Chapter 2Adapting Marketing to the New Economy

True/False Questions
1. An intranet connects people within the same company. True (easy) p. 24 2. Bill has agreed to hook his suppliers and distributors into an information web, this is called mcommerce. False (moderate) p. 24 3. When Priceline.com offered its services of bringing airfare customers together with airfare sellers, this was an example of the marketplace becoming reintermediated. True (moderate) p. 25 4. Prosumers are self-producing consumers who can essentially design their own goods, enabled by the company. True (moderate) p. 25 5. In the new economy, firms should overpromise and overdeliver. False (moderate) p. 26, Table 2-1 6. E-business is the same as E-commerce. False (moderate) p. 26 7. The most frequent online item purchased (in terms of percent of online buyers saying they have purchased in the category) so far, has been music. False (difficult) p. 27 8. Business-to-business Web sites do ten to fifteen times the commerce that business-to-consumer Web sites do. True (moderate) p. 27 9. Infomediaries are third parties that create markets linking buyers and sellers. False (moderate) p. 27 10. eComplaints is an example of a C2B Internet domain. True (moderate) p. 28 11. At www.adobe.com, users can download free software that allows them to open up documents scanned in a particular format. Adobes site is considered a content site. False (difficult) p. 29 12. Bookseller Amazon.com is considered a search engine because of its powerful ability to find out-ofprint titles. False (moderate) p. 29 13. Brick-and-click organizations are likely to have more success than pure-click companies, due to their access to greater resources. True (moderate) p. 29-30 14. The Internet site design element customization enables site-to-user, user-to-site, or two-way communication. False (moderate) p. 30 15. Web site ease of use is measured by whether a site loads quickly, is easy to understand, and is easy to navigate. True (easy) p. 30 16. Using humor on a website is one way of bringing browsers back for a second visit. True (moderate) p. 31 17. An interstitial ad is one that pops up or under when a Web site is visited. True (moderate) p. 32

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18. Selling or renting your detailed customer list for extra revenue is called getting profile income. True (moderate) p. 32 19. The first step to one-on-one marketing is to customize products, services, and messages to each customer. False (moderate) p. 33 20. Database marketing is extracting information about individuals, trends, and segments from a data warehouse. False (moderate) p. 35

Multiple Choice Questions

21. Bills company has an internal e-mail and information communications network. What is this kind of connectivity called? a.) Internet b.) extranet c.) intranet (moderate) p. 24 d.) ultranet e.) m-commerce 22. Monroe is an intermediary and allows its suppliers and buyers to hook into a special information communications network. What is this kind of connectivity called? a.) Internet b.) extranet (moderate) p. 24 c.) intranet d.) ultranet e.) m-commerce 23. NTTs DoCoMo system in Japan is an example of ___________. a.) Internet b.) extranet c.) intranet d.) ultranet e.) m-commerce (moderate) p. 24 24. Which of the following is not considered a driver that underpins the new economy? a.) multitasking and restructurization (moderate) p. 24 b.) digitalization and connectivity c.) disintermediation and reintermediation d.) customization and customerization e.) industry convergence 25. When a bricks-only retailer is put out of business by a Web site based business that serves the consumer need better, this is an example of ___________. a.) reintermediation b.) digitalization c.) disintermediation (moderate) p. 25 d.) customerization e.) industry convergence

