72 Part II CHAPTER 5: PRODUCT DIFFERENTIATION TRUE/FALSE QUESTIONS 1.

Wal-Mart exemplifies a firm pursuing a product differentiation strategy while Victoria s !ecret exemplifies a firm pursuing a cost leadership strategy. "rue #alse Answer: #alse Page: 1$% Difficu !": &asy C#a$!er O%&ec!i'e: 1 2. Product differentiation is a 'usiness strategy where'y firms attempt to gain a competiti(e ad(antage 'y increasing the percei(ed (alue of their products and ser(ices relati(e to the percei(ed (alue of other firms products or ser(ices. "rue #alse Answer: "rue Page: 1$% Difficu !": &asy C#a$!er O%&ec!i'e: 1 ). *ttempts to create differences in the relati(e percei(ed (alue of a firm s products or ser(ices are rarely made 'y altering the o'+ecti(e properties of those products or ser(ices. "rue #alse Answer: #alse Page: 1$% Difficu !": Moderate C#a$!er O%&ec!i'e: 1 $. While firms often alter the o'+ecti(e properties of their products or ser(ices in order to implement a product differentiation strategy, the existence of product differentiation is always a matter of customer perception. "rue #alse Answer: "rue Page: 1$% Difficu !": Moderate C#a$!er O%&ec!i'e: 1 -. If products or ser(ices are percei(ed as 'eing different in a way that is (alued 'y customers, e(en if there is no physical differentiation, then product differentiation exists. "rue #alse Answer: "rue Page: 1$% Difficu !": Moderate C#a$!er O%&ec!i'e: 1 %. * hedonic price is that part of a products or ser(ices actual price that is not attri'uta'le to a particular attri'ute of that product or ser(ice. "rue #alse Answer: #alse Page: 1$. Difficu !": /ard C#a$!er O%&ec!i'e: 2

7) Part II 7. 0hryslers introduction of the 1ca' forward1 design was an attempt at differentiation through product features. "rue #alse Answer: "rue Page: 1$. Difficu !": /ard C#a$!er O%&ec!i'e: 2 .. "o the extent that differences in product complexity lead customers to conclude that the products of some firms are more (alua'le than the product of other firms, then product complexity can 'e a 'asis of product differentiation. "rue #alse Answer: "rue Page: 1$2 Difficu !": Moderate C#a$!er O%&ec!i'e: 2 2. "iming-'ased product differentiation relies solely on 'eing a first mo(er. "rue #alse Answer: #alse Page: 1$2 Difficu !": Moderate C#a$!er O%&ec!i'e: 2 13. "he physical location of a firm cannot 'e a source of product differentiation. "rue #alse Answer: #alse Page: 1$2 Difficu !": &asy C#a$!er O%&ec!i'e: 2 11. Products can 'e differentiated 'y the extent to which they are customi4ed for particular customer applications. "rue #alse Answer: "rue Page: 1-3 Difficu !": &asy C#a$!er O%&ec!i'e: 2 12. "hrough ad(ertising and other consumer mar5eting efforts, firms attempt to alter the perceptions of current and potential customers, 'ut only when specific attri'utes of a firm s products or ser(ices are altered. "rue #alse Answer: #alse Page: 1-3 Difficu !": Moderate C#a$!er O%&ec!i'e: 2 1). 6nce de(eloped, a firm s reputation can last a long time, e(en if the 'asis for that reputation no longer exists. "rue #alse Answer: "rue Page: 1-3 Difficu !": Moderate C#a$!er O%&ec!i'e: 2

0hapter -7 Product 8ifferentiation 7$

1$. "he a'ility to use organi4ation structure to facilitate coordination among scientific disciplines to conduct research is 5nown as architectural competence. "rue #alse Answer: "rue Page: 1-1 Difficu !": Moderate C#a$!er O%&ec!i'e: 2 1-. When firms place their products in mo(ies, this is 5nown as co-'randing. "rue #alse Answer: #alse Page: 1-2 Difficu !": /ard C#a$!er O%&ec!i'e: 2 1%. In the information technology 'usiness, inter-connecti(ity is a relati(ely unimportant 'asis of potential product differentiation. "rue #alse Answer: #alse Page: 1-2 Difficu !": Moderate C#a$!er O%&ec!i'e: 2 17. Product differentiation is ultimately an expression of the creati(ity of indi(iduals and groups within firms and is limited only 'y the opportunities that exist, or that can 'e created, in a particular industry and 'y the willingness and a'ility of firms to creati(ely explore ways to ta5e ad(antage of those opportunities. "rue #alse Answer: "rue Page: 1-) Difficu !": Moderate C#a$!er O%&ec!i'e: ) 1.. It is reasona'le to expect that in the near future a mar5eting specialist will de(elop a definiti(e list of 'ases of product differentiation. "rue #alse Answer: #alse Page: 1-) Difficu !": Moderate C#a$!er O%&ec!i'e: ) 12. #irms selling differentiated products face a hori4ontal demand cur(e. "rue #alse Answer: #alse Page: 1-$ Difficu !": /ard C#a$!er O%&ec!i'e: ) 23. &dward 0ham'erlin descri'ed firms selling differentiated products and facing a downward-sloping demand cur(e as 'eing in an industry characteri4ed 'y monopolistic competition. "rue #alse Answer: "rue Page: 1-$ Difficu !": /ard C#a$!er O%&ec!i'e: )

