Chapter 5: Creating Customer Value, Satisfaction, and Loyalty

GENERAL C NCE!" #$ES"% NS &ultiple Choice

1. ________ are adept at building customer relationships, not just products; they are skilled in market engineering, not just product engineering. a. Profit-centered companies b. Customer-centered companies c. Production-centered companies d. Sales-centered companies e. Promotion-centered companies ns!er" b Page" 1#$ %e&el of difficulty" 'asy (. )he opening &ignette on *ashington +utual indicates that, as the *ashington +utual e,perience sho!s, successful marketers are the ones that fully ________. a. understand promotional strategy b. di&ersify their product line c. di&orce themsel&es from a production mentality d. satisfy their customers e. understand the sales concept ns!er" d Page" 1-. %e&el of difficulty" +edium #. /n the modern customer-oriented organi0ational chart, !hich of the follo!ing is considered to be at the top of the organi0ational pyramid1 a. Sales are at the top of the organi0ational pyramid. b. )he president is at the top of the organi0ational pyramid. c. 2ront-line people are at the top of the organi0ational pyramid. d. Customers are at the top of the organi0ational pyramid. e. +iddle management, because of their importance, is at the top of the organi0ational pyramid. ns!er" d Page" 1-. %e&el of difficulty" +edium

11$

Part #" Connecting !ith Customers

-. ________ is the difference bet!een the prospecti&e customer3s e&aluation of all the benefits and all the costs of an offering and the percei&ed alternati&es. a. Percei&ed usefulness b. 2ailure a&oidance rate c. 4eport rating d. Customer percei&ed &alue e. Competitors market share rate ns!er" d Page" 1-1 %e&el of difficulty" +edium 5. )otal customer &alue is the percei&ed monetary &alue of the bundle of economic, functional, and ________ benefits customers e,pect from a gi&en market offering. a. psychological b. intangible c. reali0ed d. fabricated e. ad&ertised ns!er" a Page" 1-1 %e&el of difficulty" 6ard 7. )he bundle of costs customers e,pect to incur in e&aluating, obtaining, using, and disposing of the gi&en market offering, including monetary, time, energy, and psychic costs is called the ________. a. organi0ational e,pense ratio b. shopper3s fatigue c. total customer cost d. analysis paralysis e. comparison shopping to comparison buying ratio ns!er" c Page" 1-1 %e&el of difficulty" +edium 8. /n applying a customer3s percei&ed &alue to a decision, a seller !ho is at a customer percei&ed &alue disad&antage has t!o alternati&es" to increase total customer &alue or ________. a. increase a cash-back bonus b. decrease cost c. lose the sale to the competitor d. ad&ertise more fre9uently e. offer an e,tended !arranty ns!er" b Page" 1-# %e&el of difficulty" +edium :. )he ________ consists of the !hole cluster of benefits the company promises to deli&er; it is more than the core positioning of the offering. a. customer promise b. mission statement c. corporate pledge d. corporate percei&ed &alue e. &alue proposition ns!er" e Page" 1-# %e&el of difficulty" +edium

1(.

Chapter 5" Creating Customer ;alue, Satisfaction, and %oyalty

$. )otal customer satisfaction is measured based on the relationship of ________. a. anticipated and real performance b. percei&ed performance and e,pectation c. ad&ertised outcomes and real outcomes d. past e,perience and present e,perience e. customer attitude and salesperson3s attitude ns!er" b Page" 1-%e&el of difficulty" 6ard 1.. <uyers form their e,pectations from all of the follo!ing '=C'P) ________. a. past buying e,perience b. friends and associates ad&ice c. marketers3 information d. competitors3 information e. go&ernmental ne!sletters ns!er" e Page" 1-%e&el of difficulty" 'asy 11. >et<lue is able to meet or e,ceed customer e,pectations of lo! price air tra&el in part to a fe! corporate commandments like" safety, caring, integrity, fun and passion. >et<lue refers to these as ________. a. team!ork parables b. &alues c. satisfaction indices d. customer focus statements e. >et<lue benefits ns!er" b Page" 1-%e&el of difficulty" +edium 1(. customer3s decision to be loyal or to defect is the sum of many small encounters !ith the company. Consulting firm 2orum Corporation says that in order for all these small encounters to add up to customer loyalty, companies need to create ________. a. a re!ard program b. a comprehensi&e customer database c. a branded customer e,perience d. strong !ord-of-mouth promotions e. a top-notch ad&ertising campaign ns!er" c Page" 1-%e&el of difficulty" 6ard

1#. ?ne key to customer retention is ________. /t !ould be !ise for a company to measure this factor fre9uently. a. hea&y promotion b. deep discounts for intermediaries c. to ha&e an ethics officer d. customer satisfaction e. to ha&e customers on the board of directors ns!er" d Page" 1-5 %e&el of difficulty" +edium

1(1

Part #" Connecting !ith Customers

1-. )he best sur&ey method to measure customer satisfaction directly is ________. a. to employ a mystery shopper b. the mailed 9uestionnaire c. to sur&ey former customers d. periodic sur&eys e. compute the customer loss rate ns!er" d Page" 1-7 %e&el of difficulty" +edium 15. *hich of the follo!ing firms leads its industry !ith a number one ranking for customer satisfaction on the CS/ scale @ merican Consumer Satisfaction /nde,A !ith a score of :81 a. Cadillac b. 2ord c. Chrysler d. Che&rolet e. Cor&ette ns!er" a Page" 1-7 %e&el of difficulty" +edium 17. ________ is the totality of features and characteristics of a product or ser&ice that bear on its ability to satisfy stated or implied needs. a. Performance b. ;alue c. Buality d. Customer retention e. Customer loyalty ns!er" c Page" 1-7 %e&el of difficulty" 'asy 18. )otal 9uality is the key to &alue creation and customer satisfaction. +arketing managers ha&e t!o roles to play in a 9uality-centered company. 2irst, they must participate in formulating strategies and policies to help the company !in through total 9uality e,cellence. Second, they must ________. a. participate in cross-functional team building b. deli&er marketing 9uality alongside production 9uality c. define customer re9uirements during the inno&ation stage of the product life cycle d. set e,pectations both internally and e,ternally e. !ork closely !ith the sales team to create a dynamic sales message ns!er" b Page" 1-8 %e&el of difficulty" 6ard 1:. ________ is an organi0ation-!ide approach to continuously impro&ing the 9uality of all the organi0ation3s processes, products, and ser&ices. a. )otal 9uality management b. Strategic management c. Profit-centered management d. Customer-retention management e. )otal customer control management ns!er" a Page" 1-8 %e&el of difficulty" +edium

