MGMT 304 FINAL EXAM QUESTIONS AND VERIFIED
ANSWERS
Market Segmentation - Answers - Process of subdividing a market into distinct subset of
customers that behave in the same way or have similar needs. *customers willingness
to pay.
- included clustering (k-means)
Price Fencing - Answers - Using various conditions to maintain separation of price
categories
Example of Price Fencing - Answers - Coupons, online vs. in-store purchasing
Economic value creation - Answers - (Value-created) CS+PS - shows the strategy is
about
1. creating economic value
2. Capturing as much of it as possible
Value created - Answers - (willingness to pay) - cost = (Value - Price) + (price - cost) =
(Consumer Surplus) + (Producer profit/surplus)
Willingness to Pay (WTP) - Answers - Refers to the maximum amount a customer is
willing to pay for a product or service
Different ways to measure consumers' willingness to pay (WTP) - Answers - Revealed
vs Stated
Revealed - Answers - What actually happens
Stated Preference - Answers - What they say - typically found in surveys (what you
state might not actually convert to translate into the actual price.
T/F: Asking sales or marketing managers to project customers willingness to pay
through direct surveys is one way to assess customers stated preferences - Answers -
True
Business-level strategy - Answers - Focuses in a single product market for HOW to
compete
Corporate-level Strategy - Answers - Focuses in several industries for WHERE to
compete
, What are the three fundamental corporate-level strategic decisions? - Answers - Vertical
Integration, Horizontal Diversification, and Geographic Scope
Vertical Integration - Answers - In what stages of the industry value chain should the
company participate
Horizontal Diversification - Answers - What range of products and services should the
company offer
Geographic Scope - Answers - Where should the company compete geographically in
terms of regional, national or international markets
Strategic management systems that underlie the discussion regarding the scope of a
firm - Answers - Core competencies, Economies of scale, Economies of scope, and
Transaction cost
Economies of scale - Answers - average per unit cost decreases as its output increases
Transaction cost - Answers - all costs associated with economic economic exchange
Transaction cost economics theory - Answers - explains and predicts the scope of there
firm, which is central to formulating a corporate level strategy
How does transaction cost relate to the question of whether to vertically integrate or
not? - Answers - If C in - house < C market, then the firm should vertically integrate
Define Information asymmetries and how it is a disadvantage of the market - Answers -
IA: one party is more informed than others. Unequal info can lead to a lemons problem -
can result in the crowing out of desirable goods and services by inferior one
What are ways to mitigate information asymmetry in the marketplace? - Answers -
Signaling and screening
Define Signaling - Answers - communication the unobservable attributes. Agents take
actions to distinguish themselves from their lower-abilty counterparts
Ex: guarantees and warranties
Define Screening - Answers - Need to find ways to screen out erroneous information but
allow in truthful information. Ex: letters of recommendations
The factors that influence a firms' decision in vertical integration - Answers - Transaction
costs, opportunism approach, competitive advantage approach and flexibility approach
(look at Disney/Pixar case for examples of the three types of approaches; understand
the reasoning and how they are illustrated in the case)
ANSWERS
Market Segmentation - Answers - Process of subdividing a market into distinct subset of
customers that behave in the same way or have similar needs. *customers willingness
to pay.
- included clustering (k-means)
Price Fencing - Answers - Using various conditions to maintain separation of price
categories
Example of Price Fencing - Answers - Coupons, online vs. in-store purchasing
Economic value creation - Answers - (Value-created) CS+PS - shows the strategy is
about
1. creating economic value
2. Capturing as much of it as possible
Value created - Answers - (willingness to pay) - cost = (Value - Price) + (price - cost) =
(Consumer Surplus) + (Producer profit/surplus)
Willingness to Pay (WTP) - Answers - Refers to the maximum amount a customer is
willing to pay for a product or service
Different ways to measure consumers' willingness to pay (WTP) - Answers - Revealed
vs Stated
Revealed - Answers - What actually happens
Stated Preference - Answers - What they say - typically found in surveys (what you
state might not actually convert to translate into the actual price.
T/F: Asking sales or marketing managers to project customers willingness to pay
through direct surveys is one way to assess customers stated preferences - Answers -
True
Business-level strategy - Answers - Focuses in a single product market for HOW to
compete
Corporate-level Strategy - Answers - Focuses in several industries for WHERE to
compete
, What are the three fundamental corporate-level strategic decisions? - Answers - Vertical
Integration, Horizontal Diversification, and Geographic Scope
Vertical Integration - Answers - In what stages of the industry value chain should the
company participate
Horizontal Diversification - Answers - What range of products and services should the
company offer
Geographic Scope - Answers - Where should the company compete geographically in
terms of regional, national or international markets
Strategic management systems that underlie the discussion regarding the scope of a
firm - Answers - Core competencies, Economies of scale, Economies of scope, and
Transaction cost
Economies of scale - Answers - average per unit cost decreases as its output increases
Transaction cost - Answers - all costs associated with economic economic exchange
Transaction cost economics theory - Answers - explains and predicts the scope of there
firm, which is central to formulating a corporate level strategy
How does transaction cost relate to the question of whether to vertically integrate or
not? - Answers - If C in - house < C market, then the firm should vertically integrate
Define Information asymmetries and how it is a disadvantage of the market - Answers -
IA: one party is more informed than others. Unequal info can lead to a lemons problem -
can result in the crowing out of desirable goods and services by inferior one
What are ways to mitigate information asymmetry in the marketplace? - Answers -
Signaling and screening
Define Signaling - Answers - communication the unobservable attributes. Agents take
actions to distinguish themselves from their lower-abilty counterparts
Ex: guarantees and warranties
Define Screening - Answers - Need to find ways to screen out erroneous information but
allow in truthful information. Ex: letters of recommendations
The factors that influence a firms' decision in vertical integration - Answers - Transaction
costs, opportunism approach, competitive advantage approach and flexibility approach
(look at Disney/Pixar case for examples of the three types of approaches; understand
the reasoning and how they are illustrated in the case)
