Carol Smalley
Managing Editor, CRMGuru
Member
Posted 15-Jul-2003 07:51 AM
Ending the (Customer) Relationship
When should a business end a customer relationship? My thoughts on this topic were triggered this morning by a news story — http://www.newsday.com/news/local/wire/ny-bc-nj—filenesbasementb0713jul13,0,1391433.story?coll=ny-ap-regional-wire — about two sisters banned from shopping at a major bargain retailer in the greater Boston (U.S.) area. Why? The company cites “excessive returns and (a) chronic unhappiness with (the company’s) services.”
One financial analyst interviewed by a morning talk show noted that a business contract involves two parties — a willing buyer and a willing seller. When either party is no longer willing, the sales cycle should end.
What are your thoughts about this story in particular and ending customer relationships (from either side of the sales contract) in general?
Carol Parenzan Smalley
Managing Editor
www.CRMGuru.com
[email protected]
Edwin Setzpfand
Member Council
Member
Posted 20-Mar-2004 06:02 AM
The key topic in the story Carol was referring to is that of Exit Strategy: How to end the relationship with a customer and how to actually remove from your customer base those customers that for one reason or another you don’t want or you cannot have a profitable relationship with? (I think this definition will do for now.)
Especially in the current post-9/11 down economy an exit strategy can be an important element of staying ahead of the competition and of making CRM a (more) profitable business strategy.
So far, the phenomenon of Exit Strategy hasn’t been written about on these pages very much. It is something like the opposite of what CRM aims to achieve (in a nutshell: to attract, satisfy and keep (new) customers in order to make them come back for more).
While all the time new articles and books appear about the difficult, costly (!) and potentially profitable “art” of attracting, servicing and keeping better customers, to say Goodbye to customers may be even more difficult and of comparable significance to business success.
Perception of Contracts as a Relational Concept
However, in order to be able to exit in the first place there must be something to exit from. Therefore, apart from the last section, in this contribution the main focus is on certain aspects of the concept of relationship—what makes or what (potentially) breaks a relationship.
A Matter of Perception
Central in the Newton Sisters story are the perceptions of the parties of the nature of their relationships and of the rights (and duties) they may derive from them.
From relationships (which are the backbone of C-R-M), or rather from the mutual perceptions of them, it is just one step to the agreements between the parties. These agreements can be oral or signed written contracts. Another form is implied agreements, where one silently accepts the “rules of the house”.
As long as all parties feel satisfied, the differences in perceptions are not that relevant. The Filene dispute was triggered by differences between the parties’ respective evaluations of the quality of the products bought. They apparently also disagreed about the ways they could settle their disputes.
When Customers Remain Unhappy
The facts from the Filene’s Basement news story are simple: The chain has during early Summer of 2003 banned two sisters from all of their 21 locations throughout the USA because, according to the company’s CFO as described in Carol’s clipping, they have returned items too often and have complained too much. The chain’s VP of loss prevention interpreted their behaviour as evidence of “chronic unhappiness with [their] services.”
As was quoted by Carol a financial analyst noted in an interview that “a business contract involves two parties — a willing buyer and a willing seller. When either party is no longer willing, the sales cycle should end.”
However logical and true as this seems, it may be one bridge too far in this case when considering the “business contract” involved.
No Customers Without Contracts?
In general, in the relationship with a customer several contracts or agreements may play a role at the same time. A “contract” is an agreement between parties that is enforceable by law and involves the exchange of something of value between these parties. Without going into too much detail, in buying (and subsequently returning) goods the Newton Sisters may successfully refer to express or implicit provisions in some form of contract. This contract may either be tied to the product, an explicit store policy, a legal provision or a combination of these.
The situation may be different where it involves the eviction. From the story it does not seem to be the case that the store explictly invoked an existing corporate policy. Although a store is private property and is not obliged to sell to everybody, the banned sisters may feel that they have been treated unreasonably and unlawful. Especially as — an apparently undisputed fact — they “have been loyal customers for decades”.
Nevertheless, in the presented case of the Newton sisters there is no evidence that such store policy played a role. Despite the fact that they have bought (and returned) a great number of products, the contractual situation is more that of a “social contract”, a common understanding like “Please, enter my store and look around if you can find something you like; you may buy it and take it with you, and as long as you behave you may look around”, also characterized by “acting in good faith.” Usually there also are some written rules such as “Don’t smoke here” or “Don’t litter.”
“Do you really want a contract?”
