Marketing Concepts and Core Competence

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Questions and Answers

Which of the following statements about customer satisfaction is true?

It costs about five times less to retain existing customers than to acquire new ones. (correct)

It is cheaper to acquire new customers than to retain existing ones.

Win backs are usually more expensive than acquiring new customers.

Customer satisfaction focuses solely on making sales.

What does RFM analysis primarily base its definition of a customer on?

Customer complaints and feedback.

Demographics and psychographics.

Customer service interactions and communication.

Purchase behavior including recency, frequency, and monetary value. (correct)

In a noncontractual setting, what is a challenge when determining customer inactivity?

Customers are always easy to identify.

The time of customer inactivity cannot be observed. (correct)

Customers frequently communicate their intentions to remain active.

Inactivity can always be traced to specific purchase failures.

Which of the following is an example of a proactive retention campaign?

Offering discounts to customers who never intended to leave. Signup and view all the answers

How does customer loyalty impact a company's profitability?

Loyal customers are assumed to become more valuable over time. Signup and view all the answers

What are the potential consequences of offering incentives to customers who are not at risk of leaving?

Increased operational costs and potential change in consumption habits. Signup and view all the answers

Which factor is least relevant when organizations evaluate customer interactions in a digital setting?

Monetary exchanges. Signup and view all the answers

What does the Brand Keys loyalty measure assess?

Cognitive and emotional attachment to brands. Signup and view all the answers

What is commonly referred to as the 80/20 rule in business?

The majority of profits come from a small percentage of customers Signup and view all the answers

What is a potential drawback of having loyal customers?

They may expect lower prices compared to new customers Signup and view all the answers

Which category represents customers who are highly profitable but only engage with the brand short-term?

Butterflies Signup and view all the answers

What does Customer Lifetime Value (CLV) represent?

The present value of all future profits from a customer Signup and view all the answers

Which of the following could be a barrier to entry in a market?

Customer loyalty to established brands Signup and view all the answers

What misconception might loyal customers have regarding pricing?

They believe their loyalty guarantees the lowest prices Signup and view all the answers

What is a key aspect to consider when classifying barnacle customers?

Their wallet size and share of wallet Signup and view all the answers

What does the annual retention rate indicate?

The percentage of customers remaining at the end of the year Signup and view all the answers

What best describes a core competence?

A skill set that is difficult for competitors to imitate Signup and view all the answers

Which of the following is true regarding strategic assets?

They can be created through purchasing from other companies. Signup and view all the answers

What should be considered when companies have multiple brands in their portfolio?

The brand architecture defines the relationship among brands. Signup and view all the answers

What is the primary benefit of an umbrella brand?

It allows for a wide variety of product types under one brand. Signup and view all the answers

Which type of brand extension involves creating a product within the same category?

Product line extension Signup and view all the answers

What might happen to a company that lacks a clear core competence?

It will be unable to gain competitive advantages. Signup and view all the answers

What is NOT a purpose of brand extensions?

To ensure all products under a brand must deliver the same benefit. Signup and view all the answers

Which of the following statements about core competence is false?

All companies will have a core competence. Signup and view all the answers

What impact does an increase in the annual margin have on expected customer lifetime value (ECLV)?

It increases ECLV Signup and view all the answers

Which of the following factors leads to a decrease in expected customer lifetime value (ECLV)?

An increase in discount rate Signup and view all the answers

What is a primary reason for the ambiguity surrounding customer acquisition cost?

Customer onboarding costs in SaaS are often overlooked Signup and view all the answers

What is the primary goal of loyalty programs?

To create barriers to exit and increase customer retention Signup and view all the answers

What is the goal gradient hypothesis primarily related to?

Intensifying goal pursuit as one nears accomplishment Signup and view all the answers

Which of the following characteristics tends to benefit from loyalty programs the most?

Frequent purchasers who may already be loyal Signup and view all the answers

What is a potential downside of implementing a rewards program?

Increased administration and maintenance expenses Signup and view all the answers

Which statement about customer retention rates (r) is correct?

If r = 0.8, 10.7% of customers remain after 10 years Signup and view all the answers

What occurs during the growth stage of a product's lifecycle?

There is rapid market acceptance and substantial profit improvement. Signup and view all the answers

Which of the following is NOT a function of brands?

Increase production costs. Signup and view all the answers

What is a challenge in managing loyalty programs?

Restructuring them can lead to customer disappointment. Signup and view all the answers

What describes the decline stage of a product's lifecycle?

Both sales and profits decline. Signup and view all the answers

What attribute type is often associated with brand loyalty but is hard to evaluate?

Credence attributes. Signup and view all the answers

Which of the following best describes the current effort in marketing research?

Understanding which customers are at the highest risk of leaving. Signup and view all the answers

What is a key shortcoming of current marketing strategies?