7- Part II 21. Product differentiation helps reduce the threat of new entry 'y forcing potential entrants to an industry to a'sor' not only the standard costs of 'eginning 'usiness 'ut also the additional costs associated with o(ercoming incum'ent firms product differentiation ad(antages. "rue #alse Answer: "rue Page: 1-) Difficu !": Moderate C#a$!er O%&ec!i'e: $ 22. Product differentiation effecti(ely reduces ri(alry to 4ero. "rue #alse Answer: #alse Page: 1-$ Difficu !": Moderate C#a$!er O%&ec!i'e: $ 2). Product differentiation increases the threat of su'stitutes 'y ma5ing a firm s current products appear less attracti(e than su'stitutes. "rue #alse Answer: #alse Page: 1-Difficu !": &asy C#a$!er O%&ec!i'e: $ 2$. #irms with highly differentiated products may ha(e loyal customers or customers who are una'le to purchase similar products or ser(ices from other firms and are therefore more li5ely to accept increased prices due to a firm passing on increased costs 'y a powerful supplier. "rue #alse Answer: "rue Page: 1-% Difficu !": Moderate C#a$!er O%&ec!i'e: $ 2-. When a firm sells a highly differentiated product, it en+oys a 9uasi-monopoly in that segment of the mar5et. "rue #alse Answer7 "rue Page: 1-% Difficu !": /ard C#a$!er O%&ec!i'e: $ 2%. In fragmented industries firms can use product differentiation to help consolidate a mar5et. "rue #alse Answer: "rue Page: 1-% Difficu !": Moderate C#a$!er O%&ec!i'e: $ 27. In emerging industries, product differentiation efforts often focus on product refinement as a 'asis for product differentiation. "rue #alse Answer: #alse Page: 1-% Difficu !": Moderate C#a$!er O%&ec!i'e: $

0hapter -7 Product 8ifferentiation 7%

2.. "he concept of product differentiation generally assumes that the num'er of firms that ha(e 'een a'le to differentiate their products in a particular way is, at some point in time, less than the num'er of firms needed to generate perfect competition dynamics. "rue #alse Answer: "rue Page: 1-. Difficu !": Moderate C#a$!er O%&ec!i'e: 22. #irms that pursue a product differentiation strategy can choose whether or not they want to re(eal this strategic choice to their competition 'y ad+usting their prices. "rue #alse Answer: #alse Page: 1-. Difficu !": Moderate C#a$!er O%&ec!i'e: )3. :nowing how a firm is differentiating its products necessarily means that competitors will 'e a'le to duplicate a firm s product differentiation strategy at a lower cost. "rue #alse Answer: #alse Page: 1-2 Difficu !": /ard C#a$!er O%&ec!i'e: )1. Product features as a 'asis for product differentiation are generally not easy to duplicate. "rue #alse Answer: #alse Page: 1-. Difficu !": Moderate C#a$!er O%&ec!i'e: )2. While product features, 'y themsel(es, are usually not a source of sustained competiti(e ad(antage, they can 'e a source of a temporary competiti(e ad(antage. "rue #alse Answer: "rue Page: 1%3 Difficu !": &asy C#a$!er O%&ec!i'e: )). Product features, product customi4ation, and product complexity ha(e few o'(ious close su'stitutes and may 'e sources of sustained competiti(e ad(antages. "rue #alse Answer: #alse Page: 1%) Difficu !": /ard C#a$!er O%&ec!i'e: % )$. "iming, location, distri'ution channels, and ser(ice and support are all (ery similar 'ases of product differentiation and can act as su'stitutes for each other. "rue #alse Answer: #alse Page: 1%$ Difficu !": /ard C#a$!er O%&ec!i'e: %

77 Part II )-. While the ;-form structure for a firm pursuing cost leadership is relati(ely simple, the ;-form structure for a firm implementing a product differentiation strategy can 'e somewhat more complex. "rue #alse Answer: "rue Page: 1%$ Difficu !": Moderate C#a$!er O%&ec!i'e: 7 )%. #irms pursuing a differentiation strategy often use temporary cross-di(isional and cross-functional teams to manage the de(elopment and implementation of new, inno(ati(e and highly differentiated products. "rue #alse Answer: "rue Page: 1%$ Difficu !": &asy C#a$!er O%&ec!i'e: 7 )7. More recent wor5 contradicts Porter s assertion a'out 'eing 1stuc5 in the middle1 and suggests that firms that are successful in 'oth cost leadership and product differentiation can often expect to gain a sustained competiti(e ad(antage. "rue #alse Answer: "rue Page: 173 Difficu !": &asy C#a$!er O%&ec!i'e: . ).. Mc8onald s is an excellent example of a firm that simultaneously employs 'oth a product differentiation and a cost leadership strategy since their product differentiation 'ased on cleanliness, consistency and fun in its fast food outlets allowed the company to 'ecome the mar5et share leader in the industry and to reduce its costs. "rue #alse Answer: "rue Page: 173 Difficu !": /ard C#a$!er O%&ec!i'e: . )2. #irms that emphasi4e local responsi(eness are often 'est a'le to reali4e the full (alue of economies of scope and scale as compared to those that ha(e 'etter cross-'order integration. "rue #alse Answer: #alse Page: 17) Difficu !": /ard C#a$!er O%&ec!i'e: 2 $3. "o manage component manufacturing successfully, most internationally integrated consumer electronics firms ha(e located their component operations in technologically ad(anced countries li5e <apan and the ;nited !tates. "rue #alse Answer: "rue Page: 17) Difficu !": Moderate C#a$!er O%&ec!i'e: 2

0hapter -7 Product 8ifferentiation 7.

