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  • 1. Chapter 5: Creating Customer Value, Satisfaction, and LoyaltyGENERAL CONCEPT QUESTIONSMultiple Choice1. ________ 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 companiesAnswer: b Page: 139 Level of difficulty: Easy2. The opening vignette on Washington Mutual indicates that, as the Washington Mutual experience shows, successful marketers are the ones that fully ________. a. understand promotional strategy b. diversify their product line c. divorce themselves from a production mentality d. satisfy their customers e. understand the sales conceptAnswer: d Page: 140 Level of difficulty: Medium3. In the modern customer-oriented organizational chart, which of the following is considered to be at the top of the organizational pyramid? a. Sales are at the top of the organizational pyramid. b. The president is at the top of the organizational pyramid. c. Front-line people are at the top of the organizational pyramid. d. Customers are at the top of the organizational pyramid. e. Middle management, because of their importance, is at the top of the organizational pyramid.Answer: d Page: 140 Level of difficulty: Medium 119
  • 2. Part 3: Connecting with Customers4. ________ is the difference between the prospective customer’s evaluation of all the benefits and all the costs of an offering and the perceived alternatives. a. Perceived usefulness b. Failure avoidance rate c. Report rating d. Customer perceived value e. Competitors market share rateAnswer: d Page: 141 Level of difficulty: Medium5. Total customer value is the perceived monetary value of the bundle of economic, functional, and ________ benefits customers expect from a given market offering. a. psychological b. intangible c. realized d. fabricated e. advertisedAnswer: a Page: 141 Level of difficulty: Hard6. The bundle of costs customers expect to incur in evaluating, obtaining, using, and disposing of the given market offering, including monetary, time, energy, and psychic costs is called the ________. a. organizational expense ratio b. shopper’s fatigue c. total customer cost d. analysis paralysis e. comparison shopping to comparison buying ratioAnswer: c Page: 141 Level of difficulty: Medium7. In applying a customer’s perceived value to a decision, a seller who is at a customer perceived value disadvantage has two alternatives: to increase total customer value or ________. a. increase a cash-back bonus b. decrease cost c. lose the sale to the competitor d. advertise more frequently e. offer an extended warrantyAnswer: b Page: 143 Level of difficulty: Medium8. The ________ consists of the whole cluster of benefits the company promises to deliver; it is more than the core positioning of the offering. a. customer promise b. mission statement c. corporate pledge d. corporate perceived value e. value propositionAnswer: e Page: 143 Level of difficulty: Medium 120
  • 3. Chapter 5: Creating Customer Value, Satisfaction, and Loyalty9. Total customer satisfaction is measured based on the relationship of ________. a. anticipated and real performance b. perceived performance and expectation c. advertised outcomes and real outcomes d. past experience and present experience e. customer attitude and salesperson’s attitudeAnswer: b Page: 144 Level of difficulty: Hard10. Buyers form their expectations from all of the following EXCEPT ________. a. past buying experience b. friends and associates advice c. marketers’ information d. competitors’ information e. governmental newslettersAnswer: e Page: 144 Level of difficulty: Easy11. JetBlue is able to meet or exceed customer expectations of low price air travel in part to a few corporate commandments like: safety, caring, integrity, fun and passion. JetBlue refers to these as ________. a. teamwork parables b. values c. satisfaction indices d. customer focus statements e. JetBlue benefitsAnswer: b Page: 144 Level of difficulty: Medium12. A customer’s decision to be loyal or to defect is the sum of many small encounters with the company. Consulting firm Forum Corporation says that in order for all these small encounters to add up to customer loyalty, companies need to create ________. a. a reward program b. a comprehensive customer database c. a branded customer experience d. strong word-of-mouth promotions e. a top-notch advertising campaignAnswer: c Page: 144 Level of difficulty: Hard13. One key to customer retention is ________. It would be wise for a company to measure this factor frequently. a. heavy promotion b. deep discounts for intermediaries c. to have an ethics officer d. customer satisfaction e. to have customers on the board of directorsAnswer: d Page: 145 Level of difficulty: Medium 121
  • 4. Part 3: Connecting with Customers14. The best survey method to measure customer satisfaction directly is ________. a. to employ a mystery shopper b. the mailed questionnaire c. to survey former customers d. periodic surveys e. compute the customer loss rateAnswer: d Page: 146 Level of difficulty: Medium15. Which of the following firms leads its industry with a number one ranking for customer satisfaction on the ACSI scale (American Consumer Satisfaction Index) with a score of 87? a. Cadillac b. Ford c. Chrysler d. Chevrolet e. CorvetteAnswer: a Page: 146 Level of difficulty: Medium16. ________ is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs. a. Performance b. Value c. Quality d. Customer retention e. Customer loyaltyAnswer: c Page: 146 Level of difficulty: Easy17. Total quality is the key to value creation and customer satisfaction. Marketing managers have two roles to play in a quality-centered company. First, they must participate in formulating strategies and policies to help the company win through total quality excellence. Second, they must ________. a. participate in cross-functional team building b. deliver marketing quality alongside production quality c. define customer requirements during the innovation stage of the product life cycle d. set expectations both internally and externally e. work closely with the sales team to create a dynamic sales messageAnswer: b Page: 147 Level of difficulty: Hard18. ________ is an organization-wide approach to continuously improving the quality of all the organization’s processes, products, and services. a. Total quality management b. Strategic management c. Profit-centered management d. Customer-retention management e. Total customer control managementAnswer: a Page: 147 Level of difficulty: Medium 122
