Chapter 3 - Building Customer Satisfaction, Value, and Retention

Multiple Choice Questions

5
p. 60 C 1. The difference between total customer value and total customer cost is:
A. satisfaction
B. value/price ratio
C. customer perceived value
10 D. total added value
E. market cost

p. 60 E 2. Ridha is selling a $200,000 computer system to a large accounting firm. As the

seller, he needs to improve his offer to close the sale. How could he enhance
15 customer perceived value?
A. Ridha could minimize the training offered to accompany the system.
B. Ridha could make it harder to evaluate and compare his company’s product to
competitors’ products. Thus, he would minimize unfavorable comparisons.
C. Ridha could lower the value/price ratio for the customer.
20 D. Ridha could explain the extraordinary quality and value of his system. Then,
threaten to leave the customer’s office without allowing the customer to buy.
E. Ridha could enhance the image of the product and offer special support services.

p. 60 A 3. Which of the following is NOT part of the bundle of costs customers expect to incur
25 in evaluating, obtaining, using, and disposing of a given market offering?
A. functional cost
B. monetary cost
C. energy cost
D. psychic cost
30 E. time cost

p. 61 B 4. A mattress company that advertises its mattress will provide you “With the best
night’s sleep of your life”, is aiming to provide its customers with:
A. a value proposition
35 B. satisfaction
C. a value-delivery product
D. a superior value chain
E. total quality marketing

40 p. 62 E 5. When buying a lawn mower, Deborah will form her product expectations based on:
A. how well she expects the mower to cut the grass in her yard
B. how easy it was to operate her previous mower
C. how well the same brand of mower cuts the grass in her neighbor’s yard
D. a comparison of the mower she plans on buying with its competition
45 E. all of the above

50

1
 2 Part I - UNDERSTANDING MARKETING MANAGEMENT - Chapter 3

p. 62 A 6. The ad for GMC reads, “Without a century of truck experience, a LUXURY SUV is
just a LUXURY V.” In this ad, GMC’s experience as a truck manufacturer is its:
A. value proposition
B. comparative advantage
5 C. brand differentiator
D. distinguishing characteristic
E. slogan

p. 63 A 7. The _____ includes all the experiences the customer will have on the way to
10 obtaining and using the offering.
A. value-delivery system
B. response encounter system
C. customer-interaction analysis
D. customer-relationship analysis
15 E. consumer value system

p. 63 E 8. Which of the following would be part of a customer’s value-delivery system for a

book club?
A. reading the mailing that announces the selections for the upcoming month
20 B. paying the club invoice
C. receiving the package of books
D. reading the books
E. all of the above

25 p. 63 C 9. Customer-centered firms:
A. seek to create as many ‘just-satisfied’ customers as possible
B. continuously tell their customers how efficiently they are being served
C. balance the delivery of a high level of service to its customers within the
constraints set by their stakeholders
30 D. focus on measuring customer satisfaction and largely ignore competitors’
performance
E. seek to maximize customer satisfaction as their primary goal

p. 64 B 10. Surveys of customer satisfaction:

35 A. indicate customers will complain when they are dissatisfied
B. demonstrate that less than 5 percent of all customers will actively complain if dissatisfied
C. are accurate measurements of the total level of satisfaction/dissatisfaction among customers
D. use a value-gap analysis
E. are only reliable when conducted with current customers
40

45
p. 64 E 11. The best tool for a discount store to use to determine how its retail clerks respond to
customers in wheelchairs would be to:
A. institute a complaint and suggestion system
B. use role playing
50 C. conduct several customer satisfaction surveys

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 Building Customer Satisfaction, Value, and Retention 3
D. do exit interviews with customers
E. use ghost shoppers

p. 64 D 12. A bookkeeping service that wanted to find out why a client was now using one of its
5 competitors would be most likely to use:
A. a complaint and suggestion system
B. customer satisfaction surveys
C. a value gap analysis
D. a lost customer analysis
10 E. role playing

p. 64 A 13. A trucking company asks its customers to fill out a form on which they are asked to
list what they liked and disliked about the company’s service. The trucking
company also has a toll-free number its customers can call to provide immediate
15 feedback. The trucking company is using _____ to track and measure customer
satisfaction.
A. a complaint and suggestion system
B. a value gap analysis
C. a customer satisfaction survey
20 D. a lost customer analysis
E. a value-assessment network

