Chapter 4

Question 1

Starbuck’s (Chapter 4 Opening Case) was able to revolutionize the coffee drining experience throug its business level strategy of

Answer 1

differentiation

Question 2

According to the Chapter 4 Opening Case, part of Starbuck’s success in 2011 was the decision to

Answer 2

emphasize innovation by introducing new products.

Question 3

Business-level strategies detail commitments and actions taken to provide value to customers and gain competitive advantage by exploiting core competencies in

Answer 3

specific product markets.

Question 4

A firm’s core strategy is its ____ strategy.

Answer 4

business

Question 5

When selecting a business level strategy, the firm must determine all of the following EXCEPT

Answer 5

Why should these customers’ needs be satisfied?

Question 6

The three dimensions of a firm’s relationships with customers include all the following EXCEPT

Answer 6

exclusiveness.

Question 7

Which of the following is TRUE?

Answer 7

Customer loyalty has a positive relationship with firm profitability.

Question 8

The ________dimension of relationships with customers is particularly important for social networking sites such as Facebook and MySpace.

Answer 8

reach

Question 9

Amazon has built capabilities around Internet technology and e-commerce to facilitate information exchanges with its customers in a cost effective manner. This represents which of the three service dimension?

Answer 9

richness

Question 10

Viewing the world through the customer’s eyes and constantly seeking ways to create more value for the company enhances

Answer 10

affiliation with customer

Question 11

Before the firm decides what products to offer and what benefits and features they will have, the firm must decide all the following questions EXCEPT

Answer 11

when the customer’s needs should be satisfied.

Question 12

In the animal food products business, food-product needs of owners of companion animals pets (e.g., dogs and cats) differ from the needs for food and health-related products of those owning production animals (e.g., livestock). Which of the following aspects of managing customer relationships does this choice refer to?

Answer 12

Who: Determining the Customers to Serve

Question 13

Starbuck’s determined that all of the following customer needs were important EXCEPT

Answer 13

the actual product of service (e.g., a cup of coffee), not the experience.

Question 14

Hyundai allows customers to return their cars if they lose their job within 12 months of purchase. Which of the following aspects of managing customer relationships is Hyundai engaged in?

Answer 14

What: Determining Which Customer Needs to Satisfy

Question 15

An interior decorator has moved his business from Los Angeles to St. Paul, Minnesota, because his spouse’s company transferred her to St. Paul. The decorator is distressed because the customers in his target market have, in his words, “banal and bourgeois taste.” What is the decorator’s problem?

Answer 15

The decorator does not understand that customer needs are neither right nor wrong, good nor bad.

Question 16

In order to meet and exceed customer’s expectations, firms must

Answer 16

continuously improve, innovate, and upgrade their core competencies.

Question 17

Business-level strategies are concerned specifically with

Answer 17

creating differences between the firm’s position and its competitors.

Question 18

An entrepreneur is investigating starting a company that provides tax advice to small companies. In order to position his company differently from the existing competitors, the entrepreneur must

Answer 18

provide tax advice either in a different manner or provide a different kind of tax service than competitors.

Question 19

Which of the following are central to implementing value-creating strategies and thereby satisfying customers’needs?

Answer 19

Core competencies

Question 20

The analysis of the activity map of a successful company such as Southwest Airlines emphasizes how

Answer 20

it is hard for rivals to match a configuration of integrated activities than to imitate a single activity.

Question 21

By examining the ____ of Southwest Airlines, one can identify the strategic themes around which it has developed its business strategy. These themes include limited passenger service, high aircraft utilization, highly productive ground and gate crews, and so forth.

Answer 21

activity map

Question 22

If Southwest Airlines employees lost their high enthusiasm and commitment to the company,

Answer 22

Southwest would have lost one of its competitive advantages and its performance would be threatened.

Question 23

Strategic fit among many activities (in an activity map) is fundamental to

Answer 23

sustainability of a firm’s competitive advantage.

Question 24

All of the following are considered generic business-level strategies EXCEPT

Answer 24

product diversification.

Question 25

A company using a narrow target market in its business strategy is

Answer 25

limiting the group of customer segments served.

Question 26

As the television industry has changed in the last few decades from just three major networks to a multiplicity of networks, one of the major aspects of business strategy for the newer networks is ____ than the traditional networks.

Answer 26

narrower target market

Question 27

The effectiveness of any of the generic business-level strategies is contingent upon

Answer 27

the match between the opportunities and threats in its external market and the strengths of its internal environment.

Question 28

A cost leadership strategy provides goods or services with features that are

Answer 28

acceptable

Question 29

A cost leadership strategy targets the industry’s ____ customers.

