Business Concepts Quiz
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Questions and Answers

What is the primary function of a matchmaking firm?

  • To supply goods directly to end consumers.
  • To provide infrastructure that reduces transaction costs. (correct)
  • To conduct market research exclusively.
  • To manufacture products for suppliers.

Which of the following is a major cost associated with monetizing customer value propositions (CVP)?

  • Employee training costs.
  • Coordination costs. (correct)
  • Transportation logistics costs.
  • Real estate acquisition costs.

What is the relationship between infrastructure maintenance and transaction costs?

  • Lower transaction costs enhance the need for infrastructure maintenance.
  • Building infrastructure has no impact on transaction costs.
  • Maintaining infrastructure helps to reduce transaction costs. (correct)
  • Increased maintenance leads to higher transaction costs.

When does payment typically occur in a usage-based model?

<p>After the first usage. (D)</p> Signup and view all the answers

Which statement best describes the outcome of reducing transaction costs?

<p>Transaction volume is likely to increase. (A)</p> Signup and view all the answers

What distinguishes a mass market from a niche market?

<p>Mass market caters to a broad audience, while niche market targets specific segments. (D)</p> Signup and view all the answers

What should companies assess to understand customer needs relative to their customer value proposition (CVP)?

<p>Price drivers and the alignment of products with customer needs. (C)</p> Signup and view all the answers

Which factor is NOT typically considered in a revenue model?

<p>The cost of raw materials used. (A)</p> Signup and view all the answers

What is one key question that defines 'who pays' in a firm's revenue model?

<p>Is the buyer the end user or a wholesaler? (D)</p> Signup and view all the answers

In the context of a revenue model, what does 'for what' refer to?

<p>The pricing structure of the product and its additional services. (B)</p> Signup and view all the answers

What determines whether a price is fixed or variable in a revenue model?

<p>The market demand and supply dynamics. (D)</p> Signup and view all the answers

Which of the following defines 'complement' in a revenue model?

<p>Products that enhance or support the primary offering. (C)</p> Signup and view all the answers

What role do price drivers play in developing a revenue model?

<p>They help in understanding the factors influencing pricing decisions. (B)</p> Signup and view all the answers

What is the primary goal of a business strategy in the long run?

<p>Maximize economic profit (B)</p> Signup and view all the answers

Which level of strategy addresses the question of which business a company should be involved in?

<p>Corporate Strategy (D)</p> Signup and view all the answers

What does the acronym PEST stand for in strategic analysis?

<p>Political, Environmental, Socio-cultural, Technological (B)</p> Signup and view all the answers

Which force in Porter's Five Forces model involves the competition among existing firms?

<p>Rivalry among existing competitors (C)</p> Signup and view all the answers

What factor does NOT directly influence the bargaining power of suppliers?

<p>Market demand for products (D)</p> Signup and view all the answers

What is an opportunity cost?

<p>The net benefit of the best alternative option (C)</p> Signup and view all the answers

Which of the following is NOT a common classification system used for industries?

<p>International Financial Reporting System (IFRS) (C)</p> Signup and view all the answers

Which factor does NOT affect the intensity of rivalry among existing competitors?

<p>Technological advancements (C)</p> Signup and view all the answers

What is a characteristic of homogeneous products in a competitive market?

<p>Low switching costs for buyers (C)</p> Signup and view all the answers

The threat of new entrants is influenced by all of the following EXCEPT?

<p>Buyer preference changes (A)</p> Signup and view all the answers

Which of the following is a factor that can improve the bargaining power of buyers?

<p>Low switching costs (B)</p> Signup and view all the answers

In the context of strategic management, what does the term 'complements' refer to?

<p>Products that enhance the value of other goods (D)</p> Signup and view all the answers

What are the factors that affect the attractiveness of an industry?

<p>Structure that derives profitability and opportunities for structural changes (B)</p> Signup and view all the answers

Which of the following best characterizes the supply side of an industry?

