Service charges.
| Author | Bartram, Peter |
| Position | Costs of doing business with unprofitable customers |
Every company wants to lose unprofitable customers. But, as Peter Bartram finds out, close the doors too abruptly and you alienate future big spenders and pay the price in negative PR
You could almost feel sorry for Barclays Bank. First it announces that it is closing 172 branches -- just as it launches a campaign boasting how big it is. Then it is charged with neglecting the needy when news slips out that it plans to load extra charges on customers who fall behind with loan repayments.
What probably seemed like shrewd business decisions to senior managers, resulted in a branch sit-in led by a Methodist minister and a call from environment minister Chris Mullin for customers "to vote with their feet". And the impact of this fiasco has spread further than the offices at Barclays. In scores of other boardrooms, directors have been nervously watching the row develop. Many feel sympathy for Barclays which has done only what many other companies would like to do -- dump its "bad" customers.
In this context, "bad" is a catch-all term to describe customers who are simply not worth servicing -- for example, customers who tie up little-used rural branches or who create extra administrative work chasing back payments. Companies in almost every sector have known for years that a proportion of their customers do little more than break-even or run at a loss. Yet as soon as a firm tries to do anything, it steps into a minefield of political correctness.
British Airways discovered this earlier in the year when it announced that it hoped to wave goodbye to many of its economy passengers with their bulging backpacks and bucket-shop tickets and focus on high-rolling business travellers. Richard Branson -- never slow to miss an opportunity -- was quick to step in and make it clear that Virgin would be happy to provide alternative transport.
Unlike the BA executives, Branson realised that today's Californian backpacker is tomorrow's company vice-president with an expense account and a first-class ticket, and he knows that loyalty built up in the early days of a customer relationship can last a lifetime when it's nurtured properly. It all underscores the key difficulty -- today's bad customer may become tomorrow's good, or even excellent, customer. And the reverse is also true. So how do you define a bad customer and what do you do about it?
Merlin Stone, IBM professor of marketing at Bristol Business School, argues that you can divide bad customers into five...
To continue reading
Request your trialCOPYRIGHT GALE, Cengage Learning. All rights reserved.