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26. Dylan created a Web site that brought together a large international group of collectors and sellers, as well as others who have interest in Ty stuffed toys. This new approach to serving customer and supplier need is called a.) reintermediation (moderate) p. 25 b.) digitalization c.) disintermediation d.) customerization e.) industry convergence 27. Jonas is able to landscape a yard to any design a consumer brings to him. This is called ___________. a.) customization (easy) p. 25 b.) prosumerization c.) personalization d.) customerization e.) reintermediation 28. _______________ refers to the combination of operational customization and marketing customization. a.) Customization b.) Prosumerization c.) Personalization d.) Customerization (moderate) p. 25 e.) Reintermediation 29. Merck makes prescriptions and nonprescription drugs, and is considering adding chemicallyengineered food supplements to their product line. This new line would fall under the category of ___________. a.) cosmoneuticals b.) nutriceuticals (moderate) p. 25 c.) cosmonauticals d.) nutrichemicals e.) biogenicals 30. Which of the following is not an example of marketing in the new economy? a.) organize by customer segments b.) focus on stakeholders c.) build brands through performance d.) underpromise, overdeliver e.) focus on profitable transactions (moderate) p. 26, Table 2-1 31. Which of the following is an example of marketing in the new economy? a.) organize by product units b.) everyone does the marketing (moderate) p. 26, Table 2-1 c.) focus on customer acquisition d.) focus on shareholders e.) look primarily at financial scorecard

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32. Chris does most of her buying online, rather than get out and do her shopping in person. She is an example of a ___________. a.) hybrid consumer b.) cyberconsumer (easy) p. 26 c.) superconsumer d.) traditional consumer e.) consumer activist 33. ____________ is a term that describes a companys efforts to inform, communicate, promote, and sell its products and services over the Internet. a.) E-business b.) E-commerce c.) E-purchasing d.) E-consuming e.) E-marketing (difficult) p. 26 34. Yacobo Pistorius builds computers in his house to sell to a growing list of local customers. He buys all his parts online and makes a nice profit on each machine he builds to order. Yacobos online supply allows him to take part in ___________. a.) e-business b.) e-commerce c.) e-purchasing (easy) p. 26 d.) e-consuming e.) e-marketing 35. Scott goes online to follow a group that discusses the Yamaha Road Star motorcycle. Most contributors on the site are owners, and they often share information about the bikes, rallies and ride opportunities, and technical information and reviews about aftermarket products. There is even a buysell forum where you can find parts or used bikes for sale. This is an example of a __________ Internet domain. a.) B2C b.) B2B c.) C2C (difficult) p. 27 d.) C2B e.) B2B2C 36. The Internet is most useful for ________ products when the consumer seeks greater ordering convenience, lower cost, or information about product features and prices. It is less useful for products that must be touched or examined in advance. a.) B2C (difficult) p. 27 b.) B2B c.) C2C d.) C2B e.) BCG

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37. Which kind of Internet domain does by far the greatest amount of commerce? a.) B2C b.) B2B (moderate) p. 27 c.) C2C d.) C2B e.) BCG 38. Downward price pressure on undifferentiated products is increasing, because business buyers have access to more information from all the following except ___________. a.) supplier Web sites b.) infomediaries c.) market makers d.) market mavens (moderate) p. 27 e.) customer communities 39. DaimlerChrysler, Ford, and GM have come together to build a money-saving, Web-based procurement system called ___________. a.) eVixxion b.) DFM*B2B c.) iSite d.) Covisint (difficult) p. 27 e.) Deltronicos 40. __________ are third parties that add value by aggregating information about alternatives. a.) Supplier Web sites b.) Infomediaries (easy) p. 27 c.) Market makers d.) Market mavens e.) Customer communities 41. C2C Internet domains have also been termed _________, and are an important buying influence. a.) word of mouth b.) web of mouth c.) word of web (moderate) p. 27 d.) World Wide Web e.) mouth of web 42. Sites such as PlanetFeedback and eComplaints allow frustrated consumers to communicate their dissatisfaction with businesses and products. These types of sites have been termed _________ Internet domains. a.) B2C b.) B2B c.) C2C d.) C2B (moderate) p. 28 e.) BCG

