Customer Focus, Customer Performance, and Profit Impact
16) Which of the following is true of businesses with a strong customer focus?
A) A customer-focused business lacks a long-term perspective.
B) A customer-focused business realizes higher profits over the short-term.
C) In a customer-focused business, shareholders are more interested in long-run survival than immediate
earnings.
D) In a customer-focused business, managers are usually judged on the last quarter's results, and not not
on their efforts to ensure the long-run survival of the business.
E) A customer-focused business is in synch with customers' needs and requirements, not with
competitors' strategies.
17) Which of the following events occur when there is minimal focus on customers?
A) high customer loyalty
B) reduction in customer turnover
C) below-average profits
D) long-run strategies to improve sales
E) low cost of marketing and sales
18) The end result of underwhelming customers and shareholders is ________.
A) an unfocused value proposition
B) a higher pressure for short-run results
C) an above-average profit performance
D) a low rate of customer turnover
E) a high level of customer loyalty
19) In a customer-focused business, ________.
A) the senior management sets the tone and sends the signal for a strong customer focus
B) the management views customer complaints as negative feedback and avoids them
C) the analysis of customer feedback is performed only by the senior management
D) the business downplays the importance of customer training for new employees
E) the business is overly focused on building products they assume their customer wants
20) Which of the following is an example of a company's external metrics?
A) return on sales
B) employee turnovers
C) manufacturing defects
D) late deliveries
E) retaining customers
21) With reference to the six-category scale, a consumer satisfaction index (CSI) of 20 denotes that the
customer is ________.
A) dissatisfied
B) satisfied
C) very satisfied
D) somewhat dissatisfied
E) somewhat satisfied
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22) With reference to the six-category scale, a consumer satisfaction index (CSI) of 60 denotes that the
customer is ________.
A) dissatisfied
B) satisfied
C) very satisfied
D) somewhat dissatisfied
E) somewhat satisfied
23) To create an overall customer satisfaction index (CSI) for a given sample of customers, a business
________.
A) computes the average of those customers' satisfaction ratings
B) sums all of those customers' satisfaction ratings
C) computes the average of those customers' satisfaction ratings and divides it by the industry average
D) computes the sum of those customers' satisfaction ratings and divides it by a leading competitor's
customer satisfaction index
E) sums all of those customers' satisfaction ratings and divides it by 100
24) A business determines that 75% of its customers are satisfied. This business also learns that 80% of
a leading competitor's customers are satisfied. If this business implements a program to reach 80%
customer satisfaction, this is called ________.
A) competitive parity
B) focused value proposition
C) managing to the averages
D) wide-angle view of customer satisfaction
E) forward-looking indicator
25) Which of the following is a forward-looking indicator of business success?
A) customer satisfaction
B) shareholder dividends
C) sales
D) market share
E) ROI
26) Customers with ________ customer satisfaction ratings are profitable but are below the average
customer profitability.
A) Very satisfied
B) Dissatisfied
C) Somewhat dissatisfied
D) Satisfied
E) Somewhat satisfied
27) What is the main reason that a business suffers several economic consequences when a dissatisfied
customer leaves?
A) The cost of attracting a new customer is greater than retaining a current customer.
B) The business's competitors enjoy a greater customer loyalty toward the same type of products.
C) The amount of money spent on developing the product for the dissatisfied customer cannot be
reimbursed.
D) The business has to pay a large compensation fee to the customer.
E) The future costs for the development of a similar product increases abruptly.
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28) What type of customers are most likely known as "customer terrorists"?
A) customers who use their bargaining powers to purchase products at a cheaper price
B) customers who engage in shoplifting
C) customers who verbally communicate their bad experiences to others
D) customers who show a false sense of loyalty to a particular brand
E) customers who only buy the product if it is offered at an attractive price or with a promotional
incentive
29) The most significant impact of satisfying and retaining customers is ________.
A) that a business can redirect marketing efforts to better serve dissatisfied customers
B) that a business can redirect marketing efforts to attaining new customers
C) that a desired increase in the level of profitability requires an increase in sales volume of only half as
much
D) that a business can eliminate the need for advertising
E) that it can result in tremendous financial leverage
30) A market-based business looks at customers as ________.