Answer 29

most typical

Question 30

Durable Ceramics, Inc., provides inexpensive ceramic tile to builders of institutional buildings such as schools, prisons, and public administration buildings. It has always competed on a cost leadership basis. Most of its products are purchased by a few commercial construction firms, so it is fairly dependent on these construction firms for selling its product. Durable Ceramic’s next most-efficient competitor, Cost-Less Ceramics, Inc., earns average returns, while Durable earns above-average returns. The commercial construction firms are putting pressure on Durable to reduce its prices. If Durable reduces its prices below those of Cost-Less’s prices, it is likely that

Answer 30

Cost-Less will go out of business, and Durable will gain higher power over its customers.

Question 31

Research suggests that having a competitive advantage in ____ creates more value in the cost leadership strategy than it does in the differentiation strategy.

Answer 31

logistics

Question 32

A river barge company can offer cheaper, although slower, per pound transportation of products to companies when compared with transportation by air, truck, or rail. The river barge company should first target customers whose companies use

Answer 32

the cost-leadership strategy.

Question 33

In the Chapter 4 Strategic Focus, Walmart made changes to attract upscale customers. These changes had which of the following results?

Answer 33

It made Walmart vulnerable to Dollar Store and Amazon.

Question 34

In the Chapter 4 Strategic Focus, Walmart’s same store sales have been declining and those of rivals Family Dollar and Amazon have been increasing. What explains this recent change?

Answer 34

Walmart changed its strategy to attract more upscale customers.

Question 35

A company pursuing the differentiation or focused differentiation strategy would tend to

Answer 35

develop flexible systems that allow rapid response to customers changing needs.

Question 36

When the costs of supplies increase in an industry, the low-cost leader

Answer 36

may be the only firm able to pay the higher prices and continue to earn average or above- average returns.

Question 37

Ever improving levels of efficiency enhance profit margins for a cost leader. This effects which of the five forces of industry structure most directly?

Answer 37

Potential entrants

Question 38

The typical risks of a cost leadership strategy include

Answer 38

production and distribution processes becoming obsolete.

Question 39

When a firm is able to produce nonstandardized (that is, distinctive) products for customers who value differentiated features more than they value low cost, the firm is successfully implementing

Answer 39

a differentiation strategy.

Question 40

A firm successfully implementing a differentiation strategy would expect

Answer 40

to charge premium prices.

Question 41

Blind taste-tests have shown that the taste of premium-priced vodkas and inexpensive vodkas are indistinguishable even to regular drinkers of vodka. But the sales of premium vodkas are thriving. This is an example of

Answer 41

the perception of perceived prestige and status as a means of differentiating a product.

Question 42

All of the following are examples of differentiated products EXCEPT

Answer 42

store brand beef and pork.

Question 43

The use of a differentiation strategy would be expected to be LEAST effective in which of the following markets?

Answer 43

Commodity goods

Question 44

All of the following are ways that a good or service can be differentiated EXCEPT

Answer 44

Economies of scale and efficient operations

Question 45

The differentiation strategy can be effective in controlling the power of rivalry with existing competitors in an industry because

Answer 45

customers are loyal to brands that are differentiated in meaningful ways.

Question 46

Wholesome Pet Food has successfully specialized for 20 years in high-quality pet food made from all-natural ingredients and organically-raised lamb. This brand has a strong following and is recommended by veterinarians who practice in affluent neighborhoods. Wholesome’s main supplier of lamb has announced that the price for lamb will be 15 percent higher next year.

Answer 46

Wholesome will probably be able to pass the cost on to its customers because they are less sensitive to price increases than the average buyer.

Question 47

Which of the following is NOT a value-creating activity associated with the differentiation strategy?

Answer 47

develop policies to ensure efficient hiring and retention to keep costs low and implement traing to ensure high employee efficiency.

Question 48

A differentiation strategy can be effective in controlling the power of substitutes in an industry because

Answer 48

customers develop brand loyalty.

Question 49

Recently, the only type of car available for Anthony to rent on a business trip was a compact, fuel-efficient Japanese import. Anthony was surprised at the comfort and performance of the car. He is in the market for a new car and had previously considered only buying another luxury SUV. Now, he is thinking about the significant cost savings he would have if he bought the compact vehicle rather than a new SUV. This is an example of the competitive risk that

Answer 49

experience can narrow a customer’s perceptions of the value of a product’s differentiated features.

Question 50

A manufacturer of jewelry imitates the style of a popular and expensive brand using manufactured stones rather than real gemstones and lesser grade metals rather than silver and gold. The manufacturer packages the jewelry in boxes of the same color imprinted with an almost identical logo. About 85 percent of the company’s sales are through Internet sales. This example illustrates the competitive risk of ____ that threatens companies that use the differentiation strategy.
`

Answer 50

counterfeiting

Question 51

The typical risks of a differentiation strategy do NOT include which of the following?

