1. ______

true
false

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-05 Evaluate value and cost drivers that may allow a firm to pursue a blue oce
Topic : Blue Ocean Strategy
Source : Chapter 06 Test Bank > TF Qu. 10 When pursuing a blue ocean strategy, a firm ...

Differentiators tend to score highly on most competitive elements on a strategy canvas, while cost leaders tend to hover near the bottom of the strategy canvas.
1. ______

true
false

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-06 Assess the risks of a blue ocean strategy, and explain why it is difficult
Topic : Value Innovation
Source : Chapter 06 Test Bank > TF Qu. 11 Differentiators tend to score highly on most...

A value curve that zig zags across the strategy canvas indicates a lack of effectiveness in a firm’s strategic profile, suggesting the firm has experienced inferior performance and a sustained competitive disadvantage.
1. ______

true
false

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 1 Easy
Learning Objective : 06-06 Assess the risks of a blue ocean strategy, and explain why it is difficult
Topic : Value Innovation
Source : Chapter 06 Test Bank > TF Qu. 12 A value curve that zig zags across the strat...

Which of the following questions should strategic leaders ask while formulating a business-level strategy?
1. ______

When should we introduce our product/service in the market?

What customer needs, wishes, and desires will we satisfy?

How do the employees, shareholders, and customers view us?

Which corporate governance mechanisms should we use?

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Business-Level Strategy: How to Compete for Advantage
Source : Chapter 06 Test Bank > MC Qu. 13 Which of the following questions should...

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

the characteristics of both the industry and the firm.

the characteristics of the firm alone.

the characteristics of the industry in which a firm competes.

the amount of market share a firm can gain.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > MC Qu. 14 In order for a firm to formulate an effectiv...

The broad question that business-level strategy answers is________ the firm will compete.
1. ______

when

where

who

how

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > MC Qu. 15 The broad question that business-level strategy an...

Differentiation, focused differentiation, cost leadership, and focused cost leadership are
1. ______

competitive advantages.

value innovations.

business strategies.

performance metrics.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > MC Qu. 16 Differentiation, focused differentiation...

The fact that both Whole Foods (a high-end grocery store) and Aldi (an inexpensive grocery store) have a competitive advantage in the grocery store industry is an indication that
1. ______

following a different generic business strategy within the same industry can lead to a competitive advantage for more than one organization.

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.

in order to evaluate whether Whole Foods has a sustained competitive advantage it is useful to compare it to Aldi from a cost perspective.

in order to evaluate whether Aldi has a sustained competitive advantage, it is useful to compare it to Whole Foods from a differentiation perspective.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > MC Qu. 17 The fact that both Whole Foods (a high-end g...

Whole Foods focuses on a small market segment, affluent consumers who want to buy high-end, organic groceries. What is the appropriate name for Whole Foods’s scope of competition?
1. ______

focused

broad

specific

general

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > MC Qu. 18 Whole Foods focuses on a small market segmen...

Mohawk is a leader in sustainable and innovative carpeting and floorings, as evidenced by its signature product, the world’s first organic cotton carpet. Its product is unique and has appealing customer attributes. If Mohawk’s raw material costs increased by 12 percent this year, what would be the likely outcome?
1. ______

Mohawk would lower profit margins to absorb this cost increase.

The company would launch an all-out effort to reduce other costs by 12 percent.

Mohawk would pass a major portion of this increase along as a price increase to its customers.

Mohawk would seek lower-cost materials, even if it meant losing the carbon-neutral label on the product.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-02 Examine the relationship between value drivers and differentiation strateg
Topic : Gaining Competitive Advantage Through Differentiation
Source : Chapter 06 Test Bank > MC Qu. 19 Mohawk is a leader in sustainable and innova...

Customer service and________ are two of the value drivers that managers can utilize when trying to improve a firm’s differentiation strategic position.
1. ______

product uniqueness

experience curve

cost of input factors

economies of scale

When pursuing a cost-leadership strategy, a business must remember that
1. ______

buyers will be reluctant to pay for a product unless the quality is acceptable.

buyers will be reluctant to pay for a product unless the quality is superior.

buyers will be reluctant to pay for the product unless it is customized.

product quality is more important in a broad market than in a narrow one.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > MC Qu. 21 When pursuing a cost-leadership strategy, a ...

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

they have both broad and narrow economies of scope.

they maximize their scale efficiencies by stocking more inventory and handling it more efficiently.

they are able to take advantage of market size and spread investment losses over many locations.

they have been able to protect themselves from the threat of buyer power by increasing input prices.

When a firm is able to successfully employ a blue ocean strategy, it will create a competitive advantage by
1. ______

combining high quality and product features to provide service that customers truly value.

using a first-mover advantage to be the lowest price in the market.

winning market share with a highly differentiated product.

beating rivals on product attributes while offering a better price.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-05 Evaluate value and cost drivers that may allow a firm to pursue a blue oce
Topic : Blue Ocean Strategy
Source : Chapter 06 Test Bank > MC Qu. 23 When a firm is able to successfully employ a...

One of the risks of pursuing a blue ocean strategy is that a firm can find itself
1. ______

losing sight of its mission and vision.

competing with only a differentiation strategy.

stuck in the middle without a clear strategic position.

ineffective when competing on an international scale.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-05 Evaluate value and cost drivers that may allow a firm to pursue a blue oce
Topic : Blue Ocean Strategy
Source : Chapter 06 Test Bank > MC Qu. 24 One of the risks of pursuing a blue ocean st...

Bigger & Better Inc. is a big-box retailer in direct competition with Walmart and Target. Bigger & Better Inc. 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, Bigger & Better Inc. 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 Bigger & Better Inc. is currently less than Target and Walmart. It can be said that
1. ______

Bigger & Better Inc. is successful in creating an integration strategy positioned between Walmart and Target.

Bigger & Better Inc. is “stuck in the middle” and has a competitive disadvantage.

Bigger & Better Inc. is still creating an integration strategy positioned between Walmart and Target and is on the right track. It should continue this business strategy.

