Strategic Management Concepts and Cases Rothaermel Rothaermel 1st Edition Test Bank Download

Strategic Management Concepts and Cases Rothaermel Rothaermel 1st Edition Test Bank
Strategic Management Concepts and Cases

Rothaermel Rothaermel 1st Edition Test Bank
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Chapter 06
Business Strategy: Differentiation, Cost Leadership, and Integration
True / False Questions
1. As shown in the Chapter 6 opening case, Whole Foods Market had to seek new strategic initiatives
such as enhancing its differentiated appeal and improving its cost structure because it was losing its
competitive advantage.
True False
2. A firm's business-level strategy answers the question "Where should we compete?"
True False
3. The goal of a strategic position is to create the largest gap possible between the value that a firm
creates through its offerings and the cost required to create these offerings.
True False
4. When pursing a differentiation strategy, the focus of competition is to add unique features in order to
create a level of value creation that competitors cannot easily imitate.
True False
5. Value drivers are considered to contribute to competitive advantage even if the increase in cost
exceeds their value creation.
True False
6. Value drivers that managers can use include input factors, economies of scale, and learning-curve
effects.
True False
7. When pursuing a cost-leadership strategy, the focus of competition is on cost parity, while offering
acceptable value.
True False
8. Cost drivers that are out of managerial control include the cost of input factors, economies of scale,
and experience-curve effects.
True False
9. Economies of scale generally weaken a firm's ability to move down a given learning curve.
True False
10. Applying the five forces model to business-level strategy allows managers to assess the benefits and
risks of both cost-leadership and differentiation strategies.
True False
11. Successfully implementing an integration strategy is particularly important in globalized industries.
True False
12. Succeeding at an integration strategy is typically easy for a firm.
True False
13. A firm that is "stuck in the middle" has a competitive advantage.
True False
14. Due to the dynamic nature of business competition, a firm's strategic position should remain fixed over
time.
True False
Multiple Choice Questions

15. The opening case of Chapter 6 highlights the business-level strategy of Whole Foods. All of the
following are part of this strategy EXCEPT:
A. Adopting a new strategic intent to become the champion of healthy eating.

B. Reducing costs through initiatives such as expanding its private-label offerings.
C. Emphasizing its organic food offerings as the tool to compete on price.
D. Improving its logistics system in order to improve efficiencies.
16. All of the following are questions that managers answer when selecting a business-level strategy
EXCEPT:
A. Who will we serve?

B. How many product markets will we be in?
C. What customer needs and desires will we satisfy?
D. Why do we want to satisfy these needs?
17. In order for a firm to formulate an effective business-level strategy, it is important to remember that
competitive advantage is determined by:
A. The characteristics of the industry in which a firm competes.

B. The characteristics of the firm itself.
C. The characteristics of both the industry and the firm.
D. The absolute positioning of the firm.
18. The two primary competitive levers that managers can use in order to answer the question of how to
compete are:
A. Cost and core competencies.

B. Value and cost.
C. Value and core competencies.
D. Cost and revenues.
19. A firm's strategic position is:
A. Determined by its business-level strategy.

B. Created through strategic trade-offs.
C. An attempt to create a large gap between value creation and costs.
D. All of these.
20. When the CEO of Whole Foods, John Mackey, had to make decisions about the company's cost
structure and value position he was:
A. Making strategic trade-offs.

B. Conducting a strategic group map evaluation.
C. Trying to improve the firm's economies of scope.
D. Leveraging the low-cost position of the company.
21. The ___________ is the difference between value creation and cost.
A. Profit gap
B. Net profit
C. Value gap
D. Revenue gap
22. A generic business strategy is more likely to help a cost-leadership firm achieve competitive advantage
when it does which one of the following?
A. Allows a firm to perform similar activities differently than its rivals with resulting lower costs
B. Allows a firm to perform different activities than its rivals with greater value creation
C. Allows a firm to perform similar activities than its rivals with greater costs or lower value creation
D. Helps a firm create as large a gap as possible between the differential value created and the cost
required
23. Generic business-level strategies that a firm can adopt include all of the following EXCEPT:
A. Focused cost-leadership strategy.

B. Focused differentiation strategy.
C. Market differentiation strategy.
D. Broad cost-leadership strategy.
24. When a firm offers products with unique features and higher value for customers than that of the
competition, it is implementing a:
A. Product-broad strategy.
B. Differentiation strategy.
C. Cost-leadership strategy.
D. Product-focused strategy.
25. The fact that both Rolex and Timex have a competitive advantage selling wristwatches is an indication
that:
A. Following a different generic business strategy within the same industry can lead to a competitive
advantage for more than one organization.
B. 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.
C. In order to evaluate whether Rolex has a sustained competitive advantage it is useful to compare it
to Timex from a cost perspective.
D. In order to evaluate whether Timex has a sustained competitive advantage, it is useful to compare it
to Rolex from a differentiation perspective.
26. When management decides whether to pursue a broad market position or a narrow market position,
they are defining the:
A. Economies of scale.
B. Economies of scope.
C. Scope of competition.
D. Scope of core capabilities.
27. A firm's strategic position reflects:
A. Whether it is competing on differentiation or cost.

B. Whether it is competing within a targeted strategic group or not.
C. Whether is has a competitive advantage or not.
D. Whether it has first-mover advantages or not.
28. Combining the dimensions of a firm's __________ and __________ tells us which generic business strategy the
firm will pursue.
A. Economies of scope; economies of scale

B. Five forces; economies of scope
C. Scope of competition; core capabilities
D. Strategic position; scope of competition
29. ___________ and ____________ are the two focused generic business strategies.
A. Focused differentiation; focused low-cost

B. Integration; focused low-cost
C. Integration; focused differentiation
D. Cost leadership; differentiation
30. Rolex focuses on a small market segment, affluent consumers who want to present a certain image.
What is the appropriate name for Rolex's scope of competition?
A. Broad
B. Market segmented
C. Narrow
D. Targeted
31. Tesla Motors, maker of electric cars, is an example of a firm using what type of generic business
strategy?
A. broad low-cost
B. focused differentiation
C. focused low-cost
D. broad differentiation
32. _____ drivers are as important to a differentiation strategy as ________ drivers are to a cost-leadership
strategy.
A. Scope; quality
B. Quality; learning
C. Value; cost
D. Learning; experience
33. Higher product value tends to go along with which of the following items?
A. Higher prices
B. A higher willingness to pay
C. Higher costs
D. All of these
34. When the focus of competition is on differentiation, a firm tends to use all of these levers EXCEPT:
A. New product launches.

B. Cost input factors.
C. Marketing and promotion.
D. Unique product features.
35. Interface is a leader in sustainable and innovative carpeting, as evidenced by its Cool Carpet product,
the world's first carbon-neutral floor covering. Its product is unique and has appealing customer
attributes. If Interface raw material costs increased by 12% this year, what would be the likely
outcome?
A. Interface would lower profit margins to absorb this cost increase.

B. The company would launch an all-out effort to reduce other costs by 12%.
C. Interface would pass a major portion of this increase along as a price increase to its customers.
D. Interface would seek to find other materials with lower costs, even if it meant losing the carbon-
neutral label on the product.
36. A company that uses a differentiation strategy achieves a competitive advantage as long as:
A. The economic value that the firm creates is equal to that of the competition.
B. The economic value that the firm creates is greater than that of the competition.
C. The economic value that is created is less than that of the competition.
D. The economic value that is created is dependent on strategic parity.
37. When a firm is able to achieve higher economic value creation than its competition through
differentiation, the competitive advantage is reflected by:
A. The firm's ability to move into a new strategic group.

B. The firm's ability to charge higher prices.
C. The firm's ability to charge lower prices.
D. The firm's ability to leverage complements.
38. _________ and __________ are two of the value drivers that managers can utilize when trying to improve a
firm's differentiation strategic position.
A. Co-opetition; complements
B. Learning-curve effects; co-opetition
C. Customer service; complements
D. Economies of scale; co-opetition
39. OXO differentiates kitchen utensils by using a patent-protected, ergonomically designed rubber grip.
By adding unique product features, OXO can:
A. Turn differentiated products into standardized products with price parity.

B. Turn differentiated products into standardized products with price disadvantages.
C. Turn commodity products into differentiated products with price disadvantages.
D. Turn commodity products into differentiated products with premium pricing.
40. Value drivers are tools that help managers:
A. Increase perceived value and decrease costs.

B. Improve value chain activities and increase costs.
C. Achieve a low-cost position and maintain perceived value.
D. Achieve cost parity and maintain perceived value.
41. Strategy Highlight 6.1 discusses Toyota's recall challenges with its Lexus brand. All of the following are
true EXCEPT:
A. Toyota used the value driver of customer service when it called each owner individually for
recommended repairs.
B. By exceeding customer expectations, Toyota turned a serious threat into an opportunity by
establishing brand reputation for superior customer service.
C. Toyota's customer responsiveness enabled the firm to influence early adopters who became opinion
leaders for influencing others to purchase a Lexus.
D. Since the Lexus recall of the 1990s, Toyota leveraged firm experience effects and has successfully
maintained quality leadership in the automobile industry with no major challenges.
42. In 2010, Levi Strauss & Co introduced a new line of jeans called Levi's Curve ID. Levi's launched this
product based on research that found that 80 percent of women fall into three distinct body shapes.
Customers can now go to Levi's website and use a product configurator in order to determine their
"Curve ID" and purchase jeans most appropriate for their body type. Levi's is using what tool to
improve their strategic position?
A. A product differentiation strategy with complements as a value driver.