p. 64 D 14. Replacements Limited is a company that trades in old and new china, crystal, and
silver patterns. In a customer survey, it asked if the product the customer received
25 was satisfactory. This question is:
A. invalid because customers are not able to determine if they are satisfied
B. inappropriate because companies don’t need to measure customer satisfaction
C. reliable because the company could get the same results each time the survey
was administered
30 D. invalid and unreliable because people define satisfaction in many different ways
E. a quantifiable means of measuring customer satisfaction

p. 66 B 15. According to the consulting firm of Arthur D. Little, the four keys to the success of a
high-performance business are:
35 A. employees, management, corporate culture, and core competencies
B. stakeholders, processes, resources, and organization
C. core competencies, resources, customers, and intermediaries
D. intermediaries, resources, customers, and organization
E. employees, resources, organization, and customers
40

45
p. 66 E 16. Which of the following would be the stakeholders for Carlisle Restoration Lumber
Company, a company that makes custom wide-plank wood floors?
A. the lumber company that supplies the hardwood needed to make the floor
B. the Carlisle family that owns the company
50 C. employees of the company

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 4 Part I - UNDERSTANDING MARKETING MANAGEMENT - Chapter 3

D. designers who incorporate the Carlisle product into their home and building
designs
E. all of the above

5 p. 67 D 17. OrderTrust estimates it would cost the average e-commerce firm at least $1.5 million
per year to build and operate an order-processing system. This cost explains why
many e-commerce companies hire other companies to take care of order processing,
to keep customers updated on order progress, and to handle order cancellations. The
e-commerce companies that hire these order-processing firms are using:
10 A. benchmarking
B. a value-delivery system
C. their core competence
D. outsourcing
E. total product management
15
p. 67 C 18. Replacements Limited is a company that trades in old and new china, crystal, and
silver patterns. The company has thousands of pieces currently in stock and can
provide a customer one piece or hundreds of pieces of china, crystal, or silver for
most patterns. Its inventory would be difficult for a competitor to match.
20 Replacements Limited’s ability to fill orders is an example of its:
A. distinguishing characteristic
B. comparative strength
C. core competency
D. brand differentiator
25 E. risk-aversive policy

p. 67 C 19. Reiman Publication publishes a variety of magazines that emphasize values and the
old-time ways of living. One of the commitments Reiman made when it first offered
its magazines to customers was that its publications would never have any
30 advertising. The Reiman publications are supported by subscriptions and are very
successful. This commitment to a no advertising clutter is an example of a:
A. distinguishing characteristic
B. market opportunity
C. core competency
35 D. brand differentiator
E. risk-aversive policy

40

p. 67 E 20. The lumber industry uses a variety of machines. One of those machines is built like
a Caterpillar tractor with a long arm like you would find on a truck that works on
45 electric lines. On the arm is a set of pincers that are used for delimbing trees.
Timberline Industries has a patent on a leveling system that allows the drivers of
these delimbing machines to operate them safely on sloping ground. Since most
harvestable forests are not on flat ground, this patent is an example of a:
A. unique selling proposition
50 B. comparative advantage

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 Building Customer Satisfaction, Value, and Retention 5
C. brand differentiator
D. distinguishing characteristic
E. core competency

5 p. 68 A 21. Whereas core competencies tend to refer to areas of special technical and production
expertise, _____ tend to describe excellence in broader business processes.
A. distinctive capabilities
B. brand differentiation
C. distinguishing characteristics
10 D. unique selling propositions
E. functional superiority levels

p. 68 A 22. Sun Microelectronics custom-orders processors, chips, and circuit boards for Sun's
desktop, server, and storage products. Sun Micro doesn't actually make any of its
15 microelectronic gear itself. Sun Micro contracts the work to outside manufacturers,
who in turn rely on components from their own subcontracted suppliers. All totaled,
it's a supply chain with 150 links—suppliers in places such as Canada, Japan,
Taiwan, and the United Kingdom. No hard goods ever sit in Sun Micro's inventory
or touch the hands of any one of Sun Micro's 29,000 employees. Sun Micro has a
20 _____ based on its ability to work efficiently with its suppliers on design and
production issues.
A. distinctive capability
B. functional superiority
C. unique selling proposition
25 D. technical benchmark
E. product category differentiator

p. 68 C 23. Until recently, American Home Products had a(n) _____ that emphasized cost
control. Any expenditure over $499 had to be approved. With its emphasis on
30 keeping costs low, the company made no attempt to find any new markets or
undertake any innovation. The company operated with the “If it ain’t broke, don’t
fix it” mentality in its dealings with all of its stakeholders.
A. customer-centered identity
B. hostile work environment
35 C. corporate culture
D. MBWA affinity
E. transactional organizational structure

