Chapter 03 Perspectives on CRM and Marketing Metrics True/False Questions 1. CRM essentially is computer software. Answer: False Rationale: CRM is technology-based but we view it as a comprehensive business system for increasing revenues and profits by focusing on customers. 2. The ultimate goal of CRM is maximizing performance of the customer side of the enterprise. Answer: True Rationale: The ultimate goal of CRM is to increase revenues and profits by focusing on customers. 3. CRM software is exclusively for the use of the Information Technology experts. Answer: False Rationale: No one group should have ownership of CRM. Various internal stakeholders like sales people and customer service representatives would be the system's primary users. 4. It is possible today to calculate the total profitability for each customer that is expected to be earned over the length of the customer relationship. Answer: True Rationale: Return on customer investment (ROCI) estimates the projected financial returns from a customer. 5. Customer satisfaction and customer loyalty essentially are the same thing. Answer: False Rationale: Satisfaction relates to customer's liking but loyalty refers to the degree to which the customer resists switching. These concepts are not the same. 6. CRM software is best selected for purchase by the Information Technology department since the ‘techies' will need to maintain it and better understand the required functions. Answer: False Rationale: The CRM system's primary users like salespeople, marketing managers, and customer service representatives should provide significant inputs into the selection of the system. 7. Customer satisfaction refers to the degree to which a customer will resist switching from one offering to another. Answer: False Rationale: Customer loyalty (and not customer satisfaction) refers to the degree to which a customer will resist switching from one offering to another. 8. It is okay to fire a customer who has a low predicted lifetime value, even if there is not a more attractive customer in sight. Answer: False Rationale: ROCI suggests that it is okay to fire low value customers but more attractive potential customers must be in sight. 9. A data warehouse allows the firm to collect information about every customer touchpoint in a systematic way and analyze it through data mining. Answer: True Rationale: A data warehouse is used to gather data generated through various touchpoints. With the help of data mining, this data is then transformed into useful information for marketing planning. 10. Data mining is about analyzing as much information as possible about customers and potential customers to develop micro-segments. Answer: True Rationale: One useful outcome of data mining is the development of segments or micro-segments for use in research or segmentation. 11. Customer contact and access points are key to the knowledge discovery process. Answer: True Rationale: Knowledge discovery is the process of analyzing the customer information acquired through various customer touchpoints, or customer "contact and access points" in the terminology of George Day's definition of CRM. 12. Database marketing requires that the firm have access to a data warehouse and engage in data mining. Answer: True Rationale: The data generated through data warehouse and data mining is used to develop "hit lists" of customer prospects, who are then contacted by various means of communication. This is called as database marketing. 13. Direct interface relates to touchpoints that are both interactive and noninteractive. Answer: False Rationale: Direct interface relates to interactive (and not noninteractive) touchpoints which allow two way information exchange. 14. A key element that makes CRM possible is the degree to which a customer trusts the firm with his or her information. Answer: True Rationale: Trust is a key element of strong customer relationship. Customers must be absolutely certain that the information a firm collects and stores about them will not be used for unintended purposes. 15. USAA customers and employees have face-to-face interaction that leads to high levels of satisfaction. Answer: False Rationale: Ninety-nine percent of USAA's business is conducted over the phone or online. 16. CRM-driven, one-to-one marketing tends to have increased promotional costs. Answer: False Rationale: CRM-driven one-to-one marketing tends to have reduced promotional costs due to decreased reliance on expensive mass media and redirection of promotional investment to more targeted promotional vehicles. 17. An employee who believes that he or she needs to understand who buys the company's products and services has an internal customer mind-set. Answer: False Rationale: An employee who believes that he or she needs to understand who buys the company's products and services has an external customer mind-set. 18. An employee who believes that he or she can do a better job by understanding the company's customers has an internal customer mind-set. Answer: False Rationale: An employee who believes that he or she can do a better job by understanding the company's customers has an external customer mind-set. 19. An employee who believes that he or she needs to focus on the requirements of the person who receives his or her work has an internal customer mind-set. Answer: True Rationale: An employee who believes that he or she needs to focus on the requirements of the person who receives his or her work has an internal customer mind-set. 20. Marketing managers who want to improve the effectiveness of CRM focus on three areas: Customers, the relationship, and managerial decision-making. Answer: True Rationale: The focus on customers, the relationship, and managerial decision-making leads to - (1) the evolution of the firm's relationships with customers, (2) the creation of a companywide relationship management strategy, and (3) the selection of CRM solutions. This ultimately improves effectiveness of CRM. 21. Managers should buy the best, most advanced CRM package, and then try to change the firm to fit the new technology. Answer: False Rationale: CRM failure may result if there is no organizational buy-in prior to introducing the CRM platform. The primary users of CRM should be consulted prior to the purchase. 22. Implementing a CRM system and then having it disappoint or fail is much worse for a firm than if it had never attempted CRM. Answer: True Rationale: Systems that don't fit are demoralizing to employees and represent a huge financial investment that may be lost. Multiple Choice Questions 23. CRM is a short hand way to refer to _______________. A. Consumer Returns Management B. Customer Ranking Measures C. Chief Resource Marketer D. Computer Resource Management E. Customer Relationship Management Answer: E. Customer Relationship Management Rationale: CRM (Customer Relationship Management) refers to a model for increasing revenue and profits by focusing on customers. 24. Which of the following is NOT true about CRM? A. It is a business strategy to select and manage the most valuable customer relationships B. It adopts a profit-centric business philosophy C. It helps in increasing the effectiveness of marketing initiatives D. It enables and supports the implementation of a customer orientation E. It helps in increasing customer retention Answer: B. It adopts a profit-centric business philosophy Rationale: Successful implementation of CRM requires a customer-centric philosophy and culture, as well as leadership and commitment to CRM from the top. 25. The main focus of CRM is on _______________. A. Internal processes B. Efficiency C. Marketing metrics D. Profitability through customer focus E. Gross revenue Answer: D. Profitability through customer focus Rationale: CRM is a system for increasing revenue and profits by focusing on customers. 26. CRM is mainly used by the _______________ department(s). A. Marketing, sales, and customer service B. Senior management C. Accounting and IT D. Customer service E. Information technology Answer: A. Marketing, sales, and customer service Rationale: CRM captures a lot of information about customers. Although IT manages the software, it is the marketing side of the firm that uses the data for marketing planning. 