MGMT 495 – Chapter 5

Which of the following companies is NOT the lowest-cost provider in its industry?

A. Southwest Airlines
B. Nucor Steel
C. Amazon
D. Walmart

The essence of a broad differentiation strategy is to:

A. incorporate a greater number of differentiating features into its product/service than rivals.

B. lower buyer switching costs.

C. offer unique product attributes in ways that are valuable and appealing and that buyers consider worth paying for.

D. outspend rivals on advertising and promotion in order to inform and convince buyers of the value of its differentiating attributes.

E. appeal to the high-end part of the market and concentrate on providing a top-of-the-line product to consumers.

A company’s biggest vulnerability in employing a best-cost provider strategy is:

A. relying too heavily on outsourcing.

B. being timid in cutting its prices far enough below high-end differentiators to win away many of their customers.

C. getting squeezed between the strategies of firms employing low-cost provider strategies and high-end differentiation strategies.

D. getting trapped in a price war with low-cost leaders.

E. not having a sustainable distinctive competence in cost reduction.

The major difference between a low-cost provider strategy and a focused low-cost strategy is the

A. amount of outsourcing involved.

B. production methods being used to achieve a low-cost competitive advantage.

C. number of upscale attributes incorporated into the product offering.

D. length of the managerial experience curve.

E. size of the buyer group to which a company is appealing.

A healthy fast-casual restaurant that offers only vegetarian and vegan meals insists on portraying organic ingredients in its advertisements, charges a higher price for its meals, and has a rigorous quality control process to insure the cleanliness of its facilities. What strategy is the manufacturer using to deliver superior value to customers?

A. leveraging its power over suppliers

B. lowering the buyer’s overall cost

C. signaling value by targeting sophisticated buyers

D. incorporating tangible features

E. incorporating intangible features

A company attempting to be successful with a broad differentiation strategy has to

A. concentrate its differentiating efforts on marketing and advertising (where almost all differentiating features are created).

B. study buyer needs and behavior carefully to learn what buyers consider important, what they think has value, and what they are willing to pay for.

C. incorporate more differentiating features into its product/service than rivals.

D. concentrate on offering advanced features, whether or not they have value to the customers, to create unique products.

E. over-differentiate so that product quality, features, or service levels exceed the needs of most buyers.

Which of the following is one of the pitfalls of a low-cost provider strategy?

A. beneficial and sustainable cost reduction

B. industry cost leadership

C. development of cost-saving technological breakthrough that cannot be readily adopted by rival firms

D. capturing volume gains and achieving economies of scale

E. relying on approaches to reduce costs that can be easily copied

A broad differentiation strategy generally produces the best results in situations where

A. new and improved products are introduced only infrequently.

B. perceived value of a product is not of great importance.

C. few rival firms are following a similar differentiation approach.

D. most rivals are pursuing a differentiation strategy and are seeking to differentiate their products on most of the same features and attributes.

E. buyer brand loyalty is low.

The keys to maintaining a broad differentiation strategy are to

A. stress constant innovation to stay ahead of imitative rivals and to concentrate on a few differentiating features.

B. charge a premium price that more than covers the extra costs of differentiating features and to convince customers to be brand loyal.

C. keep prices close to the average of all rivals and to spend heavily on new product R&D.

D. out-innovate and out-advertise rivals.

E. emphasize personalized customer service and to add as many differentiating features as possible.

The generic types of competitive strategies include

A. low-cost/low-price strategies, high-quality/high-price strategies, and medium quality/medium price strategies.

B. offensive strategies, defensive strategies, and counter maneuvers strategies.

C. low-cost provider, broad differentiation, best-cost provider, focused low-cost, and focused differentiation strategies.

D. market share growth provider, sales revenue leader strategy, and market share retention strategy.

E. price leader strategies, price follower strategies, technology leader strategies, and first-mover strategies.

A competitive strategy to be the low-cost provider in an industry works well when

A. there are numerous ways to achieve product differentiation that have no value to buyers.

B. buyers incur high costs in switching their purchases from one seller/brand to another.

C. industry newcomers use high introductory prices to let buyers know they have a superior product to build a customer base.

D. industry newcomers use introductory low prices to attract buyers and build a customer base.

E. price competition among rival sellers is especially sluggish.

Domino’s Pizza has a well-known slogan: “We’ll deliver in 30 minutes or less, or it’s free!” With it what has the pizza maker achieved?

A. coordinated with suppliers to better address customer needs

B. created a new delivery system

C. built a unique customer value proposition

D. emphasized human resource management activities

E. given a sense of exclusivity to its customers

A focused low-cost strategy seeks to achieve competitive advantage by

A. delivering more value for lesser money than other competitors.

B. serving buyers in a narrow piece of the total market (target market niche) at a lower cost and lower price than rivals.

C. dominating more market niches in the industry via a lower cost and a lower price than any other rival.

D. performing the primary value chain activities at a lower cost per unit than can the industry’s low-cost leaders.

E. outmatching competitors in offering niche members an absolute rock-bottom price.

For a best-cost provider strategy to be successful, a company must have

A. a short, low-cost value chain.

B. access to greater learning/experience curve effects and scale economies than rivals.

C. resource strengths and competitive capabilities that allow it to incorporate upscale attributes at lower costs than rivals whose products have similar upscale attributes.

