The right way to manage unprofitable customers

Problem customers can cost your business lots of money, but quickly ejecting them may not be the best way to relieve the burden.  Authors of a recent Harvard Business Review Vol 86 (4) explore the ins and outs of customer divestment.  Using real-world examples the authors show how deciding to end the relationship with a customer segment or individual can increase profitability, increase employee morale, address capacity constraints and bolster a business strategy.  However, divestment also comes with potential downsides for various constituencies, including employees and remaining customers, both of whom may wonder whether they're next.

In addition ethical and legal consequences and the risk of bad publicity always loom.  Before you rush into action the authors advise you walk through their five-part divestment framework.  First, reassess the context of present customer relationships, looking beyond simple profitability.  You may find the most productive option is to educate customers rather than drop them.  In some cases if you renegotiate the value proposition with them, both of you will win. 

In other instances you will want to migrate customers to other subsidiaries or providers, as long as the move is undertaken, or perceived to be conducted, in good faith.  If it becomes necessary to terminate a customer relationship, use a direct interpersonal approach.  No business can afford to squander its customer base so divestment should not be boiled down to determining merely who is profitable and who is not as the strategic consequences are too weighty.

If you need advice on how to manage your customer relationships MarketingWorks can help.  Call us on 0131 225 2225 or e mail info@marketing-works.co.uk