CHAPTER ONE

Multiple Choice Questions

1) Identify a strategy from among the following which is not applicable to CRM.
a) Identifying different types of customers
b) Developing better relationships with profitable customers
c) Locating and enticing customers who will be profitable
d) Treating all the customers as equal irrespective of their profitability.

2) The economic value of the customer relationship to the firm expressed on the basis of
contribution margin or net profit is called ____.
a) brand equity
b) relationship value
c) customer value
d) profitability of the firm

3) The practice of sales force automation within the sales function is an example of ____
CRM.
a) customer-facing front end level
b) functional level
c) strategic level
d) firm level

4) The key components of CRM from a business strategy perspective do not include ____.
a) the process of selecting profitable customers
b) shaping the interactions between company and customers
c) optimizing current and future value of customers
d) focusing on extracting maximum profit from a single transaction

5) Which among the following is not a recent customer trend?

a) Increase health consciousness
b) Expect companies to be sustainable
c) Expecting the lowest costs
d) Increased demand for authenticity

6) Which of the choices listed below is not a changing trend in the marketplace?
a) More intense competition for customers
b) More fragmentation in the market
c) Quality difference among products is increasing
d) Product differentiation is becoming more difficult

7) In social CRM customer values is also based on____.

a) Customers household size
b) Customer marital status
c) Customers online behavior
d) None of the above
8) Consumers increasingly use social media. With regards to this trend which of the
following is not a key opportunity for companies?
a) New learning opportunities (listening to consumers online)
b) Improvement of the timeliness of consumers feedback
c) Increased control over the consumer
d) Creation of new forms of communication strategies

9) Which of the following is an emerging demographic trend in developed countries?

a) The median age of adults drastically coming down
b) Increasing birth rate
c) Median age of adults going up
d) The population of young people increasing

10) Which of the choices below is not a major force that results in changesfor modern firms
a) Prices
b) Marketing functions
c) Consumers
d) Marketplaces

Answers to Multiple Choice Questions

1 d
2 c
3 b
4 d
5 c
6 c
7 c
8 c
9 c
10 a

True or False Questions

1) Telephone and email are examples of mass communication channels.

a) True
b) False

2) Cost reduction is the most critical challenge nowadays.

a) True
b) False

3) Strategic CRM is primarily driven by technological solutions.

a) True
b) False

4) CRM at a functional level focuses on customer satisfaction.

a) True
 b) False

5) Social CRM aims to optimize the customer experience.

a) True
b) False

Answers to True or False Questions

1 False
2 False
3 False
4 False
5 True
 PRACTICE QUESTIONS

Multiple Choice Questions

1) Which of these is/are true about the traditional mass-marketing approach:

A In traditional marketing, standardized products were designed and delivered to meet the
needs of customer segments
B In traditional marketing, products were designed and delivered to meet the needs of
individual customers
C Traditional marketing was product-focused
D Traditional marketing was customer-focused
a) A only
b) B only
c) A and C
d) B and C
e) B and D

2) At the customer-facing front-end level of conceptualization of CRM, focus is on:

a) Technology
b) Total customer experience
c) Customer satisfaction
d) Marketing functions
e) Communication media

3) Which of the following does not hold true with respect to changes to consumers in the
current business environment?
a) Increased diversity in ethnicity
b) Increased free time
c) Increased use of apps
d) Increasing individualization
e) Increased demand for experience

4) When did companies start to integrate customer-facing front end systems with back-end
systems and with systems used by partners and suppliers?
a) In the first generation of CRM
b) In the second generation of CRM
c) In the third generation of CRM
d) In the fourth generation of CRM
e) They did not integrate front end with back end systems yet

5) Which of the following does not hold true with respect to changes in the marketing
function?
a) Media Dilution
b) Channel Multiplication
c) Increasing Marketing Effectiveness
d) Decreasing Marketing Efficiency
e) None of the above