(ULTIPLE CHOICE QUESTIONS $1. ============== is a 'usiness strategy where'y firms attempt to gain a competiti(e ad(antage 'y increasing the percei(ed (alue of their products or ser(ices relati(e to the percei(ed (alue of other firms products or ser(ices. *. Product differentiation >. ?elated di(ersification 0. 0ost leadership 8. >est-cost pro(ider Answer: * Page: 1$% Difficu !": &asy C#a$!er O%&ec!i'e: 1 $2. >y increasing the percei(ed (alue of a firm s products or ser(ices, a firm will 'e a'le to *. charge a lower price than it would otherwise 'e a'le to do. >. charge a higher price than it would otherwise 'e a'le to do. 0. sell their products at lower prices than firms pursuing a cost leadership strategy. 8. gain significantly more mar5et share than firms pursuing a cost leadership strategy. Answer: > Page: 1$% Difficu !": Moderate C#a$!er O%&ec!i'e: 1 $). While firms often alter the =========== of their products or ser(ices in order to implement a product differentiation strategy, the existence of product differentiation, in the end is always a matter of ===========. *. customer perceptions@ o'+ecti(e properties >. o'+ecti(e properties@ price 0. customer perceptions@ price 8. o'+ecti(e properties@ customer perception Answer: 8 Page: 1$% Difficu !": /ard C#a$!er O%&ec!i'e: 1 $$. If an indi(idual is considering purchasing a "oyota 0amry or a #errari and decides that it is worth paying the extra money for the prestige that is associated with the #errari, the additional money the customer is willing to pay for the prestige is 5now as aAnB *. altruistic price. >. hedonic price. 0. fair mar5et (alue. 8. margin price. Answer: > Page: 1$. Difficu !": /ard C#a$!er O%&ec!i'e: 2 $-. "he most o'(ious way that firms can try to differentiate their products is 'y *. ma5ing the product more complex. >. introducing the product at the right time. 0. customi4ing the product for a particular segment. 8. altering the features of the products they sell. Answer: 8 Page: 1$7 Difficu !": Moderate C#a$!er O%&ec!i'e: 2

72 Part II $%. Which of the following 'ases of product differentiation attempts to create the perception that a firm s products or ser(ices are unusually (alua'le 'y focusing directly on the attri'utes of the products or ser(ices a firm sellsC *. Product complexity >. Product customi4ation 0. 0onsumer mar5eting 8. ?eputation Answer: * Page: 1$2 Difficu !": /ard C#a$!er O%&ec!i'e: 2 $7. "he a'ility of companies that produce complex software pac5ages to tailor these pac5ages to the specific needs of their customers is an example of product differentiation through *. complexity. >. consumer mar5eting. 0. product customi4ation. 8. timing. Answer: 0 Page: 1-3 Difficu !": Moderate C#a$!er O%&ec!i'e: 2 $.. * firm s =========== is really no more than a socially complex relationship 'etween a firm and its customers and can ser(e as a 'asis for product differentiation. *. location >. reputation 0. consumer mar5eting 8. architectural competence Answer: > Page: 1-3 Difficu !": Moderate C#a$!er O%&ec!i'e: 2 $2. Which of the following 'ases of product differentiation attempts to create the perception that a firm s products or ser(ices are unusually (alua'le 'y focusing on the relationship 'etween a firm and its customersC *. Din5ages 'etween functions >. Product customi4ation 0. Docation 8. Product complexity Answer: > Page: 1-3 Difficu !": Moderate C#a$!er O%&ec!i'e: 2 -3. "hrough which 'ases of competiti(e ad(antage do firms attempt to alter the perceptions of current and potential customers, whether or not specific attri'utes of a firm s products or ser(ices are alteredC *. ?eputation >. Docation 0. Product customi4ation 8. 0onsumer mar5eting Answer: 8 Page: 1-3 Difficu !": Moderate C#a$!er O%&ec!i'e: 2 -1. =============== is the a'ility to use organi4ational structure to facilitate

0hapter -7 Product 8ifferentiation .3

coordination among specific disciplines to conduct research. *. *rchitectural competence >. 0ross functional lin5ing 0. 6rgani4ational coordination 8. Managerial le(erage Answer: * Page: 1-1 Difficu !": Moderate C#a$!er O%&ec!i'e: 2 -2. Which of the following 'ases of product differentiation attempts to create the perception that a firm s products or ser(ices are unusually (alua'le 'y focusing on lin5s within and 'etween firmsC *. ?eputation >. Product complexity 0. 0onsumer mar5eting 8. Product mix Answer: 8 Page: 1$7 Difficu !": Moderate C#a$!er O%&ec!i'e: 2 -). When the tele(ision show *merican Idol shows the +udges drin5ing 'e(erages from cups with the 0oca-0ola la'el, or when a corporate sponsor places its logo on a E*!0*? car, this is an attempt at product differentiation 'y lin5ing with other firms through *. Product placements >. ?eputation 0. Product mix 8. *rchitectural competence. Answer: * Page: 1-2 Difficu !": /ard C#a$!er O%&ec!i'e: 2 -$. Product differentiation is ultimately an expression of the ========== of indi(iduals and groups within firms and is limited only 'y the ========= that exist, or that can 'e created in a particular industry. *. creati(ity@ resources >. resources@ opportunities 0. creati(ity@ opportunities 8. opportunities@ resources Answer: 0 Page: 1-) Difficu !": Moderate C#a$!er O%&ec!i'e: ) --. In general, firms selling differentiated products face a demand cur(e that is *. upward sloping. >. hori4ontal. 0. (ertical. 8. downward sloping. Answer: 8 Page: 1-$ Difficu !": /ard C#a$!er O%&ec!i'e: $

-%. *ccording to 0ham'erlin, firms selling differentiated products and facing a down-