A) lifetime partners
B) individual purchase transactions
C) conquests
D) short-term relationships
E) extraneous variables
31) Customer life expectancy increases ________ with customer retention.
A) exponentially
B) linearly
C) cubically
D) parabolically
E) hyperbolically
32) What is the relation between the customer retention (CR) and average customer life (N)?
A) CR=1/N
B) CR=1+(1/N)
C) CR=N/2
D) CR=(N-1)/2
E) CR= 1-(1/N)
33) The average life expectancy of a customer for a company with 75% customer retention is ________.
A) 1 year
B) 2 years
C) 3 years
D) 4 years
E) 5 years
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34) What is the customer retention for a company given an average customer life of two years?
A) 40%
B) 50%
C) 75%
D) 80%
E) 100%
35) An increase from 80% to 90% in customer retention would have what effect on the average
customer life?
A) an increase of 1 year
B) an increase of 2 years
C) an increase of 5 years
D) an increase of 10 years
E) an increase of 20 years
36) What change in customer retention results from an increase from 5 to 10 years of an average
customer life?
A) a decrease of 5%
B) an increase of 5 %
C) an increase of 10%
D) a decrease of 10%
E) the value remains the same
37) Which of the following statements is true about customer retention and customer life expectancy?
A) The higher the customer retention rate, the lower the short-term profit impact.
B) As customer retention increases, the customer's life expectancy decreases.
C) Customer life expectancy decreases exponentially with customer retention.
D) In general, it costs five times more to replace than to keep a customer.
E) Higher levels of customer retention have a long-term negative impact on profits.
38) In general, it costs ________ times more to replace a customer than it costs to keep a customer.
A) two
B) three
C) four
D) five
E) six
39) To estimate the lifetime value of a customer at a given rate of customer retention, you need to
compute the ________.
A) net present value of the customer's cash flow
B) customer satisfaction index
C) future customer value
D) customer loyalty index
E) gross percent margin of the company
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40) Which of the following is a component of customer loyalty index?
A) customer satisfaction
B) average customer life
C) customer's income level
D) desire to repurchase
E) customer's demographic details
41) Calculate the customer loyalty index if the customer history is average, the purchase amount is
below average, the desire to repurchase is high, the product preference is strong, and there is no
customer recommendation.
A) 0
B) 10
C) 50
D) 80
E) 100
42) Calculate the customer loyalty index if the customer history is 12, the purchase amount is 38, the
desire to repurchase is 50, the product preference is 20, and there is no customer recommendation.
A) 30
B) 24
C) 50
D) 65
E) 92
43) ________ are most likely to recommend a company's product to others.
A) Loyal customers
B) Captive customers
C) New customers
D) Repeat customers
E) Customer terrorists
44) Which of the following groups of customers are most likely to have high desire to repurchase, strong
product preference, long customer history, and a very high referral value?
A) Loyal customers
B) Captive customers
C) Unprofitable customers
D) Repeat customers
E) Customer terrorists
45) Sally always purchases groceries at Dillard's Department store. Every time she visits the store, she
spends exorbitant amounts on various items. Sally seldom recommends Dillard's Department store to her
friends and acquaintances. The marketing manager at Dillard's calculates that she has a loyalty index of
50, and an average lifetime value. To Dillard's, Sally is a(n) ________ customer.
A) captive
B) loyal
C) unprofitable
D) repeat
E) intermediate
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46) Repeat customers differ from loyal customers in that repeat customers ________.
A) have a loyalty score between 70 and 100
B) have a high product preference score
C) are likely to recommend a company's product
D) are often simply "big spenders"
E) have low profit potential
47) Which of the following types of customers should be rewarded with special offers and services that
are not offered to other customers?
A) loyal customers
B) nonprofit customers
C) new customers
D) dissatisfied customers
E) repeat customers
48) A captive customer is most likely to ________.
A) have a low purchase amount
B) recommend a brand or company to others
C) have a weak product preference
D) have a high customer loyalty index
E) have a high desire to repurchase
49) Captive customers differ from unprofitable customers in that captive customers ________.
