There is a relatively old expression that says “the customer is always right.” Everyone knows that’s not true, but the idea is to treat them as if they are right. I have suggested that the customer is usually wrong, but if you make it about right and wrong, you’re going to lose. The customer is always the customer, until one of you decides they aren’t anymore.
Much has been written in the last few years about “firing customers.” The idea being that spending too much time and resource with the wrong customers, will keep your company from having the time and resources to spend on the right customers. The key in many cases is to define “right customer” and “wrong customer.”
Many experts suggest you use profitability as the metric for right and wrong. That is, keep the profitable ones, and jettison the unprofitable ones; and maybe even the marginally profitable ones. The problem with that idea is most companies don’t have a clue which are their most profitable customers, or the metrics to really know.
Clearly a high margin customer that does a lot of business with you and is easy to serve is a profitable customer. Ditto, a low margin customer who does little business and requires a lot of “service” is likely an unprofitable customer. However, those two extremes are likely a tiny part of your customer-base. So how do you evaluate those in the large middle?
That is beyond the scope of a blog post, but it seem obvious (at least to me) that you need to create at least some simple metrics to sort your customers by value to you. Additionally, as my friend Ted Steinberg has taught for years, it’s not just how much business a customer does with you, but how much could they do with you? What is the real potential value of a customer, and how does that fit the “right” or “wrong” matrix? Over the years I have learned that most companies have no idea who their best potential customers are. At best they can rank their customers by current revenue and maybe also profit.
Nordstrom was famous for inviting the wrong customers to shop elsewhere, thus allowing their people the time to take great care of the right customers. Stanley Marcus tells the story of taking back a gold (yes really gold) dress that a customer had ruined because his son had not made sure the customer knew how to care for the dress. He noted that woman spent tens of thousands of dollars in his store after that.
There is no question that treating all customers the same is a mistake. The “trick” is to have a way to know who the right customer is; how to attract more of them; and when to cut loose of the “wrong’ ones.
How are you doing with this?