  • 5. Chapter 5: Creating Customer Value, Satisfaction, and Loyalty19. The 20-80-30 rules reflects the idea that ________. a. the top 20 percent of customers generate 80 percent of the company’s profits, half of which are lost serving the bottom 30 percent of unprofitable customers b. the top 20 percent of customers are highly satisfied, 80 percent of customers will recommend the company to a friend, and 30 percent are unsatisfied c. 20 percent of customers are unprofitable, 80 percent of customers make up 30 percent of a company’s profits d. 20 percent of the company’s profits are generated by 80 percent of customers, and 30 percent of customers are satisfied e. any new product offering will be accepted by 20 percent of the customers immediately, this figure will eventually rise to 30 percent, however, 80 percent of the customers will be up for grabs throughout the product life cycle for the productAnswer: a Page: 148 Level of difficulty: Hard20. Most companies have learned that the ________ are the most profitable because of service expectations and their willingness to pay almost full price for the products they purchase. a. large-size customers b. midsize customers c. small-size customers d. niche customers e. target market customersAnswer: b Page: 148 Level of difficulty: Medium21. A ________ customer is a person, household, or company that over time yields a revenue stream that exceeds by an acceptable amount the company’s cost stream of attracting, selling, and servicing that customer. a. profitable b. semi-profitable c. unprofitable d. niche e. targetAnswer: a Page: 149 Level of difficulty: Easy22. Customer profitability analysis (CPA) is best conducted with the tools of an accounting technique called ________. a. input-output analysis b. factor analysis c. Revenue-Based Costing (RBC) d. Activity-Based Costing (ABC) e. Future Date Costing (FDC)Answer: d Page: 149 Level of difficulty: Medium 123
  • 6. Part 3: Connecting with Customers23. Which of the following is the best example of what is called a leverageable advantage? a. Dell avoiding selling its products in retail stores. b. Apple winning design awards and producing unique commercials. c. Microsoft’s use of its operating system to Microsoft Office as a means to supply networking applications. d. Southwest Airlines winning the J.D. Power award. e. American tobacco companies attempts to diversify their holdings after the famous tobacco case losses.Answer: c Page: 150 Level of difficulty: Hard24. Taco Bell has determined that keeping customers satisfied can be very profitable. A repeat customer in Taco Bell’s eyes can be worth as much as ________ over the customer’s lifetime. a. $100,000 b. $61,000 c. $35,000 d. $11,000 e. $2,000Answer: d Page: 150 Level of difficulty: Hard25. The aim of customer relationship management (CRM) is to produce high customer ________. a. value b. loyalty c. profitability d. satisfaction e. equityAnswer: e Page: 151 Level of difficulty: Medium26. The three drivers of customer equity are: value equity, brand equity, and ________ equity. a. relationship b. revenue c. quality d. price e. productAnswer: a Page: 151 Level of difficulty: Easy27. Sub-drivers of relationship equity include all of the following EXCEPT ________. a. loyalty programs b. special recognition and treatment programs c. community building programs d. knowledge-building programs e. price protection programsAnswer: e Page: 151 Level of difficulty: Hard 124
  • 7. Chapter 5: Creating Customer Value, Satisfaction, and Loyalty28. An alternative formulation to customer equity is provided by Blattberg, Getz, and Thomas. They view customer equity as being driven by three components: acquisition, ________, and add-on selling. a. satisfaction b. retention c. perceived value d. quality e. pricingAnswer: b Page: 151 Level of difficulty: Medium29. ________ is seen as the cumulative value of the firm’s network of relationships with its customers, partners, suppliers, employers, and investors. a. Responsive equity b. Market equity c. Relational equity d. Strategic equity e. Satisfaction equityAnswer: c Page: 152 Level of difficulty: Medium30. The ability of a company to meet each customer’s requirements—to prepare on a mass basis individually designed products, services, programs, and communications, is referred to as ________. a. proactive customer service b. individualization c. mass customization d. competitive advantage e. target market customizationAnswer: c Page: 152 Level of difficulty: Hard31. A customer touch point in the airline industry would include an item such as ________. a. reservations b. mechanics ability to service the airplanes c. ease of access to the airport d. the value of air travel versus surface transportation e. competency of a travel agentAnswer: a Page: 152 Level of difficulty: Medium32. All of the following would be among the Peppers and Rogers’s four-step framework for one-to-one marketing that can be adapted to CRM marketing EXCEPT ________. a. customizing products, services, and messages to each customer b. interacting with individual customers to learn their needs c. always offering the lowest price d. differentiating customers in terms of their needs and value to the company e. identify your prospects and customersAnswer: c Page: 154 Level of difficulty: Hard 125