B. A product differentiation strategy with customization as a value driver.
C. A focused cost leadership with economies of scale as a cost driver.
D. A focused cost leadership with economies of learning as a cost driver.
43. A low-cost leader optimizes all of its ___________ in order to achieve a low-cost position.
A. Five forces activities

B. Strategic group activities
C. Value chain activities
D. Economic chain activities
44. A company that uses a cost-leadership strategy achieves a competitive advantage as long as:
A. The economic value that is created is less than that of the competition.
B. The economic value that the firm creates is equal to that of the competition.
C. The economic value that the firm creates is greater than that of the competition.
45. When pursuing a cost-leadership strategy, a business must remember that:
A. Buyers will be reluctant to pay for a product unless the quality is acceptable.
B. Buyers will be reluctant to pay for a product unless the quality is superior.
C. Buyers will be reluctant to pay for the product unless it is customized.
D. Product quality is more important in a broad market than in a narrow one.
46. In Strategy Highlight 6.2, Ryanair is aggressively pursuing a cost-leadership position in Europe. Which of
the following cost drivers are primarily used by Ryanair in the text?
A. Economies of scale
B. Cost of input factors
C. Experience-curve effects
D. Learning-curve effects
47. All of the following are tools typically used to achieve cost-leadership EXCEPT:
A. Controlling the cost of inputs.

B. Leveraging economies of scale.
C. Offering products that have superior value.
D. Learning by doing.
48. The concept of differentiation parity is important in low-cost leadership. A cost leader can gain a
competitive advantage when it has lower costs than the competition AND has achieved differentiation
parity. What is differentiation parity?
A. Creating value that is lower than the competition.

B. Creating value that is higher than the competition.
C. Creating the same value as the competition.
D. Creating products that are highly differentiated relative to the competition.
49. GM and Hyundai offer certain car models that directly compete with each other. Hyundai is able to
produce their models at a lower cost while providing similar value at the same time. It can be said that:
A. GM and Hyundai have both achieved differentiation parity and competitive advantages.
B. GM has achieved differentiation parity and a competitive advantage over Hyundai.
C. Hyundai has achieved differentiation parity and a competitive advantage over GM.
D. Neither GM nor Hyundai have achieved differentiation parity since they are not in the same strategic
group.
50. Achieving differentiation parity along with lower costs is important to a low-cost leader because:
A. The firm is then able to target a less price-sensitive customer market.

B. Creating the same value as the competition, combined with lower costs, gives the firm a competitive
advantage.
C. The firm is then able to incorporate differentiating features that cause buyers to prefer its products.
D. All of these.
51. Achieving differentiation parity can be difficult for a cost leader firm because:
A. Creating value generally means higher costs.

B. Achieving parity in the market is always hard.
C. Cost leaders typically add too much value to their products.
D. Value chain activities should not be altered.
52. A low-cost firm can still gain a competitive advantage even without differentiation parity as long as:
A. Its differentiation appeal is in parity with the competition.

B. Its costs are higher than the competition.
C. Its economic value creation exceeds that of the competition.
D. Its economic value creation is the same as the competition.
53. When competing on the basis of low-cost leadership, a primary objective is to:
A. Lower manufacturing costs.

B. Lower production costs.
C. Lower supplier costs.
D. Lower overall costs.
54. There are several cost drivers that can be managed in order to establish a low-cost leadership
advantage. One of the basic cost drivers is:
A. Access to unique features that turn commodities into differentiated products.

B. Access to lower-cost input factors including raw materials and labor.
C. Creating personalized customer service in order to minimize price-sensitivity.
D. Shifting to small-scale production processes in order to create customized products.
55. When costs per unit fall as output increases, _________________ occur.
A. Economies of scope
B. Diseconomies of scale
C. Economies of efficiency
D. Economies of scale
56. Between 2007 and 2009, Microsoft spent close to $25 billion on R&D, the majority of which went to its
new Windows 7 operating system. These costs were fixed. However, after Windows 7 hit the market,
the marginal costs were basically zero. Since Microsoft expects to sell several hundred million copies
of Windows 7, it can be said that:
A. Microsoft has a competitive advantage because it has already spent the capital required for its new
offering.
B. Microsoft has a competitive advantage because it will be able to drive down per-unit costs of
Windows 7 with each additional copy it sells.
C. Since Microsoft will sell so many units of Windows 7, it has attained competitive parity within its
strategic group.
D. Microsoft will be at a competitive disadvantage unless it exceeds its sales forecasts because its
marginal costs will change.
57. Spreading fixed costs over larger output, employing specialized systems and equipment, and
________________ are three primary ways that achieving economies of scale can help a business.
A. Increasing capital investments in input factors

B. Producing two or more outputs using common resources
C. Taking advantage of certain physical properties
D. Spreading marginal costs over smaller units
58. One of the reasons that big box retailers like Home Depot are able to achieve economies of scale is
that:
A. They have both broad and narrow economies of scope.

B. They are able to take advantage of physical properties and maximize their scale efficiencies by
stocking more merchandise and handling inventory more efficiently.
C. They are able to take advantage of market size and spread investment losses over many locations.
D. They have been able to protect themselves from the threat of buyer power by increasing input
prices.
59. Achieving economies of scale is an important cost driver for certain low-cost leaders. However, there
is a saying that "sometimes bigger is worse" because at some point costs increase as output
increases. This is referred to as:
A. External economies
C. Economic inefficiencies
D. Integration diseconomies
60. When a business drives costs down as its cumulative output increases, it is referred to as:
A. A learning curve.
B. An output curve.
C. A demand curve.
D. A distribution curve.
61. Learning curves were first used by aircraft manufacturers in the 1930s. Companies found a predictable
relationship between increasing production output and cost per unit. What does it mean for a firm to
have an 80% learning curve?
A. Every time the cumulative output increases by 80%, the cost per unit will decrease by 20%.
B. Every time the cumulative output is doubled, the cost per unit will decline by 80%.
C. Every time the cumulative output goes up 20%, the cost per unit will decline by 80%.
D. Every time the cumulative output is doubled, the cost per unit will decline by 20%.
62. Experience curves attempt to capture both _______________ and learning effects.
A. Customization
B. Economies of scale
C. Economies of scope
D. Competitive position
63. Relative to the five-forces model, a low-cost strategy is beneficial when:
A. Competition is based on product features, suppliers may increase costs, and buyers have bargaining
power.
B. Competition is based on product features, suppliers have very limited power, and buyers have
bargaining power.
C. Price competition is vigorous, suppliers may increase costs, and buyers have bargaining power.
D. Price competition is vigorous, suppliers have very limited power, and buyers have bargaining power.
64. Under the five forces model, a risk to a business with a cost-leadership strategy is:
A. Competition switches from customer service to pricing.

B. When technological innovations open up cost reductions for substitutes or competitors.
C. New entrants are all start-up firms with low volumes.
D. Suppliers request a 2% price increase across the industry.
65. Under the five forces model, a differentiation strategy works best when:
A. The firm has intangible resources, supplier cost increases can be passed on to the customer, and
equivalent substitutes are readily available.
B. The firm has tangible resources, supplier cost increases can be passed on to the customer, and
C. The firm has tangible resources, supplier cost increases can be passed on to the customer, and the
differentiation appeal creates customer loyalty.
D. The firm has intangible resources, supplier cost increases can be passed on to the customer, and
the differentiation appeal creates customer loyalty.
66. Under the five forces model, a risk to a firm with a differentiation strategy is:
A. When the focus of competition switches to price rather than features and new acceptable levels of
quality have emerged due to innovation.
B. When the focus of competition switches to price rather than features and the substitute products
are considered below acceptable levels of quality.
C. When the focus of competition switches to features rather than price, the substitute products are
considered below acceptable levels of quality.
D. When the focus of competition switches to features rather than price and new acceptable levels of
quality have emerged due to innovation.
67. When pursuing a differentiation strategy, a firm must remember that:
A. Buyers will be willing to pay for value that is not perceived.

B. Buyers will be reluctant to pay for value that is not perceived.
C. Perceived value is not as important as the price of the product.
D. Perceived value is more important in a broad market than in a narrow one.
68. When a firm is able to successfully employ an integration strategy, it will create a competitive
advantage by:
A. Combining high quality and product features to provide service that customers truly value.
B. Using a first-mover advantage to be the lowest price in the market.
C. Winning market share with a highly differentiated product.
D. Beating rivals on product attributes while offering a better price.
69. Avon has been able to raise the perceived value of its products while lowering production costs. It has
also been able to create more value in relationship to its costs over rivals Revlon and L'Oreal. It can be
said that:
A. Avon has successfully moved from a differentiation to a cost-leadership strategy.

B. Avon has a competitive advantage because it has the features customers value most in the
cosmetics industry.
C. Avon has successfully achieved an integration strategy and has a competitive advantage because it
has higher value creation.
D. Avon is the low cost leader of the cosmetics industry with their "sell at home" sales approach.
70. There are two generic strategic positions that require managers to make trade-offs between, in order
to achieve success at an integration strategy. They are:
A. Service-oriented and low cost.