.1 Part II ward sloping demand cur(e are in an industry descri'ed as *. perfect competition. >. monopolistic competition. 0. oligopolistic competition. 8. semi-structured competition. Answer: > Page: 1-$ Difficu !": /ard C#a$!er O%&ec!i'e: $ -7. Which of the following statements regarding the impact of product differentiation on the threat of new entry is accurateC *. Product differentiation helps reduce the threat of new entry 'y forcing potential new entrants to a'sor' costs associated with o(ercoming incum'ent firms product differentiation ad(antages. >. Product differentiation increases the threat of new entry 'y allowing potential new entrants to a(oid costs associated with o(ercoming incum'ent firms product differentiation ad(antages. 0. Product differentiation has no impact on the threat of new entry. 8. It is not possi'le to determine the impact of product differentiation on the threat of new entry. Answer: * Page: 1-) Difficu !": Moderate C#a$!er O%&ec!i'e: $ -.. When considering the impact of product differentiation on the threat of ri(alry, product differentiation *. reduces the threat of ri(alry to 4ero. >. increases the threat of ri(alry 'y forcing each firm in an industry to compete directly with one another instead of allowing them to car(e out their own uni9ue product niche. 0. has no impact on the threat of ri(alry. 8. reduces the threat of ri(alry 'ecause each firm in an industry attempts to car(e out its own uni9ue product niche. Answer: 8 Page: 1-$ Difficu !": /ard C#a$!er O%&ec!i'e: $ -2. With regard to the threat of suppliers, product differentiation *. reduces the threat of suppliers 'ecause a firm with a highly differentiated product can pass increased costs on to customers. >. increases the threat of suppliers 'ecause a firm with a highly differentiated product is una'le to pass increased costs on to customers. 0. has no impact on the threat of suppliers. 8. can either increase or reduce the threat of suppliers. Answer: * Page: 1-% Difficu !": Moderate C#a$!er O%&ec!i'e: $

%3. In emerging industries

0hapter -7 Product 8ifferentiation .2

*. firms that are first mo(ers are unli5ely to gain product differentiation ad(antages 'ased on 'uyer loyalty and high switching costs. >. firms that are first mo(ers can gain product differentiation ad(antages 'ased on percei(ed technological leadership. 0. product differentiation efforts are focused on product refinement as a 'asis of product differentiation. 8. firms can sometimes 'e tempted to exaggerate the extent to which they ha(e refined and impro(ed their products and ser(ices. Answer: > Page: 1-% Difficu !": Moderate C#a$!er O%&ec!i'e: $ %1. In a declining industry *. product differentiation efforts are focused on product refinement as a 'asis of product differentiation. >. firms that are first mo(ers can gain product differentiation ad(antages 'ased on percei(ed technological leadership. 0. highly differentiated firms may 'e a'le to gain product differentiation ad(antages 'y preempting strategically (alua'le assets. 8. highly differentiated firms may 'e a'le to disco(er a (ia'le mar5et niche that will ena'le them to sur(i(e despite the o(erall decline in the mar5et. Answer: 8 Page: 1-. Difficu !": /ard C#a$!er O%&ec!i'e: $ %2. Which of the following 'ases of product differentiation is almost always easy to duplicateC *. Product features >. Product mix 0. Product customi4ation 8. 0onsumer mar5eting Answer: * Page: 1-2 Difficu !": Moderate C#a$!er O%&ec!i'e: % %). Which of the following 'ases of product differentiation is usually costly to duplicateC *. Product features >. Din5s with other firms 0. ?eputation 8. Product mix Answer: 0 Page: 1%3 Difficu !": /ard C#a$!er O%&ec!i'e: % %$. Which 'ases of product differentiation is 'y far the most popular way for firms to try to differentiate their products 'ut is identified as almost always 'eing easy to duplicateC *. Product mix >. Product features 0. 0ustomi4ation 8. 8istri'ution channels Answer: > Page: 1-2 Difficu !": Moderate C#a$!er O%&ec!i'e: % %-. Product features, 'y themsel(es, are

.) Part II *. usually not a source of temporary competiti(e ad(antage, 'ut they can 'e a source of a sustaina'le competiti(e ad(antage. >. usually not a source of either a temporary competiti(e ad(antage, or a source of a sustaina'le competiti(e ad(antage. 0. usually can 'e a source of 'oth a temporary competiti(e ad(antage and a source of a sustaina'le competiti(e ad(antage. 8. usually not a source of sustained competiti(e ad(antage, 'ut they can 'e a source of a temporary competiti(e ad(antage. Answer: 8 Page: 1%3 Difficu !": /ard C#a$!er O%&ec!i'e: % %%. ;nder which of the following conditions is the product mix ad(antage as a 'asis of product differentiation the least difficult to duplicateC *. When the 'ase of a product mix ad(antage is a common customer >. When the mix of products is highly integrated with each other 0. If each of the products in a product mix has uni9ue features 8. If a firm 'rings a series of products to mar5et Answer: * Page: 1%3 Difficu !": Moderate C#a$!er O%&ec!i'e: % %7. ?esearch on architectural competence in pharmaceutical firms suggests that *. not only do some firms possess this competence, 'ut that other firms do not@ firms without this competence ha(e, on a(erage, 'een a'le de(elop it with minimal in(estment. >. (ery few firms possess this competence, 'ut firms without this competence, on a(erage, are a'le to de(elop it. 0. not only do some firms possess this competence, 'ut also that other firms do not and firms without this competence ha(e, on a(erage, 'een una'le to de(elop it. 8. (irtually e(ery firm possess this competence to some extent. Answer: 0 Page: 1%2 Difficu !": /ard C#a$!er O%&ec!i'e: % %.. Which of the following 'ases of product differentiation is generally (iewed as the most difficult to duplicateC *. Product features >. ?eputation 0. Din5ages with other firms 8. Docation Answer: > Page: 1%2 Difficu !": Moderate C#a$!er O%&ec!i'e: %

%2. "he ;-form structure used to implement a product differentiation strategy *. rarely uses temporary cross-di(isional and cross-functional teams to manage the

