MBA 6140 Quiz 2
1.
T7: What does the Toolkit suggests?P96
i. There's no such thing as a bad customer.
ii. Small gains in customer retention often produce substantial improvements in
profitability.
iii. Executives tend to dwell too much on the cost of retaining customers and not enough
on the cost of acquiring customers.
iv. Typically, businesses earn more if they concentrate on one customer need and do not
try to satisfy multiple needs.
2.
T7: What does the Toolbox suggest about trying to make unprofitable customers profitable by reducing
the cost of serving them?P95
i. Sometimes, it works; therefore, it's worth considering.
ii. To date, only credit card companies have been able to do it successfully.
iii. Although it seems reasonable at first glance, it never works.
iv. Unprofitable customers cannot be made profitable by tinkering around with costs;
making them profitable requires enhancing customer surplus.
3.
T7: According to the Toolbox, what is true of expanding share of wallet?P95
i. It is customer development.
ii. It entails increasing the volume of profitable business with customers.
iii. It may entail adding new products or services.
iv. All of the above.
4.
N4: Refer to "Loyalty Based Management." How does customer loyalty improve profitability?P2
i. through repeat purchases
ii. through referrals
iii. by reducing new customer acquisition costs
iv. All of the above
[1) revenue grows as a result of repeat purchases and referrals, (2) costs decline as a result of lower acquisition
expenses and from the efficiencies of serving experienced customers, and (3) employee retention increases
because job pride and satisfaction increase, in turn creating a loop that reinforces customer loyalty and further
reducing costs as hiring and training costs shrink and productivity rises.]
5.
N4: According to "Loyalty Based Management," companies should use which means to create loyal
customers?P1-2
i. price promotions
ii. free samples
iii. All of the above
iv. None of the above
[Creating customer value – not maximizing profits and shareholder value – at the center of business strategy, and
it demands redefining target customers, revising employment policies, and redesigning incentives.]
6.
N4: Regarding "Loyalty-Based Management," the author suggests that P2
i. all companies should aim for customer loyalty rates of no less than 90%
ii. loyal employees help create loyal customers
iii. All of the above
iv. None of the above
7.
N4: According to "Why Satisfied Customers Defect," companies that excel at satisfying customers tend to
have superior P4
i. re-engineering processes
ii. marketing research capabilities
iii. product design capabilities
iv. recovery processes
[Basic support services such as customer assistance or order tracking that make the product or service
incrementally more effective and easier to use; a recovery process for counteracting bad experiences; and
extraordinary services that so excel in meeting customers' personal preferences, in appealing to their values, or in
solving their particular problems that they make the product or service seem customized.]
8.
N4: According to "Why Satisfied Customers Defect," common customer satisfaction surveys are highly
effective tools for diagnosing why customers defect and what should be done to improve retention. P4-5
i. True
ii. False
[Satisfaction surveys alone will not enable a company to fend off new competitors or to keep products and services
attuned to customers' changing needs.]
9.
N4: The authors of "Why Satisfied Customers Defect" refer to customers who are dependent on
monopolies that serve them poorly as P7
i. mercenaries
ii. slaves
iii. hostages
iv. victims
10. N4: According to "Why Satisfied Customers Defect," P4
i. customer retention rates can be improved most readily by fixing whatever irritates the
least-satisfied customers
ii. when satisfaction ratings are fairly high, working on making them better usually is
overkill
iii. All of the above
iv. None of the above
11. N4: According to "Why Satisfied Customers Defect," P4
i. companies seldom should try to please all potential customers
ii. chronically unhappy customers often drain resources
iii. chronically unhappy customers often are sources of unfavorable word-of-mouth
advertising
iv. All of the above
12. N4: According to "Why Satisfied Customers Defect," loyalists also tend to be P6-7
i. hostages
ii. mercenaries
iii. apostles
iv. None of the above
13. N4: According to "Learning from Customer Defections," the quest for so called best practices has
contributed more to the creation of customer and shareholder value than most experts had predicted. P89
i. True
ii. False
[Academics, consultants, and executives scour the globe for approaches that have led to big profits in one situation
so they can apply them in others. Yet this quest for best practice has created much less value than one might
expect, and the people who study systems can tell us why: When a system is working well, its success rests on a
long chain of subtle interactions, and it's not easy to determine which links in the chain are most important. Even if
the critical links were identifiable, their relative importance would shift as the world around the system changed]
14. N4: According to "Learning from Customer Defections," companies usually can learn more from analyzing
successes than failures. P8
i. True
ii. False
15. N4: "Learning from Customer Defections" suggests customer defections should be measured in terms of
P10
i. number of customers lost
ii. percentage of wallet share lost
iii. All of the above
iv. None of the above
16. N4: According to "Learning from Customer Defections," the "five why's" P10
i. are five specific diagnostic questions that executives inquiring into customer defections
should ask defectors.
ii. refers to the notion that one must ask at lest five successive "why" questions to get at
the root cause of failure.
iii. None of the above
17. N4: According to "Learning from Customer Defections," P8
i. many companies are not alarmed by customer defections
ii. many executives are reluctant to analyze customer defections because results may
make them look bad
iii. it usually is not easy to discover the real reasons for customer defections
iv. All of the above
18. N4: According to "Learning from Customer Defections," inquiries into customer defections are most
effective when they are conducted by P10
i. proficient marketing researchers
ii. senior managers
iii. customer service personnel
iv. accountants
19. Gupta and Lehmann's key premises include: P2,3
i. It is better to be vaguely right that precisely wrong.