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43. You might find all of the following on a C2B Web site, except ___________. a.) a feature that allows customers to build their own products (moderate) p. 28 b.) an invitation to e-mail a question c.) a system that allows consumers to give feedback d.) a way of conveying a complaint e.) a call-me button 44. Google.com is a sophisticated tool for finding content on the Web. It is in the _________ category of pure-click companies. a.) search engine (moderate) p. 29 b.) portal c.) commerce site d.) transaction site e.) content site 45. The Economist is a British weekly business newspaper, which now has a presence on the Web at www.economist.com. This is an example of a ______________. a.) portal b.) commerce site c.) transaction site d.) content site (moderate) p. 29 e.) enabler site 46. Yahoo! and other companies would like you to pick their homepage as your homepage. These types of sites are called ________________. a.) search engines b.) portals (moderate) p. 29 c.) commerce sites d.) content sites e.) enabler sites 47. All of the following are reasons many early pure-click firms failed, except ___________. a.) poorly-designed Web site b.) focus on successful business models (easy) p. 29 c.) focus on customer acquisition rather than building relationships d.) relied on buzz instead of target marketing e.) lack of infrastructure 48. ____________, now a brick-and-click company, conducted research and found that the type of customers drawn to online service did not overlap greatly with those who preferred the traditional method of buying products and services. a.) Liberty Mutual b.) Merrill Lynch c.) Schwab d.) E*Trade e.) Avon (moderate) p. 29

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49. Which of the following is not one of the advantages of being a brick-and-click firm? a.) better known brand names allow less marketing to acquire new customers b.) channel conflict issues are simplified (moderate) pp. 29-30 c.) greater financial resources d.) deeper industry knowledge e.) allows service to far-flung customers 50. Scuba Steves has an electronic chat room linked to its site. This Web site design element allows for what Rayport and Jaworski have called ___________. a.) context b.) content c.) community (moderate) p. 30 d.) customization e.) communication 51. The degree to which a site is linked to other Web sites is called ___________. a.) community b.) customization c.) communication d.) connection (moderate) p. 30 e.) commerce 52. The layout and design of Northwest Territories Surf Shops Web site is termed the ___________. a.) context (moderate) p. 30 b.) content c.) community d.) connection e.) commerce 53. Which of the following is not a key attribute used by Web browsers to determine ease of Web site use? a.) whether the site loads quickly b.) whether the graphics slow down user surfing c.) whether the homepage is easy to understand d.) whether the site makes good use of color and sound (moderate) p. 30 e.) whether the visitor can easily navigate to other pages 54. Certain types of Web site content are effective in attracting first-time visitors and bringing them back. Which of the following is not one of these types of content? a.) deep information b.) changing news of interest c.) interesting banner ads (moderate) p. 31 d.) changing free offers e.) humor

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55. Which of the following is not recommended for creating a Web site design that attracts and keeps peoples interest? a.) simple and intuitive b.) graphics that load quickly c.) informative homepage that tells the visitor what the site will do for them d.) build attention slowly to keep interest (moderate) p. 31 e.) headlines, bullet points, or short bursts of text 56. On the cnbc.com portal site, there are frequently ads for financial institutions, placed in rectangular boxes near the top of the page. This type of ad is called a(n) ___________. a.) banner ad (moderate) p. 32 b.) sponsorship c.) microsite d.) interstitial e.) browser ad 57. The X-10 camera sold thousands of small units after pop-up ads appeared on popular sites such as Yahoo! and espn.com. These pop-ups are formally known as _________ ads. a.) banner b.) sponsorship c.) microsite d.) interstitial (difficult) p. 32 e.) browser 58. The Wall Street Journal was one of the first companies to buck the give it away for free trend in their early Internet days. Instead they asked readers to pay a monthly charge for access to the complete paper online. This is an example of a(n) _______________ revenue and profit model. a.) advertising income b.) sponsorship income c.) alliance income d.) membership and subscription income (moderate) p. 32 e.) profile income 59. Even though most customers are not happy when they learn it has happened to them, and there may be codes of ethics that prohibit it, nonetheless many Web sites sell information about their customers. This is an example of a(n) ________________ revenue and profit model. a.) advertising income b.) sponsorship income c.) alliance income d.) membership and subscription income e.) profile income (moderate) p. 32 60. NewsLibrary charges $1.00 to $2.00 for site visitors to download archived news stories they have searched and found. This is an example of a __________ revenue and profit model. a.) profile income b.) product and service sales income c.) transaction commissions and fees d.) market research/information charges (moderate) p. 33 e.) referral income

