Which of the following is most likely to be a low-cost leadership competitive advantage

Chapter 4 – Business-level strategy

TRUE/FALSE

PTS: 1

DIF: Easy

REF: Introduction

ANS: F

PTS: 1

DIF: Moderate

REF: Introduction

ANS: F

PTS: 1

DIF: Moderate

REF: Introduction

ANS: T

PTS: 1 relationship with business-level strategies

DIF: Moderate REF: Customers: their

ANS: T PTS: 1 DIF: Moderate REF: Effectively managing relationships with customers

ANS: F PTS: 1 DIF: Moderate REF: Reach, richness and affiliation

ANS: F PTS: 1 DIF: Moderate REF: Reach, richness and affiliation

ANS: F PTS: 1 DIF: Moderate REF: Reach, richness and affiliation

customers to serve

ANS: F PTS: 1 DIF: Moderate REF: Types of business-level strategies

ANS: F

PTS: 1 DIF: Moderate REF: Potential entrants

ANS: F

PTS: 1

DIF: Easy

REF: Product substitutes

ANS: T PTS: 1 DIF: Moderate REF: Cost leadership strategy

ANS: F

PTS: 1

DIF: Hard

REF: Differentiation strategy

ANS: T focus strategies

PTS: 1

DIF: Moderate

REF: Competitive risks of

ANS: F PTS: ship/differentiation strategy 1 DIF: Hard REF: Integrated cost leader-

ANS: T PTS: 1 DIF: Moderate REF: Integrated cost leader-ship/differentiation strategy

ANS: F

PTS: 1

DIF: Hard

REF: Competitive risks of the

integrated cost leadership/differentiation strategy

MULTIPLE CHOICE

ANS: D PTS: 1 DIF: Moderate REF: Introduction

ANS: D

PTS: 1

DIF: Moderate

REF: Introduction

ANS: B PTS: 1 DIF: Moderate REF: Reach, richness and affiliation

ANS: D

PTS: 1

DIF: Moderate

REF: Types of business-level

strategies

ANS: C

PTS: 1

DIF: Easy

REF: Cost leadership strategy

ANS: C

ANS: B PTS: 1 DIF: Moderate REF: Competitive risks of the cost leadership strategy

ANS: D PTS: 1 DIF: Easy REF: Differentiation strategy

ANS: B PTS: 1 DIF: Moderate REF: Differentiation strategy

ANS: D

PTS: 1

DIF: Moderate

REF: Focus strategies

ANS: A

PTS: 1 DIF: Moderate REF: Focus strategies

ANS: A focus strategies

PTS: 1 DIF: Moderate REF: Competitive risks of

ANS: A PTS: 1 leadership/differentiation strategy

DIF: Hard

REF: Integrated cost

ANS: B ment systems

ANS: C ment systems

PTS: 1

DIF: Moderate

REF: Total quality manage-

ANS: D PTS: 1 DIF: Moderate REF: Competitive risks of the integrated cost leadership/differentiation strategy

ESSAY

ANS:

The three dimensions of firms’ relationships with customers are characterised as reach, richness and affiliation. The reach dimension of relationships with customers is concerned with a firm’s access and connection to customers. In general, firms seek to extend their reach, adding customers in the process of doing so. Richness, the second dimension of a firm’s relationship with customers, is concerned with the depth and detail of the two-way flow of information between the firm and the customer. Broader and deeper information-based exchanges allow firms to better understand their customers and their needs. Affiliation, the third dimension, is concerned with facilitating useful interactions with customers. Viewing the world through the customer’s eyes and constantly seeking ways to create more value for the customer have positive effects in terms of affiliation. This approach enhances customer satisfaction and produces fewer customer complaints.

PTS: 1 DIF: Easy REF: Reach, richness and affiliation

ANS:

Consumer:

ANS:

PTS: 1

DIF: Hard

REF: Cost leadership strategy

ANS:

In a cost leadership strategy, a producer seeks to offer products with acceptable features to customers at the lowest competitive price. One risk of a cost leadership strategy is that a firm’s investment in manufacturing equipment may be made obsolete through technological innovations by competitors. Additionally, a firm with a cost leadership strategy may focus on cost reduction at the expense of trying to understand customers’ needs and/or competitive concerns. Finally, competitors may be able to imitate a cost leader’s competitive advantages in their own unique strategic actions.