27. CRM is _______________. A. A software system B. A business strategy C. Focused on maximizing profitability through serving the best customers D. Customer-centric E. All of the above Answer: E. All of the above Rationale: CRM is a comprehensive customer-focused program that is relationship oriented and increases revenue and profits. 28. For CRM to succeed, it must have the support of _______________. A. The IT Department B. Top management C. The sales team D. The marketing department E. All of the above Answer: E. All of the above Rationale: Successful implementation of CRM requires commitment from top management and cross functional planning and good communication among departments in the firm. 29. Customer _______________ is usually based on a high level of perceived value derived from the offering and a strong relationship with the provider and its brand(s). A. Loyalty B. Satisfaction C. Acquisition D. Retention E. Profitability Answer: A. Loyalty Rationale: Loyalty is usually based on high satisfaction coupled with a high level of perceived value derived from the offering and a strong relationship with the provider and its brand(s). 30. The ultimate goal of CRM is maximizing performance on the _______________ side of the enterprise. A. Employee B. Management C. Customer D. Supplier E. Distributor Answer: C. Customer Rationale: CRM captures and analyzes information about the customers, which leads to improvement in customer profitability, retention, and acquisition. 31. To use CRM, companies are _______________. A. Redesigning the internal structures to focus on internal and external relationships B. Renegotiating contracts with suppliers to cut price C. Focusing solely on internal relationships D. Focusing solely on external relationships E. Giving huge discounts to long time customers Answer: A. Redesigning the internal structures to focus on internal and external relationships Rationale: Redesigning the internal structure helps in optimizing CRM's potential for contribution to the bottom line. 32. Organizational learning occurs in which phase of the CRM process? A. Knowledge discovery B. Market planning C. Analysis and refinement D. Customer interaction E. Direct sales Answer: C. Analysis and refinement Rationale: In the analysis and refinement phase of the CRM process, organizational learning occurs based on customer response to the implemented strategies and programs. 33. Customer loyalty is defined as _______________. A. Repeat purchases B. The degree to which an individual will resist switching from one offering to another C. The level of liking an individual harbors for an offering D. Customer laziness in trying new products E. The likelihood that a customer become a buzz marketer Answer: B. The degree to which an individual will resist switching from one offering to another Rationale: Customer loyalty is derived from high satisfaction, high perceived value, and a strong relationship with the provider and its brand(s). 34. Customer satisfaction is defined as _______________. A. The degree to which an individual will resist switching from one offering to another B. The level of liking an individual harbors for an offering C. Customer laziness in trying new products D. The likelihood that a customer becomes a buzz marketer E. The number of purchases in a defined period of time Answer: B. The level of liking an individual harbors for an offering Rationale: Customer satisfaction indicates the level to which the offering meets the customer's expectations. 35. ROCI stands for _______________. A. Related Observable Customer Index B. Return on Consumer Indicators C. Return on Customer Investment D. Relationship of Customer and Investment E. Response of Consumers to Investment Answer: C. Return on Customer Investment Rationale: ROCI (Return on Customer Investment) is an estimate of the projected financial returns from a customer. 36. _______________ is a monetary number that represents an upper limit on spending to acquire new customers. A. Supply chain metrics B. Word of mouth value C. Customer lifetime value D. Customer longevity spending E. Estimated spending Answer: C. Customer lifetime value Rationale: Customer lifetime value is the dollar value of a customer relationship based on the present value of the projected future cash flows from the customer relationship. 37. Garrett is moving into retirement and wants to cut his client base to half so he can work part time. In deciding which customers to keep, Garrett should look at the monetary prediction called _______________. A. Customer longevity spending B. Total customer spending C. Total customer gross margin D. Customer lifetime value E. Total transaction spending Answer: D. Customer lifetime value Rationale: Customer lifetime value is the dollar value of a customer relationship based on the present value of the projected future cash flows from the customer relationship. 38. Juana and Marta inherited a large auto dealership. Their task is to convince the sales staff to be relationship driven rather than transaction driven. Many sales people are out to make the most money from each sale because they don't see themselves staying in the job for a long time and don't care about the future of the dealership. The CRM metric that demonstrates the preference of relationships over transactions is _______________. A. Customer longevity spending B. Total customer spending C. Total customer gross margin D. Customer lifetime value E. Total transaction spending Answer: D. Customer lifetime value Rationale: Customer lifetime value is the dollar value of a customer relationship based on the present value of the projected future cash flows from the customer relationship. It demonstrates the preference of relationships over transactions. 39. _______________ is NOT an element of the CRM process cycle. A. Analysis and refinement B. Supplier interface C. Customer interaction D. Knowledge discovery E. Marketing planning Answer: B. Supplier interface Rationale: The CRM process cycle begins with knowledge discovery and moves on to market planning. The implementation of the plan is done through customer interaction and at the analysis and refinement phase organizational learning occurs. Supplier interactions are not included in CRM. 40. In which phase of the CRM process is customer information analyzed through various customer touchpoints? A. Knowledge discovery B. Market planning C. Analysis and refinement D. Customer interaction E. Direct sales Answer: A. Knowledge discovery Rationale: Knowledge discovery is the process of analyzing the customer information acquired through various customer touchpoints. 41. Key parts of the marketing plan that rely on CRM-generated information include all EXCEPT _______________. A. Situation analysis B. Market research C. Strategy development D. External economic factors E. Implementation Answer: D. External economic factors Rationale: CRM captures information related to customers which is used in situation analysis, market research, strategy development, and implementation. 42. John recently got a job as a manufacturer's representative and his new boss wants him to evaluate and get rid of under-performing accounts. John doesn't understand why anyone would get rid of a customer. What measurement would help John see his boss' point of view? A. Return of customer revenue B. Annual ROI C. Projected cash flow D. Return on customer investment E. Revenue growth per consumer Answer: D. Return on customer investment Rationale: Return on customer investment is an estimate of the projected financial returns from a customer. It helps in identifying customers with low predicted lifetime value. Getting rid of these accounts would free up resources which can be invested in other profitable customers. 43. Miguel has eight traditional Cuban restaurants in South Florida and he wants to track his customers by building a database. He would do this in the _______________ element of the CRM process cycle. A. Data mining B. Knowledge discovery C. Marketing planning D. Customer interaction E. Analysis and refinement Answer: B. Knowledge discovery Rationale: Knowledge discovery is the process of analyzing the customer information acquired through various customer touchpoints. 