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61. Every time Edmunds.com links a buying customer to buy one of its partners, the partner pays Edmunds a fee. This is an example of a __________ revenue and profit model. a.) profile income b.) product and service sales income c.) transaction commissions and fees d.) market research/information charges e.) referral income (moderate) p. 33 62. All of the following activities will help firms improve the value of their customer base, except a.) reducing customer defections b.) increasing the life of the customer relationship c.) aggressively going after all segments (moderate) p. 33 d.) enhancing customer profit potential e.) terminating some customers 63. LaVeen styles hair at his upscale salon in Beverly Hills. He works only by appointment, and only works on three or four customers hair per day. If he were to formally adopt Peppers and Rogers four-step framework for one-to-one marketing, he would do all of the following except ___________. a.) build up his clientele to include more celebrities (moderate) p. 33 b.) not go after every customer c.) lavish more effort on his most valuable customers d.) learn more about the individual needs of his customers e.) customize his marketing efforts to each customer 64. Which of the following is part of one-to-one marketing? a.) mass distribution b.) customer attraction c.) economies of scale d.) standardized product e.) customer profile (moderate) p. 34, Table 2-2 65. Which of the following is part of mass marketing? a.) customized product offering b.) customer anonymity (moderate) p. 34, Table 2-2 c.) share of customer d.) two-way messages e.) customer retention 66. Every time Johnnys Formalware salespeople make a sale, they record the customers name, address, and telephone contact information. Johnnys then uses this information to send out promotional messages about upcoming sales events. Johnnys is using a ________________. a.) customer database b.) database marketing c.) customer mailing list (moderate) p. 34 d.) business database e.) data warehouse

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67. Radio Shack keeps track of what each customer purchases, and in what quantities. They also tie this information to data on customers preferences and media habits, which they obtain through contests which require short surveys be filled out for entry. Radio Shack is putting together a ___________. a.) customer database (moderate) p. 34 b.) database marketing c.) customer mailing list d.) business database e.) data warehouse 68. One study of the success of CRM (customer relationship management) programs reported that 70 percent of the firms that implemented them found little or no improvement in their business as a result. Which of the following is not a likely reason for CRM failure? a.) Large investment in the system and training was not outweighed by the cost savings of repeat business. b.) Customer base is too large to make CRM useful. (difficult) p. 35 c.) Getting everyone customer-oriented and using the system is very difficult. d.) Not all customers desire a relationship beyond the transaction. e.) Keeping the data up-to-date is a challenge. 69. Datamining allows a company to do all the following except ___________. a.) identify the best prospects by sorting through a mass of responses b.) match a specific offer with a specific consumer c.) deepen customer loyalty by remembering customer preferences d.) charge more for service to those who cost less to serve (moderate) p. 35 e.) reactivate customer purchases through timely promotions 70. Jimmi prefers to use cash for all her transactions, will not give her social security number to anyone except her employer, and would like to remain anonymous for the most part. Jimmi is an example of which type of problem with successful execution of a CRM system? a.) Large investments in the system and training are not outweighed by the cost savings of repeat business. b.) Using the system is not intuitive after using a legacy system. c.) Getting everyone customer-oriented and using the system is very difficult. d.) Not all customers desire a relationship beyond the transaction. (easy) p. 35 e.) Keeping the data up-to-date is a challenge.

Essay Questions
71. Ralibertos is a small chain of Mexican restaurants run by Alvaro Montes. Regular customers are greeted by name and the menu is based on about 10-15 items, which can be combined into literally hundreds of dishes. Discuss how Ralibertos could use the menu and customer relationship to customize and customerize the eating experience in its restaurants.

