Chapter 04 - Strategic Customer Relationship Management

Chapter 04
Strategic Customer Relationship Management

True / False Questions

1. (p. 115) Customer lifetime value provides the estimated profitability of a customer (business
or consumer during the time span of the relationship.
TRUE

Difficulty: Easy

!. (p. 118) Customer relationship management emphasi"es focusing the company#s strategy on
customer profitability and the gains from reducing customer $churn.$
TRUE

Difficulty: Moderate

%. (p. 118) &nly the mar'eting function of the firm is li'ely to have involvement (ith certain of
the customer relationship management processes and activities.
FALSE

Difficulty: Moderate

4. (p. 120) )hile sometimes attractive economically* there is a ris' that overseas call centers
may undermine the +uality of customer relationships and pose a threat to corporate and brand
reputation for those (ho employ them.
TRUE

Difficulty: Moderate

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Chapter 04 - Strategic Customer Relationship Management
,. (p. 121) -he value proposition e.plains the relationship among the performance of the
product* the fulfillment of the customer#s needs and the total cost to the customer over the
customer relationship life cycle.
TRUE

Difficulty: Moderate

/. (p. 123) -he multi-channel integration process is arguable one of the most important processes
in customer relationship management because it ta'es the outputs of the business strategy and
value creation processes and translates them into value-adding activities (ith customers.
TRUE

Difficulty: Moderate

0. (p. 123) Since customer relationship management decisions are 1ust technology decisions they
are pretty simple.
FALSE

Difficulty: Easy

2. (p. 124) )hen decisions are made about a company#s customer priorities using historical
customer profitability* only short-term issues should be considered.
FALSE

Difficulty: Challe!i!

3. (p. 124) )hen 4ritish 5ir(ays made the decision to focus only on its profitable business-class
passengers at the e.pense of economy travelers* 6irgin 5ir(ays gained the economy-class
passengers by offering a better value proposition than 4ritish 5ir(ays.
TRUE

Difficulty: Moderate

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Chapter 04 - Strategic Customer Relationship Management
10. (p. 12") 7nvestment in customer relationship management to build competitive advantage
may be an illusion if a company focuses only on automated call centers and customer
complaint systems.
TRUE

Difficulty: Moderate


Multiple Choice Questions

11. (p. 114) )hich of these initiatives (ould not be part of customer relationship management8
5. 5utomated customer contact systems
B Recall mar'et research
C. Sales force productivity
9. Customer service and automated call centers

Difficulty: Moderate

1!. (p. 114) )hich of these statements is not an element of customer relationship management8
5. 7dentifying* satisfying* retaining and ma.imi"ing the value of a firm#s best customers
4. )rapping the firm around the customer to ensure that each contact (ith the customer is
appropriate and based upon e.tensive 'no(ledge of both the customer#s needs and
profitability
C. Creating a full picture of the customer
! 9eveloping a mar'eting strategy

Difficulty: Moderate

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Chapter 04 - Strategic Customer Relationship Management
1%. (p. 114) ::::: is the information technology that enables companies to develop customer
relationship management strategies.
5. )ord processing
4. Spreadsheet
C. ;raphic
! 9atabase

Difficulty: Easy

14. (p. 115) ::::: calculates the sum of all the margins of all the products purchased over time
by the customer less the cost of reaching that customer. -o this is added a forecast of margins
on future purchases discounted bac' to their present value.
5. <et present value
B Customer lifetime value
C. Customer net sales
9. Customer annual profitability

Difficulty: Easy

1,. (p. 115) -he ::::: process provides an estimate of the profitability of a customer during the
time span of the relationship.
5. <et present value
B Customer lifetime value
C. Customer net sales
9. Customer recent profitability

Difficulty: Easy

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Chapter 04 - Strategic Customer Relationship Management
1/. (p. 11") -he ::::: level considers the processes that are needed to fulfill re+uired mar'eting
functions.
5. =ield
4. Customer-facing
C. Company(ide
! =unctional

Difficulty: Easy

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Chapter 04 - Strategic Customer Relationship Management
10. (p. 11") -he ::::: level is concerned (ith coordinating information across all contact
channels on a continuing basis.
5. =ield
B Customer-facing
C. Company(ide
9. =unctional

