Chapter5

LinkedIn, a professional social media website, allows its users to create their profiles for free, but charges a premium price for additional services. This is an example of a ________ business model.

• crowdsourcing

• peer-to-peer

  
  

• freemium

• subscription-based

Sugar Flakes and Cinnamon Texas Toast both produce similar puffed rice breakfast cereals. For both companies, the cost of producing a box of cereal is 45 cents, and it is not possible for either company to lower their production costs any further. How can one company achieve a competitive advantage over the other?

• Lower prices to the break-even price.

  
  

• Raise prices above the current reservation price.
  

  
  

• D)   Increase the number of stock market shares available to investors.

  
  

• A)   Increase total perceived consumer benefits through differentiation.

  
  

SonronMedia sells books by having salespeople set up appointments with potential customers and give them a sales pitch for the product. When a salesperson sells a book, he or she gets a predetermined percentage commission. This type of business model is called

• bundling

• A)   an agency.

  
  

• D)   a freemium.
  

  
  

• wholesale

James is a novice investor who wants to decide between purchasing shares in Captial-UP or Mainframe Inc. Captial-UP’s return on invested capital (ROIC) was 15 percent, and its cost of capital was 12 percent. During the same period, Mainframe Inc.’s ROIC was 22 percent and its cost of capital was 25 percent. What does this information tell James?

• Both Mainframe Inc. and Captial-UP are likely to create value.

  
  

• Mainframe Inc. is more likely to create value while Captial-UP is more likely to destroy value

  
  

• Captial-UP is more likely to create value while Mainframe Inc. is more likely to destroy value

  
  

• Neither Mainframe Inc. nor Captial-UP are likely to create value.
  

  
  

A firm incurs $100 to manufacture an office table. It fixes the market price of the table as $250, and discounts the price to $200. However, the maximum a person is willing to pay for it is $180. What is the amount of total perceived consumer benefits in this scenario?

• B)   $200

  
  

• D)   $100

  
  

• C)   $180
  

  
  

• A)   $250

  
  

  Hottechi Laminate has developed a new customer-oriented business model. Rather than maintain a network of showrooms across the country, the business will now let customers choose several styles that interest them from an online site, and will ship samples of each of the styles to the customer to test in their home free of charge. Once they have settled on a tile choice, Hottechi Laminate will send a representative to their home to schedule installation. The company has determined that busy middle-class customers will value the convenience of the new model, which allow them to upgrade the look of their homes without spending time browsing showrooms. The new model will be created by selling the old showrooms and shifting resources to the new online site and regional offices for sales personnel. What question remains for Hottechi Laminate to ask in order to put its strategy into action?

• D)   Who are the main stakeholders who will be performing the activities?
  

  
  

• A)   Why does the business model create value?

  
  

• C)   How are the offerings to the customers created?
  

  
  

• B)   What activities need to be performed to create and deliver the offerings to consumers?

  
  

Bioplex requires its members to pay a quarterly or an annual fee to use its services. Irrespective of whether they frequently use the services during the payment period or not, members have to pay in advance. Which of the following business models does this best illustrate?

• B)   pay-as-you-go

  
  

• C)   subscription-based

  
  

• D)   freemium
  

  
  

• A)   razor–razor-blade

  
  

TalkaLot Corp. incurs a cost of $350 to produce one unit of a cell phone. The company’s management has priced the product at $600 in the market. Considering the technological advancement of the cell phone, customers perceive its value to be around $800. What is the economic value created in this scenario?

• C)   $800
  

  
  

• B)   $450

  
  

• D)   $200
  

  
  

• A)   $350

  
  

Blackzim Wireless is a cellular service provider that charges its customers $1 for three hours of talk time. So, if a customer’s talk time for a month is 60 hours, the company charges him or her $20 at the end of the month. Which of the following business models does this   best illustrate?

• C)   pay-as-you-go

  
  

• A)   razor–razor-blade

  
  

• D)   freemium

  
  

• B)   subscription-based
  

  
  

How does a sustainable strategy typically help a firm?

• D)   It helps the firm achieve positive results along the social and ecological dimensions.

  
  

• A)   It helps the firm focus solely on its financial goals.

  
  

• C)   It facilitates the firm in effectively isolating its external stakeholders.

  
  

• B)   It reduces the need for corporate social responsibility within the firm.