Cost Leadership Strategy
A fast-food chain lowers prices after opening 300 new locations nationwide. Quality stays the same, but profit margins improve. What explains this outcome best?
A. Differentiation through branding
B. Learning curve efficiencies
C. Economies of scale
D. Focus strategy
C. Economies of scale
A hotel charges higher prices because guests value personalized service moments rather than room size. What differentiation principle is being applied?
A. Cost parity
B. Perceived uniqueness
C. Operational efficiency
D. Market focus
B. Perceived uniqueness
A smartphone brand offers premium features at a mid-range price. Which strategy best explains this positioning?
A. Cost leadership
B. Differentiation
C. Best value
D. Focus
C. Best value
Why do firms often misjudge their true competitors without strategic group mapping?
A. They focus only on market share
B. They assume industry boundaries equal competitive boundaries
C. They ignore pricing strategies
D. They overestimate differentiation
B. They assume industry boundaries equal competitive boundaries
An airline outsources aircraft maintenance to a specialized overseas firm without changing its ticket prices. What is the primary strategic rationale?
A. Increasing perceived uniqueness
B. Reducing fixed operational costs
C. Narrowing customer focus
D. Enhancing customer loyalty
B. Reducing fixed operational costs
“cost cannot be completely ignored” in differentiation?
A. Because differentiation always converges to cost leadership
B. Because scale economies dominate all strategies
C. Because differentiation depends on outsourcing
D. Because customers compare value, not uniqueness alone
D. Because customers compare value, not uniqueness alone
A firm positions itself as “high quality at a fair price.” Customers, however, struggle to articulate why it is better than cheaper rivals. What is the core strategic failure?
A. Insufficient differentiation clarity
B. Weak cost structure
C. Poor focus execution
D. Overreliance on scale
A. Insufficient differentiation clarity
A focused firm begins chasing adjacent segments “opportunistically.” What is the hidden strategic cost?
A. Rising marketing expenses
B. Loss of economies of scale
C. Erosion of core value proposition
D. Supplier resistance
C. Erosion of core value proposition
Two firms both pursue cost leadership. Firm A relies on economies of scale; Firm B relies on learning effects. When demand stagnates, which firm is more strategically exposed?
A. Firm A, because fixed costs dominate
B. Firm B, because learning plateaus
C. Both equally exposed
D. Neither, because cost leadership neutralizes demand risk
A. Firm A, because fixed costs dominate
Two competing hotels offer similar luxury rooms. One emphasizes “moments of delight” through emotional experiences. Why is this strategically effective?
A. It lowers fixed costs
B. It improves economies of scale
C. It expands market size
D. It creates non-imitable value
D. It creates non-imitable value
Why we argued that differentiation may initially increase unit costs but reduce them in the long run?
A. Differentiation attracts cheaper suppliers
B. Volume growth offsets cost premiums
C. Learning effects apply only to differentiated firms
D. Outsourcing becomes unavoidable
B. Volume growth offsets cost premiums
From a managerial perspective, what is the real power of strategic group mapping?
A. Predicting profit levels
B. Identifying pricing ceilings
C. Simplifying industry analysis
D. Revealing where competition is not occurring
D. Revealing where competition is not occurring
A cost leader introduces premium add-ons to improve margins. Over time, its cost advantage erodes. What strategic mistake best explains this outcome?
A. Over-investment in technology
B. Blurring of strategic positioning
C. Insufficient outsourcing
D. Weak bargaining power
B. Blurring of strategic positioning
A differentiated firm experiences declining margins despite strong customer loyalty. Which explanation aligns best with differentiation theory?
A. Loyalty reduces price sensitivity permanently
B. Costs rose faster than customers’ willingness to pay
C. Differentiation eliminates cost concerns
D. Focus strategy is required
B. Costs rose faster than customers’ willingness to pay
Which condition makes a best-value strategy most likely to fail?
A. Customers highly sensitive to price or prestige extremes
B. Highly segmented markets
C. Moderate competition
D. Stable demand
A. Customers highly sensitive to price or prestige extremes
A firm moves into a new strategic group but performance initially declines. Why is this not necessarily a failure?
A. Strategic mobility barriers require adjustment time
B. Short-term losses are inevitable
C. Customers resist change
D. Competitors retaliate
A. Strategic mobility barriers require adjustment time