Last month, Sprint Nextel (www.sprint.com) announced that it was going to “terminate” 1000 of it’s 53 million customers because they called the customer service call center too often. There was a lot of chatter in the blogosphere about what a nasty company Sprint was and it was a public relations black eye for the company. My fellow CustomerThink Guru, Graham Hill blogged about the event and placed responsibility squarely on the shoulders of Sprint executives for mishandling the affair. Renowned 1to1 Marketing experts, Martha Rogers and Don Peppers weighed in as well. Their take was that this was probably a positive thing for Sprint and its “good” customers in the long term.
Now that the PR brouhaha has died down, it is a good time to be asking some questions and gain some insight for other companies that are looking to get rid of their “bad” customers and focus on their good ones. As someone that has had to make difficult decisions to stop serving some customers, I understand the difficulties inherent in making these decisions.
1. Why did Sprint choose number of calls to customer service as a criterion for the termination? Why not current or lifetime profitability?
2. There are sophisticated switching mechanisms available for routing calls. If these were high maintenance, low profit customers why not just route them appropriately? Sprint’s justification for the firings was that it would improve customer service for everyone else. Surely, that could have been done by screening these calls out of the mainstream queue?
3. If you are going to fire customers, why just 1000? Why not pick a larger number so it really makes a difference?
All of this raises a larger issue of when it is appropriate to fire a customer. We all know there are customers who are simply not appropriate for a company. A great deal of marketing analytics is focused on identifying the most promising segments of customers and convincing them to sign up for your product or service. What is wrong with the inverse – firing customers who don’t measure up? This can be done a variety of ways – all a great deal more subtle than the way Sprint did it.
1. Have an honest communication with the customer and give them some options that will make the relationship a win-win. This is easier done in business to business situations.
2. Attempt to switch them to a product or service that is more appropriate for them and you – given the price they are willing to pay.
3. Increasing prices selectively – this will either make these marginal customers profitable or drive them away.
4. Reduce service levels to a point where the customer becomes profitable (this is probably the worst option)
If none of these are an option, then firing the customer is an option that needs to be considered. When doing so, however, it is important to factor in the collateral damage to your brand and reputation that can result due to the resulting word of mouth, especially in these days of multiple influencers with digital megaphones.
Thoughts?
Your point about fit is important and so is the potential negative word of mouth of firing.
Unfortunately, sales people are under pressure to sell and therefore everyone is a target. Everyone would be much better off if companies identified their sweet spot better and directed the sales efforts accordingly.
John I. Todor, Ph.D.
Author of Addicted Customers: How to Get Them Hooked on Your Company.
Yes, I could not agree more.
Most sales and revenue targets are set without regard to the underlying quality of what is being measured. In many companies all customer acquisitions are counted as a positive and weighted equally and all customer attrition is counted as equally negative. I was arguing with a client just yesterday that they need to sort out their customer retention tracking numbers by the kind of customers that are being lost and focus their retention efforts on those they really want to keep.
People focus on what they are being measured on and compensated for.
Naras V. Eechambadi, Ph.D.
Author of High Performance Marketing: Bringing Method to the Madness of Marketing
email: [email protected]
blog: http://highperformancemarketing.blogspot.com
Naras
In my original post, I lambasted Sprint for the slovenly way in which they had targeted customers to be ‘fired’, without apparently going through root-cause analysis to identify the real problems and attempting to fix the problems. They simply fired them and then waited for others to ask questions later.
Acquiring customers, no matter how profitable, costs money. Servicing them costs money too. So does firing them. It makes sense for companies to understand the flow of costs out and the flow of revenues in. If a customer costs more to acquire and to service than the revenue they bring in, then they should look at how they can reduce costs, increase revenue and reduce risk (which carries a cost). If having done that, the customers still cost more than they earn, then they are at liberty to decline to service them further. They should do this with polite decorum. They should also look at how they can reduce this type of customer acquisition so that the same problem will be smaller in the future.
Sprint’s problems seemt to be almost entirely of their own making. Their plans are structured in such a way that they aren’t rewarded adequately when customers roam into other providers’ networks. They acquired customers they couldn’t serve profitably. Their internal systems produced countless errors e.g. in billing, which they were unable to rectify, both causing multiple calls. Their internal call logging counted individual calls multiple times as customers were handed from one department that ccouldn’t help to another. A litany of cruel incompetence where the left hand didn’t know what it was doing, the right hand didn’t know what the left was doing, and neither were responsible for intelligently solving the many problems.
The biggest indictment of all, is that somehow I can’t believe this would have happened if Toyota had been running Sprint’s business.
Graham Hill
Independent CRM Consultant
Interim CRM Manager
Graham,
Agreed. Sprint obviously has big and broad ranging issues. The firing of these 1000 customers and how it was handled is obviously just the a small tip of an inordinately large iceberg. This is quite a text book case of how not to do anything right.
