Market-Based Management Chapter 2: Marketing Metrics and Marketing Profitability, Ch1
A share development index of 40 means that the business or product has only obtained 40 percent of its share potential.
True
Asset turnover in an organization is an example of internal company metrics.
True
Customer Loyalty Index (Formula)
(Customer History + Purchase Amount + Desire to Repurchase + Product Preference + Would Recommend) / 5
Customer Retention
1 - 1/N
Average Customer Life
1 / (1 - Customer Retention)
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
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 repeat customer buys a lot from many companies and does not have a strong preference for one over the other.
True
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.
________ index a business or product against another similar business or product with respect to product performance, service quality, and brand image. A) Competitiveness metrics B) Internal performance metrics C) Customer metrics D) Market share metrics E) Finance-based performance metrics
A) Competitiveness metrics
Which of the following is true of the financial metrics used to gauge a product's performance in the market? A) They report important ratios for profits, costs, and assets. B) They include measures of marketing performance, such as customer satisfaction, retention, and loyalty. C) They allow a company to estimate its market share and customer value. D) They are mainly external metrics of a product's performance in a particular market. E) They provide insight into how the business or product is performing in the market.
A) They report important ratios for profits, costs, and assets.
Chloe is examining her company's marketing performance metrics. Which of the following would be on the list? A) customer value B) capacity utilization C) operating expenses D) return on assets E) earnings per share
A) customer value
The net marketing contribution for a firm is the firm's ________. A) gross profit - (marketing and sales expenses) B) profits - (other operating expenses) C) profits D) (all revenues) - (all expenses) E) (sales revenues) - (cost of goods sold)
A) gross profit - (marketing and sales expenses)
Which of the following is an internal forward-looking metric for a company? A) late payments B) net profit before tax C) percent gross profit D) return on assets E) sales revenues
A) late payments
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
Marketing return on sales equals ________. A) net marketing contribution/sales x 100% B) profits/sales revenues x 100% C) gross margin/sales revenues x 100% D) net marketing contribution/marketing sales & expenses x 100% E) sales revenues x % gross margin
A) net marketing contribution/sales x 100%
Expenses that change on a per-unit basis when production volume increases or decreases are known as ________. A) variable costs B) indirect costs C) marketing and sales expenses D) operating costs E) manufacturing overhead costs
A) variable costs
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 the net marketing contribution of a firm? A) It is an internal in-process financial metric. B) It sets a benchmark to gauge improving or deteriorating marketing profitability. C) It is equal to the revenues of the firm. D) It includes all operating expenses. E) General and administrative expenses are included to assess the net marketing contribution.
B) It sets a benchmark to gauge improving or deteriorating marketing profitability.
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
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
Which of the following expenses would be included under the manufacturing overhead of a firm? A) income taxes B) fixed expenses for a building's facilities C) cost of materials for production D) cost of office supplies E) advertising expenses
B) fixed expenses for a building's facilities
Which of the following types of costs is an allocated cost based on the use of the plant, equipment, and other fixed expenses needed to run the production operation? A) corporate overhead costs B) manufacturing overhead costs C) variable costs D) marketing sales and expenses E) research and development expenses
B) manufacturing overhead costs
Which of the following metrics would a company most likely evaluate at the end of an operating period? A) late deliveries B) market share C) inventory turnover D) customer satisfaction E) product defects
B) market share
The product of market demand, market share, average selling price, and channel discounts is the ________. A) marketing return on investment B) net sales C) net marketing contribution D) marketing and sales expenses E) operating income
B) net sales
Which of the following is an external metric for a company? A) inventory turnover B) revenue per customer C) net profit before tax D) return on assets E) accounts receivable
B) revenue per customer
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
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
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
Marketing return on investment equals ________. A) profits/marketing & sales expenses x 100% B) net marketing contribution/operating expenses x 100% C) net marketing contribution/marketing & sales expenses x 100% D) gross margin/total expenses x 100% E) sales revenues/marketing & sales expenses x 100%
C) net marketing contribution/marketing & sales expenses x 100%
Which of the following is an internal financial metric? A) customer awareness B) revenue per customer C) product defects D) market share E) customer satisfaction
C) product defects
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.
Which of the following is true of backward-looking metrics? A) They include company metrics such as late deliveries and late payments. B) They provide insights on future performance. C) They include marketing metrics such as customer awareness and customer satisfaction. D) They tell a company where it stands with respect to current performance. E) They are applied at regular intervals during an operating period.
D) They tell a company where it stands with respect to current performance.