44. Mayleen wants to cut down on unproductive and expensive direct mail to current customers. Her best bet would be to _______________. A. Hire a firm to do the mailings for her B. Use less expensive paper to print the mailing C. Create a data warehouse to track customer touchpoints D. Use data mining to predict the most profitable customers E. C and D Answer: E. C and D Rationale: A data warehouse affords the opportunity to combine large amounts of information and data mining techniques help learn more about current and potential customers. This would help identifying profitable customers while helping reduce cost. 45. Six times a year, Patrick and Sally send out 15 million catalogs that showcase a wide variety of Irish products. They hire a call center to take orders and another company to actually warehouse and fulfill the orders. All of the information systems are linked to provide real time data to all users. Patrick and Sally are in the stage of CRM that is like market research in the form of a continuous dialogue with customers, facilitated by the effective use of CRM tools. They are in the _______________ phase of the CRM process. A. Data mining B. Knowledge discovery C. Marketing planning D. Customer interaction E. Analysis and refinement Answer: E. Analysis and refinement Rationale: Analysis and refinement phase is used for organizational learning. In this phase, continuous adjustments made to the firm's overall customer initiatives should result in more efficient investment of resources and increasing ROCI. 46. The phase of the CRM process cycle that is devoted to personal selling is _______________. A. Data mining B. Marketing planning C. Customer interaction D. Analysis and refinement E. Knowledge discovery Answer: C. Customer interaction Rationale: The customer interaction phase represents the actual implementation of the customer strategies and programs. This includes the personal selling effort, as well as all other customer-directed interactions. 47. The CRM process cycle may be divided into _______________ elements. A. Four B. Five C. Eight D. Ten E. Twelve Answer: A. Four Rationale: The four elements of the CRM process cycle are (1) knowledge discovery, (2) market planning, (3) customer interaction, and (4) analysis and refinement. 48. _______________ is the first phase in the process cycle for CRM. A. Analysis and refinement B. Supplier interface C. Customer interaction D. Knowledge discovery E. Marketing planning Answer: D. Knowledge discovery Rationale: The CRM process cycle begins with knowledge discovery, where data gathered is analyzed through various touchpoints. Output of knowledge discovery is used in marketing planning. 49. _______________ is the second phase in the process cycle for CRM. A. Analysis and refinement B. Supplier interface C. Customer interaction D. Marketing planning E. Knowledge discovery Answer: D. Marketing planning Rationale: Marketing planning is the second element in the CRM process which uses output from the knowledge discovery phase and develops marketing and customer strategies and programs. 50. _______________ is the third phase in the process cycle for CRM. A. Analysis and refinement B. Supplier interface C. Customer interaction D. Knowledge discovery E. Marketing planning Answer: C. Customer interaction Rationale: The customer interaction phase represents the actual implementation of the customer strategies and programs and it is the third phase in the CRM process cycle. 51. _______________ is the fourth phase in the process cycle for CRM. A. Analysis and refinement B. Supplier interface C. Marketing planning D. Knowledge discovery E. Customer interaction Answer: A. Analysis and refinement Rationale: Analysis and refinement is the last element in CRM process cycle. In this phase of CRM, organizational learning occurs based on customer response to the implemented strategies and programs. 52. _______________ is most likely NOT considered a customer touchpoint. A. Point-of-sale systems B. Follow-up calls C. Records from direct selling D. Customer complaints to call centers E. Managerial assessment of customer loyalty Answer: E. Managerial assessment of customer loyalty Rationale: A touchpoint is where the selling firm touches the customer in some way, so that information about the customer can be collected. 53. A data warehouse _______________. A. Is a place to keep former customer records B. Is storage for old file boxes C. Allows customers to store meaningful information about themselves online D. Allows the company to combine huge amounts of information and then use data mining techniques to learn more about current and potential customers E. Is a place to store ideas for future marketing campaigns Answer: D. Allows the company to combine huge amounts of information and then use data mining techniques to learn more about current and potential customers Rationale: Data warehouse is used to gather data generated through various touchpoints which is then transformed into useful information with the help of data mining. 54. Data mining is a part of _______________ element of the CRM cycle. A. Analysis and refinement B. Supplier interface C. Marketing planning D. Knowledge discovery E. Customer interaction Answer: D. Knowledge discovery Rationale: In the knowledge discovery phase, data gathered in the data warehouse is analyzed with the help of data mining so as to develop customer segments. 55. Michael, the stockbroker, is trying to figure out the response to the customer dinner he hosted last night. Michael is in the _______________ phase of the CRM process. A. Analysis and refinement B. Supplier interface C. Customer interaction D. Knowledge discovery E. Marketing planning Answer: A. Analysis and refinement Rationale: In the analysis and refinement phase of the CRM process, organizational learning occurs based on customer response to the implemented strategies and programs. 56. Touchpoints are _______________. A. Static and mobile B. Interactive and noninteractive C. Frequent and expensive D. Infrequent and inexpensive E. Frequent and inexpensive Answer: B. Interactive and noninteractive Rationale: Touchpoints are interactive and noninteractive. In interactive touchpoint, there is a direct interface between the customer and a company representative whereas in noninteractive touchpoint, such direct interface is absent. 57. To use touchpoints successfully, the firm must _______________. A. Try to identify all possible touchpoints B. Develop specific objectives for the kind of information needed at each touchpoint C. Figure out what kind of data are needed D. Develop policies on how the information will be accessed and used E. All of the above Answer: E. All of the above Rationale: A touchpoint is where the selling firm touches the customer in some way, so that information about the customer can be collected. This information is used further in marketing planning. To maximize a firm's ability to successfully use touchpoints, an ongoing concerted effort must be undertaken to carry out all the above mentioned points. 58. Carol's boss wants her to identify interactive customer touchpoints in the organization. She has decided that all EXCEPT _______________ are interactive. A. Call centers B. The company's static Web site C. The 1-800 telephone line D. Sales representatives E. Branch offices Answer: B. The company's static Web site Rationale: In interactive touchpoint, there is a direct interface between the customer and a company representative. The company's static Web site is a noninteractive touchpoint. 59. Carol's boss wants her to identify noninteractive customer touchpoints in the organization. She has decided that all EXCEPT _______________ are noninteractive. A. Call centers B. The company's static website C. Direct mail D. Television ads E. Coupons and rebates Answer: A. Call centers Rationale: In interactive touchpoints, there is a direct interface between the customer and a company representative. Considering the above options, only call centers provide direct interface. 60. A CRM touchpoint that does NOT require direct interface is _______________. A. Outbound telemarketing B. Inbound telemarketing C. A bank's ATM D. A customer online chat line E. A branch office Answer: C. A bank's ATM Rationale: While using an ATM, the customer interacts with a machine and there is no direct interface between the customer and a company representative. 