University of Houston, Downtown

MBA 6208

Chapter 5 Creating Long-Term Loyalty Relationships

1)Which of the following is true for the modern company organization chart?

1. 1. Frontline employees are less important than top management.
   2. Customers are at the top of the pyramid.
   3. Top management is at the top of the pyramid.
   4. Customers are less important than middle management.
   5. Frontline employees are at the top of the pyramid.

2. In the modern customer-oriented organizational chart, which of the following is considered to be at the top of the organizational pyramid?
   1. sales
   2. top management
   3. front-line people
   4. customers
   5. middle management

3. In a modern customer-oriented organization chart, the                of an organization immediately follow the customer segment.
   1. top management
   2. marketing department
   3. middle management
   4. frontline people
   5. lower management

1. Perceived usefulness
2. Failure avoidance rate
3. Total customer benefit
4. Customer-perceived value
5. Competitors' market share rate

5. When a consumer considers a product or service, he or she will choose whichever product or service delivers the highest       .
   1. customer-perceived value
   2. customer-perceived cost
   3. customer profitability analysis
   4. customer equity
   5. customer lifetime value

6.                      is the perceived monetary value of the bundle of economic, functional, and psychological benefits customers expect from a given market offering.
   1. Total customer cost
   2. Total customer benefit
   3. Total benefits of ownership
   4. Value proposition
   5. Value delivery system

7. The bundle of costs customers expect to incur in evaluating, obtaining, using, and disposing of a market offering is called the      .
   1. activity-based cost
   2. customer profitability analysis
   3. total customer cost
   4. product life-cycle cost
   5. direct product profitability
8. Which of the following is true for customer-perceived value?

1. 1. It is the perceived monetary value of the bundle of economic, functional, and psychological benefits customers expect from a product.
   2. It is the difference between the prospective customer's evaluation of all the benefits and all the costs of an offering and the perceived alternatives.
   3. It is the perceived bundle of costs customers expect to incur in evaluating, obtaining, using, and disposing of the given market offering.
   4. It is the net present value of the stream of future profits expected over the customer's lifetime purchases.
   5. It is the process of investigating the hierarchy of attributes consumers examine in choosing a brand if they use phased decision strategies.

9. Which of the following is the first step in customer value analysis?
   1. Examine how customers in a specific segment rate the company's performance.
   2. Assess the company's and competitors' performances on the different customer values against their rated importance.
   3. Identify the major attributes and benefits that customers value.
   4. Monitor customer values over time.
   5. Assess the quantitative importance of the different attributes and benefits.

1. identify the major attributes and benefits that customers value
2. assess the company's and competitors' performances on the different customer values against their rated importance
3. examine how customers in a specific segment rate the company's performance
4. monitor customer values over time
5. assess the quantitative importance of the different attributes and benefits

11. Cell phone manufacturer LZT has to choose between two options for sourcing parts: Japan-based Keiko Inc. and US- based Global Tech. How can Keiko reduce the total customer cost for LZT?
    1. by absorbing some risk by offering a warranty
    2. by improving the functional aspects of the products
    3. by augmenting the psychological benefits of the products
    4. by training service personnel to improve their skills
    5. by investing in brand building for the products

12.                      can be defined as a deeply held commitment to rebuy or repatronize a preferred product or service in the future despite situational influences and marketing efforts having the potential to cause switching behavior.
    1. Value proposition
    2. Loyalty
    3. Satisfaction
    4. Respect
    5. Customer value

13. TBS Bikes has recently introduced a series of bikes called Surami. The core positioning of TBS Bikes is "speed." Surami is a five-gear bike, and apart from speed, the company promises to include other features such as safety, good performance, and pollution control features. This describes the     of the bike.
    1. total customer cost
    2. customer-perceived value
    3. value-delivery system
    4. value proposition
    5. total customer benefit

14. A company's                      includes all the experiences the customer will have on the way to obtaining and using the offering.
    1. value proposition
    2. value delivery system
    3. customer-value analysis
    4. total customer benefit
    5. total customer cost

15. Sammy's is a fast food chain that offers burgers, sandwiches, and shakes. It focuses its marketing efforts on all the experiences the customers will have on the way to obtaining their food order and eating it. Hence, Sammy's is focusing its marketing efforts on its system.
    1. horizontal marketing
    2. cost versus benefit
    3. consumption
    4. marketing channel
    5. value delivery

16. Total customer satisfaction is measured based on the relationship of               .
    1. expected value and total customer benefit
    2. perceived performance and expectation
    3. advertised outcomes and real outcomes
    4. past experience and present experience
    5. customer attitude and salesperson's attitude

17. Which of the following is true for customer satisfaction?
    1. Satisfaction is a deeply held commitment to rebuy or repatronize a preferred product despite situational influences.
    2. Consumers often form more favorable perceptions of a product with a brand that is new.
    3. The ultimate goal of a customer-centered firm is to create high customer satisfaction.
    4. Only increased customer satisfaction can help a company increase its profits.
    5. Greater customer satisfaction has also been linked to higher returns and lower risk in the stock market.

