Firing Customers- It Can Make Sense, But Do So With Care

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Over the last twenty five years that I have been measuring customer satisfaction, I have observed two things so often that they have risen to the status of ‘universal truths.” These are:

1. On a 5-point Satisfaction scale (where 1 = Highly Dissatisfied, 5 = Highly Satisfied), Highly Satisfied customers are 30 to 40 percent more profitable than Satisfied ones (4 on a 5-point Satisfaction scale)
2. Satisfied customers are marginally more profitable than 1’s through 3’s

Given this, it isn’t hard to envision and construct scenarios where “firing” a company’s less satisfied customers (their 1’s through 3’s)—and transferring the time and attention that they would have absorbed into shifting satisfied customers (4’s) over to highly satisfied customers (5’s)—would result in higher overall profitability even though the company is now serving fewer customers.

While we applaud those companies that are willing to take this approach, firing customers must be done with care and discretion. Above all, care must be taken to fire the “right” customers. The recent case of Amazon.com, a true force in American business, clearly illustrates this point.

Last May, Amazon “banned” certain of its apparel customers as a result of the excessive number of returns they made. On the surface, this all seems very logical as accepting a return often imposes significant costs upon an internet retailer.

That having been said, it may be helpful to step back for a second and ask yourself the following question. Assume for a second that you lived in a world where the only way you could purchase apparel was to visit a “brick & mortar” retailer. How would you shop? I will tell you how I would shop. I would take three or four garments into the dressing room, try them on, select the one (or two) that I like and leave the others in the dressing room for an attendant to put back on the rack. I would then take the items I wanted to purchase and proceed to the cash register. My guess is that sounds fairly similar to your approach to the apparel store shopping experience.
In the course of customer research I recently performed for an Internet clothing retailer, I found that online customers basically shop the same way. Since they cannot try on an item before they purchase it, they do the next best thing. They order four or five items and when they arrive they try them on. They then select the one or two they want and return the rest.

Ideally, then, an Internet retailer would want to evaluate its customers based on some form of Net Sales Revenue (e.g., Total Sales – Value of Returned Merchandise – Cost of Processing a Return). When I performed this analysis for this internet retailer, I found that their most valuable customers (using the above metric) actually made the most returns.

Now we do not know the analysis that Amazon used in selecting the customers to fire. What we do know is that news reports specifically state that the customers who were fired were ones “…who return items that they ordered from the e-commerce giant too often,” which makes no reference at all to a strategic Net Sales Revenue calculation. If, in point of fact, a Net Sales Revenue calculation was not the basis for these firing decisions then Amazon may have made a very big mistake.

Customer acquisition and retention isn’t easy—and the process of identifying and targeting your most valuable customers is absolutely essential when considering the option of “firing” customers. If done correctly, it can help an organization achieve meaningful growth while cutting costs and deepening relationships with its most valuable customers. If not, an organization may end up exiling some of their most important patrons. In short, firing customers can make sense, but do so with care.

1 COMMENT

  1. Few vendors I’ve worked with would terminate a customer relationship without a plan, or at the very least, without being circumspect about communicating the reasons. Not every customer will be happy with a vendor’s decision, but phasing out product lines, customer segments, or customer accounts that don’t meet revenue profit thresholds are routine actions in every company I’ve worked.

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