The point is that not only in the case of the Newton sisters, but also in the general situation there does not allways exist a clear and unambiguous contract between the parties involved. The real situation is a mixture of implicit and explicit agreements.
With such a complicated and often unclear situation it is no surprise that the relationship also can be viewed from various perspectives. As a consequence of that the expectations of the customers not necessarily have to be in line with the intentions of the store owner.
As an example of how “willing buyers” can interpret a “contract”, consider what was reported in the press about an Ikea store in The Netherlands a few years ago. In such stores you can leave your 5-9 year old child for free in a supervised playground while you do your shopping. So far, nothing wrong. But as it turned out there were parents who after the Ikea shopping first went to other stores before collecting their child. And there even were some cases of parents who only dropped off their child at the Ikea playground, after which they went elsewhere to have a few hours for themselves. This latter case is quite an unusual and very likely unintended interpretation of the “business contract”!
Just like customers may have different interpretations of the “contract”, they may have different expectations of what the store offers them (and that is maybe why the Newtons returned so many items). In addition to that, from the news story it appears that there were diverging interpretations among the sales staff too!
Why want customers?
At the heart of entrepreneurship lies the continuous drive to match and exceed customer expectations with better products and services (and then we hope that the customer experience from buying and using the products makes her coming back for more). In order to achieve this, the entrepreneur must carefully build and maintain his image, by being honest and consistent in his communications (branding).
If, however, the customer has a view about the relationship that brings him in conflict with the store “rules”, and if there is no common view among the sales staff about what these rules are, one is far away from building a mutually rewarding customer-entrepreneur relationship.
Therefore, these mutual perceptions about products, services and store rules/policies should match as close as possible, which can be a very dynamic affair requiring ongoing attention.
A few words about the importance of having an adequate exit strategy..
If you know your customers and their transaction history well enough you also know which are the most profitable ones. A potentially even larger group of customers only cost you money .. they eat from your profit. It is not unusual for a large enterprise to find out that more than 100 % of the profit actually results from doing a lot of business with only a minority of the customers. The lost money on -say- 20 % of the customers then reduces the profit to its actual value. (Actually the truth is that a large number of companies has no reliable figures nor policies addressing this.)
In all cases great care should be taken to have unambiguous and correct communications. Whenever these issues seem relevant to you, either as a customer or as a supplier, the best approach is to seek appropriate legal counsel.
By focusing on the business with the best customers through the application of CRM a company can despite the present down economic climate lay the basis for long-term growth. When the conditions improve as expected for 2005 and beyond, the company can shift from “getting the most from all of the best customers” to “getting more from the other customers and even from new customers”.
If you have too much non-profitable customers it can be sound business practice to stop doing business with them. It remains to be seen, however, whether it is wise to actually physically remove unwanted customers from the shore premises as an implementation of such an exit policy.
Edwin Setzpfand
Graham Hill
Guru
Member
Posted 22-Mar-2004 03:40 AM
Edwin
The whole issue of ending a relationship is complex and fraught with difficulties. It is also often either ignored by most companies, or as seems to be the case here, handled poorly (you don’t want to be hounded in the press for being a bad corporate citizen).
There are a number of things that the store chain in the article could have done to end the (non-contractual) relationship with the two sisters in questio. I wrote about these some time ago in a CRMGuru article “Firing Customers: Think Before You Shoot”.
Although there are always going to be customers who are not profitable, the key to fixing the problem is to understand what drives value creation (and destruction as in this case). I use Value Driver Analysis tools to do this. Only when you understand how value is being destroyed can you make a reasonale attempt at fixing the problem at its source. Just firing a couple of unprofitable sisters did nothing to understand whether the store chain had a fundamental value destruction problem, what was driving it and what they could have done about it.
Firing your customers if it is at all necessary needs handling with tact and diplomacy, such that the exiting customer is persuaded to exit of their own volition, rather than unceremoniously bundled out of the door.
Graham Hill
Independent CRM Consultant
Geri Griggs
Member
Posted 28-Mar-2004 06:11 PM
As a Realtor, I prefer to have Clients and subsequently enforce a contractual obligation.
Simply stated to the doubting customer at that first meaningful meeting is the “Easy Exit” that I provide. For my Real Estate firm, that can be difficult as they expect me to retain the Client and not be so free to offer them an “out” For my time & sanity, it is best that I not keep Clients too long. I want to get to the point of for example, selling them a house that meets their realistic needs that the searching will not linger for months on end. Believing that you can not force anyone to sign a contract, perhaps an amicable solution is to have contracts signed for smaller periods of time. One to two weeks so that you both build a sense of trust with each other. If they are devoted to you & the service that you provide to them, they will be less apt to leave you for another same service provider.
