Deck 13: Managing relationships and building loyalty

Question 1

The Diamond of Loyalty is made up of four different segments which consist of:

A)loyals, habitual, multibranders, switchers
B)loyals, value creators, multibranders, switchers
C)loyals, habitual, value diluters, switchers
D)loyals, habitual, multibranders, value diluters
E)value creators, habitual, multibranders, switchers

Answer 1

A

Question 2

Loyal long-term customers are not always more profitable than customers making one-time purchases for which of the following reasons?

A)Not all services have heavy customer acquisition costs.
B)They do not necessarily spend more than one-off purchasers.
C)They may expect price discounts.
D)Larger customers such as B2B may have significant bargaining power and negotiate lower prices.
E)All of the above

Answer 2

E

Question 3

Companies engaging in 'offensive marketing' do all of the following EXCEPT:

A)emphasise attracting new customers
B)use the seven Ps to attract new customers
C)replace 'disloyal' customers who go to competitors with new customers
D)actively nurture existing customers with the aim of retention
E)actively encourage customers to switch from competitors

Answer 3

D

Question 4

The expected profit over the projected time of the relationship with a customer is called customer ________.

A)profit projection
B)value index
C)lifetime value
D)lifetime profitability
E)churn

Question 5

Economic benefits of customer loyalty often explain why one firm is more profitable than a competitor.However, profitable revenue streams are unlikely to apply equally in all industries.Long-term customer value is less likely to be significant when:

A)there are low margins on sale
B)there are high margins of sale
C)high marketing costs are required to obtain a new customer
D)there is a high sales volume per customer
E)there is a high word of mouth referral

Question 6

Which of the following best describe(s) loyal customers?

A)They continue to patronise a firm over the long term
B)Often patronise particular firms exclusively
C)Recommend a firm and its services to friends
D)Cost more to service than one-off customers
E)All of the above except d

Question 7

Reichheld and Sasser (1990) have suggested that annual profits per customer increase every year over seven years because of various factors.Which of the following is NOT one of the factors that they discovered created incremental profits?

A)Increased sales through price discounts to customers
B)Profit from referrals to other customers
C)Opportunities to cross-sell other services
D)Profit from increased purchases
E)Profit from reduced operating costs

Question 8

The cost to attract a new customer is reported to be ________ times the cost to retain a current customer.

A)four to five
B)five to six
C)six to seven
D)seven to eight
E)eight to nine

Question 9

Having details of regular customers in the firm's database offers opportunities to:

A)reduce operating costs
B)increase purchases
C)have lower maintenance costs
D)cross-sell other company services
E)a and c

Question 10

Short-term hard sell campaigns, managed for transactions not relationships, work best for ________ while partnership and preferred access programs work best for ________.

A)multibranders; switchers
B)switchers; multibranders
C)loyals; switchers
D)habituals; loyals
E)switchers; loyals

Question 11

Companies have been moving from focusing on customer ________ and ________ towards a customer ________ focus.

A)service; delivery; revenue generating
B)acquisition; transaction; relationship
C)acquisition; service delivery; retention
D)service delivery; satisfaction; marginal costing
E)costs; revenue; relationship

Question 12

A service business can grow in more than one way.Which one of the following is NOT dependent on relationship management?

A)Encouraging existing customers to purchase higher value services
B)Terminating unprofitable customers
C)Reducing the turnover of customers
D)Attracting new customers
E)Encouraging existing customers to purchase more units of service

Question 13

Which of the following is NOT one of the factors underlying profit growth?

A)Opportunities to cross-sell other company services
B)Reduced operating costs
C)Increased purchases
D)Positive word of mouth advertising
E)None of the above

Question 14

According to Dowling and Uncles (1997), heavy users are not always committed or exclusively loyal to one seller.They refer to this as:

A)spurious loyalty
B)undivided loyalty
C)multiple seller loyalty
D)polygamous loyalty
E)heterogeneous loyalty

Question 15

Active management of the customer base and customer loyalty is referred to as:

A)customer churn
B)customer asset management
C)customer loyalty management
D)customer relationship management
E)customer lifetime management

Question 16

Which of the following is NOT a segment identified in Knox's Diamond of Loyalty?

A)Loyals
B)Retainers
C)Habituals
D)Multibranders
E)Switchers

Question 17

According to David Maister (1997), ________ is/are no measure of excellence, ________ or profitability.

A)repeat customers; cost structures
B)volume; customer satisfaction
C)volume; sustainability
D)client lists; sustainability
E)customer lifetime value; sustainability

Question 18

Grant and Schlesinger suggest analysing gaps between actual and potential profitability by considering:

A)current versus potential market share
B)current purchasing behaviour of customers in each target segment
C)impact if each consumer exhibited ideal behaviour (paid full price)
D)the length of time customers remain with the firm
E)all of the above

Question 19

The term 'share of wallet' refers to:

A)total purchases a customer makes in the product category
B)number of offered services a customer purchases from a single firm
C)number of offered services a customer purchases from all firms
D)number of offered services a customer purchases from the major competitor
E)total purchases a customer makes from major competitors

Question 20

Profitable revenue streams are more likely to be profitable when long-term customers are involved.Which of the following is not a significant value in assessing this?