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
When considering marketing metrics for a company, market share is most likely to be ________. A) an internal metric that can be used either during or after the reporting period B) an internal metric that is used after the reporting period C) an internal forward-looking metric D) an external backward-looking metric E) an external metric that is used during the reporting period
D) an external backward-looking metric
Which of the following is an external backward-looking metric for a company? A) customer awareness B) intent to repurchase C) perceived performance D) customer retention E) customer satisfaction
D) customer retention
Which of the following marketing metrics is an internal forward-looking metric for a firm? A) revenue per customer B) market share C) customer retention D) inventory turnover E) customer satisfaction
D) inventory turnover
Which of the following metrics does a company apply during an operating period rather than at the end of the operating period? A) customer retention B) market share C) sales revenues D) inventory turnover E) return on assets
D) inventory turnover
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
The formula used to calculate the operating income is ________. A) operating income = cost of goods + SGA expenses + other operating expenses B) operating income = sales revenues + cost of goods C) operating income = sales revenues + cost of goods + SGA expenses + other operating expenses D) operating income = sales revenues - SGA expanses E) operating income = sales revenues - cost of goods - SGA expenses - other operating expenses
E) operating income = sales revenues - cost of goods - SGA expenses - other operating expenses
Which of the following would be considered a competitiveness metric for a company? A) marketing return on sales B) capacity utilization C) marketing return on investment D) gross profit E) relative service quality
E) relative service quality
Jack is examining his company's financial performance measures. Which of the following would be on the list? A) relative service quality B) customer satisfaction C) market ROI D) net marketing contribution E) return on sales
E) return on sales
The primary purpose of company metrics is ________. A) to minimize the defects in the organization's products B) to maximize the organization's return on assets C) to achieve maximum customer satisfaction D) to make optimal use of the organization's resources E) to maintain an ongoing measure of marketing performance
E) to maintain an ongoing measure of marketing performance
A business that has a 75 percent customer retention rate has an an average customer life of 6 years.
False
A decline in relative product and service quality means that actual product or service quality has declined.
False
Captive customers are a drain on a business's profits because the cost of acquiring them can never be recovered.
False
Marketing performance metrics include competitiveness metrics and customer metrics, while financial metrics include service quality, customer value, and product performance.
False
Minimal customer focus results in a reduction in the cost of marketing and sales.
False
Pre-tax net profit and market share are examples of forward-looking metrics that are applied during a company's reporting period.
False
Sales revenues, net profits, return on sales, assets as a percentage of sales, and return on assets are measures of internal financial performance that provide a market-based view of performance.
False
The NMC of any proposed strategy must be lower than the current NMC in order to increase a business's net profit.
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
The marketing cost of retaining customers is much higher than the cost of replacing them.
False
A business's operating expenses is its revenues minus its cost of goods sold and its expenses.
True
Explain the advantage of using marketing performance metrics, and name and describe the four classes of marketing performance metrics. Give two examples of metrics used in each type of marketing performance metric.
Market Metrics: Market Growth Rate Market Share Market Dev Index Customer Metrics: Customer Satisfaction Customer Retention Customer Lifetime Value Competitiveness Metrics: Product Performance Service Quality Customer Value Marketing Profitability Metrics: Net Marketing Contribution Marketing ROI Marketing ROS
Name and describe the two marketing profitability metrics that allow a business insight into the relative marketing efficiencies of various net marketing contributions.
Marketing ROI - NMC / Marketing Sales and Expenses Marketing ROS - NMC / Sales ROI and ROS allow comparisons with competitors to obtain a better understanding of its marketing efficiency in producing marketing profits
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.
A business with a short-term perspective lacks a strong consumer focus.
True
Changes in marketing metrics such as product awareness, customer satisfaction, and customer perceptions of relative product quality and customer value generally precede actual changes in customer purchasing behavior.
True
Dividing the NMC by the investment in marketing and sales produces the marketing return on investment.
True
Marketing return on sales (ROS) and marketing return on investment (ROI) are marketing profitability ratios that allow a business to evaluate its marketing efficiency.
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
The major benefit of a strong customer focus is long-run survival.
True
To complement a business's internal financial performance metrics, a business needs a parallel set of external marketing metrics to track its market-based performance.
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
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
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
Which of the following is considered to be a marketing performance metric rather than a financial performance metric for a company? A) customer retention B) earnings per share C) sales-to-assets ratio D) gross profit E) accounts receivable
customer retention
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 is considered an external performance benchmark for a product's performance in the market? A) net profits B) return on sales C) sales revenues D) assets as a percentage of sales E) relative product quality
relative product quality
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