I was, however, trying to shift the conversation to the more general realm of when it makes sense to fire customers. I agree with the steps you have laid out. A company’s true nature and class is shown by how it handles the difficult decisions and the execution on the downside, whether it is letting go of employees or customers. Needs to be done gently and with finesse.
As for Sprint, it is probably a lost cause. They will probably just stumble along hoping to fool as many of their customers as possible for as long as possible.
Given the dysfunctional nature of the mobile phone market in the U.S., they can probably get away with it for some time to come.
The really sad thing is that mobile phone customers in the U.S. are faced with such poor choices in an oligopolistic market with little innovation, the iPhone notwithstanding. We are so way behind the rest of the world, it is unbelievable.
Naras V. Eechambadi, Ph.D.
email: [email protected]
website: http://www.quaero.com
blog: http://highperformancemarketing.blogspot.com
Years ago, my bank “fired” me, after I’d had my purse stolen and had to open up a new checking account. The bank kept screwing up the new checks (misspelled name, broken promises that the new checks would arrive by a certain date). Despite the fact that none of it was my fault, when I went in to complain in person, the bank manager told me to close my account. I was a student and had only enough money for my next rent payment in my account. Clearly, I wasn’t worth the effort.
But here’s the thing. I had another account at a savings and loan (in the days before savings and loans could issue checking accounts) with more money the bank manager didn’t know about. I was also headed toward a college degree, which should have pegged me as someone with future value. I avoided that bank like the plague, and I’m happy to report that it’s no longer in business. So I think it would have behooved the bank to try to please me, rather than wash its hands of me.
I worry that companies are blaming the customers before they look within, at their processes and people. I worry that the customer has become an inconvenience: “That young woman keeps complaining about us. We’ve already spent unrecoverable person time and printing costs on her. She’s not worth it,” rather than, “Why do our employees keep making mistakes? This is really going to irritate the customer. I hope we’re not this bad with all of our customers.”
Gwynne Young, Managing Editor, CustomerThink
Paul Greenberg
Author: CRM at the Speed of Light, 3rd Edition
Sprint has been, of course, the object and subject of an incredible amount of discussion, for their firing of 1000 customers. What interests me and I’ve never seen (though I can’t say I’ve looked that hard either) is what those 25 calls per month per customer were about – and why they felt they had to call that frequently. Given my relationship to Sprint (and general propensities), I would tend to support the customers rather than Sprint, but I’d be very curious as to what drove the customers to call that frequently? I’m always wary when I see a company that measures everything from cost control – they called 25 times a month – they cost too much – you’re fired!!
The downside of course is exactly what Naras calls the “digital megaphone” (awesome turn of phrase, man). The risks of firing customers these days is FAR greater than the risks of firing was a few years ago. The blogosphere and even more deadly social networks, have seen to that. Imagine if one of the fired gets on Facebook and asks the question – who’s had a bad experience with Sprint? – of the 24 million or so Facebookers (like me)? The feedback can be huge. I’ve done just that with DirecTV on LinkedIn and had 40 answers in an hour, thus not just providing a response that will be linked to on my blog but reaching actively into social networks to extract the poison – which is what tends to show up. Belladonna on Facebook is pretty rampant too and wouldn’t take much to dig out.
Other than saying that as always Sprint doesn’t get causal, just cost-conscious, they may be digging themselves a downside hole they just didn’t really want to fall into.
Gwynne and Paul,
Agree with you on all counts. The presumption should be that the customer is right. Particularly when the problem (e.g. high cost of service) is not the fault of the customer, such as in Gwynne’s case.
For example, when I recently tried to upgrade my phone on Verizon online, it would not let me do it. I had to call the call center and the process took about 30 minutes to complete. This is a cost that Verizon could have avoided by having a more functional and transactional website. Companies do need to ensure that they are not causing the problem and then turning around and blaming the customer.
When we first created true measures of customer profitablity at a major bank, we found that more than a third of our retail customers were unprofitable. The instinctive reaction was to get rid of these customers or raise prices, neither of which made sense. Most of the poor performance was caused by poorly designed sales incentives, as John Todor pointed our earlier in this thread. We were able to manage many of these customers to profitability by changing our internal incentives and processes. However, a hard core remained. It is hard to get rid of these customers once you have acquired them, because any such attempt can cause a huge blowback as Paul points out.
I still maintain, however, that businesses must retain and selectively exercise the right to not serve certain customers just as restaurants refuse to serve people who are not properly attired. Fairness to your “good” customers demands it. It is not always just about profitablity and cost to serve. Sometimes it can also be necessary in order to protect your employees. Abusive customers can really take a toll on service employees, particularly the good employees who truly care about your customers.
by Naras V. Eechambadi, Ph.D.
email: [email protected]
blog: http://highperformancemarketing.blogspot.com