Chapter 10—Customer Relationship Management

TRUE/FALSE

1. While a company's Internet presence may be desirable for finding information or conducting product
transfers, touching products and talking face-to-face with company representatives remains an integral
part of the supplier-customer interface.

ANS: T PTS: 1
BUSPROG: Analytic LO: 10-1 Bloom’s: Comprehension Difficulty: Easy

2. The objectives of any CRM initiative should be focused on what the company can reasonably achieve.

ANS: F PTS: 1
BUSPROG: Analytic LO: 10-1 Bloom’s: Knowledge Difficulty: Easy

3. While a well-planned and organized CRM initiative can be extremely useful in developing effective
and efficient marketing programs for retailers, they are not particularly helpful for manufacturing
companies like GM since their touches with the customer are few.

ANS: F PTS: 1
BUSPROG: Analytic LO: 10-1 Bloom’s: Comprehension Difficulty: Easy

4. When web sites suggest other items for purchase based on already purchased items, this is an example
of Clickstream Selling.

ANS: F PTS: 1
BUSPROG: Analytic LO: 10-2 Bloom’s: Comprehension Difficulty: Easy

5. According to the text, customer relationship management refers to building and maintaining profitable
long-term customer relationships.

ANS: T PTS: 1
BUSPROG: Analytic LO: 10-2 Bloom’s: Knowledge Difficulty: Easy

6. Through the use of permission marketing programs, customers are allowed to select the type of
communications that companies can make with them. Actually, customers can even choose to be
completely eliminated from both e-mail and traditional mailing lists.

ANS: T PTS: 1
BUSPROG: Analytic LO: 10-2 Bloom’s: Comprehension Difficulty: Easy

7. Sales force automation products manage a sales person’s accounts, business opportunities, and
communications.

ANS: F PTS: 1
BUSPROG: Analytic LO: 10-2 Bloom’s: Knowledge Difficulty: Easy

8. The three inputs for calculating Customer Lifetime Value are Average Annual Sales, Expected
Lifetime and Forecasted Profits.

ANS: F PTS: 1
 BUSPROG: Analytic LO: 10-3 Bloom’s: Knowledge Difficulty: Easy

9. Customer lifetime value is calculated as the net present value of an annuity.

ANS: T PTS: 1
BUSPROG: Analytic LO: 10-3 Bloom’s: Knowledge Difficulty: Easy

10. According to the text, poor planning is typically the cause of most unsuccessful CRM initiatives.

ANS: T PTS: 1
BUSPROG: Analytic LO: 10-4 Bloom’s: Knowledge Difficulty: Easy

11. Only employees who will be entering CRM data should be involved in the CRM implementation plan.

ANS: F PTS: 1
BUSPROG: Analytic LO: 10-4 Bloom’s: Comprehension Difficulty: Easy

12. Segmenting customers on the basis of things like products purchased, sales history, demographic
information, and desired product features can dilute the results of a CRM program.

ANS: F PTS: 1
BUSPROG: Analytic LO: 10-5 Bloom’s: Comprehension Difficulty: Easy

13. Until recently, CRM was not very effective for most companies because it didn’t focus on building
customers' trust and loyalty, or building strong relationships with customers.

ANS: F PTS: 1
BUSPROG: Analytic LO: 10-5 Bloom’s: Comprehension Difficulty: Easy

14. As customers navigate through a company’s website, CRM software can record and analyze the
customer's clickstream so website images and ads can be tailored to the needs and desires of that one
individual customer.

ANS: T PTS: 1
BUSPROG: Analytic LO: 10-5 Bloom’s: Comprehension Difficulty: Easy

15. Safeguarding customer information is a legal and ethical responsibility for any company collecting,
processing, and transmitting sensitive customer data.

ANS: T PTS: 1
BUSPROG: Ethics LO: 10-6 Bloom’s: Knowledge Difficulty: Easy

16. Customers of companies that use CRM applications, should not be concerned with their personal
information becoming compromised or being shared with other companies, because of the law.

