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Why Firing Your Worst Customers Isn't Such a
Great Idea
Fire your bad customers.
That piece of advice has become widely accepted in recent years as companies
have sought to manage their relationships with customers in more
sophisticated ways.
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The
rationale for this idea is clear-cut:
Low-value customers -- such as the
ones who hardly spend any money on your services or products yet tie up your
company's phone lines with questions and complaints -- end up costing more
money than they provide. So why not jettison them and focus your
customer-relationship efforts on more profitable individuals? Or, as an
alternative, why not at least try to increase the worth of the low-value
customers to your firm? If a firm has only valuable customers, the thinking
goes, its profitability and shareholder value should increase.
It all sounds quite rational, and many corporations have jumped on the
bandwagon. But a new study by two Wharton
marketing professors, Jagmohan
Raju and Z. John Zhang, and Wharton doctoral student Upender Subramanian,
cautions that firing low-value customers may actually decrease firm profits
and that trying to increase the value of these customers may be
counterproductive.
Read more from the source
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