61. All of the following are advantages of CRM-driven one-to-one marketing EXCEPT? A. Reduced promotional costs. B. Improved targeting of specific customers. C. Improved capability to track the effectiveness of a given promotional campaign. D. Increased effectiveness in competing on value-adding properties. E. A longer product development cycle. Answer: E. A longer product development cycle. Rationale: Increased speed in developing and marketing a product (product development cycle) is one of the advantages of CRM-driven one-to-one marketing. 62. Retailers like Brookstone use loyalty programs to reward the best customers. Brookstone customers earn points for _______________. A. Signing into the website B. Purchasing online C. Referring new customers D. Knowledge discovery E. All of the above Answer: B. Purchasing online Rationale: Customer loyalty is the degree to which an individual will resist switching, or defecting, from one offering to another. Online purchases by customers are indicative of high satisfaction coupled with a high level of perceived value. 63. The issue of privacy is particularly sensitive to legal and ethical issues in the _______________ market. A. Industrial goods market B. High technology goods C. Consumer D. B2B E. Service Answer: C. Consumer Rationale: For a strong relationship between a firm and its customers, the customers must be absolutely certain that the information a firm collects and stores about them will not be used for unintended purposes. 64. Firms that have high levels of customer information security and handle the information responsibly also _______________. A. Find it easier to attract new customers B. Retain current customers C. Use it as a competitive advantage D. B and C E. All of the above Answer: E. All of the above Rationale: High levels of customer information security and responsible handling of the information ensures that the customers trust the company and this leads to strong relationship between the firm and its customers. 65. Which of the following does NOT best describe marketing dashboards? A. Provides a diagnostic insight B. Provides enough strategic insights C. Provides a predictive value D. Enhances the efficiency and effectiveness of marketing investments E. All of the above Answer: B. Provides enough strategic insights Rationale: Marketing dashboards generally consist of too many tactical metrics and do not provide enough strategic insights. 66. _______________ is the reduction in sales (units or dollars) of a firm's existing products due to the introduction of a new product. A. Cannibalization B. Margin on Sales C. Penetration D. Customer Lifetime Value E. Sales Force Effectiveness Answer: A. Cannibalization Rationale: Cannibalization is the reduction in sales (units or dollars) of a firm's existing products due to the introduction of a new product. 67. The cost of data protection with encryption, back-up files is _______________. A. Low B. Very inexpensive C. Relatively inexpensive D. Moderately expensive E. High Answer: E. High Rationale: The cost of data protection with encryption, back-up files is high; hence companies often take a wait-and-see attitude on investing in such measures. 68. The insurance and financial services firm that consistently rates high in customer satisfaction due to its CRM system is _______________. A. Wells Fargo B. USAA C. Bank of North America D. Morgan Stanley E. Washington Mutual Answer: B. USAA Rationale: USAA is a broad-based insurance and financial services provider. The company has one of the most sophisticated and best-managed CRM systems in the world. 69. USAA began as an insurance company for _______________. A. All military personnel B. Anyone who worked on a military base C. Military officers and their families D. Enlisted personnel E. Anyone who lived in the U.S. Answer: C. Military officers and their families Rationale: USAA was established as an insurance company for military officers and their families because these officers had difficulty getting insurance at reasonable rates due to the extreme mobility associated with their career paths. 70. USAA's high regard for customer privacy is evidenced through _______________. A. The company asking permission to share information with outside companies B. The company asking permission to share information with companies in the USAA family C. The company requiring customer to use access codes and identity verification D. A and B E. B and C Answer: E. B and C Rationale: USAA takes great care to protect the information stored about its customers. Whenever a member contacts USAA, access codes and verifications of identity are required for any interaction. Also USAA takes permission from the customers before sharing their information even with its internal divisions. 71. Some companies today continue to think of consumers in the role of faceless reactors to the firm's marketing strategies. These companies tend to use _______________ marketing. A. Targeted marketing B. One-to-one marketing C. Customer centric marketing D. Mass marketing E. Service marketing Answer: D. Mass marketing Rationale: In mass marketing, consumers are thought of as faceless reactors to the firm's marketing strategies. Mass marketing does not attempt to understand unique needs of individual customers. 72. Companies that use CRM are most likely to practice _______________. A. Mass marketing, given the economics of scale created by CRM B. Consumer marketing, due to being able to identify like-minded audiences C. Shotgun marketing, given the ability to reach large numbers of people D. Customer marketing, due to trying to establish one-to-one relationships E. Holistic marketing, to reach many different audiences Answer: D. Customer marketing, due to trying to establish one-to-one relationships Rationale: In customer marketing, the focus is on developing relationships with individuals. Information about individual customers can be gathered with the help of CRM and thus CRM helps in one-to-one marketing. 73. Companies that focus on transactions most likely practice _______________. A. Mass marketing B. Target marketing C. One-to-one marketing D. Customer marketing E. Consumer marketing Answer: A. Mass marketing Rationale: Companies that focus on transactions most likely practice mass marketing. In mass marketing, consumers are the perennial subjects of sophisticated marketing research in the form of surveys, focus groups, and purchase diaries. 74. Companies that focus on products most likely practice _______________. A. One-to-one marketing B. Customer marketing C. Target marketing D. Consumer marketing E. Mass marketing Answer: C. Target marketing Rationale: In target marketing, the focus is on developing products for the target segments. 75. Companies that focus on lifetime value most likely practice _______________. A. Mass marketing B. Target marketing C. One-to-one marketing D. Customer marketing E. Consumer marketing Answer: D. Customer marketing Rationale: In customer marketing, the focus is on developing relationships with individuals. Hence the companies tend to focus on the lifetime value of the customer. 76. Companies that focus on real-time matching most likely practice _______________. A. Mass marketing B. Target marketing C. One-to-one marketing D. Customer marketing E. Consumer marketing Answer: C. One-to-one marketing Rationale: Real-time matching is a characteristic of one-to-one marketing. 77. _______________ is NOT an advantage of one-to-one marketing over traditional mass marketing. A. Increased promotional costs B. Improved targeting of specific customers C. Increased product development cycles D. More efficient customer interaction E. Better ability to track a campaign Answer: A. Increased promotional costs Rationale: One-to-one marketing reduces promotional costs due to decreased reliance on expensive mass media and targeted promotions. 