Business Strategy 2021 (Spring)

Take Home Quiz #1

Multiple Choice

Solved By:

Asad Ali (013-17-0039)

1. Simply Music Recording Studio has seen great success in its 20 years of operation—until
recently. While utilizing top recording equipment and the latest technology to record vocal
artists and musicians, Simply Music Recording Studio has noticed a decrease in the number
of entertainers who use its the facilities to record. What is the most likely reason that
Simply Music Recording Studio has seen the decrease in the number of customers?

Correct Answer – (a). Simple Music Recording Studio has failed to recognize the readily
available and inexpensive technological capabilities that artists can use at home to produce a
recording of similar quality.

Explanation:

Here the Simply Music Recording Studio is affected by the "Substitution Effect." Substitution
effect is defined as due to high prices of the product consumers shift to more cheaper
alternatives. Hence, as here the consumers are using other available technological capabilities
and enjoying the similar quality. There is performance gape in the market at which company
has not focused.

2. A company that experienced problems with its wholesalers decided to replace them by
building warehousing facilities from which to distribute its products and to hire its own
sales force. This strategy is called:
Correct Answer – (d) Vertical Integration

Explanation:

In vertical integration companies controls their suppliers, retails locations or distributors in

order to control value chain. It gives them more control over their processes, improve
efficiency and reduce cost. In the given situation company has become its own distributors and
retailer by doing vertical integration through making its own warehousing facility and hiring
of sales force.

3. The ABC Company sells plastic model cars in retail stores primarily to hobbyists. It has
decided to modify the cars’ exterior packaging, giving the car a more sophisticated look
that will appeal to more discerning buyers. The ABC company has changed its:

Correct Answer - (b) target market

Explanation:

ABC Company is changing it its target market as it is now serving to a different group of
customers, as these customers like stylish cars. It has added features to the product by
modifying the cars' packaging and making their look more attractive. Positioning of the
company will also be different as it has changed it customers.

4. The ABC Company owns and operates mines that produce raw material used for air
filtration in enclosed environments. Its only customers are two large companies that
produce air-filtration systems. According to Porter’s Five Forces Framework, which of the
following is the greatest competitive threat to its continued profitability?

Correct Answer - (a) The bargaining power of buyers

Explanation:

Bargaining power of the buyers is one of the forces Five Forces Framework defined as ability
or pressure of customers on a business due to which companies provide them high quality,
lower prices, or better customer service, which ultimately affect the profitability of the certain
industry or company. Here the buyers are very limited (i.e... only two) and customers are
businesses which are conscious about the price as it impacts on their profit margins. This force
will impact highly on ABC company relative to others.

5. What are the best ways that a firm can reduce the threat of imitation?
Correct Answer - (d) Increase strategic complexity and create a credible threat of retaliation.

Explanation:

Businesses makes their strategies in their operation in a way that is very difficult to be observed
by the external bodies such as competitors. Therefore, they cannot copy their processes through
will they reach on the same competitive position and decrease the profitability or market share
of the company. On the other hand, Company is so much innovative if the competitors try to
copy it, it launches a new process or product which will affect the market share of them
enormously, therefore they avoid following it – it is know as threat of retaliation. These both
strategic compl4xity and threat of retaliation will decrease the threat of imitation.

6. Because it holds a patent for a technology that increases an automobile’s reliability,

Company A has 80% of the market for a specialized component. Auto manufacturers pay
a high premium for this component. As a result, the auto manufacturers realize:

Correct Answer – (a) reduced profit margins due to the bargaining power of their supplier.

Explanation:

Company A being a supplier is enjoying the less competition almost monopoly due to patent
protection for its technology. It has very low bargaining power of buyers as other sellers don’t
have the same material and are also in small size. It also has decreased the threat of entry by
making patent protection into the technology. Due to these reasons, it is charging more prices
from the buyers (which are businesses) and reducing their profit margins.
7. An organization intends to capture market share in its industry because it has access to a
scarce key ingredient in its patented formula of antiviral products. What is the approach
the organization should take to capture market share?

Correct Answer – (d) Blue Ocean Strategy

Explanation:

Blue Ocean Strategy is defined as competitive position of the firm in the market where there
are very few or no competitors in the market. Companies follow this strategy by making their
product or processes differentiated which could not imitated. As in the above situation due to
access on the scarce resources and protection of formula through patent competitors are not
able enter in the market with the similar featured product, so the company should use blue
ocean strategy to capture the market share.

8. XYZ Company operates on a remote interstate highway. It provides premium services to

truckers enroot to remote locations. It has numerous competitors that offer lower prices,
but it meets the demands of discerning clients with its high-quality services. Therefore,
XYZ Company can be characterized as a firm with a:

Correct Answer – (c) value proposition based on differentiation and a niche clientele that is
willing to pay for added value.

Explanation:

Competitive strategy of the XYZ firm is differentiation by t\providing them high quality
services. The target market of the company is concentrated and meeting its target customers
demands effectively. It is not competing on price with the competitors rather through
differentiation for which customers wiling to pay more prices to this firm relative to their
competitors.

9. Which one of the following questions is a fundamental criterion for a strategy?

Correct Answer – (b) Where should the organization compete?

Explanation:
According to Michael Porter, Strategy is not about serving the all the customer. Its about
serving the specific segment by providing them superior value. Looking at the jobs to be done
of that particular segment of the customers. Companies must decide first about the customers
whom to they want and are able to serve and then make strategies accordingly.

10. A software developer has a new idea for a mobile application that will enable blind
individuals to identify the denomination of paper currency. Which of the following may
prevent the developer from charging a premium price?

Correct Answer – (d) Threat of potential entrants

Explanation:

Threat of new entry is low when barriers to entry in the industry are high. In this industry of
mobile application or software development barriers are very week therefore entry in this
industry is very easy. As no intensive capital investments are needed or there are no restrictions
from the government other than patent which could be mitigate by bringing little variations in
the new offering. Only the developer can create barriers to lower the threat of new entry is by
charging low prices/