Difficulty: Easy

12. (p. 11") -he ::::: level focus for customer relationship management considers the
implications of 'no(ledge about customers and their preferences across the entire company.
5. =ield
4. Customer-facing
C Company(ide
9. =unctional

Difficulty: Easy

13. (p. 12) -he ::::: (ill need to become familiar (ith the customer relationship management
process before pursuing analysis and action initiatives.
A >ro1ect team
4. Customer relationship management strategy
C. &rgani"ational commitment
9. 4usiness needs analysis

Difficulty: Easy

!0. (p. 118) 9eveloping a(n ::::: means everyone in the firm needs to be supportive of the
customer relationship management initiative*
5. >ro1ect team
4. Customer relationship management strategy
C &rgani"ational commitment
9. 4usiness needs analysis

Difficulty: Easy

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Chapter 04 - Strategic Customer Relationship Management
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Chapter 04 - Strategic Customer Relationship Management
!1. (p. 11#) 9uring the ::::: step of developing the customer relationship management strategy*
the managers from sales* mar'eting* customer service and value chain need to clearly indicate
(hat is re+uired from the customer relationship management strategy and agreement reached
concerning customer relationship management e.pectations and performance metrics.
5. >ro1ect team
4. Customer relationship management strategy
C. 7mplementation
! 4usiness needs analysis

Difficulty: Moderate

!!. (p. 11#) 5s part of the ::::: step the value proposition spells out (hat the organi"ation must
provide in order to satisfy customer e.pectations.
5. >ro1ect team
B Customer relationship management strategy
C. 7mplementation
9. 4usiness needs analysis

Difficulty: Challe!i!

!%. (p. 11#) 5s part of the customer relationship management ::::: step managers should avoid
underestimating the necessary organi"ational changes re+uired obtaining the benefits of
customer relationship management.
5. >ro1ect team
4. Customer relationship management strategy
C 7mplementation
9. 4usiness needs analysis

Difficulty: Moderate

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Chapter 04 - Strategic Customer Relationship Management
!4. (p. 121) 5 significant pitfall to avoid in customer relationship management initiatives is
:::::.
5. 7nvesting in customers in the target mar'et
4. 7mplementing customer relationship management after changing the e.isting organi"ation
C. 7nvesting in building relationships (ith interested customers
! 7mplement the customer relationship management system then create the strategy

Difficulty: Moderate

!,. (p. 121) Since the company needs to ad1ust to a customer relationship management system a
significant pitfall to avoid in customer relationship management initiatives is :::::.
5. 7nvesting in customers in the target mar'et
B 7mplementing customer relationship management "e#ore changing the e.isting
organi"ation
C. <ot investing in building relationships (ith disinterested customers
9. Create the strategy* then implement the customer relationship management

Difficulty: Moderate

!/. (p. 121) 5 significant pitfall to avoid in customer relationship management initiatives is
:::::.
5. 7nvesting in customers in the target mar'et
4. 7mplementing customer relationship management after changing the e.isting organi"ation
C 7nvesting in building relationships (ith disinterested customers
9. Create the strategy then implement the customer relationship management

Difficulty: Challe!i!

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Chapter 04 - Strategic Customer Relationship Management
!0. (p. 121) 5 significant pitfall to avoid in customer relationship management initiatives is
:::::.
A <ot investing in interested customers
4. 7mplementing customer relationship management after changing the e.isting organi"ation
C. 7nvesting in building relationships (ith interested customers
9. Create the strategy* then implement the customer relationship management

Difficulty: Moderate

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Chapter 04 - Strategic Customer Relationship Management
!2. (p. 125) 5ctions a retailer might ta'e to do less business (ith #devil customers# (ould not
include :::::.
5. -urning their business a(ay
4. Charging other customers for services that are free to the devil customers
C ;iving them special incentives through loyalty programs
9. &ffering a lo(er level of service to lo( profit customers

Difficulty: Challe!i!

!3. (p. 125) 5ctions a retailer might ta'e to do less business (ith #devil customers# (ould not
include :::::.
5. -urning their business a(ay
B &ffering free services for (hich other customers pay fees
C. ;iving other customers special incentives through loyalty programs* but not offering the
incentives to the less profitable customers
9. &ffering a lo(er level of service to the lo( profit customers

Difficulty: Challe!i!