78. The effort a firm makes towards cultivating a customer-centric culture requires a high degree of _______________ within the firm. This means structure, processes, and tools are developed to support the culture. A. Professionalism B. Creativity C. Management D. Formalization E. Metrics Answer: D. Formalization Rationale: When a firm is making efforts to move towards a customer centric culture, it is essential that the structure, processes and tools are formally established in support of the culture. This refers to formalization within the firm. 79. Firms that use CRM systems successfully also have the _______________ to make the initiative successful. A. Culture B. Leadership C. Structure D. Systems E. All of the above Answer: E. All of the above Rationale: CRM should not be considered as merely a software program. For the CRM initiative to become successful, the firm should be a relationship-based enterprise with customer centric culture, leadership, structure and systems. 80. The effort a firm makes towards cultivating a customer-centric orientation requires a high degree of _______________. A. Spontaneity B. Creativity C. Formality D. Formalization E. Static structure Answer: D. Formalization Rationale: When a firm is making efforts to move towards a customer centric culture, it is essential that the structure, processes and tools are formally established in support of the culture. This refers to formalization within the firm. 81. The most prevalent formalization mechanism of a customer-centric culture is _______________. A. TQM B. Reengineering C. CRM D. ABM E. The Marketing Dashboard Answer: C. CRM Rationale: CRM stands for customer relationship management. For the CRM initiative to become successful, formalization in terms of culture, structure, processes, and tools is required. 82. Scott thinks about the challenges and opportunities that his customers face from their point of view. In fact, he reinforces to all members of his team that their jobs revolve around satisfying customers. Scott _______________. A. Has a customer mindset B. Is trying to maximize profits, no matter what C. Is focusing his team on the bottom line D. Has a short term orientation E. Needs to expand his managerial horizons Answer: A. Has a customer mindset Rationale: When a person believes that understanding and satisfying customers, whether internal or external to the organization, is central to the proper execution of his or her job, he/she is said to have a customer mindset. 83. Carl, a customer solutions manager for a wholesale air conditioning and heating company, has empowered his employees to take action on any customer issue. One way to motivate employees to do the best for the customer is to _______________. A. Pay them on a gross sales commission B. Reward then for always putting the customer first C. Praise them to the company as a whole D. All of the above E. B and C Answer: E. B and C Rationale: It is important that the firm realign its performance management system, such as incentives and rewards, to motivate utilization of CRM by organization members. 84. Greg and Mark, CRM consultants, have been hired by Devon to guide her company through the CRM implementation process. All employees are on cross-functional teams to focus transforming the firm into a relationship-based enterprise. One team meeting is designed to focus on three important categories that revolve around _______________. A. Customers, suppliers, prospects B. Customers, the relationship, and managerial decision making C. Customer relationships, marketing, and product offering D. Customer, managers, and suppliers E. Customer relationships, employee relationships, and managerial relationships Answer: B. Customers, the relationship, and managerial decision making Rationale: In a relationship-based enterprise, the focus is on developing long-term, win-win relationships between buyer and the seller firm. To achieve this goal, it is important to understand customers, the relationship, and the managerial issues. 85. Greg and Mark, CRM consultants have been hired by Devon to guide her company through the CRM implementation process. All employees are on cross-functional teams to focus transforming the firm into a relationship-based enterprise. Greg and Mark have asked the teams to answer these questions: "What is the value proposition for our customers?" and "What do our customers want and expect?" It is clear that they are focusing on _______________. A. Customers B. Production issues C. The managerial issues D. Supplier issues E. Distribution issues Answer: A. Customers Rationale: To transform a firm into a relationship-based enterprise. It is important to understand customers and their expectations so that the firm's relationship with customers can be decided. 86. Greg and Mark, CRM consultants, have been hired by Devon to guide her company through the CRM implementation process. All employees are on cross-functional teams to focus transforming the firm into a relationship-based enterprise. Greg and Mark have asked the teams to answer these questions: "How do we measure our performance?" and "How do we increase our capacity for change?" It is clear that they are focusing on _______________. A. Customers B. The relationship between the customer and the firm C. The managerial issues D. Supplier issues E. Distribution issues Answer: C. The managerial issues Rationale: To transform a firm into a relationship-based enterprise, various questions related to managerial decision making should be answered. The answers to these questions guide the selection of CRM solutions. 87. Jerry's firm has changed CRM packages three times in hopes of finding a workable solution for the firm's customer requirements. This CRM failure can best be described as _______________. A. No allowances for organizational change B. Low level of employee buy-in C. Flavor of the month club D. Poor training E. Business unit silos Answer: C. Flavor of the month club Rationale: Trying one CRM software package after another occurs under the pretense that no system has been a good fit. To correct this, every user should be involved in determining in advance what the key desired deliverables are from the CRM system. 88. Really Big Corp. has a powerful Information Technology department, a commission-driven sales team, and an outside-the-box thinking marketing team that operate independently and are at odds with each other. This power struggle has led to a CRM failure that probably was caused by _______________. A. Flavor of the month club B. Poor training C. Low level of employee buy-in D. No allowances for organizational change E. Business unit silos Answer: E. Business unit silos Rationale: Lack of cross-functional planning and poor communication among departments within a firm cause difficulty in CRM implementation. 89. UniCore implemented a CRM system two years ago. Unfortunately, the IT guys chose the system without asking employees across the board for their input and consequently, most employees have yet to see the value of the system—even though they went through extensive training. This CRM failure can best be described as _______________. A. No allowances for organizational change B. Low level of employee buy-in C. Flavor of the month club D. Poor training E. Business unit silos Answer: B. Low level of employee buy-in Rationale: Since CRM is an enterprise-wide initiative, it will touch nearly everyone in a firm in some way over time. Hence it is important to involve everyone in the organization in CRM selection. 90. Lack of cross-functional planning and poor communication among departments is often referred to as _______________. A. Independent thinking B. Business unit silos C. Sole searching D. Parallel development E. Business a usual Answer: B. Business unit silos Rationale: CRM needs cross-functional planning and good communication among departments within a firm. Lack of it is called as Business unit silos, which can lead to difficulties in CRM. 91. CRM reports should consist of _______________. A. Only data the firm will actually use B. As much information as possible so the company can try to detect trends C. Data categories that are the same every report period D. Competitive analysis E. All of the above Answer: A. Only data the firm will actually use Rationale: The likelihood of a successful implementation of CRM increases when the reporting consists only of data the firm can actually use. 92. For CRM software to work, the most important aspect for the firm is to recognize _______________. A. How paying too much money for the software will doom the firm B. That everyone is expected to willingly embrace the implementation C. That change is easy D. How it can enable a customer-centric organization E. That the software should be dumped if it doesn't perform to expectations within the first three months Answer: D. How it can enable a customer-centric organization Rationale: CRM is not merely software. CRM represents a business strategy, a set of operational processes, and analytic tools to enable or facilitate a truly customer-driven enterprise. Short Answer Questions 93. What is CRM? Answer: It is a comprehensive business model for increasing revenues and profits by focusing on customers. 