40 p. 69 E 24. A(n) _____ consists of developing plausible representations of a firm’s possible

future that make different assumptions about forces driving the market and include
different uncertainties.
A. SWOT analysis
B. societal audit
45 C. industry forecast
D. plausibility map
E. scenario analysis

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 6 Part I - UNDERSTANDING MARKETING MANAGEMENT - Chapter 3

p. 69 E 25. A stock trading company that had its offices in the World Trade Center in 2001 could
have used a _____ to make different assumptions about the market such as the bull
market continuing, the appearance of a bear market, the appearance of legislation
5 controlling day traders, the appearance of dot.com companies to drive the market,
etc. There is little likelihood that it would have made the assumption that the death
of many of its employees would be a result of a terrorist attack.
A. SWOT analysis
B. societal audit
10 C. industry forecast
D. plausibility map
E. scenario analysis

p. 70 D 26. The generic value chain is a(n):

15 A. tool used to make the customer feel like an important part of the exchange
process
B. method of evaluating the value a customer assigns to a brand
C. method of identifying organizational bottlenecks
D. tool for identifying ways to create more customer value
20 E. method of forecasting which features, advantages, and benefits customers will
not miss if they are eliminated

p. 70 A 27. Which of the following is NOT an example of a primary activity as identified in the
generic value chain?
25 A. procurement
B. marketing and sales
C. operations
D. outbound logistics
E. service
30
p. 70 C 28. OrderTrust estimates it would cost the average e-commerce firm at least $1.5 million
per year to build and operate an order-processing system. This cost explains why
many e-commerce companies hire other companies to take care of order processing,
to keep customers updated on order progress, and to handle order cancellations. The
35 outbound logistics is an example of:
A. the action of a visionary company
B. the result of an enlightened mission statement
C. a primary activity in the generic value chain
D. a reverse method of benchmarking
40 E. a support activity in the generic value chain

p. 70 B 29. An example of a supporting activity in the generic value chain would be:
A. inbound logistics
B. technological development.
45 C. procurement
D. operations
E. service

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 Building Customer Satisfaction, Value, and Retention 7
p. 70 E 30. In terms of the generic value chain, the manager of the human resources department
performs _____ activities.
A. secondary
B. primary
5 C. exclusive
D. pioneering
E. support

p. 70 A 31. Enos Poteet is the Vice President of Operations for a baseball cap manufacturer. He
10 is responsible for making sure caps are made according to customer specifications.
The function Bill performs is what part of the value chain?
A. a primary activity
B. the network
C. the total delivered customer value
15 D. a logistical activity
E. a support activity

p. 71 A 32. The process of comparing one’s own costs and performance to competitors to see
how to improve one’s own performance and gross margins is called:
20 A. benchmarking
B. value-delivery networking
C. value analyzing
D. flanking attack
E. core business evaluating
25
p. 71 D 33. Which of the following is NOT an example of a core business process?
A. the customer relationship management process
B. the customer acquisition process
C. the fulfillment management process
30 D. the inventory management process
E. the new offering realization process

35

40

p. 71 E 34. Designing a car was expensive and time-consuming even with the use of computers
because, until recently, there was no way for the varied departments involved in new
45 car development to work together. DaimlerChrysler has created a central, software-
driven, web-based system that cuts the design and production process by at least two
years. The system allows each department in the company to collaborate in real
time. Which of its core business processes has DaimlerChrysler improved with the
invention of this new software?
50 A. the customer relationship management process
B. the customer acquisition process
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 8 Part I - UNDERSTANDING MARKETING MANAGEMENT - Chapter 3

C. the fulfillment management process

D. the inventory management process
E. the new offering realization process

5 p. 71 B 35. Procter and Gamble assigned twenty of its employees to live near and work at Wal-
Mart's headquarters to improve the speed and reduce the cost of supplying P&G's
products to Wal-Mart's branch stores. P&G is trying to improve its:
A. total quality management (TQM) process
B. value-delivery network
10 C. quick response system
D. inbound logistics
E. matrix relationship with Wal-Mart

p. 71 B 36. Hewlett-Packard (HP) uses FedEx to handle all of its order fulfillments from HP’s
15 retail web site. FedEx warehouses HP inventory in Memphis, Tennessee at one of
its hubs. When an order comes into HP, it is automatically transferred to FedEx’s
Memphis facility. Here the order is packaged and shipped directly to the customer
who purchased it. HP and FedEx have created a:
A. bi-level distribution chain.
20 B. supply chain
C. quick response system
D. strategy to reduce the value gap
E. matrix relationship with customers