<p>Similar production processes used by firms (A)</p> Signup and view all the answers

What is the relationship between buyer's willingness to pay and value creation?

<p>Increasing buyer's willingness to pay enhances value capture. (D)</p> Signup and view all the answers

Which factor does not influence competitive dynamics in an industry?

<p>Firm size (B)</p> Signup and view all the answers

In terms of competitive advantage, which aspect is critical for sustaining it?

<p>Availability of resources (A)</p> Signup and view all the answers

Which element is a component of the VRIO framework that contributes to value creation?

<p>Valuable resources (D)</p> Signup and view all the answers

What does strategic interdependence refer to in competitive dynamics?

<p>The reliance on competitors' actions for firm outcomes. (D)</p> Signup and view all the answers

What is the primary focus of game theory in the context of competitive dynamics?

<p>Understanding the interaction between competitors. (B)</p> Signup and view all the answers

Which of the following is considered a barrier to imitation?

<p>Tacit knowledge (D)</p> Signup and view all the answers

What are the outcomes of product innovation?

<p>Increased buyer's willingness to pay (A)</p> Signup and view all the answers

How does process innovation typically impact a firm?

<p>Decreases costs while maintaining value capture (C)</p> Signup and view all the answers

What is a defining characteristic of comparative advantage?

<p>Explains efficiency differences between industries. (D)</p> Signup and view all the answers

Which two aspects are fundamental to understanding the value chain?

<p>Input transformations and profitability assessments (A)</p> Signup and view all the answers

What essential factor must be organized throughout the value chain according to the VRIO framework?

<p>Organized resources and capabilities (A)</p> Signup and view all the answers

Which of the following reflects the micro perspective in competitive analysis?

<p>Value chain analysis (C)</p> Signup and view all the answers

What does the term 'payoff' refer to in competitive dynamics?

<p>Impact of actions on firm profitability (A)</p> Signup and view all the answers

What is one of the potential benefits of vertical integration?

<p>Lower costs (A)</p> Signup and view all the answers

Which of the following represents a disadvantage of vertical integration?

<p>Increasing costs (D)</p> Signup and view all the answers

Which type of diversification focuses on expanding into a variety of geographical markets?

<p>Geographic diversification (A)</p> Signup and view all the answers

What are the potential costs associated with related diversification?

<p>Cognitive conflicts (D)</p> Signup and view all the answers

Which of the following can be a benefit of diversification strategies?

<p>Cost and revenue synergies (C)</p> Signup and view all the answers

What is a major factor to consider when evaluating the scope decisions of a firm?

<p>Internal organizational capabilities (C)</p> Signup and view all the answers

What does 'economies of scope' refer to in a diversification strategy?

<p>Reduced overall costs from shared resources (C)</p> Signup and view all the answers

Which option represents a risk involved in vertical integration?

<p>Increasing potential for legal repercussions (A)</p> Signup and view all the answers

What is the main focus of business strategy within firm scope?

<p>Deciding how to compete effectively (B)</p> Signup and view all the answers

Which of the following is NOT a potential benefit associated with diversification?

<p>Cognitive conflicts (D)</p> Signup and view all the answers

What is a key barrier to sustaining value in a platform environment?

<p>Switching costs (D)</p> Signup and view all the answers

What factor distinguishes a traditional firm from a platform-based firm?

<p>Ecosystem value (C)</p> Signup and view all the answers

Which of the following is NOT considered a key participant in a platform?

<p>Traditional retailers (B)</p> Signup and view all the answers

What is a major challenge faced by platform-based businesses?

<p>Competitor imitation (B)</p> Signup and view all the answers

What enhances a buyer's willingness to pay (WTP) in the context of platforms?

<p>Direct and indirect network effects (D)</p> Signup and view all the answers

Which characteristic is indicative of both supply side economies of scale and demand side network effects?