1((

Chapter 5" Creating Customer ;alue, Satisfaction, and %oyalty

1$. )he (.-:.-#. rules reflects the idea that ________. a. the top (. percent of customers generate :. percent of the company3s profits, half of !hich are lost ser&ing the bottom #. percent of unprofitable customers b. the top (. percent of customers are highly satisfied, :. percent of customers !ill recommend the company to a friend, and #. percent are unsatisfied c. (. percent of customers are unprofitable, :. percent of customers make up #. percent of a company3s profits d. (. percent of the company3s profits are generated by :. percent of customers, and #. percent of customers are satisfied e. any ne! product offering !ill be accepted by (. percent of the customers immediately, this figure !ill e&entually rise to #. percent, ho!e&er, :. percent of the customers !ill be up for grabs throughout the product life cycle for the product ns!er" a Page" 1-: %e&el of difficulty" 6ard (.. +ost companies ha&e learned that the ________ are the most profitable because of ser&ice e,pectations and their !illingness to pay almost full price for the products they purchase. a. large-si0e customers b. midsi0e customers c. small-si0e customers d. niche customers e. target market customers ns!er" b Page" 1-: %e&el of difficulty" +edium (1. ________ customer is a person, household, or company that o&er time yields a re&enue stream that e,ceeds by an acceptable amount the company3s cost stream of attracting, selling, and ser&icing that customer. a. profitable b. semi-profitable c. unprofitable d. niche e. target ns!er" a Page" 1-$ %e&el of difficulty" 'asy

((. Customer profitability analysis @CP A is best conducted !ith the tools of an accounting techni9ue called ________. a. input-output analysis b. factor analysis c. 4e&enue-<ased Costing @4<CA d. cti&ity-<ased Costing @ <CA e. 2uture Cate Costing @2CCA ns!er" d Page" 1-$ %e&el of difficulty" +edium

1(#

Part #" Connecting !ith Customers

(#. *hich of the follo!ing is the best e,ample of !hat is called a le&erageable ad&antage1 a. Cell a&oiding selling its products in retail stores. b. pple !inning design a!ards and producing uni9ue commercials. c. +icrosoft3s use of its operating system to +icrosoft ?ffice as a means to supply net!orking applications. d. South!est irlines !inning the >.C. Po!er a!ard. e. merican tobacco companies attempts to di&ersify their holdings after the famous tobacco case losses. ns!er" c Page" 15. %e&el of difficulty" 6ard (-. )aco <ell has determined that keeping customers satisfied can be &ery profitable. repeat customer in )aco <ell3s eyes can be !orth as much as ________ o&er the customer3s lifetime. a. D1..,... b. D71,... c. D#5,... d. D11,... e. D(,... ns!er" d Page" 15. %e&el of difficulty" 6ard (5. )he aim of customer relationship management @C4+A is to produce high customer ________. a. &alue b. loyalty c. profitability d. satisfaction e. e9uity ns!er" e Page" 151 %e&el of difficulty" +edium (7. )he three dri&ers of customer e9uity are" &alue e9uity, brand e9uity, and ________ e9uity. a. relationship b. re&enue c. 9uality d. price e. product ns!er" a Page" 151 %e&el of difficulty" 'asy (8. Sub-dri&ers of relationship e9uity include all of the follo!ing '=C'P) ________. a. loyalty programs b. special recognition and treatment programs c. community building programs d. kno!ledge-building programs e. price protection programs ns!er" e Page" 151 %e&el of difficulty" 6ard

1(-

Chapter 5" Creating Customer ;alue, Satisfaction, and %oyalty

(:. n alternati&e formulation to customer e9uity is pro&ided by <lattberg, Eet0, and )homas. )hey &ie! customer e9uity as being dri&en by three components" ac9uisition, ________, and add-on selling. a. satisfaction b. retention c. percei&ed &alue d. 9uality e. pricing ns!er" b Page" 151 %e&el of difficulty" +edium ($. ________ is seen as the cumulati&e &alue of the firm3s net!ork of relationships !ith its customers, partners, suppliers, employers, and in&estors. a. 4esponsi&e e9uity b. +arket e9uity c. 4elational e9uity d. Strategic e9uity e. Satisfaction e9uity ns!er" c Page" 15( %e&el of difficulty" +edium #.. )he ability of a company to meet each customer3s re9uirementsFto prepare on a mass basis indi&idually designed products, ser&ices, programs, and communications, is referred to as ________. a. proacti&e customer ser&ice b. indi&iduali0ation c. mass customi0ation d. competiti&e ad&antage e. target market customi0ation ns!er" c Page" 15( %e&el of difficulty" 6ard #1. customer touch point in the airline industry !ould include an item such as ________. a. reser&ations b. mechanics ability to ser&ice the airplanes c. ease of access to the airport d. the &alue of air tra&el &ersus surface transportation e. competency of a tra&el agent ns!er" a Page" 15( %e&el of difficulty" +edium

#(. ll of the follo!ing !ould be among the Peppers and 4ogers3s four-step frame!ork for one-to-one marketing that can be adapted to C4+ marketing '=C'P) ________. a. customi0ing products, ser&ices, and messages to each customer b. interacting !ith indi&idual customers to learn their needs c. al!ays offering the lo!est price d. differentiating customers in terms of their needs and &alue to the company e. identify your prospects and customers ns!er" c Page" 15%e&el of difficulty" 6ard