25 p. 72 E 37. Hewlett-Packard (HP) uses FedEx to handle all of its order fulfillments from HP’s
retail web site. FedEx warehouses HP inventory in Memphis, Tennessee at one of
its hubs. When an order comes into HP, it is automatically transferred to FedEx’s
Memphis facility. Here the order is packaged and shipped directly to the customer
who purchased it. HP and FedEx more than likely:
30 A. create customer-centered value chains
B. rely on each other to perform support activities in their respective generic value
chains
C. do not use a value-delivery network
D. operate two completely separate value chains
35 E. use partner relationship management

40
p. 72 A 38. A company that experiences a high customer churn has:
A. a high rate of customer acquisition, as well as a high rate of customer defection
B. a consistent method of maximizing customer satisfaction
C. relied heavily on customer input to make it a high-performance company
45 D. adopted a strategy of customer individualization
E. a high rate of customer acquisition and a high satisfaction rating with these new
customers

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 Building Customer Satisfaction, Value, and Retention 9

p. 72 C 39. Which of the following is NOT a step in monitoring and reducing the customer
defection rate?
A. Defining and measuring the customer retention rate.
5 B. Distinguishing the causes of customer attrition and identifying those that can be
better managed.
C. Determining the competitive advantage that would attract customers.
D. Determining how much it would cost to reduce the defection rate.
E. Estimating how much profit it loses when it loses a customer
10
p. 72 E 40. The first step in the process of calculating the customer defection rate is to:
A. distinguish the causes of customer attraction
B. estimate how much profit is lost when the company loses customers
C. define the point at which the defection rate reduces profit by at least 2 percent
15 D. calculate the lifetime value of each customer
E. define and measure the company’s customer retention rate

p. 73 E 41. Harrison Flooring, Inc. has 32,000 customer accounts. It lost 10 percent of its
accounts this year due to service-related issues. The average revenue lost per
20 account was $8,000. The company’s profit margin is 5 percent. How much did the
company lose due to this attrition?
A. $128,000
B. $280,000
C. $512,000
25 D. $750,000
E. $1,280,000

p. 73 C 42. A small auto parts business has 640 retail accounts. It lost 5 percent of those
accounts last year. Each loss represented $4,000 in revenue. The auto parts store’s
30 profit margin is 10 percent. How much did this small company lose last year?
A. $600
B. $5,100
C. $12,800
D. $51,200
35 E. $128,000

40

p. 75 D 43. A sales call costs $250 and it takes 5 calls to gain a customer. The profit margin is
10 percent. The average annual customer revenue is $5,000. A customer is loyal for
45 3 years. Using the information listed above, calculate the cost of gaining one
customer.
A. $125
B. $250
C. $1,200
50 D. $1,250
E. $2,500

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 10 Part I - UNDERSTANDING MARKETING MANAGEMENT - Chapter 3

p. 75 C 44. Customer lifetime value (CLV):

A. has no monetary value
B. determines the future value of the stream of present profits assuming they last
5 over a customer’s lifetime
C. should be estimated as an average customer value, and in terms of each
individual customer
D. does not consider the costs of attracting new customers
E. is accurately described by all of the above
10
p. 76 C 45. A sales call costs $250 and it takes 5 calls to gain a customer. The profit margin is
10 percent. The average annual customer revenue is $5,000. A customer is loyal for
3 years. Using the information listed above, calculate this customer’s lifetime value.
A. $125
15 B. $250
C. $1,200
D. $1,250
E. $2,500

20 p. 76 C 46. A sales call costs $250 and it takes 5 calls to gain a customer. The profit margin is
10 percent. The average annual customer revenue is $4,000. A customer is loyal for
4 years. Using the information listed above, calculate this customer’s lifetime value
of the customer.
A. $800
25 B. $1,200
C. $1,600
D. $1,800
E. $2,400

30 p. 76 B 47. After a careful analysis, a Colorado company that sells wide-plank hardwood floors
found it was spending more to attract new customers than they were worth. How
could they remedy this situation?
A. Decrease the company profit margin, thereby lowering costs to the customer.
B. Determine how the company could spend less per sales call.
35 C. Increase the number of sales calls per conversion of each customer.
D. Engage in transfer marketing.
E. Reduce the company’s promotional efforts.