Bigger & Better Inc. is “stuck in the middle” and has a competitive advantage.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-05 Evaluate value and cost drivers that may allow a firm to pursue a blue oce
Topic : Blue Ocean Strategy
Source : Chapter 06 Test Bank > MC Qu. 25 Bigger & Better Inc. is a big box retail...

Activate Equipment Inc. has been successful at differentiating itself from competitors by claiming a premium price for its treadmills based on integrated HD displays, workout tracking capabilities, and advanced technology. In this scenario, which of the following is the key value driver?
1. ______

product features

economies of scale

low-cost input factors

customer service

Marriott is able to create greater economic value than its competitors due to its ability to take advantage of________, which describe the savings that come from producing two (or more) outputs at less cost than producing one output individually, while utilizing the same amount of resources and technology.
1. ______

diseconomies of scale

economies of scope

economies of scale

cost of input factors

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-02 Examine the relationship between value drivers and differentiation strateg
Topic : Economy of Scope
Source : Chapter 06 Test Bank > MC Qu. 27 Marriott is able to create greater economic ...

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

value; cost

marketing; innovation process

market share; defensive strategy

gap; ROIC

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > MC Qu. 28 The goal of a strategic position is to creat...

Evaluate the following statement: Strategic leaders should always try to pursue a blue ocean strategy because it is the most complex, coveted, and most desirable strategy that exists.
1. ______

I agree; firms should always pursue a blue ocean strategy because the benefits outweigh the cost.

I agree; firms should pursue a blue ocean strategy because it’s harder for competitors to replicate.

I disagree; firms should never pursue a blue ocean strategy because it’s much too complex.

I disagree; firms should only pursue this strategy if they are able to reconcile the tradeoffs of each generic strategy.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-05 Evaluate value and cost drivers that may allow a firm to pursue a blue oce
Topic : Blue Ocean Strategy
Source : Chapter 06 Test Bank > MC Qu. 29 Evaluate the following statement: Strategic ...

Which of the following statements about business-level strategies is true?
1. ______

After choosing a strategy, firms must define the scope of competition.

Manufacturing firms should pursue a cost-leadership strategy.

A focused differentiation strategy offers broader market opportunities.

None of the business-level strategies is inherently superior.

A________ primarily details the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market.
1. ______

business-level strategy

code of ethics

mission statement

functional-level strategy

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > MC Qu. 31 A ________ primarily details the goal-directed ...

Which of the following is a firm effect that has an impact on the competitive advantage of a firm?
1. ______

the exit barriers within the industry in which the firm operates

the number of companies operating in the industry in which the firm operates

the intensity of rivalry among existing companies in the firm’s chosen industry

the value and the cost position of the firm relative to its competitors

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > MC Qu. 32 Which of the following is a firm effect that...

A firm’s business strategy can lead to a competitive advantage if it allows the firm to
1. ______

execute the same activities performed by the rivals in a similar manner.

reduce the value gap.

perform different activities than its rivals.

position itself below the productivity frontier.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > MC Qu. 33 A firm’s business strategy can lead to...

When a firm makes choices between a cost or value position to achieve competitive advantage, it is primarily involved in
1. ______

collective bargaining.

strategic tradeoffs.

arbitration.

mediation.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > MC Qu. 34 When a firm makes choices between a cost or ...

Skin Science Inc. produces a line of skincare products that it sells at higher prices than its competitors. The company has a large and loyal customer base due to its unique formulations, high-quality ingredients, and superior customer service. Which of the following generic business strategies has Skin Science adopted in this scenario?
1. ______

cost-leadership

differentiation

market penetration

product diversification

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > MC Qu. 35 Skin Science Inc. produces a line of...

University Home Goods is a home furnishings company that caters to college students and other highly price-conscious customers. Through its simple 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 University Home Goods applying?
1. ______

cost-leadership

differentiation

niche marketing

product diversification

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > MC Qu. 36 University Home Goods is a home furnishings...

Which of the following examples uses a focused differentiation strategy?
1. ______

a tennis pro shop that sells high-quality, custom racquets priced at $350 dollars per racquet

a coffee shop that offers mediocre lattes and brewed coffee at a price of $5 per small cup

a hotel chain that offers high-quality furnishings and service with room rates under $75 per night

a clothing brand that offers gender-neutral hoodies and sweatpants priced at $20 per item

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > MC Qu. 37 Which of the following examples uses a focus...

Fatima is the owner of a remodeling company that caters to a very wealthy clientele. Her company has struggled to differentiate itself from the other high-end remodelers in the area, but because she has hired several expensive but highly qualified team members, Fatima is unable to shift to a cost-leadership strategy. Which strategy is most likely to achieve a competitive advantage?
1. ______

Offer similar remodeling services as competitors but raise prices to increase profits.

Lower prices but continue employing high-paid expert designers and tradespeople.

Narrow the scope of competition and focus on unique features such as using premium materials.

Maintain prices but replace all the expert employees with less-skilled workers to control costs.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Apply
Difficulty : 3 Hard
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > MC Qu. 38 Fatima is the owner of a remodeling...

Sophie’s sandwich shop offers burgers and sandwiches similar to national competitors in the fast-food market but at a much lower price. What strategy is Sophie’s using?
1. ______

cost-leadership

differentiation

niche marketing

product diversification

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > MC Qu. 39 Sophie’s sandwich shop offers burgers...

Which of the following best describes a strategic tradeoff?
1. ______

the tension between innovation and keeping manufacturing costs down

the tension between maintaining both high-quality products and service

the tension between value creation and the pressure to keep costs in check

the tension between raising prices and keeping a loyal clientele

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > MC Qu. 40 Which of the following best describes a stra...