  • 8. Part 3: Connecting with Customers33. Winning companies improve the value of their customer base by excelling at strategies listed below EXCEPT ________. a. eliminating low-profit customers immediately b. reducing the rate of customer defection c. increasing the longevity of the customer relationship d. making low-profit customers more profitable or terminating them e. focusing disproportionate efforts on high-value customersAnswer: a Page: 154 Level of difficulty: Medium34. Which of the following is a characteristic of one-to-one marketing? a. Mass promotion b. Standard product c. Two-way messages d. Share of market e. Customer attractionAnswer: c Page: 155 Level of difficulty: Medium35. Another term for high customer ________ is customer churn. a. retention b. defection c. value d. perception e. beliefAnswer: b Page: 155 Level of difficulty: Easy36. Markets can be characterized by their long-term buying dynamics and how easily and often customers can enter and leave. In ________, customers can leave and come back. a. permanent capture markets b. simple retention markets c. advocate markets d. simple competitive markets e. customer migration marketsAnswer: e Page: 156 Level of difficulty: Medium37. In ________ marketing, the salesperson contacts the customer from time to time with suggestions about improved product uses or new products. a. accountable marketing b. proactive marketing c. reactive marketing d. partnership marketing e. basic marketingAnswer: b Page: 157 Level of difficulty: Medium 126
  • 9. Chapter 5: Creating Customer Value, Satisfaction, and Loyalty38. Most company’s practice only ________ when their markets contain many customers and their unit profit margin(s) are small. a. reactive marketing b. partnership marketing c. basic marketing d. proactive marketing e. accountable marketingAnswer: c Page: 157 Level of difficulty: Easy39. In markets with few customers and high profit margins, most sellers will move toward ________ marketing. a. reactive marketing b. partnership marketing c. basic marketing d. proactive marketing e. accountable marketingAnswer: b Page: 157 Level of difficulty: Medium40. The CRM (customer relationship management) imperative is characterized by five steps or factors. All of the following would be among those steps or factors EXCEPT ________. a. acquiring the right customer b. crafting the right value proposition c. instituting the best processes d. motivating employees e. learning to make profits through marginal customersAnswer: e Page: 158 Level of difficulty: Hard41. When companies provide rewards to customers who buy frequently and in substantial amounts, this is referred to as ________. a. benefit programs b. frequency programs c. satisfaction programs d. loyalty programs e. quality programsAnswer: b Page: 159 Level of difficulty: Easy42. Frequency marketing is an acknowledgment of the fact that 20 percent of a company’s customers might account for ________ percent of its business. a. 50 b. 70 c. 40 d. 80 e. 90Answer: d Page: 159 Level of difficulty: Medium 127
  • 10. Part 3: Connecting with Customers43. Companies who try to increase a customer’s likelihood to repurchase a product may try to create long-term contracts, turn the product into a long-term service, and ________. a. send frequent surveys b. offer coupons c. charge lower prices to customers who purchase large supplies d. request the customer join their loyalty program e. encourage customers to purchase in greater frequencyAnswer: c Page: 162 Level of difficulty: Medium44. An organized collection of comprehensive information about individual customers or prospects that is current, accessible, and actionable for such marketing purposes as lead generation, lead qualification, sale of a product or service, 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 marketsAnswer: a Page: 162 Level of difficulty: Medium45. The 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 warehousing b. datamining c. database marketing d. custom marketing e. electronic marketingAnswer: c Page: 162 Level of difficulty: Easy46. A _____________ is simply a set of names, addresses, and telephone numbers. a. customer database b. customer mailing list c. call-waiting list d. psychographic list e. demographic listAnswer: b Page: 163 Level of difficulty: Easy47. A customer database should contain all of the following EXCEPT ________. a. a customer’s past purchases b. demographics c. psychographics d. mediagraphics e. an assessment of competitive strengths and weaknessesAnswer: e Page: 163 Level of difficulty: Medium 128
  • 11. Chapter 5: Creating Customer Value, Satisfaction, and Loyalty48. A ________ would contain such items as past volumes, prices, profits, buyer team names, status of current contacts, and an assessment of competitive strengths and weaknesses. a. customer mailing list b. contact list c. customer database d. business database e. general corporate databaseAnswer: d Page: 163 Level of difficulty: Easy49. Savvy companies are capturing information every time a customer comes into contact with any of its departments. As a marketing manager all of the following would be available customer touch points for your consideration EXCEPT ________. a. a customer purchase b. an online query c. a mail-in rebate card d. an ad run on a national television network e. a customer-requested service callAnswer: d Page: 163 Level of difficulty: Medium50. James Everett is a telemarketer. He can use his company’s ________ to respond to customer inquiries more effectively because of his ability to see a total picture of the customer relationship. a. data warehouse b. call back list c. call rejection list d. corporate database e. Better Business Bureau contactsAnswer: a Page: 164 Level of difficulty: Medium51. Through ________, marketing statisticians can extract useful information about individuals, trends, and segments from the mass of data. a. data accumulation b. target market information supplied by the government c. datamining d. data management e. data marketingAnswer: c Page: 164 Level of difficulty: Medium 129
