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Customer loyalty programs are attempts to bond customers to a company

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Customer loyalty programs are attempts to bond customers to a company  [#permalink]

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New post Updated on: 12 Oct 2017, 07:13
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Customer loyalty programs are attempts to bond customers to a company and its products and services by offering incentives-such as airline frequent flyer programs or special credit cards with valuable benefits-to loyal customers. In support of loyalty programs, companies often invoke the “80/20” principle,which states that about 80 percent of revenue typically comes from only about 20 percent of customers. However, this profitable 20 percent are not necessarily loyal buyers, especially in the sense of exclusive loyalty. Studies have demonstrated that only about 10 percent of buyers for many types of frequently purchased consumer goods are 100 percent loyal to a particular brand over a one-year period. Moreover, 100-percent-loyal buyers tend to be light buyers of the product or service. “Divided loyalty” better describes actual consumer behavior, since customers typically vary the brands they buy. The reasons for this behavior are fairly straightforward: people buy different brands for different occasions or for variety, or a brand may be the only one in stock or may offer better value because of a special deal. Most buyers who change brands are not lost forever; usually, they are heavy consumers who simply prefer to buy a number of brands. Such multi-brand loyalty means that one company’s most profitable customers will probably be its competitors’ most profitable customers as well.

Still, advocates of loyalty programs contend that such programs are beneficial because the costs of serving highly loyal customers are lower, and because such loyal customers are less price sensitive than other customers. It is true that when there are start-up costs, such as credit checks, involved in serving a new customer, the costs exceed those of serving a repeat customer. However, it is not at all clear why the costs of serving a highly loyal customer should in principle be different from those of serving any other type of repeat customer. The key variables driving cost are size and type of order, special versus standard order, and so on, not high-loyalty versus divided-loyalty customers. As for price sensitivity, highly loyal customers may in fact come to expect a price discount as a reward for their loyalty.


VCR000108-01
1. The primary purpose of the passage is to

A. question the notion that customer loyalty programs are beneficial

B. examine the reasons why many customers buy multiple brands of products

C. propose some possible alternatives to customer loyalty programs

D. demonstrate that most customers are not completely loyal to any one brand of product or service

E. compare the benefits of customer loyalty programs with those of other types of purchase incentive programs



2. The passage mentions each of the following as a potential reason for customers' divided loyalty EXCEPT

A. A particular brand may be the only one available

B. A particular brand may be offered at a discount

C. Customers will often buy multiple brands out of a desire for variety

D. Customers will often buy a unfamiliar brand when it is new on the market

E. Customers will often buy certain brands for certain occasions



VCR000108-03
3. According to the passage, advocates of the customer loyalty programs claim which of the following about highly loyal customers?

A. They often expect price discounts a reward for their loyalty to the product

B. They can be served at lower expense to a company than nonloyal customers

C. They tend to be light but predictable buyers of the product or service in question

D. They are unlikely to try out new brands or products that appear on the market

E. They are difficult to differentiate statistically from other types of repeat customers



4. The passage suggests that companies that invoke the "80/20" principle in customer loyalty programs believe which of the following?

A. A well designed customer loyalty program can increase the number of company's loyal customers by as much as 80 percent.

B. About 20 percent of any given company's most profitable customers are likely to be its competitors' most profitable customers as well.

C. It is unreasonable to expect more than 20 percent of customers to be 100 percent loyal to any particular brand of the product.

D. Even "loyal" customers cannot reasonably be expected to stick to one particular brand of product more than 80% of the time.

E. A relatively small number of loyal customers is responsible for about 80% of the company's profits.



5. The second paragraph functions primarily to

A. propose solutions to certain problems inherent in customer loyalty programs.

B. emphasize certain risks inherent in customer loyalty programs.

C. address certain contentions put forth by advocates of customer loyalty programs.

D. defend certain specific aspects of customer loyalty programs against criticism.

E. reconcile competing view points regarding the efficacy of customer loyalty program.



6. The author of the passage suggests that which of the following is most likely to be true of a customer who is exclusively loyal to a particular brand of product?

A. The customer probably began buying that brand of product only within the past year.

B. The customer is probably among the most profitable customers for the company that manufactures that brand of product.

C. The customer is probably not a heavy consumer of that particular type of product.

D. The customer is probably a loyal customer when purchasing other types of products as well.

E. The customer probably sampled numerous brands of that type of product before becoming loyal to a particular brand.


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Originally posted by JarvisR on 13 Jun 2015, 08:37.
Last edited by hazelnut on 12 Oct 2017, 07:13, edited 6 times in total.
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New post 14 Jun 2015, 03:05
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New post 14 Jun 2015, 07:25
carcass wrote:
Please provide all the answer choices

Regards

Hi carcass,
In the pdf (GMATPREP COMPREHENSIVE RC OA.pd) shared by souvik, I found only 1 question against this para.If you can share other questions or provide me a link, I would post it here.
Regards.
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New post 14 Jun 2015, 07:42
Yes.

