It is always prudent to segment the customer set on the basis of profitability as well as other dimensions – historical spending patterns, strategic account potential, up sell opportunities etc. – in order to design intelligent marketing strategies that can resonate with individual customers. One of the consequences of this segmentation might be to fire customers who aren’t carrying their own weight in terms of profitability.
TAKE A LONG VIEW OF A CUSTOMER’S POTENTIAL
We’ve all heard the oft-cited shibboleth that if we fire such and such a customer, we’ll make more money. The assumption in these cases is that a customer doesn’t throw off enough margin to cover the cost of servicing. That may be true, but the devil of such an action is in the details. My preference is not to automatically fire a customer on the basis of subpar margin outcomes. A preferred approach is to first try to turn the unprofitable customer into a profitable one. This can only be done if the supplier has appropriately segmented the customer base, so as to understand not only the individual customer’s profitability but also the customer’s spending patterns of behavior in the light of our marketing efforts. If we haven’t marketed a consumer loan to a customer, for example, there is a very good chance he will not have purchased one from us! An intelligent approach to up sell an unprofitable customer with additional goods and services should always be the precursor to attrition motivated by the supplier.
Consider the following example from the real world. During a two-year stretch, our company serviced a customer whose profitability was break-even at the gross margin level. The calls from some of our executives to fire the customer were frequent, and they were loud. These executives had a point. Some of us, however, came to a different conclusion. This customer, we believed, had great equity potential. The customer was a multibillion-dollar division of an international corporation, which had proved especially difficult to penetrate at the management level. Our strategy was clear: to serve this customer to the best of our ability while continuing to market them hard for additional business. After two years, we were rewarded with a three-year multimillion-dollar deal.
SERVE THE CUSTOMER WITH ALACRITY TO THE BITTER END
Our construct of the service ethic makes clear that the quality of service must be uniform across the entire customer set at all times. This needs to be the rule until such time as the decision has been made to fire the customer. Furthermore, purposeful service degradation – ignoring or being less than prompt in responding to the customer’s service calls; failing to inform the customer of new products, tools, and services; and so forth cannot be used as an implement to drive away the marginally profitable customer. Those actions are ethically indefensible. In any event, the decision to fire a customer while clearly a prerogative of the enterprise should be the consequence of an intelligent segmentation and marketing analysis.