Chapter 06
Business Strategy: Differentiation, Cost Leadership, and Blue
Oceans
Multiple Choice Questions
1. A _____ primarily details the goal-directed actions managers take in their quest for
competitive advantage when competing in a single product market.
A. business-level
strategy
B. code of
ethics
C. mission
statement
D. functional-level
strategy
2. Which of the following is a firm effect that has an impact on the competitive advantage
of a firm?
A. the exit barriers within the industry in which the firm
operates
B. the number of companies operating in the industry in which the
firm operates
C. the intensity of rivalry among existing companies in the firm's
chosen industry
D. the value and the cost position of the firm relative to its
competitors
3. A firm's business strategy will lead to a competitive advantage if it allows the firm to
A. execute the same activities performed by the rivals in a
similar manner.
B. reduce the value
gap.
C. perform different activities than its
rivals.
D. position itself below the productivity
frontier.
,4. When a firm makes choices between a cost or value position to achieve competitive
advantage, it is primarily involved in
A. collective
bargaining.
B. strategic trade-
offs.
C. arbitratio
n.
D. mediatio
n.
5. Firms pursuing a differentiation strategy primarily seek to
A. keep their cost structures lower than that of the
cost leader.
B. reduce the value gap to gain a competitive
advantage.
C. provide products that are a direct imitation of the competitors'
products.
D. create higher customer perceived value than the value that
competitors create.
6. Home Smart Inc. is a chain of supermarkets that sells its products at higher prices than
its competitors. Yet, the supermarket chain has a large customer base due to its wide
product portfolio and superior customer service. Which of the following generic business
strategies has Home Smart adopted in this scenario?
A. cost-
leadership
B. differentiati
on
C. market
penetration
D. product
diversification
,7. Bargain Styles Inc. is an apparel company that caters to the highly price-conscious
customers. Through its simple apparel designs, acceptable quality levels, and minimal
customer service, the company has been able to sell its merchandise at the lowest
prices in the industry. Which of the following generic business strategies is Bargain Styles
applying?
A. cost-
leadership
B. differentiati
on
C. niche
marketing
D. product
diversification
8. Why are differentiation and cost-leadership strategies referred to as generic business
strategies?
A. They can be simultaneously pursued by a firm without any
trade-offs.
B. They can be used by any organization independent of
industry context.
C. They require similar strategic positions in order to increase a firm's chances to gain
competitive advantage.
D. They can be applied only by businesses, which have a competitive
advantage.
9. True Empire Autos Inc. is an automobile company known for its luxury cars and follows a
differentiation strategy. In this scenario, True Empire Autos should ideally compare its
strategic position with a(n)
A. automobile company that sells pre-
owned cars.
B. automobile company that sells high-end,
premium cars.
C. automobile company that manufactures
economy cars.
D. pen manufacturing company that follows a differentiation
strategy.
, 10. Wear Crush Inc. is an apparel company known for its affordable clothes that follows a
cost-leadership strategy. In this scenario, Wear Crush should ideally compare its strategic
position with
A. a company that sells wristwatches at affordable
prices.
B. a luxury apparel company that sells designer
clothes.
C. an apparel company popular among price-conscious
customers.
D. an online company that sells customized pet
clothing.
11. In a focused cost-leadership strategy, a firm
A. caters to the segment of the market that is least cost-
sensitive.
B. provides high-priced products for many different segments of the
mass market.
C. delivers low-cost products and services to a specific, narrow part of
the market.
D. focuses on reducing the economic value created to drive
down costs.
12. Organic Eats is a restaurant that caters to the needs of a small percentage of highly
health-conscious consumers. It has an all-organic, vegan menu. Since there are very few
restaurants that offer the same unique services, customers are willing to pay a premium
price for its products and services. In this scenario, Organic Eats is following a
A. product diversification
strategy.
B. liquidation
strategy.
C. mass market
strategy.
D. focused differentiation
strategy.
13. A company that uses a differentiation strategy can achieve a competitive advantage as
long as its
A. economic value created is greater than that of its
competitors.
B. value gap is lower than that of its
competitors.
C. strategic position is below the productivity
frontier.
D. products and services create a lower consumer surplus than that of its
competitors.
