Multiple choice

The discussion of the regional bank serves which of the following functions within the passage as a whole?

Directions: This question is based on the following reading passage. Choose the best answer to the  question on the basis of what is stated or implied in the passage.

The fact that superior service can generate a competitive advantage for a company does not mean that every attempt at improving service will create such an advantage. Investments in service, like those in production and distribution, must be balanced against other types of investments on the basis of direct, tangible benefits such as cost reduction and increased revenues. If a company is already effectively on a par with its competitors because it provides service that avoids a damaging reputation and keeps customers from leaving at an unacceptable rate, then investment in higher service levels may be wasted, since service is a deciding factor for customers only in extreme situations. This truth was not apparent to managers of one regional bank, which failed to improve its competitive position despite its investment in reducing the time a customer had to wait for a teller. The bank managers did not recognize the level of customer inertia in the consumer banking industry that arises from the inconvenience of switching banks. Nor did they analyze their service improvement to determine whether it would attract new customers by producing a new standard of service that would excite customers or by proving difficult for competitors to copy. The only merit of the improvement was that it could easily be described to customers.

 

  1. It describes an exceptional case in which investment in service actually failed to produce a competitive advantage.

  2. It illustrates the pitfalls of choosing to invest in service at a time when investment is needed more urgently in another area.

  3. It demonstrates the kind of analysis that managers apply when they choose one kind of service investment over another.

  4. It supports the argument that investments in certain aspects of service are more advantageous than investments in other aspects of service.

  5. It provides an example of the point about investment in service made in the first paragraph.
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E Correct answer
Explanation

The regional bank example illustrates the first paragraph's point that not every service improvement creates competitive advantage. The bank invested in service but failed to improve its competitive position because it didn't meet the criteria outlined in paragraph 1 (direct, tangible benefits; being difficult to copy; considering customer inertia). It exemplifies the general principle that superior service doesn't automatically mean competitive advantage.

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