MQM 385 Actual Questions and Correct Answers
Q1
Cost-leadership Strategy definition
Answer: An integrated set of actions designed to produce or deliver goods or services
at the lowest cost, relative to that of competitors, with features acceptable to
customers
Q2
Cost- Leadership Factors
Answer: Relatively standardized products or services Typically produced and delivered
in large quantities With features or characteristics that are acceptable to most (or the
typical) customers Achieved through the lowest cost structure possible Sold at the
lowest competitive price
Q3
Sources of Cost Advantage
Answer: Economies of scale/scope Indivisibilities; division of labor and specialization
Learning curve economies Improved coordination; standardized procedures
Production/process technology More efficient utilization of resources; increased
precision Product design Facilitate automation/efficiency; standardization of key
components Input costs Ownership of low-cost inputs; location advantages; bargaining
power; cooperative arrangements with suppliers Managerial/organizational efficiency
Reducing organizational slack; culture or mgmt style
Q4
Benefits of Costs leadership
Answer: Rivalry reduced - competitors often must attempt to compete via
differentiation rather than price Buyer power mitigated - customers are careful not to
drive down prices too far and thus drive out other sources Supplier power absorbed -
lower cost structure provides greater slack to absorb increased input costs Entry
barriers raised - scale, learning, location, technology, etc. are all issues that affect
new entrants Threat of substitutes reduced - firm can lower prices further to drive out
potential substitutes
,Q5
Risks of Cost Leadership
Answer: Changing production technologies Competitors may "leap-frog" firm
technologically High entry barriers may become low Strategic myopia - over-obsession
with costs May make firm insensitive to changes in customer needs, preferences,
concerns; socio-demographic trends (PESTEL) Also may blind firm to competitors'
attempts to differentiate a commoditized product/service (e.g. Jet Blue, Norwegian,
WestJet) Industry transition - from mature to declining Competitors employ their own
core competencies to imitate cost leadership position May lead to increasing price
competition w/ high exit barriers Cutthroat competition: "red oceans" v. "blue oceans"
Q6
Differentiation Strategy
Answer: An integrated set of actions designed to produce or deliver goods or services
that customers perceive as being different in ways that are important to them
Q7
Differentiation Strategy Requires
Answer: Understanding of customer needs and preferences Leading to the
development of a product or service with unique value-added features or
characteristics Which has the perception of value-added by customer So firm can
charge premium (above its costs) And accompanied by higher levels of after-sale
service
Q8
Sources of Differentiation Advantage
Answer: Quality Performance, reliability, durability, safety, inputs/ingredients
Innovation Technology, product features and functions; ease-of-use Style Aesthetics,
fashion, features Service(s) Customer responsiveness, friendliness, ensuring total
satisfaction, after-sales services/repairs, etc. Also: convenience,
understanding/anticipating needs, customizability Brand image/reputation Prestige,
status, first-mover advantage
, Q9
Benefits of differentiation strategy
Answer: Rivalry is minimized - due to extensive "distance" between firms and
corresponding customer loyalty/preferences Buyer power almost a non-issue - because
customers are willing to pay a premium for differentiated products Supplier power
mitigated - high margins insulate firm from suppliers; cost increases can be absorbed
or passed on New entrants unlikely - due to customer loyalty, established reputation,
proprietary technology or product design/features, exclusive distribution, etc. Few
substitutes - if firm is selling unique brands
Q10
Risks of Differentiation
Answer: Price premium may be threatened Customers no longer willing to pay
difference between the differentiated product and cheaper alternatives Firm may be
producing "over-differentiated" products Erosion of value Customers no longer value
unique features or characteristics; needs or preferences change; perception of value is
key Costs then begin to exceed the value to the consumer Brand identification can't be
created or is easily duplicated Learning by competitors allows them to offer similar or
comparable features for lower prices (e.g. HTC) Counterfeit products may arise Value
is "stolen" when customers buy knock-offs Piracy of core technology, design,
engineering
Q11
Focus Strategies Defined
Answer: An integrated set of actions designed to produce or deliver goods and
services that serve the unique needs of a particular customer or market segment
Q12
Focus Strategies similar to main strategies
Answer: Focused Cost Leadership - Creating value by providing low-cost products or
services to a narrowly defined customer niche or product market segment E.g. Payless
Shoes, The General Insurance, RedBox Focused Differentiation - Creating value by
providing highly unique products or services for a specific niche E.g. Jimmy Choo,
Tesla, Rolex
Q13
Focus Strategies but different in their scope
Answer: Focus strategies have a much narrower scope Opportunity to create value by
servicing overlooked or hard-to-reach customer niches