ANS: F PTS: 1
BUSPROG: Ethics LO: 10-6 Bloom’s: Comprehension Difficulty: Easy

17. Today, successful CRM applications will be measured by the personal value created for the users.

ANS: T PTS: 1
BUSPROG: Analytic LO: 10-7 Bloom’s: Comprehension Difficulty: Easy
 18. Continuous connectivity is desired by many users of CRM applications, however this is still something
the systems can’t deliver yet.

ANS: F PTS: 1
BUSPROG: Analytic LO: 10-7 Bloom’s: Comprehension Difficulty: Easy

19. The use of small data makes CRM systems less successful.

ANS: F PTS: 1
BUSPROG: Analytic LO: 10-7 Bloom’s: Comprehension Difficulty: Easy

20. Small data is the data that was around before big data.

ANS: T PTS: 1
BUSPROG: Analytic LO: 10-7 Bloom’s: Comprehension Difficulty: Easy

MULTIPLE CHOICE

1. Companies work very hard to reduce the number of customers who don’t return. This customer
defection is often referred to as:
a. Customer churn
b. Clickstream defection
c. Balking
d. Revenue Exodus
ANS: A PTS: 1
BUSPROG: Analytic LO: 10-1 Bloom’s: Knowledge Difficulty: Easy

2. Your top sales executive leaves your company to work for a competitor. Fortunately, all of her notes
regarding prior dealings with customers have been captured in a:
a. Sales activity management system
b. Sales territory management system
c. Lead management system
d. Knowledge management system
ANS: D PTS: 1
BUSPROG: Analytic LO: 10-1 Bloom’s: Knowledge Difficulty: Easy

3. Which of the following is one of the most basic and important activities of CRM?
a. Segmenting customers
b. Cross-selling customers
c. Increasing churn
d. Finding customers
ANS: A PTS: 1
BUSPROG: Analytic LO: 10-1 Bloom’s: Comprehension Difficulty: Easy

4. All of the following are required elements for the development of an effective CRM initiative
EXCEPT:
a. Segmenting customers
b. Customer value determination
c. Utilization of MRP
d. Personalizing customer communications
 ANS: C PTS: 1
BUSPROG: Analytic LO: 10-2 Bloom’s: Comprehension Difficulty: Easy

5. You work for a company that segments customers by demographic information, and then markets
specifically to those customers who are located in the Los Angeles area. This is an example of:
a. Target marketing
b. Cross-selling
c. Geographic marketing
d. Personalized customer communication
ANS: A PTS: 1
BUSPROG: Analytic LO: 10-2 Bloom’s: Comprehension Difficulty: Easy

6. Your company allows customers to "opt-out" of receiving email advertisements. This is referred to as:
a. Event-based marketing
b. Permission marketing
c. Customer churn
d. Customer preference marketing
ANS: B PTS: 1
BUSPROG: Analytic LO: 10-2 Bloom’s: Knowledge Difficulty: Easy

7. The use of quick response codes (QR Codes) to retrieve marketing information is a type of:
a. Geographic marketing
b. Target marketing
c. Customer churn
d. Mobile marketing
ANS: D PTS: 1
BUSPROG: Analytic LO: 10-2 Bloom’s: Comprehension Difficulty: Easy

8. The element of a CRM program involved with the use of data-mining software and customer behavior
analytics is:
a. Segmenting customers
b. Predicting customer behaviors
c. Customer value determination
d. Customer preference determination
ANS: B PTS: 1
BUSPROG: Analytic LO: 10-2 Bloom’s: Comprehension Difficulty: Easy

9. When an organization attempts to offer the right products and services to customers at the right time
through the offer of individual promotions tied to specific events like birthdays and anniversaries, this
is referred to as:
a. Event-based marketing
b. Segmented selling
c. Personal holiday marketing
d. Extreme segmentation marketing
ANS: A PTS: 1
BUSPROG: Analytic LO: 10-2 Bloom’s: Knowledge Difficulty: Easy