Answers to Multiple Choice Questions

1 c
 2 b
3 b
4 c
5 c

True or false

1) Changes in the business environment are driving the transactions in the marketplace to be
more and more product-based.
a) True
b) False

2) To address customers’ particular needs, the market must be broken down into multiple
segments, which facilitates individualized marketing.
a) True
b) False

3) The major challenge facing companies now is meeting consumer preferences rather than
cost reduction.
a) True
b) False

4) Social CRM refers to the fourth generation of CRM.

a) True
b) False

5) Companies should empower their consumers to perform minor services themselves but be
consistently available when customers’ problems grow more complex.
a) True
b) False

Answers to True or False Questions

1 False
2 True
3 True
4 False
5 True

I. Briefly describe the stages of development of CRM, from the 1990’s until today.

Since the concept of customer relationship management came into vogue in the mid-
1990s, CRM has undergone a substantial evolution.
In the first generation CRM developed as two independent product offerings:
Sales force automation (SFA) addressing presales functions and
 Customer service and support (CSS) addressing after-sales activities. The CSS
databases often worked with specific customer information, isolated from other
systems.
Although fragmented and poorly integrated with the back office, early SFA/CSS
applications delivered the promise of sales and service improvements, though their
combined market niche remained small. The market for enterprise resource planning
(ERP)—a tool designed to integrate all company departments and functions within a
single computer system that served every department's needs—instead was growing.
Innovations in CRM during the 1990s (second generation of CRM) matched those of
ERP. CRM technology was expected to fill the gaps left by ERP functionality and
address the business needs of the company’s customer-facing front end. The goal was
to create a single view of all interactions with customers, independent of the purpose
of that contact or its means For the most part, this goal was not achieved during the
1990s, leading to increasing disillusionment with CRM technology and
implementations.
By the end of 2002, the CRM market had started to pick up (third generation), and the
gap between customers’ perceived value and value realized was closing. Organizations
learned from experience and their failure to implement prior versions of CRM. The
best organizations began to focus on integrating customer-facing front-end systems
with back-end systems, as well as with the systems used by partners and suppliers.
The integration of Internet technology helped boost CRM.
At the end of the first decade of the twenty-first century, we face the start of the fourth
generation of CRM. Strategic CRM is widely accepted and established as an essential
element of the marketing strategy, and an ever-increasing number of small and
medium-sized companies adopt this management tool and its corresponding
technologies to drive their business.
The latest generation (social CRM)is characterized by the engagement of the customer
through the integration of the web 2.0 and social media as well as by the use of data
driven insights to optimize the overall customer experience. Furthermore, the
combination of data across different social media platforms allows companies now to
determine the customer value not only based on profitability but also based on their
online behavior

II. What are the changes in the business environment with respect to the marketplace and
what are their consequences?

There are three key changes with respect to the marketplace. First companies
experience intensified competition for customers. As trade barriers fall and geographic
boundaries are redefined, by both established and emergent trading blocs, the idea of a
location advantage is being eroded for most companies. Access to markets is no longer
localized, so demands for logistics management and distribution partnering are
becoming more significant. Furthermore, markets are more fragmented. In a developed
market in which supply exceeds demand, customers have differentiated needs. To
address customers’ particular needs, the market must be broken down into multiple
segments, which facilitates individualized marketing. Finally, differentiation is
increasingly difficult for companies. The quality of objective product attributes has
risen substantially and is no longer a source of competitive advantage for most
companies. Brand loyalty founded on a product differential is a relative, not an
absolute, achievement. As products’ quality differentials diminish, companies seek
competitive advantages through their closer, service-focused relationships.
As a consequence of these changes good products are not sufficient to compete in a
world of very high product standards. As products and services improve and become
similar in their objective performance, companies must question traditional marketing
 models. They start to shift away from a transaction-based model to focus instead on
enduring commercial relationships. In turn, firms can learn about new and latent
customer preferences by observing their purchase and behavioral histories and using
social media to gather consumers’ opinions. Developments in mass customization
mean firms also can offer genuine value to customers through customized product and
service propositions. As these changes drive the marketplace to become more
relationship-oriented, the primary way to maintain market share is to realign business
strategies and become customer centric. Thus, CRM is critically strategically
important in company positioning in today’s market.

