Mini$-$Case #$1-$ Generic Strategies

The questions below examine competitive positions, strategies, and profits in the fictional New Cake Industry, in which only three firms compete, Lizzo Foods $($LF$),$ Cardi Creations $($CC$),$ and Beyonce Cake Queen $($BCQ$)$ and in which there are three equal$-$sized segments:$$ wedding cakes, children's cakes, and family cakes. Beyonce Cake Queen sells only children's cakes, while Lizzo Foods sells only wedding cakes. Cardi Creations sells cakes for all segments. All information relevant to the questions appears below and all amounts are in $ millions.

Lizzo Foods prides itself on creating fun$-$filled wedding cake designs. LF sells cakes with high$-$end ingredients to corporate clients such as wedding planners and hotels. LF$\text{'}$s effervescent CEO is able to avoid marketing and advertising costs by finding creative ways to attract media exposure. Selling $1$ million cakes last year, the firm earned $$10$ million in revenue.$$ Its costs included:$$ $$4$m for baking, $$0$m in marketing, and $$2$m for distribution and all other expenses.

Beyonce Cake Queen makes children's cakes, which it sells to families with kids and makes with simple ingredients. Children are obsessed with BCQ$\text{'}$s fabulous cakes and the firm emphasizes this in its advertising. The firm sold $1$ million cakes last year, generating $$5$m in revenue & incurring the following expenses: $$2$m for baking, $$1$m in marketing, and $$1$m for distribution and all other expenses.

Cardi Creations has a creative name, but is a boring firm:$$ CC$\text{'}$s cakes are fluffier than those of its rivals, but its prices and costs are equal to those of the industry average $($i$.$e$.,$ price $=$ $$7\mathrm{.}50$ per cake and cost $=$ $$5\mathrm{.}00$ per cake$).$

In their attempts to improve profitability, both Beyonce Cake Queen and Lizzo Foods are considering expanding their business.$$

Beyonce Cake Queen's CEO has noticed that its customers often buy balloons for the parties for which they order BCQ cakes. Further, she has noticed that BCQ$$s delivery trucks have physical space to accommodate balloons without damaging or taking space away from cakes or raising the cost of delivery. She does not think, though, that selling both cakes and balloons would enable her to raise prices.

Lizzo Foods$$ corporate clients are uninterested in balloons but have high demand for expensive jars in which to store food after corporate events. By adding new, separate sales staff and new, separate delivery trucks, LF$\text{'}$s CEO believes that LF could sell many jars.

How should we characterize the balloon and jar expansion in corporate scope that Beyonce Cake Queen$$s and Lizzo Foods$$ CEOs propose?

Group of answer choices

Primarily vertical

Primarily horizontal

Primarily geographic

Some combination of these