18.                      can track customer satisfaction directly, measure repurchase intention and also gauge a consumer's willingness to recommend the company and brand to others.
    1. Periodic surveys
    2. Mystery shoppers
    3. Customer loss rates
    4. Customer focus statements
    5. Sales summary reports

19. Field Grocery wants to learn the strengths and weaknesses in customer service at all the Field Grocery stores. Which of the following methods can it use for this?
    1. group buyers
    2. buyer brokers
    3. mystery shoppers
    4. personal shoppers
    5. buying agents

20. Of customers who register a complaint,                  .
    1. all will do business with the company again because they are unwilling to dedicate the effort required to find another vendor
    2. none will do business with the company again
    3. customers whose complaints are satisfactorily resolved are more likely to provide publicity than those who are dissatisfied
    4. the speed of resolution has no impact on the likelihood of repeat business
    5. some will do business with the company again if their complaint is resolved

21. Which of the following is the best method of recovering customer goodwill?
    1. sending service people to conduct door-to-door surveys
    2. contacting the complaining customer as quickly as possible
    3. identifying prospective customers from the customer database
    4. customizing products according to individual customer need
    5. defining and measuring the customer retention rate

22.                      is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs.
    1. Performance
    2. Value
    3. Quality
    4. Customer retention
    5. Customer loyalty

23. When two brands of the same basic product deliver their respective promised quality, they are delivering                                                                                                                                                                                                                                 .
    1. performance quality
    2. conformance quality
    3. unique quality
    4. accuracy quality
    5. customer support

24. Rade and Talion are competitors in the business of manufacturing wristwatches. While Rade promises to deliver design and quality to its customers, Talion promises to deliver durability and cost effectiveness. When both these companies deliver their respective promised qualities, they are delivering    .
    1. performance quality
    2. customer support
    3. unique quality
    4. accuracy quality
    5. conformance quality

25. Justin conducts a survey on behalf of his firm, Komatsu. In the survey, he asks prospects to rate Caterpillar and Komatsu branded tractors on their performance on attributes that are important to the customer. In which step in the customer value analysis is Justin engaged?
    1. Examine how customers in a specific segment rate the company's performance against a specific major competitor on an individual attribute or benefit basis.
    2. Assess the quantitative importance of the different attributes and benefits.
    3. Identify the major attributes and benefits customers value.
    4. Monitor customer values over time.
    5. Assess the company's and competitors' performances on the different customer values against their rated importance.

26. The Net Promoter Score is calculated by subtracting                    from                    .
    1. promoters; detractors
    2. detractors; promoters
    3. detractors; passively satisfied customers
    4. passively satisfied customers; detractors
    5. passively satisfied customers; promoters

27. Customer-perceived value is based on the difference between benefits the customer gets and costs he or she assumes for different choices.

28. One of the ways a company like Caterpillar could increase the customer-perceived value of an offer, relative to a competitor like Komatsu, is to increase the total customer benefit by improving psychological benefits of its product, services, people, and/or image.

29. Total customer cost consists of only the non-monetary costs in evaluating, obtaining, using, and disposing of the given market offering.

30. Customer-perceived value is the perceived monetary value of all the purchases a customer makes on an annual basis.

31. A seller who is at a disadvantage has two alternatives: decrease total customer benefit or increase total customer cost.

32. The value proposition is stated in the price of a product and readily recognized by the average consumer.

33. The value delivery system includes all the experiences the customer will have on the way to obtaining and using the offering.

34. The value proposition is also known as the core positioning of the offering.

35. Loyalty is a person's feelings of pleasure or disappointment that result from comparing a product's perceived performance to expectations.

36. Customer satisfaction is the only way by which a firm can increase its profitability.

37. Consumers' expectations result exclusively from past buying experiences.

38. The best thing a company can do in the face of company mistakes is to discourage the customer from complaining.

39. Quality is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs.

40. Conformance quality and performance quality are identical in the marketing sense.

41. Two products with very different performance qualities can have the same conformance quality if both products deliver their respective promised quality.