CHAPTER TWO

Multiple Choice Questions

1) Implementation of the Satisfaction-Profit chain at the disaggregate level refers to

allocation of resources at:
a) Individual level
b) Firm level
c) Industry level
d) Division level

2) A factor influencing the shape of the satisfaction-retention curve is:

a) Aggressiveness of the competition
b) Degree of switching cost
c) Level of perceived risk
d) All of the above

3) Which of these is not included in Reichheld’s hypothesis on long-term customers:

a) They spend more per period over time
b) They cost less to serve per period over time
c) They have a greater propensity to generate word-of-mouth customers
d) Pay a low price compared to short-term customers

4) Which of these statements regarding Reinartz and Kumar’s findings is true?

a) Loyalty is not the only path to profitability
b) Caution must be exercised in equating customer retention with profitability
c) Information on individual or segment-level profitability gives a more clear picture
regarding loyalty-profitability link
d) All of the above

5) The relationship between satisfaction and retention is:

a) Symmetric and nonlinear
b) Asymmetric and nonlinear
c) Symmetric and linear
d) Asymmetric and linear

6) Which of the following are caveats that apply to satisfaction-loyalty-profit chain?

a) Firms should thoroughly investigate the nature of the link for a specific industry,
category, or segment
 b) The link will not change regardless of the measurement employed for the loyalty
measured
c) We know comparatively less about the link on an aggregate level as compared to the
individual or segment level
d) None of the above

7) Customer Lifetime Value takes into account

a) Firm’s number of customers
b) Firm’s costs and revenue
c) Firm’s size
d) Firm’s time on the market

8) Companies can profit from high Customer Influence Value through

a) Increased conversion rates of prospects
b) Reduced usage
c) Shortened customer lifetime
d) All of the above

9) Customer Referral Value

a) Is intrinsically motivated
b) Comes for free
c) Cannot become negative
d) Cannot reduce acquisition costs

10) The value of the information that a customer provides a company describes the
a) Customer Lifetime Value
b) Customer Influencer Value
c) Customer Referral Value
d) Customer Knowledge Value

Answers to Multiple Choice Questions

1 a
2 d
3 d
4 d
5 b
6 a
7 b
8 a
9 c
10 d

True or False Questions

1) The link between satisfaction and retention is symmetric

a) True
b) False

2) The switching costs associated with airline industry is high

a) True
 b) False

3) If two firms operating in two different industries have identical satisfaction levels they are
likely to have the same relationship between customer satisfaction and retention
a) True
b) False

4) Short-term customers can be very profitable to a firm

a) True
b) False

5) According to Reinartz and Kumar loyalty is the only path to profitability

a) True
b) False

Answers to True or False Questions

1 False
2 True
3 False
4 True
5 False

PRACTICE QUESTIONS

Multiple Choice Questions

1. A key component of CRM and its application is#

a. One-sided
b. Two-sided interaction
c. Fourth-sided interaction
d. None of the above

2. Which of the following are true with regard to long-term customers according to
Reichheld’s hypothesis?
A. Spend more per period over time
B. Cost more to serve per period over time
C. Have a greater propensity to generate word-of-mouth customers
D. Pay a lower price when compared to that paid by short-term customers
a. All the above are correct
b. All except D are correct
c. Only A and C are correct
d. All except A are correct
e. All the above statements are wrong