1(5

Part #" Connecting !ith Customers

##. *inning companies impro&e the &alue of their customer base by e,celling at strategies listed belo! '=C'P) ________. a. eliminating lo!-profit customers immediately b. reducing the rate of customer defection c. increasing the longe&ity of the customer relationship d. making lo!-profit customers more profitable or terminating them e. focusing disproportionate efforts on high-&alue customers ns!er" a Page" 15%e&el of difficulty" +edium #-. *hich of the follo!ing is a characteristic of one-to-one marketing1 a. +ass promotion b. Standard product c. )!o-!ay messages d. Share of market e. Customer attraction ns!er" c Page" 155 %e&el of difficulty" +edium #5. nother term for high customer ________ is customer churn. a. retention b. defection c. &alue d. perception e. belief ns!er" b Page" 155 %e&el of difficulty" 'asy #7. +arkets can be characteri0ed by their long-term buying dynamics and ho! easily and often customers can enter and lea&e. /n ________, customers can lea&e and come back. a. permanent capture markets b. simple retention markets c. ad&ocate markets d. simple competiti&e markets e. customer migration markets ns!er" e Page" 157 %e&el of difficulty" +edium #8. /n ________ marketing, the salesperson contacts the customer from time to time !ith suggestions about impro&ed product uses or ne! products. a. accountable marketing b. proacti&e marketing c. reacti&e marketing d. partnership marketing e. basic marketing ns!er" b Page" 158 %e&el of difficulty" +edium

1(7

Chapter 5" Creating Customer ;alue, Satisfaction, and %oyalty

#:. +ost company3s practice only ________ !hen their markets contain many customers and their unit profit margin@sA are small. a. reacti&e marketing b. partnership marketing c. basic marketing d. proacti&e marketing e. accountable marketing ns!er" c Page" 158 %e&el of difficulty" 'asy #$. /n markets !ith fe! customers and high profit margins, most sellers !ill mo&e to!ard ________ marketing. a. reacti&e marketing b. partnership marketing c. basic marketing d. proacti&e marketing e. accountable marketing ns!er" b Page" 158 %e&el of difficulty" +edium -.. )he C4+ @customer relationship managementA imperati&e is characteri0ed by fi&e steps or factors. ll of the follo!ing !ould be among those steps or factors '=C'P) ________. a. ac9uiring the right customer b. crafting the right &alue proposition c. instituting the best processes d. moti&ating employees e. learning to make profits through marginal customers ns!er" e Page" 15: %e&el of difficulty" 6ard -1. *hen companies pro&ide re!ards to customers !ho buy fre9uently and in substantial amounts, this is referred to as ________. a. benefit programs b. fre9uency programs c. satisfaction programs d. loyalty programs e. 9uality programs ns!er" b Page" 15$ %e&el of difficulty" 'asy -(. 2re9uency marketing is an ackno!ledgment of the fact that (. percent of a company3s customers might account for ________ percent of its business. a. 5. b. 8. c. -. d. :. e. $. ns!er" d Page" 15$ %e&el of difficulty" +edium

1(8

Part #" Connecting !ith Customers

-#. Companies !ho try to increase a customer3s likelihood to repurchase a product may try to create long-term contracts, turn the product into a long-term ser&ice, and ________. a. send fre9uent sur&eys b. offer coupons c. charge lo!er prices to customers !ho purchase large supplies d. re9uest the customer join their loyalty program e. encourage customers to purchase in greater fre9uency ns!er" c Page" 17( %e&el of difficulty" +edium --. n organi0ed collection of comprehensi&e information about indi&idual customers or prospects that is current, accessible, and actionable for such marketing purposes as lead generation, lead 9ualification, sale of a product or ser&ice, or maintenance of customer relationships is called ________. a. a customer database b. a customer mail list c. target market segments d. customer segments e. relationship markets ns!er" a Page" 17( %e&el of difficulty" +edium -5. )he process of building, maintaining, and using customer databases and other databases for the purpose of contacting, transacting, and building customer relationships is called ________. a. data !arehousing b. datamining c. database marketing d. custom marketing e. electronic marketing ns!er" c Page" 17( %e&el of difficulty" 'asy -7. _____________ is simply a set of names, addresses, and telephone numbers. a. customer database b. customer mailing list c. call-!aiting list d. psychographic list e. demographic list ns!er" b Page" 17# %e&el of difficulty" 'asy customer database should contain all of the follo!ing '=C'P) ________. a. a customer3s past purchases b. demographics c. psychographics d. mediagraphics e. an assessment of competiti&e strengths and !eaknesses ns!er" e Page" 17# %e&el of difficulty" +edium

-8.

1(:

Chapter 5" Creating Customer ;alue, Satisfaction, and %oyalty

-:.

________ !ould contain such items as past &olumes, prices, profits, buyer team names, status of current contacts, and an assessment of competiti&e strengths and !eaknesses. a. customer mailing list b. contact list c. customer database d. business database e. general corporate database ns!er" d Page" 17# %e&el of difficulty" 'asy

-$. Sa&&y companies are capturing information e&ery time a customer comes into contact !ith any of its departments. s a marketing manager all of the follo!ing !ould be a&ailable customer touch points for your consideration '=C'P) ________. a. a customer purchase b. an online 9uery c. a mail-in rebate card d. an ad run on a national tele&ision net!ork e. a customer-re9uested ser&ice call ns!er" d Page" 17# %e&el of difficulty" +edium 5.. >ames '&erett is a telemarketer. 6e can use his company3s ________ to respond to customer in9uiries more effecti&ely because of his ability to see a total picture of the customer relationship. a. data !arehouse b. call back list c. call rejection list d. corporate database e. <etter <usiness <ureau contacts ns!er" a Page" 17%e&el of difficulty" +edium 51. )hrough ________, marketing statisticians can e,tract useful information about indi&iduals, trends, and segments from the mass of data. a. data accumulation b. target market information supplied by the go&ernment c. datamining d. data management e. data marketing ns!er" c Page" 17%e&el of difficulty" +edium