52.                      lines up customers along columns and products along rows to show the profitability of selling a product to a customer.
    1. Mystery shopping
    2. Activity-based costing (ABC)
    3. Customer profitability analysis (CPA)
    4. Customer lifetime value (CLV)
    5. American Customer Satisfaction Index (ACSI)

53. Cable TV operators and cellular carriers suffer from high levels of                   , or customer defections.
    1. customer retention
    2. customer churn
    3. detraction
    4. share-of-wallet
    5. customer complaints

54. The 80-20 rule reflects the idea that                  .
    1. 20 percent of the company's profits are generated by the top 80 percent of customers
    2. the top 20 percent of customers are highly satisfied and 80 percent of customers will recommend the company to a friend
    3. 20 percent of customers are unprofitable, and 80 percent make up a company's profits
    4. the top 20 percent of customers often generate 80 percent of the company's profits
    5. any new product will be accepted by 20 percent of the customers immediately, but 80 percent of the customers will be up for grabs throughout the product's life cycle

55. A profitable customer yields a                    .
    1. cost stream that exceeds by an acceptable amount his revenue stream
    2. revenue stream that exceeds the company's cost stream
    3. cost stream that exceeds the company's revenue stream
    4. revenue stream that exceeds by an acceptable amount his cost stream
    5. revenue stream that equals the company's cost stream

56. A                      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.
    1. prospector
    2. profitable customer
    3. market challenger
    4. market nicher
    5. pioneer customer

57. Customer profitability analysis (CPA) is best conducted with the tools of an accounting technique called                .
    1. input-output analysis
    2. factor analysis
    3. revenue-based costing
    4. activity-based costing
    5. future date costing

58. Which of the following is true for activity-based costing (ABC)?
    1. ABC considers the real costs associated with each product.
    2. With ABC, the company can estimate all costs coming from the customer, less revenue.
    3. The tools of ABC can be used to conduct customer profitability analysis.
    4. It identifies the costs of products and services based on the revenue they generate.
    5. ABC allocates indirect costs in proportion to direct costs.

59.                      describes the net present value of the stream of future profits expected over the customer's lifetime purchases.
    1. Activity-based costing
    2. Customer lifetime value
    3. Customer value analysis
    4. Customer-perceived value
    5. Customer profitability analysis

60. 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.

61. A customer's profitability is judged on the basis of the lifetime stream of revenue and cost, not the profit from a particular transaction.

62. Unprofitable customers who defect to a competitor should be encouraged to do so.

63. Customer profitability analysis is best conducted with the tools of an accounting technique called activity-based costing.

64. Activity-based costing tries to identify the real costs associated with serving each customer.

65. Activity-based costing does not consider indirect, variable, and overhead costs.

66. Customer lifetime value describes the net present value of the stream of future profits expected over the customer's lifetime purchases.

68. A customer                     is any occasion on which a customer encounters the brand and product — from actual experience to personal or mass communications to casual observation.
    1. touch point
    2. point of order
    3. point of difference
    4. pivot point
    5. point of parity

69. A customer touch point for Abacus Airlines would be an item such as                   .
    1. ease of access to the airport
    2. a mechanic's ability to service the airplanes
    3. the reservations desk
    4. the value of air travel versus surface transportation
    5. competency of a travel agent

70. Rachel and Josh are on vacation in Hawaii. When they arrived at the hotel, they were offered chilled juice. Their check-in formalities were handled by the staff. When they entered their room, they saw that chocolates had been placed on

the pillows and a flower arrangement on the table. These are examples of customer            .

1. 1. lifetime value
   2. perceived value
   3. value analysis
   4. profitability analysis
   5. touch points

71. Which of the following is NOT a way to make online brand communities more effective?
    1. set appointed times for topic discussion
    2. keep the focus on the topic
    3. make it easy for users to express themselves
    4. launch contests
    5. set limits on length of responses

72. Another term for high customer                   is customer churn.
    1. retention
    2. defection
    3. value
    4. perception
    5. belief

73. Which of the following can a company do to reduce defection?
    1. Attract new customers to try out the company's products.
    2. Increase customer lifetime value by increasing the non-monetary costs of products.
    3. Enhance the growth potential of existing customers through cross-selling and upselling.
    4. Distinguish the causes of customer attrition and identify those that can be managed better.
    5. Make low-profit customers more profitable or terminate the relationship.

The Marketing Funnel (Scenario)

Amy and Jack were loyal customers of GreenFoods, a local grocery store. However, after a couple of incidents where they had to return products that were stale and out of date, the couple decided to try out VeggiesNmore, a chain store that recently opened in town. Both Amy and Jack must move through each stage in the marketing funnel before becoming loyal customers.

