Chapter 5:
Creating Customer Value, Satisfaction, and Loyalty
GENERAL CONCEPT QUESTIONS
Multiple 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
Answer: b
Page: 139
Level of difficulty: Easy
2. 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 concept
Answer: d
Page: 140
Level of difficulty: Medium
3.
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
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4. ________ 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 rate
Answer: d
Page: 141
Level of difficulty: Medium
5. 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. advertised
Answer: a
Page: 141
Level of difficulty: Hard
6. 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 ratio
Answer: c
Page: 141
Level of difficulty: Medium
7. 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 warranty
Answer: b
Page: 143
Level of difficulty: Medium
8. 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 proposition
Answer: e
Page: 143
Level of difficulty: Medium
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Chapter 5: Creating Customer Value, Satisfaction, and Loyalty
9. 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 attitude
Answer: b
Page: 144
Level of difficulty: Hard
10. 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 newsletters
Answer: e
Page: 144
Level of difficulty: Easy
11. 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 benefits
Answer: b
Page: 144
Level of difficulty: Medium
12. 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 campaign
Answer: c
Page: 144
Level of difficulty: Hard
13. 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 directors
Answer: d
Page: 145
Level of difficulty: Medium
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14. 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 rate
Answer: d
Page: 146
Level of difficulty: Medium
15. 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. Corvette
Answer: a
Page: 146
Level of difficulty: Medium
16. ________ 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 loyalty
Answer: c
Page: 146
Level of difficulty: Easy
17. 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 message
Answer: b
Page: 147
Level of difficulty: Hard
18. ________ 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 management
Answer: a
Page: 147
Level of difficulty: Medium
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Chapter 5: Creating Customer Value, Satisfaction, and Loyalty
19. 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
product
Answer: a
Page: 148
Level of difficulty: Hard
20. 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 customers
Answer: b
Page: 148
Level of difficulty: Medium
21. 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. target
Answer: a
Page: 149
Level of difficulty: Easy
22. 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
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Part 3: Connecting with Customers
23. 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: Hard
24. 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. $2,000
Answer: d
Page: 150
Level of difficulty: Hard
25. The aim of customer relationship management (CRM) is to produce high customer
________.
a. value
b. loyalty
c. profitability
d. satisfaction
e. equity
Answer: e
Page: 151
Level of difficulty: Medium
26. The three drivers of customer equity are: value equity, brand equity, and ________
equity.
a. relationship
b. revenue
c. quality
d. price
e. product
Answer: a
Page: 151
Level of difficulty: Easy
27. 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 programs
Answer: e
Page: 151
Level of difficulty: Hard
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Chapter 5: Creating Customer Value, Satisfaction, and Loyalty
28. 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. pricing
Answer: b
Page: 151
Level of difficulty: Medium
29. ________ 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 equity
Answer: c
Page: 152
Level of difficulty: Medium
30. 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 customization
Answer: c
Page: 152
Level of difficulty: Hard
31. 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 agent
Answer: a
Page: 152
Level of difficulty: Medium
32. 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 customers
Answer: c
Page: 154
Level of difficulty: Hard
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Part 3: Connecting with Customers
33. 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 customers
Answer: a
Page: 154
Level of difficulty: Medium
34. 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 attraction
Answer: c
Page: 155
Level of difficulty: Medium
35. Another term for high customer ________ is customer churn.
a. retention
b. defection
c. value
d. perception
e. belief
Answer: b
Page: 155
Level of difficulty: Easy
36. 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 markets
Answer: e
Page: 156
Level of difficulty: Medium
37. 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 marketing
Answer: b
Page: 157
Level of difficulty: Medium
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Chapter 5: Creating Customer Value, Satisfaction, and Loyalty
38. 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 marketing
Answer: c
Page: 157
Level of difficulty: Easy
39. 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 marketing
Answer: b
Page: 157
Level of difficulty: Medium
40. 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 customers
Answer: e
Page: 158
Level of difficulty: Hard
41. 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 programs
Answer: b
Page: 159
Level of difficulty: Easy
42. 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. 90
Answer: d
Page: 159
Level of difficulty: Medium
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Part 3: Connecting with Customers
43. 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 frequency
Answer: c
Page: 162
Level of difficulty: Medium
44. 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 markets
Answer: a
Page: 162
Level of difficulty: Medium
45. 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 marketing
Answer: c
Page: 162
Level of difficulty: Easy
46. 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 list
Answer: b
Page: 163
Level of difficulty: Easy
47. 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 weaknesses
Answer: e
Page: 163
Level of difficulty: Medium
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Chapter 5: Creating Customer Value, Satisfaction, and Loyalty
48. 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 database
Answer: d
Page: 163
Level of difficulty: Easy
49. 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 call
Answer: d
Page: 163
Level of difficulty: Medium
50. 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 contacts
Answer: a
Page: 164
Level of difficulty: Medium
51. 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 marketing
Answer: c
Page: 164
Level of difficulty: Medium
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Part 3: Connecting with Customers
52. ________ 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. Datamining
Answer: e
Page: 164
Level of difficulty: Medium
53. 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 mistakes
Answer: a
Pages: 164–165
Level of difficulty: Medium
54. 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: Hard
55. 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
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Chapter 5: Creating Customer Value, Satisfaction, and Loyalty
56. 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 advertising
Answer: b
Page: 164
Level of difficulty: Easy
57. 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: Medium
58. 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 high
Answer: c
Page: 165
Level of difficulty: Hard
59. 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 percent
Answer: a
Page: 166
Level of difficulty: Hard
60. 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 customers
Answer: b
Page: 167
Level of difficulty: Medium
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True/False
61. 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: Easy
62. 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: Medium
63. There are two determinates of customer delivered-value: total customer value and
total customer cost.
