Market-Based Management Chapter 1: Customer Focus, Customer Performance, and Profit Impact

Asset turnover in an organization is an example of internal company metrics.

True

Average Customer Life

1 / (1 - Customer Retention)

Which of the following is a forward-looking indicator of business success? A) sales B) ROI C) customer satisfaction D) market share E) shareholder dividends

C) customer satisfaction

The major benefit of a strong customer focus is long-run survival.

True

The marketing cost of retaining customers is much higher than the cost of replacing them.

False

Customer Retention

1 - 1/N

Customer Loyalty Index (Formula)

(Customer History + Purchase Amount + Desire to Repurchase + Product Preference + Would Recommend) / 5

A repeat customer buys a lot from many companies and does not have a strong preference for one over the other.

True

In general, it costs ________ times more to replace a customer than it costs to keep a customer. A) three B) two C) five D) four E) six

C) five

Which of the following is true of businesses with a strong customer focus? A) A customer-focused business realizes higher profits over the short-term. B) In a customer-focused business, shareholders are more interested in long-run survival than immediate earnings. C) A customer-focused business is in synch with customers' needs and requirements, not with competitors' strategies. D) A customer-focused business lacks a long-term perspective. 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.

A) A customer-focused business realizes higher profits over the short-term.

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) managing to the averages B) competitive parity C) forward-looking indicator D) focused value proposition E) wide-angle view of customer satisfaction

A) managing to the averages

Customers with ________ customer satisfaction ratings are profitable but are below the average customer profitability. A) Dissatisfied B) Somewhat satisfied C) Very satisfied D) Somewhat dissatisfied E) Satisfied

B) Somewhat satisfied

Which of the following events occur when there is minimal focus on customers? A) high customer loyalty B) below-average profits C) long-run strategies to improve sales D) reduction in customer turnover E) low cost of marketing and sales

B) below-average profits

To create an overall customer satisfaction index (CSI) for a given sample of customers, a business ________. A) sums all of those customers' satisfaction ratings and divides it by 100 B) computes the average of those customers' satisfaction ratings C) computes the sum of those customers' satisfaction ratings and divides it by a leading competitor's customer satisfaction index D) computes the average of those customers' satisfaction ratings and divides it by the industry average E) sums all of those customers' satisfaction ratings

B) computes the average of those customers' satisfaction ratings

Which of the following is a component of customer loyalty index? A) average customer life B) desire to repurchase C) customer's income level D) customer's demographic details E) customer satisfaction

B) desire to repurchase

With reference to the six-category scale, a consumer satisfaction index (CSI) of 20 denotes that the customer is ________. A) satisfied B) dissatisfied C) somewhat satisfied D) somewhat dissatisfied E) very satisfied

B) dissatisfied

In a customer-focused business, ________. A) the management views customer complaints as negative feedback and avoids them B) the senior management sets the tone and sends the signal for a strong customer focus C) the analysis of customer feedback is performed only by the senior management D) the business is overly focused on building products they assume their customer wants E) the business downplays the importance of customer training for new employees

B) the senior management sets the tone and sends the signal for a strong customer focus

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) Unprofitable customers B) Captive customers C) Loyal customers D) Customer terrorists E) Repeat customers

C) Loyal customers

________ are most likely to recommend a company's product to others. A) Repeat customers B) Customer terrorists C) Loyal customers D) Captive customers E) New customers

C) Loyal customers

What type of customers are most likely known as "customer terrorists"? A) customers who only buy the product if it is offered at an attractive price or with a promotional incentive B) customers who use their bargaining powers to purchase products at a cheaper price 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 engage in shoplifting

C) customers who verbally communicate their bad experiences to others

Customer life expectancy increases ________ with customer retention. A) hyperbolically B) parabolically C) exponentially D) linearly E) cubically

C) exponentially

With reference to the six-category scale, a consumer satisfaction index (CSI) of 60 denotes that the customer is ________. A) very satisfied B) dissatisfied C) somewhat satisfied D) somewhat dissatisfied E) satisfied

C) somewhat satisfied

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 it can result in tremendous financial leverage D) that a business can eliminate the need for advertising E) that a desired increase in the level of profitability requires an increase in sales volume of only half as much

C) that it can result in tremendous financial leverage

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.? Customers who are likely to recommend Elegant Living furniture to potential buyers. Customers who buy a lot of Elegant Living products as well as products from other furniture brands. Customers who have a loyalty score between 50 to 69. Customers who are first-time buyers. Customers who purchase an Elegant Living furniture one time because of an attractive discount.