D. excellent marketing and sales skills in convincing buyers to pay a premium price for the attributes/features incorporated in its product.

E. one of the best-known and most respected brand names in the industry.

Opportunities to differentiate a company’s product offering

A. usually are tied to product quality and customer service.

B. are typically located in the sales and marketing portion of the value chain.

C. can exist in activities all along an industry’s value chain.

D. are most frequently attached to a company’s manufacturing expertise and to its ability to achieve economies of scale in production.

E. are most reliably found in the R&D portion of the value chain.

Which of the following is NOT one of the pitfalls of a low-cost provider strategy?

A. becoming too fixated on cost reduction

B. overly aggressive price-cutting

C. having the basis for the firm’s cost advantage undermined by cost-saving technological breakthroughs that can be readily adopted by rival firms

D. setting the industry’s price ceiling to capture volume gains and achieve economies of scale

E. relying on an approach to reduce costs that can be easily copied

The marketing emphasis of a company pursuing a broad differentiation strategy usually is to

A. emphasize selling directly to end-users and promoting personalized customer service.

B. underprice rival brands with comparable features.

C. communicate the product’s ability to serve the customer’s every need.

D. out-advertise rivals and make frequent use of discount coupons.

E. tout differentiating features and charge a premium price that more than covers the extra costs of differentiating features.

Approaches to enhancing differentiation through changes in the value chain do NOT include

A. coordinating with retailers to enhance the buying experience and building a company’s image.

B. coordinating with suppliers to speed up new product development cycles.

C. collaborating with suppliers to improve many dimensions affecting product features and quality.

D. coordinating with employees to create a greater incentive system to encourage worker productivity.

E. coordinating with distributors or shippers to lower shipping costs.

A low-cost provider strategy can defeat a differentiation strategy when

A. there are few ways to differentiate a product or a service and many buyers perceive these differences valuable.

B. a company can offset thinner profit margins per unit by selling enough additional units to increase total profits.

C. customers are basically satisfied and don’t think extra attributes are worth a higher price features.

D. many rivals are pursuing a similar differentiation approach.

E. sellers are not charging a price premium.

A potato chip manufacturer purchases a potato farm. Which of the following regarding its strategy is true?

A. The manufacturer has effectively reduced its operating costs by outsourcing its activities.

B. The manufacturer has sacrificed quality by using a lower-cost input.

C. The manufacturer has effectively used vertical integration to increase its bargaining position and reduce transaction costs.

D. The manufacturer has efficiently capitalized on the experience and learning-curve effects within the company.

E. The manufacturer has enhanced utilization by allowing depreciation and other fixed costs to be spread over a larger unit volume.

A broad differentiation strategy works best in situations where

A. buyers incur low costs in switching their purchases to rival brands.

B. buyer needs and uses of the product or service are very similar.

C. buyers have a low degree of bargaining power and purchase the product frequently.

D. technological change is slow-paced and new or improved products are infrequent.

E. buyers needs and uses of the product or service are diverse.

Focusing the ability can secure a competitive edge but also carries some risks that could be detrimental to the focused firm, such as

A. the likelihood that a focused company will become so cost efficient it will achieve excessive profits.

B. the potential for technological advances to favor only low-cost providers.

C. the likelihood that a focused company will become so cost inefficient it will achieve excessive profits.

D. the potential for the niche to become so attractive it will not attract new competitors thereby providing excessive market segment profits.

E. the potential for the preferences and needs of niche members to shift over time toward mainstream provider product attributes.

Which of the following companies is using cost drivers effectively to manage value chain activities cost efficiently?

A. Company C collects customer requests first and starts processing them only after reaching a certain number.

B. Company E substitutes lower-cost inputs with high-quality, high-cost inputs to gain customer attention and loyalty.

C. Company D routes all its supplies to a warehouse for storage and then transports them to individual factories for processing.

D. Company A orders large amounts of supplies and keeps them stocked until customer demand rises to prevent falling behind schedule in meeting customer needs.

E. Company B uses just-in-time inventories and produces made-to-order products as and when customer demand rises.

Achieving a differentiation-based competitive advantage does NOT involve

A. appealing to buyers on the basis of attributes that rivals are emphasizing.

B. incorporating features that enhance buyer satisfaction in noneconomic or intangible ways.

C. delivering value to customers via competencies and competitive capabilities that rivals don’t have or can’t afford to match.

D. incorporating product attributes and user features that lower a buyer’s overall cost of using the product.

E. incorporating features that raise the performance a buyer gets from using the product.

Companies pursue closer coordination and collaboration with channel suppliers to better address customer needs in order to

A. achieve low cost provider status through the value chain system.

B. improve their scores on the competitive assessment matrix.

C. enhance differentiation through the value chain system.

D. develop human resource management activities that improve the skills, expertise, and knowledge of company personnel.

E. compensate for inadequate or outdated production capacity.


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