Eastern Michigan University

MKT 510A

Chapter 4 -Creating Customer Value and Customer Relationship

True/ Questions

1)The task of any business is to deliver customer value at a profit.

2. Companies that subscribe to the traditional view of marketing have the bets chance of succeeding in markets where the consumer faces abundant choice.

3. According to the value chain, every firm is a synthesis of activities performed to design, produce, market, deliver, support, and recycle its products.

4. 4. The core business process called market sensing consists of all activities involved in gathering marketing intelligence, disseminating it within the firm, and acting on it.

5. The question “How can a company use its capabilities to deliver value offerings more efficiently?” is part of the Value Creation portion of the Holistic Marketing Framework.

6. Customer perceived value is defined as the difference between the prospective customer’s evaluation of all the benefits of an offering and the perceived alternatives.

7. Product value, service value, and image value are all determinants of total customer cost.

8. Business and organizational customers always choose the highest delivered value when making an industrial product purchase.

9. Loyalty is defined as a deeply held commitment to re-buy or re-patronize a preferred product or service in the future, even in the face of situational or marketing influences with the potential to cause switching behavior.

10. Experts have defined quality in different ways.

11. A product can have conformance quality without having performance quality.

12. The 20-80-30 rule suggests that a company makes 80 percent of its profit from just 20 percent of its customers, about 30 percent of the time.

13. Figuring out your average customer lifetime value is one step toward understanding long-term customer profitability.

14. The more loyal the customers, the higher the customer equity.

15. Brand equity is the customer’s tendency to stick with the brand, above and beyond the objective and subjective assessment of its worth.

16. Developing one-to-one marketing through a CRM program might include not pursuing all customers.

17. According to some marketing experts, it is no longer enough to produce satisfied customers.

18. About 60 percent of dissatisfied customers don’t complain.

19. The customer development process begins with first-time customers.

20. The highest level of investment in customer relationship building is called partnership marketing.

21. The first step to reducing customer defection is to distinguish the causes of customer irritation and identify those that can be managed better.

22. American Airlines pioneered frequent flier programs to get more loyalty from its customers. Frequency marketing is an acknowledgement that a minority of customers provides a majority of profits.

23. Database marketing is the process of building, maintaining, and using a customer mailing list.

24. Data warehousing involves the use of sophisticated statistical and mathematical techniques to extract meaning from large customer data sets.

25. One problem with CRM programs is that not all customers want a “relationship” with the marketer.

Multiple Choice Questions

26. The traditional view of marketing is that a firm makes something and then sells it. In this view, marketing takes place in the second half of the process. Companies that subscribe to this view have the best chance of succeeding                                                                                                 .

1. in highly competitive markets
2. in economies marked by goods shortages where customers are not fussy about quality
3. where consumers have plenty of choices of high quality and competitively-priced goods
4. against competitors who carefully define their target markets and position their offerings accordingly

5. in a marketplace where many micro niche products are available

27. The value delivery model of marketing focuses on which of the following?

1. Making and selling products.
2. Having and holding customers.
3. Finding and communicating with the customer.
4. Placing marketing at the beginning of the process.
5. Serving the profitable mass market.

28. In the value creation and delivery system, the first phase involves “choosing the value.” In this strategic marketing process, the firm must do the marketing homework of

                           .

1. segmenting the market, targeting a customer group, and positioning the offering
2. understanding the customer through market research
3. providing the proper product mix to the relevant retailers
4. measuring success or failure and feeding that knowledge back to the planners
5. setting a price that provides the proper perceived value to the final consumer

29. In the Value Creation and Delivery Sequence, tactical marketing follows strategic marketing, and includes all of the following EXCEPT:

1. product development.
2. sales promotion.
3. value positioning.
4. advertising.
5. sourcing and making.

30. In the traditional process of value creation, making the product precedes selling the product, and includes all of the following EXCEPT:

1. product design.
2. procurement of inputs to make the product.
3. procurement of resources to make the product.
4. actually making the product.
5. distribution of the product.