94. What are the three major objectives of CRM? Answer: 1. Customer acquisition— acquisition of the right customers based on known or learned characteristics that will drive growth and increase margins. 2. Customer retention— retention of satisfied and loyal profitable customers and channels, and thus to grow the business profitably over the long run. 3. Customer profitability— increased individual customer margins, while offering the right products at the right time. 95. Define customer satisfaction. Answer: Customer satisfaction means the level of liking an individual harbors for an offering—that is, to what level is the offering meeting or exceeding the customer's expectations. 96. Define customer loyalty. Customer loyalty means the degree to which an individual will resist switching, or defecting, from one offering to another. Answer: Customer loyalty means the degree to which an individual will resist switching, or defecting, from one offering to another. 97. Jay and Martha went to Portugal on their honeymoon and stayed in a wonderful lodge in wine country. They continue to tell their friends about the lodge even though they have been married for 10 years. Most likely, this is the only trip they will make to the remote region of Portugal. Are they satisfied or loyal customers? Answer: The couple is satisfied customers. Loyalty implies an on-going relationship. Since they are not expecting to return the relationship has ended. 98. Why is the concept of the lifetime value of a customer important? Answer: Investment in CRM yields more successful long-term relationships with customers, and that these relationships pay handsomely in terms of cost savings, revenue growth, profits, referrals, and other important business success factors. It is possible to actually calculate an estimate of the projected financial returns from a customer, or return on customer investment (ROCI), over the long run. This analysis provides a very useful strategic tool for deciding which customers deserve what levels of investment of various resources (money, people, time, information, etc.). 99. What are the four elements in the CRM process cycle? Answer: (1) Knowledge discovery, (2) market planning, (3) customer interaction, and (4) analysis and refinement. 100. What are customer touchpoints? Answer: Knowledge discovery is the process of analyzing the customer information acquired through various customer touchpoints, or customer "contact and access points" in the terminology of George Day's definition of CRM. 16 At their essence, touchpoints are where the selling firm touches the customer in some way, thus allowing for information about him or her to be collected. These might include point-of-sale systems, call-center files, Internet accesses, records from direct selling or customer service encounters, or any other customer contact experiences. Touchpoints occur at the intersection of a business event that takes place via a channel using some media, such as online inquiry from a prospect, telephone follow-up with a purchaser on a service issue, face-to-face encounter with a salesperson, and so on. 101. What is a data warehouse? What is data mining? Answer: A data warehouse affords the opportunity to combine large amounts of information and then use data mining techniques to learn more about current and potential customers. Data mining is a sophisticated analytical approach to using the massive amounts of data accumulated through the CRM system to develop segments and micro-segments of customers either for purposes of market research or development of market segmentation strategies. 102. What is database marketing and in which stage of the CRM process cycle is it used? Answer: The knowledge discovery phase of the CRM process cycle becomes the focal point for many direct marketers. Direct marketing involves utilizing the data generated through this phase to develop "hit lists" of customer prospects, who are then contacted individually by various means of marketing communication. This activity is often referred to as database marketing. 103. Describe the marketing planning phase of the CRM process cycle. Answer: The next phase in the CRM process cycle is marketing planning, which represents a key use of the output from the knowledge discovery phase. That is, the information enables the capability to develop marketing and customer strategies and programs. CRM input into the marketing planning process is particularly useful in developing elements of the marketing mix strategies, including employing the marketing communication mix in integrated ways to customize approaches to different customer groups. 104. Describe the customer interaction phase of the CRM process cycle. Answer: The customer interaction phase represents the actual implementation of the customer strategies and programs. This includes the personal selling effort, as well as all other customer-directed interactions. These must be aimed at all the customer touchpoints, or channels of customer contact, both in person and electronically. 105. Describe the analysis and refinement phase of the CRM process cycle. Answer: Finally, the analysis and refinement phase of the CRM process is where organizational learning occurs based on customer response to the implemented strategies and programs. Think of it as market research in the form of a continuous dialogue with customers, facilitated by effective use of CRM tools. With such and capability related to customer research, continuous adjustments made to the firm's overall customer initiatives should result in more efficient investment of resources and increasing ROCI. 106. Describe the two types of touchpoints. Answer: Some touchpoints are interactive and allow for such two-way information exchange. That is, they involve direct interface between a customer and a firm's customer contact person in the form of a salesperson, telemarketer, customer service representative, interactive Web site, and so on. Other touchpoints are noninteractive; that is, the customer may simply provide information on a static Web site's data entry form or by mail, without the capability of simultaneous direct interface with a company representative. 107. What are the four things a firm must do in order use touchpoints successfully? Answer: To maximize a firm's ability to successfully use touchpoints, an ongoing concerted effort must be undertaken to: (1) identify all potential touchpoints, (2) develop specific objectives for what kind of information can be collected at each touchpoint, (3) determine how that information will be collected and ultimately integrated into the firm's overall customer database, and (4) develop policies on how the information will be accessed and used. 108. What are the characteristics of mass marketing? How does it differ from most marketing today? Answer: Market share Individual sales Limited segmentation Huge campaigns Not cost-effective Single treatments Focus on transactions Number of relationships Most marketing today focuses on reaching groups of customers who share similar characteristics and on one-to-one relationship building. 109. Address the difference between the consumer marketing and customer marketing mindset. Answer: A major change in mind-set precipitates a shift from targeted consumer marketing (i.e., marketing to big groups of likeminded buyers) to customer marketing, or a focus on developing relationships with individuals. Ultimately, it is the sophistication and multiplicity of available technology today—and especially CRM—that enables the shift to mass customization and one-to-one marketing as introduced in Chapter 1. Firms that choose to make the investment are now able to better customize offerings to the wants and needs of individual users. 