Companies are firing their worst customers

For years now, corporations have been using business intelligence (BI) and customer relationship management (CRM) systems to identify their most profitable customers. There’s a flip side: Those same systems can be used to “fire” their worst customers. Two examples:

Sprint Nextel Corp. recently took the unusual step of disconnecting wireless customers who call customer service excessively. Sprint sent contract-termination letters to about 1,000 subscribers. The terminated subscribers called an average of 25 times per month — a rate 40 times higher than average customers — mostly complaining about billing or technical problems that Sprint was unable to resolve, a Sprint spokeswoman said.

Apparently, casino operator Harrah’s Entertainment Inc. has done something similar with a man who was having a great run of luck at the poker machines. Harrah’s analytical systems flagged him as a non-profitable customer and he was subsequently sent a registered letter saying he’d become persona non grata at Harrah’s properties, according to this account.

Adelino de Almeida, at the Profitable Marketing blog, says there are lessons for all industries:

  • Monitor the profitability of your customers. Target your profitable and marginally profitable customers, and drop the non-profitable. Non-profitable customers simply aren’t [valuable] customers — you can try to migrate them to a profitable segment (probably not a worthwhile exercise) or find polite ways to drop them.
  • Forget loyalty effects. There’s no point in having loyal customers if they aren’t profitable.

Marketing guru Seth Godin said something similar last year:

“Successful organizations … fire the 1% of their constituents that cause 95% of the pain. Fire them? Fire them. Politely decline to do business with them. Refer them to your arch competitors. Take them off the mailing list. Don’t make promises you can’t keep, don’t be rude, just move on.”

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One thought on “Companies are firing their worst customers

  1. Update: Sprint is defending its decision to ax the customers. Story: http://news.yahoo.com/s/ap/20070710/ap_on_bi_ge/sprint_nextel_terminated_customers_2;_ylt=Aql2IHs7ENhUyL0W.FEiqT4E1vAI

    Excerpt:
    CIBC World Markets analyst Tim Horan said in a research note to investors that he didn’t see anything alarming with Sprint’s decision. “Sprint has taken a number of steps to improve the ‘quality’ of its customer base and we view this measure in the same light,” Horan wrote.

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