On a recent Steelhead fishing trip at the River of No Return Lodge (shameless plug for a great outfit), I spent some time talking about customer service with our guide, Kevin Yeates. The typical guide spends 12 hours or more each day closely working with clients of various ability levels and needs. Some guided trips are more successful than others, so guides frequently deal with customers who are unhappy due to conditions beyond the guide’s control. I was curious to find out how such a customer-focused industry dealt with those situations.
In 2007 Sprint “fired” 1,000 customers because they were calling and complaining to customer service channels over 20 times a month. The public was outraged that a company had the nerve to “fire” customers rather than fix its apparent customer service problem. I would argue that Sprint made the right choice. In a blog post on the topic, Seth Godin posed the idea that, “if you were going to be obsessed with delighting customers, it is more efficient to focus on customers that are able to be delighted.” In 2005, Peeled Snacks began selling products to convenience stores throughout the Northeast. Sales were going well and the company was growing at a decent pace. In 2008 they began selling products through regional grocery chains in two separate parts of the country. The addition of the grocery chains provided an immediate boost in sales, accounting for 30% of overall revenue. However, the company expended a disproportionate amount of time servicing those customers for the revenue generated because of the lower margins required by the stores. When the time to renew the contracts came up, Peeled Snacks opted to only renew stores with enough sales volume to balance out the customer service demands.
A 2012 paper by Harvard Business Review uncovered some interesting things while studying the effect of cross-selling to unprofitable customers. Researchers discovered that the profit generated from customers who purchase from cross-selling efforts is higher than those who do not participate, but they also found that one in five of those cross-buying customers are profitable. The researchers dug into the unprofitable accounts to understand the information and found four profiles of revenue draining customers.
- “Service Demanders”. These are the customers that Sprint fired because they abused the customer service options the company offers. Because they can never be satisfied, they are a continual drain on resources that can be used to make other customers happy.
- “Revenue Reversers”. These customers take advantage of a company’s return policies and return products at a high rate or demand refunds.
- “Promotion Maximizers”. These customers only purchase things at steep discounts to avoid regular prices.
- “Spending Limiters”. These customers will only spend a limited amount with your company, regardless of the program or promotion.
This study points to the fact that the customer is not always right. A recent Forbes article supports this theory by claiming that: customers do not always know what they want or need, if customers do not know the answer, they will make it up and customer expectations are not always rational.
Making money in business is a result of providing a product or service that makes consumers happy. There are many times when a business and a customer have a disagreement and by all means the business and the customer should work together to make things right. The beauty of the free market system is that people are free to spend their hard-earned cash with companies that do business the way they like. The same should hold true for businesses–they are free to do business with customers that do business the way they like. All transactions are a two way process and unless both sides agree to work together something has to change. In the case of unprofitable customers, maybe cleaning house is not such a bad thing after all.