B. Product-oriented and high cost.
C. High cost and commodity.
D. Low cost and differentiation.
71. When pursuing an integration strategy, managers use levers to help them simultaneously increase
perceived value and lower costs. Which of the following is NOT one of these levers?
A. Quality
B. Complements
D. Structure, culture, and routines
72. When it comes to pursuing an integration strategy, managers manipulate both _____ and ________ drivers.
A. Cost; value
B. Cost; core capability
C. Value; core capability
D. Market; economic
73. Innovation is important when pursuing an integration strategy because:
A. It helps a firm resolve existing trade-offs between price and quality.

B. Without innovation a firm can get "stuck in the middle."
C. Innovation is the most important component regardless of strategy.
D. It is the only way that a firm can improve its value chain activities.
74. A firm's structure, culture, and routines are very important when pursuing an integration strategy
because organizations have to control costs and allow for creativity that can lead to differentiation.
Therefore, managers should try to build an organization that is _________.
A. Hierarchical
B. Bureaucratic
C. Ambidextrous
D. Dynamic
75. When a firm applies its current knowledge in order to enhance short-term performance, it is using
_________.
A. Exploitation
B. Learning-curve effects
D. Strategic trade-offs
76. _________ is when a firm is searching for new knowledge that could enhance future performance.
A. Boundary spanning
B. Channel communication
C. Exploitation
D. Exploration
77. Essentially, a successful integration strategy:
A. Gives customers more perceived value while exceeding their price expectation.
B. Allows a firm to make strategic trade-offs effectively.
C. Enables a firm to increase value creation while keeping costs in check.
D. All of these.
78. One of the risks of pursuing an integration strategy is:
A. That a firm could lose sight of its mission.

B. That this strategy is easy for rivals to imitate.
C. That the firm may get "stuck in the middle."
D. That it is ineffective when competing on a global scale.
79. Buy Us is a big box retailer who is in direct competition with Walmart and Target. Buy Us 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 Buy Us 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 Buy
Us is currently less than Target and Walmart. It can be said that:
A. Buy Us is successful in creating an integration strategy positioned between Walmart and Target.
B. Buy Us is "stuck in the middle" and has a competitive disadvantage.
C. Buy Us is still creating an integration strategy positioned between Walmart and Target and is on the
right track. It should continue this business strategy.
D. Buy Us is "stuck in the middle" and has a competitive advantage.
80. An integration strategy differs from a low-cost strategy in that:
A. The intent of an integration strategy is not to be the absolute lowest-cost provider because of the
added costs of increased value in its products/service.
B. A successful integration strategy requires that the business be the lowest-cost provider in order to
drive higher value creation than the competition.
C. Economy of scale is more important to an integrator, while economy of scope is more important to a
low-cost strategy.
D. An integration strategy requires first that the business be stuck in the middle, while a low-cost
strategy avoids this condition.
81. The Tata Group of India is a widely diversified multinational company. In 2008, it bought Jaguar and
Land Rover from Ford. It is hoping to leverage the prestige of these brands due to their global
reputation. Then, in 2009 Tata introduced the Nano car, which is the lowest-priced car in the world.
The rear hatch of the Nano can't be opened, and it has no radio or even a glove compartment. It can
be said that the Tata Group of India is:
A. Planning to move the Jaguar business unit from differentiated to an integration strategy.
B. Pursuing the Chinese market with the Land Rover acquisition.
C. Pursuing both a focused differentiation strategy and a focused cost-leadership strategy.
D. Planning to move the Nano business unit from low-cost to an integration strategy.
82. It can be said that the Tata Group is pursuing a(n) _____________ strategy at the corporate level when it
comes to automobiles.
A. Undiversified
B. Unrelated
C. Integration
D. Linked integrative
83. When a firm has been able to perform best practices combined with a positive value-cost relationship,
it has reached the:
A. Value-cost frontier.
B. Productivity frontier.
C. Economies of scope.
D. Strategic intent.
84. Firms that exhibit _________ and ________ reach the productivity frontier.
A. Determination; strategic intent

B. Economies; flexibility
C. Effectiveness; efficiency
D. Innovation; culture
85. Apple, Dell, and HP are used as examples in the text for the dynamics of competitive positioning. What
does this analysis tell us about these firms?
A. There has been relatively little change in the positions of these firms from 2005 to 2010.
B. Apple is the only one of the three to remain on the productivity frontier from 2005 to 2010.
C. HP's position has declined on the frontier from 2005 to 2010.
D. Dell has improved its position on the frontier from 2005 to 2010.
86. Understanding the productivity frontier is useful because of all of the following EXCEPT:
A. It represents possible strategic positions a firm can take.

B. It reflects the relationship between strategic positions, value creation, and costs.
C. It helps a firm determine cost-differentiation trade-offs.
D. It reflects which global markets will be the most productive to pursue in the future.
87. The productivity frontier provides a theoretical reflection of the possible best practices at any given
time. Why is this an important tool for managers?
A. Because any strategic tool that a manager has at their disposal is useful.
B. Because strategic positioning is dynamic and firms have to refine their positions over time.
C. Because a firm always wants to stay behind the productivity frontier.
D. Because a firm wants to make sure it is ahead of best practices.
88. When it comes to strategic positioning and generic business strategies, which of the following is TRUE:
A. All of the business strategies are equally difficult to adopt.

B. Only a few exceptional firms are able to balance the value-cost strategic trade-offs and adopt an
integration strategy successfully.
C. Once a firm has established itself with a strategy, it should stick with what it knows.
D. Strategic positioning is not as critical to competitive advantage as is the firm's resources and
economic environment.
Short Answer Questions
89. What is the major issue facing Whole Foods in the ChapterCase opener?
90. What are the key questions to answer for managers about business-level strategy?
91. What is the difference between a strategic position and a strategic trade-off?
92. Why are differentiation and cost-leadership described as generic business strategies?
93. How is the scope of competition different between Rolex and Timex?
94. When a firm has a higher perceived value and cost parity with competitors, why would it NOT offer
products at a price premium?
95. Name and give an example for TWO of the four value drivers noted in the text.
96. In the value gap analysis (V-C), which item do cost leaders focus on with their strategies?
97. What is the difference between economies of scale and diseconomies of scale?
98. How does an experience curve help a business gain competitive advantage?
99. How are the benefits different for cost leadership versus differentiation when analyzing the power of
suppliers to the industry?
100. How are the risks different for cost leadership versus differentiation when analyzing the rivalry among
existing competitors to the industry?
101. How is Leopard Cycles demonstrating its use of an integration strategy for its customized road-race
bikes?
102. Contrast the idea of economy of scope with economy of scale.
103. Briefly describe an ambidextrous organization.
104. What is meant by businesses being "stuck in the middle"?

105. How does a productivity frontier help describe the dynamics of competitive positioning?
Chapter 06 Business Strategy: Differentiation, Cost Leadership, and Integration Answer Key
True / False Questions
1. As shown in the Chapter 6 opening case, Whole Foods Market had to seek new strategic initiatives
(p. 139- such as enhancing its differentiated appeal and improving its cost structure because it was losing
140)
its competitive advantage.
TRUE
Whole Foods Market had to reinvigorate its business-level strategy by becoming the champion of
healthy eating to further enhance its differentiation as competitors began carrying organic food.
Furthermore, the company had to focus on reducing costs because its cost structure was higher
than other grocers.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 06-01 Define business-level strategy and describe how it determines a firm's strategic position.
Topic: Business-Level Strategy: How to Compete for Advantage
2. A firm's business-level strategy answers the question "Where should we compete?"

(p. 140)
FALSE
Business-level strategy details actions managers take when competing in a single product market
and concerns the question "How should we compete?"
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
3. The goal of a strategic position is to create the largest gap possible between the value that a firm
(p. 141) creates through its offerings and the cost required to create these offerings.
TRUE
A strategic position is a strategic profile based on value creation and cost. The goal is to create as
large a gap as possible between (V-C).
AACSB: Analytic
Blooms: Analyze
Difficulty: 2 Medium
4. When pursing a differentiation strategy, the focus of competition is to add unique features in order
(p. 143) to create a level of value creation that competitors cannot easily imitate.
TRUE
A differentiation strategy seeks to create higher value for customers than the competition by
delivering products or services with unique features.
AACSB: Analytic
Blooms: Understand
Learning Objective: 06-02 Examine the relationship between value drivers and differentiation strategy.
Topic: Differentiation Strategy: Understanding Value Drivers
5. Value drivers are considered to contribute to competitive advantage even if the increase in cost
(p. 145) exceeds their value creation.
FALSE
Value drivers only contribute to competitive advantage if their increase in value creation exceeds
the increase in costs. Thus, expanding the value gap for the business.
AACSB: Analytic
Blooms: Understand
6. Value drivers that managers can use include input factors, economies of scale, and learning-curve
(p. 145) effects.
FALSE
The most salient value drivers that managers have at their disposal are product features, customer
service, customization, and complements.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
7. When pursuing a cost-leadership strategy, the focus of competition is on cost parity, while offering
(p. 147) acceptable value.
FALSE
The goal of a cost-leadership strategy is to reduce the firm's cost below that of the competition,
yielding a cost advantage.
AACSB: Analytic
Blooms: Understand
Learning Objective: 06-03 Examine the relationship between cost drivers and cost-leadership strategy.
Topic: Cost-Leadership Strategy: Understanding Cost Drivers
8. Cost drivers that are out of managerial control include the cost of input factors, economies of
(p. 148) scale, and experience-curve effects.
FALSE
The cost of input factors, economies of scale, and experience-curve effects can all be manipulated
by managers.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
9. Economies of scale generally weaken a firm's ability to move down a given learning curve.
(p. 152)
FALSE
Economies of scale typically have a positive impact on learning effects. Under this concept,
economies of scale allow movement down a given learning curve based on current production
technology and volume produced.
AACSB: Analytic
Blooms: Understand
10. Applying the five forces model to business-level strategy allows managers to assess the benefits
(p. 153) and risks of both cost-leadership and differentiation strategies.
TRUE
The five forces model helps managers decide which of the generic business-level strategies to use
in order to protect themselves against the forces that drive down profitability.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-04 Assess the benefits and risks of cost-leadership and differentiation business strategies vis-à-vis the five forces that shape
competition.
Topic: Business-Level Strategy and the Five Forces: Benefits and Risks
11. Successfully implementing an integration strategy is particularly important in globalized industries.

