Versatron Trading imports machinery parts and components and assembles them into heavy-duty industrial equipment. Which of the following competitive forces are favorable to Versatron? A) The long run average total cost of the industry in which Versatron operates is decreasing. B) The capital requirement to enter into the industry is decreasing. C) A large percentage of Versatron’s sales revenues come from several key corporate accounts. D) Versatron is considering manufacturing some of the components in-house rather than importing. -------------------------------------------------------------------------------- Versatron’s Board of Directors is meeting next month to discuss possible strategies. The Directors recognize that Versatron’s revenues come from several large corporate accounts and customizing to meet their needs can add value to its product and result in a higher price for its product. Which of the following would be the best strategy for Versatron? Versatron should: A) consider a differentiation strategy by customizing its clients’ needs for industrial equipment. B) consider a cost leadership strategy to compete with other manufacturers in the industry. C) continue to import its components. D) consider either a strategy that strikes a balance between a differentiation strategy and cost leadership.
I’ll go D, A.
mwvt9 Wrote: ------------------------------------------------------- > Which of the following competitive forces are > favorable to Versatron? > D) Versatron is considering manufacturing some of > the components in-house rather than importing. D will reduce the bargaining power of suppliers, which is favorable. All of the others are unfavorable > Versatron’s Board of Directors is meeting next > month to discuss possible strategies. The > Directors recognize that Versatron’s revenues come > from several large corporate accounts and > customizing to meet their needs can add value to > its product and result in a higher price for its > product. Which of the following would be the best > strategy for Versatron? Versatron should: > A) consider a differentiation strategy by > customizing its clients’ needs for industrial > equipment. A. They pretty much spelled this one out in the question.
- D (all the other ones are bad for the firm) 2. A (seems obvious, but as always it very well likely may not be)
D, A
- A) or D) 2. A)
No tricks here…just a little practice. Q1: Your answer: D was correct! Manufacturing components in-house reduces reliance on suppliers which is favorable to Versatron. The other choices are unfavorable. A decreasing long run average cost and a low capital requirement results in lower barriers to entry. A high volume of sales from a few customers means they have more bargaining power. Q:2 Your answer: A was correct! Since Versatron’s revenues come from several large corporate accounts, customizing to meet their needs can add value to its product and result in a higher price for its product. The other choices are incorrect. A cost strategy is not desirable because Versatron can easily lose its few existing clients if a price war occurs. Importing may not necessarily be advantageous because of risks relating to exchange rates and import duties. A strategy that blends different strategies is risky as Versatron’s product will end up being too expensive to companies looking for a low cost product, and not customized enough for customers looking for products that are tailored to their needs.
Determinants of substitute threats include: A) relative price performance of substitutes, presence of substitute inputs, and switching costs. B) buyer propensity to substitute, presence of substitute inputs, and switching costs. C) relative price performance of substitutes, buyer propensity to substitute, and switching costs. D) buyer propensity to substitute, presence of substitute inputs, and product differences.
C
C but what is “presence of substitute inputs”? Is that one of the substitute threats? I don’t recognize it but it is in 3 of the answers.
i guess substitute inputs would be alternative inputs for making your products
I thought it meant the inputs for the potential substitue. So if you make pizzas and the substitute is pierogies, than potatoes would be a substitute input.
Okay that question sucked. Your answer: C was correct! The threat of product substitution is driven by availability, prices, and cost of switching to other products in addition to the inclination of the buyer to switch.
thanks for posting questions, mwvt. I heard this topic is heavily tested.
Agree tanks mwvt. As a side note I looked all through the CFA curriculum and don’t see anything about substitute input, I think it was just a red herring. The CFA lists the 3 determinants you have and no others.
I am doing a q-bank on all of equity right now…so more are coming.
Dwight Wrote: ------------------------------------------------------- > Agree tanks mwvt. > > As a side note I looked all through the CFA > curriculum and don’t see anything about substitute > input, I think it was just a red herring. The CFA > lists the 3 determinants you have and no others. Do you guys actually remember this stuff? I spent all day looking at the last SS of equity and I can hardly remember anything, let alone the factors that affect subsitution or whatever. Sigh. I don’t think I have much of a chance. Still going to give it my best shot though.
i don’t remember most things, I use reasoning. Don’t give up, mwvt. Keep up hard work!