A) are the result of mismanaged customer selection
B) are simply "big spenders"
C) are a drain on a business's profits because the cost of acquiring them can never be recovered
D) have a low desire to repurchase but are unable to move easily to another company's product
E) produce a referral value that is over three times their customer lifetime value
50) Julio lives in Summit County, in Colorado. He has taken health insurance from Pro-Life Inc., a
health maintenance organization in Colorado that has a network of health care providers. Julio can visit
the health care providers in the Pro-Life Inc. network, and get services at much lower rates. Julio
regularly visits Dr. Amy Page, the best general physician in the Pro-Life Inc. network in Summit County
even though he is not satisfied with her services. When any his friend require medical services, Julio
does not recommend Dr. Amy Page to them. For Dr. Amy Page, Julio is a(n) ________ customer.
A) intermediate
B) loyal
C) captive
D) repeat
E) unprofitable
51) Which of the following is true of new customers?
A) They are usually the profit driver of a business.
B) They are a company's best customers.
C) They have no impact on the net marketing contribution.
D) They are less likely to recommend a company's product to others.
E) They generally buy more than retained customers.
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52) Which of the following types of customers generally have the lowest customer history?
A) new customers
B) captive customers
C) loyal customers
D) unprofitable customers
E) repeat customers
53) Which of the following is true of unprofitable customers?
A) They produce a referral value that is over three times their customer lifetime value.
B) They are loyal customers in waiting.
C) They buy a lot from many companies and do not have a strong preference for one over the other.
D) They have a low desire to repurchase but are unable to move easily to another company's product.
E) They are a result of mismanaged customer selection.
54) Customers for whom the offerings of the current business do not fit their needs are called ________.
A) misfits
B) spinners
C) captive customers
D) customer terrorists
E) underachievers
55) ________ are customers who buy because a product is being offered at an attractive price or with a
promotional incentive.
A) Top performers
B) Underachievers
C) High potential customers
D) Misfits
E) Spinners
56) Simmons Inc. is an American firm that manufactures and distributes a line luxury furniture under the
brand name Elegant Living. The firm measures the loyalty levels of its customers and classifies them
into the different groups based on their loyalty index. Which of the following customers are most likely
to be classified as spinners by Simmons Inc.?
A) Customers who have a loyalty score between 50 to 69.
B) Customers who purchase an Elegant Living furniture one time because of an attractive discount.
C) Customers who are first-time buyers.
D) Customers who are likely to recommend Elegant Living furniture to potential buyers.
E) Customers who buy a lot of Elegant Living products as well as products from other furniture brands.
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LINKING MARKETING AND CORPORATE STRATEGIES
1. Which statement describes the most significant difference between a business firm and a
nonprofit organization?
a. Business firms operate with larger budgets.
b. Not-for-profit organizations do not carry on economic activities and business firms do.
c. Not-for-profit organizations are publicly owned and business firms are not.
d. Both serve customers, but business firms seek a profit while not-for-profit organizations do
not.
e. All of the above are accurate statements.
2. Marketing activities tie into what organizational levels?
a. Corporate
b. Business unit
c. Functional
d. Departmental
e. All of the above
3. Which of the following represents an effective statement of a company’s business?
a. Toyota is in the automobile business.
b. Ben and Jerry’s is in the business of ice cream treats.
c. Nordstrom is a fashion apparel leader.
d. Medtronic is in the medical device business.
e. Medtronic is in the business of alleviating pain, restoring health, and extending life.
4. By understanding its business, an organization can take steps to define its __________, a
statement of the organization's scope. This statement often identifies its customers, markets,
products, technology, and values.
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a. benefit statement
b. business portfolio
c. functional philosophy
d. mission
e. corporate code
5. Which of the following statements about organizational goals is true?
a. The terms goal and objective can be used interchangeably.
b. In an organization, goals exist at the corporate, business, and functional levels.
c. All lower-level goals should contribute to the achievement of higher-level goals.
d. Goals convert an organization's mission into targeted levels of performance to be achieved.
e. All of the above statements accurately describe organizational goals.
6. Classic economic theory assumes a firm seeks to maximize its long-run __________, achieving
as high a financial return on its investment as possible.
a. profit
b. sales revenue
c. market share
d. quality
e. employee welfare
7. The ratio of the sales revenue of the firm to the total sales revenue of all firms in the industry,
including the firm itself, is known as:
a. sales quality.
b. market share.
c. industry potential.
