Question 1

The primary aim of strategic management at the business level is
A) maximizing risk to return trade-offs through diversification.
B) maximizing differentiation of products and/or services.
C) achieving competitive advantage.
D) achieving a low-cost position.

Accepted Answer

How firms compete with each other and how they attain and sustain competitive advantages goes to the heart of strategic management. In short, the key issue becomes to identify why some firms outperform others and enjoy such advantages over time.

Question 2

Global logistics firms such as DHL Supply Chain and Global Forwarding or C.H.Robinson Worldwide compete using an overall cost leadership strategy in primary activities such as
A) effective layout of receiving dock operations.
B) effective use of automated technology to reduce scrappage rates.
C) minimize costs associated with employee turnover through effective policies.
D) standardized accounting practices to minimize personnel required.

Accepted Answer

Inbound logistics is a primary activity in the value chain. These global logistics firms strive to achieve cost advantages through the design of their receiving dock operations, among other operation design features.

Question 3

An overall ________ position enables a firm to achieve above-average returns because it protects firms against powerful buyers.
A) differentiation
B) low-cost
C) focused
D) high-cost

Accepted Answer

An overall low-cost position enables a firm to achieve above-average returns because it protects firms against powerful buyers.

Question 4

Primark,an Irish clothing retailer,uses an overall cost leadership strategy.This could fail if it
A) maintains parity with competitors on low cost.
B) cannot maintain parity on differentiation dimensions requested by customers.
C) exceeds customer expectations.
D) increases its sales prices while maintaining competitor parity.

Accepted Answer

To generate above-average performance, a firm following an overall cost leadership position must attain competitive parity on the basis of differentiation relative to competitors. Primark, an Irish clothing retailer, has built a low-cost strategy while also being seen as effectively addressing concerns about environmental sustainability.

Question 5

A business that strives for a low-cost advantage must attain a(n)________ cost advantage over rivals.
A) relative
B) evolutionary
C) absolute
D) potential

Accepted Answer

A business that strives for a low-cost advantage must attain an absolute cost advantage relative to its rivals.

Question 6

An overall low-cost position enables a firm to achieve ________ returns despite strong competition.
A) below average
B) average
C) no
D) above average

Accepted Answer

An overall low-cost position enables a firm to achieve above-average returns despite strong competition.

Question 7

An overall low-cost position protects a firm against rivalry from competitors because ________ allow a firm to earn returns even if its competitors eroded their profits through intense rivalry.
A) higher costs
B) higher prices
C) lower costs
D) lower prices

Accepted Answer

An overall low-cost position protects a firm against rivalry from competitors because lower costs allow a firm to earn returns even if its competitors eroded their profits through intense rivalry.

Question 8

Primary value chain activities that involve the effective layout of receiving dock operations (inbound logistics)and support value chain activities that include expertise in process engineering (technology development)characterize which generic strategy?
A) differentiation
B) differentiation focus
C) stuck-in-the-middle
D) overall cost leadership

Accepted Answer

Examples of overall cost leadership within primary value chain activities may involve the effective layout of receiving dock operations (inbound logistics), and support value chain activities may include expertise in process engineering (technology development).

Question 9

A manufacturing business pursuing cost leadership is likely to
A) focus on a narrow market segment.
B) use advertising to build brand image.
C) put heavy emphasis on product engineering.
D) rely on experience effects to raise efficiency.

Accepted Answer

One factor often central to an overall cost leadership strategy is the experience curve, which refers to how business learns to lower costs as it gains experience with production processes. With experience, unit costs of production decline as output increases in most industries.

Question 10

A firm typically achieves an absolute cost advantage by offering a ________ product or service to a ________ target market using standardization to derive the greatest benefits from economies of scale and experience.
A) no frills; narrow
B) complex; narrow
C) no frills; broad
D) complex; diverse

Accepted Answer

A business that strives for a low-cost advantage must attain an absolute cost advantage relative to its rivals. This is typically accomplished by offering a no-frills product or service to a broad target market using standardization to derive the greatest benefits from economies of scale and experience.

Question 11

Zulily,an online retailer,competes with Amazon and other online retailers by
A) maintaining a large inventory of products.
B) running a labor-intensive distribution system.
C) ordering products from vendors to keep in stock until a customer order comes in.
D) keeping little inventory and ordering only when customers purchase a product.

Accepted Answer

Zulily, an online retailer, has built its business model around lower-cost operations in order to carve out a unique position relative to Amazon and other online retailers. Zulily keeps very little inventory and typically orders products from vendors only when customers purchase the product. It also has developed a bare-bones distribution system. Together, these actions result in deliveries that take an average of 11.5 days to get to customers and can sometimes stretch out to several weeks. Due to its reduced operational costs, Zulily is able to offer attractive prices to customers who are willing to wait.

Question 12

With experience,unit costs of production decline as ________ increases in most industries.
A) costs
B) volume
C) output
D) price

Accepted Answer

With experience, unit costs of production decline as output increases in most industries. The experience curve, developed by the Boston Consulting Group in 1968, is a way of looking at efficiency gains that come with experience. For a range of products, as cumulative experience doubles, costs and labor hours needed to produce a unit of product decline by 10 to 30 percent.

Question 13

Aldi,a discount supermarket retailer,has grown from its German base to the rest of Europe,Australia,and the United States by replicating a simple business format.Aldi limits the number of products in each category to ensure product turn,to ease stocking shelves,and to increase its power over supplier.This is an example of an overall cost leadership strategy because it
A) gives them competitive advantage by decreasing productivity.
B) gives them competitive advantage by tight cost and overhead control.
C) eliminates the need to compete based on its products.
D) requires the customer to recognize its efforts.

