CHAPTER 5
8. A company can achieve value innovation by:
Quiz
1. Superior quality is an important functional-level strategy for
both low cost and differentiation strategies. Strategic
managers for a company pursuing a low cost strategy should
focus on:
d. improving the ability to manufacture products by reducing
production inputs to lower cost.
2. A low cost strategy is one where a company:
b. undercuts its rivals on price to gain market share while still
making a profit.
3. A small HR consulting business is looking to grow. The
leadership team made up of people with training and more
than 20 years of experience each in organizational
development and training is deciding if it will pursue a low cost
strategy or a differentiation strategy. The team feels that they
bring together a unique group of experts to deliver solutions to
a mid-sized company. Which strategy do you recommend the
consulting company pursue to market their services?
a. Focused differentiation strategy
4. Which of these companies pushed the efficiency frontier in
their industry with a value innovation?
b. Ikea created a store environment where customers selected
their own flat-packed furniture and assembled it themselves at
home.
5. Which of these strategies represents a company that has
selected a differentiation strategy?
a. A grocery store chain that is converting their local
neighborhood stores to warehouses and having customers
select items online or through an app and pick them up in a
drive through without having to leave their vehicle.
6. Which of these companies is achieving a competitive
advantage through a low cost strategy?
c. A high volume quick-serve restaurant chain that is
controlling costs through centralized food production and a
streamlined supply chain.
7. A company that finds itself “stuck in the middle” between a companies pursuing a:
low cost strategy and a differentiation strategy can utilize value d. low cost strategy.
innovation to push toward or past the efficiency frontier.
Consider the example of Eddie Bauer in the text. How might
the company introduce a value innovation to move closer to
the efficiency frontier?
a. It must find a way to reduce its costs without sacrificing style information
and other elements of its differentiation.
d
a. identifying a process innovation that would be
challenging for its rivals to imitate because of their
prior strategic commitments.
9. An entrepreneur establishes a social justice online
retail company. The company purchases authentic
artwork, jewelry and crafts at a fair price from artisans
in developing countries and then sells them through a
website. As a company following a differentiation
strategy, which of these functional-level strategies will
be important for sustaining the business?
a. Developing a robust marketing program to promote
the social justice elements of the business and gain
insights into consumer purchasing behavior on the
website
10. A non-profit relief organization decides to take
lessons from the world of business to improve its
delivery of emergency supplies to those in need. What
strategy could it use as a value innovation that makes
it possible to deliver greater value to the communities
it serves?
b. The relief group could utilize information systems to
track and manage relief supply inventories and
strategically locate them closest to the areas most
likely to be hit by a natural disaster.
11. Companies utilizing a focused differentiation
strategy:
a. can sell at higher volumes and greater profitability
than companies that appeal to a broader market.
12. Companies competing with a blue ocean strategy
can create an advantage because:
b. they are able to define and set the rules for the new
industry segment where they are operating.
13. The incentive structure and organization of a
company can be an important part of a business-level
strategy. Flat organizations can be a structure used by
14. A company can lower costs through functional-
level strategy and organization by:
b. achieving economies of scale, using
systems to automate business processes
and adopting lean production technologies.
15. Companies that select a differentiation strategy must also
recognize:
a. the importance of controlling cost to maintain profitability.
16. Which of these companies is pursuing a differentiation
strategy to gain a competitive advantage?
b. Starbucks utilizes an upscale customer experience, high-
quality coffee drinks and brand building to charge a premium
price for its products.
17. A jeans company is pursuing a low cost strategy and has
achieved a position in which it is the lowest cost manufacturer
of denim products. One of the ways the company can achieve a
competitive advantage against its rivals is to:
a. undercut them in a price war to increase volumes and drive
weaker low cost rivals out of business.
18. Value innovation is when a company:
d. offers an innovation that allows for greater value to be
offered through superior differentiation at a lower cost than
was previously thought possible.
19. Which of these companies developed a business concept
that included value innovation allowing it to compete in a blue
ocean:
b. Uber, founded in 2009, introduced peer-to-peer ride sharing
for the first time, redefining the taxi and limousine service
industry.
20. Which of these functional-level strategies is
b. A manufacturer implements a Six Sigma training program
with a goal to double the number of Six Sigma black belts
within 5 years.
21. Understanding market segmentation is an important step
in formulating business-level strategies because:
a. companies can choose three different kinds of strategies
based on their strategy to offer a standard or customized
product to customers with different needs.
22. There are four generic business-level strategies, including:
c. broad low-cost strategy, focus low-cost strategy, broad
differentiation strategy and focus differentiation strategy.
23. To develop a blue ocean strategy a company should
consider four actions – eliminate, reduce, raise and create. A
start-up video game company is considering how it can
operate in a blue ocean. What action might it take?
c. Develop a video game platform that seriously reduces the
manufacturing cost, and therefore the price, of the console
without limiting technology.
