Welcome to the the Ivey HBA Retail Marketing Management blog. Retail marketing is an exciting, dynamic, important, and very visible aspect of the overall field of marketing. Throughout the year, students will be posting comments regarding contemporary retailing issues. Although this is intended to be used by Bus 4411 students, industry marketing professionals are also invited to join in if they like.
Monday, March 30, 2009
Forget customer retention…. How do we get rid of unwanted customers?
You manage a retail store or restaurant chain, a bank, a telecommunications company, or any other type of business for that matter. You have a magnitude of customers. Unfortunately, some of these customers are simply unprofitable. They may stay for three hours and only order one slice of cake. They may require an enormous amount of servicing. They might buy a large flat screen television for the Superbowl, only to return it a few days later.
While customers are usually good for business, unwanted customers can have a negative affect on bottom line profitability. Harvard Business Review estimates that, on average, 15% of all customers are unprofitable. The book, Angel Customers & Demon Customers, estimates that, in most industries, the best 20% of customers account for 150% of profits. The worst 20% typically lose money equal to 75% of profits !
After identifying these unprofitable customers the question remains: what do we do about them? Below are a few suggestions on how to increase customer profitability:
1. Stick to your core strengths: If a customer requests something outside of your competency, either refuse or outsource .
2. Raise Prices: McKinsey & Co. estimates that a 1% increase in price leads to an 11% increase in customer equity. 60-70% of customers are likely to accept this price increase. If the customer rejects the higher price, the unprofitable customer is lost—overall profits increase .
3. Lay Some Rules: If your problematic customers are loitering, post a sign informing them of a time limit. If they don’t spend enough, consider implementing a minimum purchase order amount .
But, what if the above suggestions fail? Then, it’s time to fire these customers! But how do you get them to leave? Below are some of my suggestions:
1. Be Polite, Tell Them to Leave: In my opinion, one of the best ways to get rid of unwanted customers is to tell them to leave as politely as possible—either in writing or in person, depending on the situation. They might get offended. Explain to them your decisions. For example, if they don't order anything but insist on loitering; tell them that tables are for paying customers only. Remember to be respectful. You don’t want these individuals to spread rumors that you don’t treat your customers well!
2. Screen Incoming Calls: If the customer is not of high priority, consider routing them to a low priority queue. If they choose to use the online method they’ve become profitable. If you lose them, your overall profits increase—win/ win!
3. Focus on the Purchasers: Try to keep window shoppers at a minimum. Instead, focus your time and energy on customers who actually buy something.
While customer divestment was once considered an anomaly, it is fast becoming a viable strategic option for many organizations . Sometimes it’s not about customer retention, but rather about making the tough decisions: firing your customers. Sometimes it’s time to say adieu.