10. Which of the following are required elements of an effective CRM initiative?
a. Sending out promotional materials via e-mails and traditional mail to a large random
group of a potential customers
 b. Cross-selling customers after an initial purchase
c. Preserving a traditional sales force that communicates with the supply-chain members
d. All of these
ANS: B PTS: 1
BUSPROG: Analytic LO: 10-2 Bloom’s: Comprehension Difficulty: Easy

11. A customer's lifetime value is calculated by:

a. Summing the projected annual profitability of the customer
b. Summing the annual sales of the customer and then dividing by the projected lifetime
c. The firm’s MRP system
d. Finding the NPV of a customer’s projected lifetime profits for the firm
ANS: D PTS: 1
BUSPROG: Analytic LO: 10-3 Bloom’s: Knowledge Difficulty: Easy

12. Tire manufacturer Firebridge sells tires to retail firm A. Average annual sales for firm A is $55,000.
Average profit margin is 15%. The expected lifetime is 10 years. Using a discount rate of 15 percent,
calculate the Customer Lifetime Value of firm A and choose the closest answer below:
a. $5,500
b. $38,590
c. $41,405
d. $25,675
ANS: C PTS: 1
BUSPROG: Analytic LO: 10-3 Bloom’s: Application Difficulty: Moderate

13. A firm offers group discount for orders exceeding 15. Two firms are taking advantage of this offer.
Sales to Company A averages $15, 000 of annual sales, has a 22% profit margin and an expected
lifetime of 8 years. Company B averages $11, 000 of annual sales, has a 25% profit margin and an
expected lifetime of 9 years. Which is the more important customer based on the higher expected
lifetime value? Assume a 7% discount rate.
a. Company A because its’ NPV = $17917
b. Company A because its’ NPV = $19705
c. Company B because its’ NPV = $21,224
d. Company B because its’ NPV = $22,349
ANS: B PTS: 1
BUSPROG: Analytic LO: 10-3 Bloom’s: Application Difficulty: Moderate

14. Why do so many CRM programs fail?

a. They are so expensive that it is hard to recover the investment
b. They take the firm away from concentrating on their key suppliers
c. Because of incompatible information and communication systems
d. Firms concentrate more on the CRM software instead of taking care of customers
ANS: D PTS: 1
BUSPROG: Analytic LO: 10-4 Bloom’s: Comprehension Difficulty: Easy

15. All of the following are recommended for designing and implementing a successful CRM program
EXCEPT:
a. Support from the firm's top executives
b. Expect employees to ‘learn on the job’ and adapt their way of working
c. Knowledge of the tools available to aid in CRM
d. Continuous awareness of customers' changing requirements
 ANS: B PTS: 1
BUSPROG: Analytic LO: 10-4 Bloom’s: Comprehension Difficulty: Easy

16. The online retailer Ecatalog.com has decided to send consumers of the new John Grisham book an e-
mail with suggestions for books with similar themes and has also offered them a 20% discount if those
suggested books were purchased. This type of marketing/promotion is an example of:
a. Target marketing
b. Segmented selling
c. Clickstream selling
d. Cross-selling
ANS: D PTS: 1
BUSPROG: Analytic LO: 10-5 Bloom’s: Comprehension Difficulty: Easy

17. CRM systems allow organizations to identify which customers have stopped purchasing products or
services, so that the organization can target those former customers for future promotions and/or
perhaps to investigate why they stopped purchasing in the first place. This CRM attribute is called:
a. Customer profitability determination
b. Customer-base retention initiative
c. Customer defection analysis
d. Customer clickstream analysis
ANS: C PTS: 1
BUSPROG: Analytic LO: 10-5 Bloom’s: Knowledge Difficulty: Easy

18. A system which allows sales managers to obtain current information and reporting capabilities
regarding each salesperson's activities on each customer's account is referred to as a:
a. Sales activity management system
b. Sales territory management system
c. Lead management system
d. Knowledge management system
ANS: B PTS: 1
BUSPROG: Analytic LO: 10-5 Bloom’s: Knowledge Difficulty: Easy