You are right. Only one question for this passage, even though is really weird.

Anyhow.

The right answer is A

Still, advocates of loyalty programs contend that such programs are beneficial..................... However, it is not at all clear why the costs of serving a highly loyal customer should in principle be different from those of serving any other type of repeat customer.

Hope this helps
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New post 30 Nov 2015, 04:25
1
More questions!!

2. The passage mentions each of the following as a potential reason for customers' divided loyalty EXCEPT

A. A particular brand may be the only one available
B. A particular brand may be offered at a discount
C. Customers will often buy multiple brands out of a desire for variety
D. Customers will often buy a unfamiliar brand when it is new on the market
E. Customers will often buy certain brands for certain occasions



3. According to the passage, advocates of the customer loyalty programs claim which of the following about highly loyal customers?
A. They often expect price discounts a reward for their loyalty to the product
B. They can be served at lower expense to a company than nonloyal customers
C. They tend to be light but predictable buyers of the product or service in question
D. They are unlikely to try out new brands or products that appear on the market
E. They are difficult to differentiate statistically from other types of repeat customers


+1 Kudos if this helped!! :lol:
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New post 30 Nov 2015, 04:40
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New post 30 Nov 2015, 10:51
And more questions!!

4. The passage suggests that companies that invoke the "80/20" principle in customer loyalty programs believe which of the following?
A. A well designed customer loyalty program can increase the number of company's loyal customers by as much as 80 percent.
B. About 20 percent of any given company's most profitable customers are likely to be its competitors' most profitable customers as well.
C. It is unreasonable to expect more than 20 percent of customers to be 100 percent loyal to any particular brand of the product.
D. Even "loyal" customers cannot reasonably be expected to stick to one particular brand of product more than 80% of the time.
E. A relatively small number of loyal customers is responsible for about 80% of the company's profits.


5. The second paragraph functions primarily to
A. propose solutions to certain problems inherent in customer loyalty programs.
B. emphasize certain risks inherent in customer loyalty programs.
C. address certain contentions put forth by advocates of customer loyalty programs.
D. defend certain specific aspects of customer loyalty programs against criticism.
E. reconcile competing view points regarding the efficacy of customer loyalty program.


+ 1 Kudos if this helped! :lol:
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New post 10 Dec 2015, 02:08
IMO
1> A
2> D
3> B
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New post 11 Aug 2016, 04:27
-The author introduces the topic of customer loyalty programs
-The author then questions the benefits received from the customer loyalty program by providing reasons on why the program is not necessarily beneficial to a company

1.A

2. D

3. B
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New post 17 Sep 2016, 19:39
1
Another question for the same passage :
The author of the passage suggests that which of the following is most likely to be true of a
customer who is exclusively loyal to a particular brand of product?
A. The customer probably began buying that brand of product only within the past year.
B. The customer is probably among the most profitable customers for the company that
manufactures that brand of product.
C. The customer is probably not a heavy consumer of that particular type of product.
D. The customer is probably a loyal customer when purchasing other types of products as
well.
E. The customer probably sampled numerous brands of that type of product before
becoming loyal to a particular brand.


Answer C.


Kindly add to the passage.
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New post 18 Sep 2016, 07:33
GmatDM2016 wrote:
Another question for the same passage :
The author of the passage suggests that which of the following is most likely to be true of a
customer who is exclusively loyal to a particular brand of product?
A. The customer probably began buying that brand of product only within the past year.
B. The customer is probably among the most profitable customers for the company that
manufactures that brand of product.
C. The customer is probably not a heavy consumer of that particular type of product.
D. The customer is probably a loyal customer when purchasing other types of products as
well.
E. The customer probably sampled numerous brands of that type of product before
becoming loyal to a particular brand.

Answer C.


Kindly add to the passage.


All the three new questions added to the passage.
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New post 22 Feb 2017, 05:55
What is the official answer for question 2? Is the OA D?

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New post 30 May 2017, 02:20
1
5. The second paragraph functions primarily to
A. propose solutions to certain problems inherent in customer loyalty programs.
B. emphasize certain risks inherent in customer loyalty programs.
C. address certain contentions put forth by advocates of customer loyalty programs.
D. defend certain specific aspects of customer loyalty programs against criticism.
E. reconcile competing view points regarding the efficacy of customer loyalty program.