A)High marketing expenses are required to obtain new customers
B)High administration expenses are needed to enter a new customer
C)Servicing costs are relatively low
D)There are reasonable margins on sales
E)None of the above

Question 21

Which of the following is NOT a good example of an organisation deciding to fire a customer?

A)Students who are caught cheating
B)Club members who behave inappropriately
C)Banks that no longer want to offer specific services to customers
D)a and b only
E)All of the above

Question 22

In the ladder of loyalty, ________ have the lowest relationship commitment while ________ have the highest.

A)prospects; advocates
B)prospects; evangelists
C)customers; advocates
D)clients; evangelists
E)customers; clients

Question 23

Not all customer relationships are worth keeping.Which of the following is NOT a good reason to terminate the relationship?

A)The relationship is no longer profitable.
B)The firm's strategic direction has changed.
C)The customers' needs have changed.
D)The customers' behaviour has changed.
E)The production focus has changed.

Question 24

________ ________ translates the business and customer strategies into specific value propositions for customers and the firm.

A)Value creation
B)Strategy development
C)Multichannel integration
D)Information management
E)Performance assessment

Question 25

The CRM program's value to developing strategy is best described as:

A)a tool to drive the strategy
B)an extension of current strategies
C)an evaluation system
D)a program useful for segmenting clients
E)none of the above

Question 26

In terms of socio-cultural traits that impact on buyer-seller relationships, which of the following statements is correct?

A)As compared to low-context cultures, high-context cultures put more emphasis on direct communication.
B)As compared to high-context cultures, low-context cultures spend more time on discussing issues and non-task information.
C)As compared to high-context cultures, low-context cultures tend to avoid confrontation and prefer harmony.
D)As compared to low-context cultures, high-context cultures take a longer time to establish relationships.
E)As compared to low-context cultures, high-context culture put less emphasis on face-to-face encounters.

Question 27

Good customer relationships begin with a good fit between ________ and ________.

A)profit expectations; revenue generated
B)customer needs; service expectations
C)customer needs; service offerings
D)business objectives; profitability
E)customer expectations; business needs

Question 28

Which of the following points has research found to be key determinants in a successful customer relationship?

A)Customer engagement
B)Value
C)Customer satisfaction
D)Loyalty motives
E)All of the above

Question 29

High net-worth customers should be protected because:

A)they make few demands on the organisation
B)relationships cannot be built with them
C)they cost little to service
D)a and c
E)a, b and c

Question 30

________ ________ must address three critical questions.

A)Value creation
B)Strategy development
C)Multichannel integration
D)Information management
E)Performance assessment

Question 31

In Zeithaml, Rust and Lemon's customer pyramid, which of the following describes a platinum customer?

A)A marginally profitable user who does not warrant special treatment.
B)A heavy user that is less price sensitive but expects the highest service levels.
C)A user who is somewhat price sensitive and less committed.
D)Low revenue users who nonetheless require reasonable levels of service.
E)Users who generate the volume needed for economies of scale.

Question 32

Customers can be arranged in tiers according to:

A)different levels of profit contribution
B)customer needs
C)identifiable personal profiles such as demographics
D)price sensitivity
E)all of the above

Question 33

CRM strategy involves all of the following imperatives EXCEPT:

A)implementing the best processes
B)acquiring the right customer
C)developing the right value proposition
D)minimising the role and importance of employees
E)learning to retain customers

Question 34

Recent research has found a number of specific types of relational benefits that motivate customers to become regular customers of one service provider.Which category of benefits has been found by research to be the least important to customers in terms of value?

A)Social benefits
B)Special-treatment benefits
C)Relationship benefits
D)Loyalty benefits
E)Confidence benefits

Question 35

Which of the following is NOT a reason why CRM programs may fail?

A)Viewing CRM as a technology initiative
B)Insufficient appreciation of customer lifetime value
C)Inadequate support from top management
D)Failing to re-engineer business processes
E)All are reasons why CRM programs may fail

Question 36

If a firm has an emphasis on relationship marketing they are concerned with:

A)regaining lost customers
B)offering reduced prices
C)implementing effective service-recovery
D)implementing effective complaint-handling
E)a, c and d

Question 37

What strategies could a service marketer adopt for customers in the lead tier?

A)Impose a minimum fee that is waived when a certain level of revenue is generated.
B)Cut service costs.
C)Create an attractively priced, low-cost platform.
D)Terminate these customers.
E)All of the above

Question 38

A person who continually visits a hairdresser salon because of the relationship they have built up with one particular person who works in that salon, highlights which important facet of relationships?

A)Value
B)Customer satisfaction
C)Length of patronage
D)Convenience
E)Social bonds

Question 39

In Zeithaml, Rust and Lemon's customer pyramid, which of the following describes a gold customer?