3. Which of the following observations can be made from the satisfaction-retention

nonlinear relationship?
A. Dissatisfaction has a greater impact on retention than satisfaction
B. Even if the level of satisfaction is high, retention is not guaranteed
C. If customers are dissatisfied, other products become more enticing
 D. The link is nonlinear in that the impact of satisfaction on retention is greater at the
extremes
a. All the above are correct
b. All except B are correct
c. Only A and C are correct
d. All except D are correct
e. All the above statements are wrong

4. The links in the Satisfaction-Loyalty-Profit chain are

a. Nonlinear
b. Asymmetric
c. Segment specific
d. Industry specific
e. All of the above

5. The present value of future profits generated from a customer over his or her life of
business with the firm refers to the
a. Customer Lifetime Value
b. Customer Influencer Value
c. Customer Referral Value
d. Customer Knowledge Value
e. None of the Above

Answers to Multiple Choice Questions

1 b
2 c
3 a
4 e
5 a

True or False Questions

1. Dissatisfaction has a greater impact on retention than satisfaction

a. True
b. False

2. Repurchase intent is a better measure of studying the satisfaction-retention link than

repurchase behavior.
a. True
b. False

3. According to Reinartz and Kumar, loyalty is not the only path to profitability
a. True
b. False

4. Taking customer satisfaction as a proxy measure for customer loyalty or for customer
profits is a viable solution.
a. True
b. False
 5. It is important for companies not only to have a loyal customer base but also to have an
active or engaged customer base.
a. True
b. False

1 True
2 False
3 True
4 False
5 False

Answers to True or False Questions

I. What constitutes value for the customer and value from the customer? Why should
companies make sure that they are aligned?

Delivering value to customers is of highest importance for companies in order to stay relevant
in an increasingly competitive market environment with increasingly demanding customers.
A customer’s value perception of an offering is a consequence of the offering’s attributes
(product performance) but we have to consider that the perceived value is highly
heterogeneous and unstable across and within individuals.
The perceived value is composed of perceived benefits (derived from different attributes) and
perceived costs (price of an offering, different transaction costs, learning costs and risks).
Their effect on the value perception can be perceived directly or indirectly, and may be
immediate or delayed.
Even though, customers uncommonly perceive attributes individually but rather in composite,
CRM is able to influence a customer’s perceived value of the company’s offering.
Only when a company achieves to deliver value to customers, it is able to extract value from
customers.
Value that companies extract from customers goes beyond one-off monetary transactions.
Rather, we can identify four core dimensions of customer value that combined form customer
engagement value (CEV, Kumar et al 2010):
 Customer Lifetime Value: accumulated purchases over the customer relationship lifetime
 Customer Influence Value: value of the information that a customer provides to other
customers or prospects.
 Customer Referral Value: the value a customer generates from the referral of new
customers
 Customer Knowledge Value: value of the information that a customer provides a
company with

II. How does the competitive environment of an industry affect the satisfaction-loyalty-
profit relationship?
Industries differ in terms of their competitiveness as a result of, e.g., the number of
competitors and substitutes in the market place, the switching costs incurred by customers or
the degree of commoditization of the products. This means that the more competitive the
industry, the easier it is for customers to switch to a different provider when she is not
satisfied with the product or service. Consequently, the satisfaction-loyalty-profit chain is
more prevalent in highly competitive industries (bottom right quadrant in Fig. 2.4) than in
less competitive industries (top left quadrant in Fig. 2.4). Hence, a customer who is only
moderately satisfied with her hospital visit might still come back, due to a lack of alternatives
while a customer that is moderately satisfied with her current car is highly likely to purchase
a different brand due to the plentiful availability of automobile brands and low switching
costs. As a result, CR managers always need to take into account the market place they
operate in when designing and analyzing CRM strategies and activities

CHAPTER THREE

Multiple Choice Questions

1) If CRM is viewed from a ______ perspective, the primary objective is to uncouple the
term «CRM» from any technology underpinnings and from specific customer
management techniques.
a) functional level
b) customer-facing front-end level
c) company-wide level
d) all of the above