  • 12. Part 3: Connecting with Customers52. ________ involves the use of sophisticated statistical and mathematical techniques such as cluster analysis, automatic interaction detection, predictive modeling, and neural networking. a. Data management b. Data marketing c. Target market analysis d. Data accumulation e. DataminingAnswer: e Page: 164 Level of difficulty: Medium53. In general, companies can use their databases in all of the following ways EXCEPT ________. a. to predict competitive strategies and plans b. to identify prospects c. to decide which customers should receive a particular offer d. to deepen customer loyalty e. to avoid serious customer mistakesAnswer: a Pages: 164–165 Level of difficulty: Medium54. Susan Lefferts’ company advertises widely. In each magazine ad, a business reply card is attached. Ms. Lefferts uses these cards to build her company’s database. In which of the following ways would Ms. Lefferts most likely be using the newly constructed database? a. To deepen customer loyalty. b. To reactivate customer purchases. c. To avoid serious customer mistakes. d. To determine if up-selling is appropriate. e. To identify prospects.Answer: e Page: 164 Level of difficulty: Hard55. Phil Langston has just ordered a number of expensive executive gifts that he will be sending as an appreciation token to a select few customers from his client database. In which of the following ways is Mr. Langston most likely using his database? a. To identify prospects. b. To decide which customers should receive a new sales offer. c. To deepen customer loyalty. d. To avoid serious customer mistakes. e. To beat the competition to a sale.Answer: c Page: 165 Level of difficulty: Medium 130
  • 13. Chapter 5: Creating Customer Value, Satisfaction, and Loyalty56. Royal Caribbean uses its ________ to offer spur-of-the-moment cruise packages to fill all the berths on its ships. It focuses on retired people and single people because they are more able to make quick commitments. a. advertising b. database c. mail catalogs d. public relations department e. radio advertisingAnswer: b Page: 164 Level of difficulty: Easy57. Which of the following is considered to be one of the four problems that can deter a firm from using CRM (customer relationship marketing)? a. Competitors can often hack into CRM systems. b. Building and maintaining a customer database requires a large investment. c. It is very difficult to find and train database employees. d. Long-term results of such systems are still unproven. e. Focusing too much on databases separates a company from its customers.Answer: b Page: 165 Level of difficulty: Medium58. Building a database would not be worthwhile for a company in all of the following cases EXCEPT ________. a. where the product is a one-in-a-lifetime purchase b. where customers show little loyalty to a brand c. where the company already has an above average relationship with its customers d. where the unit sale is very small e. where the cost of gathering the information is too highAnswer: c Page: 165 Level of difficulty: Hard59. A study estimated the average return on investment for a data warehouse over the course of three years is more than ________. a. 400 percent b. 200 percent c. 100 percent d. 85 percent e. 75 percentAnswer: a Page: 166 Level of difficulty: Hard60. All of the following are considered to be among the main perils of CRM EXCEPT ________. a. implementing CRM before creating a customer strategy b. the enormous cost that might eventually drain significant profits from the organization c. rolling out CRM before changing the organization to match d. assuming more CRM technology is better e. stalking, not wooing customersAnswer: b Page: 167 Level of difficulty: Medium 131
  • 14. Part 3: Connecting with CustomersTrue/False61. Managers who believe the customer is the company’s only true “profit center” consider the traditional organization chart to be obsolete.Answer: True Page: 140 Level of difficulty: Easy62. The modern customer-oriented organization chart places top management at the top of the pyramid as long as they can think like consumers.Answer: False Page: 140 Level of difficulty: Medium63. There are two determinates of customer delivered-value: total customer value and total customer cost.Answer: True Page: 141 Level of difficulty: Hard64. Customer perceived value (CPV) is the difference between the prospective customer’s evaluation of all the benefits and all the costs of an offering and the perceived alternativesAnswer: True Page: 141 Level of difficulty: Medium65. Total customer value is the perceived monetary value of all the purchases a customer makes on an annual basis.Answer: False Page: 141 Level of difficulty: Medium66. Professional buyers and purchasing agents operate under various constraints and occasionally make choices that give more weight to their personal benefit than to the company’s benefit.Answer: True Page: 142 Level of difficulty: Medium67. The value proposition is stated in the price of a product and readily recognized by the average consumer.Answer: False Page: 143 Level of difficulty: Medium68. The value-delivery system includes all the experiences the customer will have on the way to obtaining and using the offering.Answer: True Page: 143 Level of difficulty: Medium69. For a consumer to be delighted with a product or service he or she must perceive that performance exceeds expectations.Answer: True Page: 144 Level of difficulty: Easy70. The ultimate goal of the customer-centered firm is to create high customer satisfaction.Answer: False Page: 144 Level of difficulty: Hard71. The key to customer retention is customer satisfaction.Answer: True Page: 145 Level of difficulty: Easy 132