0hapter -7 Product 8ifferentiation .$

de(elopment and implementation of new, inno(ati(e, and highly differentiated products. >. has simple reporting relationships. 0. often uses temporary cross-di(isional and cross functional teams to manage the de(elopment and implementation of new, inno(ati(e, and highly differentiated products. 8. has a small corporate staff. Answer: 0 Page: 1%$ Difficu !": Moderate C#a$!er O%&ec!i'e: 7 73. * =========== structure exists when indi(iduals in a firm ha(e two or more 'osses simultaneously. *. ;-form >. multi-di(isional 0. cross-di(isional 8. matrix Answer: 8 Page: 1%Difficu !": Moderate C#a$!er O%&ec!i'e: 7 71. "he Doc5heed 0orporation !5un5 Wor5s is an example of a *. cross-di(isional or cross-functional team. >. M-form structure. 0. ;-form structure. 8. multi-di(isional structure. Answer: * Page: 1%Difficu !": &asy C#a$!er O%&ec!i'e: 7 72. !mall entrepreneurial firms *. ha(e numerous 'ureaucratic controls that impede cross-functional communication, and thus slow inno(ation. >. ha(e relati(ely few 'ureaucratic controls which allow information and ideas to flow freely and to facilitate inno(ation. 0. ha(e relati(ely few 'ureaucratic controls which impedes cross-functional communication, and thus slow inno(ation. 8. ha(e numerous 'ureaucratic controls 'ut information and ideas still flow freely and facilitate inno(ation. Answer: > Page: 1%% Difficu !": Moderate C#a$!er O%&ec!i'e: 7 7). * ========== exists when firms are committed to engage in se(eral related product differentiation simultaneously. *. policy of su'stitution >. policy of extrapolation 0. policy of exploration 8. policy of experimentation Answer: 8 Page: 1%7 Difficu !": Moderate C#a$!er O%&ec!i'e: 7 7$. In de(eloping a compensation policy used to implement a product differentiation strategy, firms will

.- Part II *. hold indi(iduals responsi'le for experiments that fail. >. punish indi(iduals for ta5ing ris5s when their pro+ects are not successful. 0. simultaneously use multiple dimensions to examine employee performance. 8. pro(ide appropriate incenti(es for managers and employees to reduce costs. Answer: 0 Page: 1%2 Difficu !": Moderate C#a$!er O%&ec!i'e: 7 7-. More recent wor5 in the area of strategic management regarding Porter s assertion a'out 'eing stuc5 in the middle *. supports Porter s argument that firms that attempt to simultaneously pursue cost leadership and product differentiation will find themsel(es at a competiti(e disad(antage. >. contradicts Porter s argument and finds that firms that successfully pursue cost leadership and product differentiation simultaneously can often expect to gain a sustained competiti(e ad(antage. 0. partially contradicts Porter s argument and finds that firms that successfully simultaneously pursue cost leadership and product differentiation can only expect to gain a temporary competiti(e ad(antage. 8. partially contradicts Porter s argument and finds that only firms in certain select industries can successfully simultaneously pursue cost leadership and product differentiation and gain a temporary competiti(e ad(antage. Answer: > Page: 173 Difficu !": /ard C#a$!er O%&ec!i'e: . 7%. *ccording the Porter, firms that are stuc5 in the middle attempt to sell *. high-priced products and gain small mar5et share. >. low-priced products and gain large mar5et share. 0. high-priced products and gain a large mar5et share. 8. medium-priced products and gain medium mar5et share. Answer: 8 Page: 173 Difficu !": /ard C#a$!er O%&ec!i'e: . 77. "he ========= strategy treats its international operations as an integrated networ5 of distri'uted and interdependent resources and capa'ilities. *. transnational >. glo'al 0. international 8. multi-domestic Answer: * Page: 17) Difficu !": Moderate C#a$!er O%&ec!i'e: 2 7.. "he =========== strategy exploits all of the ad(antages of 'oth international integration and local responsi(eness. *. glo'al >. multi-domestic 0. international 8. transnational Answer: 8 Page: 17) Difficu !": Moderate C#a$!er O%&ec!i'e: 2 72. "o ensure that the different operations in an internationally integrated firm are

0hapter -7 Product 8ifferentiation .%

appropriately coordinated, these firms typically manufacture more ========== products using more ========== components, than do locally responsi(e firms. *. speciali4ed@ standardi4ed >. speciali4ed@ speciali4ed 0. standardi4ed@ standardi4ed 8. standardi4ed@ speciali4ed Answer: 0 Page: 17) Difficu !": /ard C#a$!er O%&ec!i'e: 2 .3. "he fact that EestlF has .,333 'rands of which only 7-3 are registered in more than one country, and only .3 of which are registered in more than 13 countries is an example of *. a cost leadership strategy. >. a glo'ali4ation strategy. 0. a locally responsi(e strategy. 8. a niche strategy. Answer: 0 Page: 172 Difficu !": /ard C#a$!er O%&ec!i'e: 2 *ccording to 0oach s we'site, the company has 'uilt a distincti(e style and prestigious image o(er the past $3 years to de(elop a reputation as 1*mericaGs preeminent designer, producer, and mar5eter of fine accessories and gifts for women and men including hand'ags, 'usiness cases, luggage and tra(el accessories, wallets, outerwear, eyewear, glo(es, scar(es and fine +ewelry.1 0oach employs a multi-channel distri'ution channel to reach its customers including company owned stores, 'outi9ues in the stores of prominent specialty retailers 'oth within the ;nited !tates and a'road and the company operates an online store. 0onsumers who purchase coach products are generally willing to pay the premium price due to the superior 9uality of 0oach s products as well as the percei(ed prestige of owning a 0oach product. 0oach stresses these features in their ad(ertising campaigns and regularly allows mo(ies and tele(ision shows to fa(ora'ly feature 0oach products in appropriate scenes. 6(er the last fi(e years 0oach has partnered with automo'ile manufacturers such as Dexus to produce automo'iles with 0oach interiors. In an effort to expand its international reach, 0oach intends to increase its international distri'ution and is expanding into <apan through 0oach <apan, Inc. a +oint (enture with a local company that will allow 0oach to control international distri'ution and to maintain a consistent 'rand strategy domestically and a'road. .1. Which generic 'usiness le(el strategy is 0oach pursuingC *. 0ost leadership >. ?elated di(ersification 0. Product differentiation 8. ;nrelated di(ersification Answer: 0 Page: 1$% Difficu !": &asy C#a$!er O%&ec!i'e: 1

.2. "he price premium that customers are willing to pay for the superior 9uality and percei(ed prestige of 0oach s products o(er the prices of similar products are 5nown

.7 Part II as *. marginal prices. >. hedonic prices. 0. heroic prices. 8. elastic prices. Answer: > Page: 1$.

