Brief Answers to Tutorial Questions

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ESSAY

1. Firms’ relationships with customers are characterised by three dimensions. What are these dimensions?
Briefly describe each.

ANS:
The three dimensions of firms’ relationships with customers are characterised as reach, richness and
affiliation. The reach dimension of relationships with customers is concerned with a firm’s access and
connection to customers. In general, firms seek to extend their reach, adding customers in the process of
doing so. Richness, the second dimension of a firm’s relationship with customers, is concerned with the
depth and detail of the two-way flow of information between the firm and the customer. Broader and
deeper information-based exchanges allow firms to better understand their customers and their needs.
Affiliation, the third dimension, is concerned with facilitating useful interactions with customers. Viewing
the world through the customer’s eyes and constantly seeking ways to create more value for the customer
have positive effects in terms of affiliation. This approach enhances customer satisfaction and produces
fewer customer complaints.

PTS: 1 DIF: Easy REF: Reach, richness and affiliation

2. Name the basis and example for consumer segmentation for consumer markets?

ANS:
Consumer:
 Demographic factors for example income
 Socioeconomic factors for example social class
 Geographic factors for example culture
 Psychological factors for example lifestyle
 Consumption patterns for example heavy, moderate, or light users
 Perceptual factors for example perceptual mapping

PTS: 1 DIF: Mod REF: Who: determining the customer to serve

3. When employing a cost leadership strategy, which factors allow a firm to earn above-average returns in
spite of strong competitive forces?

ANS:
 Rivalry: Having a low-cost position serves as a valuable defence against rivals. Because of the cost
leader’s advantageous position, rivals hesitate to compete on the basis of price.
  Buyers: The cost leadership strategy also provides protection against the power of customers.
Powerful customers can drive prices lower, but they are not likely to be driven below that of the next
most efficient industry competitor.
 Suppliers: The cost leadership strategy allows a firm to better absorb any cost increases forced on it
by powerful suppliers.
 Entrants: The cost leadership strategy discourages new entrants because the new entrant must be
willing to accept no-better-than-average returns until it gains the experience required to approach the
cost leader’s efficiency.
 Substitutes: For substitutes to be used, they must not only perform a similar function but also be
cheaper than the cost leader’s product.

PTS: 1 DIF: Hard REF: Cost leadership strategy

4. Describe a cost leadership strategy and its risks.

ANS:
In a cost leadership strategy, a producer seeks to offer products with acceptable features to customers at
the lowest competitive price. One risk of a cost leadership strategy is that a firm’s investment in
manufacturing equipment may be made obsolete through technological innovations by competitors.
Additionally, a firm with a cost leadership strategy may focus on cost reduction at the expense of trying to
understand customers’ needs and/or competitive concerns. Finally, competitors may be able to imitate a
cost leader’s competitive advantages in their own unique strategic actions.

PTS: 1 DIF: Moderate REF: Cost leadership strategy