1($

Part #" Connecting !ith Customers

5(. ________ in&ol&es the use of sophisticated statistical and mathematical techni9ues such as cluster analysis, automatic interaction detection, predicti&e modeling, and neural net!orking. a. Cata management b. Cata marketing c. )arget market analysis d. Cata accumulation e. Catamining ns!er" e Page" 17%e&el of difficulty" +edium 5#. /n general, companies can use their databases in all of the follo!ing !ays '=C'P) ________. a. to predict competiti&e strategies and plans b. to identify prospects c. to decide !hich customers should recei&e a particular offer d. to deepen customer loyalty e. to a&oid serious customer mistakes ns!er" a Pages" 17-G175 %e&el of difficulty" +edium 5-. Susan %efferts3 company ad&ertises !idely. /n each maga0ine ad, a business reply card is attached. +s. %efferts uses these cards to build her company3s database. /n !hich of the follo!ing !ays !ould +s. %efferts most likely be using the ne!ly constructed database1 a. )o deepen customer loyalty. b. )o reacti&ate customer purchases. c. )o a&oid serious customer mistakes. d. )o determine if up-selling is appropriate. e. )o identify prospects. ns!er" e Page" 17%e&el of difficulty" 6ard 55. Phil %angston has just ordered a number of e,pensi&e e,ecuti&e gifts that he !ill be sending as an appreciation token to a select fe! customers from his client database. /n !hich of the follo!ing !ays is +r. %angston most likely using his database1 a. )o identify prospects. b. )o decide !hich customers should recei&e a ne! sales offer. c. )o deepen customer loyalty. d. )o a&oid serious customer mistakes. e. )o beat the competition to a sale. ns!er" c Page" 175 %e&el of difficulty" +edium

1#.

Chapter 5" Creating Customer ;alue, Satisfaction, and %oyalty

57. 4oyal Caribbean uses its ________ to offer spur-of-the-moment cruise packages to fill all the berths on its ships. /t focuses on retired people and single people because they are more able to make 9uick commitments. a. ad&ertising b. database c. mail catalogs d. public relations department e. radio ad&ertising ns!er" b Page" 17%e&el of difficulty" 'asy 58. *hich of the follo!ing is considered to be one of the four problems that can deter a firm from using C4+ @customer relationship marketingA1 a. Competitors can often hack into C4+ systems. b. <uilding and maintaining a customer database re9uires a large in&estment. c. /t is &ery difficult to find and train database employees. d. %ong-term results of such systems are still unpro&en. e. 2ocusing too much on databases separates a company from its customers. ns!er" b Page" 175 %e&el of difficulty" +edium 5:. <uilding a database !ould not be !orth!hile for a company in all of the follo!ing cases '=C'P) ________. a. !here the product is a one-in-a-lifetime purchase b. !here customers sho! little loyalty to a brand c. !here the company already has an abo&e a&erage relationship !ith its customers d. !here the unit sale is &ery small e. !here the cost of gathering the information is too high ns!er" c Page" 175 %e&el of difficulty" 6ard 5$. study estimated the a&erage return on in&estment for a data !arehouse o&er the course of three years is more than ________. a. -.. percent b. (.. percent c. 1.. percent d. :5 percent e. 85 percent ns!er" a Page" 177 %e&el of difficulty" 6ard

7.. ll of the follo!ing are considered to be among the main perils of C4+ '=C'P) ________. a. implementing C4+ before creating a customer strategy b. the enormous cost that might e&entually drain significant profits from the organi0ation c. rolling out C4+ before changing the organi0ation to match d. assuming more C4+ technology is better e. stalking, not !ooing customers ns!er" b Page" 178 %e&el of difficulty" +edium

1#1

Part #" Connecting !ith Customers

"rue'(alse
71. +anagers !ho belie&e the customer is the company3s only true Hprofit centerI consider the traditional organi0ation chart to be obsolete. ns!er" )rue Page" 1-. %e&el of difficulty" 'asy 7(. )he modern customer-oriented organi0ation chart places top management at the top of the pyramid as long as they can think like consumers. ns!er" 2alse Page" 1-. %e&el of difficulty" +edium 7#. )here are t!o determinates of customer deli&ered-&alue" total customer &alue and total customer cost. ns!er" )rue Page" 1-1 %e&el of difficulty" 6ard 7-. Customer percei&ed &alue @CP;A is the difference bet!een the prospecti&e customer3s e&aluation of all the benefits and all the costs of an offering and the percei&ed alternati&es ns!er" )rue Page" 1-1 %e&el of difficulty" +edium 75. )otal customer &alue is the percei&ed monetary &alue of all the purchases a customer makes on an annual basis. ns!er" 2alse Page" 1-1 %e&el of difficulty" +edium 77. Professional buyers and purchasing agents operate under &arious constraints and occasionally make choices that gi&e more !eight to their personal benefit than to the company3s benefit. ns!er" )rue Page" 1-( %e&el of difficulty" +edium 78. )he &alue proposition is stated in the price of a product and readily recogni0ed by the a&erage consumer. ns!er" 2alse Page" 1-# %e&el of difficulty" +edium 7:. )he &alue-deli&ery system includes all the e,periences the customer !ill ha&e on the !ay to obtaining and using the offering. ns!er" )rue Page" 1-# %e&el of difficulty" +edium 7$. 2or a consumer to be delighted !ith a product or ser&ice he or she must percei&e that performance e,ceeds e,pectations. ns!er" )rue Page" 1-%e&el of difficulty" 'asy 8.. )he ultimate goal of the customer-centered firm is to create high customer satisfaction. ns!er" 2alse Page" 1-%e&el of difficulty" 6ard 81. )he key to customer retention is customer satisfaction. ns!er" )rue Page" 1-5 %e&el of difficulty" 'asy

1#(

Chapter 5" Creating Customer ;alue, Satisfaction, and %oyalty

8(. t the top of the package deli&ery industry !ith a satisfaction inde, score of :( is 2ed',. ns!er" )rue Page" 1-7 %e&el of difficulty" +edium 8#. Price-perception is the totality of features and characteristics of a product or ser&ice that bear on its ability to satisfy stated or implied needs. ns!er" 2alse Page" 1-7 %e&el of difficulty" +edium 8-. Conformance 9uality and performance 9uality is essentially the same thing in a marketing sense. ns!er" 2alse Page" 1-8 %e&el of difficulty" +edium 85. )otal 9uality management @)B+A is a production department approach to continuously impro&ing the 9uality of all the production processes. ns!er" 2alse Page" 1-8 %e&el of difficulty" +edium 87. +arketers ha&e found that the most essential role to be played in defining and deli&ering high-9uality goods and ser&ices to target customers is that of price @e.g., price it right and it !ill sellA. ns!er" 2alse Page" 1-: %e&el of difficulty" 'asy 88. )he midsi0e customers for most organi0ations recei&e good ser&ice, pay nearly full price for the products and ser&ices they purchase, and are often the most profitable. ns!er" )rue Page" 1-: %e&el of difficulty" +edium 8:. profitable customer is a person, household, or company that o&er time yields a re&enue stream that e,ceeds by an acceptable amount the company3s cost stream of attracting, selling, and ser&icing the customer. ns!er" )rue Page" 1-$ %e&el of difficulty" +edium