Difficu !": /ard

C#a$!er O%&ec!i'e: 1

.). Which of the following 'ases of product differentiation does 0oach appear to 'e employingC *. Product features, product complexity and consumer mar5eting >. Docation, lin5ages 'etween functions, and reputation 0. ?eputation, consumer mar5eting, and product features 8. 8istri'ution channels, ser(ice and support, and lin5s with other firms Answer: 0 Page: 1$7 Difficu !": /ard C#a$!er O%&ec!i'e: 2 .$. Which of the following 'ases of 0oach s competiti(e ad(antage is li5ely to 'e the most difficult to duplicateC *. Product features >. 0onsumer mar5eting 0. Docation 8. ?eputation Answer: 8 Page: 1%2 Difficu !": Moderate C#a$!er O%&ec!i'e: .-. Which of the following 'ases of 0oach s competiti(e ad(antage is li5ely to 'e the easiest to duplicateC *. Product features >. 0onsumer mar5eting 0. Docation 8. ?eputation Answer: * Page: 1-2 Difficu !": &asy C#a$!er O%&ec!i'e: .%. *. >. 0. "he 'usiness le(el strategy 0oach is pursuing is li5ely to reduce the threat of ri(alry to (irtually 4ero. increase the threat of su'stitutes due to premium pricing. decrease the threat of new entrants due to the additional cost they would face to o(ercome 0oach s reputation ad(antages. 8. decrease the threat of threat of 'uyers since 0oach can lower its prices due to its efficient manufacturing operations. Answer: 0 Page: 1-) Difficu !": /ard C#a$!er O%&ec!i'e: $

.7. Hi(en that the leather hand'ag mar5et that 0oach largely competes in can 'e considered a mature mar5et, 0oach should focus its product differentiation efforts on

0hapter -7 Product 8ifferentiation ..

*. exploiting a first mo(er ad(antage as a 'asis of product differentiation. >. introducing radically new technologies as a 'asis of product differentiation. 0. see5ing a (ia'le mar5et niche that will ena'le them to sur(i(e. 8. refining products as a 'asis of product differentiation. Answer: 8 Page: 1-% Difficu !": /ard C#a$!er O%&ec!i'e: $ ... 0oach s agreement with Dexus to produce automo'iles with 0oach leather interior is an example of *. co-'randing. >. architectural competence. 0. s5un5 wor5s. 8. product placement. Answer: * Page: 1-1 Difficu !": Moderate C#a$!er O%&ec!i'e: 2 .2. If 0oach had an organi4ational structure that used cross-functional teams, the mem'ers of which reported not only to their functional 'oss Ai.e. the head of productionB, 'ut also to the head of the team, 0oach could 'e said to 'e using which organi4ational structureC *. Product di(isional >. Matrix 0. ;-form 8. Multi-domestic Answer: > Page: 1%Difficu !": Moderate C#a$!er O%&ec!i'e: 7 23. In its international expansion acti(ities, 0oach is esta'lishing operations that will allow it to control international distri'ution and to maintain a consistent 'rand strategy domestically and a'road. In doing this 0oach is employing which international strategyC *. "ransnational >. Multi-domestic 0. Integrated international strategy 8. ;nilateral Answer: 0 Page: 17) Difficu !": /ard C#a$!er O%&ec!i'e: 2 ESSA) QUESTIONS *+, Define $r-.uc! .ifferen!ia!i-n an. .iscuss !#e r- e !#a! cus!-/er $erce$!i-ns $ a" in $r-.uc! .ifferen!ia!i-n, Product differentiation is a 'usiness strategy where'y firms attempt to gain a competiti(e ad(antage 'y increasing the percei(ed (alue of their products or ser(ices relati(e to the percei(ed (alue of other firmsG products or ser(ices. "hese other firms can 'e either that firmGs ri(als or firms that pro(ide su'stitute products or ser(ices. >y increasing the percei(ed (alue of a firmGs products or ser(ices, a firm will 'e a'le to charge a higher price than it would otherwise 'e a'le to do. "his higher price can increase a firmGs re(enues and can generate competiti(e ad(antages. While firms often alter the o'+ecti(e properties of their products or ser(ices in order to implement a product differentiation strategy, the existence of