Could anyone explain how you can arrive at solution to this in minimal time?

If we just read first sentence of second para (Still, advocates of loyalty programs contend that such programs are beneficial because the costs of serving highly loyal customers are lower, and because such loyal customers are less (45) price sensitive than other customers) , you might even arrive at option D (defend certain specific aspects of customer loyalty programs against criticism.)
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New post 09 Nov 2017, 06:13
Very easy passage compared to all other 600 level Questions.

12 Min ( 4 min for Reading )... Got 5 correct.

for 5th Q, Marked D. But i am confused between D & E. Don't know how C is the answer ?

Can someone please explain Q5.

Thanks in advance.
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New post 27 Dec 2017, 19:20
Hi all,

Could you please explain the question 5 and 6. Thanks.
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New post 27 Dec 2017, 22:13
1
thingocanhnguyen wrote:
Hi all,

Could you please explain the question 5 and 6. Thanks.


Q6 is based on the following excerpt from passage: "Moreover, 100-percent-loyal buyers tend to be light buyers of the product or service."

Q5 The second paragraph functions primarily to

The last line of P1 (Such multi-brand loyalty means that one company’s most profitable customers will probably be its competitors’ most profitable customers as well.) raises questions on the loyalty of very-loyal customers.
The first sentence of P2 expresses the disagreement of the advocates of loyalty programs stating that even though very-loyal customers may be involved with the competitors, such customers are beneficial because of reason X.
Further, the author addresses these disagreements(contentions) expressing his doubts on reason X. (address= lecture/discuss)
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New post 02 Mar 2018, 21:42
Dear Expert,

Could you please explain question 4. Following is last sentence of 1st paragraph.

Such multi-brand loyalty means that one company???s most profitable customers will probably be its competitors??? most profitable customers as well. .

As per above lines, i thought answer to question 4 is B.

But OA is E. I find B and E both correct. Could you pls let me know how should i select E over B.

Regards,
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New post 02 Mar 2018, 21:46
JarvisR wrote:
Customer loyalty programs are attempts to bond customers to a company and its products and services by offering incentives-such as airline frequent flyer programs or special credit cards with valuable benefits-to loyal customers. In support of loyalty programs, companies often invoke the “80/20” principle,which states that about 80 percent of revenue typically comes from only about 20 percent of customers. However, this profitable 20 percent are not necessarily loyal buyers, especially in the sense of exclusive loyalty. Studies have demonstrated that only about 10 percent of buyers for many types of frequently purchased consumer goods are 100 percent loyal to a particular brand over a one-year period. Moreover, 100-percent-loyal buyers tend to be light buyers of the product or service. “Divided loyalty” better describes actual consumer behavior, since customers typically vary the brands they buy. The reasons for this behavior are fairly straightforward: people buy different brands for different occasions or for variety, or a brand may be the only one in stock or may offer better value because of a special deal. Most buyers who change brands are not lost forever; usually, they are heavy consumers who simply prefer to buy a number of brands. Such multi-brand loyalty means that one company’s most profitable customers will probably be its competitors’ most profitable customers as well.

Still, advocates of loyalty programs contend that such programs are beneficial because the costs of serving highly loyal customers are lower, and because such loyal customers are less price sensitive than other customers. It is true that when there are start-up costs, such as credit checks, involved in serving a new customer, the costs exceed those of serving a repeat customer. However, it is not at all clear why the costs of serving a highly loyal customer should in principle be different from those of serving any other type of repeat customer. The key variables driving cost are size and type of order, special versus standard order, and so on, not high-loyalty versus divided-loyalty customers. As for price sensitivity, highly loyal customers may in fact come to expect a price discount as a reward for their loyalty.

VCR000108-01
1. The primary purpose of the passage is to

A. question the notion that customer loyalty programs are beneficial

B. examine the reasons why many customers buy multiple brands of products

C. propose some possible alternatives to customer loyalty programs

D. demonstrate that most customers are not completely loyal to any one brand of product or service

E. compare the benefits of customer loyalty programs with those of other types of purchase incentive programs



2. The passage mentions each of the following as a potential reason for customers' divided loyalty EXCEPT

A. A particular brand may be the only one available

B. A particular brand may be offered at a discount

C. Customers will often buy multiple brands out of a desire for variety

D. Customers will often buy a unfamiliar brand when it is new on the market

E. Customers will often buy certain brands for certain occasions



VCR000108-03
3. According to the passage, advocates of the customer loyalty programs claim which of the following about highly loyal customers?