Five Star Inc. is a knife manufacturer known for its high-quality steel chef’s knives, and it follows a differentiation strategy. In this scenario, Five Star Inc. should ideally compare its strategic position with a
1. ______

knife company that sells refurbished steel knives.

knife retailer that sells high-end, premium knives.

knife maker that manufactures low-priced knives.

knife maker that produces high-end chef’s knives.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Apply
Difficulty : 2 Medium
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > MC Qu. 41 Five Star Inc. is a knife manufacturer known...

Tablette Corp. is a consumer electronics company known for its affordable mobile devices that follows a cost-leadership strategy. In this scenario, Tablette Corp. should ideally compare its strategic position with
1. ______

a company that sells small kitchen appliances at affordable prices.

a consumer electronics company that sells high-end devices.

a consumer electronics company popular among price-conscious customers.

an online company that sells customized electronics accessories.

In a focused cost-leadership strategy, a firm
1. ______

caters to the segment of the market that is least cost sensitive.

provides high-priced products for many different segments of the mass market.

delivers low-cost products and services to a specific, narrow part of the market.

focuses on reducing the economic value created to drive down costs.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > MC Qu. 43 In a focused cost-leadership strategy, a fir...

Bath & Chill is a spa that caters to the needs of a small percentage of highly health-conscious consumers. It offers state-of-the-art treatments in a luxurious setting. Since there are very few spas that offer the same unique services, customers are willing to pay a premium price for its products and services. In this scenario, Bath & Chill is following a
1. ______

product diversification strategy.

liquidation strategy.

broad differentiation strategy.

focused differentiation strategy.

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Analyze
Difficulty : 3 Hard
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > MC Qu. 44 Bath & Chill is a spa that caters to the...

Both Lorenzo’s Engines and Water King incur a cost of $5,000 to manufacture a boat engine. However, the economic value created by Water King is more than that created by Lorenzo’s Engines. What does this indicate?
1. ______

Lorenzo’s has a competitive advantage over Water King.

Both Lorenzo’s and Water King have achieved competitive parity.

Water King can charge a premium price on its boat engines.

Lorenzo’s has created a higher value gap than Water King.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Apply
Difficulty : 2 Medium
Learning Objective : 06-02 Examine the relationship between value drivers and differentiation strateg
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > MC Qu. 45 Both Lorenzo’s Engines and Water King...

When a differentiator charges a similar price as its competitors in the same strategic group but offers more perceived value, it
1. ______

loses its competitive advantage.

gains market share from other firms.

lowers the economic value created.

results in diseconomies of scale.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-02 Examine the relationship between value drivers and differentiation strateg
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > MC Qu. 46 When a differentiator charges a similar pric...

Product features, customer service, and complements are all examples of important
1. ______

cost curves.

cost drivers.

value curves.

value drivers.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-02 Examine the relationship between value drivers and differentiation strateg
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > MC Qu. 47 Product features, customer service, and comp...

Which of the following is primarily a value driver?
1. ______

cost of input factors

economies of scope

experience-curve effects

product features

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 06-02 Examine the relationship between value drivers and differentiation strateg
Topic : Value Innovation
Source : Chapter 06 Test Bank > MC Qu. 48 Which of the following is primarily a value ...

How does availability of complements act as a value driver?
1. ______

Complements add value to a product by offering an inferior substitute to it.

Complements add value to a product by competing with it.

Complements add value to a product when they imitate it.

Complements add value to a product when they are consumed in tandem with it.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-02 Examine the relationship between value drivers and differentiation strateg
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > MC Qu. 49 How does availability of complements act as ...

Greenfield Apparel differentiates itself from competitors by offering high-fashion clothing items created using only certified sustainable fabrics and manufactured in environmentally friendly facilities. This business strategy implies that Greenfield Apparel focuses on
1. ______

decreasing the existing value gap by providing luxury goods to customers.

maintaining a less steeper learning curve as compared to its competitors.

increasing the perceived value created for customers, which allows it to charge a premium price.

lowering its costs compared to its competitors, while offering adequate value for its products.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-02 Examine the relationship between value drivers and differentiation strateg
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > MC Qu. 50 Greenfield Apparel differentiates itself from...

Golden Soles has been successful at differentiating itself from competitors by claiming a premium price for its athletic footwear based on superior design and high-quality materials. In this scenario, which of the following is the key value driver?
1. ______

economies of scale

low-cost input factors

product features

premium prices

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-02 Examine the relationship between value drivers and differentiation strateg
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > MC Qu. 51 Golden Soles has been successful at differen...

Power Juice is a firm that produces sports drinks. Because a number of firms in the industry are competing on cost, Power Juice executives have decided to pursue a differentiation strategy. In this case, the company should
1. ______

focus on adding unique product or packaging features that customers will value.

concentrate on improving process technologies to achieve economies of scale.

enforce strict budget controls at all levels of the organization.

devote research-and-development resources to reducing the value gap.

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Apply
Difficulty : 3 Hard
Learning Objective : 06-02 Examine the relationship between value drivers and differentiation strateg
Topic : Gaining Competitive Advantage Through Differentiation
Source : Chapter 06 Test Bank > MC Qu. 52 Power Juice is a firm that produces sports...

When wireless service providers offer free or discounted mobile phones for subscribers to their wireless voice and data service, the perceived value of the service offering increases. In this case, the value driver would be
1. ______

economies of scale.

learning-curve effects.

experience-curve effects.

availability of complements.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-02 Examine the relationship between value drivers and differentiation strateg
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > MC Qu. 53 When wireless service providers offer free o...

Finish Line Athletics Inc. is a chain of gyms. It offers a fitness package that allows its members to use the gym facilities for 15 months by paying only for a year. Included in the package are two free yoga classes 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, Finish Line’s primary value driver is
1. ______

economies of scale.

learning-curve effects.

availability of complements.

experience-curve effects.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-02 Examine the relationship between value drivers and differentiation strateg
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > MC Qu. 54 Finish Line Athletics Inc. is a chain...