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Answer: Customization means that Ralibertos can provide individually differentiated meals. The flexible kitchen and menu allow for this. Personalization is an important aspect of this process, and in Ralibertos case, this is already being done, at least for the regulars. Customerization is the combination of operational customization (the kitchen) and marketing customization (the atmosphere, the product, etc.). In a sense, Ralibertos is already practicing both the principle of customization and customerization in its current operations. (moderate) p. 25 72. Shoe and apparel maker K-Swiss came in slowly to the digital revolution. They are now a very connected and networked company. Discuss the three types of networks that a company like K-Swiss needs to stay connected with all the relevant parties. Answer: The big three are: intranets, extranets, and the Internet. a.) K-Swiss needs to allow customers to visit them virtually through providing an Internet site. The site should be well designed, interesting, and give the visitor reasons to stay and reasons to return later. b.) An intranet site allows K-Swiss to connect its employees together for internal communications purposes. c.) Extranets are closed systems that allow a company to communicate with its suppliers (rubber, leather, composites, textiles), manufacturers (mostly in Asia, due to labor costs and specialization), and reseller customers (stores like Dillards, Athletes Foot, etc.). d.) For a company the size and complexity of K-Swiss, all three types will be necessary to remain competitive. (moderate) p. 24 73. Pella Windows used to make windows in stock sizes and do very little custom work. In the last five years they have revamped their production processes and abilities in order to become a new economy company. What are some of the contrasts between doing business the old economy way and doing it the new way? Answer: Students can list lots of things correctly to answer this question. Table 2-1 has 9 old economy practices and 9 new economy practices. OLD 1) organize by product unit 2) focus on profitable transactions 3) look primarily at financials to measure success 4) focus on shareholders NEW 1) organize by customer segment (individuals, retailers, builders, commercial accounts) 2) focus on customer lifetime value (bigger accounts will spend more on each order and over time) 3) use marketing as the measure of success (customer satisfaction, retention, etc.) 4) focus on stakeholders (includes customers, business allies, stockholders, employees, etc.)

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5) marketing does the marketing

6) build brand through advertising 7) focus on customer acquisition 8) no customer satisfaction measurement 9) overpromise, underdeliver

5) everyone does the marketing (all employees, especially those that come in contact with the customer, need to be aware they are part of the companys communication process - whether they like it or not!) 6) build brand through performance (let the quality do the talking) 7) focus on customer retention (new customers cost much more to get than established customers cost to maintain) 8) measurement (customers, especially the most profitable ones, need to be able to communicate their pleasure or displeasure with the firm) 9) underpromise, overdeliver (delight customers with more than they expected, they will feel the value and return) (moderate) p. 26, Table 2-1

74. Foster Grant sells its eyewear through its Web site, through distributors such as Wal-Mart, and to wholesalers who resell to chains, such as 7-Eleven and smaller stores, such as Minimarket in Piggot, Arkansas. Which of the four types of Internet domains does or should Foster Grant use to take advantage of the ability to connect in the marketplace. Answer: a.) FG already uses the Internet, as mentioned. This is a B2C channel (business-to-consumer) or domain. b.) Because they sell product to Wal-Mart, they may already be a part of a larger B2B (business-tobusiness) system, since Wal-Mart is quite sophisticated in their information systems management. c.) It would be a good idea for FG to at least monitor the C2C (consumer-to-consumer) activities related to their products. These needs are often filled by independent third parties, and allow consumers to talk to one another in an open forum. d.) FG should consider providing a feedback option on their current Web site, making a C2B (customer-to-business) link between the company and the customers. (moderate) p. 26 75. Novell has outgrown its information system and asks you for advice about the possibility of including a CRM (customer relationship management) package in the new system they will be implementing. They seem to understand well the upside to CRM, but want you to detail the possible scenarios that would make the system not effective. Answer: a.) CRM systems are costly to buy, customize, and implement. Many of Novells customers do not do enough business (one-time or small customers, for example) to make CRM cost effective. b.) So-called legacy systems (the way we have always done it) may stand in the way of the switchover. Even with an outdated system, employees are able to find their way around and get most things done. A new system takes training that may not seem worth the effort for years until it truly pays off.

