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Improve Profitability – Fire your worst customers?

July 10, 2007

The news is ripe with coverage of Sprint’s recent, and controversial move to severe the contractual relationship with some customers who have complained too much, or logged too many service calls.  Sprint “fired” these customers.  The blogosphere is full of savvy analysis  discussing the rationalization for the move, and opinions vary, with leanings toward the negative, on whether this is a wise move.

In a nutshell, the rationale is that a small percentage of “problem” customers consume a disproportionate amount of company resource, and eliminating this expense will more than offset the related loss in revenue. 

On counter point, one could argue that the majority of these customers began with a legitimate issue, and if the company would resolve the issue quickly and decisively, then the customers could be retained, and the burgeoning expense of protracted engagements could be avoided.

What ever happened to great customer service anyway?  Often, with major corporations, the company is divided into functional silos, and service, warranty, support, customer service, are all viewed as expense items.  The executives in charge of these areas have business objectives to reduce expenses and the lever most often available to them is to reduce service levels, or move toward more automated ways of delivery.  Witness the rise of phone VRUs to eliminate the need for live operators,  call centers staffed to meet the average but not peak demand periods, “self help” tools on websites, and seemingly arbitrary, cost optimized rules for product returns and exchanges.  

Expense control measures are at times counter productive.   Forcing the customer to start at the lowest cost point for service delivery, and escalating their way up the chain until the inevitable concession for resolution is made squanders company and customer resources.   Companies often attempt to manage costs by limiting the capabilities of their customer service representatives, or by filling the jobs from a global labor pool that ensures lowest cost, but not necessarily the most capability.   The more engagements a customer must make, no matter the cost per engagement,  the worse the situation becomes for both parties.  As the customer becomes increasingly frustrated, their demands escalate, and it often winds up costing the company more overall than if  decisive and definitive action were taken upon the first engagement with each customer.  Customers are becoming increasingly savvy as well.  The web,  notably forums and blogs, has enabled individual customers to learn and draw upon the collective experiences of other customers.   An increasing number of customers are likely to interrupt front line customer service  agents at the first utterance of “no”, and demand a supervisor.   Others will file electronic complaints with the BBB, pro-consumer websites, or will blog or forum post their ongoing troubles to gain leverage and faster resolution. 

Companies may need to evolve their thinking.  Today,  they not only have thousands of relationships with their individual customers, but they have one public relationship with all of their customers collectively, and that relationship is chronicaled online daily.

What do I recommend?

Businesses that have profitability objectives need to examine all of their operational policies for consistency.   Challenge all existing, and every  future proposal and initiative put forth – each should demonstrate that it improves the situation for both the customer and the business in order to be implemented or retained.   Executives must ensure a holistic set of guiding measurements and objectives.  Expense, revenue, and profitability objectives should not be independently managed by different executives.  No matter how internally organized, all functions within a business must share and manage to, the common objectives.

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One Comment leave one →
  1. July 11, 2007 3:06 am

    I actually have a little experience with this, having worked for a while in customer service and then customer development (briefly, before getting a better job, thank you jebus) for a national trucking company. Customer development is a sort of advanced customer service for customers with whom you have a good relationship and a lot of business . . . or for customers with whom you have a bad relationship but with whom you’d like to do more business.

    Guess which kind of customers you get if you’re the new guy.

    Anyway, I agree with you that, mostly, customers do not want to keep calling customer service. If they’re doing so, it’s because somebody screwed up. Then somebody else screwed up. And then all hell broke loose. The solution (okay, *part* of the solution) to this sort of a problem is clearly to give the guy answering the phone more power to resolve the issue. Easier said than done for a big company, of course. The company I worked for was fairly Byzantine. There are a lot of difficult problems that come up, and finding out how to fix the problem, who (somewhere in the USA) can help solve the problem, etc. is a real challenge. The guy answering the phone doesn’t need the very real difficulty of the problems that come across the mine compounded by hobbling policies, lack of respect from managers and sales people in the field, etc., etc.

    All that having been said, some customers are just a costly pain in the neck. it’s not the company’s fault; it’s their fault. Or, if it is the company’s fault, there is nothing to be done to satisfy the customer. Or they’re opportunists looking for more than they’re due. And in any case, you don’t really want more of their business. So why do more than you’re obliged? fire them. It does make sense. And it’s a time-honored tradition. Think of those poor bastards with their bad checks taped to the cash register at Sam’s Package Shop. Typically, though, firing a customer is a more subtle thing. You just stop pursuing their business. Or (this is how it works in trucking) you stop giving them the good discounts.

    What you don’t want to do, I think, is get *caught* firing your customer. When other customers know you’re doing it, it inevitably reflects on you. That’s where Sprint screwed up, IMHO.

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