24. A restaurant company has conducted an internal
review of its resources and distinctive competencies. It
concluded that customers perceive the company’s
dessert menu to be more delicious and of greater
value than that of the competitors. The company
should consider which business-level strategy?
d. Differentiation strategy
25. The business-level strategies that support a
differentiation strategy are:
a. based around ensuring that customers perceive a
product to have greater value targeted to a single
customer niche and its unique needs.
26. A blue ocean strategy is when a company:
c. redefines the product offering through value
innovation to create a new market space.
27. A Blue Ocean strategy encourages strategic leaders
to consider four questions, including "what factors can
we create that rivals do not offer, thereby increasing
value?" Which of these might be an answer to this
question for a company operating in the legal services
industry?
d. We can offer our customers project pricing instead
of hourly pricing so that they have predictability for
their legal expenses.
28. The president of a software firm has chosen to
implement a differentiation strategy, offering his
product in a Software as a Service (SaaS) platform with
a monthly subscription in the cloud. Most of his
competitors are selling their products as a one-time
purchase on a disc in a retail store. Which of these
functional-level strategies will be critical to his plan?
d. A 24/7 technical support hotline with a team that is
knowledgeable about the product and business goals
of the company's customers.
29. The efficiency frontier represents:
a. a position where companies have found the right
balance between differentiation and low cost
strategies.
30. In a differentiation strategy, a company can
distinguish itself from its rivals by:
c. delivering superior functions and features.
VIDEO QUIZ
1. Burberry took several steps to address its image problem
and improve the value of its differentiation. The decision to
hire a new designer, Christopher Bailey, represents which
functional-level strategy?
d. Superior quality: designing product offerings with a high
perceived quality
2. In addition to the new designer, Burberry also stepped up its
involvement in social media, relationships with style magazines
and connecting with high-profile trendsetters, such as Sarah
Jessica Parker. This is an example of which functional-level
strategy?
c. Marketing efforts focused on brand building and perceived
differentiation from rivals
3. Burberry is pursuing a focused differentiation strategy aimed
at high-end luxury customers. However, the company is also
employing a segmentation strategy to separate customers
within that focus. The strategy offers items at an entry-level
price point as well as couture items for the richest customers.
Which market segmentation strategy is Burberry pursuing?
b. Segmentation
GUIDED CASE
1. Costco as we know it today is made up of the Costco
Wholesale Company and a merger with The Price Company in
1993. The Price Company pioneered the membership
warehouse concept. In terms of value innovation, this means:
c. The company was able to push the efficiency frontier –
lowering costs by selling in a warehouse environment and
improving value by introducing memberships as a
differentiation in the retail industry.
2. When reviewing Costco’s value-creating activities, identify
which of these you would consider to be the most important to 10. Consider if Costco were to choose to pursue a
Costco’s success using the VRIO model.
c. Logistics
3. Costco’s rapid turnover & its ability to sell inventory b4 it is as a differentiated company in its industry strategic
required to pay for it is important to its profitability because
d. this inventory structure reduces the company’s reliance on
working capital.
4. Which of these potential competitive forces could negatively which now include this in their offering.
impact Costco’s ability to sustain its historically high
performance?
d. Substitute Products: Customers shift their buying patterns
from in-store to online in greater numbers for many more
products, including groceries.
5. When assessing the macroenvironment, interpret
the following potential or current events and choose
which one will present a risk that is unique to Costco’s
strategy.
d. The use of drones becomes more commonplace and
acceptable for same-day deliveries of goods ordered
online.
6. Costco’s strategy includes high-end items at lowest
prices compared to others in the retail space. This
identifies the company’s business-level strategy as:
c. Focused Low Cost
7. When Costco selects products to be sold in its
stores, it is choosing to pursue which approach to
market segmentation?
b. Standardization Strategy
8. The success of Costco’s low cost strategy is
dependent on its ability to reduce overhead and
expenses to deliver value to its customers through a
low price but also to its shareholders through high
profitability. Review’s Costco’s financials and identify
which one might be an indicator that the company has
created a low cost position.
b. The company’s SG&A represents just 9.81% of its
net sales.
9. Costco’s low cost strategy can only be successful if it
continues to find ways to reduce cost and be better
than its rivals at improving efficiency. Consider these
functional-level strategies and recommend one to the
management team at Costco.
c. Continue R&D into its online systems for Costco.com
offering to prevent further loss of the business to
online-only retailers.
differentiation strategy, rather than a low-cost
strategy. Which of these strategies might make it
possible for Costco to achieve a competitive advantage
group?
b. Costco decides to add healthcare clinics as part of its
product/service offering in its store, similar to services
offered in Walmart and some grocery store chains