They can be too variable and sometimes mislead managers. Signup and view all the answers

Which aspect is NOT part of the 4 P's of marketing?

People. Signup and view all the answers

Study Notes

Core Competence

A skill set that is difficult for competitors to imitate.
Not an output but an input which generates strategic assets.
These assets ultimately provide benefits for customers.
Ideally, a core competence provides access to multiple markets.

Caveats

Strategic assets can be a consequence of core competencies but not always.
Some companies may not have a core competence at all.
Companies may not realize they have a core competence or have difficulty defining it.

Brand Architecture: Relationships between Brands in a Company's Portfolio

A brand architecture is the relationship between different brands in a company's portfolio.
Umbrella brand: One family of products that all deliver the same higher order benefit.
Brand extensions: product line, category, branded variant, often used to accommodate different willingness to pay.

Customer Relationship Management

Modern approach to marketing prioritizes customer relationship management over sales.
Costs five times less to retain existing customers than acquiring new customers.

Defining and Identifying Customers

Traditionally based on purchase behavior: recency, frequency, monetary value (RFM) analysis.
Different industries define "current customer" with different RFM cutoffs.
Better to combine purchase data with attitude data to identify profitable customers at risk.
Retention is when the customer continues to interact with the firm, even without monetary exchange.

Determining Customer Base Size

Different challenges for contractual and non-contractual settings.
Contractual settings allow for observation of when customers become inactive.
Non-contractual settings lack this observation time.
Cohort analysis commonly used to examine retention.

Retention Campaigns

Proactive and reactive retention campaigns.
Proactive campaigns often result in false positives and false negatives.
False negatives miss customers who intend to leave.
False positives offer incentives to customers who wouldn't have left.
Acquisition challenge: overcoming existing brand loyalties.

Brand Loyalty

Deep commitment to repurchase a product or service despite situational influences.
Positive link between loyalty and profitability but with caveats.
Some consumers believe loyal customers deserve lower prices than new customers.
Loyal customers may be more price-sensitive due to increased product knowledge.

Customer Segmentation (Profitability and Tenure)

Butterflies: High profitability, short-term customers
Strangers: Low profitability, short-term customers
True Friends: High profitability, long-term customers
Barnacles: Low profitability, long-term customers
Must measure both "size of wallet" and "share of wallet" for barnacles due to indistinguishable internal data.

Customer Lifetime Value (CLV)

Represents the present value of all future profits generated from a single customer.
Useful for guiding acquisition and retention strategies.
Multiple approaches to CLV calculations exist.
Focus acquisition efforts on retaining customers with high CLV to maximize profitability.

Loyalty Programs

Advantages: create barriers to exit, encourage greater share of wallet, and stimulate higher than normal purchase behavior.
Disadvantages: missed sales due to giveaways, administrative costs, and may primarily benefit frequent purchasers who may not require additional discounts.

Challenges in Marketing Research and Practice

Predicting churn: identifying at-risk customers.
Determining who, when, and how to target customers.
Integrating retention programs with broader marketing activities.
Developing effective strategies to overcome competitor challenges.

Product Life Cycle

Introduction Stage: Profits are low, competition is light, and sales growth is slow.
Growth Stage: Rapid market acceptance and significant profit improvement.
Maturity Stage: Sales slow down, profits stabilize due to high competition, and focus shifts to new product platforms.
Decline Stage: Sales and profits decrease, and marketing budget is reduced.

Product Attributes

Search Attributes: Can be evaluated before purchase (e.g., price of a product).
Experience Attributes: Can only be evaluated after purchase (e.g., how enjoyable a restaurant is).
Credence Attributes: Difficult to evaluate even after purchase (e.g., quality of medical services).

Interbrand Criteria for Brand Strength:

Internal clarity about what the brand stands for and a commitment to its importance.
Customers understand what makes the brand distinctive and generates positive word of mouth.

Functions of Brands

Simplify search: Brand recognition (e.g., McDonald's logo).
Enhance value: Name recognition adds value and subtle signals of group membership (e.g., fashion).
Elicit feelings: Logos, colors, and packaging evoke emotions.

Packaging

The "fifth P" of the marketing mix.
Several objectives: brand identification, persuasive information, transport and protection, storage, and a short commercial.

4 P's of Marketing Mix

Product: Change quality, design, sizes, warranties, return policy, packaging.
Price: Modify list price, discounts, repayment periods, and financing terms.
Promotion: Adjust sales force size and advertising campaigns.
Place: Change distribution channels and accessibility.

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Description

Explore key marketing concepts including core competence and brand architecture. This quiz delves into the intricacies of how a company's strategic assets and relationships between brands shape customer relationship management. Test your knowledge and understanding of these critical elements in marketing strategy.