Question 1

When renting an automobile, members of Hertz Gold Club can proceed directly to a car of their choice, thereby avoiding spending time waiting on line and carrying out the transaction at a service counter. The Hertz Gold Club customer who knowingly pays a price premium for this service would view it as a:

Accepted Answer

The Hertz Gold Club service allows members to avoid spending time waiting on line and carrying out the transaction at a service counter. This is a value-added service for customers who are willing to pay a price premium for it.

Question 2

Southwest Airlines competes with American Airlines, Delta, and other legacy carriers by offering lower prices, greater convenience, on-time arrival, and friendly service. These items constitute Southwest's:

Accepted Answer

Southwest Airlines' strategy of offering lower prices, greater convenience, on-time arrival, and friendly service is designed to create superior value for customers, which is the essence of a customer value proposition. This proposition differentiates Southwest from its competitors and attracts customers by promising specific benefits.

Question 3

Delta and Southwest Airlines compete for passengers on the route between Albany, N.Y., and Atlanta, Ga. Delta offers nonstop service while all of Southwest's flights stop in Baltimore, Md., and require a change of plane. Delta's nonstop flights constitute:

Accepted Answer

Delta's nonstop flights are a value attribute because they provide a direct and convenient service that is likely to be preferred by passengers over a flight that requires a stop and plane change.

Question 4

The costs associated with non-value-added activities, such as rework, reduce profit because:

Accepted Answer

Non-value-added activities like rework do not contribute to customer satisfaction or generate revenue, thus reducing profit without providing any compensating benefit.

Question 5

The cost associated with preparing, issuing, and collecting customer invoices is an example of:

Accepted Answer

The answer of The cost associated with preparing, issuing, and...

Question 6

Suburban Systems, Inc., sells and services residential and commercial central heating and air conditioning systems. The company has decided to improve its financial performance by raising prices for customers who demand extraordinary amounts of post-sale service support. This tactic would be consistent with which method of increasing profitability per customer?

Accepted Answer

Enhancing the profitability of existing customers involves strategies such as adjusting pricing to reflect the value or cost of service provided. By raising prices for customers requiring extensive post-sale service, Suburban Systems, Inc. aims to increase the profitability of its current customer base.

Question 7

Joe Wilson is a frequent flier on Delta Airlines. Because of a long history of good experience with the airline, Joe always chooses Delta even when a competing carrier offers a lower fare or more convenient connections. Delta would view Joe as what type of customer?

Accepted Answer

Joe Wilson is considered a passive customer because he consistently chooses Delta Airlines due to his long history of good experiences, despite potentially better offers from competitors. This loyalty indicates he does not actively seek out or demand lower prices or more convenient options, which aligns with the characteristics of a passive customer.

Question 8

Of the following customer types, which will likely exhibit the greatest sensitivity to a change in price?

Accepted Answer

Predatory customers are highly sensitive to price changes as they are always looking for the best deal and are willing to switch to competitors for lower prices.

Question 9

Of the following types of customers, which would probably require the largest cost to service?

Accepted Answer

Wealthy demanding customers typically require more personalized, high-quality service and may have expectations that necessitate additional resources, time, and effort to meet, leading to higher service costs.

Question 10

Before abandoning a customer who seems unprofitable in the short run, management must keep in mind that:

Accepted Answer

Not all costs assigned to an abandoned customer may be avoided, and revenue could be lost with little or no cost savings, which means the decision to abandon may not be financially beneficial.

Question 11

Ideal customers:

Accepted Answer

The answer of Ideal customers:
...

Question 12

Customers who: 1) satisfy all of their needs for products sold by the firm from the firm; 2) pay the full price needed to maintain desired profit margins; and 3) demand no special services are best described as:

Accepted Answer

These customers are described as "Ideal" because they fulfill all the criteria that are beneficial for the firm without demanding extra services or reduced prices, thus maintaining the firm's profit margins.

Question 13

Improving customer retention may have little or no effect on current period profits, but will have a significant effect on future profits because:

Accepted Answer

Many non-value-added costs will be reduced by extending the duration of the customer relationship.

Question 14

One of the goals of variance analysis in the customer domain is to:

Accepted Answer

Variance analysis in the customer domain often aims to break down the company's overall profit variance by customer to understand which customers are contributing most to profitability and which are not. This helps in making informed decisions about customer management and strategy.

Question 15

Endeavour Company is Morse Products' largest customer. A variance analysis of customer profitability prepared by Morse for Endeavour Company revealed a favorable customer purchase volume variance and an unfavorable market share variance. This means that:

Accepted Answer

C) Endeavour's purchases of the products sold by Morse exceeded the amount budgeted by Morse, but a smaller fraction of those purchases than expected were from Morse. This is indicated by the favorable customer purchase volume variance (Endeavour bought more than planned) and the unfavorable market share variance (Morse secured a smaller share of Endeavour's total purchases than expected).

Question 16

Blake Industries sells security systems and monitoring services to commercial clients. Blake regularly prepares variance analyses of customer profitability. Recently, it discovered that one of its largest clients purchased more security products and monitoring services than Blake had budgeted, and that Blake had received a larger share of this business than it had expected. The client was less costly to service than Blake had expected, resulting in a favorable cost spending variance. Nonetheless, the total profit variance associated with this customer was unfavorable. The variance results suggest that:

Accepted Answer

Given the information, the unfavorable total profit variance despite higher sales volume, a larger market share than expected, and a favorable cost spending variance suggests that the price discounts given to the customer were significant enough to offset these positive factors, leading to an overall unfavorable profit variance.

Question 17

If a particular customer requires an unusually large amount of attention from your company's sales staff, it will be brought to your management's attention by:

Accepted Answer

An unfavorable cost spending variance occurs when the actual costs exceed the budgeted or standard costs. If a customer requires an unusually large amount of attention, this would likely increase the sales staff's time and effort spent on this customer, leading to higher than expected costs. This situation would be reflected in an unfavorable cost spending variance, alerting management to the increased resource allocation.

Question 18

Alpha Company provides tax planning and consulting services. Last year, Alpha captured a larger than anticipated share of Mega Company's purchases of such services. In a variance analysis of customer profitability, this difference will be noted by:

Accepted Answer

A favorable customer market share variance occurs when a company captures a larger share of purchases than anticipated, indicating better performance in attracting or retaining customers within its market segment.

Question 19

In its strategy map, Southwest Airlines lists the following items: "time on the ground," "on-time departures," and "information system availability." These three nonfinancial performance measures are:

Accepted Answer

These nonfinancial performance measures are differentiators because they represent unique aspects of Southwest Airlines' service that set it apart from competitors, focusing on efficiency, punctuality, and reliable information systems.

Question 20

Nonfinancial measures of performance in the customer domain are important because:

Accepted Answer

Nonfinancial measures in the customer domain, such as customer satisfaction and loyalty, can be leading indicators of future financial performance. High levels of customer satisfaction often translate into repeat business and referrals, which can improve financial outcomes over time.

Quiz 13: Setting and Achieving Targets in the Customer Domain