Value drivers contribute to a firm’s competitive advantage only if
1. ______

the increase in value creation exceeds the increase in costs.

they can shrink the firm’s value gap.

they can restrict the firm from claiming a premium price for its products.

the decrease in perceived value leads to an increase in costs.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 06-02 Examine the relationship between value drivers and differentiation strateg
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > MC Qu. 55 Value drivers contribute to a firm’s c...

While Eye Windows incurs a cost of $12 for a pair of eyeglasses, Dura Frames, its competitor, manufactures a pair of glasses at $10. Both the companies are able to sell their glasses for a maximum of $30 per pair. Which of the following statements is true in this scenario?
1. ______

Eye Windows and Dura Frames have achieved differentiation parity.

Eye Windows is a cost-leader when compared to Dura Frames.

Eye Windows has created a greater economic value than Dura Frames.

Dura Frames has a higher opportunity cost than Eye Windows.

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Apply
Difficulty : 2 Medium
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > MC Qu. 56 While Eye Windows incurs a cost of $12 for a...

Summit Technology Inc. manufactures soundbars for $100 per unit, and the maximum price customers are willing to pay is $475 per unit. Sound Gold Inc. is a competitor of Summit Technology that produces soundbars for $150 per unit, and customers are willing to pay a maximum price of $500 per unit. What does this imply?
1. ______

Summit Technology and Sound Gold share differentiation parity.

Sound Gold has a competitive advantage over Summit Technology in terms of perceived value.

Summit Technology creates a greater economic value than Sound Gold.

Sound Gold is a cost leader when compared to Summit Technology.

Spotless Inc. outsources its production to contract manufacturers located in underdeveloped nations where unskilled labor is at very low wages is plentiful. This has helped the company become a price leader in the chemicals industry. Which of the following is the key driver behind Spotless Inc.’s strategic position?
1. ______

network effects

superior customer service

availability of complements

low-cost input factors

What must a cost-leadership strategy accomplish to be successful?
1. ______

It must increase the firm’s cost above that of its competitors while offering adequate value.

It must reduce the firm’s cost below that of its competitors while offering adequate value.

It must increase the firm’s cost above that of its competitors while offering superior value.

It must reduce the firm’s cost below that of its competitors while offering superior value.

How is differentiation parity different from cost parity?
1. ______

Differentiation parity deals with pricing not innovation.

Differentiation parity deals with innovation not value.

Differentiation parity deals with pricing not value.

Differentiation parity deals with value not cost.

Vita Nova Inc. has recently introduced a new production method that will make the manufacture of its patient-monitoring devices more cost-effective. Which of the following will most likely be the result of this innovation?
1. ______

jumps to a steeper learning curve

destabilizes a steeper learning curve

stabilizes the existing learning curve

moves down the existing learning curve

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Apply
Difficulty : 3 Hard
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > MC Qu. 61 Vita Nova Inc. has recently introduced...

Which of the following is an accurate statement about learning effects?
1. ______

Learning effects are captured at one point in time.

Learning effects occur over time as output accumulates.

Learning effects are significant in all production processes.

Learning effects can produce diseconomies.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 2 Medium
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > MC Qu. 62 Which of the following is an accurate statem...

Both Medical Manufacturing and R&D Health Inc. have developed advanced hearing aid technologies. R&D’s hearing aids sell at $4,000 per pair, whereas Medical Manufacturing sells its hearing aids at $3,500 per pair. This price differentiation has mainly been attributed to the companies’ capital decisions. While Medical Manufacturing used its retained earnings to develop its technology, R&D Health borrowed funds from banks to develop its hearing aids. Thus, R&D pays a higher interest on its capital, which makes it necessary to price its product higher. Therefore, the key driver for Medical Manufacturing’s competitive advantage is
1. ______

low-cost input factors.

economies of scale.

superior customer service.

availability of complements.

In order to achieve a competitive advantage, the Heavenly Hotels, a chain of luxury beach resorts, wants to increase its market share. Which of the following strategies is most likely to do so?
1. ______

Maintain prices but significantly increase spending on customer service and other amenities.

Lower prices but eliminate several of the features that have come to define Heavenly Hotels properties for consumers, such as complimentary meals and in-room massages.

Take advantage of economies of scale and scope by opening a chain of lower-priced economy hotels that leverage the Heavenly Hotels brand image.

Raise prices without increasing spending on customer service or resort features.

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Apply
Difficulty : 3 Hard
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Economies and Diseconomies of Scale
Source : Chapter 06 Test Bank > MC Qu. 64 In order to achieve a competitive advantage,...

Firms with greater market share might be in a position to reap economies of scale, which are
1. ______

decreases in cost per unit as output increases.

increases in cost per unit as output decreases.

decreases in output in a generic cost-leadership strategy.

increases in price in a focused cost-leadership strategy.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Economies and Diseconomies of Scale
Source : Chapter 06 Test Bank > MC Qu. 65 Firms with greater market share might...

________ is best described as the output range needed to bring down the cost per unit as much as possible, allowing a firm to stake out the lowest-cost position that is achievable through economies of scale.
1. ______

Minimum efficient scale

Break-even output

Maximum output capacity

Optimum sustainable yield

When a firm manufactures 2,000–3,000 units of a product, it incurs an average cost of $10 per unit. When it manufactures 3,000–4,000 units of the same product, the average cost per unit reduces to $7. However, manufacturing beyond 4,000 units will raise the average cost per unit to $9. Which of the following is the firm’s minimum efficient scale?
1. ______

2,000–3,000 units

3,000–4,000 units

below 2,000 units

above 4,000 units

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Apply
Difficulty : 2 Medium
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Economies and Diseconomies of Scale
Source : Chapter 06 Test Bank > MC Qu. 67 When a firm manufactures 2,000–3,000 u...

When a firm operates at an output level of 9,000 units, the per-unit cost is $5. When the production is between 10,000–12,000 units, the per-unit cost is $4. At a production level of 13,000 units, the production cost is again $5 per unit. At 14,000 units and above, the production cost increases further. At what output level does the firm experience economies of scale?
1. ______

9,000 units

11,000 units

13,000 units

15,000 units

CSL Fixtures enjoys a competitive advantage as a cost leader in the faucet manufacturing industry because high demand for its products has allowed it to operate at the minimum efficient scale. Which of the following scenarios would be most concerning to the managers of CSL Fixtures?
1. ______

CSL’s leading competitor develops a new leak-resistant product.