Accepted Answer

Aldi, a discount supermarket retailer limits the number of products in each category to become more efficient. This enhances its cost leadership position.

Question 14

Primark,a fashion retailer,has found a way to keep its cost structure lower than its rivals by leveraging streamlined logistics,a low marketing budget,and negotiating bargain prices from its suppliers.They are using a(n)________ strategy.
A) differentiation
B) overall cost leadership
C) focus
D) broad differentiation

Accepted Answer

Overall cost leadership requires a tight set of interrelated tactics that include:aggressive construction of efficient-scale facilities and vigorous pursuit of cost reductions from experience.

Question 15

Overhead costs associated with the number of layers of management in a firm are part of the ________ activities of the value chain.
A) human resources management
B) firm infrastructure
C) operations
D) marketing and sales

Accepted Answer

Exhibit 5.3 draws on the value-chain concept to provide examples of how a firm can attain an overall cost leadership strategy in its primary and support activities. Reducing management layers to reduce overhead costs is the support activity associated with the firm infrastructure.

Question 16

Which type of competitive strategy is characterized by convincing rivals not to enter a price war,protection from customer pressure to lower prices,and the ability to better withstand cost increases from suppliers?
A) differentiation
B) overall low-cost leadership
C) differentiation focus
D) cost leadership focus

Accepted Answer

An overall low-cost position enables a firm to achieve above-average returns despite strong competition. It protects a firm against rivalry from competitors, because lower costs allow a firm to earn returns even if its competitors eroded their profits through intense rivalry. It protects firms against powerful buyers, who can only drive down prices to the level of the next most efficient producer. A low-cost position provides more flexibility to cope with supplier demands for input cost increases.

Question 17

A low-cost position permits buyers to exert power to drive ________ prices only to the level of the next most efficient producer.
A) up
B) down
C) increasing
D) decreasing

Accepted Answer

A low-cost position permits buyers to exert power to drive down prices only to the level of the next most efficient producer.

Question 18

One aspect of using a cost leadership strategy is that experience effects may lead to lower costs.Experience effects are achieved by
A) spreading out a given expense or investment over a greater volume.
B) hiring more experienced personnel.
C) repeating a process until a task becomes easier.
D) competing in an industry for a long time.

Accepted Answer

One factor often central to an overall cost leadership strategy is the experience curve, which refers to how business learns to lower costs as it gains experience with production processes. With experience, unit costs of production decline as output increases in most industries.

Question 19

A low-cost position provides ________ flexibility to cope with demands from powerful suppliers for input cost increases.
A) less
B) decreasing
C) more
D) no

Accepted Answer

A low-cost position provides more flexibility to cope with demands from powerful suppliers for input cost increases.

Question 20

Research has consistently shown that firms that achieve both cost leadership and differentiation advantages tend to perform
A) at about the same level as firms that achieve either cost or differentiation advantages.
B) about the same as firms that are stuck-in-the-middle.
C) higher than firms that achieve either a cost or a differentiation advantage.
D) lower than firms that achieve differentiation advantages but higher than firms that achieve cost advantages.

Accepted Answer

Both casual observation and research support the notion that firms that identify with one or more of the forms of competitive advantage outperform those that do not. There has been a rich history of strategic management research addressing this topic. One study found that businesses combining multiple forms of competitive advantage (differentiation and overall cost leadership) outperformed businesses that used only a single form.

Quiz 5: Business-level Strategy: Creating and Sustaining Competitive Advantages

The primary aim of strategic management at the business level is

Global logistics firms such as DHL Supply Chain and Global Forwarding or C.H.Robinson Worldwide compete using an overall cost leadership strategy in primary activities such as

An overall ________ position enables a firm to achieve above-average returns because it protects firms against powerful buyers.

Primark,an Irish clothing retailer,uses an overall cost leadership strategy.This could fail if it

A business that strives for a low-cost advantage must attain a(n) ________ cost advantage over rivals.

An overall low-cost position enables a firm to achieve ________ returns despite strong competition.

An overall low-cost position protects a firm against rivalry from competitors because ________ allow a firm to earn returns even if its competitors eroded their profits through intense rivalry.

Primary value chain activities that involve the effective layout of receiving dock operations (inbound logistics) and support value chain activities that include expertise in process engineering (technology development) characterize which generic strategy?

A manufacturing business pursuing cost leadership is likely to

A firm typically achieves an absolute cost advantage by offering a product or service to a target market using standardization to derive the greatest benefits from economies of scale and experience.

Zulily,an online retailer,competes with Amazon and other online retailers by

With experience,unit costs of production decline as ________ increases in most industries.

Primark,a fashion retailer,has found a way to keep its cost structure lower than its rivals by leveraging streamlined logistics,a low marketing budget,and negotiating bargain prices from its suppliers.They are using a(n) ________ strategy.

Overhead costs associated with the number of layers of management in a firm are part of the ________ activities of the value chain.

Which type of competitive strategy is characterized by convincing rivals not to enter a price war,protection from customer pressure to lower prices,and the ability to better withstand cost increases from suppliers?

A low-cost position permits buyers to exert power to drive ________ prices only to the level of the next most efficient producer.

One aspect of using a cost leadership strategy is that experience effects may lead to lower costs.Experience effects are achieved by

A low-cost position provides ________ flexibility to cope with demands from powerful suppliers for input cost increases.

Research has consistently shown that firms that achieve both cost leadership and differentiation advantages tend to perform