ii. Long-run shareholder wealth is the reward for creating customer value
iii. All of the above
iv. None of the above
20. Gupta and Lehmann maintain that P6-8
i. the value of the firm is approximately equal to the value of the customer base
ii. focusing on the value of a customer affords a means of assessing the value of the firm
and the true value of its shares
iii. All of the above
iv. None of the above
21. What is true of customer lifetime value (CLV)? P15,26
i. It is the present value of all current and future profits generated from a customer over
the life of that customer's business with the firm.
ii. For most managerial decision making, rough CLV approximations are sufficient.
iii. All of the above
iv. None of the above
22. To calculate CLV, we need to know P15
i. customers' profit patterns
ii. customers' defection rates
iii. All of the above
iv. None of the above
23. Frederick Reichheld made several generalizations about the profitability of long-term customers in
relation to the profitability of new customers. What is Gupta and Lehmann's position?P27-28
i. Gupta and Lehmann's research supports Reichheld's generalizations; therefore, they
agree fully with Reichheld.
ii. Gupta and Lehmenn note that research casts doubt on most, if not all, of Reichheld's
generalizations.
iii. Gupta and Lehmann agree that available research fully supports the generalization that
loyal customers are much less expensive to serve and are much more profitable than
new customers.
iv. Gupta and Lehmann agree that with few, if any, exceptions loyal customers are more
profitable than new customers, but not because they are less expensive to serve.
24. What do Gupta and Lehmann say about defection rates (i.e., switching to another brand or vendor)?P31
i. Customer defection rates tend to decrease the longer customers buy from a particular
company because, the more time goes by, the more customers who are prone to defect
will have defected.
ii. Customer defection rates tend to increase with time because the need for trying
something new intensifies over time.
iii. Research has shown that customer defection rates decrease over time only when high
switching costs prevail.
iv. None of the above
25. The positive effect of the margin growth rate increases substantially as the customer retention rate
increases. P34
i. True
ii. False
26. Customers who highly value a firm's offering, but are unprofitable, are called P46
i. leeches
ii. parasites
iii. free riders
iv. opportunists
27. Gupta and Lehmann suggest that a good marketing person, unlike a good sales person, 13,48
i. understands logistics and its importance in the value chain
ii. knows when to walk away from a sale
iii. is always in relation ship mode rather than transaction mode
iv. subscribes fully to the maxim, The customer is always right!
28. Surprisingly, price discounts of high-quality products seem to increase loyalty rates (i.e., repeat
purchasing) by at least 10% e.g., from 80% to 90%. P52
i. True
ii. False
[If customers are satisfied they are less likely to affected by price discounts]
29. Regarding CDNow, Gupta and Lehmann's analysis suggests P60
i. CDNow's stock price is undervalued
ii. given CDNow's customer acquisition cost and retention rate, CDNow will almost surely
earn at least $10 million by the end of 2005
iii. over its lifetime, CDNow will surely be more profitable than Gerald Stevens, the flower
company
iv. None of the above
30. Gupta and Lehmann concluded that, while outsourcing certain manufacturing and service jobs to India
makes good economic sense, P62-63
i. entering the Indian market as seller of goods or services to the Indian population does
not yet make sense because India's per capita income is too low to absorb acquisition
and retention costs
ii. entering the Indian market as seller of goods or services to the Indian population does
not yet make sense because India's middle and upper class is still too small to absorb
acquisition and retention costs
iii. All of the above
iv. None of the above
[Makes since sense there are a lot of low income families and the marketing analyzes is good for the example it
would be a good idea]
31. What seems true of churn in the cable television industry?P67
i. It decreases with the frequency of industry price promotion.
ii. It tends to be lower for customers who subscribe to multiple services.
iii. So far, the industry has been unable to identify and factors that appears to affect churn.
iv. None of the above
32. What did Gupta and Lehmann conclude about cross-selling?P70
i. It's easier said than done.
ii. Don't try to cross-sell vastly different products and services, such as groceries and
banking.
iii. Generally, customers value one-stop shopping more than variety rock-bottom prices
iv. None of the above
33. Cross-selling is apt to be difficult when P70
i. customers are skeptical of the mix (e.g., watches and wedding rings)
ii. the firm lacks competence in the making and/or marketing the components of a diverse
offering
iii. All of the above
iv. None of the above
[Products have little synergy in production/image match, and company competence or lack thereof because of the
different skills needed to produce and deliver]
34. Provided that the retention rates do not change, what long-run prediction can we make about two
companies when Company A has a 90% retention rate and a 90% market share while Company B has an
80% retention rater and a 10% market share?P74
i. Company A will continue to gain market share at the expense of Company B until it has
nearly a 100% share
ii. Both companies will eventually stabilize with 50% market shares
iii. Company A's market share will shrink to approximately 66.7%
iv. None of the above
[Starting market share doesn’t matter in the long run] Ma*ra+Mb*db = Ma, Ma= long run market share of brand A,
ra = retention rate of brand A, Mb= long run market share of brand B, db= rate of brand B customers defecting to
brand A.
35. Retention elasticity is defined as P75-76
i. the percentage change in profits induced by a one percent change in retention
ii. 1 + Margin Multiple
iii. All of the above
iv. None of the above