(p. 155)
TRUE
Lowering costs while offering differential features is particularly important in globalized industries
due to competition with firms in countries with lower labor costs and unique customer preferences.
AACSB: Analytic
Blooms: Apply
Learning Objective: 06-05 Explain why it is difficult to succeed at an integration strategy.
Topic: Integration Strategy: Combining Cost Leadership and Differentiation
12. Succeeding at an integration strategy is typically easy for a firm.
(p. 159)
FALSE
An integration strategy is difficult to achieve because differentiation and cost leadership are distinct
strategic positions that require trade-offs.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 06-06 Evaluate value and cost drivers that may allow a firm to pursue an integration strategy.
13. A firm that is "stuck in the middle" has a competitive advantage.

(p. 159)
FALSE
When a firm ends up stuck in the middle, it is at a competitive disadvantage.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
14. Due to the dynamic nature of business competition, a firm's strategic position should remain fixed
(p. 160) over time.
FALSE
Due to the dynamics of competitive positioning, firms must constantly refine and improve their
strategic position over time. The goal is to not fall behind the productivity frontier.
AACSB: Analytic
Blooms: Understand
Learning Objective: 06-07 Describe and evaluate the dynamics of competitive positioning.
Topic: The Dynamics of Competitive Positioning
Multiple Choice Questions

15. The opening case of Chapter 6 highlights the business-level strategy of Whole Foods. All of the
(p. 139- following are part of this strategy EXCEPT:
140)
A. Adopting a new strategic intent to become the champion of healthy eating.

B. Reducing costs through initiatives such as expanding its private-label offerings.
C. Emphasizing its organic food offerings as the tool to compete on price.
D. Improving its logistics system in order to improve efficiencies.
Whole Foods is no longer able to use organic food offerings as a primary tool for differentiation
because many other grocers now have organic food as well.
AACSB: Analytic
Blooms: Apply
16. All of the following are questions that managers answer when selecting a business-level strategy
(p. 140) EXCEPT:
A. Who will we serve?

B. How many product markets will we be in?
C. What customer needs and desires will we satisfy?
D. Why do we want to satisfy these needs?
A business-level strategy details the actions taken when competing in a single product market. It
may involve a single product or a group of very similar products using the same channel.
AACSB: Analytic
Blooms: Understand
17. In order for a firm to formulate an effective business-level strategy, it is important to remember
(p. 140) that competitive advantage is determined by:
A. The characteristics of the industry in which a firm competes.

B. The characteristics of the firm itself.
C. The characteristics of both the industry and the firm.
D. The absolute positioning of the firm.
A firm's competitive advantage is determined jointly by industry and firm characteristics.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
18. The two primary competitive levers that managers can use in order to answer the question of how
(p. 141) to compete are:
A. Cost and core competencies.

B. Value and cost.
C. Value and core competencies.
D. Cost and revenues.
The two primary competitive levers are value and cost.
AACSB: Analytic
Blooms: Understand
19. A firm's strategic position is:
(p. 141)
A. Determined by its business-level strategy.

B. Created through strategic trade-offs.
C. An attempt to create a large gap between value creation and costs.
D. All of these.
A firm's business-level strategy determines its strategic position, which is a strategic profile based
on meeting customer needs while creating as large a gap as possible between the value of offerings
and the cost to produce them. This is achieved through strategic trade-offs.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
20. When the CEO of Whole Foods, John Mackey, had to make decisions about the company's cost
(p. 141- structure and value position he was:
142)
A. Making strategic trade-offs.

B. Conducting a strategic group map evaluation.
C. Trying to improve the firm's economies of scope.
D. Leveraging the low-cost position of the company.
Strategic trade-offs occur when a firm is confronted by the tension between the higher costs of
value creation and the pressure to keep costs in check.
AACSB: Analytic
Blooms: Apply
21. The ___________ is the difference between value creation and cost.
(p. 142)
A. Profit gap
B. Net profit
C. Value gap
D. Revenue gap
The difference between value creation and cost (V-C) is called the value gap.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
22. A generic business strategy is more likely to help a cost-leadership firm achieve competitive
(p. 142) advantage when it does which one of the following?
A. Allows a firm to perform similar activities differently than its rivals with resulting lower costs
B. Allows a firm to perform different activities than its rivals with greater value creation
C. Allows a firm to perform similar activities than its rivals with greater costs or lower value
creation
D. Helps a firm create as large a gap as possible between the differential value created and the
cost required
Cost-leadership focus is on achieving industry-leading cost structures, which usually result in these
firms performing similar activities to others, but with more efficient or improved cost.
AACSB: Analytic
Blooms: Understand
23. Generic business-level strategies that a firm can adopt include all of the following EXCEPT:
(p. 142-
143)
A. Focused cost-leadership strategy.

B. Focused differentiation strategy.
C. Market differentiation strategy.
D. Broad cost-leadership strategy.
Market differentiation strategy is not a generic business strategy.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
24. When a firm offers products with unique features and higher value for customers than that of the
(p. 142) competition, it is implementing a:
A. Product-broad strategy.
B. Differentiation strategy.
C. Cost-leadership strategy.
D. Product-focused strategy.
A differentiation strategy seeks to create higher value for customers than that of the competition
by delivering products or services with unique features at the same or similar costs.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
25. The fact that both Rolex and Timex have a competitive advantage selling wristwatches is an
(p. 142) indication that:
A. Following a different generic business strategy within the same industry can lead to a
competitive advantage for more than one organization.
B. 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.
C. In order to evaluate whether Rolex has a sustained competitive advantage it is useful to
compare it to Timex from a cost perspective.
D. In order to evaluate whether Timex has a sustained competitive advantage, it is useful to
compare it to Rolex from a differentiation perspective.
Rolex uses a differentiation strategy; Timex uses a cost-leadership strategy. Both have a
competitive advantage even though they are in the same industry. Each firm should be compared to
others that are direct competitors rather than comparing Rolex to Timex directly.
AACSB: Analytic
Blooms: Analyze
26. When management decides whether to pursue a broad market position or a narrow market position,
(p. 142) they are defining the:
A. Economies of scale.
B. Economies of scope.
C. Scope of competition.
D. Scope of core capabilities.
Defining the scope of competition tells management whether to pursue a specific (narrow) part of
the market or to pursue the broader market.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
27. A firm's strategic position reflects:
(p. 144)
A. Whether it is competing on differentiation or cost.

B. Whether it is competing within a targeted strategic group or not.
C. Whether is has a competitive advantage or not.
D. Whether it has first-mover advantages or not.
The dimensions describing a firm's strategic position are differentiation and cost.
AACSB: Analytic
Blooms: Understand
28. Combining the dimensions of a firm's __________ and __________ tells us which generic business strategy
(p. 142) the firm will pursue.
A. Economies of scope; economies of scale

B. Five forces; economies of scope
C. Scope of competition; core capabilities
D. Strategic position; scope of competition
When the dimension describing a firm's strategic position is combined with the scope of competition,
we get the generic strategies as laid out in Exhibit 6.2.
AACSB: Analytic
Blooms: Analyze
29. ___________ and ____________ are the two focused generic business strategies.
(p. 142)
A. Focused differentiation; focused low-cost

B. Integration; focused low-cost
C. Integration; focused differentiation
D. Cost leadership; differentiation
The two focused generic business strategies are focused differentiation and focused low-cost.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
30. Rolex focuses on a small market segment, affluent consumers who want to present a certain image.
(p. 142) What is the appropriate name for Rolex's scope of competition?
A. Broad
B. Market segmented
C. Narrow
D. Targeted
In the generic business model, the two choices for scope of competition are broad or narrow. Rolex
has clearly defined its scope narrowly at wealthy individuals.
AACSB: Analytic
Blooms: Apply
31. Tesla Motors, maker of electric cars, is an example of a firm using what type of generic business
(p. 143) strategy?
A. broad low-cost
B. focused differentiation
C. focused low-cost
D. broad differentiation
Tesla Motors produces a very high-end electric roadster and even when they launch a four-door
electric sedan they will still be only targeting a small segment of the total car market with their
highly differentiated electric cars.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
32. _____ drivers are as important to a differentiation strategy as ________ drivers are to a cost-leadership
(p. 143, strategy.
148)
A. Scope; quality
B. Quality; learning
C. Value; cost
D. Learning; experience
When pursuing a differentiation strategy, managers manipulate value drivers to improve strategic
positioning. When pursuing a cost-leadership strategy, they manipulate cost drivers.
AACSB: Analytic
Blooms: Understand
33. Higher product value tends to go along with which of the following items?
(p. 143-
144)
A. Higher prices
B. A higher willingness to pay
C. Higher costs
D. All of these
Higher product value can lead to perceived value creation in the minds of consumers, who are then
willing to pay higher prices. Creating products and services with higher value raises costs so
managers must control costs when adding value to a firm's offerings.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
34. When the focus of competition is on differentiation, a firm tends to use all of these levers EXCEPT:
(p. 145)
A. New product launches.