110. Are the core concepts of CRM new? What is the driving force that makes CRM possible today? Answer: The fact is, many of the underlying concepts of CRM are not all that new. You could open a marketing management textbook from 25 years ago and find a discussion of many of the tenets of what we now refer to as CRM. What has changed in the environment to allow for the more integrated approach to managing customers represented by modern CRM is today's technology; the development of more sophisticated approaches to data management became the spark that allowed CRM to flourish. 111. How does CRM facilitate a customer-centric culture through formalization? Answer: The effort a firm makes toward cultivating a customer-centric culture requires a high degree of formalization within the firm. Formalization means that structure, processes and tools, and managerial knowledge and commitment are formally established in support of the culture. With these elements in place, strategies and programs can be successfully developed and executed toward the goals related to customers, accompanied by a high degree of confidence they will yield the desired results. Today, the most prevalent formalization mechanism is CRM. 112. What does it mean when someone says he or she has a customer mindset? Answer: One way to think about how an organization member might exhibit a customer orientation is through a customer mindset, which is a person's belief that understanding and satisfying customers, whether internal or external to the organization, is central to the proper execution of his or her job. It is through organization members' customer mind-set that a customer orientation "comes alive" within a firm. Essay Questions 113. Three months ago, Jacques took over the space of a casual restaurant and a separate bar. His French fare is aimed at a more upscale, older market but the separate bar attracts the same happy hour and late night crowd as before. He would like to remodel the bar and create a wine and martini menu. However, the beer crowd continues to be very profitable during these first few months of operation. He faces the dilemma of wanting the offerings of the bar to parallel that of the restaurant but he is worried that he will not get the same revenue from the wine and martini bar that is earned from the ‘beer and a shot' crowd. Should he try to "fire" the bar crowd? Why or why not? Answer: Answers should include that firing the beer crowd to attract a more upscale audience seems like a good idea but the beer crowd seems to be providing a steady revenue stream for now. Will the new concept bar be a strong enough draw for a new crowd? Will the older crowd that is coming to the restaurant also come to the new concept bar? Proliferation of ROCI analysis has raised the prospects of firing a customer who exhibits a low predicted lifetime value, and instead investing resources in other more profitable customers. Of course, such action assumes other more attractive customers exist. Jacques should not "fire" the bar crowd. The profitable beer crowd contributes significantly to his revenue, which is crucial during the initial months of his operation. Instead, he can gradually introduce wine and martini options while maintaining the current offerings to attract a diverse clientele and ensure steady income. 114. Chico's is a clothing store aimed at women who are 40 years old and over. Once a customer spends $500, she is enrolled in the Passport Club. This allows her to get 5% off her total purchase every shopping trip and she gets special monthly discounts offered through the catalog and postcard mailings, the major customer touchpoints other than in-store shopping. Many customers say the best thing about shopping at Chico's is that the computer system automatically tracks their spending and coupon usage. They don't even need to remember to bring the coupons because everything is "in the computer". What do you think of Chico's CRM system? How could it be improved? Answer: It appears that Chico's is driving customer loyalty through the Passport Club and catalogue mail. Customers seem to have a favorable view of the company's data warehouse. Answers should include that customer touchpoints could be expanded beyond in-store contact and mail. 115. John manages a shoe store in a town of 40,000 that is the major trading center for the surrounding rural communities. He has known many of the customers for the forty years he has run the store. He sees no reason to invest in even the simplest of CRM systems. What would you say to John to change his mind? Answer: Answers will vary across the breadth of the chapter. Look for responses that emphasize the three objectives of CRM. 1. Customer acquisition— acquisition of the right customers based on known or learned characteristics that will drive growth and increase margins. 2. Customer retention— retention of satisfied and loyal profitable customers and channels, and thus to grow the business profitably over the long run. 3. Customer profitability— increased individual customer margins, while offering the right products at the right time. I would tell John that investing in a CRM system can enhance his long-standing customer relationships by providing personalized service and better managing customer preferences. It can also help attract new customers and streamline operations, ensuring the store remains competitive and relevant in the changing market. 116. The employees in the bookkeeping department at XYZ Corp. don't like dealing with customers. Most often customers call only to complain about their bills or the Accounts Receivable clerk has to call to customers to remind them that accounts are past due. Now the marketing department is spearheading a drive to implement a CRM system. As the marketing manager, what can you say to the bookkeeping folks to get their buy-in for the system? Answer: All departments will gain from the cross-functional implementation of CRM. Retaining the most satisfied and loyal customers in the long run will improve profitability and reduce the headaches the bookkeeping dept. now suffers. 117. Scott is a sales representative for the industrial products division of an oil company. His major accounts are companies with large truck fleets, quick oil change chains aimed at the consumer, and municipalities. He wants to replace the small cities as customers because they negotiate price to a thin profit margin. What would be a good indicator that he could ‘fire' these customers? Answer: It is possible to actually calculate an estimate of the projected financial returns from a customer, or return on customer investment (ROCI), over the long run. This analysis provides a very useful strategic tool for deciding which customers deserve what levels of investment of various resources (money, people, time, information, etc.). Chapter 19 is devoted to identifying and exemplifying the use of marketing metrics. Many of the most useful marketing metrics derive their power and functionality from CRM. Proliferation of ROCI analysis has raised the prospects of firing a customer who exhibits a low predicted lifetime value, and instead investing resources in other more profitable customers. Of course, such action assumes other more attractive customers exist. 118. Your textbook says that "Wal-Mart has been working hard to solidify its community connectedness, organizational culture, and business model to allow the ‘world's largest retailer' to become an enabler of customer relationships". What do you think of Wal-Mart's efforts? Do you shop at Wal-Mart? Why or why not? What evidence do you see of the textbook's claims? Answer: Answers will vary based on personal views and are likely to include a discussion of ethical conduct since Wal-Mart has received much negative publicity regarding treatment of employees. Wal-Mart has conducted a PR campaign to show its giving back to the communities its serves and corporate sustainability. Wal-Mart's efforts to solidify community connectedness, organizational culture, and its business model reflect a strategic move to enhance customer loyalty and adapt to changing consumer expectations. I shop at Wal-Mart for its convenience and low prices. Evidence of their efforts includes local community initiatives, employee engagement programs, and the integration of technology for a better shopping experience. 