Posted: 4:11 p.m. Tuesday, Jan. 7, 2014
By Jessica Stillman
No one likes to be let go, including customers, so use these stealthy methods to rid yourself of unprofitable customers with less ill will.
Firing people isn’t the nicest part of being the boss but sometimes it’s necessary -- and that goes for customers too. Whether the cost is emotional or financial, some clients simply demand more from you than their worth. (Here’s a field guide to different types).
Problem is, no one likes getting fired, and informing your problem customers in no uncertain terms that their business is no longer wanted nor accepted at your company is bound to generate ill will, and perhaps even bad publicity. The question of when to fire a client is important, but so is the question of how to do it.
Luckily, there’s some new guidance on the subject from Yale School of Management professors Jiwoong Shin and K. Sudhir based on their recent research and published in the latest edition of the MIT Sloan Management Review (free registration required). The in-depth article looks at not just when to fire (and also when to reward) customers, taking into account profitability and the ease of switching suppliers in your specific industry, but also offers ideas on how to gently get rid of those who need to go. The authors offer three stealth strategies for easing these problem clients out the door.The Downgrade
Rather than abruptly inform customers you’d no longer like to do business with them, Shin and Sudhit suggest offering them reduced services. It’s a tactic that worked for one Canadian Bank, they note. "Royal Bank of Canada simply reduced services to unprofitable customers. A check trace for profitable customers would be prioritized and expedited in one day, for example, while for unprofitable customers, the bank would conduct a less expensive three- to five-day trace," the authors write. Presumably, many of these customers soon opted for a different bank -- thinking it was their decision to go all the while.The Surcharge Technique
What behavior on the part of your customer makes them unprofitable to you? Slap a charge on that. Again, Shin and Sudhit draw an example from the banking industry: "For instance, some banks have started charging for paper statements while offering e-statements for free -; a pricing enticement toward more profitable behavior among all customers." Clever problem customers may actually transform themselves into profitable ones under this price pressure. Or they may take their business elsewhere. Either way it’s a win for you.Play the Teacher
Before you fire a customer outright, you can try educating them, the authors suggest. A simple and frank conversation may do the trick."Education, particularly in business-to-business settings, is an especially valuable tool. If an explicit conversation can illustrate that both parties could save money with more economical behavior, then this is the easiest and best solution," they write, suggesting you explain "which activities drive up costs and make the customer unprofitable." An open dialogue could lead to a healthy working relationship or to an amicable parting of the ways. It’s unlikely to lead to as much acrimony as as an abrupt and unexplained firing.
What do you make of Shin and Sudhit’s ideas?