2) A set of processes needed to execute marketing functions like sales force automation or
campaign management refers to the _______ perspective of CRM:
a) functional
b) customer-facing
c) strategic
d) none of the above

3) The component of CRM strategy characterized by top management belief and

commitment that the customer is at the center of activity is:
a) Alignment of organizational processes
b) Data and technology support
c) Culture of customer orientation
d) CRM implementation

4) The two dimensions of the CRM Implementation Matrix are ____.

a) organizational processes and technology
b) profitability and behavior
c) customer and management
d) none of the above

5) Marketing-driven CRM implementation is characterized by:

a) Activities and processes that constitute analytical CRM
b) Activities and processes that constitute operational CRM
c) Acquisition and retention aligned with customer needs and values
d) All of the above
 6) Capital One’s “poking the bear” approach is intended to:
a) Assess customer needs
b) Increase the customer base
c) Determine individual customer risk
d) Provide entertainment to customers

7) The sequential steps in developing a CRM strategy are:

a) Define the CRM strategy, Build CRM project tem, Analyze business requirements,
Gain enterprise wide commitment
b) Gain enterprise wide commitment, Build CRM project team, Analyze business
requirements, Define the CRM strategy
c) Gain enterprise wide commitment, Analyze business requirements, Define the CRM
strategy, Build CRM project team
d) Build CRM project team, Gain enterprise wide commitment, Analyze business
requirements, Define the CRM strategy

8) An effective CRM project team should include:

a) Management and external CRM expert
b) Financial staff and IT/technical personnel
c) Sales, marketing and service groups
d) All of the above

9) According to __________ CRM is a set of activities that provides a single view of the
customers across all contact channels:
a) The functional level
b) The customer- facing level
c) The company wide level
d) None of the above

10) Which of these areas should a good value proposition definitely address:
a) What customers value
b) What the company says it offers the customer
c) What the company actually offers the customer
d) All of the above

Answers to Multiple Choice Questions

1 c
2 a
3 c
4 c
5 d
6 c
7 b
8 d
9 b
10 d

True or False Questions

1) Strategic CRM works best for firms organized around cross-functional purposes rather
than functional silos.
a) True
b) False

2) CRM aims to gain a long-term competitive advantage by optimally delivering value to the
customers and extracting business value from the relationship with the customers.
a) True
b) False

3) Strategic CRM is a bottom-up approach.

a) True
b) False

4) The main reason many CRM efforts have failed is the lack of commitment from top
management.
a) True
b) False

5) If the value proposition of a company is not affected by an investment in CRM, the only
explanation is that the company is as customer-centric as it needs to be.
a) True
b) False

Answers to True or False Questions

1 True
2 True
3 False
4 True
5 False
 PRACTICE QUESTIONS
Multiple Choice Questions

1) Which of the followingstatementsistruewith regard to CRM perspectives

A For somevendors or buyers, functional CRM isnearlysynonymouswithtechnology
B The goal of customer-facing front-end level CRM is to build multiple views of the
customeracross all contact channels
C Company-widelevel CRM primary objective is to uncouple the term CRM
fromanytechnologyunderpinnings and fromspecificcustomer management techniques
D When CRM isadopted at the functionallevel, itrepresentsstrategic CRM
a) All the above are correct
b) All except D are correct
c) A, B and C are correct
d) Only A and C are correct
e) All the above statements are wrong

2) Which of these is a step in developing a CRM strategy

a) Gain enterprise-wide commitment
b) Build a CRM project team
c) Analyze business requirements
d) Define the CRM strategy
e) All of the above

3) Which of the following is an element of CRM strategy?

a) Culture of customer orientation
b) Alignment of organizational processes
c) Data and technology support
d) CRM implementation
e) All of the above

4) Enterprise-wide commitment includes ____________

a) Bottom-up management commitment
b) Top-down buy-in from system users
c) A dedicated full-time project team
d) Budget allocation for the first part of the solution
e) All of the above

