We are all now aware of the famous line from The Apprentice — “You’re fired!” Well, Scott McKain, in an article on the MarketingProfs web site, suggests we should apply the Donald’s strategy to some of our customers. By suggesting so, he has begun a serious debate on the strategy of “demarketing” customers.
McKain’s point is that companies should fire customers who meet these requirements:
- Eliminate the bottom in terms of sales (the bottom 20%+)
- Eliminate the unprofitable — customers who are too expensive to service
- Eliminate the obsolete — given limited resources, reduce customers who are in declining industries
By doing so, he claims that a company will focus resources on customers with a greater strategic fit, greater profitability and greater growth potential. In turn, he wants us to support the advancing, the elite and the “cool” customers. Our goal is not to “please” customers but to make the business so compelling to customers that loyalty is assured.
While I agree with Mr. McKain’s overall statement that a company that tries to be everything to everyone ends up meaning nothing to anyone, I am not comfortable with his more black and white approach to customer management.
With a more customer-centric view, the focus is more on which customers you want to appeal to than which customers you should discard. By focusing relentlessly on your business differentiator and the customer experience (particularly the Best Customer experience), you avoid the trap of thinking that jetisoning customers can be called a business strategy.
I would suggest the question is better asked this way, “which customers should receive the bulk of your investment, in terms of acquisition, servicing, retention and overall relationship-building?” Those customers should receive the focus of your marketing team. Customers who do not meet that criteria receive less expensive communications less frequently.
Why do you not de-market customers? Here are a couple good reasons:
- You don’t know everything. A low-value banking customer can inherit $1mm from Aunt Matilda, and a low-value clothing customer can decide to take a vacation for the first time, get married, have children, etc. Lots of reasons exist for customers to change their spending habits.
- Pay for overhead. If you have branches, or retail stores, or airline seats, you have fixed overhead. Every dollar that applies to that overhead can help profitability.
- Governments do not like discrimination. Many a bank in the late 90’s decided to charge teller fees, until it was discovered that customers receiving those fees were largely minority in some markets. Guess what happened then?
Investment strategies in acquisition and cultivation of Best Customers can play a key role in the overall business’ health. These decisions are not trivial – they must be arrived at through customer data mining, modeling, testing and consideration of stakeholder needs.
What are your approaches to determining which customers receive the bulk of your investments? Do you de-market customer segments? What has happened when you did?
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Mark,
Thanks for another excellent post. Customer-centric organizations should have dramatically fewer customers to fire, because they have designed a product or service that target customers value at a level of profitability for their organization. Low-margin customer segments usually come into play when the seller has failed to differentiate itself in the perception of the customer by some means–easier to use, cooler than the competition, delivering higher performance than the rest of the market. These low-margin candidates are indeed a bad fit, because they are not going to be loyal in the long-term, anyway.
-Bill
Bill — Thank you for your comment!
The low margin customers may be a bad fit at the moment, but can also play some role in a company — e.g. clearing out excess inventory, for example. Yet they are tricky customers to deal with.
One of the keys seems to be to figure out which of the low margin customers have true “upside potential” based on surveys, appended data, etc., and then for the truly low-value folk, reduce your marketing significantly and strive to move some of them to higher margin channels, such as the web.
Giving up on low margin customers as a group seems like shooting a shotgun, when a rifle may be more in order!