B. Cost input factors.
C. Marketing and promotion.
D. Unique product features.
Focusing on lower-cost input factors is typically done in a cost-leadership strategy.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
35. Interface is a leader in sustainable and innovative carpeting, as evidenced by its Cool Carpet
(p. 143- product, the world's first carbon-neutral floor covering. Its product is unique and has appealing
144)
customer attributes. If Interface raw material costs increased by 12% this year, what would be the
likely outcome?
A. Interface would lower profit margins to absorb this cost increase.

B. The company would launch an all-out effort to reduce other costs by 12%.
C. Interface would pass a major portion of this increase along as a price increase to its customers.
D. Interface would seek to find other materials with lower costs, even if it meant losing the carbon-
neutral label on the product.
Interface's customers reward it with a willingness to pay a higher price for its environmentally
friendly products, so the likely impact would be to raise the price to the consumers to cover most
of this cost increase.
AACSB: Analytic
Blooms: Analyze
36. A company that uses a differentiation strategy achieves a competitive advantage as long as:
(p. 144)
A. The economic value that the firm creates is equal to that of the competition.
B. The economic value that the firm creates is greater than that of the competition.
C. The economic value that is created is less than that of the competition.
A company that uses a differentiation strategy can achieve a competitive advantage as long as its
economic value created is greater than that of its competitors.
AACSB: Analytic
Blooms: Understand
37. When a firm is able to achieve higher economic value creation than its competition through
(p. 144) differentiation, the competitive advantage is reflected by:
A. The firm's ability to move into a new strategic group.

B. The firm's ability to charge higher prices.
C. The firm's ability to charge lower prices.
D. The firm's ability to leverage complements.
When a firm that uses a differentiation strategy creates higher economic value than its competition,
it is able to capture that value in the form of higher prices, which is a competitive advantage.
AACSB: Analytic
Blooms: Apply
38. _________ and __________ are two of the value drivers that managers can utilize when trying to improve a
(p. 145) firm's differentiation strategic position.
A. Co-opetition; complements
B. Learning-curve effects; co-opetition
C. Customer service; complements
D. Economies of scale; co-opetition
The most salient value drivers that managers have at their disposal when executing a differentiation
strategy are product features, customer service, customization, and complements.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
39. OXO differentiates kitchen utensils by using a patent-protected, ergonomically designed rubber grip.
(p. 145) By adding unique product features, OXO can:
A. Turn differentiated products into standardized products with price parity.

B. Turn differentiated products into standardized products with price disadvantages.
C. Turn commodity products into differentiated products with price disadvantages.
D. Turn commodity products into differentiated products with premium pricing.
By adding unique product features to utensils, OXO is able to turn a commodity product into a
differentiated product with premium pricing.
AACSB: Analytic
Blooms: Apply
40. Value drivers are tools that help managers:

(p. 145)
A. Increase perceived value and decrease costs.

B. Improve value chain activities and increase costs.
C. Achieve a low-cost position and maintain perceived value.
D. Achieve cost parity and maintain perceived value.
Value drivers are tools that help either increase perceived value or decrease costs.
AACSB: Analytic
Blooms: Understand
41. Strategy Highlight 6.1 discusses Toyota's recall challenges with its Lexus brand. All of the following
(p. 146) are true EXCEPT:
A. Toyota used the value driver of customer service when it called each owner individually for
recommended repairs.
B. By exceeding customer expectations, Toyota turned a serious threat into an opportunity by
establishing brand reputation for superior customer service.
C. Toyota's customer responsiveness enabled the firm to influence early adopters who became
opinion leaders for influencing others to purchase a Lexus.
D. Since the Lexus recall of the 1990s, Toyota leveraged firm experience effects and has
successfully maintained quality leadership in the automobile industry with no major challenges.
After Toyota successfully responded to the Lexus recall of the 1990s it faced the largest recall in
automotive history in early 2010 when it had to recall over eight million vehicles.
AACSB: Analytic
Blooms: Apply
42. In 2010, Levi Strauss & Co introduced a new line of jeans called Levi's Curve ID. Levi's launched
(p. 146) this product based on research that found that 80 percent of women fall into three distinct body
shapes. Customers can now go to Levi's website and use a product configurator in order to
determine their "Curve ID" and purchase jeans most appropriate for their body type. Levi's is using
what tool to improve their strategic position?
A. A product differentiation strategy with complements as a value driver.

B. A product differentiation strategy with customization as a value driver.
C. A focused cost leadership with economies of scale as a cost driver.
D. A focused cost leadership with economies of learning as a cost driver.
Levi's is using customization by tailoring jeans for specific customers. This value driver supports
Levi's differentiation strategy.
AACSB: Analytic
Blooms: Apply
43. A low-cost leader optimizes all of its ___________ in order to achieve a low-cost position.
(p. 147)
A. Five forces activities

B. Strategic group activities
C. Value chain activities
D. Economic chain activities
A low-cost leader optimizes all of its value chain activities to achieve a low-cost position.
AACSB: Analytic
Blooms: Understand
44. A company that uses a cost-leadership strategy achieves a competitive advantage as long as:
(p. 147)
A. The economic value that is created is less than that of the competition.
B. The economic value that the firm creates is equal to that of the competition.
C. The economic value that the firm creates is greater than that of the competition.
A cost leader can achieve a competitive advantage as long as its economic value created is greater
than the competition.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
45. When pursuing a cost-leadership strategy, a business must remember that:
(p. 147)
A. Buyers will be reluctant to pay for a product unless the quality is acceptable.
B. Buyers will be reluctant to pay for a product unless the quality is superior.
C. Buyers will be reluctant to pay for the product unless it is customized.
D. Product quality is more important in a broad market than in a narrow one.
Low-cost leaders still need to offer products and services that have acceptable value to the
customer.
AACSB: Analytic
Blooms: Understand
46. In Strategy Highlight 6.2, Ryanair is aggressively pursuing a cost-leadership position in Europe.
(p. 148) Which of the following cost drivers are primarily used by Ryanair in the text?
A. Economies of scale
B. Cost of input factors
C. Experience-curve effects
D. Learning-curve effects
Ryanair has a "no frills" approach to input costs such as no window shades or reclining seats. They
also seek to recover the cost of other inputs with fees for items such as incoming calls and pillows.
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
47. All of the following are tools typically used to achieve cost-leadership EXCEPT:
(p. 148,
152)
A. Controlling the cost of inputs.

B. Leveraging economies of scale.
C. Offering products that have superior value.
D. Learning by doing.
The goal of cost-leadership is to reduce costs below that of the competition while still offering
products or services with acceptable value.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
48. The concept of differentiation parity is important in low-cost leadership. A cost leader can gain a
(p. 147) competitive advantage when it has lower costs than the competition AND has achieved
differentiation parity. What is differentiation parity?
A. Creating value that is lower than the competition.

B. Creating value that is higher than the competition.
C. Creating the same value as the competition.
D. Creating products that are highly differentiated relative to the competition.
When a firm achieves differentiation parity, it creates the same value as its rival(s).
AACSB: Analytic
Blooms: Understand
49. GM and Hyundai offer certain car models that directly compete with each other. Hyundai is able to
(p. 147) produce their models at a lower cost while providing similar value at the same time. It can be said
that:
A. GM and Hyundai have both achieved differentiation parity and competitive advantages.
B. GM has achieved differentiation parity and a competitive advantage over Hyundai.
C. Hyundai has achieved differentiation parity and a competitive advantage over GM.
D. Neither GM nor Hyundai have achieved differentiation parity since they are not in the same
strategic group.
Hyundai has a competitive advantage over GM because it produces its cars at lower costs while
providing similar value.
AACSB: Analytic
Blooms: Analyze
50. Achieving differentiation parity along with lower costs is important to a low-cost leader because:
(p. 147)
A. The firm is then able to target a less price-sensitive customer market.

B. Creating the same value as the competition, combined with lower costs, gives the firm a
C. The firm is then able to incorporate differentiating features that cause buyers to prefer its
products.
D. All of these.
A low-cost leader has a competitive advantage when it is able to achieve differentiation parity
(similar value) along with lower costs compared to its rivals.
AACSB: Analytic
Blooms: Analyze
51. Achieving differentiation parity can be difficult for a cost leader firm because:
(p. 147)
A. Creating value generally means higher costs.

B. Achieving parity in the market is always hard.
C. Cost leaders typically add too much value to their products.
D. Value chain activities should not be altered.
Achieving differentiation parity is often hard because value creation generally increases costs.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
52. A low-cost firm can still gain a competitive advantage even without differentiation parity as long as:
(p. 147-
148)
A. Its differentiation appeal is in parity with the competition.

B. Its costs are higher than the competition.
C. Its economic value creation exceeds that of the competition.
D. Its economic value creation is the same as the competition.
A firm can still have a competitive advantage even it has not achieved differentiation parity as long
as its economic value creation is higher than the competition.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
53. When competing on the basis of low-cost leadership, a primary objective is to:
(p. 152)
A. Lower manufacturing costs.