40 p. 76 A 48. Customer retention may be strengthened by:

A. erecting high switching barriers
B. calculating the lifetime value of the customer
C. reducing the value/price ratio on products
D. eliminating affinity groups
45 E. enhancing the supply chain

p. 76 B 49. The aim of _____ is to produce high customer equity.

A. a core business process
B. customer relationship marketing (CRM)
50 C. total quality marketing

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 Building Customer Satisfaction, Value, and Retention 11
D. lifetime value enhancement
E. a value-added tactic

p. 76 E 50. _____ is the total of the discounted lifetime values of all of the firm’s customers.
5 A. Discounted CLV
B. Generic value
C. Value integrity
D. Customer integrity
E. Customer equity
10
p. 76 D 51. The three drivers of customer equity are:
A. the value of the relationship, the brand, and the customer service
B. customer lifetime value, brand loyalty, and service value
C. customer relationships, supplier relationships, and intermediary relationships
15 D. value equity, brand equity, and relationship equity
E. the value chain, the supply chain, and the customer’s lifetime value

p. 77 A 52. There are many levels of relationship marketing. When a company has many
customers and distributors, _____ marketing produces the lowest margins.
20 A. basic or reactive
B. basic or accountable
C. proactive or reactive
D. reactive
E. accountable or reactive
25
p. 77 B 53. The clerk at McDonald's takes your order and your money for a Happy Meal. This
is an example of _____ marketing.
A. accountable
B. basic
30 C. partnership
D. reactive
E. proactive

p. 77 A 54. The sales associate at Circuit City gives you his card and tells you to call him if you
35 can't program your new VCR. This is an example of _____ marketing.
A. reactive
B. basic
C. partnership
D. accountable
40 E. proactive

p. 77 A 55. The nurse at the clinic where you sought treatment for a sinus infection calls you the
next day to see if you are feeling better. She also asks you if you were satisfied with
the clinic's service. This is an example of _____ marketing.
45 A. accountable
B. basic
C. partnership
D. proactive
E. reactive
50

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 12 Part I - UNDERSTANDING MARKETING MANAGEMENT - Chapter 3

p. 77 E 56. Six months after you bought a new Toyota car, the salesperson that sold it to you
calls to inform you that Toyota has developed a car security system that should
eliminate any concerns you might have about the car being stolen. This is an
example of _____ marketing.
5 A. reactive
B. accountable
C. basic
D. partnership
E. proactive
10
p. 77 D 57. Big Dutchman, a manufacturer of chicken feeders, works closely with a large
chicken processing plant that subcontracts to various local farmers to raise its
chickens. Big Dutchman works with the processing plant’s research and
development team to design feeders that meet all the requirements necessary to
15 ensure healthy flocks. This is an example of _____ marketing.
A. reactive
B. basic
C. accountable
D. partnership
20 E. proactive

p. 78 A 58. Berry and Parasuraman suggest a company that wants to adopt a customer value-
building approach should:
A. institute a frequency marketing program
25 B. avoid socialization with customers
C. make the buying process as easy as possible
D. introduce new products
E. use a pull strategy

30 p. 78 B 59. Frequency marketing programs:

A. cheapen the company image
B. are acknowledgements that 20 percent of a company’s customers probably
account for 80 percent of its business
C. tempt customers into buying more than they can afford
35 D. can result in a decrease in quality as the company tries to increase its efficiency
E. seldom, if ever, become a financial burden to the companies that operate them

p. 78 A 60. According to Berry and Parasuraman, if a company creates a frequency program, it

is adding ______ to develop stronger customer bonding and satisfaction.
40 A. financial benefits
B. social benefits
C. psychological rewards
D. support benefits
E. structural ties
45
p. 79 A 61. Nitto Company makes sanders for furniture manufacturers. When its salesperson
uses “we” language when problem-solving with customers, initiates positive phone
contacts, and accepts responsibility when an order is fouled up, Nitto has added
_____ to enhance its relationship marketing.
50 A. social benefits

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 Building Customer Satisfaction, Value, and Retention 13
B. financial benefits
C. ethical benefits
D. psychological rewards
E. structural ties
5
p. 80 D 62. A new lumberyard in town lends customers who buy $500 worth of roofing
materials all the necessary hand tools to do their roofing jobs. This is an example of
enhancing relationship marketing by adding:
A. a social benefit
10 B. a financial benefit
C. an ethical benefit
D. structural ties
E. psychological ties

15 p. 82 A 63. After a manufacturer of poultry feeding systems, incubators, coops, and poultry
house fans conducted a customer/product profitability analysis, it decided steps
should be taken to increase its profitability. Which of the following strategies would
be feasible?
A. Raise the prices of its less profitable products.
20 B. Eliminate all new-product development.
C. Raise the sales force’s quotas so salespeople won’t waste time on inferior
customer accounts.
D. Refuse to sell to any customer who spends less than $200 with the company
annually.
25 E. All of the above strategies are effective ways to increase profitability while
maintaining good relations with all of its customers.

