How do you part with your unprofitable customers?
“Get rid of your unprofitable customers.” In the current difficult economic situation many companies receive this statement from their consultants. Many companies cannot and should not afford unprofitable customer relationships, even in good times. Just: “How do you part with your unprofitable customers?”
As correct as this insight is, we have so far noticed two typical behaviours: On the one hand, customer relations are not even carried out at all for fear of losing sales. On the other hand, companies tend to make separations painless and actionistic. They then rarely show a happy hand when separating from “bad” customers.
What examples are there of this?
Banks in particular prefer the proverbial “short process”. This is where customers, whether private or corporate, are systematically “sorted out”. The Handelsblatt, for example, wrote in an article in 2003: “No basic right to bank credit”. In it, Professor Axel Schmidt described a drastic example on the subject of “How do I get rid of customers? He placed a letter on the table which read: “We no longer attach importance to a business relationship with you”. Such or similar formulations do indeed exist – it’s hard to believe – quite often. Other variants of the financial institutions are terminating credit lines, increasing the conditions or putting existing loans on the test bench.
A very well-known example from 2007 is from Sprint Telecom USA
Sprint Telecom in the USA has determined through analysis that approximately 1,000 customers call almost 40,000 times per month. And this despite the fact that, according to Sprint, the complaint had already been conclusively resolved. Sprint terminated this 1,000 customer on time by letter. The result was an incredible press response. Today you would say Shitstorm. The stock fell 32 cents to $21.55. The example can be read here – in words and pictures.
In other cases, the customer is put off by delays in delivery or short-term changes in the product range. The contractual or customer relationship is passed on to a new subsidiary or subcontractor. Even short-term price increases force one or the other to give up the business relationship. How to part with your unprofitable customers is therefore not an easy task:
What would be other options?
A much quieter option is to stop sending advertising mail.
But separating from bad customers involves a risk that should not be underestimated: customers who are rudely thrown out of the door usually don’t keep it to themselves. The lack of diplomacy thus destroys what was laboriously built up through expensive image advertising. Social media timelines are looking forward to the carrion like vultures to the carrion.
Attention! Before you make the decision,
to part with customers, you should first ask yourself two important questions:
Firstly: Have I exhausted all possibilities and created the prerequisites for the customer to generate turnover or contribution margin with me?
If the customer does not react after a detailed analysis of your needs and targeted service as well as value-added or cross-selling offers, it is likely that not all communication and sales opportunities have been exhausted.
Secondly: Do I evaluate customers according to the relevant criteria?
Many companies base their evaluation, whether “good” or “bad”, solely on sales. But that is the worst measure. In any case, it makes sense to calculate an RFMR analysis and the contribution margin. The future potential would also be worth knowing, but before this analysis is carried out, the measures mentioned should first be implemented.
So what is the next step?
Based on RFMR segmentation combined with a customer contribution margin analysis, the customer base can be clearly differentiated and measures can be easily derived.
On the basis of this segmentation, the customer segments with a weak contribution margin and low purchase frequency or low purchase amount should then be examined more closely.
Can I transfer the weak customers into an online dialogue?
Instead of continuing to send sales staff by and sending expensive mailings or catalogues, the customer will in future only be addressed by e-mail. The catalog is not sent out automatically, but at the customer’s request.
In addition, intelligent incentive systems, voting campaigns or offer tests can be used to playfully identify the customer’s needs very quickly. From this, in turn, actions and offers can be derived that successively increase the customer’s profitability.
Those who streamline the customer dialogue in this way and shift it to online have a decisive advantage: they can increase the frequency and intensity of customer contact with a significantly lower budget. In this way, many a customer can be reactivated and managed profitably – an opportunity that many companies currently leave unused.
How do you part with your unprofitable customers? Do I really have to part with them?
Mail-order or e-commerce companies like Otto try to activate customers who have not ordered for a long time and have not responded to online by sending attractively formulated postcards. “You haven’t ordered for a long time. Have we done something wrong? Please tell us your problem! Do you want to continue to receive the catalogue? If so, please return this card to us.”
It’s the customer who decides if we continue, not the company.
The decisive factor in this approach is that the interested customer himself sets the course for the future. Because even a customer who is classified as passive by the company still feels (even after 2-3 years) connected to the company.
If there is a crisis (but also in the “normal” time), it is necessary to start with a needs assessment and the search for mistakes in customer management. I.e. sweeping the “own yard” first.
Then the next steps are segmentation according to RFMR and analysis of the customer contribution margin. Segmentation is then an important step. Who is profitable and buys often or rarely? Who buys rarely but for a high value and is therefore profitable? If possible, process a lot on digital processes and through marketing automation.
Only when there is no chance of profitability can a termination option be presented to the customer for decision.
The article was first written in 2003 and has been updated and revised several times. Last updated on 08.05.2020
Note: This is a machine translation. It is neither 100% complete nor 100% correct. We can therefore not guarantee the result.