Here is an excerpt from an article by Carsten Pedersen and Thomas Ritter for the MIT Sloan Management Review. To read the complete article, check out others, and obtain subscription information, please click here.
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Not every customer is an asset to your company, but determining who to cull — and how — can be a challenge.
We like customers and have spent most of our careers studying them. In our research, teaching, and consulting projects, we have repeatedly urged executives to listen to their customers.1 However, we have come to realize an uncomfortable truth: Some customers are just not good for you and will ruin your business. Hence, you would be better off “firing” them.
Firing any customer goes against much of the prevailing wisdom in marketing and business. According to legendary business guru Peter Drucker, the purpose of any business is to create and keep a customer. This insightful statement has become a guiding principle across industries.
However, not all customers are good business. In our conversations with practitioners, they often point to examples of customers they would like to cull because serving them is an endeavor with little or no likelihood of ever becoming profitable. Other customers lack a strategic fit with an organization and pull it in the wrong direction. We have thus rephrased Drucker’s statement: The purpose of business is to create, keep, and lose the right customers.
Evidence-based termination of customers after thoughtful deliberation is finally happening in some industries. For instance, cities like Amsterdam and Barcelona have launched ad campaigns that explicitly ask certain problematic tourists to stay away. And Amazon has banned users who return too many items from making new purchases.
Sometimes, when it’s done thoughtfully and deliberately, it can be good business to lose customers. But how can you determine the right customers to fire?
Good and Bad Customers
All organizations have good and bad customers. Good customers are profitable and good for the business. They are a good match for the organization’s capabilities and purpose and are relatively easy to serve. Notable high-profile customers might have a halo effect on the business in certain situations, such as when the company becomes a supplier to well-known brands. In general, these customers add more to the business than they take. Relationships with good customers should be nurtured and maintained.
In contrast, bad customers are unprofitable and bad for the business. They are a poor match with the organization’s capabilities and strategic position and are troublesome to serve. They might have a horn effect on the business. Some companies explicitly refuse to do business with tobacco companies for that reason.
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Here is a direct link to the complete article.
REFERENCES (2)
1. The following are a few of the most relevant articles related to our research: T. Ritter and J. Geersbro, “Organizational Relationship Termination Competence: A Conceptualization and an Empirical Test,” Industrial Marketing Management 40, no. 6 (August 2011): 988-993; J. Geersbro and T. Ritter, “Antecedents and Consequences of Sales Representatives’ Relationship Termination Competence,” Journal of Business and Industrial Marketing 28, no. 1 (January 2013): 41-49; and T. Ritter and J. Geersbro, “Multidexterity in Customer Relationship Management: Managerial Implications and a Research Agenda,” Industrial Marketing Management 69, no. 1 (February 2018): 74-79.
2. M. Haenlein, A.M. Kaplan, and D. Schoder, “Valuing the Real Option of Abandoning Unprofitable Customers When Calculating Customer Lifetime Value,” Journal of Marketing 70, no. 3 (July 2006): 5-20.