74. Jack has shopped at VeggiesNmore. He was happy with the experience and thought that this could be an alternative to GreenFoods. However, he is also eager to try out other stores in the neighborhood. He is in the        stage of the marketing funnel as far as shopping at VeggiesNmore is concerned.
    1. aware
    2. open to trial
    3. most often used
    4. nonrejecter
    5. regular user Answer: D

75. Amy is in the "aware" stage of the marketing funnel when she says                .
    1. she can try shopping at VeggiesNmore while simultaneously exploring other stores in the neighborhood
    2. she was informed about VeggiesNmore by her colleague at work
    3. she regularly shops at VeggiesNmore
    4. she shops at VeggiesNmore because the store is easily accessible
    5. she was happy with the experience of shopping at VeggiesNmore

76. Satisfied customers constitute the company's                .
    1. customer relationship capital
    2. customer churn
    3. target audience
    4. high-value customers
    5. customer touch points

77. Sapphire Toys actually sells more than toys. It also sells branded clothing, music CDs, and books for children. This expansion of dealership sales offerings is an attempt to increase the value of the customer base by   .
    1. reducing the rate of customer defection
    2. increasing the longevity of the customer relationship
    3. enhancing the growth potential of each customer through cross-selling
    4. making low-profit customers more profitable
    5. terminating low-profit customers

78. LifeTime Insurance screens its customers and tries to get unprofitable customers to buy services from competitors. This is an example of          .
    1. trying to increase the retention rate for low-profit customers
    2. terminating the relationship with low-profit customers
    3. enhancing the growth potential of each customer through up-selling
    4. increasing the longevity of the customer relationship
    5. reducing the rate of customer defection

79. Many banks and phone companies now charge fees for once-free services to ensure minimum customer revenue levels. This helps banks to    .
    1. reduce the rate of customer defection
    2. make low-profit customers more profitable
    3. enhance the growth potential for each customer through cross-selling
    4. increase the longevity of the customer relationship
    5. focus disproportionate effort on high-value customers

80. Which of the following is an example of focusing disproportionate effort on high-profit customers?
    1. In addition to bicycles, 2Wheels sells biking gear such as helmets, bottles, jackets and other accessories.
    2. 2Wheels has a club for its regular customers, organizing cycling events and parties for them.
    3. Though 2Wheels previously offered free delivery, it now charges for deliveries made outside the city.
    4. 2Wheels allows existing customers to upgrade to a newer model at less than the sticker price by trading in their older model.
    5. 2Wheels encourages customers to send in their suggestions for product improvement.

81. Which of the following is an example of enhancing the growth potential of each customer through cross-selling?
    1. In addition to bicycles, 2Wheels stocks biking gear such as helmets, bottles, jackets and other accessories.
    2. 2Wheels has a club for its regular customers, organizing cycling events and parties for them.
    3. Though 2Wheels previously offered free delivery, it now charges for deliveries made outside the city.
    4. 2Wheels allows existing customers to upgrade to a newer model at less than the sticker price by trading in their older model.
    5. 2Wheels encourages customers to send in their suggestions for product improvement.

82. Which of the following is a policy a store can adopt to make low-profit customers more profitable?
    1. 2Wheels sends birthday greetings to its best customers and gives them discounts on merchandise.
    2. 2Wheels has a club for its regular customers, organizing cycling events and parties for them.
    3. Though 2Wheels previously offered free delivery, it now charges for deliveries made outside the city.
    4. 2Wheels allows existing customers to upgrade to a newer model at less than the sticker price by trading in their older model.
    5. 2Wheels encourages customers to send in their suggestions for product improvement.

83. Companies provide rewards to customers who buy often and in substantial amounts. These reward schemes are referred to as        programs.
    1. benefit
    2. frequency
    3. satisfaction
    4. profitability
    5. quality

84. Which of the following gains the most benefit from introducing a frequency program?
    1. the first company to introduce a frequency program in an industry
    2. the fast follower, the second to introduce a program in an industry
    3. the industry sales leader
    4. the niche player in the industry
    5. the low-cost leader in the industry

85. Club membership programs that are open to everyone who purchases a product or service            .
    1. are more powerful long-term loyalty builders than limited-membership clubs
    2. will not help a company attract customers from competitors
    3. prevent those with only a fleeting interest in a company's products from joining
    4. are useful for building a database of customers but are not very good as long-term loyalty builders
    5. are useless unless there are fees and membership conditions