%0. (p. 125) 5ctions a retailer might ta'e to do less business (ith #devil customers# (ould not
include :::::.
A -urning their business a(ay
4. Charging them for services that are free to other customers
C. ;iving other customers special incentives through loyalty programs* but not offering the
incentives to the less profitable customers
9. &ffering a lo(er level of service to all customers

Difficulty: Challe!i!

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Chapter 04 - Strategic Customer Relationship Management

Essa$ Questions

%1. (p. 114) ?o( should customer relationship management be defined to provide a complete
strategy perspective8
-o provide a complete strategy perspective* it is important to shift attention from the
technology and hard(are of customer relationship management to the continuing process of
ma'ing managerial decisions (ith the end goal of increasing the value of the customer base
through better relationships (ith customers* usually on an individual basis. -he emphasis on
strategy built around profitable customers as the primary concern of customer relationship
management combines business processes (ith customer strategies to develop customer
loyalty and enhance financial performance.

Difficulty: Easy

%!. (p. 11#) 7dentify the important issues in customer relationship management implementation
-he ma1or components of the successful implementation of customer relationship
management are as follo(s. 7ntegrate sales* mar'eting and service functions across all media.
Store customer information and the appropriate analytical tools and learn about customer
behavior. 9evelop business rules from the data analysis to ensure the front office benefits
from the firm#s learning about its customers. @nable continuous improvement by measuring
performance of customer relationships. 7ntegrate into the firm#s operational support ensuring
the front office#s promises are delivered.

Difficulty: Moderate

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Chapter 04 - Strategic Customer Relationship Management
%%. (p. 122) 9iscuss the value received by the organi"ation from customer relationship
management.
9etermining value received from customer relationship management re+uires determining
ho( e.isting and potential customer profitability varies across different customers and
customer segments. -he economics of customer ac+uisition and customer retention and the
opportunity for selling* up-selling and building customer advocacy must be understood.
Customer lifetime value is 'ey concept associated (ith the value received by the firm via
customer relationship management. Customer lifetime value is the e.pected profitability of a
customer over the time-span of the relationship (ith the customer. -he sum of customer
lifetime value for all of a firm#s customers is termed customer e+uity. Customer lifetime value
provides useful information in selecting valuable customers for targeting.
6alue received by the customer is also relevant. 7t is important to recogni"e the potential
negative impact of issues regarding consumer trust on customer relationship management
activities. 7f buyers believe that the information collected by their suppliers may be used to
e.ploit the buyers* the trust in the relationship may be 1eopardi"ed. 5ccordingly* e.ecutives
need to recogni"e trust and privacy implications of customer relationship management
initiatives.

Difficulty: Moderate

%4. (p. 123) )hat is the ideal relationship bet(een customer relationship management and the
value chain strategy8
7t is important that customer relationship management be integrated (ith the different
channels that access end-user customers. -he multi-channel integration process is arguable
one of the most important processes in customer relationship management because it ta'es the
outputs of the business strategy and value creation processes and translates them into value-
adding activities (ith customers. Many companies interact (ith customers using multiple
channels including salespeople* value chain partners* email and 7nternet* telephony and direct
mar'eting.

Difficulty: Moderate

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Chapter 04 - Strategic Customer Relationship Management
%,. (p. 124) )hat is the relationship bet(een customer relationship management and mar'et
segmentation.
-he availability of customer relationship management data provides the opportunity to update
the measures used by managers to assess the success of their strategies in the mar'etplace.
Customer relationship management allo(s the development of measures that are customer-
centric and more insightful concerning mar'eting strategy effectiveness. Customer
relationship management -based measures of performance may includeA customer ac+uisition
cost* conversion rates* retentionBchurn rates* same customer sales rates* loyalty measures and
customer $share of (allet.
-his customer relationship management -based information allo(s managers to segment the
customers based on profitability. )hen decisions are made about a company#s customer
priorities using historical customer profitability* long-term issues should be considered.
Customers (ho are currently unprofitable may be attractive long-term prospects for suppliers
(ho maintain loyalty through the hard times until the customers become profitable and
customers (ho are currently profitable may not be the best prospects for the future.
7f certain customers are unprofitable* then rather than $firing$ the customer* the competitive
issue may be ho( to change the route to mar'et to ma'e them profitable to the company.

Difficulty: Challe!i!

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