31. The third task in the Value Creation and Delivery Sequence is called

                           . It involves utilizing the sales force, advertising, sales promotion, and other tools to announce and promote the product.

1. choosing the value
2. communicating the value
3. entering the consumer’s zone
4. doing the homework
5. providing the value

32. Within the five core business processes identified,                                  involves researching, developing, and launching high-quality offerings quickly and within budget.

1. the market sensing process
2. the new offering realization process
3. the customer acquisition process
4. the customer relationship management process
5. the best in class practices

33. Within the five core business processes identified,                                  involves receiving and approving orders, shipping goods on time, and collecting payments.

1. the market sensing process
2. the new offering realization process
3. the customer benchmarking process
4. the customer relationship management process
5. the fulfillment management process

34. The                              involves nine strategically relevant activities that create value and cost for the organization.

1. Core Business Process
2. Value Creation and Delivery Sequence
3. Generic Value Chain
4. Traditional Marketing Model
5. Guide for Strategic Thinking

35. Which of the following is NOT considered a support activity in Porter’s Value Chain?

1. Firm infrastructure.
2. Human resource management.
3. Procurement.
4. Technology development.
5. Outbound logistics.

36. Which of the following is NOT considered a primary activity in Porter’s Value Chain?

1. Inbound logistics.
2. Service.
3. Marketing.
4. Human resource management.
5. Operations.

37.                             integrates the value exploration, value creation, and value delivery activities with the purpose of building long-term, mutually satisfying relationships and co-prosperity among key stakeholders.

1. Holistic marketing
2. A distinctive capability
3. A core competency
4. Outsourcing

5. The Value Chain

38.                             is the difference between the prospective customer’s evaluation of all the benefits and costs of an offering and the perceived alternatives.

1. Total customer cost
2. Customer perceived value
3. Customer delivered value
4. Customer relationship management
5. Total customer value

39. Which of the following is not a component part of total customer value?

1. Product value.
2. Services value.
3. Psychic value.
4. Personnel value.
5. Image value.

40. About a year ago, Echo began renting her movies from Netflix. She perceived Netflix to be a better source because of the enhanced selection, the responsive customer service emails she has received in answer to her online queries, better pricing, and less effort compared to renting from the store in her town. Netflix has offered Echo better

                            than the local competition.

1. total customer cost
2. customer perceived value
3. customer delivered value
4. total customer value
5. customer relationship management

41. Lowe’s home improvement stores strive to have nicer, more knowledgeable salespeople, a better product selection, and to maintain an impeccable image. These are all part of improving the offer via            .

1. reducing the buyer’s nonmonetary costs
2. living up to the Lowe’s pledge
3. reducing the product’s monetary costs to the buyer
4. increasing the service value
5. increasing total customer value

42. The                              includes all the experiences the customer will have on the way to obtaining and using the marketing offering.

1. value proposition
2. value-delivery system
3. psychic cost
4. rational buying process
5. customer proclivity to purchase

43. Buyers of Harley-Davidson motorcycles are promised more than just a vehicle, they also are assured that the motorcycles will work well, and maintain good re-sale value. Additionally, the Harley-Davidson brand represents “freedom” to many customers and potential customers. This latter idea is related to Harley’s                                                                                                                          .

1. warranty
2. brand promise
3. core positioning
4. guarantee of complete satisfaction
5. value proposition

44. Which of the following is true?

1. If marketers raise expectations too high, it won’t attract enough customers.
2. If the company sets expectations too low, the buyer is likely to be disappointed.
3. If the company sets expectations too low, exceeding buyer expectations becomes difficult.
4. If marketers raise expectations too high, the buyer is likely to be disappointed.
5. If marketers raise expectations too high, they will soon have many copycat offerings competing in the marketplace.

45. What are highly satisfied customers NOT likely to do?

1. Stay loyal longer.
2. Talk favorably about the brand.
3. Be less price sensitive.
4. Upgrade their service.
5. Cost a bit more to serve.

