Spending Smart: Wooing the Right Customers

A waiter has taken flak from a table of elderly ladies during a two-hour luncheon. They’ve changed their minds, complained, reshuffled their orders, and made the server’s life miserable. When they finally ask for the check, he delivers it with the question, “Was anything all right?”

While important, few enterprises understand that it’s much more profitable to focus on better serving your best customers (profitable and loyal), while delivering the minimal service level required to serve the rest of your customers, without alienating them.  But how can you tell who’s who?

Let’s pop open your database and take a peek at The Good, The Bad, and The Indifferent. In truth, most businesses have a mix of all three.

• Your good customers are the ones who buy your product time and again. They tell their friends, family and colleagues about you, acting as spokespeople. You love these customers. If you could, you’d clone them.
• Bad customers may buy once, then disappear. They’re often cherry pickers – lured by cheaper rates and bigger incentives, they’re never satisfied. They’re never going to be. They cost more than they’re worth. Let them drift to your competitors, and be thankful.
• Indifferent customers may look like bad customers, but are really just good customersin disguise. It’s not their fault if you don’t know what they need. The trick is striating your data in ways that allow you to identify those segments that are profitable, those that are potentially profitable, and those that will never be profitable; and act accordingly.

Successful companies identify and satisfy their ideal customers, doing everything they can to please and retain them. Simply stated, you should target these customers, developing relationships with them, bringing them closer to loyalty – and advocacy.

Example: A telecom operator in South India, struggling with high customer churn, planned to develop a blanket rewards and relationship program with mobile subscribers – but realized that rewarding all subscribers may not be the answer.

Why? The bottom 28% of their subscribers were actually eating up half the profits generated by the others, in operational and servicing costs. Another 12% did not generate any profits. And 30% were only slightly profitable.

By deciding to focus on this top 30%, the operator saved 70% of his marketing budget, and was able to retain 98% of these high end customers in a market that was witnessing over 50% churn.

Bottom Line: It can actually be more profitable to lose bad customers than to gain new ones! The Bad and the Ugly cost more money to service than they generate.

Retaining the right customers is common sense. And one day, it will be common practice.