30 p. 82 E 64. A customer profitability analysis:

A. is best conducted using the Activity-Based Costing (ABC) technique
B. can be used to classify customers into different profit tiers
C. is useful when a company wants to “fire” its least profitable customers
D. shows a company where to invest its marketing effort to earn the greatest ROI
35 E. is accurately described by all of the above

p. 83 C 65. Which of the following statements about competitive advantage is true?

A. Most competitive advantages are sustainable.
B. Competitive advantages cannot be leveraged.
40 C. Any competitive advantage must be seen by customers as a customer advantage.
D. A competitive advantage cannot be used to increase a company’s profitability.
E. A true competitive advantage cannot be matched by the competition.

p. 84 D 66. _____ is an organization-wide approach to continuously improving the quality of the

45 organization’s processes, products, and services.
A. Customer service
B. Core competency development
C. Total quality marketing
D. Total quality management
50 E. Conformance quality

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 14 Part I - UNDERSTANDING MARKETING MANAGEMENT - Chapter 3

p. 84 E 67. Busch and Resier are two companies that make vacuum packaging machines. If,
when delivered to their buyers, each brand of machine performs exactly the way its
salesperson promised it would, then both manufacturers are said to have delivered
the same:
5 A. total quality
B. a competitive advantage
C. performance quality
D. a core competency
E. conformance quality
10
p. 85 C 68. Most customers have the perception that a Rolex watch will outperform a Timex
watch because Rolex watch has a higher:
A. performance latitude
B. quality maximization
15 C. performance quality
D. substitutability
E. transferable quality

20 True-False Questions

p. 60 F 69. Total customer value is the perceived monetary value of the bundle of economical,
functional, and psychological benefits customers expect from a given product
offering.
25
p. 61 F 70. The link between customer satisfaction and customer loyalty is proportional.

p. 62 F 71. Studies show that although customers are dissatisfied with one out of every four
purchases, less than five percent of dissatisfied customers will complain.
30
p. 62 F 72. The value proposition refers to the core positioning of the product offering.

p. 64 T 73. The key to delivering high customer loyalty is to deliver high customer value.

35 p. 65 F 74. The customer-centered firm seeks to maximize customer satisfaction.

p. 67 F 75. To become a high-performance business, a company needs to own its own resources.

p. 70 F 76. The primary activities of the value chain include: logistics, operations, service,
40 procurement, and human resource management.

p. 71 F 77. When a company benchmarks its products, it compares their performance to its own
ideal, internal standards.

45 p. 71 F 78. As companies struggle to become more competitive, they are practicing less
cooperation.

p. 72 F 79. As long as the cost of reducing the customer defection rate is more than the lost
profit, the company should spend that amount to reduce the defection rate.
50

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 Building Customer Satisfaction, Value, and Retention 15
p. 75 T 80. An essential step in calculating the defection rate of a customer is to estimate that
customer’s lifetime value. This will help to determine the amount of profit lost
when that customer defects.

5 p. 76 T 81. One way to retain customers is to erect high switching barriers.

p. 77 T 82. Partnership marketing is when a company contacts a customer from time to time
providing suggestions about improved product uses or helpful new products.

10 p. 78 T 83. Frequency programs add financial benefits and help keep customers loyal.

p. 79 F 84. To add social benefit and improve its customer retention rate, Ashley Mills Design
provides its wallpaper customers with the tools needed to install wallpaper at the
time of purchase.
15
p. 81 F 85. A company’s largest customers are not necessarily its most profitable ones.

p. 81 T 86. Most companies fail to measure individual customer profitability.

20 p. 84 F 87. Although quality improvement programs increase customer satisfaction, they often
decrease profits because of the expense involved.

p. 85 T 88. Marketers bear the major responsibilities for correctly identifying the customer’s
needs and requirements.
25

Essay Questions

p. 67 89. In 1964, Truett Cathy developed a fried boneless chicken filet that he began selling
30 as a sandwich under the brand name of Chick-fil-A. In 1997, the company had $800
million in sales. The company has consistently produced a satisfying product and
that consistent product quality is what it has built its reputation on. In recent years,
McDonald’s, Burger King, Wendy’s and other fast-food restaurants have introduced
chicken sandwiches. What should Chick-fil-A do in the face of this new
35 competition?