B. Lower production costs.
C. Lower supplier costs.
D. Lower overall costs.
The goal of a cost-leadership strategy is to reduce overall costs while maintaining an acceptable
level of quality.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
54. There are several cost drivers that can be managed in order to establish a low-cost leadership
(p. 148- advantage. One of the basic cost drivers is:
149)
A. Access to unique features that turn commodities into differentiated products.

B. Access to lower-cost input factors including raw materials and labor.
C. Creating personalized customer service in order to minimize price-sensitivity.
D. Shifting to small-scale production processes in order to create customized products.
Having access to lower-cost inputs helps a firm create a low-cost leadership advantage over rivals.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
55. When costs per unit fall as output increases, _________________ occur.
(p. 149)
A. Economies of scope
C. Economies of efficiency
D. Economies of scale
Economies of scale occur when a firm is able to decrease costs per unit as output increases.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
56. Between 2007 and 2009, Microsoft spent close to $25 billion on R&D, the majority of which went to
(p. 149) its new Windows 7 operating system. These costs were fixed. However, after Windows 7 hit the
market, the marginal costs were basically zero. Since Microsoft expects to sell several hundred
million copies of Windows 7, it can be said that:
A. Microsoft has a competitive advantage because it has already spent the capital required for its
new offering.
B. Microsoft has a competitive advantage because it will be able to drive down per-unit costs of
Windows 7 with each additional copy it sells.
C. Since Microsoft will sell so many units of Windows 7, it has attained competitive parity within its
strategic group.
D. Microsoft will be at a competitive disadvantage unless it exceeds its sales forecasts because its
marginal costs will change.
Microsoft has a competitive advantage because it can leverage its economies of scale and drive
down per-unit costs for each additional copy sold.
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
57. Spreading fixed costs over larger output, employing specialized systems and equipment, and
(p. 149, ________________ are three primary ways that achieving economies of scale can help a business.
151)
A. Increasing capital investments in input factors

B. Producing two or more outputs using common resources
C. Taking advantage of certain physical properties
D. Spreading marginal costs over smaller units
Economies of scale allow a firm to spread their fixed costs over larger outputs, employ specialized
systems and equipment, and take advantage of certain physical properties.
AACSB: Analytic
Blooms: Understand
58. One of the reasons that big box retailers like Home Depot are able to achieve economies of scale is
(p. 150) that:
A. They have both broad and narrow economies of scope.

B. They are able to take advantage of physical properties and maximize their scale efficiencies by
stocking more merchandise and handling inventory more efficiently.
C. They are able to take advantage of market size and spread investment losses over many
locations.
D. They have been able to protect themselves from the threat of buyer power by increasing input
prices.
Big box retailers like Home Depot are able to reap economies of scale by taking advantage of
physical size ("big box"), stock more inventory, and manage it more efficiently.
AACSB: Analytic
Blooms: Apply
59. Achieving economies of scale is an important cost driver for certain low-cost leaders. However,
(p. 150) there is a saying that "sometimes bigger is worse" because at some point costs increase as output
increases. This is referred to as:
A. External economies
C. Economic inefficiencies
D. Integration diseconomies
Sometimes firms experience diseconomies of scale because benefits to scale cannot go on

indefinitely and at some point associated costs as well as physical limitations negate the benefits of
larger outputs.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
60. When a business drives costs down as its cumulative output increases, it is referred to as:
(p. 151-
152)
A. A learning curve.
B. An output curve.
C. A demand curve.
D. A distribution curve.
When a firm is able to drive down costs through its learning by doing repetitive tasks, it is called a
learning curve.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
61. Learning curves were first used by aircraft manufacturers in the 1930s. Companies found a
(p. 151- predictable relationship between increasing production output and cost per unit. What does it mean
152)
for a firm to have an 80% learning curve?
A. Every time the cumulative output increases by 80%, the cost per unit will decrease by 20%.
B. Every time the cumulative output is doubled, the cost per unit will decline by 80%.
C. Every time the cumulative output goes up 20%, the cost per unit will decline by 80%.
D. Every time the cumulative output is doubled, the cost per unit will decline by 20%.
An 80% learning curve indicates that every time the cumulative output is doubled, the cost per unit
will decline by 20%. The steeper the curve, the better for driving costs down. A 70% learning curve is
more aggressive in saving costs than an 80% curve.
AACSB: Analytic
Blooms: Understand
Difficulty: 3 Hard
62. Experience curves attempt to capture both _______________ and learning effects.
(p. 152)
A. Customization
B. Economies of scale
D. Competitive position
Experience curves attempt to capture both economies of scale and learning effects.
AACSB: Analytic
Blooms: Understand
63. Relative to the five-forces model, a low-cost strategy is beneficial when:
(p. 153-
154)
A. Competition is based on product features, suppliers may increase costs, and buyers have
bargaining power.
B. Competition is based on product features, suppliers have very limited power, and buyers have
bargaining power.
C. Price competition is vigorous, suppliers may increase costs, and buyers have bargaining power.
D. Price competition is vigorous, suppliers have very limited power, and buyers have bargaining
power.
A low-cost strategy helps a firm protect itself from price competition, supplier power, and the
power of buyers.
AACSB: Analytic
Blooms: Analyze
competition.
64. Under the five forces model, a risk to a business with a cost-leadership strategy is:
(p. 153-
154)
A. Competition switches from customer service to pricing.

B. When technological innovations open up cost reductions for substitutes or competitors.
C. New entrants are all start-up firms with low volumes.
D. Suppliers request a 2% price increase across the industry.
A risk to a low-cost leader is when new innovations help rivals reduce costs for the competition.
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
competition.
65. Under the five forces model, a differentiation strategy works best when:
(p. 153,
155)
A. The firm has intangible resources, supplier cost increases can be passed on to the customer,
and equivalent substitutes are readily available.
B. The firm has tangible resources, supplier cost increases can be passed on to the customer, and
C. The firm has tangible resources, supplier cost increases can be passed on to the customer, and
the differentiation appeal creates customer loyalty.
D. The firm has intangible resources, supplier cost increases can be passed on to the customer,
and the differentiation appeal creates customer loyalty.
When a firm differentiates itself through intangible resources that increase its differentiation appeal
and provide for customer loyalty, it will be able to pass on cost increases to the customer.
AACSB: Analytic
Blooms: Analyze
competition.
66. Under the five forces model, a risk to a firm with a differentiation strategy is:
(p. 153,
155)
A. When the focus of competition switches to price rather than features and new acceptable levels
of quality have emerged due to innovation.
B. When the focus of competition switches to price rather than features and the substitute
products are considered below acceptable levels of quality.
C. When the focus of competition switches to features rather than price, the substitute products
are considered below acceptable levels of quality.
D. When the focus of competition switches to features rather than price and new acceptable levels
of quality have emerged due to innovation.
A firm that has a competitive advantage from differentiating can be at risk when the focus of
competition shifts to price AND the risk of replacement has increased due to innovation.
AACSB: Analytic
Blooms: Understand
competition.
67. When pursuing a differentiation strategy, a firm must remember that:
(p. 155)
A. Buyers will be willing to pay for value that is not perceived.

B. Buyers will be reluctant to pay for value that is not perceived.
C. Perceived value is not as important as the price of the product.
D. Perceived value is more important in a broad market than in a narrow one.
A differentiator needs to be vigilant that its costs of providing uniqueness do not rise above the
customer's willingness to pay.
AACSB: Analytic
Blooms: Analyze
competition.
68. When a firm is able to successfully employ an integration strategy, it will create a competitive
(p. 156- advantage by:
157)
A. Combining high quality and product features to provide service that customers truly value.
B. Using a first-mover advantage to be the lowest price in the market.
C. Winning market share with a highly differentiated product.
D. Beating rivals on product attributes while offering a better price.
A successful integration strategy will provide a firm with a competitive advantage by integrating low
cost and some level of differentiation.
AACSB: Analytic
Blooms: Analyze
69. Avon has been able to raise the perceived value of its products while lowering production costs. It
(p. 156) has also been able to create more value in relationship to its costs over rivals Revlon and L'Oreal. It
can be said that:
A. Avon has successfully moved from a differentiation to a cost-leadership strategy.

B. Avon has a competitive advantage because it has the features customers value most in the
cosmetics industry.
C. Avon has successfully achieved an integration strategy and has a competitive advantage
because it has higher value creation.
D. Avon is the low cost leader of the cosmetics industry with their "sell at home" sales approach.
Avon has been able to successfully implement an integration strategy. It has a better cost and value
position over rivals Revlon and L'Oreal and has created more perceived value, which gives it a
AACSB: Analytic
Blooms: Analyze
70. There are two generic strategic positions that require managers to make trade-offs between, in
(p. 157) order to achieve success at an integration strategy. They are:
A. Service-oriented and low cost.

B. Product-oriented and high cost.
C. High cost and commodity.
D. Low cost and differentiation.
Managers must make trade-offs between costs and differentiation when pursuing an integration
strategy.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
71. When pursuing an integration strategy, managers use levers to help them simultaneously increase
(p. 157, perceived value and lower costs. Which of the following is NOT one of these levers?
159)
A. Quality
B. Complements
D. Structure, culture, and routines
The use of complements is not a value or cost driver that managers typically manipulate when
pursuing an integration strategy.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
72. When it comes to pursuing an integration strategy, managers manipulate both _____ and ________
(p. 157) drivers.
A. Cost; value
B. Cost; core capability
C. Value; core capability
D. Market; economic
Both cost and value drivers are important levers that managers manipulate when pursuing an
integration strategy.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
73. Innovation is important when pursuing an integration strategy because:
(p. 158)
A. It helps a firm resolve existing trade-offs between price and quality.