8$. +ost companies measure customer satisfaction and indi&idual customer profitability. ns!er" 2alse Page" 1-$ %e&el of difficulty" +edium :.. Jnprofitable customers !ho defect to a competitor should be encouraged to do so. ns!er" )rue Page" 1-$ %e&el of difficulty" +edium :1. Customer profitability analysis @CP A is best conducted !ith the tools of an accounting techni9ue called cti&ity-<ased Costing @ <CA. ns!er" )rue Page" 1-$ %e&el of difficulty" +edium :(. ccording to customer profitability analysis @CP A, platinum customers spend the most money !ith the organi0ation thereby making them &aluable. ns!er" 2alse Page" 1-$ %e&el of difficulty" 6ard :#. ny competiti&e ad&antage must be seen by customers as a customer ad&antage. ns!er" )rue Page" 15. %e&el of difficulty" +edium

1##

Part #" Connecting !ith Customers

:-. Customer lifetime &alue @C%;A describes the net present &alue of the stream of future profits e,pected o&er the customer3s lifetime purchases. ns!er" )rue Page" 15. %e&el of difficulty" +edium :5. Carl Se!ell, in Customers for Life, estimated that a customer entering his car dealership for the first time represents a potential lifetime &alue of o&er D#..,.... ns!er" )rue Page" 15. %e&el of difficulty" +edium :7. )he aim of customer relationship management is to keep the costs of meeting and tracking consumers as lo! as possible. ns!er" 2alse Page" 151 %e&el of difficulty" +edium :8. <rand e9uity is the customer3s objecti&e assessment of the utility of an offering based on perceptions of its benefits relati&e to its costs. ns!er" 2alse Page" 151 %e&el of difficulty" 6ard ::. Customer e9uity is dri&en by three components" ac9uisition, retention, and add on selling. ns!er" 2alse Page" 151 %e&el of difficulty" +edium :$. good illustration of a personal touch in the hotel business !ould be if the hotel employees @e.g., registration, maid ser&ice, et ceteraA call a guest by his or her name. ns!er" )rue Page" 15( %e&el of difficulty" 'asy

$.. customer touch point is the time !hen the customer makes a purchase. ns!er" 2alse Page" 15( %e&el of difficulty" +edium $1. key dri&er of shareholder &alue is the aggregate &alue of the customer base. ns!er" )rue Page" 15%e&el of difficulty" +edium $(. ?ne of the characteristics of mass marketing is using a one-!ay message in promotions. ns!er" )rue Page" 155 %e&el of difficulty" 'asy $#. Customer churn is ho! rapidly a store can mo&e customers through its checkout facility or process. ns!er" 2alse Page" 155 %e&el of difficulty" +edium $-. Kinety-si, percent of dissatisfied customers don3t complain; they just stop buying. ns!er" )rue Page" 155 %e&el of difficulty" +edium $5. )he a&erage company loses (5 percent of its customers each year. ns!er" 2alse Page" 157 %e&el of difficulty" 6ard

1#-

Chapter 5" Creating Customer ;alue, Satisfaction, and %oyalty

$7.

good description of a permanent capture market !ould be Honce a customer, al!ays a customer.I ns!er" )rue Page" 157 %e&el of difficulty" +edium

$8. /n proacti&e marketing the salesperson simply sells the product. ns!er" 2alse Page" 158 %e&el of difficulty" +edium $:. customer database is simply a listing of a customer3s name, address, and phone number for credit reference. ns!er" 2alse Page" 17( %e&el of difficulty" 'asy

$$. Cluster analysis is a good e,ample of a statistical techni9ue that might be employed in datamining. ns!er" )rue Page" 17%e&el of difficulty" +edium 1... Catabase marketing is most fre9uently used by business marketers and ser&ice pro&iders @hotels, banks, airlines, and insurance, credit card, and telephone companiesA that normally and easily collect a lot of customer data. ns!er" )rue Page" 177 %e&el of difficulty" +edium

Essay
1.1. Compare and contrast the traditional organi0ational chart for an organi0ation against the modern customer-oriented organi0ation chart. Suggested Ans)er: 2or a &isual comparison, see 2igure 5.1. *ith respect to a !ritten description, students should note that the modern customer-oriented organi0ation chart is in&erted @see the traditional model Le.g., top managementF middle managementFfront-line peopleFcustomersMA. Customers are at the top follo!ed by front-line people, then middle management, and, lastly, top management. Students might also pro&ide some discussion on !hy the in&ersion is beneficial. Page" 1-. %e&el of difficulty" +edium 1.(. Pro&ide a customer-centered definition of the term quality. Suggested Ans)er: Buality is the totality of features and characteristics of a product or ser&ice that bear on the ability to satisfy stated or implied needs. )his is clearly a customer-centered definition. Page" 1-7 %e&el of difficulty" 'asy

1#5

Part #" Connecting !ith Customers

1.#.

Cescribe the concept of competiti&e ad&antage. Ciscuss the differences bet!een competiti&e ad&antage and le&erageable ad&antage. Suggested Ans)er: Competiti&e ad&antage is a company3s ability to perform in one or more !ays that competitors cannot or !ill not match. +ichael Porter urged companies to build a sustainable competiti&e ad&antage. <ut fe! competiti&e ad&antages are sustainable. t best, they may be le&erageable. le&erageable ad&antage is one that a company can use as a springboard to ne! ad&antages. See the +icrosoft e,ample in the te,t for additional information and discussion. Page" 15. %e&el of difficulty" +edium

1.-.

