B2B Marketing: Unprofitable Customer
UNPROFITABLE CUSTOMER B2B MARKETING
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April 2008
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hbr.org
Don’t just dump customers that cost you money. Use this framework to decide how best to fix or end the relationships.
The Right Way to Manage
Unprofitable Customers
SPRINT NEXTEL sent out letters to about 1,000 people on June 29, 2007, to inform them that they had been summarily dismissed – but the recipients were Sprint customers, not employees. For about a year, the wireless-service provider had been tracking the number and frequency of support calls made by a group of high-maintenance end users. As a Sprint spokeswoman told Reuters in July, “In some cases, they were calling customer care hundreds of times a month… on the same issues, even after we felt those issues had been resolved.” Ultimately, the company determined it could not meet the billing and service needs of this tiny subset of subscribers and, therefore, waived their termination fees and cut off their service. Similarly, TXU, a large power provider in Texas, in 2005 implemented a tough-love marketing strategy in response to the competitive pressures of a deregulated energy market. It pulled the plug quickly on
Brian Stauffer
by Vikas Mittal, Matthew Sarkees, and Feisal Murshed hbr.org |
April 2008
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Harvard Business Review 95
The Right Way to Manage Unprofitable Customers
late-paying customers then charged them expensive reconnect fees, and it offered perks to those who paid on time. As a result, it reduced its “bad debt” from nonpaying customers and enjoyed productivity increases among employees who had previously spent a lot of time fielding calls from scofflaws. As one senior TXU financial executive told the Wall Street Journal, “A customer who calls you every day is less profitable than one who pays on time and never calls you.” Customer divestment, whereby a company stops providing a product or service to an existing customer, was once considered an anomaly. However, it is fast becoming a viable
|
April 2008
|
hbr.org
Don’t just dump customers that cost you money. Use this framework to decide how best to fix or end the relationships.
The Right Way to Manage
Unprofitable Customers
SPRINT NEXTEL sent out letters to about 1,000 people on June 29, 2007, to inform them that they had been summarily dismissed – but the recipients were Sprint customers, not employees. For about a year, the wireless-service provider had been tracking the number and frequency of support calls made by a group of high-maintenance end users. As a Sprint spokeswoman told Reuters in July, “In some cases, they were calling customer care hundreds of times a month… on the same issues, even after we felt those issues had been resolved.” Ultimately, the company determined it could not meet the billing and service needs of this tiny subset of subscribers and, therefore, waived their termination fees and cut off their service. Similarly, TXU, a large power provider in Texas, in 2005 implemented a tough-love marketing strategy in response to the competitive pressures of a deregulated energy market. It pulled the plug quickly on
Brian Stauffer
by Vikas Mittal, Matthew Sarkees, and Feisal Murshed hbr.org |
April 2008
|
Harvard Business Review 95
The Right Way to Manage Unprofitable Customers
late-paying customers then charged them expensive reconnect fees, and it offered perks to those who paid on time. As a result, it reduced its “bad debt” from nonpaying customers and enjoyed productivity increases among employees who had previously spent a lot of time fielding calls from scofflaws. As one senior TXU financial executive told the Wall Street Journal, “A customer who calls you every day is less profitable than one who pays on time and never calls you.” Customer divestment, whereby a company stops providing a product or service to an existing customer, was once considered an anomaly. However, it is fast becoming a viable