.2 Part II product differentiation, in the end, is always a matter of customer perception. If products or ser(ices are percei(ed as 'eing different in a way that is (alued 'y consumers, then product differentiation exists. /owe(er, +ust as perceptions can create product differentiation 'etween products that are essentially identical, the lac5 of percei(ed differences 'etween products with (ery different characteristics can pre(ent product differentiation. Pages: 1$%-1$7 Difficu !": Moderate C#a$!er O%&ec!i'e: 1 *0, I.en!if" !#e !#ree %r-a. ca!eg-ries -f $r-.uc! .ifferen!ia!i-n an. i.en!if" !w- %ases -f .ifferen!ia!i-n un.er eac# ca!eg-r", "he first category of 'ases of product differentiation attempts to create perceptions of product differentiation 'y focusing directly on the attri'utes of the products or ser(ices a firm sells and includes altering the features of products, increasing product complexity, ad(antageous timing of product introduction, choosing a physical location. "he second category attempts to create the perception of product differentiation 'y de(eloping a relationship 'etween a firm and its customers and includes product customi4ation, consumer mar5eting, and esta'lishing a reputation. "he last category attempts to create a perception of product differentiation through lin5ages within and 'etween firms and includes 'ases such as lin5ages 'etween functions, lin5s with other firms, changing the mix of products a firm 'rings to the mar5et, esta'lishing a distri'ution networ5, offering products with significant le(els of ser(ice and support. Pages: 1$7-1-) Difficu !": Moderate C#a$!er O%&ec!i'e: 2 *1, 2#a! is !#e re a!i-ns#i$ %e!ween $r-.uc! .ifferen!ia!i-n an. /anageria crea!i'i!"3 Product differentiation is ultimately an expression of the creati(ity of indi(iduals and groups within firms and is limited only 'y the opportunities that exist, or that can 'e created, in a particular industry and 'y the willingness and a'ility of firms to creati(ely explore ways to ta5e ad(antage of those opportunities. "hus, in general, the potential 'ases of product differentiation are limited only 'y managerial creati(ity. Page: 1-) Difficu !": &asy C#a$!er O%&ec!i'e: ) *4, 2#a! is !#e i/$ac! -f $r-.uc! .ifferen!ia!i-n -n eac# -f !#e en'ir-n/en!a !#rea!s i.en!ifie. in !#e fi'e f-rces fra/ew-r53 !uccessful product differentiation helps a firm respond to each of the en(ironmental threats identified in the fi(e forces framewor5. Product differentiation helps reduce the threat of new entry 'y forcing potential entrants to an industry to a'sor' not only the standard costs of 'eginning 'usiness 'ut also the additional costs associated with o(ercoming incum'ent firmsG product differentiation ad(antages. Product differentiation reduces the threat of ri(alry 'ecause each firm in an industry attempts to car(e out its own uni9ue product niche. Product differentiation also helps firms reduce the threat of su'stitutes 'y ma5ing a firmGs current products appear more attracti(e than su'stitute products. Product differentiation can also reduce the threat of suppliers since higher prices charged 'y suppliers can often 'e passed on to a firmGs customers due to strong customer loyalty. #inally, product differentiation can reduce the threat of 'uyers. When a firm sells a highly differentiated product, it en+oys a I9uasi-monopolyJ in that segment of the

0hapter -7 Product 8ifferentiation 23

mar5et. >uyers interested in purchasing this particular product must 'uy it from a particular firm. *ny potential 'uyer power is reduced 'y the a'ility of a firm to withhold highly (alued products for ser(ices from a 'uyer. Pages: 1-)-1-% Difficu !": Moderate C#a$!er O%&ec!i'e: $ 2-. Descri%e !#e r- e -f $r-.uc! .ifferen!ia!i-n an. #-w $r-.uc! .ifferen!ia!i-n #e $s fir/s !a5e a.'an!age -f -$$-r!uni!ies in frag/en!e. in.us!ries6 in e/erging in.us!ries6 in /a!ure in.us!ries an. in .ec ining in.us!ries. Frag/en!e. in.us!ries K In fragmented industries, firms can use product differentiation strategies to help consolidate a mar5et. E/erging in.us!ries - >y 'eing a first mo(er in these industries, firms can gain product differentiation ad(antages 'ased on percei(ed technological leadership, preemption of strategically (alua'le assets, and 'uyer loyalty due to high switching costs. (a!ure in.us!ries - In mature industries, product differentiation efforts often switch from attempts to introduce radically new technologies to product refinement as a 'asis of product differentiation. Dec ining in.us!ries K In a declining industry product differentiating firms may 'e a'le to 'ecome leaders in this 5ind of industry 'ased on their reputation, on uni9ue product attri'utes, or on some other product differentiation 'asis. *lternati(ely, highly differentiated firms may 'e a'le to disco(er a (ia'le mar5et niche that will ena'le them to sur(i(e despite the o(erall decline in the mar5et. Pages: 1-%-1-. Difficu !": Moderate C#a$!er O%&ec!i'e: $ *7, I.en!if" w#ic# %ases -f $r-.uc! .ifferen!ia!i-n are i5e " !- %e a /-s! a wa"s eas" !.u$ ica!e6 w#ic# can s-/e!i/es %e c-s! " !- .u$ ica!e an. w#ic# are usua " c-s! " !.u$ ica!e an. .iscuss un.er w#a! c-n.i!i-ns a %ases -f .ifferen!ia!i-n is i5e " !- %e c-s! " !- i/i!a!e an. can %e a s-urce -f sus!aine. c-/$e!i!i'e a.'an!age, !ome 'ases of product differentiation such as product features are almost always easy to duplicate. 6ther 'ases of product differentiation such as product mix, lin5s with other firms, product customi4ation, product complexity, and consumer mar5eting can sometimes 'e costly to duplicate. #inally, still other 'ases of product differentiation such as lin5s 'etween functions, timing, location, reputation, distri'ution channels, and ser(ice and supportLare usually costly to duplicate. /ow costly it is to duplicate a particular 'asis of product differentiation depends on the 5inds of resources and capa'ilities that a 'asis of product differentiation uses. When those resources and capa'ilities are ac9uired in uni9ue historical settings, when there is some uncertainty a'out how to 'uild these resources and capa'ilities, or when these resources and capa'ilities are socially complex in nature, then product differentiation strategies that exploit these 5inds of resources and capa'ilities will 'e costly to imitate. "hese product differentiation strategies can 'e a source of sustained competiti(e ad(antage for a firm. /owe(er, when a product differentiation strategy exploits resources and capa'ilities that do not possess these attri'utes, then those strategies are li5ely to 'e less costly to duplicate, and e(en if they are (alua'le and rare, will only 'e sources of temporary competiti(e ad(antage. Pages: 1-.-1%) Difficu !": Moderate C#a$!er O%&ec!i'e: -