<p>Increased user engagement (A)</p> Signup and view all the answers

What ultimately drives business model innovation in platform-based firms?

<p>Technological advancements (A)</p> Signup and view all the answers

In platform environments, what does resource orchestration primarily focus on?

<p>Coordinating resources with external participants (A)</p> Signup and view all the answers

Which of the following strategies is critical for corporate strategy in platform firms?

<p>Decide on market entry and expansion (B)</p> Signup and view all the answers

What can cause disintermediation in a platform context?

<p>Direct buyer-seller connections (C)</p> Signup and view all the answers

Flashcards

Strategy in LR

Creating, capturing, and sustaining value to generate financial returns over the long run.

Corporate Strategy

Defines the businesses a company should be in. It answers the question "Where should we compete?"

Business Strategy

Determines how a company will compete within a specific business or industry. Answers the question 'How should we compete?'

Functional Strategy

Focuses on the specific operations and activities within a business unit. Answers the question "How do we make things work effectively?"

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PEST Analysis

A framework for analyzing the external environment in which a company operates. It considers political, economic, social, technological, and ecological factors.

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Industry

A group of firms that are related in terms of their primary business activities. They produce similar products or services and compete for similar customers.

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Opportunity Cost

The net benefit that is foregone when choosing one option over another. It represents the value of the best alternative.

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Porter's Five Forces

A tool for analyzing the competitive landscape of an industry. It examines five forces that influence industry profitability.

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Rivalry among Existing Competitors

The degree to which companies in an industry compete with each other. Factors include price competition, new product development, advertising, and customer service.

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Bargaining Power of Suppliers

The power that suppliers have over companies in an industry. Factors include supplier concentration, switching costs, and the availability of substitute inputs.

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Bargaining Power of Buyers

The power that buyers have over companies in an industry. Factors include buyer concentration, switching costs, and the availability of substitute products.

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Threat of New Entrants

The threat that new companies will enter an industry and disrupt its existing competitive structure. Factors include barriers to entry, economies of scale, and government regulations.

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Threat of Substitutes

The threat that goods or services from other industries can substitute for those in the given industry. Factors include price, performance, and availability.

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Resources and Capabilities

The degree to which a company's resources and capabilities align with the competitive requirements of its industry.

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Goal of Strategy: Maximize Economic Profit

The goal of strategy is to maximize economic profit over the long run. This involves creating sustainable value and generating returns for stakeholders.

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Market Size

The size of the market that a company targets, categorized as either mass market (for common needs, like food) or niche market (for specific preferences, like luxury goods).

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Customer Value Proposition (CVP)

A clear statement of the value a company provides to its customers, outlining the benefits, features, and solutions offered by its products and services.

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Target Customer Needs

The specific wants and needs of the target audience that a company addresses with its products and services.

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Difference between Customer Needs and CVP

Understanding how the CVP meets the needs of the target customer and identifies any gaps between the customer's expectation and the company's offerings.

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Price Drivers

Factors that drive pricing decisions in a business model, including costs, competition, and customer willingness to pay.

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Revenue Model

The strategy a company uses to generate revenue from its CVP, including pricing, payment terms, and revenue streams.

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Who Pays?

The party responsible for paying for the product or service, could be the end buyer, a supplier, or a third-party intermediary.

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What is Paid For?

Describes the specific aspects of the value proposition being paid for, from just the product itself to bundled packages or transaction-related services.

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Coordination Costs

The costs associated with setting up and maintaining the infrastructure needed to facilitate transactions between suppliers and buyers. This includes things like marketing, research and development, and manufacturing costs.

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Platform

A matchmaking firm that creates and captures value by reducing transaction costs between suppliers and buyers. They provide the infrastructure for facilitating exchanges.

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Transaction Costs

The costs associated with a specific transaction. These can include things like search costs, negotiation costs, and contract enforcement costs.

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Transaction Volume

The ability of a platform to increase the number of interactions between suppliers and buyers. This can be achieved by reducing transaction costs and making it easier for parties to find each other.