46. Which is NOT a difficulty of measuring customer satisfaction?

1. Measurement tools are not sophisticated enough to measure satisfaction reliably.

2. Customers may report some level of satisfaction for very different reasons.
3. Different customers may define the term “satisfied” in very different ways.
4. Completely satisfied could mean the same as very satisfied.
5. Customer satisfaction may be strongly related to loyalty—but not always.

47. Communication of customer satisfaction results should be done internally (inside the company or organization) for which of the following reasons?

1. Communicating satisfaction findings externally would have little marketing value.
2. You should not communicate satisfaction findings internally for ethical reasons.
3. To highlight good news and act on bad news.
4. To satisfy upper management that all is going well.
5. More than one of the above reasons is a correct reason for communicating satisfaction results internally.

48. Which of the following is NOT true, when speaking of quality?

1. Higher quality supports higher prices.
2. Quality that raises customer satisfaction is generally related to higher profits.
3. High quality can lower costs.
4. Total Quality Management is an organization-wide program stressing continuous improvement.
5. There is no correlation between relative product quality and company profitability.

49. Marketers play all of the following roles in helping their companies define and deliver high-quality goods and services to target customers, EXCEPT:

1. providing customer data to marketers with non-competing offers.
2. correctly identifying customer needs.
3. correctly filling customer orders.
4. ensuring customer satisfaction.
5. communicating customer needs to designers.

50. Which of the following is of the customers?

1. You should never “fire” your worst customers.
2. The best hotel/motel customers outspend others by a ratio of 5 to 1.
3. For every 20 customers, a company will make 80 percent more profit.
4. The number of unprofitable customers is equal to the number of profitable ones.
5. The best customers outspend others by a ratio of 5 to 1 in retailing.

51. What are the two solutions to unprofitable customers?

1. Lower fees; reduce service.
2. Lower fees; increase service.
3. Raise fees; increase service.
4. Raise fees; reduce service.
5. There is only one solution to unprofitable customers—fire them!

52.                             is best conducted with the tools of an accounting technique called

                           .

1. Activity-based costing; LIFO inventory management
2. Serving unprofitable customers; customer profitability analysis
3. Sensitivity analysis; activity-based costing
4. LIFO inventory management; the Poisson distribution
5. Customer profitability analysis; activity-based costing

53. Taco Bell estimates that a loyal customer might be worth $11,000 to the

company. This number stems from something called                                  .

1. (NPV)*(ROI)
2. customer lifetime value
3. the competitive present value of loyalty model (CPVLM)
4. repeat purchase analysis
5. brand equity

54. The more loyal the customers, the higher the customer equity. Which of the following is NOT a driver of customer equity?

1. Brand equity.
2. Relationship equity.
3. Lifetime equity.
4. Value equity.
5. All of the above are drivers of customer equity.

55.                             is the customer’s objective assessment of the utility of an offering based on perceptions of its benefits relative to its costs.

1. Add-on selling equity
2. Brand equity
3. Acquisition equity
4. Value equity
5. Relationship equity

56. When Ping An insurance fields a call from a new or existing customer, the salespeople will often suggest additional services to meet the needs of the customer. This is related to which component of customer equity?

1. Acquisition.
2. Value equity.
3. Retention.
4. Relationship equity.
5. Add-on selling.

57. Omar Moreno’s restaurant has a very different type of customer, depending on time of day and time of year. Omar is looking to re-vamp the menus to make more profit. What is probably the most important first customer relationship management step he can take toward his goal?

1. Identify his prospects and customers.
2. Differentiate customers by need.
3. Differentiate customers by their value to the restaurant.
4. Interact with individual customers to improve your knowledge about their needs and to build stronger relationships.
5. Customize products, services, and messages for each customer.

58. Attracting, retaining, and growing customers is more difficult these days, for all of the following reasons EXCEPT:

1. customers are smarter.
2. customers are more demanding.
3. customers are less forgiving.
4. customers are approached by fewer and fewer competitive offers.
5. it is no longer enough to “produce” satisfied customers.