Answer: Student answers will vary. Students may suggest the company expand its product
lines, begin offering a delivery service or change its store format. Students should
realize that the chicken sandwich sold at Chick-fil-A restaurants represents a core
40 competency for the firm.

p. 72 90. There has been a recent trend toward decorating the outside garden with the same
care that one might decorate a living room. Fishponds with flexible liners and
submerged pumps are becoming common. Water’s Edge is one of the companies
45 trying to cash in on this trend. Water’s Edge sells products for setting up ponds and
for maintaining a healthy, attractive pond. Consumers need filters, chemicals,
plants, fish, fish food, and decorative rocks to maintain their pools. Also, customers
often find that other parts of their yards would benefit from having a relaxing pool.
Obviously, attracting and retaining customers is a significant concern for this firm.
50 Discuss what Water’s Edge can do to reduce customer defections and retain its
existing customers.
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 16 Part I - UNDERSTANDING MARKETING MANAGEMENT - Chapter 3

Answer: There are four steps in trying to reduce the defection rate. First, Water’s Edge must
define and measure its retention rate. Second, Water’s Edge must distinguish the
causes of customer attrition and identify those that can be managed better. Third,
5 Water’s Edge needs to estimate how much profit it loses when it loses customers.
Fourth, Water’s Edge needs to calculate how much it would cost to reduce the
defection rate. As long as the cost is less than the lost profit, the company should
spend that amount to reduce the defection rate. The most effective method for
reducing customer defections is simply listening to the customers. This creates
10 loyalty, customer satisfaction, and turns defecting customers into retained customers.
Listening is not enough, however. Water’s Edge must also be ready to respond
quickly and constructively to customer complaints. There are two ways for Water’s
Edge to strengthen customer retention. One is to erect high switching costs. For
Water’s Edge, this could amount to free replacement liners if the customer buys all
15 maintenance supplies from the company. The better approach is to deliver high
customer service. To do this, Water’s Edge must involve every employee in
delivering service and every employee must engage in relationship marketing.

p. 85 91. Discuss the marketer’s role in helping an organization define and deliver high-
20 quality goods and services to its target customers.

Answer: Marketers play several roles. First, they bear the major responsibility for correctly
identifying the customers’ needs and requirements. Second, they must communicate
customer expectations properly to product design. Third, they must make sure
25 customer orders are filled correctly and on time. Fourth, they must check that
customers have received proper instructions, training, and technical assistance in the
use of the product. Fifth, they must stay in touch with customers after the sale to
ensure they are satisfied and remain satisfied. Sixth, they must gather customer
ideas for product and service improvements and convey them to the appropriate
30 company departments. When marketers do all this, they are making substantial
contributions to total quality management and customer satisfaction. Ultimately,
marketers must be the customer’s watchdog. They must constantly hold up the
standard of “giving the customer the best solution.”

35
Mini-Case 3-1
Under the management of Garrison Cox, ComfortEase Mattress Company, Inc. has been
losing business for several years to its competitors. Cox was recently replaced by Fred Wilson as
CEO of the 78-year-old firm. Wilson has implemented a new corporate-wide focus on the customer
40 and on quality. The new CEO began by challenging his marketing team to increase customer value
through product improvement while lowering customer costs in terms of time, psychic energy, and
money. His second step was to focus on his company’s primary activities: logistics, operations,
service, etc. He also asked for a review of the company’s procurement process, technological
development, and other supporting activities. Third, he wanted to know how satisfied
45 ComfortEase’s customers really were. Wilson was especially interested in learning where former
customers had gone. After a great deal of work, and a careful analysis of the information gathered,
his marketing team recommended that ComfortEase implement a program offering rewards to their
heaviest and most profitable customers. Wilson was pleased.