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Monetization

The process of generating revenue from the activities of a platform. This can be done through various mechanisms, such as charging fees for transactions, providing premium services, or selling data.

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Network effect

A situation where the value of a platform increases proportionally to the number of users or participants.

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Switching costs

Costs incurred by a user when switching from one platform or product to another.

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Pipeline

A firm that controls resources and optimizes internal processes to create customer value.

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Demand and supply side information access

The ability to access and leverage data from both customers and suppliers, leading to greater efficiency and insights.

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Platform: Today

Platforms that utilize technology to connect buyers and sellers in a digital marketplace.

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Complementors

Companies that provide complementary products or services that enhance the value of a platform.

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Disintermediation

The risk that a platform's users might connect directly with each other, bypassing the platform altogether.

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Bargaining power

The power that users have to negotiate with the platform, especially when multiple platforms compete for their attention.

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Competitors: Imitation

The potential for competition from new entrants who can easily enter the platform space.

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Product Diversification

Expanding a company's operations into new product categories, such as adding a new line of products or services to complement its existing offerings.

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Vertical Integration

The process of a company taking control of its supply chain by acquiring or merging with companies involved in earlier or later stages of production, distribution, or sales.

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Geographic Diversification

The strategic decision of a company to expand its operations into new geographical markets to increase customer base and sales potential.

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Related Diversification

A strategy where a company expands into businesses that are related to its existing core operations, leveraging synergies and shared resources.

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Unrelated Diversification

A strategy where a company expands into unrelated businesses, seeking growth opportunities outside of its core competencies.

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Geographical Scope

A company's deliberate choice to operate in specific geographic areas, considering market size, competition, and regulatory environment.

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Internal Firm Scope

The company's internal structure and processes that define its boundaries and how it manages its internal operations.

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External Firm Scope

The company's approach to interacting with external factors, including mergers and acquisitions, strategic alliances, and collaborations.

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Buyer's Willingness to Pay

The ability of a company to increase the price of its products or services without losing customers. It reflects the value customers place on the product or service.

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Value Creation

Creating something that customers value and are willing to pay for. It involves innovation, quality, and features.

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Value Capture

The ability of a company to capture a portion of the value it creates through pricing and other strategies.

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Competitive Dynamics

The study of how firms compete within an industry. It considers the actions and responses of competitors, and how these interactions affect each firm's profitability.

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Strategic Interdependence

A situation where the actions of one firm directly affect the profitability of other firms in the industry.

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Game Theory

A theoretical framework that analyzes strategic decision-making in situations where multiple players interact. It helps understand how firms choose strategies and how these choices affect their outcomes.

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Identifying Competitors

Identifying the key players in a market, including direct competitors, potential entrants, and suppliers. It involves defining the industry and understanding its key characteristics.

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Competitive Actions

Understanding the actions that firms in an industry can take to compete, such as price cuts, new product launches, or marketing campaigns.

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Predicting Competitor Response

Assessing whether your competitors will respond to your actions and how they will react. This involves considering their awareness, motivation, and capability.

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Evaluating Payoffs

Evaluating the impact of competitive actions and responses on a company's profitability. It helps assess the potential costs and benefits of different strategic choices.

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Competitive Advantage

The ability of a firm to outperform its rivals by offering superior value to customers, through innovation, cost efficiency, or other distinctive capabilities.

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Comparative Advantage

The difference in the cost of producing goods or services between two companies, or two countries. It explains why some countries specialize in certain goods and trade with others.

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Resources

Tangible or intangible assets that a firm controls and can use to create and capture value. Examples include financial resources, human capital, technology, and brand reputation.

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Capabilities

Organizational processes that transform resources into valuable outputs. They enable a firm to take full advantage of its resources to create and capture value.