59. Fidelity Investments puts through certain customers’ calls more quickly than others as a strategy for improving the value of the company’s customer base. While on the phone, the longer-waiting customers hear messages encouraging them to complete their transactions via the company Web site. This is an example of which kind of strategy?

1. Reducing customer defection rate.
2. Increasing the longevity of the customer relationship.
3. Enhancing the potential growth potential of each customer.
4. Managing phone queues via illegal and discriminatory practices.
5. Making low-profit customers more profitable.

60. Verizon loses about one-fourth of its customers a year to competitors. Verizon’s competitors suffer similar customer losses. What is this phenomenon called?

1. Customer churn.
2. The burnout rate.
3. Sperm-to-worm conversion.
4. The return phenomenon (TRP).
5. Net loss analysis.

61. Which of the following is NOT part of either of the two main ways to strengthen customer retention?

1. Make switching involve high search costs.
2. Deliver high customer satisfaction.
3. Make leavers forfeit all future customer opportunities.
4. Make leavers lose their loyal-customer discounts or other privileges.
5. Make leaving expensive financially.

62. Which is in the customer-development process?

1. A disqualified prospect is the same as an inactive customer.
2. The ultimate customer is the one termed the “repeat” customer.
3. Some partners go on to become members.
4. Advocates are the same as clients.
5. A client becomes a member by joining a program that offers benefits.

63. Which is in the customer-development process?

1. The two types of pre-customers are called suspects and prospects.
2. The ultimate customer is the one termed the “repeat” customer.
3. Some partners go on to become members.
4. First-time customers may convert to prospects.
5. The best customers never convert to inactive or ex-customers.

64. Which is NOT one of the five levels of investment in customer relationship building?

1. Basic marketing.
2. Retroactive marketing.
3. Accountable marketing.
4. Proactive marketing.
5. Partnership marketing.

65. Wal-Mart has a high number of customers and sells mostly low-margin goods. Their level of relationship marketing is probably _                                                            .

1. accountable
2. proactive
3. partnership
4. unresponsive
5. basic or reactive

66. Independent bread route truck drivers sell their products to a limited number of retail outlets, such as convenience stores, and make frequent, personal deliveries of the goods. Their level of relationship marketing is probably                                                                              .

1. partnership
2. accountable
3. reactive
4. proactive
5. basic

67. Frequency programs acknowledge that                                 of a company’s customers might account for                                            of its business.

1. 30 percent; 50 percent
2. most; most
3. 20 percent; 80 percent
4. less than 5 percent; nearly all
5. 75 percent; a slight majority

68. Increasing the customer’s proclivity to repurchase can be accomplished by doing each of the following, EXCEPT:

1. creating structural ties with the customer.
2. creating long-term contracts.
3. charging less for ongoing purchases.
4. building in escalator clauses on pricing.
5. turning the product into a long-term service.

69. A mental part supplier in China maintains its competitive edge with contracts against large competitors by knowing all his customers’ names and how their businesses are doing. This is an example of forming strong customer bonds through                                                                                                .

1. adding financial benefits
2. adding frequency programs
3. adding structural ties
4. adding long-term contracts
5. adding social benefits

70. All of the following are good uses of databases that companies compile, EXCEPT:

1. identifying good prospects.
2. drawing inferences about customer lifestyles.
3. deepening customer loyalty by remembering preferences.
4. reactivating through reminder promotional efforts.
5. avoiding sending the same customers two similar offers but with varying prices.

71. Which of the following is NOT a downside of database marketing and CRM?

1. It requires a large, upfront investment.
2. It is difficult to get all employees customer-oriented.
3. Not all customers want a “relationship” with the company.
4. Skilled CRM professionals are easily found in a marketplace full of underemployed information systems specialists.
5. The assumptions underlying CRM may not always hold.