19. Which of the following customer service elements can be classified as an example of posttransaction
elements?
a. Salesperson politeness
b. Customer complaint resolution
c. Customer service policies
d. The company's choice of organizational structure
ANS: B PTS: 1
BUSPROG: Analytic LO: 10-5 Bloom’s: Comprehension Difficulty: Easy

20. You are a manager at Sunnydale Appliances. A customer who recently purchased a dishwasher
contacts you with a problem and requests warranty information. According to the text, this is an
example of:
a. Probable customer churn
b. Posttransaction customer service
c. Transaction customer service
d. Pretransaction customer service
ANS: B PTS: 1
BUSPROG: Analytic LO: 10-5 Bloom’s: Comprehension Difficulty: Easy
21. Users in a company can retrieve and study a large amount of information about consumers by housing
that information in a centralized database that is commonly referred to as a:
a. Clickstream cloud
b. QR code site
c. Data warehouse
d. Social media site
ANS: C PTS: 1
BUSPROG: Analytic LO: 10-5 Bloom’s: Comprehension Difficulty: Easy

22. A practical independent measure firms can take to improve information security is:
a. Eliminate employee internet use at work
b. Do not collect information about their customers
c. Continuously monitor employee desktop applications, e-mails and phone calls
d. None of these
ANS: C PTS: 1
BUSPROG: Ethics LO: 10-6 Bloom’s: Comprehension Difficulty: Easy

23. Which of the following is a U.S. law which requires compliance by all firms engaged in handling
customer information?
a. The Customer Loyalty Law
b. The Data Protection Act
c. The Internet Privacy Law
d. The U.S. Patriot Act
ANS: D PTS: 1
BUSPROG: Ethics LO: 10-6 Bloom’s: Knowledge Difficulty: Easy

24. Firms can safeguard customer information by doing which of the following?
a. Allow customers to opt-in and out of mailing lists
b. Allow customers to access their accounts online to view information collected about
themselves
c. Both A & B
d. None of these
ANS: C PTS: 1
BUSPROG: Ethics LO: 10-6 Bloom’s: Comprehension Difficulty: Easy

25. CRM systems today require less training because:

a. The systems don’t do as many things as they used to.
b. They are designed to be more user-friendly
c. Pre-purchase training sessions have become very sophisticated
d. All of the above
ANS: B PTS: 1
BUSPROG: Analytic LO: 10-7 Bloom’s: Comprehension Difficulty: Easy

26. When CRM applications are available 24/7 on smartphones, tablets, and desktops, this is referred to
as:
a. A high-service application
b. Smart CRM
c. All-time CRM
d. Continuous connectivity
 ANS: D PTS: 1
BUSPROG: Analytic LO: 10-7 Bloom’s: Comprehension Difficulty: Easy

SHORT ANSWER

1. The textbook describes a perfect order as one in which all of seven of the rules in the "Seven Rs Rule"
are satisfied. List five of the seven R's.

ANS:
1. Right Product
2. Right Quantity
3. Right Condition
4. Right Place
5. Right Time
6. Right Customer
7. Right Cost

PTS: 5
BUSPROG: Communication LO: 10-2 Bloom’s: Knowledge Difficulty: Easy

2. For the information given, rank the two customers in terms of their customer lifetime value.

Avg. Annual Sales Avg. Profit Margin Expected Lifetime

Customer A: $4,500 15 % 10 years
Customer B: $4,000 14 % 8 years

Use a discount rate of 8 percent and treat the average sales figures as annuities.
ANS:

[
( 1+i )n −1
NPVA = a i ( 1+i )
n ] [
( 1+. 08 )10−1
10 ]
= $4,500(.15) .08 ( 1+. 08 ) = $525(6.71) = $4529

[
( 1+i )n −1
NPVB = a i ( 1+i )
n ] [
( 1+. 08 )8 −1
8 ]
= $5,000(.14) .08 ( 1+. 08 ) = $560(5.74) = $4018

The rankings from best to worst are A, B.