A)A marginally profitable user who does not warrant special treatment.
B)A heavy user that is less price sensitive but expects the highest service levels.
C)A user who is somewhat price sensitive and less committed.
D)Low revenue users who nonetheless require reasonable levels of service.
E)Users who generate the volume needed for economies of scale.

Question 40

Which of the following strategies could be used to retain customers?

A)Reduce churn drivers
B)Build in switching barriers
C)Offer lower prices
D)Create loyalty bonds
E)a, b and d

Question 41

Why should managers think carefully about operational elements such as speed, quality and physical features of its services when targeting customers?

A)They need to convince customers of the services' quality.
B)They need to focus on their operations, not on customers.
C)They need to target customers who match the firm's capabilities.
D)They need to figure out how all customers can be a good fit with the firm's capabilities.
E)They need to figure out how they can serve all customers equally well.

Question 42

The Diamond of Loyalty suggests that loyals may be the most profitable segment but represent only 10-20 per cent of your customer base.

Question 43

Companies often build in switching barriers such as penalty payments to encourage customers to reconsider moving to competitors.

Question 44

Service firms should provide the same level of service to all customers.

Question 45

Which of the following is NOT an example of common CRM applications?

A)Data collection
B)Data analysis
C)Market reinvestment
D)Sales force automation
E)Call centre automation

Question 46

A coffee shop is considering a customer loyalty program.According to research by Reinhartz and Kumar, what should the owners keep in mind when setting up the program?

A)Many heavy users are multibrand loyal.
B)Long-life customers are more costly to serve.
C)High lifetime revenues drive duration, not profit.
D)Long-term customers are less price sensitive.
E)Long-life customers pay higher average prices.

Question 47

The costs of acquiring a new service customer are always high.

Question 48

Targeting, acquiring and retaining the 'right' customers are central to successful service firms.

Question 49

Customers remain loyal to service firms that provide them with confidence, social or special-treatment benefits.

Question 50

Some customers display less loyalty to value and relationship than they do to the core service.

Question 51

Banks are put in a difficult position when they wish to divest themselves of potentially unprofitable accounts.

Question 52

Recent research questions the concept that long-term customers generally tend to have lower overall maintenance costs.

Question 53

Customers are too important for a service firm to ever consider terminating them.

Question 54

It is important for profit-making firms to narrow the gap between actual and potential customer value.

Question 55

Customers are 'loyal to value', which means they are more likely to stay in a service relationship when the:

A)structural bonds with the seller exceed the social bonds
B)social bonds with the seller exceed the structural bonds
C)initial cost of a service is less than later costs
D)sum of service benefits exceeds the costs
E)sum of service costs equals the benefits

Question 56

Recent research by Fornell and his colleagues found an association between a firm's score in the American Customer Satisfaction Index and which of the following?

A)Higher prices for the firm's services
B)Higher prices for the firm's stock
C)Lower profits for the firm
D)More word of mouth for the firm's brand
E)Stronger customer loyalty

Question 57

Personal sources of information are less important to services due to their intangibility.

Question 58

Defensive or relationship marketing is primarily concerned with attracting and developing relationships with new customers.

Question 59

The use of segmentation allows organisations to reward valued customers and discourage less profitable customers.

Question 60

Kevin Gwinner's research shows that confidence benefits are the most important to customers in terms of value.

Question 61

There is more than just the financial cost involved when switching from one firm to another.

Question 62

Consider that you run a wine club with all ordering done online.Discuss the customer retention strategies that might be appropriate for your business.

Question 63

Using the customer-value approach to segmentation, develop a plan for a new store in a traditional shopping centre that sells only organic products.

Question 64

Companies develop churn diagnostics and alert systems so they can implement pre-emptive strategies to reduce customer defections.

Question 65

Is it reasonable for a firm to concentrate on specific customers in their loyalty programs? Does this enhance the growth of the organisation or is it only concerned with profit?

Question 66

CRM systems only provide value to the service firm and none to the customer.

Question 67

Are loyalty and profitability inextricably linked or are there other methods that could be used more effectively?

Question 68

How important is it for a small business operating in a local area compared to a larger organisation operating nationally to develop good customer relationships?

Question 69

In what situations would a company consider terminating a customer? What alternatives would the company have instead of termination?

Question 70

CRM is an all-encompassing management tool that uses technology to eliminate many of the problems associated with non-computerised methods.Discuss.

Question 71

'All customers are valuable to a service firm and should be treated in the same manner.' Discuss.

Question 72

Assume you are the manager of an upscale hairdressing salon in an area of town where there are several other salons within walking distance.What could you do to create value for your customers, so that they see benefits of staying long-term with your business?

Question 73

The aim of discounts and frequent user schemes is more to lock the customer in than give them a bonus.

Question 74

Establishing a relationship with a customer consists of two parts, first acquiring the customer and then building an ongoing relationship.

Question 75

For the online wine club in Question 1 and the upscale hairdressing salon in Question 2, discuss the benefits to the companies from retaining the long-term customers.