CSL’s most reliable production worker takes a job in another industry.

A major winter storm shuts down CSL’s production for several days.

A stainless steel shortage raises input costs across the faucet industry.

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Evaluate
Difficulty : 3 Hard
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Economies and Diseconomies of Scale
Source : Chapter 06 Test Bank > MC Qu. 69 CSL Fixtures enjoys a competitive advantage...

Durk’s Depot is a large chain of home improvement stores. It has cost benefits due to its extensive operation. The company’s marketing and sales, logistics, administrative, and other such related costs get divided between a large number of product units stocked in its stores. This makes it difficult for smaller hardware stores, flooring retailers, and specialty paint stores to compete against Durk’s low prices. Thus, Durk’s Depot has a competitive advantage due to its
1. ______

superior customer service.

time compression economies.

economies of scale.

learning-curve effects.

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Analyze
Difficulty : 3 Hard
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Economies and Diseconomies of Scale
Source : Chapter 06 Test Bank > MC Qu. 70 Durk’s Depot is a large chain of home...

When Total Semiconductors was operating at the minimum efficient scale of 10,000–12,000 units per month, the firm’s cost per unit was $45. However, when the output level was increased beyond 12,000 units, the cost per unit increased to $47. This increase was attributed to the wear-and-tear of the machinery, and complexities of managing and coordinating. What is this phenomenon known as?
1. ______

minimum efficient scale

diseconomies of scale

experience-curve effect

learning-curve effect

A firm that is producing at an output level beyond the minimum efficient scale experiences
1. ______

diseconomies of scale.

a constant return to scale.

decreases in cost per unit.

a steep learning curve.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Economies and Diseconomies of Scale
Source : Chapter 06 Test Bank > MC Qu. 72 A firm that is producing at an output...

Snow Beast Equipment initially spent 10 worker hours to assemble each snow blower. However, as unit production doubled, the number of hours spent on assembling a snow blower decreased by 20 percent. This increase in productivity reduced the company’s cost per unit. What is this phenomenon referred to as?
1. ______

learning-curve effect

network effect

black-swan event

time compression diseconomies

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Apply
Difficulty : 2 Medium
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > MC Qu. 73 Snow Beast Equipment initially spent...

What does it mean for a firm to have an 80 percent learning curve?
1. ______

Every time the cumulative output increases by 80 percent, the cost per unit will decline by 20 percent.

Every time the cumulative output is doubled, the cost per unit will decline by 80 percent.

Every time the cumulative output goes up by 20 percent, the cost per unit will decline by 80 percent.

Every time the cumulative output is doubled, the cost per unit will decline by 20 percent.

At a certain output level, the per-unit cost incurred by a firm to manufacture a product was $70. Once the cumulative output doubled, the cost per unit reduced to $63. All other factors remaining constant, the firm has been able to achieve a(n)
1. ______

80 percent learning curve.

90 percent learning curve.

60 percent learning curve.

54 percent learning curve.

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Analyze
Difficulty : 3 Hard
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > MC Qu. 75 At a certain output level, the per-unit cost...

Trail Ready Tents faces stiff competition from Appalachian Equipment, a rival firm with which Trail Ready has achieved differentiation parity. Both firms have invested in state-of-the art production facilities and have similar learning curves of 85 percent. Assuming neither firm can reduce the cost of its input factors, how can Trail Ready achieve a competitive advantage as a cost-leader?
1. ______

Reduce the manufacturing staff by half to save on labor costs.

Increase spending to develop additional product features.

Have a cumulative output that is greater than Appalachian’s.

Cut costs by eliminating several features that customers value.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Apply
Difficulty : 3 Hard
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > MC Qu. 76 Trail Ready Tents faces stiff competition...

Combining economies of learning with the existing production technology allows a firm to
1. ______

move up a given experience curve.

move down a given learning curve.

jump to a less steeper learning curve.

jump to a flatter experience curve.

The concept of a(n)________ attempts to capture both learning effects and process improvements at firms.
1. ______

managerial grid

growth matrix

experience curve

diminishing utility curve

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > MC Qu. 78 The concept of a(n) ________ attempts to captur...

When a firm combines experience-based learning and process innovation, the firm
1. ______

jumps to a steeper learning curve.

experiences an increase in per-unit cost.

loses its competitive advantage.

moves down the existing learning curve.

Wang Services competes on cost with Kinsler McCloskey in the estate planning industry. Both firms operate on a 90 percent learning curve, and neither firm is capable of increasing its cumulative output any further. How might Wang Services achieve a cost-leadership position while maintaining customer satisfaction?
1. ______

by increasing the time the company spends on each client plan by 25 percent without raising prices

by eliminating customer service features such as quarterly client consultations and newsletters

by reducing its client base and lowering output while keeping staff and service levels the same

by incorporating specialized document software to take advantage of experience-curve effects

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Apply
Difficulty : 3 Hard
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Economies and Diseconomies of Scale
Source : Chapter 06 Test Bank > MC Qu. 80 Wang Services competes on cost with...

According to the five forces model, which of the following is viewed as a major risk to a business pursuing a cost-leadership strategy?
1. ______

competition switching from non-price attributes to pricing

innovation that allows competitors to emerge with more economical replacements

new entrants with small production scale

suppliers requesting a 2 percent price increase across the industry

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-04 Assess the benefits and risks of differentiation and cost-leadership strat
Topic : Five Forces Model of Industry Attractiveness
Source : Chapter 06 Test Bank > MC Qu. 81 According to the five forces model, which of...