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d. contribution margin.
e. marginal revenue.
8. Which of the following statements about a competitive advantage is true?
a. The only way to create a competitive advantage is by improving quality.
b. To be successful, a competitive advantage does not have to be unique.
c. An innovation can be a source of a competitive advantage.
d. A company must ignore costs when establishing a competitive advantage.
e. All of the above statements about quality as a competitive advantage are true.
9. Solarcom is a 25-year-old information technology company that owns several subsidiaries. One
of its subsidiaries is Atlantix Global Systems, which is one of the leading wholesalers for
refurbished computer equipment, an industry that is growing worldwide. According to the BCG
portfolio matrix, Atlantix Global would most likely be classified as a:
a. dog.
b. cash cow.
c. question mark.
d. star.
e. bonanza.
10. __________ are SBUs that typically generate large amounts of cash, far more than they can
invest profitably in their own product line.
a. Dogs
b. Cash cows
c. Question marks
d. Stars
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e. Bonanzas
11. __________ are SBUs with a low share of low-growth markets—they may generate enough
cash to sustain themselves, but they do not hold the promise of ever becoming real winners for
the firm.
a. Cash cows
b. Stars
c. Question marks
d. Dogs
e. Problem children
12. When a company invests more money into an SBU it is trying to __________ its share.
a. build
b. harvest
c. diversify
d. divest
e. hold
13. Which market-product strategy requires no change in the product line, but an increase in sales
to existing customers through innovative pricing, promotion, or distribution strategies?
a. Market development
b. Market penetration
c. Product development
d. Diversification
e. Product divestment
14. How could McDonalds’s engage in a market penetration strategy?
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a. By opening the first McDonald's in China
b. By developing a line of McDonald's toys to be sold through Toys R Us stores
c. By adding a line of new deli sandwiches to the menu of existing McDonald's stores
d. By running a promotion based on the Monopoly game, whereby customers have a chance
to win prizes with each purchase
e. By removing slow-moving products from its menus
15. Mall of America hopes to increase traffic in the shopping center by offering free lunches to
children in Mall restaurants on Tuesdays. This promotion is directed to families who currently
do not shop at the mall. This is an example of the implementation of a __________ strategy.
a. market penetration
b. market development
c. product development
d. diversification
e. market divestiture
16. Matsura Industries distributes candy and coffee through its vending machines in Tokyo. The
addition of sandwich vending machines to the same market is an example of a __________
strategy.
a. market penetration
b. market development
c. product development
d. diversification
e. divestment
17. Which market-product strategy requires a company to both develop new products and seek out
new markets?
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a. Market penetration
b. Market development
c. Product development
d. Diversification
e. Divestment
18. Which market-product strategies do NOT require product changes?
a. Market development and market penetration
b. Market development and diversification
c. Market penetration and product development
d. Diversification and market penetration
e. Diversification and product development
19. An effective technique a firm can use to appraise in detail its internal strengths and weaknesses
and external opportunities and threats is called:
a. SWOT analysis.
b. strategic management.
c. market segmentation.
d. market programming.
e. marginal analysis.
20. In the early months of 2002, strikes throughout Nigeria almost led to the country's financial
ruin. For a company trying to do business in Nigeria during those months, the strikes would be
an example of a(n):
a. strength.
b. weakness.
c. threat.
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d. opportunity.
e. challenge.
21. Xbox video game consoles were developed through a joint venture between Microsoft and the
WWF (World Wrestling Federation) and first marketed in the fall of 2001. Complaints about the
video game began immediately after its introduction. These complaints ranged from missing
parts to incorrect programming. This example suggests that the manufacturer of Xbox video
game consoles should adopt __________ goals.
a. profit
b. sales revenue
c. market share
d. quality
e. employee welfare
22. Pfizer Pharmaceuticals is offering low-income senior citizens some of its most widely used
prescriptions for $15 each a month—much below the regular costs for these drugs. This
program to better serve senior citizens likely grew out of a __________ goal.
a. profit
b. unit sales
c. sales revenue
d. market share
e. social responsibility
23. An example of a private organization that does not seek profit is:
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a. the Food and Drug Administration.
b. FedEx.
c. the Baltimore Ravens.
d. the Atlanta Symphony Orchestra.
e. all of the above.