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c.) Novell may find that many customers do not want more contact or service than they are already getting from the company. Hence, the system is overkill for dealing with this group. d.) Though maybe less of a problem for a high-tech company than for others, the challenge of keeping records and other data up-to-date is potentially an immense one for a complex and international company like Novell. The book mentions a study that concluded that in 70 percent of the cases studied, CRMs had not paid off. That implies a big risk, and Novell should carefully consider the costs and benefits of including a CRM package in their new system. (difficult) p. 35

Mini-Cases
Mini-Case 2-1 Scuba-Doobie-Doo is a group of entrepreneurs who wish to create a full service SCUBA Web site. They plan to include SCUBA chat rooms for visitors, an ever-changing photo and story gallery where visitors can post, read, and view the adventures of others and of professional SCUBA writers. They plan to have an online store with all possible SCUBA equipment available for purchase. They plan to link the site to providers of SCUBA experience vacations. They plan to sell advertising to SCUBA companies. They even plan to give visitors free e-mail accounts in an effort to have a hardcore group use the homepage as the homepage on their personal computers. Scuba-Doobie-Doo will be a one-stop SCUBA source for enthusiasts. 76. Refer to Mini-Case 2-1. In relation to the Scuba-Doobie-Doo site, which of Rayport and Jaworskis design elements (the 7Cs) is not discussed? a.) customization (moderate) p. 30 b.) content c.) community d.) communication e.) commerce 77. Refer to Mini-Case 2-1. Allowing visitors to choose a free e-mail account with the site is an example of which of 7Cs design elements for successful Web sites? a.) context b.) content c.) community (difficult) p. 30 d.) communication e.) commerce 78. Refer to Mini-Case 2-1. If Scuba-Doobie-Doo sells its customer information as an early source of revenue, they would be including the ___________________ revenue and profit model in their business plan. a.) advertising income b.) alliance income c.) profile income (moderate) p. 32 d.) transaction commissions and fees e.) referral income

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Mini-Case 2-2 Barnes and Noble hesitated to build an online presence until Amazon.coms success was too great to ignore. They originally feared that their network of hundreds of bricks-only stores would suffer sales losses due to the Web site competing with the stores. When the decision was finally made, B&N decided that the proper business model was to make a vast inventory of books and music available for market prices. They accepted little advertising on the site, preferring that visitors focus on B&Ns offerings. They did, however, allow other sites to post B&N ads and paid the owners of those sites a percent of each sale made to the referred customer. BarnesandNoble.com has never really caught up to the sales of Amazon.com, but the company feels the effort has increased overall company sales and B&N must maintain the Web presence in order to stem losses to their number one competitor. 79. Refer to Mini-Case 2-2. The B&N site allows few non-B&N ads or promotional efforts on their site, though they do allow _________________________ to be present on the site. a.) banners b.) interstitials c.) affiliate programs (moderate) p. 32 d.) browser ads e.) sponsorships 80. Refer to Mini-Case 2-2. The main revenue and profit model for the B&N online presence is _________. a.) advertising income b.) membership and subscription income c.) profile income d.) product and service sales income (moderate) p. 33 e.) transaction commissions and fees 81. Refer to Mini-Case 2-2. The risk of cannibalizing the bricks-only store network is an example of a how a bricks-and-clicks operation can cause __________________. a.) a well-known brand name to diminish b.) greater financial resources c.) deeper industry knowledge d.) channel conflict (moderate) p. 29 e.) 24-7 access

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