Deck 7: The Sources and Dimensions of Competitive Advantage

Question 1

In the automobile industry,scale economies have resulted in the biggest automobile companies-Toyota,General Motors,Volkswagen,Ford,and Hyundai-also being the most profitable.

Answer 1

False

Question 2

The cost reductions that firms derive from moving down their experience curves are mainly the result of learning which increases the productivity of labor.

Answer 2

True

Question 3

A basic principle of Business Process Reengineering is that dramatic improvements in cost efficiency are better achieved through incremental improvements rather than fundamental redesign.

Answer 3

False

Question 4

The main strategy implication of the Boston Consulting Group's analysis of experience curves was that firms should not lower profit trade profit margins in order to seek sales growth.

Question 5

There are two primary sources of competitive advantage: cost advantage and differentiation advantage.

Question 6

The fact that a firm's "activity system" comprises closely linked,complementary activities simplifies the task of imitating a competitor's strategy.

Question 7

An industry's level of concentration is largely determined by the existence of economies of scale.

Question 8

In order to discover a "blue ocean" of uncontested market space,a firm must use technological innovation to create a new product market

Question 9

If the prices of securities fully reflect all the information available,then passive investors are best advised to invest in index-based mutual funds (unit trusts)with the lowest administration costs.

Question 10

Strategic innovation comprises the introduction of novel products or processes that embody new technology

Question 11

Uncertain imitability is one type of isolating mechanisms.

Question 12

A firm's competitive advantages can only be sustained if it is protected by some form of "isolating mechanisms."

Question 13

Causal ambiguity creates uncertain imitability.

Question 14

Sustainable competitive advantage can be established in all types of market-including those financial markets deemed to be "efficient."

Question 15

Business Process Reengineering that starts with a "clean sheet of paper" runs the risk of destroying some valuable organizational capabilities which have taken many years to build

Question 16

A "business model" describes the overall configuration of a firm's business system.

Question 17

Gary Hamel argues that management innovations (such as Procter & Gamble's brand management system or Toyota's lean production are unlikely to offer sustainable competitive advantage because these innovations are easy to imitate.

Question 18

Achieving productivity gains from process innovation usually requires that new production processes are matched by other management changes-including changes in human resource management.

Question 19

Competitive advantage is invariably revealed by a firm being more profitable than its rivals.

Question 20

A change in the external environment creates competitive advantage either because some firms by responding more effectively than others to the firm or because the change has differential effects upon competing firms.

Question 21

As markets become more turbulent and unpredictable,quick-response capability depends primarily upon:

A)Good forecasting
B)Early identification of emerging changes
C)Speed of response
D)Early identification of emerging changes together with speed in responding to them

Question 22

When an industry is subject to externally generated changes,the firms which are most likely to establish a competitive advantage are:

A)Those with the highest market share.
B)Those that that respond most quickly to the change and have the resources and capabilities that are most closely aligned to the emerging success factors.
C)Those with the greatest agility and capacity for innovation.
D)A combination of (a),(b),and (c).

Question 23

A firm can pre-empt competitors from invading its market space by:

A)Vigorous legal action
B)Threatening to imitate its imitators
C)Introducing new products to fill each niche,investing in capacity ahead of market growth and filing many patents
D)None of these: competitive imitators is inevitable and unstoppable

Question 24

Tangible differentiation comprises observable product features such as shape,color,size,and style; it does not include performance dimensions such of the product - for instance its reliability and durability.

Question 25

One reason that the value chain analysis is a valuable tool for cost analysis is that cost drivers tend to be very different between the different activities of the firm.

Question 26

Product integrity refers to the consistency of a firm's differentiation across all differentiated features - it is the balance of the overall impression left on most customers' minds

Question 27

Cost and differentiation strategies are similar in terms of their potential to confer sustainable competitive advantage.

Question 28

Competitive advantage can be defined as:

A)A firm's ability to establish market leadership.
B)A firm's ability to grow faster than its competitors.
C)A firm's potential to earn a rate of profit that is persistently higher than its rivals.
D)A firm's potential for launching innovative new products.

Question 29

Designing a differentiation strategy requires understanding every possible interaction between a firm and its customers

Question 30

Isolating mechanisms are:

A)Barriers to the erosion of interfirm profit differentials
B)Mechanisms that impede the equilibration of rents between industries
C)The same as "barriers to mobility"
D)Sources of disequilibrium that cause the profitability of different firms in an industry to diverge over time

Question 31

Which of the following is not an isolating mechanism?

A)Private ownership of a company which means that it is not obliged to publish its financial statements.
B)Competitive advantage which is based upon the interaction of a number of different resources and capabilities.
C)Competitive advantage based upon exploiting pricing anomalies.
D)Competitive advantage based upon resources that are difficult to transfer and slow to replicate.

Question 32

The difference between "search goods" and "experience goods" depends upon whether customers can ascertain the product's true attributes: on inspection or only after consuming the product

Question 33

Achieving a differentiation means making your offering unique in a way that makes it more valuable to customers,irrespective of the costs of creating that differentiation.