Answer: True
Page: 141
Level of difficulty: Hard
64. 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 alternatives
Answer: True
Page: 141
Level of difficulty: Medium
65. 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: Medium
66. 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: Medium
67. 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: Medium
68. 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: Medium
69. 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: Easy
70. The ultimate goal of the customer-centered firm is to create high customer
satisfaction.
Answer: False
Page: 144
Level of difficulty: Hard
71. The key to customer retention is customer satisfaction.
Answer: True
Page: 145
Level of difficulty: Easy
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Chapter 5: Creating Customer Value, Satisfaction, and Loyalty
72. At the top of the package delivery industry with a satisfaction index score of 82 is
FedEx.
Answer: True
Page: 146
Level of difficulty: Medium
73. 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: Medium
74. Conformance quality and performance quality is essentially the same thing in a
marketing sense.
Answer: False
Page: 147
Level of difficulty: Medium
75. 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: Medium
76. 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: Easy
77. 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: Medium
78. 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: Medium
79. Most companies measure customer satisfaction and individual customer profitability.
Answer: False
Page: 149
Level of difficulty: Medium
80. Unprofitable customers who defect to a competitor should be encouraged to do so.
Answer: True
Page: 149
Level of difficulty: Medium
81. 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: Medium
82. 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: Hard
83. Any competitive advantage must be seen by customers as a customer advantage.
Answer: True
Page: 150
Level of difficulty: Medium
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Part 3: Connecting with Customers
84. 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: Medium
85. 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: Medium
86. 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: Medium
87. 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: Hard
88. Customer equity is driven by three components: acquisition, retention, and add on
selling.
Answer: False
Page: 151
Level of difficulty: Medium
89. 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: Easy
90. A customer touch point is the time when the customer makes a purchase.
Answer: False
Page: 152
Level of difficulty: Medium
91. A key driver of shareholder value is the aggregate value of the customer base.
Answer: True
Page: 154
Level of difficulty: Medium
92. One of the characteristics of mass marketing is using a one-way message in
promotions.
Answer: True
Page: 155
Level of difficulty: Easy
93. Customer churn is how rapidly a store can move customers through its checkout
facility or process.
Answer: False
Page: 155
Level of difficulty: Medium
94. Ninety-six percent of dissatisfied customers don’t complain; they just stop buying.
Answer: True
Page: 155
Level of difficulty: Medium
95. The average company loses 25 percent of its customers each year.
Answer: False
Page: 156
Level of difficulty: Hard
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Chapter 5: Creating Customer Value, Satisfaction, and Loyalty
96. A good description of a permanent capture market would be “once a customer,
always a customer.”
Answer: True
Page: 156
Level of difficulty: Medium
97. In proactive marketing the salesperson simply sells the product.
Answer: False
Page: 157
Level of difficulty: Medium
98. 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: Easy
99. Cluster analysis is a good example of a statistical technique that might be employed
in datamining.
Answer: True
Page: 164
Level of difficulty: Medium
100. 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: Medium
Essay
101.
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: Medium
102.
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
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Part 3: Connecting with Customers
103.
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: Medium
104.
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: Hard
105.
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: Hard
106.
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
Chapter 5: Creating Customer Value, Satisfaction, and Loyalty
107.
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: Hard
108.
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: Medium
109.
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: Medium
110.
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
Part 3: Connecting with Customers
APPLICATION QUESTIONS
Multiple Choice
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 engineering
Answer: b
Page: 139
Level of difficulty: Medium
111.
112.
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 department
Answer: d
Page: 140
Level of difficulty: Easy
113.
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 Program
Answer: d
Page: 141
Level of difficulty: Medium
114.
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 expectations
Answer: c
Page: 141
Level of difficulty: Hard
138
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: Medium
117.
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: Medium
118.
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
Part 3: Connecting with Customers
119.
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 traits
Answer: e
Page: 144
Level of difficulty: Easy
120.
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. fun
Answer: b
Page: 144
Level of difficulty: Medium
121.
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 leaders
Answer: c
Page: 146
Level of difficulty: Easy
122.
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
Chapter 5: Creating Customer Value, Satisfaction, and Loyalty
123.
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 consumers
Answer: b
Page: 147
Level of difficulty: Medium
124.
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: Medium
125.
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 1
Answer: a
Page: 148
Level of difficulty: Hard
126.
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. lead
Answer: e
Page: 149
Level of difficulty: Medium
141
Part 3: Connecting with Customers
127.
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: Medium
128.
3M makes it easy for dialog to occur with its customers. 3M claims that over twothirds 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 products
Answer: c
Page: 155
Level of difficulty: Medium
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 customers
Answer: e
Page: 158
Level of difficulty: Medium
129.
130.
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 alliances
Answer: c
Page: 164
Level of difficulty: Hard
142
Chapter 5: Creating Customer Value, Satisfaction, and Loyalty
Short Answer
131.
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: Easy
132.
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: Medium
133.
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: Medium
134.
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: Medium
135.
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: Easy
136.
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
Part 3: Connecting with Customers
137.
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: Medium
138.
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: Hard
139.
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: Medium
140.
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: Easy
141.
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: Medium
142.
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: Hard
143.
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
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: Medium
144.
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: Medium
145.
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: Medium
146.
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: Hard
147.
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: Medium
148.
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
Part 3: Connecting with Customers
149.
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: Medium
150.
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