21 Part II

*8, I.en!if" !#e !w- $ri/ar" f-r/s !#a! !#e su%s!i!u!es f-r %ases -f $r-.uc! .ifferen!ia!i-n can !a5e, *lthough some 'ases of product differentiation including timing, location, distri'ution channels, and ser(ice and support ha(e few o'(ious close su'stitutes, others ha(e readily a(aila'le su'stitutes. !u'stitutes for these 'ases of product differentiation can ta5e two forms. #irst, many of the 'ases of product differentiation can 'e partial su'stitutes for each other. #or example, product features, product customi4ation, and product complexity are all (ery similar 'ases of product differentiation and thus can act as su'stitutes for each other. In a similar way, lin5ages 'etween functions, lin5ages 'etween firms, and product mix, as 'ases of product differentiation, can also 'e su'stitutes for each other. I>M lin5s its sales, ser(ice, and consulting functions to differentiate itself in the computer mar5et. !econd other strategies can 'e su'stitutes for many of the 'ases of product differentiation. #or example, one firm may try to gain a competiti(e ad(antage through ad+usting its product mix, and another firm may su'stitute strategic alliances to create the same type of product differentiation. Pages: 1%)-1%$ Difficu !": Moderate C#a$!er O%&ec!i'e: % *9, Discuss !#e si/i ari!ies an. .ifferences -f !#e -rgani:a!i-na s!ruc!ures use. %" fir/s $ursuing a c-s! ea.ers#i$ an. a $r-.uc! .ifferen!ia!i-n s!ra!eg" an. .iscuss !#e i/$-r!ance -f %r-a. .ecisi-n /a5ing au!#-ri!" wi!#in a $r-.uc! .ifferen!ia!i-n s!ra!eg", >oth cost leadership and product differentiation strategies are implemented through the use of a functional or ;-form organi4ational structure. /owe(er, where the ;-form structure used to implement a cost leadership strategy has few layers, simple reporting relationships, a small corporate staff, and focuses on only a few 'usiness functions, the ;-form structure for a firm implementing a product differentiation strategy can 'e somewhat more complex. #or example, firms pursuing a product differentiation strategy often use a matrix structure that includes !e/$-rar" cr-ss;.i'isi-na and cr-ss;func!i-na !ea/s to manage the de(elopment and implementation of new, inno(ati(e, and highly differentiated products. "hese teams 'ring indi(iduals together from different 'usinesses and different functional areas to cooperate on a particular new product or ser(ice. 6ne of the 5ey management controls in a product differentiation strategy is 'road-decision ma5ing guidelines. "hese 'road decision-ma5ing guidelines help 'ring order to what otherwise might 'e a chaotic decision ma5ing process. When managers ha(e no constraints in their decision-ma5ing, they can ma5e decisions that are disconnected from each other and inconsistent with a firmGs o(erall mission and o'+ecti(es. "his results in decisions that are either not implemented or not implemented well. /owe(er, if decision-ma5ing guidelines 'ecome too narrow, they can stifle creati(ity within a firm and a firmGs a'ility to differentiate its products is only limited 'y its creati(ity. "hus decision guidelines must 'e narrow enough to ensure that decisions that are made are consistent with a firmGs mission and o'+ecti(es. Pages: 1%$-1%. Difficu !": Moderate C#a$!er O%&ec!i'e: 7

0hapter -7 Product 8ifferentiation 22

**, Is i! $-ssi% e f-r a fir/ !- i/$ e/en! a c-s! ea.ers#i$ an. $r-.uc! .ifferen!ia!i-n s!ra!eg" si/u !ane-us "3 While traditional management thought held that this was not possi'le, recent wor5 has argued that it is. #irms that are a'le to successfully differentiate their products and ser(ices are li5ely to see an increase in their (olume of sales. "his is especially the case if the 'asis of product differentiation is attracti(e to a large num'er of potential customers. "hus product differentiation can lead to increased (olumes of sales which, in turn, can lead to economies of scale, learning, and other forms of cost reduction. *dditionally, it may also 'e the case that some firms de(elop special s5ills in managing the contradictions that are part of simultaneously implementing low-cost and product differentiation strategies. /owe(er, the management of these contradictions depends on socially complex relations among employees, 'etween employees and the technology they use, and 'etween employees and the firm for which they wor5. Pages: 1%2-171 Difficu !": Moderate C#a$!er O%&ec!i'e: . +<<, H-w is !#e !ensi-n %e!ween c-s! ea.ers#i$ an. $r-.uc! .ifferen!ia!i-n /anifes! in an in!erna!i-na c-n!e=!3 2#a! are !#e %enefi!s -f -ca res$-nsi'eness3 2#a! are !#e %enefi!s -f g -%a in!egra!i-n3 2#a! s!ra!egies can a fir/ use !- gain !#e %enefi!s -f %-!# in!erna!i-na in!egra!i-n an. -ca res$-nsi'eness3 In an international context the tension 'etween cost leadership and product differentiation is manifest 'y the need for firms to simultaneously 'e responsi(e to local mar5et needs while still integrating operations across a firmGs operations in multiple countries. 6n the one hand, local responsi(eness ena'les a firm to implement a product differentiation strategy internationally and a failure to 'e locally responsi(e in implementing product differentiation strategies internationally can lead to mar5eting 'lunders. *lternately, glo'al integration ena'les a firm to gain the cost ad(antages associated with international operations. "o reconcile the tensions 'etween glo'al integration and local responsi(eness some firms ha(e turned to a transnational strategy that exploits all the ad(antages of 'oth international integration and local responsi(eness. #irms implementing a transnational strategy treat their international operations as an integrated networ5 of distri'uted and interdependent resources and capa'ilities. In this context, a firmGs operations in each country are not simply independent acti(ities attempting to respond to local mar5et needs@ they are also repositories of ideas, technologies, and management approaches that the firm might 'e a'le to use and apply in its other international operations. Pages: 171-17$ Difficu !": Moderate C#a$!er O%&ec!i'e: 2