Which of the following sources of differential appeal is most effective in helping a firm sustain its advantage?
1. ______

a cost-leadership strategy

an updated package design

superior customer experience

observable product features

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 06-04 Assess the benefits and risks of differentiation and cost-leadership strat
Topic : Gaining Competitive Advantage Through Differentiation
Source : Chapter 06 Test Bank > MC Qu. 82 Which of the following sources of differenti...

A differentiator is least likely to be threatened by increases in input prices due to powerful suppliers when the
1. ______

differentiator is able to create a significant difference between perceived value and current market prices.

differentiator is able to significantly reduce the value gap.

source of a competitor’s differential appeal is tangible rather than intangible.

new product features added raise costs but not the perceived value in the minds of consumers.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-04 Assess the benefits and risks of differentiation and cost-leadership strat
Topic : Gaining Competitive Advantage Through Differentiation
Source : Chapter 06 Test Bank > MC Qu. 83 A differentiator is least likely to be threa...

Center Street Supply Co. has successfully achieved a competitive advantage in the detergent and cleaning solution industry as a differentiator. Which of the following scenarios would undermine Center Street’s position?
1. ______

Center Street improves the formula for its most popular cleaner without increasing the price.

Center Street introduces a new biodegradable bottle that raises cost and perceived value.

Center Street’s customers start to consider cleaning solutions a commodity.

Center Street’s product has not established an acceptable standard of quality.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Apply
Difficulty : 3 Hard
Learning Objective : 06-04 Assess the benefits and risks of differentiation and cost-leadership strat
Topic : Gaining Competitive Advantage Through Differentiation
Source : Chapter 06 Test Bank > MC Qu. 84 Center Street Supply Co. has successfully...

How is a cost leader protected from threats from powerful suppliers?
1. ______

It is more able to absorb price increases through accepting lower profit margins.

It is more able to absorb price increases through generating higher profit margins.

It is able to create a significant difference between perceived value and current market prices.

It is able to create a significant difference between actual value and future market prices.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-04 Assess the benefits and risks of differentiation and cost-leadership strat
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > MC Qu. 85 How is a cost leader protected from threats ...

Due to its large sales volume and low-cost structure, Bunny’s Lo-Cost enjoys a cost-leadership position. Which of the following scenarios might threaten Bunny’s competitive advantage?
1. ______

Existing competitors in the same industry lower their prices to match those of Bunny’s.

Industry suppliers raise their prices.

Competitors engage in an all-out price war.

A new competitor is perceived to provide similar value while offering better service than Bunny’s.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Apply
Difficulty : 3 Hard
Learning Objective : 06-04 Assess the benefits and risks of differentiation and cost-leadership strat
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > MC Qu. 86 Due to its large sales volume and low-cost s...

A differentiation strategy works best when a
1. ______

firm has tangible resources, its focus of competition shifts to price, and equivalent substitutes are readily available.

firm’s focus of competition shifts to price, and when increasing differentiation of product features do not create additional value.

firm’s differentiated products are commoditized, and costs of providing uniqueness do not rise above the customer’s willingness to pay.

firm has intangible resources, is able to pass on increases in supplier cost to the customer, and its differentiation appeal creates customer loyalty.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-04 Assess the benefits and risks of differentiation and cost-leadership strat
Topic : Gaining Competitive Advantage Through Differentiation
Source : Chapter 06 Test Bank > MC Qu. 87 A differentiation strategy works best when a

In a successful________ strategy, the trade-offs between differentiation and low cost are reconciled.
1. ______

blue ocean

focused differentiation

liquidation

divestment

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 06-05 Evaluate value and cost drivers that may allow a firm to pursue a blue oce
Topic : Blue Ocean Strategy
Source : Chapter 06 Test Bank > MC Qu. 88 In a successful ________ strategy, the trade-of...

The primary goal of a firm pursuing a blue ocean strategy should be to
1. ______

create the highest perceived value in its respective industry.

build a reputation of being the lowest-cost producer in its chosen industry.

offer a differentiated product or service at a low cost.

achieve a less steep learning curve.

In the multiplex industry, Home Again Movies Inc. is an upscale multiplex that focuses on superior customer experience. The firm charges premium prices for its movie tickets and services. Movies-for-Less Inc., in contrast, charges the lowest price in the industry with its no-frills approach. In between these two segments is Just Right Films Inc., which offers a customer experience comparable to that of Home Again Movies at a price almost as low as that of Movies-for-Less. What strategy is Just Right Films pursuing in this scenario?
1. ______

liquidation strategy

product diversification strategy

market penetration strategy

blue ocean strategy

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Apply
Difficulty : 2 Medium
Learning Objective : 06-05 Evaluate value and cost drivers that may allow a firm to pursue a blue oce
Topic : Blue Ocean Strategy
Source : Chapter 06 Test Bank > MC Qu. 90 In the multiplex industry, Home Again Movies...

Antonia’s is a chain of casual restaurants that promises affordable Italian meals using top-quality local ingredients. However, the company has struggled to achieve a competitive advantage because of its high overhead costs. Which of the following scenarios is most likely to result in a competitive advantage?
1. ______

lowering the quality of ingredients below what customers expect to control costs

eliminating brick-and-mortar locations and offering delivery from a central kitchen

raising prices without improving on the quality of its food or customer service

marketing itself as an upscale eatery to compete with more refined restaurants

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Apply
Difficulty : 3 Hard
Learning Objective : 06-05 Evaluate value and cost drivers that may allow a firm to pursue a blue oce
Topic : Value Innovation
Source : Chapter 06 Test Bank > MC Qu. 91 Antonia’s is a chain of casua...

How did Marriott use economies of scope to achieve greater economic value than its competitors?
1. ______

Marriott sees increases in cost per hotel unit as number of customers increases.

Marriott sees decreases in cost per hotel unit as number of customers increases.

Marriott lowered its cost structure by focusing its production assets on one type of hotel, which increased the diversity of its hotel line and thus its differentiated appeal.

