When Is It OK to Fire Your Customers?
I once was fired as a customer. It's true.
Shortly after Hurricane Katrina, Allstate Insurance decided that potential hurricane damage was a significant risk for many of its customers in the New York City area. So, the company notified us that it was cancelling our homeowners insurance--with plenty of time to find a new carrier. Initially, it seemed absurd to me (I live in the city and the extremely rare times any hurricane has made landfall in New York, it's been at the eastern-most area of Long Island). But, being in the "customer business" I understood Allstate's decision to fire potentially unprofitable customers.
According to published studies, about 30 percent of the average company's customer base delivers the majority of its profits, 50 percent add nothing, and the remaining 20 percent actually cost the company money. Don Peppers and Martha Rogers, Ph.D., call these customers below zeros (BZs). Some companies don't mind having BZs because their main concern is having as many customers as possible--profitable or not. But if you were to ask your high-value customers whether they mind "supporting" the BZs through the profit they deliver, what do you think they'd say? Really, is it any wonder Sprint fired 1,000 unprofitable customers?
There are many who say that the risk for bad publicity and negative word of mouth created by firing customers is just too great, so the better option is to do everything possible to move those customers up the profit ladder to at least the break-even point. Others say: Don't acquire potentially unprofitable customers in the first place--there are often glaring signs that a customer will be a drain on resources. But compensation plans and short-term goals often dictate acquisition at all costs.
What do you think? Is it ever OK to fire your customers? Has your company ever done so?
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