119. Describe the ethical and legal issues raised by the protection of customer information collected during the CRM process. Answer: The aspect of CRM involving customer information collected through touchpoints raises substantial ethical and legal issues for the firm regarding privacy, particularly in the consumer marketplace. Clearly, a key component of a strong customer relationship with a firm is a high level of trust. Customers must be absolutely certain that the information a firm collects and stores about them will not be used for unintended purposes. Often referred to as the "dark side of CRM," this issue has become so prominent in some industries that firms are beginning to publicly promote guarantees of non-abuse of stored customer information as a means of attracting customers. It is a feature that resonates well with customers and likely provides a strong point of differentiation over competitors. 120. Describe the four stages of the CRM process cycle. What occurs in each stage? Answer: See Exhibit 4.1 and pages 101- 103 The four stages of the CRM process cycle are: 1. Marketing: Identifying and targeting potential customers through campaigns and promotions to generate leads and attract interest. 2. Sales: Converting leads into customers by engaging with them, understanding their needs, and closing sales. 3. Service: Providing ongoing support and assistance to customers, ensuring satisfaction and resolving any issues that arise. 4. Analysis: Collecting and analyzing customer data to gain insights, refine strategies, and improve future interactions and relationships. 121. Describe how USAA product offerings, the customers it serves and how it uses touchpoints. How do customers view the way USAA treats their information? How do they rate it in terms of customer satisfaction? Answer: For an example of how information collected through touchpoints works to the benefit of both a firm and its customers, consider the case of USAA Insurance, based in San Antonio, Texas. USAA's core market began with military officers and their families; the firm was established because many years ago officers had difficulty getting insurance at reasonable rates due to the extreme mobility associated with their career paths. USAA has grown to become a broad-based insurance and financial services provider with a bank, virtual retail store, and one of the largest volume credit-card operations worldwide. Ninety-nine percent of USAA's business is conducted over the phone or online. The company also has one of the most sophisticated, and best-managed, CRM systems in the world. USAA was rated the No.1 customer service champ in BusinessWeek's first-ever ranking of companies where the customer is king. USAA takes great care to protect the information stored about its customers, who are called members. The company is very transparent in asking members for permission before information is shared even between USAA's own internal divisions (insurance, bank, retail, credit card, etc.), let alone with any outside companies. Whenever a member makes contact with USAA, the level of security becomes very apparent through access codes and verifications of identity. USAA is diligent about collecting and continually updating information on members yet is not obtrusive either in how it collects the information or in how it uses the information for outbound communication. Firms typically use customer information collected for purposes of up-selling and cross-selling current customers on other available products and services they might want and need—and USAA is no different. One way CRM facilitates customer relationships is through a firm's capability to better customize its product line to individual customers, a process known as one-to-one marketing. However, unlike some other firms, USAA has very strict policies on the voracity with which such selling can be executed. USAA will not risk damaging a long-term member relationship through overly aggressive selling approaches. Even though a USAA member is likely to never meet a USAA employee face-to-face, USAA continually scores among the highest of any financial services firm on customer satisfaction and loyalty; USAA members simply do not leave. One of the key results of USAA's commitment to CRM is the capability for any one of the thousands of USAA customer representatives a member may reach on a given call to pull up that member's record and carry on a conversation as though they have been doing business for years. Customer representatives undergo extensive training not just on the technical aspects of the CRM system, but also on the strategic aspects of using CRM to operationalize a customer-centric culture and build long-term relationships with members. Ask USAA members how they like doing business with the company, and they are likely to respond very favorably and with conviction. USAA executives, and USAA members, attribute much of the success of the firm to its customer-centric culture, operationalized through well-executed CRM. 122. Give at least three reasons why CRM fails in some organizations. How may these problems be fixed? Answer: Flavor of the month club— Trying one CRM software package after another, usually through upgrading, occurs under the pretense that no system has been a good fit. To correct this, the process must be reversed. Involve every user in determining in advance what the key desired deliverables are from the CRM system, then purchase the system that meets those goals. • No allowances for organizational change— Successful adoption of CRM can't be a "technology first, change later" process. Instead, organization-wide discussions and formal plans for organizational change must be in place before implementing the CRM program. This includes changes in culture, structure, processes, systems, and leadership and management. • Low level of employee buy-in— Because CRM is an enterprise-wide initiative, it will touch nearly everyone in a firm in some way over time. The time spent up front in involving everyone in the organization with the CRM selection/ design process will pay dividends later through better utilization and results. It is particularly important that the firm realign its performance management system, such as incentives and rewards, to motivate utilization of CRM by organization members. Business units silos— CRM needs cross-functional integration of information gathering, analysis, and dissemination inside a firm to work. Lack of crossfunctional planning and poor communication among departments within a firm cause difficulties in CRM. The biggest mistake is thinking CRM is "owned" by the IT people in a firm simply because the process is technology-driven. No one functional group should control CRM. Instead, with strong leadership support from the top, cross-disciplinary teams should be established from the very initiation of the planning stages for CRM that require IT, marketing, operations, and the other functional areas to work together to maximize the opportunity CRM affords. • Poor training— CRM doesn't work on autopilot, and even the best CRM system in the hands of a poorly trained user will add little value to a firm's customer initiatives. When a firm makes a commitment to invest in CRM, it is also making an implicit commitment to make initial and ongoing training priority one in implementing CRM. Firms should develop a system for employee feedback to management on CRM successes and failures and should foster a climate for employee input on ideas for system improvements. The best firms institutionalize these processes through reward systems with payoffs to employees whose ideas help increase the effectiveness of the CRM initiative. Test Bank for Essentials of Marketing Management Greg W. Marshall, Mark W. Johnston 9780078028786, 9780071082020, 9780077400187
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