Marriott lowered its cost structure by sharing its production assets over several types of hotels, which increased the diversity of its hotel line and thus its differentiated appeal.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-05 Evaluate value and cost drivers that may allow a firm to pursue a blue oce
Topic : Value Innovation
Source : Chapter 06 Test Bank > MC Qu. 92 How did Marriott use economies of scope to a...

Which of the following best explains why a blue ocean strategy is difficult to implement?
1. ______

It combines the benefits of similar strategic positions—differentiation and low cost.

It requires the reconciliation of fundamentally different strategic positions—differentiation and low cost.

It requires the combination of fundamentally similar strategic positions—differentiation and strategic innovation.

It requires the reconciliation of fundamentally different strategic positions—differentiation and strategic innovation.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-05 Evaluate value and cost drivers that may allow a firm to pursue a blue oce
Topic : Blue Ocean Strategy
Source : Chapter 06 Test Bank > MC Qu. 93 Which of the following best explains why a b...

Which of the following provides an example of a firm in a red ocean?
1. ______

Foley Office Supply offered printers at a low price but failed to differentiate its product as being exclusive.

Blue Desk Company matched the price of its closest competitors and had lower profit margins as a result.

Printers Inc. offered printers at a mid-range price but failed to differentiate its product as being of decent quality.

Village Electronics offered printers at a higher price than competitors and, as a result, failed to make a profit.

Open Window, a brand well known for producing vinyl and aluminum window blinds, introduced a new range of faux-wood shutters and vertical blinds a few years ago. Because most of its products could be produced using the same resources and technology, the company’s cost structure lowered, while its product portfolio widened. In this scenario, which of the following value and cost drivers is Open Window applying?
1. ______

mass customization

economies of scope

learning-curve effect

network effect

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Apply
Difficulty : 2 Medium
Learning Objective : 06-05 Evaluate value and cost drivers that may allow a firm to pursue a blue oce
Topic : Value Innovation
Source : Chapter 06 Test Bank > MC Qu. 95 Open Window, a brand well known...

Which of the following drivers simultaneously increases value while lowering cost?
1. ______

economies of scale

superior customer service

availability of complements

innovation

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 06-04 Assess the benefits and risks of differentiation and cost-leadership strat
Topic : Value Innovation
Source : Chapter 06 Test Bank > MC Qu. 96 Which of the following drivers simultaneousl...

When a blue ocean strategy goes bad, a firm has neither a clear differentiation nor a clear cost-leadership profile. This situation is referred to as
1. ______

stuck in the middle.

buried at the bottom.

burned at the top.

caught in the transition.

A blue ocean strategy differs from a low-cost strategy in that
1. ______

the intent of a blue ocean strategy is not to be the absolute lowest-cost provider because a blue ocean must also increase perceived value.

the focus of a blue ocean strategy is on lowering the economic value created, whereas a cost-leader focuses on increasing the economic value created.

economies of scale are more important to a blue ocean strategy, while economies of scope are more important to a cost-leader.

a blue ocean’s research and development focus is on process technologies, and a cost-leader’s focus is on product technologies.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-06 Assess the risks of a blue ocean strategy, and explain why it is difficult
Topic : Blue Ocean Strategy
Source : Chapter 06 Test Bank > MC Qu. 98 A blue ocean strategy differs from a low-cos...

A value curve indicates a lack of effectiveness in a firm’s strategic profile when it
1. ______

stays level.

zig zags.

trends downward.

trends upward.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 06-06 Assess the risks of a blue ocean strategy, and explain why it is difficult
Topic : Value Innovation
Source : Chapter 06 Test Bank > MC Qu. 99 A value curve indicates a lack of effectiven...

The strategy canvas for movie theaters includes factors such as prices, comfort, customer service, concessions variety, and hours of operation. Which of the following value curves is most likely to represent a theater that successfully positions itself as a differentiator?
1. ______

high price, high comfort, high customer service, high concessions variety, low hours of operation

low price, high comfort, high customer service, high concessions variety, low hours of operation

high price, low comfort, low customer service, high concessions variety, low hours of operation

low price, low comfort, low customer service, low concessions variety, low hours of operation

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Apply
Difficulty : 3 Hard
Learning Objective : 06-06 Assess the risks of a blue ocean strategy, and explain why it is difficult
Topic : Value Innovation
Source : Chapter 06 Test Bank > MC Qu. 100 The strategy canvas for movie theaters inclu...

Which of the following describes an airline that is most likely stuck in the middle?
1. ______

Stratosphere offers complimentary drinks and meals, coast-to-coast coverage via connecting hubs, plush airport lounges, and high prices.

Cloud Rider offers international routes and global coverage, high customer service, high reliability, and high prices.

Skypath offers high-quality beverages and meals, plush airport lounges, only a few connections via domestic hubs, poor customer service, and low prices.

Wingspan offers no assigned seating, no in-flight amenities, no drinks or meals, no airport lounges, and low prices.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-06 Assess the risks of a blue ocean strategy, and explain why it is difficult
Topic : Value Innovation
Source : Chapter 06 Test Bank > MC Qu. 101 Which of the following describes an airline ...

Although JetBlue used a blue ocean strategy to achieve an initial competitive advantage, it failed to maintain this advantage. Which of the following provides the best reason for this development?
1. ______

It failed to drive up the perceived customer value.

It failed to refine its strategic position over time.

It failed to move into a contested market space.

It failed to offer enough strategic trade-offs.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-06 Assess the risks of a blue ocean strategy, and explain why it is difficult
Topic : Blue Ocean Strategy
Source : Chapter 06 Test Bank > MC Qu. 102 Although JetBlue used a blue ocean strategy ...

To initiate a strategic move that allows a firm to open up new and uncontested market space through value innovation, managers must address four key questions when formulating a blue ocean business strategy. These questions focus on
1. ______

increasing cost and maintaining perceived customer benefits.

lowering cost and maintaining perceived customer benefits.

lowering cost and increasing perceived customer benefits.

increasing cost and increasing perceived customer benefits.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 06-06 Assess the risks of a blue ocean strategy, and explain why it is difficult
Topic : Blue Ocean Strategy
Source : Chapter 06 Test Bank > MC Qu. 103 To initiate a strategic move that allows a f...