PTS: 5
BUSPROG: Analytic LO: 10-3 Bloom’s: Application Difficulty: Moderate

3. Creating a good CRM plan is necessary prior to purchasing a CRM system. Briefly describe a CRM
plan.

ANS:
The plan should include the objectives of the CRM program, its fit with corporate strategy, new
applications to be purchased or used, the integration with or replacement of existing methods or legacy
CRM systems, the requirements for personnel, training, policies, upgrades, and maintenance, and the
costs and time frame for implementation. Once this document is completed, the firm will have a
roadmap for guiding the purchase and implementation process.

PTS: 5
 BUSPROG: Communication LO: 10-4 Bloom’s: Comprehension Difficulty: Moderate

4. Because a large number of CRM applications exist, integrating these in one company can be
problematic. Briefly describe the issue and discuss how integration can be achieved.

ANS:
CRM systems are not one single product, but rather a suite of various applications that have been
implemented over time. One of the biggest mistakes made is that departments across the firm
implement various CRM applications without communicating these actions to other departments.
Eventually, these systems will interfere with each other, as they communicate with the same customer,
sending confusing and irritating signals that can chase customers away quickly. Customer contact
mechanisms need to be coordinated so that every CRM application user within the firm knows about
all the contact activity for each customer. Compatible CRM modules are needed which are linked to
one centralized database or data warehouse containing all customer information. Thus, from one
database, users in the organization can retrieve information on a customer’s profile, purchase history,
promotion responses, payment history, web visitations, merchandise returns, warranty repairs, and call
center contacts.

PTS: 5
BUSPROG: Communication LO: 10-6 Bloom’s: Comprehension Difficulty: Moderate

ESSAY

1. A CRM program primarily attempts to monitor and/or manage three things: an organization's
customers, sales force, and customer service level.

List two different tools or components of CRM for each of three areas:
a. Customers
b. Sales Force
c. Customer Service Level

Describe how each tool or component is utilized in the monitoring and/or managing of the customers,
sales force, or customer service level.

ANS:

a. Customers
1. Segmenting Customers  Using data to categorize customers so that specialized
communications can be used to more effectively utilize target marketing efforts.
2. Permission Marketing  Allowing customers to select the type and time of
communication with individual organizations.
3. Cross-selling  Selling, or attempting to sell, additional products to customers
during or following the sale based on initial purchases.
4. Customer Defection Analysis  Utilizing modeling technologies to find data
patterns among customers who have quit purchasing, as opposed to those data
patterns of customers that continue to purchase.
5. Customer Profitability Determination  Determining the value/profitability of
each customer. This allows organizations to determine the amount of resources
they invest in each customer.
6. Event-based Marketing  Individual marketing programs based on the customers
birthday, anniversary, etc.

b. Sales Force
 1. Sales Activity Management Tools  Based on a firm's sales policies and
procedures, these tools and aid a salesperson through a sequence of sales activities
during their interactions with each customer.
2. Sales Territory Management Tools  Allows managers to monitor the status of
each salesperson's activities on each customer's account.
3. Lead Management Tools  Assist sales reps by providing them with sales tactics
that will aid them in completing sales.
4. Knowledge Management Tools  Provide sales reps with a large amount of
information relating to contracts, clients, corporate policies, regulatory issues,
sales presentations, promotional materials, etc.

c. Customer Service Level

1. Customer Service Defined  Determining what service means to your customer
and building metrics to measure an organization's performance in delivering
service are important steps in creating programs to support customer service.
2. Call Centers  Modern call centers are sophisticated enough to be capable of
collecting, organizing, and evaluating call data in order to provide better service in
the present as well as in the future.
3. Web Site Self-service  well-designed web sites allow customers to find
information, e-mail questions or complaints, communicate in real time with a
company personnel, collect information concerning customer needs, etc. in
addition, the services offered through the sites can reduce staffing requirements.
4. Field Service Management  effective field service tools and processes can now
organizations to quickly diagnose problems, and dispatch the required specialists
to quickly address customer problems that must be addressed in the field.
5. Measuring Customer Satisfaction  CRM programs allow personalized service to
have it specific customer segments. Furthermore, these results can be compared to
with those inside or outside of the respondents segment.
6. Customer Privacy Capabilities  CRM applications are attempting to monitor the
preferred channel or channels of communication for each customer.