  • 15. Chapter 5: Creating Customer Value, Satisfaction, and Loyalty72. At the top of the package delivery industry with a satisfaction index score of 82 is FedEx.Answer: True Page: 146 Level of difficulty: Medium73. Price-perception is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs.Answer: False Page: 146 Level of difficulty: Medium74. Conformance quality and performance quality is essentially the same thing in a marketing sense.Answer: False Page: 147 Level of difficulty: Medium75. Total quality management (TQM) is a production department approach to continuously improving the quality of all the production processes.Answer: False Page: 147 Level of difficulty: Medium76. Marketers have found that the most essential role to be played in defining and delivering high-quality goods and services to target customers is that of price (e.g., price it right and it will sell).Answer: False Page: 148 Level of difficulty: Easy77. The midsize customers for most organizations receive good service, pay nearly full price for the products and services they purchase, and are often the most profitable.Answer: True Page: 148 Level of difficulty: Medium78. A profitable customer is a person, household, or company that over time yields a revenue stream that exceeds by an acceptable amount the company’s cost stream of attracting, selling, and servicing the customer.Answer: True Page: 149 Level of difficulty: Medium79. Most companies measure customer satisfaction and individual customer profitability.Answer: False Page: 149 Level of difficulty: Medium80. Unprofitable customers who defect to a competitor should be encouraged to do so.Answer: True Page: 149 Level of difficulty: Medium81. Customer profitability analysis (CPA) is best conducted with the tools of an accounting technique called Activity-Based Costing (ABC).Answer: True Page: 149 Level of difficulty: Medium82. According to customer profitability analysis (CPA), platinum customers spend the most money with the organization thereby making them valuable.Answer: False Page: 149 Level of difficulty: Hard83. Any competitive advantage must be seen by customers as a customer advantage.Answer: True Page: 150 Level of difficulty: Medium 133
  • 16. Part 3: Connecting with Customers84. Customer lifetime value (CLV) describes the net present value of the stream of future profits expected over the customer’s lifetime purchases.Answer: True Page: 150 Level of difficulty: Medium85. Carl Sewell, in Customers for Life, estimated that a customer entering his car dealership for the first time represents a potential lifetime value of over $300,000.Answer: True Page: 150 Level of difficulty: Medium86. The aim of customer relationship management is to keep the costs of meeting and tracking consumers as low as possible.Answer: False Page: 151 Level of difficulty: Medium87. Brand equity is the customer’s objective assessment of the utility of an offering based on perceptions of its benefits relative to its costs.Answer: False Page: 151 Level of difficulty: Hard88. Customer equity is driven by three components: acquisition, retention, and add on selling.Answer: False Page: 151 Level of difficulty: Medium89. A good illustration of a personal touch in the hotel business would be if the hotel employees (e.g., registration, maid service, et cetera) call a guest by his or her name.Answer: True Page: 152 Level of difficulty: Easy90. A customer touch point is the time when the customer makes a purchase.Answer: False Page: 152 Level of difficulty: Medium91. A key driver of shareholder value is the aggregate value of the customer base.Answer: True Page: 154 Level of difficulty: Medium92. One of the characteristics of mass marketing is using a one-way message in promotions.Answer: True Page: 155 Level of difficulty: Easy93. Customer churn is how rapidly a store can move customers through its checkout facility or process.Answer: False Page: 155 Level of difficulty: Medium94. Ninety-six percent of dissatisfied customers don’t complain; they just stop buying.Answer: True Page: 155 Level of difficulty: Medium95. The average company loses 25 percent of its customers each year.Answer: False Page: 156 Level of difficulty: Hard 134
  • 17. Chapter 5: Creating Customer Value, Satisfaction, and Loyalty96. A good description of a permanent capture market would be “once a customer, always a customer.”Answer: True Page: 156 Level of difficulty: Medium97. In proactive marketing the salesperson simply sells the product.Answer: False Page: 157 Level of difficulty: Medium98. A customer database is simply a listing of a customer’s name, address, and phone number for credit reference.Answer: False Page: 162 Level of difficulty: Easy99. Cluster analysis is a good example of a statistical technique that might be employed in datamining.Answer: True Page: 164 Level of difficulty: Medium100. Database marketing is most frequently used by business marketers and service providers (hotels, banks, airlines, and insurance, credit card, and telephone companies) that normally and easily collect a lot of customer data.Answer: True Page: 166 Level of difficulty: MediumEssay101. Compare and contrast the traditional organizational chart for an organization against the modern customer-oriented organization chart. Suggested Answer: For a visual comparison, see Figure 5.1. With respect to a written description, students should note that the modern customer-oriented organization chart is inverted (see the traditional model [e.g., top management— middle management—front-line people—customers]). Customers are at the top followed by front-line people, then middle management, and, lastly, top management. Students might also provide some discussion on why the inversion is beneficial. Page: 140 Level of difficulty: Medium102. Provide a customer-centered definition of the term quality. Suggested Answer: Quality is the totality of features and characteristics of a product or service that bear on the ability to satisfy stated or implied needs. This is clearly a customer-centered definition. Page: 146 Level of difficulty: Easy 135