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Study Notes

Strategy

  • Strategy involves creating, capturing, and sustaining value to generate long-term financial returns.
  • Three levels of strategy exist: corporate, business, and functional.
  • Corporate strategy determines which businesses to operate in.
  • Business strategy outlines how to compete effectively within a business.
  • Functional strategy focuses on how individual business units operate.
  • Factors influencing strategy include PEST (Political, Economic, Social, Technological) factors, potential entrants, substitutes, industry analysis (Firm resources and capabilities, competitors), and external and internal factors.

Profitability

  • Accounting profit equals revenue minus total costs.
  • Economic profit considers accounting profit minus opportunity cost (the cost of the next best alternative).
  • Opportunity cost is the net benefit of the best forgone alternative.

Value Creation

  • Value is created by the difference between buyer's willingness to pay and the firm's cost.
  • Economic profit (value captured) is the difference between the value created and the opportunity cost.

Industry Analysis

  • Analyzing industry structures helps firms understand profitability potential and identify opportunities.
  • Porter's Five Forces model assesses: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitutes, and rivalry among existing competitors.
  • Key factors considered: Price, quantity, new products/services, and location.

Competitive Advantage

  • Comparative advantage explains patterns of trade between countries.
  • Two ways to increase firm value:
    • Increasing buyer willingness to pay: leads to increased value creation
    • Decrease costs: leads to increased value capture.
  • VRIO Framework (Valuable, Rare, Inimitable, Organized) is used to analyze firm resources to determine sustainability of competitive advantage.
  • Inimitable resources are hard to copy or substitute.
  • Organized resources are integrated efficiently throughout the value chain.
  • Competitive advantage requires valuable, rare, inimitable, and organized resources and capabilities.

Sustaining Competitive Advantage

  • Maintaining competitive advantage requires barriers to imitation to prevent competitors from copying successful strategies.
  • Isolating mechanisms such as path dependence, tacit knowledge, casual ambiguity, complexity, time compression diseconomies, legal systems, and virtuous/vicious circles can prevent competitors from copying successful strategies.

Value Chain Analysis

  • Value chain analysis involves examining the activities that add value to a product or service throughout the entire process.
  • Firms can utilize and develop resources and capabilities around this value chain.
  • Companies should organize their resources and activities around a cohesive value chain.
  • Analyze value chains to identify activities where the firm has a relative advantage.

Platform Analysis

  • Platforms enable firms to facilitate exchanges (e.g., hardware, software).
  • Key participants include complementors and users.
  • Challenges: competition, disintermediation (creating direct connections), and bargaining power.
  • Analyze industry value chain and firm value chain.
  • Assess firm's relative advantage in price/ cost.

Strategy Implementation

  • Vertical integration involves controlling upstream and downstream activities.
  • Diversification strategies can involve geographic expansion or new product lines.
  • Related diversification involves expanding into products/industries related to existing core businesses (potential benefits are economies of scope and synergies).
  • Unrelated diversification involves expanding to unrelated products/ industries (potential benefits of economies of scale).
  • Evaluating Diversification Strategies using a better-off and ownership test to determine if acquiring the business is financially beneficial or not.

M&A and Strategic Partnerships

  • M&A and partnerships aim to improve competitive advantage.
  • Build, Borrow, Buy model is utilized to determine how best to integrate new businesses.
  • Ownerships test decides whether to acquire or not.
  • Internal resources need to be assessed and determined if similar to the firms' needs in order to develop internally.
  • If resources are not similar, or if they are available externally and can be borrowed if the execs don't know what they lack, it is beneficial to borrow or contract the resources.

Organizational Design

  • Implementing strategy requires a well-designed organization to coordinate and motivate employees.
  • Formal structures (like organizational charts), standard operating procedures, and informal structures (values and norms) are critical aspects of organization design.
  • Coordination and cooperation problems may arise from employee motivation.

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Description

Test your understanding of core business concepts including matchmaking firms, customer value propositions, and transaction costs. This quiz explores critical relationships and models that impact business operations and profitability.

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