Essay Questions

72. In a short essay, discuss how the Traditional view of marketing differs from the Value Creation and Delivery Sequence (VCDS).

73. Monica begins thinking strategically about her online scrapbooking store after a friend mentions that there are five core processes involved in successful business practice. In a short essay, relate the five core business processes to Monica’s business.

74. What do the concepts “total customer value” and “total customer cost” mean and how are they related? Use examples to illustrate your answer.

75. Rhys runs a 10-room bed and breakfast on the Cardiff Bay Walk in Cardiff, Wales. If Rhys stresses having high customer satisfaction, how might he be rewarded by the B&B’s customers?

76. Happy Days seafood restaurant in Sanya of Hainan Province has just been bought by a young and rich Chinese businessman. The new owner wants to make Happy Days stand out among the many competitors by being the highest quality restaurant. Explain at least five ways Happy Days quality could be measured.

93. Why would you ever want to “fire” a customer? What are the other options?

94. Rhys is manager of a large, privately held, luxury oceanfront hotel on the Cardiff Bay Walk in Cardiff, Wales. His bosses (the investor group) recently met with Rhys and conveyed their desire to implement a customer relationship management program. Rhys is sent to a CRM conference and comes home with a software product that is completely compatible with the hotel’s existing IT system. The software tracks customer “touch points.” Explain the idea of touch points and what they might be for a luxury hotel.

Mini-Cases Mini-Case 4-1

Arno owns a fast food chain that is set to go from six shops to twelve over the next year. Because Arno’s stores will double and he is still just one person, he decides it’s time to get some kind of technological help with understanding and serving his customers better.

95. Refer to Mini-Case 4-1. At a foodservice trade show in Shanghai, Arno finds an affordable software-based system that will help him create an Arno’s Discount Club, by managing detailed information about individual customers, such as their zip code and buying patterns. Arno’s new system is an example of                                                                                                            .

1. customer relationship management
2. prospect identification
3. growing value equity
4. add-on selling
5. mass customization

96. Refer to Mini-Case 4-1. An independent produce supplier who provides Arno with all his vegetables would like to grow her business along with Arno. Arno and the produce supplier would be characterized as having the                                                                                          level of relationship marketing.

1. partnership
2. accountable
3. reactive
4. proactive
5. basic

97. Refer to Mini-Case 4-1. With the information Arno is able to gather about his customers, he might profitably use his customer database for all of the following EXCEPT:

1. matching offers to a specific customer.
2. drawing inferences about customer lifestyles.
3. deepening customer loyalty by remembering preferences.
4. reactivating through reminder promotional efforts.
5. avoiding sending the same customers two similar offers but with varying prices.

Mini-Case 4-2

Ahn’s antiques business has been greatly affected by her move to an online store two years ago. Her sales have quadrupled and she has been able to hire a full-time, online

customer liaison that helps her with both buying and selling, as well as Web site maintenance, and is in her own right, an antiques expert.

98. Refer to Mini-Case 4-2. Long-time customer Bunny began preferring Ahn’s Online store and now makes most of her purchases through that channel. She perceived Ahn’s Online to be a better source because of the enhanced selection, the responsive emails she has received in answer to her queries, better pricing, and less effort compared to the travel involved in “old school’ antiquing. Ahn’s Online has offered Bunny a better

                            than did the prior channel.

1. total customer cost
2. customer perceived value
3. customer delivered value
4. total customer value
5. customer relationship management

99. Refer to Mini-Case 4-2. Ahn’s                                   includes all the experiences her customers have on the way to obtaining and using the antiques.

1. value proposition
2. value-delivery system
3. psychic cost
4. rational buying process
5. customer proclivity to purchase

100. Refer to Mini-Case 4-2. As a result of being highly satisfied, what is Bunny NOT likely to do?

1. Stay loyal to Ahn’s.
2. Talk favorably about Ahn’s with her antique friends.
3. Be less sensitive to Ahn’s prices.
4. Buy more products from Ahn.
5. Cost a bit more for Ahn to serve.