I just love this line I read somewhere…
“The Client is the new emperor. Either you give
them what they desire or you are banished from
their kingdom.”
Geri Griggs
[email protected]
Edwin Setzpfand
Member Council
Member
Posted 21-Apr-2004 02:49 PM
Geri,
Very interesting to read that you in fact start a potential client relationship with an exit strategy at hand. I’ll come back to that shortly.
Maybe there is an alternative solution to your 1-2 week try-out contracts, which I consider to be a form of exit strategy. And think about what it means to start a fresh relationship already with the end in mind? I’ll also describe briefly how these things work differently with real estate brokerage over here (in The Netherlands, that is).
The buyer—seller relationship
A few words about my 20 March post in this discussion thread. I think that the parties in a transaction should have a clear and matching understanding about their mutual relationship—things may go wrong very much if they don’t. This means a/o that the selling party makes statements (branding, marketing) about the products and services on offer. If the buyer subsequently is satisfied, the vendor apparently has kept his promises …
You wrote that you offer your new clients an “easy out” because you rather do not keep clients too long if you cannot find a house for them within a certain period of time. Instead, and as an “amicable solution” you consider the use of short time contracts (1-2 weeks).
Why just two weeks?
I don’t know why you’ve chosen for this short-term type of contract. I consider 1-2 weeks to be very short in a market where in the present down economy houses remain for sale for many weeks or months rather than days (at least over here). Buyers can take their time to look around.
On the other hand (because many people are reluctant or cannot sell their house) buyers may have to wait longer than a few years ago until a suitable object becomes available.
Try selected services
Consider as an alternative the use of partial services. Instead of a “full” contract for this 1-2 week period, a client can be offered a contract only for -say- finding a house, for advertising & promoting his own house, or for negotiation of the price for a house he already has found himself. Other services that may be included are preparation of the contract, surveying and assessing the property, making the necessary arrangements with the notary, or mortgage advice.
Through establishing in this way a more limited (in scope) relationship with the customer that nevertheless can go on for a considerable period, both parties can built a sense of trust with each other.
Cannot serve both sides
In this country a real estate broker only is allowed to represent and take commission from one party. This has the consequence that if the house he finds for a potential buyer is in his own portfolio, he can no longer represent the buyer (because he already represents the selling party). If the buyer still wants to use a broker then she has to hire another one to do the survey, the negotiations and other services.
You wrote that “in [one to two weeks you can build trust so that] if they are devoted to you & [your] service, they will be less apt to leave you for another [realtor].”
A deal is a deal
That “risk” hardly exists here because if you end the contract prematurely and if you then subsequently within a certain time period buy a house on your own in the same area, the realtor still is entitled to receive the commission as agreed previously.
To be clear on this: the transfer of real estate (including the transfer of the payments, contract work, establishing the mortgage, registration at the various offices, etc.) is handled by the notary office, which is mandatory and operates according to strickt legal rules and a code of conduct. However, the use of a realtor is optional (at your one’s risk).
And if you involve a realtor you may choose to do that only for certain selected services as described and negotiate a suitable commission prior to signing the contract. If you have a nice house for sale that sells easily & profitable you may be quite successful in negotiating a “friendly” commission for the new house you want them to find for you Wink
Edwin F. Setzpfand
P.S.:
The NVM is just one of the largest NL real estate broker agencies.
General info:
http://www.nvm.nl/nvm/index.jsp?navid=nvm016215
Code of Ethics:
http://www.nvm.nl/nvm/index.jsp?navid=nvm016220
Business practices:
http://www.nvm.nl/nvm/index.jsp?navid=nvm016222
Other agencies are:
http://www.vbo.nl
http://www.lvm.nl
http://www.funda.nl
Geri Griggs
Member
Posted 21-Apr-2004 06:48 PM
Greetings!
I absolutely love the opportunity that we have to discuss amoungst ourselves.
The process that for me has been the most beneficial is a very simple process. I use very simply to illustrate, my 2 hands. Each of my 10 fingers represents a Customer or a Client. This is easy to grasp whereas I show them my hands(fingers) and let them know that for me, if I take on 1 too many Customer or Client, that someone falls through the cracks & will miss being properly served.
I practice my business in the exact same way that I expect to be treated by any other person that is providing to me a service. The bar is set VERY high! I insist on conducting myself in such a fashion & am indeed a perfectionist.