  • 18. Part 3: Connecting with Customers103. Describe the concept of competitive advantage. Discuss the differences between competitive advantage and leverageable advantage. Suggested Answer: Competitive advantage is a company’s ability to perform in one or more ways that competitors cannot or will not match. Michael Porter urged companies to build a sustainable competitive advantage. But few competitive advantages are sustainable. At best, they may be leverageable. A leverageable advantage is one that a company can use as a springboard to new advantages. See the Microsoft example in the text for additional information and discussion. Page: 150 Level of difficulty: Medium104. Discuss the differences among customer equity, value equity, brand equity, and relationship equity. Suggested Answer: Customer equity is the total of the discounted lifetime values of all of the firm’s customers. Value equity is the customer’s objective assessment of the utility of an offering based on perceptions of its benefits relative to its costs. Brand equity is the customer’s subjective and intangible assessment of the brand, above and beyond its objectively perceived value. Relationship equity is the customer’s tendency to stick with the brand. Page: 151 Level of difficulty: Hard105. Peppers and Rogers outline a four-step framework for one-to-one marketing that can be adapted to CRM marketing. What are those four steps? Suggested Answer: The four steps are: (1) identify your prospects and customers, (2) differentiate customers in terms of their needs and their value to your company, (3) interact with individual customers to improve your knowledge about their individual needs and to build stronger relationships, and (4) customize products, services, and messages to each customer. Pages: 153–154 Level of difficulty: Hard106. Characterize the five levels of investment in customer relationship building that a company can follow. Suggested Answer: The five levels are: (1) basic marketing—the salesperson simply sells the product, (2) reactive marketing—the salesperson sells the product and encourages the customer to call if he or she has questions, comments, or complaints, (3) accountable marketing—the salesperson phones the customer to check whether the product is meeting expectations and asks for suggestions for improvement or dissatisfactions, (4) proactive marketing—the salesperson contacts the customer from time to time with suggestions about improved product uses or new products, and (5) partnership marketing—the company works continuously with its large customers to help improve their performance. Page: 157 Level of difficulty: Hard 136
  • 19. Chapter 5: Creating Customer Value, Satisfaction, and Loyalty107. Today, companies are increasingly concerned about customer defection. There are five main steps a company can take to reduce the defection rate. Characterize those five steps. Suggested Answer: The five steps are: (1) the company must define and measure its retention rate, (2) the company must distinguish the causes of customer attrition and identify those that can be managed better, (3) the company needs to estimate how much profit it loses when it loses customers, (4) the company needs to figure out how much it would cost to reduce the defection rate, and (5) nothing beats listening to customers. Pages: 158–159 Level of difficulty: Hard108. Discuss the concepts of a data warehouse and datamining. Suggested Answer: Data are collected by the company’s contact center and organized into a data warehouse. Company personnel can capture, query, and analyze the data. Inferences can be drawn about an individual customer’s needs and responses. Through datamining, marketing statisticians can extract useful information about individuals, trends, and segments from the mass of data. Datamining involves the use of sophisticated statistical and mathematical techniques. Page: 164 Level of difficulty: Medium109. Assume 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 text, list five ways that the marketing manager might be able to use the database for marketing efforts. Suggested Answer: Five ways to use a database for marketing efforts include: (1) to identify prospects, (2) to decide which customers should receive a particular offer, (3) to deepen customer loyalty, (4) to reactivate customer purchases, and (5) to avoid serious customer mistakes. Pages: 164–165 Level of difficulty: Medium110. Describe four situations or cases when building a customer database would not be worthwhile for a company. Suggested Answer: Four situations or cases when building a customer database would not be worthwhile for a company would be: (1) where the product is a once-in-a-lifetime purchase, (2) where customers show little loyalty to a brand, (3) where the unit sale is very small, and (4) where the cost of gathering information is too high. Page: 165 Level of difficulty: Medium 137
  • 20. Part 3: Connecting with CustomersAPPLICATION QUESTIONSMultiple Choice111. John Chambers, CEO of Cisco Systems, said “Make your customer the center of your culture.” Customer-centered companies are adept at building customer relationships, not just producing products; they are skilled in ________, not just product engineering. a. service engineering b. market engineering c. cultural engineering d. innovation engineering e. management engineeringAnswer: b Page: 139 Level of difficulty: Medium112. Next to the customers in a modern customer-oriented organization chart, we would expect to find the ________ of an organization. a. top management b. marketing department c. middle management d. front-line people e. service departmentAnswer: d Page: 140 Level of difficulty: Easy113. eBay sees listening, adapting, and enabling as its main roles. This is clear in one of the company’s most cherished institutions: ________. a. the Midnight Madness Bid b. ecological concern c. truth in advertising d. the Voice of the Customer program e. the Immediate Buyback ProgramAnswer: d Page: 141 Level of difficulty: Medium114. If you were to write a good working definition of the term total customer value, you should write ________. a. the sum of value times (X) expectation b. the sum of customer perceived value and actualized value c. the perceived monetary value of the bundle of economic, functional, and psychological benefits customers expect from a given market offering d. the difference between the prospective customer’s evaluation of all the benefits and all the costs of an offering and the perceived alternatives e. the concept is simply a bundle of costs and expectationsAnswer: c Page: 141 Level of difficulty: Hard 138
