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Understand potential customer value before firing problem customers

If you're making the decision to cut off unprofitable customers, make sure you first understand the customer's potential value as well as their current value. And make sure the organization has enough information to determine if the customer's complaints are invalid.

I read your recent response -- Should profitable customers be the top priority for our customer service efforts? In the case of Sprint, I think they have a historically pathetic record in allocating resources to customers and handling customers who are calling the various support channels. They are especially weak in chat and email, since most of it is off-shored. Can you expand further on best practices and standard operating procedures in making sure some of the unprofitable, repeat inbound calling customers' issues do not represent systemic problems? In other words, how can we put systems in place so that the department making the decision to cut off those unprofitable customers has all of the information and have verified that the customer's problems are not justified? And how is this related to other profitable customers who are not taking the time to contact customer support and complain and are not insisting on receiving the service and responsiveness they are entitled to?
This is an excellent question. It is rich with a lot of issues and I must admit that I have gotten a lot of response in both directions, both supporting and not, the Sprint question that we've been addressing lately. Yes, Sprint does seem to have some systemic problems with how they are dealing with customers and their general customer service and general customer satisfaction. At the same time, they of course were able to eliminate only 1,000 customers out of 53 million that they had. So we'll leave aside for a moment whether or not Sprint is doing the right thing, and instead address the more interesting issues in this question -- which is, how can we put systems in place so that when we know we are cutting off customers that we are not doing that either prematurely or from a perspective that's not really fair? And that really brings us to the issue we have here, which is, in order to know whether or not we should rid ourselves of the below zero (BZ) customers, we first need to understand whether our BZ customers are truly that or whether we are only looking at their current value.

So we need to understand a couple of things about customers – there's their actual value, their current predictable value based on what we have seen. And then we also have to understand their potential value, and that's harder to understand. Many companies don't bother. But if I were to understand potential value; then, like some banks, I would recognize that a college student who doesn't have much income today; could, if I build a close relationship with him or her now, become much more valuable to me over the next 40 or 50 years. So understanding not just the current or actual but also the potential value of customers is important. Then we will know whether a BZ is truly a BZ customer.

What we're really looking for in this kind of a situation is two things. One is, are we being fair? Because if customers call and complain, are they justified? And if they are justified, how do we make sure that we aren't ignoring that systemic problem but instead are using the information that we are getting from the customers to solve that problem before a competitor solves it for those customers? And in any case where we see a chronic annoyance among our customers, or for that matter among our employees who have to deal with our customers, then we are probably looking at a real vulnerability in our own business model.

In addition to looking at the question, are we being fair, we need to ask, are the customers being fair? In most cases they are being fair. But in some cases they are doing things that are taking unfair advantage of the company. And if they do that, then the cost of serving them has to be borne by someone. And that someone is better customers.

We've talked before about how Filene's Basement actually sends a letter to customers who buy clothing, wear it to a special occasion and try to return it as unused, saying, "We don't want you to be our customer anymore." That's because the customer has clearly been unfair. So I think we really need to exhaust both of those questions, is the customer being unfair and are we really being unfair? Once we have answered those questions honestly and from an understanding of a customer's actual and potential value, then we can probably make the best decisions for the company and for all of the other customers.

Hear more in Creating Customer Value, a SearchCRM.com monthly podcast series with Peppers and Rogers.

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