PTS: 10
BUSPROG: Communication LO: 10-2 Bloom’s: Comprehension Difficulty: Difficult

2. A good CRM program is only good if it is successfully implemented. Describe three important
elements a firm should consider when designing and implementing a CRM program.

ANS:
a. Understand the Problem Being Solved – The firm should be able to answer the question;
What are the problems a CRM program is going to solve? They must avoid the
temptation to start working on a solution or to hire a CRM application provider before
understanding the problem. They can involve employees from all functional groupings
within the firm as well as receive input from the firm’s key customers. A good starting
point could be looking at piecemeal programs that have already been started at the firm
and listing the benefits and drawbacks of such program.

b. Create the CRM Plan - The firm should put together a solid plan for a CRM project.
Next, they must be sure to obtain executive management approval and funding for the
project. The plan should include the objectives of the CRM program; new applications to
be purchased or used; the integration or replacement of existing methods or legacy CRM
systems; the requirements for personnel, training, policies, upgrades, and maintenance;
and the costs and time frame for implementation This will provide them with a roadmap
for guiding the purchase and implementation process.
 c. Involve CRM Users from the Outset – There is a direct relationship between CRM
program success and employee involvement so it is important to get users on board at
the start of implementation. The firm should create a project team with members from
sales, customer service, marketing, finance, and production. Employees need to know
how their job will be affected from the very beginning. The firm can help the users
understand the value of the program. This will help keep everyone committed to its
success.

d. Selecting the Right Application and Provider - Finding the best application and supplier
can be accomplished by:
 Attending a CRM-oriented tradeshow
 using a CRM consulting firm
 searching CRM or business publications
 using the knowledge of internal IT personnel
 searching the many CRM supplier directories and websites
One of the primary criteria for firms to consider is the support available from the
application provider. After-sale user support is essential and vendors who provide good
support should be valued more highly than those that do not.

e. Integrate Existing CRM Applications – All customer data from current applications need
to be linked to one centralized database. This assures that those employees
communicating with customers have access to all the contact information. It annoys
customers when they must repeat information they have already provided to a firm just
because their call has been transferred to a different department. If the customer data is
not integrated, it causes duplicate effort from employees entering the data, wasted
money and disgruntled customers.

PTS: 10
BUSPROG: Communication LO: 10-4 Bloom’s: Application Difficulty: Difficult

3. Define THREE of the goals of the common CRM program. How does CRM software attempt to
achieve each of these goals?

ANS:
Some possible answers:
a. Increasing Customer Loyalty  measuring customer satisfaction, call center
development, informational scripting, field service management, managing customer
privacy capabilities

b. Maximizing Corporate Investment  segmenting customers, permission marketing,

cross-selling, predicting customer behavior, customer profitability determination,
personalizing customer communications, utilizing lead management tools, utilizing
knowledge management tools, web sites self-service

c. Maximizing Customer Satisfaction  measuring customer satisfaction, predicting

customer behavior, personalizing customer communications, utilizing knowledge
management tools, web sites self-service, field service management, managing customer
privacy capabilities

d. Collecting, Managing, Organizing and Utilizing Data/Information  segmenting

customers, utilizing automated sales force tools that aid in lead management and/or
knowledge management, customer profitability determination, event-based marketing
Notice, in many cases the same tools or strategies are used in an attempt to achieve more than one of
the goals listed above.

Some students may see a certain tools and/or strategies as goals. For example, a student may list
segmenting customers as the goal. In actuality, segmenting customers is a strategy used to achieve a
one or more of the above listed goals.

Also, it is possible that some students may believe the listed tools/strategies maybe achieving goals
that are not listed above. Read those carefully, as the above listed goals are most likely not complete.

PTS: 10
BUSPROG: Communication LO: 10-5 Bloom’s: Analysis Difficulty: Difficult