The pursuit of both differentiation and low cost at the same time in a way that creates a leap in value for both the firm and consumers is called
1. ______

cost driving.

cost innovation.

value driving.

value innovation.

Trader Joe’s successfully used a blue ocean strategy by offering lower-cost food than Whole Foods for the same market of patrons. By doing this, Trader Joe’s was able to
1. ______

gain a market share and make up the loss in margin through increased sales.

create higher value creation and thus generate greater profit margins.

gain a market share and make up the loss in margin through increased pricing.

create higher value creation and thus generate greater sales.

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-06 Assess the risks of a blue ocean strategy, and explain why it is difficult
Topic : Blue Ocean Strategy
Source : Chapter 06 Test Bank > MC Qu. 105 Trader Joe’s successfully used a blue ...

What are the key questions managers must answer to formulate an appropriate business-level strategy?

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 06-01 Define business-level strategy and describe how it determines a firm's str
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > SA Qu. 106 What are the key questions managers must ans...

What are the two different generic business strategies available to firms?

Define scope of competition and its importance to business strategy in the context of the automobile industry.

Describe complements as value drivers and give an example.

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-02 Examine the relationship between value drivers and differentiation strateg
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > SA Qu. 109 Describe complements as value drivers...

When a firm pursues differentiation strategy, what does it focus on?

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-02 Examine the relationship between value drivers and differentiation strateg
Topic : Gaining Competitive Advantage Through Differentiation
Source : Chapter 06 Test Bank > SA Qu. 110 When a firm pursues differentiation strategy...

What is higher value associated with?

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 06-02 Examine the relationship between value drivers and differentiation strateg
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > SA Qu. 111 What is higher value associated with?

What is a value gap?

What are the pricing options available to a firm following a differentiation strategy?

What does a firm that pursues a cost-leadership strategy primarily focus on?

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > SA Qu. 114 What does a firm that pursues a cost-leaders...

List how economies of scale contribute to a firm.

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Economies and Diseconomies of Scale
Source : Chapter 06 Test Bank > SA Qu. 115 List how economies of scale contribute to a ...

Discuss the important differences between economies of scale and learning effects.

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 3 Hard
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > SA Qu. 116 Discuss the important differences between ec...

How do experience-curve and learning-curve effects help a business gain competitive advantage?

How does process innovation benefit a firm?

Question Details
AACSB : Knowledge Application
Accessibility : Keyboard Navigation
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > SA Qu. 118 How does process innovation benefit a firm?

Why is keeping its costs the lowest in the industry not the only focus of a firm pursuing cost-leadership strategy?

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-04 Assess the benefits and risks of differentiation and cost-leadership strat
Topic : Relationship Between Cost Drivers and Cost-Leadership and Differentiation Strategies
Source : Chapter 06 Test Bank > SA Qu. 119 Why is keeping its costs the lowest in the i...

Discuss the threats firms face when they pursue a differentiation strategy.

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-04 Assess the benefits and risks of differentiation and cost-leadership strat
Topic : Gaining Competitive Advantage Through Differentiation
Source : Chapter 06 Test Bank > SA Qu. 120 Discuss the threats firms face when they pur...

What does the success of business-level strategies depend on?

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-04 Assess the benefits and risks of differentiation and cost-leadership strat
Topic : Understanding Business-Level Strategies
Source : Chapter 06 Test Bank > SA Qu. 121 What does the success of business-level stra...

Explain blue ocean strategy with the help of an example.

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-05 Evaluate value and cost drivers that may allow a firm to pursue a blue oce
Topic : Blue Ocean Strategy
Source : Chapter 06 Test Bank > SA Qu. 122 Explain blue ocean strategy with the help of...

What is required for a blue ocean strategy to succeed?

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-04 Assess the benefits and risks of differentiation and cost-leadership strat
Topic : Blue Ocean Strategy
Source : Chapter 06 Test Bank > SA Qu. 123 What is required for a blue ocean strategy t...

Explain two ways to accomplish value innovation through either lowering costs or increasing perceived consumer benefits. Give an example of each of the two ways.

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-05 Evaluate value and cost drivers that may allow a firm to pursue a blue oce
Topic : Value Innovation
Source : Chapter 06 Test Bank > SA Qu. 124 Explain two ways to accomplish value...

Briefly explain the difficulties in pursuing a blue ocean strategy.

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-06 Assess the risks of a blue ocean strategy, and explain why it is difficult
Topic : Blue Ocean Strategy
Source : Chapter 06 Test Bank > SA Qu. 125 Briefly explain the difficulties in pursuing...

Addell recently started a specialty baking business and proudly boasts that none of her competitors can replicate her unique flavor combinations and complicated, original cake designs. Her cakes are in high demand for weddings, birthdays, and other large events. As a result of her success, she’s considering expanding her operations and increasing production by 50 percent, but her accountant tells her that this expansion will substantially increase the per-unit cost of every cake. This news worries Addell because the price of her cakes is already very high, and she’s afraid of charging more. Addell asks you the following questions:

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-02 Examine the relationship between value drivers and differentiation strateg
Topic : Gaining Competitive Advantage Through Differentiation
Source : Chapter 06 Test Bank > SA Qu. 126 Addell recently started a specialty baking...

Zeppelin has been working as a pizza maker for over ten years and has gained substantial knowledge of how the pizza business works. He wants to open up his own pizzeria and believes that he can drive his costs down lower than any competitor without sacrificing quality. What business-level strategy is he most likely to pursue and which key cost driver will most likely help him achieve success?

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 06-03 Examine the relationship between cost drivers and cost-leadership strategy
Topic : Cost Drivers
Source : Chapter 06 Test Bank > SA Qu. 127 Zeppelin has been working as a pizza maker...

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Chapter 6 Strategy – Cost, Differentiation

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Frank Rothaermel

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