Ciscuss the differences among customer e9uity, &alue e9uity, brand e9uity, and relationship e9uity. Suggested Ans)er: Customer equity is the total of the discounted lifetime &alues of all of the firm3s customers. Value equity is the customer3s objecti&e assessment of the utility of an offering based on perceptions of its benefits relati&e to its costs. Brand equity is the customer3s subjecti&e and intangible assessment of the brand, abo&e and beyond its objecti&ely percei&ed &alue. Relationship equity is the customer3s tendency to stick !ith the brand. Page" 151 %e&el of difficulty" 6ard

1.5.

Peppers and 4ogers outline a four-step frame!ork for one-to-one marketing that can be adapted to C4+ marketing. *hat are those four steps1 Suggested Ans)er: )he four steps are" @1A identify your prospects and customers, @(A differentiate customers in terms of their needs and their &alue to your company, @#A interact !ith indi&idual customers to impro&e your kno!ledge about their indi&idual needs and to build stronger relationships, and @-A customi0e products, ser&ices, and messages to each customer. Pages" 15#G15%e&el of difficulty" 6ard

1.7.

Characteri0e the fi&e le&els of in&estment in customer relationship building that a company can follo!. Suggested Ans)er: )he fi&e le&els are" @1A basic marketingFthe salesperson simply sells the product, @(A reacti&e marketingFthe salesperson sells the product and encourages the customer to call if he or she has 9uestions, comments, or complaints, @#A accountable marketingFthe salesperson phones the customer to check !hether the product is meeting e,pectations and asks for suggestions for impro&ement or dissatisfactions, @-A proacti&e marketingFthe salesperson contacts the customer from time to time !ith suggestions about impro&ed product uses or ne! products, and @5A partnership marketingFthe company !orks continuously !ith its large customers to help impro&e their performance. Page" 158 %e&el of difficulty" 6ard

1#7

Chapter 5" Creating Customer ;alue, Satisfaction, and %oyalty

1.8.

)oday, companies are increasingly concerned about customer defection. )here are fi&e main steps a company can take to reduce the defection rate. Characteri0e those fi&e steps. Suggested Ans)er: )he fi&e steps are" @1A the company must define and measure its retention rate, @(A the company must distinguish the causes of customer attrition and identify those that can be managed better, @#A the company needs to estimate ho! much profit it loses !hen it loses customers, @-A the company needs to figure out ho! much it !ould cost to reduce the defection rate, and @5A nothing beats listening to customers. Pages" 15:G15$ %e&el of difficulty" 6ard

1.:.

Ciscuss the concepts of a data !arehouse and datamining. Suggested Ans)er: Cata are collected by the company3s contact center and organi0ed into a data warehouse. Company personnel can capture, 9uery, and analy0e the data. /nferences can be dra!n about an indi&idual customer3s needs and responses. )hrough datamining, marketing statisticians can e,tract useful information about indi&iduals, trends, and segments from the mass of data. Catamining in&ol&es the use of sophisticated statistical and mathematical techni9ues. Page" 17%e&el of difficulty" +edium

1.$.

ssume that a marketing manager of a small company is in the process of implementing the use of a database to assist his or her company in its marketing efforts. Considering the information found in the te,t, list fi&e !ays that the marketing manager might be able to use the database for marketing efforts. Suggested Ans)er: 2i&e !ays to use a database for marketing efforts include" @1A to identify prospects, @(A to decide !hich customers should recei&e a particular offer, @#A to deepen customer loyalty, @-A to reacti&ate customer purchases, and @5A to a&oid serious customer mistakes. Pages" 17-G175 %e&el of difficulty" +edium

11..

Cescribe four situations or cases !hen building a customer database !ould not be !orth!hile for a company. Suggested Ans)er: 2our situations or cases !hen building a customer database !ould not be !orth!hile for a company !ould be" @1A !here the product is a once-in-a-lifetime purchase, @(A !here customers sho! little loyalty to a brand, @#A !here the unit sale is &ery small, and @-A !here the cost of gathering information is too high. Page" 175 %e&el of difficulty" +edium

1#8

Part #" Connecting !ith Customers

A!!L%CA"% N #$ES"% NS &ultiple Choice

111. >ohn Chambers, C'? of Cisco Systems, said H+ake your customer the center of your culture.I Customer-centered companies are adept at building customer relationships, not just producing products; they are skilled in ________, not just product engineering. a. ser&ice engineering b. market engineering c. cultural engineering d. inno&ation engineering e. management engineering ns!er" b Page" 1#$ %e&el of difficulty" +edium Ke,t to the customers in a modern customer-oriented organi0ation chart, !e !ould e,pect to find the ________ of an organi0ation. a. top management b. marketing department c. middle management d. front-line people e. ser&ice department ns!er" d Page" 1-. %e&el of difficulty" 'asy e<ay sees listening, adapting, and enabling as its main roles. )his is clear in one of the company3s most cherished institutions" ________. a. the +idnight +adness <id b. ecological concern c. truth in ad&ertising d. the ;oice of the Customer program e. the /mmediate <uyback Program ns!er" d Page" 1-1 %e&el of difficulty" +edium /f you !ere to !rite a good !orking definition of the term total customer value, you should !rite ________. a. the sum of &alue times @=A e,pectation b. the sum of customer percei&ed &alue and actuali0ed &alue c. the percei&ed monetary &alue of the bundle of economic, functional, and psychological benefits customers e,pect from a gi&en market offering d. the difference bet!een the prospecti&e customer3s e&aluation of all the benefits and all the costs of an offering and the percei&ed alternati&es e. the concept is simply a bundle of costs and e,pectations ns!er" c Page" 1-1 %e&el of difficulty" 6ard

11(.

11#.

11-.

1#:

Chapter 5" Creating Customer ;alue, Satisfaction, and %oyalty

115.