  • 21. Chapter 5: Creating Customer Value, Satisfaction, and Loyalty 115. When a consumer considers a product or service, he or she will choose whichever product or service delivers the highest ________. a. customer perceived value b. customer perceived cost c. consumer discount d. consumer relationship e. consumer synergy Answer: a Page: 141 Level of difficulty: Medium 116. Buyers do not always make logical or rational decisions. They might purchase the most expensive and least quality item for example. Which of the following would be another good example of this behavior? a. The buyer is not seen by the seller as being very intelligent. b. The buyer might be under orders to buy at the lowest price. c. The buyer might be underage. d. The buyer might be under pressure to resist sales messages. e. The buyer refuses to listen to or read any advertising. Answer: b Page: 142 Level of difficulty: Medium117. If a company were to focus its marketing efforts on all the experiences the customer will have on the way to obtaining and using the offering, it would be focusing its marketing efforts on the customer’s ________. a. perception system b. cost versus benefit system c. demand d. psychological system e. value-delivery system Answer: e Page: 143 Level of difficulty: Medium118. Whether the buyer is satisfied after purchase depends on the offer’s performance in relation to the ________. a. buyer’s reactions b. buyer’s expectations c. seller’s delivery d. seller’s expectations e. both the buyer’s and seller’s demands Answer: b Page: 144 Level of difficulty: Medium 139
  • 22. Part 3: Connecting with Customers119. All of the following are ways that a buyer forms his or her expectations EXCEPT ________. a. from past buying experience b. from friends’ and associates’ advice c. from marketers’ information d. from competitors’ information e. from inherited traitsAnswer: e Page: 144 Level of difficulty: Easy120. JetBlue Airways has significantly raised customer expectations by following what JetBlue calls the Values. All of the following would be considered to be among those Values EXCEPT ________. a. safety b. frugality c. caring d. integrity e. funAnswer: b Page: 144 Level of difficulty: Medium121. The Field Grocery system is considering using _________ to pose as potential buyers and report on strong and weak points experienced in the buying the company’s and competitors’ products. a. intelligence agents b. covert operatives c. mystery shoppers d. market mavens e. opinion leadersAnswer: c Page: 146 Level of difficulty: Easy122. All of the following companies have been deemed to be leaders in their respective industries because of high consumer satisfaction scores (e.g., American Satisfaction Index [ACSI]) EXCEPT ________. a. Dell (78) b. Cadillac (87) c. Google (82) d. Yahoo! (78) e. U.S. Post Office (75)Answer: e Page: 146 Level of difficulty: Easy 140
  • 23. Chapter 5: Creating Customer Value, Satisfaction, and Loyalty123. Marketing managers have two responsibilities in a quality-centered company. First, they must participate in formulating strategies and policies to help the company win through total quality excellence. Second, ________. a. they must always have the lowest price in their industry b. they must deliver marketing quality alongside production quality c. they must have been approved by the J.D. Power and Associates d. they must use six-Sigma e. they must provide instant feedback from consumersAnswer: b Page: 147 Level of difficulty: Medium124. Advocates of ________ would be in favor of improving quality only on those dimensions that produce tangible customer benefits, lower costs, or increase sales. a. TQM (total quality management) b. PLC (product life cycle management) c. ROI (return on investment) d. ROQ (return on quality) e. ROP (return on promotion)Answer: d Page: 148 Level of difficulty: Medium125. According to research done by American Express, the best customers outspend those that are considered to be the best customers by significant margins. For example, in retailing the best customers outspend other customers by a ratio of ________. a. 16 to 1 b. 13 to 1 c. 12 to 1 d. 5 to 1 e. 3 to 1Answer: a Page: 148 Level of difficulty: Hard126. With respect to customer profitability analysis (CPA), the ________ customers are the most likely dropped as customers because of poor profitability. a. granite b. wood c. iron d. plastic e. leadAnswer: e Page: 149 Level of difficulty: Medium 141
  • 24. Part 3: Connecting with Customers127. Nike lets consumers customize athletic shoes for $10 more. A shopper with two different size feet can even get a non-matching pair. This would be an example of which of the following? a. Mass marketing. b. Environmental marketing. c. Mass customization. d. Individualization. e. Niche marketing.Answer: c Page 152 Level of difficulty: Medium128. 3M makes it easy for dialog to occur with its customers. 3M claims that over two- thirds of its product improvement ideas come from listening to ________. a. customer suggestions b. entrepreneurial product ideas c. customer complaints d. media feedback e. customer reactions to competitive productsAnswer: c Page: 155 Level of difficulty: Medium129. With respect to the CRM Imperative, “you get it” when ________. a. you eliminate all your strong competitors b. you have selected the most beneficial promotion channels c. you have learned how to outsource d. you develop a Web presence e. you have identified your most valuable customersAnswer: e Page: 158 Level of difficulty: Medium130. The skillful use of database marketing and ________ has made catalog house Fingerhut one of the nation’s largest direct-mail marketers. a. everyday low prices b. expanded home delivery options c. relationship building d. competitor’s mistakes e. retailer alliancesAnswer: c Page: 164 Level of difficulty: Hard 142