Question 34

A firm's competitive advantage is not necessarily revealed in higher profitability; it may be reflected in:

A)Expanding market share
B)An aggressive quest for acquisitions
C)Increasing employee bonuses
D)Expanding market share and/or increasing employee bonuses ○

Question 35

Physical characteristics of a product are of little importance in determining its potential for differentiation

Question 36

The potential for spreading fixed costs over a greater volume of output means that unit cost continues to decline even after full capacity utilization has been reached.

Question 37

To understand customer' willingness to pay for differentiation,it is important to know what motivates customers,and the criteria they apply when choosing among competing products.

Question 38

The principal distinction between segmentation and differentiation is that segmentation is a strategic choice by a firm while differentiation is a feature of market structure.

Question 39

Causal ambiguity allows a firm's competitive advantage to be sustained because potential rivals are:

A)Deterred from directly competing with the advantaged firm
B)Unable to identify the sources of the advantaged firm's superior performance
C)Unable to acquire the resources needed to compete against the advantaged firm
D)All the above

Question 40

Differentiation addresses "how" a firm competes in terms of the way in which it can offer uniqueness to its customers

Question 41

In supplying "lifestyle" products which are designed to meet consumers' social and psychological needs,the key to differentiation advantage is:

A)A relentless pursuit of quality.
B)Thorough market research.
C)Product integrity.
D)Market segmentation.

Question 42

The examples of Ikea and Southwest Airlines demonstrate:

A)The power of brand as a factor of success
B)The quality of the top management of these firms
C)The power of advertising
D)How a cost-leadership strategy can be combined with distinctive product differentiation

Question 43

Banks spend more money on their head office buildings than most other large corporations because:

A)They tend to be located in financial centers where property prices are high.
B)They offer "experience goods",hence they need to signal wealth and stability.
C)Their CEOs are more committed to the display of wealth than other CEOs.
D)Because their products are essentially commodities,they need to find alternative ways of differentiating.

Question 44

The difference between a "generic" and a "contextual" management practices is:

A)None: the concepts are identical in practice.
B)The performance impact of a generic practice is independent of the firm's other practices; the impact of a contextual practice depends upon the firm's other practices.
C)Generic practices relate to basic functions; contextual practices tend to be more idiosyncratic.
D)A generic practices offers incremental performance improvement; a contextual practices leads to a new fitness peak.

Question 45

Which of the following product categories offers the greatest potential for differentiation?

A)Clothes and restaurants
B)Cement and wheat
C)Jet fuel for airline jets
D)Sulfur and ethylene

Question 46

"Experience goods" are those which:

A)Have performance attributes that are difficult to ascertain at the moment of purchase
B)Only customers with previous experience of using these goods would rationally consider purchasing
C)Only firms with wide experience in an industry would rationally consider making
D)Have been produced by the firm furthest down the learning curve

Question 47

Advertising costs as a percentage of sales revenue for soft drink brands with large market shares (such as Coca-Cola and Pepsi-Cola)are lower than for brands with small market shares (Dr.Pepper,Schweppes,Fresca).This is because:

A)Advertising campaigns are subject to a large minimum budgets ("indivisibilities")
B)Big brands can negotiate lower rates with advertising agencies and media owners
C)Economies of learning-long-established brands such as Coca-Cola and Pepsi have learned how to be more efficient in their advertising campaigns
D)Economies of global advertising campaigns

Question 48

According to Porter,cost leadership and differentiation are:

A)What leads a firm to "be stuck in the middle"
B)Two names for the same fundamental strategy
C)Distinct generic strategies
D)Strategies that can be pursued simultaneously

Question 49

What is the difference between differentiation and segmentation?

A)There is no difference between the two
B)Differentiation deals with the "how" a firm chooses to compete,while segmentation describes "where" in the entire market a firm chooses to compete
C)Differentiation is a firm's strategic choice,whereas segmentation is given by its environment
D)Segmentation is the head of the marketing department's responsibility,whereas the CEO is in charge of differentiation

Question 50

In retailing,the cost advantages of large retail chains (such as Wal-Mart in the US,Tesco in Britain,Metro in Germany,and Carrefour in France)is primarily the result of:

A)Scale economies in operating large individual retail units.
B)Lower costs of bought-in products as a result of superior bargaining power.
C)Higher capacity utilization in retailing and distribution.
D)Using superior bargaining power to pay lower wage rates.

Question 51

Firms pursuing differentiation advantages will implement their strategies differently from those pursuing cost advantages.The implementation of differentiation strategy is likely to feature:

A)Employee remuneration based upon individual productivity.
B)Frequent performance reporting.
C)High levels of outsourcing.
D)Low levels of job specialization.

Question 52

Compared with simple products like flour or toilet paper,complex products such as cars or hotels:

A)Fewer opportunities for differentiation
B)Greater potential for differentiation○
C)Offer similar opportunities for differentiation--it all depends upon the creativity of product designers and marketers
D)Fewer incentives for differentiation because of their high costs