*hen a consumer considers a product or ser&ice, he or she !ill choose !hiche&er product or ser&ice deli&ers the highest ________. a. customer percei&ed &alue b. customer percei&ed cost c. consumer discount d. consumer relationship e. consumer synergy ns!er" a Page" 1-1 %e&el of difficulty" +edium <uyers do not al!ays make logical or rational decisions. )hey might purchase the most e,pensi&e and least 9uality item for e,ample. *hich of the follo!ing !ould be another good e,ample of this beha&ior1 a. )he buyer is not seen by the seller as being &ery intelligent. b. )he buyer might be under orders to buy at the lo!est price. c. )he buyer might be underage. d. )he buyer might be under pressure to resist sales messages. e. )he buyer refuses to listen to or read any ad&ertising. ns!er" b Page" 1-( %e&el of difficulty" +edium /f a company !ere to focus its marketing efforts on all the e,periences the customer !ill ha&e on the !ay to obtaining and using the offering, it !ould be focusing its marketing efforts on the customer3s ________. a. perception system b. cost &ersus benefit system c. demand d. psychological system e. &alue-deli&ery system ns!er" e Page" 1-# %e&el of difficulty" +edium *hether the buyer is satisfied after purchase depends on the offer3s performance in relation to the ________. a. buyer3s reactions b. buyer3s e,pectations c. seller3s deli&ery d. seller3s e,pectations e. both the buyer3s and seller3s demands ns!er" b Page" 1-%e&el of difficulty" +edium

117.

118.

11:.

1#$

Part #" Connecting !ith Customers

11$.

ll of the follo!ing are !ays that a buyer forms his or her e,pectations '=C'P) ________. a. from past buying e,perience b. from friends3 and associates3 ad&ice c. from marketers3 information d. from competitors3 information e. from inherited traits ns!er" e Page" 1-%e&el of difficulty" 'asy >et<lue ir!ays has significantly raised customer e,pectations by follo!ing !hat >et<lue calls the ;alues. ll of the follo!ing !ould be considered to be among those ;alues '=C'P) ________. a. safety b. frugality c. caring d. integrity e. fun ns!er" b Page" 1-%e&el of difficulty" +edium )he 2ield Erocery system is considering using _________ to pose as potential buyers and report on strong and !eak points e,perienced in the buying the company3s and competitors3 products. a. intelligence agents b. co&ert operati&es c. mystery shoppers d. market ma&ens e. opinion leaders ns!er" c Page" 1-7 %e&el of difficulty" 'asy ll of the follo!ing companies ha&e been deemed to be leaders in their respecti&e industries because of high consumer satisfaction scores @e.g., merican Satisfaction /nde, L CS/MA '=C'P) ________. a. Cell @8:A b. Cadillac @:8A c. Eoogle @:(A d. NahooO @8:A e. J.S. Post ?ffice @85A ns!er" e Page" 1-7 %e&el of difficulty" 'asy

1(..

1(1.

1((.

1-.

Chapter 5" Creating Customer ;alue, Satisfaction, and %oyalty

1(#.

+arketing managers ha&e t!o responsibilities in a 9uality-centered company. 2irst, they must participate in formulating strategies and policies to help the company !in through total 9uality e,cellence. Second, ________. a. they must al!ays ha&e the lo!est price in their industry b. they must deli&er marketing 9uality alongside production 9uality c. they must ha&e been appro&ed by the >.C. Po!er and ssociates d. they must use si,-Sigma e. they must pro&ide instant feedback from consumers ns!er" b Page" 1-8 %e&el of difficulty" +edium d&ocates of ________ !ould be in fa&or of impro&ing 9uality only on those dimensions that produce tangible customer benefits, lo!er costs, or increase sales. a. )B+ @total 9uality managementA b. P%C @product life cycle managementA c. 4?/ @return on in&estmentA d. 4?B @return on 9ualityA e. 4?P @return on promotionA ns!er" d Page" 1-: %e&el of difficulty" +edium ccording to research done by merican ',press, the best customers outspend those that are considered to be the best customers by significant margins. 2or e,ample, in retailing the best customers outspend other customers by a ratio of ________. a. 17 to 1 b. 1# to 1 c. 1( to 1 d. 5 to 1 e. # to 1 ns!er" a Page" 1-: %e&el of difficulty" 6ard *ith respect to customer profitability analysis @CP A, the ________ customers are the most likely dropped as customers because of poor profitability. a. granite b. !ood c. iron d. plastic e. lead ns!er" e Page" 1-$ %e&el of difficulty" +edium

1(-.

1(5.

1(7.

1-1

Part #" Connecting !ith Customers

1(8.

Kike lets consumers customi0e athletic shoes for D1. more. shopper !ith t!o different si0e feet can e&en get a non-matching pair. )his !ould be an e,ample of !hich of the follo!ing1 a. +ass marketing. b. 'n&ironmental marketing. c. +ass customi0ation. d. /ndi&iduali0ation. e. Kiche marketing. ns!er" c Page 15( %e&el of difficulty" +edium #+ makes it easy for dialog to occur !ith its customers. #+ claims that o&er t!othirds of its product impro&ement ideas come from listening to ________. a. customer suggestions b. entrepreneurial product ideas c. customer complaints d. media feedback e. customer reactions to competiti&e products ns!er" c Page" 155 %e&el of difficulty" +edium *ith respect to the C4+ /mperati&e, Hyou get itI !hen ________. a. you eliminate all your strong competitors b. you ha&e selected the most beneficial promotion channels c. you ha&e learned ho! to outsource d. you de&elop a *eb presence e. you ha&e identified your most &aluable customers ns!er" e Page" 15: %e&el of difficulty" +edium )he skillful use of database marketing and ________ has made catalog house 2ingerhut one of the nation3s largest direct-mail marketers. a. e&eryday lo! prices b. e,panded home deli&ery options c. relationship building d. competitor3s mistakes e. retailer alliances ns!er" c Page" 17%e&el of difficulty" 6ard

1(:.

1($.

1#..