  • 25. Chapter 5: Creating Customer Value, Satisfaction, and LoyaltyShort Answer131. What do managers believe is their company’s only true “profit center”? Suggested Answer: Managers believe the customer is their only true profit center. Page: 140 Level of difficulty: Easy132. Customer delivered value is based on two components. What are those components? Suggested Answer: The two components of customer delivered value are total customer value and total customer cost. Page: 141 Level of difficulty: Medium133. What is the definition for customer perceived value (CPV)? Suggested Answer: Customer perceived value (CPV) is the difference between prospective customer’s evaluation of all the benefits and all the costs of an offering and the perceived alternatives. Page: 141 Level of difficulty: Medium134. Using European automobile giant Volvo as your illustration, create a value proposition for the company. Be sure to base your proposition on established company core positions and values. Suggested Answer: Students may have several answers; however, any value proposition must be built on their stated positioning objective of “safety.” Other benefits that might be worked into a value proposition could be a long-lasting car, good service, and a long warranty period. Basically, the value proposition is a statement about the total experience customers will gain from the company’s market offering and from their relationship with the supplier. Page: 143 Level of difficulty: Medium135. Define the term quality. Suggested Answer: Quality is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs. Page: 146 Level of difficulty: Easy136. Sherden suggests amending the 20-80 rule to read “the 20-80-30 rule.” Interpret the meaning of “20-80-30.” Suggested Answer: The 20-80-30 rule reflects the idea that the top 20 percent of the customers generate as much as 80 percent of the company’s profits, half of which are lost on serving the bottom 30 percent of unprofitable customers. Page: 148 Level of difficulty: Medium 143
  • 26. Part 3: Connecting with Customers137.What are the three ways that customer profitability can be assessed? Suggested Answer: Customer profitability can be assessed individually, by market segment, or by channel. Page: 149 Level of difficulty: Medium138.What are the four classifications (tiers) of customers in customer profitability analysis using Activity-Based Costing? Suggested Answer: The tiers would be platinum customers (most profitable), gold customers (profitable), iron customers (low profitability but desirable), and lead customers (unprofitable and undesirable). Page: 149 Level of difficulty: Hard139.According to Rust, Zeithaml, and Lemon, what are the three drivers of customer equity? Suggested Answer: The three drivers are: value equity, brand equity, and relationship equity. Page: 151 Level of difficulty: Medium140.Explain the concept of mass customization. Suggested Answer: Mass customization is the ability of a company to meet each customer’s requirements—to prepare on a mass basis individually designed products, services, programs, and communications. Page: 152 Level of difficulty: Easy141.What is a customer touch point? Suggested Answer: A customer touch point is any occasion on which a customer encounters the brand and product—from actual experience to personal or mass communications to casual observation. Page: 152 Level of difficulty: Medium142.If characteristics of mass marketing were average customer, share of market, and customer attraction, what would be the associated one-to-one marketing characteristics that would match? Suggested Answer: Matching concepts would be individual customer, share of consumer, and customer retention. Page: 155 Level of difficulty: Hard143.Markets can be characterized by their long-term buying dynamics and how easily and often customers can enter and leave. List and briefly characterize three such markets. 144
  • 27. Chapter 5: Creating Customer Value, Satisfaction, and Loyalty Suggested Answer: The three markets would be: (1) permanent capture markets —once a customer, always a customer, (2) simple retention markets—customers can be permanently lost after each period, and (3) customer migration markets— customers can leave and come back. Page: 156 Level of difficulty: Medium144.Explain the concept of proactive marketing. Suggested Answer: Proactive marketing occurs when the salesperson contacts the customer from time to time with suggestions about improved product uses and new products. Page: 157 Level of difficulty: Medium145.Explain how a company frequency program might work. Suggested Answer: Frequency programs are designed to provide rewards to customers who buy frequently and in substantial amounts. Frequency programs acknowledge the validity of the 20-80 rule. Page: 159 Level of difficulty: Medium146.Using information provided in the text, create three suggestions for creating structural ties with a customer. Suggested Answer: The company could (1) create long-term contracts, (2) charge a lower price to consumers who buy large supplies, and (3) turn the product into a long-term service. Page: 162 Level of difficulty: Hard147.Describe the process of database marketing. Suggested Answer: Database marketing is the process of building, maintaining, and using customer databases and other databases (products, suppliers, resellers) for the purpose of contacting, transacting, and building customer relationships. Page: 162 Level of difficulty: Medium148.According to information provided in the text, give one of the three forms of estimate with respect to increasing customer share of requirements. Suggested Answer: There are three listed. Students are to choose one. The three are: (1) share of customer needs by market offerings and by locations supplied, (2) value of each offering supplied relative to customer’s next-best alternative, and (3) cost to serve by market offering and by location supplied. Page: 163 Level of difficulty: Hard 145
  • 28. Part 3: Connecting with Customers149.Give an illustration of how a company can use a customer database to reactivate customer purchases. Suggested Answer: Companies can install automatic mailing programs that send out birthday or anniversary cards, Christmas shopping reminders, or off-season promotions. Other illustrations by students should be in a similar vein. Page: 165 Level of difficulty: Medium150.According to information provided in the text, what are the four main perils of CRM? Suggested Answer: The four main perils are: (1) implementing CRM before creating a customer strategy, (2) rolling out CRM before changing the organization to match, (3) assuming more CRM technology is better, and (4) stalking, not wooing customers. Page: 167 Level of difficulty: Hard 146