Q1
Cost-leadership Strategy definition
Answer: An integrated set of actions designed to produce or deliver goods or services
at the lowest cost, relative to that of competitors, with features acceptable to
customers
Q2
Cost- Leadership Factors
Answer: Relatively standardized products or services Typically produced and delivered
in large quantities With features or characteristics that are acceptable to most (or the
typical) customers Achieved through the lowest cost structure possible Sold at the
lowest competitive price
Q3
Sources of Cost Advantage
Answer: Economies of scale/scope Indivisibilities; division of labor and specialization
Learning curve economies Improved coordination; standardized procedures
Production/process technology More efficient utilization of resources; increased
precision Product design Facilitate automation/efficiency; standardization of key
components Input costs Ownership of low-cost inputs; location advantages; bargaining
power; cooperative arrangements with suppliers Managerial/organizational efficiency
Reducing organizational slack; culture or mgmt style
Q4
Benefits of Costs leadership
Answer: Rivalry reduced - competitors often must attempt to compete via
differentiation rather than price Buyer power mitigated - customers are careful not to
drive down prices too far and thus drive out other sources Supplier power absorbed -
lower cost structure provides greater slack to absorb increased input costs Entry
barriers raised - scale, learning, location, technology, etc. are all issues that affect
new entrants Threat of substitutes reduced - firm can lower prices further to drive out
potential substitutes
,Q5
Risks of Cost Leadership
Answer: Changing production technologies Competitors may "leap-frog" firm
technologically High entry barriers may become low Strategic myopia - over-obsession
with costs May make firm insensitive to changes in customer needs, preferences,
concerns; socio-demographic trends (PESTEL) Also may blind firm to competitors'
attempts to differentiate a commoditized product/service (e.g. Jet Blue, Norwegian,
WestJet) Industry transition - from mature to declining Competitors employ their own
core competencies to imitate cost leadership position May lead to increasing price
competition w/ high exit barriers Cutthroat competition: "red oceans" v. "blue oceans"
Q6
Differentiation Strategy
Answer: An integrated set of actions designed to produce or deliver goods or services
that customers perceive as being different in ways that are important to them
Q7
Differentiation Strategy Requires
Answer: Understanding of customer needs and preferences Leading to the
development of a product or service with unique value-added features or
characteristics Which has the perception of value-added by customer So firm can
charge premium (above its costs) And accompanied by higher levels of after-sale
service
Q8
Sources of Differentiation Advantage
Answer: Quality Performance, reliability, durability, safety, inputs/ingredients
Innovation Technology, product features and functions; ease-of-use Style Aesthetics,
fashion, features Service(s) Customer responsiveness, friendliness, ensuring total
satisfaction, after-sales services/repairs, etc. Also: convenience,
understanding/anticipating needs, customizability Brand image/reputation Prestige,
status, first-mover advantage
, Q9
Benefits of differentiation strategy
Answer: Rivalry is minimized - due to extensive "distance" between firms and
corresponding customer loyalty/preferences Buyer power almost a non-issue - because
customers are willing to pay a premium for differentiated products Supplier power
mitigated - high margins insulate firm from suppliers; cost increases can be absorbed
or passed on New entrants unlikely - due to customer loyalty, established reputation,
proprietary technology or product design/features, exclusive distribution, etc. Few
substitutes - if firm is selling unique brands
Q10
Risks of Differentiation
Answer: Price premium may be threatened Customers no longer willing to pay
difference between the differentiated product and cheaper alternatives Firm may be
producing "over-differentiated" products Erosion of value Customers no longer value
unique features or characteristics; needs or preferences change; perception of value is
key Costs then begin to exceed the value to the consumer Brand identification can't be
created or is easily duplicated Learning by competitors allows them to offer similar or
comparable features for lower prices (e.g. HTC) Counterfeit products may arise Value
is "stolen" when customers buy knock-offs Piracy of core technology, design,
engineering
Q11
Focus Strategies Defined
Answer: An integrated set of actions designed to produce or deliver goods and
services that serve the unique needs of a particular customer or market segment
Q12
Focus Strategies similar to main strategies
Answer: Focused Cost Leadership - Creating value by providing low-cost products or
services to a narrowly defined customer niche or product market segment E.g. Payless
Shoes, The General Insurance, RedBox Focused Differentiation - Creating value by
providing highly unique products or services for a specific niche E.g. Jimmy Choo,
Tesla, Rolex
Q13
Focus Strategies but different in their scope
Answer: Focus strategies have a much narrower scope Opportunity to create value by
servicing overlooked or hard-to-reach customer niches