1-(

Chapter 5" Creating Customer ;alue, Satisfaction, and %oyalty

Short Ans)er
1#1. *hat do managers belie&e is their company3s only true Hprofit centerI1 Suggested Ans)er: +anagers belie&e the customer is their only true profit center. Page" 1-. %e&el of difficulty" 'asy 1#(. Customer deli&ered &alue is based on t!o components. *hat are those components1 Suggested Ans)er: )he t!o components of customer deli&ered &alue are total customer &alue and total customer cost. Page" 1-1 %e&el of difficulty" +edium 1##. *hat is the definition for customer percei&ed &alue @CP;A1 Suggested Ans)er: Customer percei&ed &alue @CP;A is the difference bet!een prospecti&e customer3s e&aluation of all the benefits and all the costs of an offering and the percei&ed alternati&es. Page" 1-1 %e&el of difficulty" +edium 1#-. Jsing 'uropean automobile giant ;ol&o as your illustration, create a &alue proposition for the company. <e sure to base your proposition on established company core positions and &alues. Suggested Ans)er: Students may ha&e se&eral ans!ers; ho!e&er, any &alue proposition must be built on their stated positioning objecti&e of Hsafety.I ?ther benefits that might be !orked into a &alue proposition could be a long-lasting car, good ser&ice, and a long !arranty period. <asically, the &alue proposition is a statement about the total e,perience customers !ill gain from the company3s market offering and from their relationship !ith the supplier. Page" 1-# %e&el of difficulty" +edium 1#5. Cefine the term quality. Suggested Ans)er: Quality is the totality of features and characteristics of a product or ser&ice that bear on its ability to satisfy stated or implied needs. Page" 1-7 %e&el of difficulty" 'asy 1#7. Sherden suggests amending the (.-:. rule to read Hthe (.-:.-#. rule.I /nterpret the meaning of H(.-:.-#..I Suggested Ans)er: )he (.-:.-#. rule reflects the idea that the top (. percent of the customers generate as much as :. percent of the company3s profits, half of !hich are lost on ser&ing the bottom #. percent of unprofitable customers. Page" 1-: %e&el of difficulty" +edium

1-#

Part #" Connecting !ith Customers

1#8. *hat are the three !ays that customer profitability can be assessed1 Suggested Ans)er: Customer profitability can be assessed indi&idually, by market segment, or by channel. Page" 1-$ %e&el of difficulty" +edium 1#:. *hat are the four classifications @tiersA of customers in customer profitability analysis using cti&ity-<ased Costing1 Suggested Ans)er: )he tiers !ould be platinum customers @most profitableA, gold customers @profitableA, iron customers @lo! profitability but desirableA, and lead customers @unprofitable and undesirableA. Page" 1-$ %e&el of difficulty" 6ard 1#$. ccording to 4ust, Peithaml, and %emon, !hat are the three dri&ers of customer e9uity1 Suggested Ans)er: )he three dri&ers are" &alue e9uity, brand e9uity, and relationship e9uity. Page" 151 %e&el of difficulty" +edium 1-.. ',plain the concept of mass customi0ation. Suggested Ans)er: ass customi!ation is the ability of a company to meet each customer3s re9uirementsFto prepare on a mass basis indi&idually designed products, ser&ices, programs, and communications. Page" 15( %e&el of difficulty" 'asy 1-1. *hat is a customer touch point1 Suggested Ans)er: customer touch point is any occasion on !hich a customer encounters the brand and productFfrom actual e,perience to personal or mass communications to casual obser&ation. Page" 15( %e&el of difficulty" +edium 1-(. /f characteristics of mass marketing !ere a&erage customer, share of market, and customer attraction, !hat !ould be the associated one-to-one marketing characteristics that !ould match1 Suggested Ans)er: +atching concepts !ould be indi&idual customer, share of consumer, and customer retention. Page" 155 %e&el of difficulty" 6ard 1-#. +arkets can be characteri0ed by their long-term buying dynamics and ho! easily and often customers can enter and lea&e. %ist and briefly characteri0e three such markets.

1--

Chapter 5" Creating Customer ;alue, Satisfaction, and %oyalty

Suggested Ans)er: )he three markets !ould be" @1A permanent capture markets Fonce a customer, al!ays a customer, @(A simple retention marketsFcustomers can be permanently lost after each period, and @#A customer migration marketsF customers can lea&e and come back. Page" 157 %e&el of difficulty" +edium 1--. ',plain the concept of proacti&e marketing. Suggested Ans)er: "roactive marketing occurs !hen the salesperson contacts the customer from time to time !ith suggestions about impro&ed product uses and ne! products. Page" 158 %e&el of difficulty" +edium 1-5. ',plain ho! a company fre9uency program might !ork. Suggested Ans)er: 2re9uency programs are designed to pro&ide re!ards to customers !ho buy fre9uently and in substantial amounts. 2re9uency programs ackno!ledge the &alidity of the (.-:. rule. Page" 15$ %e&el of difficulty" +edium 1-7. Jsing information pro&ided in the te,t, create three suggestions for creating structural ties !ith a customer. Suggested Ans)er: )he company could @1A create long-term contracts, @(A charge a lo!er price to consumers !ho buy large supplies, and @#A turn the product into a long-term ser&ice. Page" 17( %e&el of difficulty" 6ard 1-8. Cescribe the process of database marketing. Suggested Ans)er: Catabase marketing is the process of building, maintaining, and using customer databases and other databases @products, suppliers, resellersA for the purpose of contacting, transacting, and building customer relationships. Page" 17( %e&el of difficulty" +edium 1-:. ccording to information pro&ided in the te,t, gi&e one of the three forms of estimate !ith respect to increasing customer share of re9uirements. Suggested Ans)er: )here are three listed. Students are to choose one. )he three are" @1A share of customer needs by market offerings and by locations supplied, @(A &alue of each offering supplied relati&e to customer3s ne,t-best alternati&e, and @#A cost to ser&e by market offering and by location supplied. Page" 17# %e&el of difficulty" 6ard

1-5

Part #" Connecting !ith Customers

1-$.

Ei&e an illustration of ho! a company can use a customer database to reacti&ate customer purchases. Suggested Ans)er: Companies can install automatic mailing programs that send out birthday or anni&ersary cards, Christmas shopping reminders, or off-season promotions. ?ther illustrations by students should be in a similar &ein. Page" 175 %e&el of difficulty" +edium

15..

ccording to information pro&ided in the te,t, !hat are the four main perils of C4+1 Suggested Ans)er: )he four main perils are" @1A implementing C4+ before creating a customer strategy, @(A rolling out C4+ before changing the organi0ation to match, @#A assuming more C4+ technology is better, and @-A stalking, not !ooing customers. Page" 178 %e&el of difficulty" 6ard

1-7