PTS: 1

DIF: Moderate REF: Cost leadership strategy

ANS:

PTS: 1 DIF: Hard REF: Differentiation strategy

ANS:

The risks of a differentiation strategy include the fact that the price differential between the low-cost product and the differentiated firm’s product may be too high for the customer. Though customers may value the features incorporated by a producer, they may be unwilling or unable to pay the price necessary to purchase them. Additionally, customer tastes or needs may change, which can result in customers no longer valuing the features used to differentiate the product. A third risk is that customer learning can narrow the customer’s perception of the value of the firm’s differentiated product. For example, this occurred with IBM and personal computers – as individuals grew more knowledgeable about personal computers, the differentiation associated with IBM became less important in the buying decision. Finally, counterfeit goods potentially represent a risk to a differentiation strategy if the counterfeit products provide differentiated features to customers at reduced prices.

PTS: 1 DIF: Moderate REF: Competitive risks of the differentiation strategy

ANS:

Firms implementing a focus strategy attempt to use their core competencies to serve the needs of a certain industry segment. The successful firm finds segments where unique needs are so spe-cialised that broad-based firms do not serve them, or they locate a segment that is being served poorly by broad-based firms. Value is provided to customers through low-cost or differentiation strategies. Therefore, a firm following a focus strategy will face the same risks as those pursuing a cost leadership or differentiation strategy, depending on which of these is emphasised in the focus strategy. However, focus firms face three additional risks beyond these general risks. First, a competitor may be able to focus on a more narrowly defined competitive segment and ‘out-focus’ the focuser. Second, a competitor may decide the market segment is attractive and worthy of competitive pursuit. Finally, the needs of this customer group may become more similar to the needs of customers as a whole, thereby eliminating the advantages of a focus strategy.

PTS: 1 DIF: Moderate REF: Focus strategies

ANS:

Ikea, a global furniture retailer, follows the focused cost leadership strategy. Young buyers after style at a low cost are Ikea’s market segment. For these customers, the firm offers home furnishings that combine good design, function and acceptable quality with low prices. According to the firm, low cost is always in focus. This applies to every phase of their activities. Ikea emphasises several activities to keep its costs low. For example, instead of relying primarily on third-party manufacturers, the firm’s engineers design low-cost, modular furniture ready for assembly by customers. Ikea also positions its products in room-like settings. Typically, competitors’ furniture stores display multiple varieties of a single item in separate rooms and their customers examine living room sofas in one room, tables in another room, chairs in yet another location and accessories in still another area. In contrast, Ikea’s customers can view different living combinations (complete with sofas, chairs, tables and so forth) in a single setting, which eliminates the need for sales associates or decorators to help the customer imagine how a batch of furniture will look when placed in the customer’s home. This approach requires fewer sales personnel, allowing Ikea to keep its costs low. A third practice that helps to keep Ikea’s costs low is expecting customers to transport their own purchases rather than providing delivery service.

Although a cost leader, Ikea also offers some differentiated features that appeal to its target customers, including in-store playrooms for children, wheelchairs for customer use and extended hours. Stores outside of Ikea’s home country of Sweden have ‘Sweden Shops’ that sell Swedish specialties such as herring, crispbread, Swedish caviar and gingerbread biscuits. Ikea believes that these services and products are uniquely aligned with the needs of its customers, many of whom are young, are not wealthy, have children and shop at odd hours because of work schedules. Thus, Ikea’s focused cost leadership strategy finds the firm offering some differentiated features with its low-cost products.

PTS: 1 DIF: Hard REF: Focused cost leadership strategy

ANS:

Total quality management (TQM) is a managerial process that emphasises an organisation’s commitment to the customer and to continuous improvement of all processes through problem-solving approaches based on empowerment of employees Firms develop and use TQM systems to increase customer satisfaction, cut costs and reduce the amount of time required to introduce innovative products to the marketplace.

PTS: 1 DIF: Moderate REF: Total quality management systems

ANS:

Integrated strategies present risks that go beyond those that arise from the pursuit of any single strategy by itself. Principal among these risks is that a firm becomes ‘stuck in the middle’. In such a situation, a firm fails to implement either the differentiation or the cost leadership strategy effectively. The elements of differentiation erode the firm’s low-cost status, and its efforts to achieve low costs destroy some of the aspects of the product’s differentiation. The result is poor performance for the firm.

PTS: 1 DIF: Moderate REF: Competitive risks of the integrated cost leadership/differentiation strategy

Which of the following is the best example of low cost leadership?

How does cost leadership create a competitive advantage?

Which of the following is an advantage of cost leadership?

Which one of the following statements provide the best example of competing on low cost leadership?