Answer 51

Suppliers of raw materials erode the firm’s profit margin with price increases.

Question 52

When implementing a focus strategy, the firm seeks to

Answer 52

serve the specialized needs of a market segment.

Question 53

Ikea offers young customers a selection of home furnishings featuring good design, function, and acceptable quality at low prices. Ikea is using which business level strategy?

Answer 53

Focused cost leadership

Question 54

The focused differentiation strategy differs from the differentiation strategy in that

Answer 54

focused differentiators target a narrower customer market.

Question 55

Chico’s is a clothing retailer that targets middle-aged women who want stylish and appealing clothes that are suitable for the mature figure. Chico’s has an extensive customer list, a frequent-buyer discount card, and frequent sales promotions to Chico’s customers based on their spending levels. Chico’s uses a ____ strategy.

Answer 55

focused differentiation based on a buyer group

Question 56

The new generation of lunch trucks serving high-end fare in cities such as New York, San Francisco, and Los Angeles share which of the following a business strategies?

Answer 56

focused differentiation.

Question 57

Denver-based Kazoo Toys uses the __________ strategy to create value for parents and children interested in purchasing unique toys while simultaneously having access to unique services.

Answer 57

focused differentation

Question 58

The Monteleone Company pays large fees to a highly-recognizable, prestigious individual to be the spokesperson for the company’s products, luxury private jets. Monteleone is probably following the

Answer 58

focused differentiation strategy.

Question 59

The risks of a focus strategy include

Answer 59

a competitor’s ability to use its core competencies to outfocus the focuser by serving an even more narrowly defined segment.

Question 60

Focus strategies are

Answer 60

faced with additional types of risks than are industry-wide strategies.

Question 61

New Balance Athletic Shoes target Baby Boomers’ needs for well-fitting shoes. The company is unique in that it offers a very broad range of shoe widths. A realistic potential risk New Balance runs in this focused differentiation strategy includes the possibility that:

Answer 61

A competitor may be able to better use flexible manufacturing systems to make shoes with an individualized fit.

Question 62

Suppose another firm found a way to offer IKEA’s customers (young buyers interested in stylish furniture at low cost) additional sources of differentiation while charging the same price or to provide the same service with the same sources of differentiation at a lower price. What category of competitive risk to a focus strategy would this be?

Answer 62

Focusing on a more narrowly defined segment and “outfocusing” the focuser.

Question 63

Zara has pioneered “cheap chic” in clothing apparel. Zara offers current and desirable fashion goods at relatively low prices. To implement the strategy, Zara uses sophisticated designers and effective means of managing costs. These are all characteristics of which business level strategy?

Answer 63

Integrated Cost Leadership/Differentiation

Question 64

Firms use the integrated cost leadership/differentiation strategy because

Answer 64

most consumers want to pay a low price for products with somewhat highly differentiated features.

Question 65

The integration of a cost leadership and a differentiation strategy

Answer 65

is challenging because it increases the number of value chain activities and support functions in which the firm must become competent.

Question 66

Target’s brand promise “Expect More. Pay Less” and appeal to higher-income, fashion conscious discount shoppers illustrates the ________________strategy

Answer 66

integrated cost leadership/differentiation

Question 67

According to the Chapter 4 Strategic Focus, The Li Ning Company entered the Chinese sportswear market using a __________________ strategy. As it seeks to expand into new market segments, however, its strategy has changed to ____________________.

Answer 67

cost leadership; integrated cost leadership/differentation

Question 68

Three sources of flexibility in completing primary and support activities are particularly useful for firms using the integrated strategy. These are

Answer 68

Flexible Manufacturing Systems, Total Quality Management, and Information Networks.

Question 69

The benefit of a flexible manufacturing system is that

Answer 69

the lot size needed to manufacture a firm’s product efficiently is reduced.

Question 70

A flexible manufacturing system is

Answer 70

a computer-controlled process that is used to produce a variety of products in moderate, flexible quantities with minimal human intervention.

Question 71

A nationwide chain of pet stores wishes to identify the tradeoffs that its customers are willing to make between low-cost products such as generic pet foods and differentiated features such as pick-up and delivery of pets for grooming. The best technique for this firm to learn this information would be to use

Answer 71

information networks.

Question 72

By linking companies with their suppliers, distributors, and customers, ____ provide a company with flexibility.

Answer 72

Information networks

Question 73

TQM is most helpful to firms following the ____ business strategy.

Answer 73

integrated cost-leadership/differentiation

Question 74

The term “stuck in the middle”

Answer 74

means that the firm’s cost structure is not low enough to allow it to attractively price its products and that its products are not sufficiently differentiated to create value for its target customer.