B. Without innovation a firm can get "stuck in the middle."
C. Innovation is the most important component regardless of strategy.
D. It is the only way that a firm can improve its value chain activities.
Innovation helps a firm improve its quality and lower costs.
AACSB: Analytic
Blooms: Analyze
74. A firm's structure, culture, and routines are very important when pursuing an integration strategy
(p. 158) because organizations have to control costs and allow for creativity that can lead to differentiation.
Therefore, managers should try to build an organization that is _________.
A. Hierarchical
B. Bureaucratic
C. Ambidextrous
D. Dynamic
An ambidextrous organization is able to balance and harness different cost and creative activities in
trade-off situations.
AACSB: Analytic
Blooms: Apply
75. When a firm applies its current knowledge in order to enhance short-term performance, it is using
(p. 158) _________.
A. Exploitation
B. Learning-curve effects
D. Strategic trade-offs
When a firm is applying its current knowledge to enhance performance in the short term, it is
engaging in exploitation.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
76. _________ is when a firm is searching for new knowledge that could enhance future performance.
(p. 158)
A. Boundary spanning
B. Channel communication
C. Exploitation
D. Exploration
When a firm is searching for new knowledge that may enhance its future performance, it is engaging
in exploration.
AACSB: Analytic
Blooms: Understand
77. Essentially, a successful integration strategy:
(p. 157,
161)
A. Gives customers more perceived value while exceeding their price expectation.
B. Allows a firm to make strategic trade-offs effectively.
C. Enables a firm to increase value creation while keeping costs in check.
D. All of these.
A successful integration strategy creates higher perceived value, lower costs, and is able to balance
strategic trade-offs successfully.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
78. One of the risks of pursuing an integration strategy is:

(p. 159)
A. That a firm could lose sight of its mission.

B. That this strategy is easy for rivals to imitate.
C. That the firm may get "stuck in the middle."
D. That it is ineffective when competing on a global scale.
Many firms fail at achieving an integration strategy because they end up getting stuck in the middle
and are not able to differentiate or establish cost leadership.
AACSB: Analytic
Blooms: Understand
79. Buy Us is a big box retailer who is in direct competition with Walmart and Target. Buy Us initially
(p. 159) tried to respond to Walmart by cutting its prices and reducing costs. Walmart has greater buying
power and a more efficient supply chain, therefore Buy Us 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 Buy Us is currently less than Target and Walmart. It can be said that:
A. Buy Us is successful in creating an integration strategy positioned between Walmart and Target.
B. Buy Us is "stuck in the middle" and has a competitive disadvantage.
C. Buy Us is still creating an integration strategy positioned between Walmart and Target and is on
the right track. It should continue this business strategy.
D. Buy Us is "stuck in the middle" and has a competitive advantage.
Buy Us failed at pursuing an integration strategy and got stuck in the middle as it was unable to
differentiate or establish cost leadership. Its created value gap (V-C) is lower than the competition,
placing it at a disadvantage.
AACSB: Analytic
Blooms: Analyze
80. An integration strategy differs from a low-cost strategy in that:

(p. 159)
A. The intent of an integration strategy is not to be the absolute lowest-cost provider because of
the added costs of increased value in its products/service.
B. A successful integration strategy requires that the business be the lowest-cost provider in order
to drive higher value creation than the competition.
C. Economy of scale is more important to an integrator, while economy of scope is more important
to a low-cost strategy.
D. An integration strategy requires first that the business be stuck in the middle, while a low-cost
strategy avoids this condition.
An integration strategy is one in which a firm attempts to lower costs but also attempts to build in
differentiated appeal, and thus it will not be the absolute lowest-cost provider.
AACSB: Analytic
Blooms: Analyze
81. The Tata Group of India is a widely diversified multinational company. In 2008, it bought Jaguar and
(p. 160) Land Rover from Ford. It is hoping to leverage the prestige of these brands due to their global
reputation. Then, in 2009 Tata introduced the Nano car, which is the lowest-priced car in the world.
The rear hatch of the Nano can't be opened, and it has no radio or even a glove compartment. It
can be said that the Tata Group of India is:
A. Planning to move the Jaguar business unit from differentiated to an integration strategy.
B. Pursuing the Chinese market with the Land Rover acquisition.
C. Pursuing both a focused differentiation strategy and a focused cost-leadership strategy.
D. Planning to move the Nano business unit from low-cost to an integration strategy.
With Jaguar and Land Rover, the Tata Group is pursuing a focused differentiation strategy, and with
the Nano car it is pursuing a focused cost-leadership strategy.
AACSB: Analytic
Blooms: Apply
82. It can be said that the Tata Group is pursuing a(n) _____________ strategy at the corporate level when it
(p. 160) comes to automobiles.
A. Undiversified
B. Unrelated
C. Integration
D. Linked integrative
The Tata Group is pursuing an integration strategy at the corporate level.
AACSB: Analytic
Blooms: Understand
83. When a firm has been able to perform best practices combined with a positive value-cost
(p. 161) relationship, it has reached the:
A. Value-cost frontier.
B. Productivity frontier.
C. Economies of scope.
D. Strategic intent.
The productivity frontier has been reached when a firm combines best practices along with a
successful trade-off between value creation and cost.
AACSB: Analytic
Blooms: Understand
84. Firms that exhibit _________ and ________ reach the productivity frontier.
(p. 161)
A. Determination; strategic intent

B. Economies; flexibility
C. Effectiveness; efficiency
D. Innovation; culture
Firms that exhibit effectiveness and efficiency reach the productivity frontier.
AACSB: Analytic
Blooms: Understand
85. Apple, Dell, and HP are used as examples in the text for the dynamics of competitive positioning.
(p. 161- What does this analysis tell us about these firms?
162)
A. There has been relatively little change in the positions of these firms from 2005 to 2010.
B. Apple is the only one of the three to remain on the productivity frontier from 2005 to 2010.
C. HP's position has declined on the frontier from 2005 to 2010.
D. Dell has improved its position on the frontier from 2005 to 2010.
The competitive dynamic diagram shows Apple is the only one of the three to stay at the
productivity frontier.
AACSB: Analytic
Blooms: Analyze
86. Understanding the productivity frontier is useful because of all of the following EXCEPT:
(p. 161-
162)
A. It represents possible strategic positions a firm can take.

B. It reflects the relationship between strategic positions, value creation, and costs.
C. It helps a firm determine cost-differentiation trade-offs.
D. It reflects which global markets will be the most productive to pursue in the future.
The productivity frontier does not tell a firm which global markets will be most productive to pursue
in the future.
AACSB: Analytic
Blooms: Analyze
87. The productivity frontier provides a theoretical reflection of the possible best practices at any given
(p. 164) time. Why is this an important tool for managers?
A. Because any strategic tool that a manager has at their disposal is useful.
B. Because strategic positioning is dynamic and firms have to refine their positions over time.
C. Because a firm always wants to stay behind the productivity frontier.
D. Because a firm wants to make sure it is ahead of best practices.
Strategic positioning is dynamic because a firm's environment changes and the productivity frontier
is a useful tool to use to compare historical positions to the current position and strategy of key
businesses.
AACSB: Analytic
Blooms: Analyze
88. When it comes to strategic positioning and generic business strategies, which of the following is
(p. 162) TRUE:
A. All of the business strategies are equally difficult to adopt.

B. Only a few exceptional firms are able to balance the value-cost strategic trade-offs and adopt
an integration strategy successfully.
C. Once a firm has established itself with a strategy, it should stick with what it knows.
D. Strategic positioning is not as critical to competitive advantage as is the firm's resources and
economic environment.
In some instances, a few exceptional firms are able to reconcile the trade-offs between increasing
value and lowering costs. Generally, low-cost or differentiation strategies enhance the firm's ability
to obtain superior performance.
AACSB: Analytic
Blooms: Understand
Short Answer Questions
89. What is the major issue facing Whole Foods in the ChapterCase opener?
(p. 139-
140)
The firm is facing increasing competition in organic foods and their originally highly differentiated
business strategy is far less distinctive given the entrance of Walmart, Costco, and others as major
retailers of organic products.
Feedback: Whole Foods must find new ways to differentiate itself from the competition.
AACSB: Analytic
Blooms: Analyze
90. What are the key questions to answer for managers about business-level strategy?
(p. 140-
141)
Managers must be prepared to address who will the business serve, what are the customer's needs
and wishes to satisfy, why must they satisfy them, and how to satisfy these needs.
Feedback: "Who-what-why-and how" questions are critical for a successful business-level