5) Finance department members of the CRM project team can provide critical analyses of
the proposed CRM strategy with respect to
a) decreasing sales productivity
b) operating cost
c) costs of system reduction
d) historical ROI
 Answers to Multiple Choice Questions

1 d
2 e
3 e
4 c
5 b

True or false

1) When CRM is adopted by the firm at the companywide level, it is termed as functional
CRM.
a) True
b) False

2) It is sufficient when sales, marketing and IT are involved in a strategic CRM initiative.
a) True
b) False

3) The CRM Implementation Matrix consists of a customer and a management dimension.

a) True
b) False

4) The best way to meet customers’ expectations is to provide them with generic offerings.
a) True
b) False

5) CRM is the strategic process of selecting customers that a firm can most profitably serve
and shaping interactions between a company and these customers.
a) True
b) False

Answers to True or False Questions

1 False
2 False
3 True
4 False
5 True

I. Briefly describe the “Define the CRM Strategy” step in CRM strategy development.

A good CRM strategy should address different areas. First: the value proposition. The
goal of a CRM strategy is to retain strategically important customers, and the objective
of customer retention is to develop, communicate, and deliver value propositions that
meet or exceed customer expectations. The value proposition in turn is a multifaceted
 package of product, service, process, price, communication, and interaction that
customers experience during their relationships with a company. It is the soul of the
company’s business, in that it differentiates the company from others. Second: the
business case. The business case for CRM determines whether the company will meet its
specific and measurable expectations from its investments. An effective business case
should directly link the delivery of customer value with the creation of shareholder value
and exhibit a good return on investment (ROI). Third: the customer strategy. A customer
strategy defines how the company will build and manage a portfolio of customers. A
portfolio likely consists of customer segments differentiated by the actual or perceived
characteristics of those customers. Fourth: the Enterprise Transformation Plan. The
transformation required by a CRM strategy must cover these six areas:
1. Business process. All primary business processes should be assessed from the
perspective of the customer strategy to determine whether the distinct needs of the
customer are met and, if not, how to do so.
2. Organization. Most customer strategies result in organizational changes, which
include cultural changes.
3. Location and facilities. Particular locations that customers visit have profound
impacts on their perceptions of the company, so the physical assets of the company
must be adjusted to match the customer-centric strategy.
4. Data flows. CRM strategy should lay out a data strategy, covering the collection of
more data, creating and deriving additional data from these data, and distributing the
data to different users (staff and customers).
5. Application architecture. To implement a CRM strategy, the application architecture
should be changed to feature new application software—or at least to integrate
existing software in new ways.
6. Technology infrastructure. A CRM strategy definitely requires a change to the
technology infrastructure, including new hardware, new operating software, and
operations personnel.
A change strategy that manages the process in well-paced steps can mitigate the pain
associated with change. It should ensure buy-in from employees, who must be prepared for
the new paradigm through adequate and effective training. Last: relationship management
of other stakeholders. Stakeholders of a company include management, customers,
employees, suppliers, and partners, in addition to owners/investors. Management initiates
CRM and takes the responsibility to ensure that in the comprehensive CRM strategy, the
relationships with all stakeholders are effectively managed.

II. What are the characteristics of marketing-driven CRM implementation?

Marketing-driven CRM implementation thus is characterized by:

- Activities and processes that constitute both analytical and operational CRM. They
might include customer data collection, satisfaction and loyalty metrics, customer
needs analyses, relationship economics, or segmentation for example.
- Activities and processes that constitute operational CRM, such as value proposition
management, campaign management, channel management, referral management, and
loyalty management.
- The firm’s ability to understand the value of the customer to the firm and varied needs
of different customers.
- An acquisition and retention process that continuously aligns the offering with
customer needs and values.
- An ability to improve the company’s offerings continually by learning about its
customers.