It should be simple; some customers are
costing you money, so fire them! Activity-based cost accounting shows in dramatic fashion that for most businesses 20%
of customers generate all the profits! While 60% of customers help to cover fixed costs
- but are basically breakeven transactors. But alarmingly 20% of customers actually act as a drain
on profits. They demand too much servicing; they exploit discounts and return policies; and they haggle
and bully for the best possible deals. With this ‘client topography’, it would seem logical that all any
business needs to do is jettison its unprofitable customers and watch the remaining dollars flow to the bottom-line.
But, of course, the devil is in the details. In particular, identifying costly customers and, for that matter,
identifying currently profitable and potentially profitable customers has been challenging. Some businesses
naively believe they know their best customers because they must be the ones spending the most, or they're in the highest
tiers of a loyalty/points program. In most cases these indicators are overly simplistic and may not be accurate indicators
of truly profitable customers.
But How Do
You Identify Costly Customers?
To properly identify those customers that
you might want to lose, and for that matter to identify those customers who deserve extra effort to be retained (because they
are most profitable) we have promoted a customer scoring system we call SLP2 (as in Satisfaction,Loyalty, Profitability
and Potential). Each component has its own source. Satisfaction is
scores generated through survey feedback capture. Loyalty is a measure of historical buying
behavior. Profitability is modeled from servicing costs including: discounts required to close
sales and demands for after-sales servicing. Potential is based upon the share of category spending
currently allocated to the brand by each customer.
We've Come a Long Way
When we first introduced SLP2 to
the world some fifteen years ago, it was, to be kind, ahead of its time. We were frequently told (either correctly or
incorrectly), “We can’t access that information!” And in fact, most marketers lacked the systems to
precisely track individual customer’s buying behavior or to model profitability. But that was before CRM software
and the popularity of Big Data. With today’s information capture systems, most services and many goods manufacturers
can now access an entire history for every one of their customers! Further, most corporations regularly track customer
satisfaction, and many no longer shirk from asking share of wallet spending questions (to determine potential).
A concept like SLP2 has the potential for really making efficient and effective use of all that information.
Identifying the most valuable and the least valuable customers for the future of your business can take marketing and customer
service strategy to a smarter and more profitable level.
A Final Word About 'Firing' Customers
By the way, for all those who read to the end, we at Customer
Experience Partners, strongly recommend against ever “firing” any customer. If possible,
we recommend directing them to a product and service mix that turns them into at least a breakeven customer for the company.
Should that fail we recommend finding a way to introduce and escort them to a competitor. It will save a lot of pain for everyone
and avoid a lot of potential negative word of mouth.
Here's a new perspective on a debate that has raged
for years. The question is it productive or counterproductive to tie employee incentives into improving customer satisfaction
and/or NPS scores. On the one hand the argument has always been that incentives are a great way to get management and
staff to pay serious attention to improving the customer experience. On the other hand there is the concern that incentives
lead to attention being paid to fixing the score rather than addressing real customer issues (aka fixing
Been in a Hospital Recently?
The new discussion is centered on some big money ($1.5 billion) of
your tax dollars that’s up for grabs out of Medicare and Medicaid Services, and the prescription drug opioid epidemic.
The plan is certainly well-intentioned. It calls for patient satisfaction to be measured on an ongoing basis and for
satisfaction levels to account for 30% of each hospital’s performance score - and for pain management to be one of eight
dimensions of that total. All that leads to a debate about two questions that are required to be asked in the customer
satisfaction questionnaires by every hospital:
- “During this hospital stay, how often did the hospital staff do everything they could to help
you with your pain?”
- “How often was
your pain well controlled?”.
Getting the Intended Results?
contend that the government's policy and the questionnaires, while not totally causing the problem, are contributing to the
problem of opioid over-use. They contend that the large sum of money at stake and the related demand for better scores
is influencing prescriptive-practice. After all, the easiest way to eliminate pain is with narcotics, and opioids
(though not always necessary) are the drug class of choice.
The opioid-addicted know the game in advance and
how their threats and complaints can make desired narcotics more easily available. Afterall, most patients desire the
total absence of pain. The patients' desires and the goal of increasing institutional standing places physicians in a very
Approach Is Your Organization Taking?
that we know do - in one form or another - link incentives to overall satisfaction; NPS scores; or other specific questions
included in their customer surveys. The selection of these key question(s) raises many pragmatic issues.
- Are they truly the most important factors?
- Are they factors that employees can control?
- Are they short-term measures that could actually
lead to bigger problems in the long term?
will these questions inhibit or promote ‘gaming’ by customers or staff?
Even the best intended systems aren’t always free from consequences.
But asking for a good evaluation from a car salesman carries far less social consequences than over-prescribing pain-controlling
narcotics. Are you sure the behaviors you are incenting will be most positive for your brand now and in the future?