strategy.
AACSB: Analytic
Blooms: Analyze
91. What is the difference between a strategic position and a strategic trade-off?
(p. 141-
142)
A strategic position is the firm's profile based on value creation and cost to create a large value
gap, while trade-offs are the often difficult choices the business makes to attain the desired
position. Since higher value generally creates higher costs, the business must choose between a
cost or a value position.
Feedback: The relationship of making trade-offs to achieve a particular strategic position for the
business is vital to understand for success.
AACSB: Analytic
Blooms: Understand
92. Why are differentiation and cost-leadership described as generic business strategies?
(p. 142)
These two strategies are called generic strategies because they can be used by any organization—
manufacturing or service, large or small, for-profit or not-for-profit, public or private, U.S. or non-
U.S.—in the quest for competitive advantage, independent of industry context.
Feedback: These strategies can be used by a wide variety of organization types and purposes.
Differentiation and cost leadership require distinct strategic positions in order to increase a firm's
chances to gain and sustain a competitive advantage.
AACSB: Analytic
Blooms: Understand
93. How is the scope of competition different between Rolex and Timex?
(p. 142)
Rolex has a narrow scope focusing on a small market segment of affluent consumers who want a
certain image. Timex has a broad scope for many different segments of the mass market.
Feedback: Scope of competition combined with the firm's strategic position creates the generic
business strategy matrix shown in Exhibit 6.2.
AACSB: Analytic
Blooms: Apply
94. When a firm has a higher perceived value and cost parity with competitors, why would it NOT offer
(p. 144) products at a price premium?
The firm would want to gain market share and drive volume when it could charge higher prices
based on willingness to pay, but chooses not to.
Feedback: If the business doesn't succeed in gaining more volumes, the firm is essentially giving
away money by not charging prices that the market will bear.
AACSB: Analytic
Blooms: Evaluate
Difficulty: 3 Hard
95. Name and give an example for TWO of the four value drivers noted in the text.
(p. 145-
146)
Product features are commonly mentioned, such as ergonomic designs in OXO kitchen utensils.
Customer service is a driver, such as Zappos with free shipping in both directions; customization as
used by T-shirt producer threadless.com; and finally, complements, such as a free DVR with your
cable TV service.
Feedback: The four value drivers are product features, customer service, customization, and
complements.
AACSB: Analytic
Blooms: Understand
96. In the value gap analysis (V-C), which item do cost leaders focus on with their strategies?
(p. 148)
These businesses focus on reducing the cost side of the equation and seeking to either maintain
value parity, or if value is lowered, to have incrementally more cost savings to increase the value
gap over the competition.
Feedback: Cost leaders do not spend as much time and money on differentiators but rather focus
on reducing costs throughout the value chain in getting their product to the customer.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
97. What is the difference between economies of scale and diseconomies of scale?
(p. 149-
150)
In economies of scale, each additional item produced reduces the cost per unit due to spreading
fixed costs or using specialized systems. In diseconomies of scale, the more additional output, the
higher the cost per unit. This can be caused by physical limits to scale or increasing coordination
complexities.
Feedback: Both are shown in Exhibit 6.5 of the text. It is important to remember this cost factor is
on a per unit scale and is not used as an overall cost measure.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
98. How does an experience curve help a business gain competitive advantage?
(p. 152)
An experience curve captures both economies of scale and learning effects. In this perspective,
economies of scale allow movement down a given learning curve based on current production
technology and volume. By moving further down a given learning curve than competitors, a firm can
gain a competitive advantage.
Feedback: Leveraging experience based on economies of scale and learning allows the firm to
leapfrog to a steeper learning curve, thereby further driving down its per-unit costs.
AACSB: Analytic
Blooms: Evaluate
Difficulty: 3 Hard
99. How are the benefits different for cost leadership versus differentiation when analyzing the power
(p. 153- of suppliers to the industry?
154)
Cost leaders are in the best position to absorb price increases from powerful suppliers.
Differentiators, on the other hand, will be able to pass those price increases on to their customers
in higher prices.
Feedback: The synthesis of the five forces model with generic business strategies generates many
differences in the approach to industry forces between differentiation and cost leadership.
AACSB: Analytic
Blooms: Evaluate
Difficulty: 3 Hard
competition.
100. How are the risks different for cost leadership versus differentiation when analyzing the rivalry
(p. 153, among existing competitors to the industry?
155)
Cost leaders will tend to be in a more highly competitive environment than differentiators and they
need to be alert for new innovations that will greatly reduce the cost structure for competitors.
They also need to be careful that the competition doesn't shift to non-price attributes like
reputation or customer service. Differentiators, by contrast, must be alert for investments to create
value, which are not perceived well by the customers and yet still increase the cost basis. Also,
they need to look for signs the competition may be shifting to price attributes (commoditization)
instead of value.
Feedback: The synthesis of the five forces model with generic business strategies generates many
differences in the approach to industry forces between differentiation and cost leadership.
AACSB: Analytic
Blooms: Evaluate
competition.
101. How is Leopard Cycles demonstrating its use of an integration strategy for its customized road-
(p. 156) race bikes?
Though they started with highly differentiated bikes for over $20k each, the firm now employs
state-of-the-art Internet and flexible manufacturing techniques to broaden its market somewhat,
with bikes in the price range of only $2K even with advanced materials.
Feedback: Being a successful integrator does not mean the firm must be both the highest value
creator AND the lowest cost producer. The success depends on the difference between value and
cost.
AACSB: Analytic
Blooms: Apply
102. Contrast the idea of economy of scope with economy of scale.

(p. 157)
Economy of scope describes the savings that come from producing two (or more) outputs at less
cost than producing each output individually, while using the same resources and technology.
Economy of scale allows a firm to lower its per unit cost as its output increases.
Feedback: Economy of scope is also a driver of an integration strategy, while economy of scale is
chiefly used by cost leaders.
AACSB: Analytic
Blooms: Analyze
103. Briefly describe an ambidextrous organization.
(p. 158)
An ambidextrous organization is one that enables managers to balance and harness different
activities in trade-off situations. Trade-offs to be addressed involve the simultaneous pursuit of
low-cost and differentiation strategies.
Feedback: Ambidexterity describes a firm's ability to address trade-offs not only at one point but
also over time. It encourages managers to balance exploitation (applying current knowledge to
enhance firm performance in the short term) with exploration (searching for new knowledge that
may enhance a firm's future performance).
AACSB: Analytic
Blooms: Analyze
104. What is meant by businesses being "stuck in the middle"?

(p. 159)
It refers to businesses attempting an integration strategy but that succeed at neither a

differentiation nor a cost-leadership strategy. They are left with a smaller value gap than their
competitors.
Feedback: When a firm is unsuccessful in pursuing an integration strategy and ends up stuck in the
middle, the result is a competitive disadvantage.
AACSB: Analytic
Blooms: Apply
Strategic Management Concepts and Cases Rothaermel Rothaermel 1st Edition Test Bank
105. How does a productivity frontier help describe the dynamics of competitive positioning?
(p. 161)
A productivity frontier is the value-cost relationship that captures the result of performing best
practices at any given time. Firms that exhibit effectiveness and efficiency reach the productivity
frontier; others are left behind. By plotting them at different points in time, we can see how
company positions are changing.
Feedback: Exhibit 6.10 demonstrates this concept for three firms in the mobile devices industry.
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
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Business Strategy: Differentiation, Cost Leadership, and Integration

True / False Questions

2. A firm's business-level strategy answers the question "Where should we compete?"

11. Successfully implementing an integration strategy is particularly important in globalized industries.

12. Succeeding at an integration strategy is typically easy for a firm.

13. A firm that is "stuck in the middle" has a competitive advantage.

Multiple Choice Questions

A. Adopting a new strategic intent to become the champion of healthy eating.

A. Who will we serve?

A. The characteristics of the industry in which a firm competes.

A. Cost and core competencies.

A. Determined by its business-level strategy.

A. Making strategic trade-offs.

A. Focused cost-leadership strategy.

A. Whether it is competing on differentiation or cost.

A. Economies of scope; economies of scale

A. Focused differentiation; focused low-cost

A. New product launches.

A. Interface would lower profit margins to absorb this cost increase.

A. The firm's ability to move into a new strategic group.

A. Turn differentiated products into standardized products with price parity.

40. Value drivers are tools that help managers:

A. Increase perceived value and decrease costs.

A. A product differentiation strategy with complements as a value driver.

A. Five forces activities

45. When pursuing a cost-leadership strategy, a business must remember that:

A. Controlling the cost of inputs.

A. Creating value that is lower than the competition.

A. The firm is then able to target a less price-sensitive customer market.

A. Creating value generally means higher costs.

A. Its differentiation appeal is in parity with the competition.

A. Lower manufacturing costs.

A. Access to unique features that turn commodities into differentiated products.

A. Increasing capital investments in input factors

A. They have both broad and narrow economies of scope.

63. Relative to the five-forces model, a low-cost strategy is beneficial when:

A. Competition switches from customer service to pricing.

67. When pursuing a differentiation strategy, a firm must remember that:

A. Buyers will be willing to pay for value that is not perceived.

A. Avon has successfully moved from a differentiation to a cost-leadership strategy.

A. Service-oriented and low cost.

73. Innovation is important when pursuing an integration strategy because:

A. It helps a firm resolve existing trade-offs between price and quality.

77. Essentially, a successful integration strategy:

78. One of the risks of pursuing an integration strategy is:

A. That a firm could lose sight of its mission.

A. Determination; strategic intent

A. It represents possible strategic positions a firm can take.

A. All of the business strategies are equally difficult to adopt.

Short Answer Questions

102. Contrast the idea of economy of scope with economy of scale.

103. Briefly describe an ambidextrous organization.

104. What is meant by businesses being "stuck in the middle"?

True / False Questions

2. A firm's business-level strategy answers the question "Where should we compete?"

11. Successfully implementing an integration strategy is particularly important in globalized industries.

13. A firm that is "stuck in the middle" has a competitive advantage.

When a firm ends up stuck in the middle, it is at a competitive disadvantage.

Multiple Choice Questions

A. Adopting a new strategic intent to become the champion of healthy eating.