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 Building Customer Satisfaction, Value, and Retention 17
p. 60 C 92. Refer to Mini-Case 3-1. Which of the following describes the purpose of the
challenge the new CEO made to the ComfortEase marketing team?
A. It was intended to implement total quality marketing.
B. It was intended to measure customer profitability.
5 C. It was intended to increase customer perceived value.
D. It was an effective way to launch a customer retention program.
E. It was an efficient way to determine the company’s defection rate.

p. 64 E 93. Refer to Mini-Case 3-1. Based on what the CEO wanted to know about his
10 customers’ satisfaction, which is the best tool to use to measure it?
A. sales force surveys
B. customer satisfaction surveys
C. SWOT analysis
D. ghost shopping
15 E. lost customer analysis

p. 68 D 94. Refer to Mini-Case 3-1. Since this company has been in operation for 78 years,
what is the most difficult hurdle Wilson is likely to face as he tries to make the
20 company more customer-centered?
A. the retention of customers
B. the reduction of the defection rate
C. maintaining the satisfaction level of the company’s stakeholders
D. changing the company’s corporate culture
25 E. operating in a mature market

p. 71 A 95. Refer to Mini-Case 3-1. Wilson’s second step involved:

A. enhancing the customer’s value chain
B. augmenting the value-delivery network
30 C. implementing total quality marketing
D. raising switching barriers to retain customers
E. focusing on modifications to the corporate culture

p. 78 B 96. Refer to Mini-Case 3-1. Wilson’s marketing team is recommending as a solution

35 that the company:
A. begin measuring customer profitability
B. build value through the addition of financial benefits to the product
C. implement a total quality marketing program
D. define what constitutes customer satisfaction
40 E. build a strong value delivery network

Mini-Case 3-2
Tina McLane operated the Grand Bouquet, a 1,650-square foot florist shop, in a strip
mall next to a Hallmark shop and near an upscale supermarket. Because of her proximity to
45 Hallmark, she felt required to stay up on the latest trends and aggressively filled the store with gift
items. Due to her neighbors, McLain did well and before she realized over 50 percent of her
business was coming from giftware. Then, Hallmark moved and the supermarket was replaced with
a discount grocery store. McLain watched her profits spiral downwards. She slashed prices and
fired employees. Then, she noticed a rent sign on a smaller location that was in a renovated cottage.
50 She moved into the cottage and decided that she was going to return to being a florist. She had a sale
prior to moving and sold nearly all of the giftware. In her new location, she created a relaxed
Copyright 2003 © Prentice Hall. All Rights Reserved
 18 Part I - UNDERSTANDING MARKETING MANAGEMENT - Chapter 3

working atmosphere—unlike the highly competitive environment that she had operated in at one
time. Her revenues are climbing and former customers are returning.

p. 60 A 97. Refer to Mini-Case 3-2. As her revenue started to decline, McLain’s customers
5 indicated by their defection that:
A. the costs of shopping there exceeded the value that they perceived they received
B. no additional costs were associated with their continued shopping at the store
C. the total customer value increased because of the added effort
D. the total customer costs decreased because of the declining value offered by the
10 strip center
E. no perceptible value remained

p. 68 C 98. Refer to Mini-Case 3-2. Before the move to the renovated cottage, McLain was
worried about failure, her employees were worried about losing their jobs, and the
15 few customers felt pressured into making purchases. In the new environment,
McLain is happy, the work environment is friendly, and the employees are secure in
their knowledge that she is a very competent florist. The total of these experiences
produce the store’s:
A. experience aggregation
20 B. value-delivery network
C. corporate culture
D. structural conformance
E. functional performance

25 p. 71 A 99. Refer to Mini-Case 3-2. One of the reasons McLain’s store failed was her attempt to
match her performance (product mix, prices, etc.) to Hallmark, a national chain with
a chain’s buying power. She actually saw Hallmark as a direct competitor and used
_____ to measure how well she was doing.
A. benchmarking
30 B. value-delivery networking
C. a value analysis
D. a flanking attack
E. a core business evaluation

35 p. 77 E 100. Refer to Mini-Case 3-2. When revenues started declining, McLain first stopped
buying giftware, then slashed prices and held sales, and then she fired employees.
She was not interested in retaining customers—only in avoiding bankruptcy.
McLain engaged in _____ marketing.
A. accountable
40 B. basic
C. partnership
D. proactive
E. reactive

45 p. 79 D 101. Refer to Mini-Case 3-2. When McLain opened her new store, she invited all of her
old customers to attend a reception at the new store where she served cake and
punch. She gave every one who entered the store a free carnation. The reception
was such a success that McClain holds one annually and sends out invitations.
McClain added _____ as her approach to customer retention building.
50 A. financial benefits

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 Building Customer Satisfaction, Value, and Retention 19
B. social benefits
C. psychological rewards
D. support benefits
E. structural ties
5

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