My religious beliefs come in to play CONSTANTLY as I engage in business. I want to be able to sleep at night knowing that I have done for a person what is ethical & truthful. I refuse to place my interests above a Customer or Client, hence, I gain more respect with the parties & have a very good & steady stream of referral business.
Not to be construed in the “Religious” sense of the word, but I consider my self to be a Real Estate “Evangelist” O.K. don’t tune me out here as I am not “preaching” to you. Consider this to be but from the perspective of having my customers as believers, and true believers turn into contractual Clients that THEY help spread the word based on their emotional connection that they have had with me which subsequently promoted and inspired them to tell others about the pleasant business relationship that we had with the transaction.
I do not just “make a sale” I deliver dreams and must be insightful with a Client that we are in each others heads & I set the expectations at the first meaningful meeting. I do not do all of the talking. In order to have the Customer turn into my “Client” in my sales format we must be in agreement in sharing plans, ideas, insights and anticipation of what is to come.
I have chosen to be…
1) Authentic.
I must believe in my products, services and, most importantly, my company. My passion is difficult to fake. I know that Customers smell a commission-driven sale a mile away.
2) It’s about long-term relationships.
Sharing insights, ideas and values builds long-lasting relationships with customers; building their trust & change them from a Customer to a Client “IF” they so choose. I refuse to just broker an emotionless transaction!
3) My referrals business builds upon itself.
When people believe in you, the company and your cause, they want to bring others under your tent. People want the truth & will seek it!
My Real Estate market is fast at this time! Contracts are being written on houses almost immediately as fast as the houses are being listed. They are selling that fast. We are almost having to “take a number” on the first day to gain access to the interior of a house. There are multiple offers. Offers well over asking price & the Appraisers are appraising out the properties. When will the bubble burst as interest rates are at record lows!
In essence, I may come off to some of you as being pushy. I can assure you that is definitely NOT my style at all!! I do not like the label “aggressive” as that may denote being a pushy salesperson. I prefer the tile as steadfastly “attentive”.
I would love to expound on the many facets of my business & let you know what it means to be an Agent of the Seller, Buyers Agent or a Dual Agent. In fact, I need to write a book after my successes have proved themselves when I retire. I have chosen to set my self apart from just an Agent that sells Real Estate. I am genuinely a Realtor who is the real thing in spirit, mind & body & wish for you all in the sales industry peace in your lives as well as your sales careers. When I had initially written on March 28th, my 2 week contracts I spoke of, were mainly for those skeptical on the fence Customers not truly sure if they wanted to lay it all on the line in wanting to “try” Buyer Agency. I allow people to sign a Buyer Agency Contract with me for 1 day too!
What is the consumers comfort level, not mine!
It’s not the money that you make in your business but the way by which you conduct yourselves in business!
Geri Griggs
Any House, Anytime, Anywhere
Coldwell Banker Residential Brokerage
Owned by NRT, Inc.
The LARGEST Real Estate Firm Globally
http://www.nrtinc.com/pages/about.html
Graham Hill
Guru
Member
Posted 22-Apr-2004 12:27 AM
Edwin, Geri
Your posts highlight the stark difference between a market-economy based approach to buying and selling property that we see in the US and a controlled-economy approach that we see in the Netherlands (and much of the rest of Europe).
As someone who has been involved in buying property in the Netherlands (and other European countries) recently, I can only say that the Dutch approach is stuffed full of unnecessary bureacratic restrictions, controls and additional ‘experts’ that the Dutch state obviously decided were required in the past.
The net effect is to greatly increase the transaction costs of buying or selling a house, the number of people involved (many of whom do not add conspicious value) and the time taken to complete the transaction. Without significantly reducing the risk associated with any large financial transaction.
The assumption seems to be that the populace at large are ‘pawns’, unable (or unwilling) to make adequately thought-through decisions for themselves and that only the state through its ‘knigthly’ civil servants or their representatives knows best how to protect them from their own folly.
The reality as we all know is somewhat different. The populace at large are usually more than capabable of acting in their own best interests. They are ‘queens’ not pawns. And the quality of thought, intention and action from many state employees is greatly lacking. They are ‘knaves’ not knights.
The proper role of the state should be to provide a framework of rules in which intelligent people can make equitable transactions in a free market, not to stifle the operation of the market through the leaden hand of bureacracy.
In a CRM context, we have much to learn from Geri’s adaptive approach to business, and rather less from Edwin’s state-controlled example. Perhaps the biggest learning is that in these hyper-competitive times, flexibility and adaptation is the critical CRM capability.
Graham Hill
Independent Management Consultant