Customers who purchase an Elegant Living furniture one time because of an attractive discount.

Which of the following statements is true about customer retention and customer life expectancy? A) Higher levels of customer retention have a long-term negative impact on profits. 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) The higher the customer retention rate, the lower the short-term profit impact.

D) In general, it costs five times more to replace than to keep a customer.

What is the main reason that a business suffers several economic consequences when a dissatisfied customer leaves? A) The future costs for the development of a similar product increases abruptly. B) The amount of money spent on developing the product for the dissatisfied customer cannot be reimbursed. C) The business's competitors enjoy a greater customer loyalty toward the same type of products. D) The cost of attracting a new customer is greater than retaining a current customer. E) The business has to pay a large compensation fee to the customer.

D) The cost of attracting a new customer is greater than retaining a current customer.

The end result of underwhelming customers and shareholders is ________. A) a high level of customer loyalty B) an unfocused value proposition C) a low rate of customer turnover D) a higher pressure for short-run results E) an above-average profit performance

D) a higher pressure for short-run results

A market-based business looks at customers as ________. A) short-term relationships B) conquests C) individual purchase transactions D) lifetime partners E) extraneous variables

D) lifetime partners

Which of the following is an example of a company's external metrics? A) manufacturing defects B) return on sales C) late deliveries D) retaining customers E) employee turnovers

D) retaining customers

To estimate the lifetime value of a customer at a given rate of customer retention, you need to compute the ________. A) customer satisfaction index B) future customer value C) customer loyalty index D) gross percent margin of the company E) net present value of the customer's cash flow

E) net present value of the customer's cash flow

A business that has a 75 percent customer retention rate has an an average customer life of 6 years.

False

Captive customers are a drain on a business's profits because the cost of acquiring them can never be recovered.

False

Minimal customer focus results in a reduction in the cost of marketing and sales.

False

The customer loyalty index (CLI) is a function of total sales, customer lifetime value, and shareholder dividend.

False

The life expectancy of a customer decreases exponentially as a business moves to higher levels of customer retention.

False

A market-based management business gives its dissatisfied customers as much attention as its "very satisfied" customers.

True

A market-based management system views customers as lifetime partners.

True

________ are customers who buy because a product is being offered at an attractive price or with a promotional incentive. Misfits High potential customers Underachievers Spinners Top performers

Spinners

Which of the following is true of unprofitable customers? They buy a lot from many companies and do not have a strong preference for one over the other. They have a low desire to repurchase but are unable to move easily to another company's product. They are a result of mismanaged customer selection. They produce a referral value that is over three times their customer lifetime value. They are loyal customers in waiting.

They are a result of mismanaged customer selection.

Which of the following is true of new customers? They are less likely to recommend a company's product to others. They have no impact on the net marketing contribution. They are a company's best customers. They generally buy more than retained customers. They are usually the profit driver of a business.

They are less likely to recommend a company's product to others.

A business with a short-term perspective lacks a strong consumer focus.

True

Measures of market performance, such as sales and market share, are backward-looking measures of success or failure.

True

The higher the rate of customer retention, the longer the average customer life expectancy and the greater the customer lifetime value.

True

Unrestrained customer acquisition can result in a negative rather than positive impact on profits due to the cost of customer acquisition with little offsetting income.

True

Repeat customers differ from loyal customers in that repeat customers ________. are likely to recommend a company's product are often simply "big spenders" have a loyalty score between 70 and 100 have a high product preference score have low profit potential

are often simply "big spenders"

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. repeat loyal captive unprofitable intermediate

captive

Captive customers differ from unprofitable customers in that captive customers ________. are simply "big spenders" produce a referral value that is over three times their customer lifetime value are a drain on a business's profits because the cost of acquiring them can never be recovered have a low desire to repurchase but are unable to move easily to another company's product are the result of mismanaged customer selection

have a low desire to repurchase but are unable to move easily to another company's product

A captive customer is most likely to ________. have a high customer loyalty index have a high desire to repurchase recommend a brand or company to others have a low purchase amount have a weak product preference

have a weak product preference

Which of the following types of customers should be rewarded with special offers and services that are not offered to other customers? loyal customers dissatisfied customers repeat customers new customers nonprofit customers

loyal customers

Customers for whom the offerings of the current business do not fit their needs are called ________. spinners underachievers customer terrorists misfits captive customers

misfits

Which of the following types of customers generally have the lowest customer history? loyal customers repeat customers unprofitable customers new customers captive customers

new customers

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. captive loyal unprofitable intermediate repeat

repeat