24. For several years, advertisements for Arm & Hammer baking soda have prompted consumers to
place an opened box of the product in the refrigerator to lessen food odor and to replace that
box monthly. The same ads advise customers to pour the used box down their kitchen sinks to
freshen drains. Arm & Hammer employed a __________ strategy in its attempt to sell more
baking soda.
a. market penetration
b. market development
c. product development
d. diversification
e. product penetration
25. __________ would be used to group consumers for soda on the basis of whether they wanted
sugar-free and caffeine-free, caffeine-free but with sugar, or regular with sugar and caffeine.
a. Aggregation marketing
b. Market segmentation
c. Market clustering
d. Profiling
e. Mass marketing
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SCANNING THE MARKETING ENVIRONMENT
1. A marketing manager for United Way reads in a business journal that despite the Internet and
television, Americans are actively engaged in their communities. Fifty-four percent have
performed volunteer work and 78 percent have donated money to charities. She asks research
and development personnel to identify possible new ad campaigns that will encourage this high
level of community-connectedness to continue. This ad campaign change is the result of the
managerial activity called:
a. ecological/technological forecasting.
b. environmental scanning.
c. macroeconomic analysis.
d. strategic planning.
e. futuristic marketing.
2. You are the director of marketing for Littleton Hospital. You are doing an environmental scan
to help create a five-year marketing plan for the hospital. Which of the following
environmental trends should you consider the most important?
a. The number of people in your geographic area who are 50 years or older will increase by 23
percent during the next five years.
b. By the year 2007, baby boomers will control more than 50 percent of all consumer
expenditures.
c. The community has seen a rise in dual-income couples who bring with them larger
disposable incomes.
d. By the year 2010, robotics will play a major role in American society.
e. By 2005, Latinos will be the largest U.S. minority.
3. In the 1990s, the major geographical shift in the U.S. population was to:
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a. eastern urban areas.
b. the west coast.
c. western and Sun Belt states.
d. midwestern states.
e. the northeast seaboard.
4. In 2001, the number of people who attended music concerts, plays, and other live
entertainment declined significantly, because many people did not believe they had the
__________ income to enjoy such events.
a. gross
b. disposable
c. proprietary
d. discretionary
e. flexible
5. Cisco Systems, the computer networking equipment giant, uses its __________ to
communicate with its distributors, resellers, and customers.
a. intranet
b. partnering software
c. extranets
d. Internet servers
e. Web presence
6. Office Depot has developed wireless, handheld computers for its staff. When customers
inquire about a product, a computer equipped sales associate can pull detailed information on
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it right out of the corporate database. Employees at one store can contact employees at
another store for advice or information. This is an example of how __________ can be used to
enhance marketing.
a. intranets
b. partnering software
c. extranets
d. Internet servers
e. electronic data interchangeable browsers
7. Distribution (in the sense of shipping products) is particularly important to which form of
competition?
a. Cross-market competition
b. Pure competition
c. Oligopoly
d. Monopolistic competition
e. Monopoly
8. Since ___________ is regulated by the state or federal government, marketing plays a small
role in this setting.
a. pure competition
b. cross-market competition
c. an oligopoly
d. monopolistic competition
e. a monopoly
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9. In 1998, F. Hoffman-LaRoche Ltd. and BASF AG, two international pharmaceutical companies,
were ordered to pay $725 million in fines for plotting to raise and fix prices of vitamins used in
virtually every home in the U.S. This is an example of how __________ forces affect the
marketing environment.
a. economic
b. ecological
c. technological
d. social
e. regulatory
10. Which of the following trends describes the current U.S. environment?
a. There is a growing number of older Americans.
b. Per capita income in the U.S. has increased.
c. There is a growing focus in the U.S. on the Internet.
d. U.S. business is experiencing more international competition from emerging countries.
e. All of the above trends describe the current U.S. environment.