A. They often expect price discounts a reward for their loyalty to the product

B. They can be served at lower expense to a company than nonloyal customers

C. They tend to be light but predictable buyers of the product or service in question

D. They are unlikely to try out new brands or products that appear on the market

E. They are difficult to differentiate statistically from other types of repeat customers



4. The passage suggests that companies that invoke the "80/20" principle in customer loyalty programs believe which of the following?

A. A well designed customer loyalty program can increase the number of company's loyal customers by as much as 80 percent.

B. About 20 percent of any given company's most profitable customers are likely to be its competitors' most profitable customers as well.

C. It is unreasonable to expect more than 20 percent of customers to be 100 percent loyal to any particular brand of the product.

D. Even "loyal" customers cannot reasonably be expected to stick to one particular brand of product more than 80% of the time.

E. A relatively small number of loyal customers is responsible for about 80% of the company's profits.



5. The second paragraph functions primarily to

A. propose solutions to certain problems inherent in customer loyalty programs.

B. emphasize certain risks inherent in customer loyalty programs.

C. address certain contentions put forth by advocates of customer loyalty programs.

D. defend certain specific aspects of customer loyalty programs against criticism.

E. reconcile competing view points regarding the efficacy of customer loyalty program.



6. The author of the passage suggests that which of the following is most likely to be true of a customer who is exclusively loyal to a particular brand of product?

A. The customer probably began buying that brand of product only within the past year.

B. The customer is probably among the most profitable customers for the company that manufactures that brand of product.

C. The customer is probably not a heavy consumer of that particular type of product.

D. The customer is probably a loyal customer when purchasing other types of products as well.

E. The customer probably sampled numerous brands of that type of product before becoming loyal to a particular brand.




What does 5 question, E option mean ?
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Re: Customer loyalty programs are attempts to bond customers to a company  [#permalink]

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New post 08 Mar 2018, 16:45
2
ammuseeru wrote:
Dear Expert,

Could you please explain question 4. Following is last sentence of 1st paragraph.

Such multi-brand loyalty means that one company???s most profitable customers will probably be its competitors??? most profitable customers as well. .

As per above lines, i thought answer to question 4 is B.

But OA is E. I find B and E both correct. Could you pls let me know how should i select E over B.

Regards,
Amm

Quote:
4. The passage suggests that companies that invoke the "80/20" principle in customer loyalty programs believe which of the following?

A. A well designed customer loyalty program can increase the number of company's loyal customers by as much as 80 percent.

B. About 20 percent of any given company's most profitable customers are likely to be its competitors' most profitable customers as well.

C. It is unreasonable to expect more than 20 percent of customers to be 100 percent loyal to any particular brand of the product.

D. Even "loyal" customers cannot reasonably be expected to stick to one particular brand of product more than 80% of the time.

E. A relatively small number of loyal customers is responsible for about 80% of the company's profits.

The passage does indeed state that "one company’s most profitable customers will probably be its competitors’ most profitable customers as well."

However, that information is not relevant to this question. This question specifically asks about the "80/20" principle in customer loyalty programs, "which states that about 80 percent of revenue typically comes from only about 20 percent of customers." Companies that believe in the 80/20 principle believe that most of their revenue (and, hence, most of their profits) come from a relatively small number of loyal customers.

(E) is thus the best answer.

ammuseeru wrote:
What does 5 question, E option mean ?

Quote:
5. The second paragraph functions primarily to

A. propose solutions to certain problems inherent in customer loyalty programs.

B. emphasize certain risks inherent in customer loyalty programs.

C. address certain contentions put forth by advocates of customer loyalty programs.

D. defend certain specific aspects of customer loyalty programs against criticism.

E. reconcile competing view points regarding the efficacy of customer loyalty program.

Even if you don't quite understand the meaning of "reconcile" here, the second paragraph doesn't describe competing view points.

If we were given two competing view points, to "reconcile" them would be to make them consistent. For example, that might entail explaining how the two views actually share fundamental similarities despite apparent differences. Or that might entail describing inaccurate facts/assumptions taken by one or both of those views and then showing that, given the same facts/assumptions, the two different views would actual agree with one another.

Put simple, to reconcile two views is to make them both make sense given the facts.

Choice (C) is a much better answer here.

I hope that helps!
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Re: Customer loyalty programs are attempts to bond customers to a company  [#permalink]

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New post 19 May 2018, 04:30
1
GMATNinja , can you please help me to understand here in Question 4(option E), how can we assume revenue equals to Profit.
I rejected this option just because the passage was talking about revenue, whereas option was concerned with Profit. Please help
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Re: Customer loyalty programs are attempts to bond customers to a company &nbs [#permalink] 19 May 2018, 04:30

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