Business Strategy: Differentiation, Cost Leadership, and Blue
Oceans
Multiple Choice Questions
1. A _____ primarily details the goal-directed actions managers take in their quest for
competitive advantage when competing in a single product market.
A. business-level
strategy
B. code of
ethics
C. mission
statement
D. functional-level
strategy
2. Which of the following is a firm effect that has an impact on the competitive advantage
of a firm?
A. the exit barriers within the industry in which the firm
operates
B. the number of companies operating in the industry in which the
firm operates
C. the intensity of rivalry among existing companies in the firm's
chosen industry
D. the value and the cost position of the firm relative to its
competitors
3. A firm's business strategy will lead to a competitive advantage if it allows the firm to
A. execute the same activities performed by the rivals in a
similar manner.
B. reduce the value
gap.
C. perform different activities than its
rivals.
D. position itself below the productivity
frontier.
,4. When a firm makes choices between a cost or value position to achieve competitive
advantage, it is primarily involved in
A. collective
bargaining.
B. strategic trade-
offs.
C. arbitratio
n.
D. mediatio
n.
5. Firms pursuing a differentiation strategy primarily seek to
A. keep their cost structures lower than that of the
cost leader.
B. reduce the value gap to gain a competitive
advantage.
C. provide products that are a direct imitation of the competitors'
products.
D. create higher customer perceived value than the value that
competitors create.
6. Home Smart Inc. is a chain of supermarkets that sells its products at higher prices than
its competitors. Yet, the supermarket chain has a large customer base due to its wide
product portfolio and superior customer service. Which of the following generic business
strategies has Home Smart adopted in this scenario?
A. cost-
leadership
B. differentiati
on
C. market
penetration
D. product
diversification
,7. Bargain Styles Inc. is an apparel company that caters to the highly price-conscious
customers. Through its simple apparel designs, acceptable quality levels, and minimal
customer service, the company has been able to sell its merchandise at the lowest
prices in the industry. Which of the following generic business strategies is Bargain Styles
applying?
A. cost-
leadership
B. differentiati
on
C. niche
marketing
D. product
diversification
8. Why are differentiation and cost-leadership strategies referred to as generic business
strategies?
A. They can be simultaneously pursued by a firm without any
trade-offs.
B. They can be used by any organization independent of
industry context.
C. They require similar strategic positions in order to increase a firm's chances to gain
competitive advantage.
D. They can be applied only by businesses, which have a competitive
advantage.
9. True Empire Autos Inc. is an automobile company known for its luxury cars and follows a
differentiation strategy. In this scenario, True Empire Autos should ideally compare its
strategic position with a(n)
A. automobile company that sells pre-
owned cars.
B. automobile company that sells high-end,
premium cars.
C. automobile company that manufactures
economy cars.
D. pen manufacturing company that follows a differentiation
strategy.
, 10. Wear Crush Inc. is an apparel company known for its affordable clothes that follows a
cost-leadership strategy. In this scenario, Wear Crush should ideally compare its strategic
position with
A. a company that sells wristwatches at affordable
prices.
B. a luxury apparel company that sells designer
clothes.
C. an apparel company popular among price-conscious
customers.
D. an online company that sells customized pet
clothing.
11. In a focused cost-leadership strategy, a firm
A. caters to the segment of the market that is least cost-
sensitive.
B. provides high-priced products for many different segments of the
mass market.
C. delivers low-cost products and services to a specific, narrow part of
the market.
D. focuses on reducing the economic value created to drive
down costs.
12. Organic Eats is a restaurant that caters to the needs of a small percentage of highly
health-conscious consumers. It has an all-organic, vegan menu. Since there are very few
restaurants that offer the same unique services, customers are willing to pay a premium
price for its products and services. In this scenario, Organic Eats is following a
A. product diversification
strategy.
B. liquidation
strategy.
C. mass market
strategy.
D. focused differentiation
strategy.
13. A company that uses a differentiation strategy can achieve a competitive advantage as
long as its
A. economic value created is greater than that of its
competitors.
B. value gap is lower than that of its
competitors.
C. strategic position is below the productivity
frontier.
D. products and services create a lower consumer surplus than that of its
competitors.