11. An ad on the back of a women's magazine for Cover Girl cosmetics shows Queen Latifah (an
African American) and Faith Hill (a Caucasian) endorsing its products as good for their skin. This
is an example of an ad with a __________ focus, because it shows product users of different
ethnic backgrounds.
a. cultural
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b. behavioral
c. occupational
d. demographic
e. psychographic
12. The Better Business Bureau:
a. is the best-known federal agency involved in monitoring self-regulation of competing
businesses.
b. has a great deal of legal power to force a company to comply with regulations.
c. is not involved with Internet commerce.
d. is a voluntary alliance of companies whose goal is to help maintain fair practices.
e. oversees the content of television shows and advertising that runs on those programs.
13. Some cereal manufacturers are selling cereals in plastic bags rather than cardboard boxes with
cellophane inserts. Cereal packed in bags requires less packing material than cereal packaged
in traditional boxes. This example reflects the use of:
a. green marketing.
b. the green initiative.
c. recycling.
d. pre-recycling.
e. precycling.
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PRODUCT LIFE CYCLE
31. Lack of profit in the introductory stage of the product life cycle is very often the result of:
a. insufficient allocation of resources to the marketing mix.
b. poor selection of distribution channels.
c. high taxes.
d. large investment costs in product development.
e. ineffective execution of the marketing program.
36. Opera.com introduced a new Web browser that can be easily customized to do what you want
it to do—such as suppress all pop-up ads and retrieve previously visited websites quickly.
Opera is spending a lot of money to make potential consumers aware of the existence of a Web
browser that can be customized. Sales have been slow to rise over the past year, and profit has
yet to be achieved. In what stage of the product life cycle is this product category?
a. growth stage
b. decline stage
c. commercialization stage
d. maturity stage
e. introduction stage
37. Which of the following is a characteristic of the growth stage of the product life cycle?
a. advertising emphasis switches to primary demand
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b. growing proportion of initial purchasers to repeat purchasers
c. slow, steady sales
d. competitors appear
e. pricing is more aggressive
38. The marketing objective of a firm whose product is in the maturity stage of the product life
cycle is to:
a. actively search out new first time users.
b. maintain existing buyers since new ones are hard to find.
c. actively reinforce competitors' marketing efforts.
d. maintain existing distributors and actively seek out new ones.
e. shift to a skimming price strategy.
39. In the 1960s, television westerns were extremely popular. The shows were adventure shows
with settings and costumes that were very unlike what really existed. There was Bonanza,
Wagon Train, The Virginian, Laramie, etc. When viewers gradually stopped watching this
category of programs, production companies found the networks no longer wanted to televise
such shows. The television western as a product category entered the __________ stage.
a. decay
b. decommercialization
c. decline
d. maturity
e. harvested
41. There is no exact time that a product takes to move through its life cycle. As a rule:
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a. fad products have the longest lifecycle.
b. consumer products have shorter life cycles than business products.
c. packaged goods have a shorter life cycle than fads.
d. installations have a shorter life cycle than consumer products.
e. intangibility shortens the product life cycle.
42. An alternative product life cycle that results from products that are easily imitated by
competitors, consumers who readily understand their benefits, and for which the appropriate
marketing strategy is to gain strong distributor outlets is characteristic of __________ products.
a. high learning
b. low learning
c. fashion
d. fad
e. substitute
54. Which of the following statements about the introduction stage of the product life cycle is true?
a. During the introduction stage, efforts are made to increase primary demand.
b. During the introduction stage, firms may choose a skimming pricing strategy.
c. During the introduction stage, firms may choose a penetration pricing strategy.
d. Generally the promotional message is to inform and educate the consumer.
e. All of the above statements about the introduction stage of the product life cycle are true.
55. Which stage in the product life cycle is characterized by a rapid increase in sales and the
23
appearance of competitors?
a. introduction
b. growth
c. maturity
d. decline
e. profit
56. Promotional expenses at the maturity stage of the product life cycle are often directed towards:
a. creating demand for the product class.
b. reminding the consumer to use the product.
c. creating primary demand.
d. gaining new distributors.
e. eliminating distribution channels.
57. An extended introduction stage of the product life cycle occurs for which type of product?
a. high learning
b. low learning
c. fashion
d. fad
e. revolutionary
58. Which type of product has experiences rapid sales on introduction and then an equally rapid
decline of the product life cycle?
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a. high learning products
b. low learning products
c. fashion products
d. fad products
e. abnormal products
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