When Should You Fire Customers?

Many customers simply are not profitable. Letting them go is one option, but so is trying to train them out of expensive behavior.

Reading Time: 3 min 

Topics

pink-slip

Faced with unprofitable customers, some companies have actually “fired” them, letting them know that the company will no longer serve them. Jiwoong Shin and K. Sudhir, both of Yale School of Management, detail less extreme options that companies can take.

Image courtesy of Flickr user abplanalp_photography.

In 2007, Sprint Nextel had a dilemma. Some of its customers contacted customer service on a regular basis. In the company’s opinion, they contacted customer service on too regular a basis. They became unprofitable to the company because of it.

Sprint’s decision essentially was to “fire” them as customers. The company sent these high-cost customers a letter that stated, in part: “The number of inquiries you have made to us during this time has led us to determine that we are unable to meet your current wireless needs. Therefore after careful consideration, the decision has been made to terminate your wireless service agreement.”

The Sprint example is one of several that authors Jiwoong Shin and K. Sudhir, both of Yale School of Management, examine in their article “Should You Punish or Reward Current Customers?” in the Fall 2013 issue of MIT Sloan Management Review. The article details the ways to determine which customers are most valuable.

Not surprisingly, Sprint’s action created a wave of bad publicity for the company. But was it the wrong thing for Sprint to do?

“We recognize the mix of concerns, both ethical and practical, that swirl around firing customers,” write Shin and Sudhir. “Ethically, there may be issues about the fairness of focusing retention on the most profitable customers. Practically, there are a number of problems immediately associated with this tactic: negative opinions passed on to prospective customers, bad publicity, a social media firestorm and so forth. As a result, we advocate firing customers only as a last resort.”

There are, however, steps companies can take before making such a drastic move. Here are three suggestions from Shin and Sudhir’s article:

Reduce services to unprofitable customers. For example, the authors report that Royal Bank of Canada would prioritize and expedite a check trace for profitable customers in one day, while for unprofitable customers, it would conduct a less expensive three- to five-day trace.

Charge fees for costly services. This is a strategy, Shin and Sudhir write, “to rein in the undesirable behavior and convert the customer into a profitable one.

Topics

Tags:

More Like This

Add a comment

You must to post a comment.

First time here? Sign up for a free account: Comment on articles and get access to many more articles.

Comments (2)
David S.
Hoping a customer will become profitable in the future is like hoping the sun won't rise in the morning.  Give it to them once and you better be ready to do it every time.  They whine, cry, throw fits, and threaten you with "losing a customer."  Let them go.  They aren't worth the effort because they have no respect for you or what you do for them and are so self centered, they will never be profitable or worth the effort to attempt to rehabilitate someone who simply does not want to be rehabilitated.  

We've had several customers over the past 21 years who refuse to be satisfied unless they're making a profit allowing you to work for them.  You can "hope the customer will become more profitable in the future" yourself out of business.  Case in point, we had a client today that was exactly that way.  He was nothing new.  We discounted his services down to as low as we could go and still earn a profit (over $2,000 worth of work for $1400) and he just threw a fit like a child in the middle of WalMart.  Whenever you're having to deal with people like that, you're better off allowing them to be a problem for someone else.  

If given a choice of their way or the highway, take the highway because it's cheaper and less stress for you both.  Once you realize this, you're not as sharp, apprehensive with the next customer, and can focus your energy where it's appreciated and needed more than wasting time with someone who wants you to pay for the privilege of working for them rather than earn an honest living.
sjking2000
I worry about sweeping statements about firing unprofitable customers. What if your business model is to serve a broad group of customers, who may provide value beyond their direct financial contribution, or may become profitable in the future. 

This current state viewpoint misses out on the dynamics of a business model over time.