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Selective Marketing: When Is It Time to Sack Your Customers?

Published: December 14, 2010 in Knowledge@Australian School of Business
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Adrian Payne remembers a conversation he overheard at a tram-stop in Melbourne some years ago. In the exchange between two obviously well-heeled elderly women, one related to her friend how stunned she was that the plumber had arrived to tend her taps "driving the very latest Mercedes". "Imagine that! If I had one, I'd sell it straight away. I'd certainly never think about buying a Mercedes now," she insisted.

To Payne, now a professor of marketing at the Australian School of Business, this is a telling anecdote. It's a lesson in elitist branding. "Clearly the woman thought that the brand values of Mercedes had been compromised by the fact that a tradesman had bought one," he says. "However, fortunately for Mercedes-Benz, they have generally been able to position their cars in terms of 'engineering excellence' and made their vehicle range relevant to different market segments." For Mercedes, that is a tricky issue. "They want to sell as many cars as they can, but they want their brand to retain its elite status," says Payne. "In that situation, what do they do? It's a simple example, but the implications are wide."

In a democratic and free market economy, the idea that certain customers might be undesirable is the marketing equivalent of political incorrectness. Surely, every company welcomes all customers, regardless of social status, religion, race and political conviction? Maybe not. To adapt an Orwellian catchphrase, it seems some customers are more equal than others.

Consider the case of the controversial Darwin restaurateur John Spellman who had his 15 minutes of fame early in 2010 for charging customers wearing rubber thongs an extra A$10 in a bid to discourage the practice and set the tone for his restaurant. On another occasion, he gave unwanted customers A$10 and told them to go to McDonald's.

Customer profitability is a well-documented phenomena. Modern customer relationship management (CRM) tools are starting to deliver on their hype and provide a clear snapshot of customer spending, enabling organisations to quantify their true value and connect the dots. The days of the telco not realising that the same person held several accounts, and was a much more valuable customer than a single view may have delivered, are pretty much over. In many cases, those customers deemed not profitable enough are discouraged with punitive fee structures, and gently encouraged to transfer to competitors. Banking is a perfect example where larger players put off the low value customers clogging up their branches. One Australian bank has reportedly labelled customers as either value creators or value diluters.

Waving Off Whingers?

But what about judging customers in a qualitative way? Are there customers who are just so annoying, distracting, stressful or obnoxious that they are not worth the time and trouble? Paul Patterson, professor of marketing at the Australian School of Business, notes that the stress and attrition rates of frontline customer service staff are a significant issue for many organisations. People on the frontline are often on the receiving end of unwarranted face-to-face abuse from frustrated customers. Stress leads to employee churn and burnout and means more expense in terms of retraining, not to mention the potential expenses at the extreme end of employee meltdown. "This has proved to be a significant issue for many organisations with employees dealing directly with a large number of customers. In many cases, these customers can be identified and it can be as simple as black-banning them, and hoping they move on," says Patterson.

Tamara DiMattina was one of those frontline workers. As a public relations consultant in Melbourne, she did not offer counter service – one of the worst battle zones – but she had a lot of face-to-face contact with the type of clients who eventually persuaded her to leave her job and start her own firm, where she could choose the customers she wanted to work with. "Some clients are definitely more trouble than they are worth," she says. "That is 100% why I left to set up my own business, so I could have enjoyable client relationships. I am just not interested in putting myself through those situations with bad clients. I realise that a lot of these people in their home lives are great people, but in the high pressured business world, there can be a very nasty relationship between clients and suppliers."

DiMattina's solution was to start her own firm, Trumpet PR and Marketing, where she could choose her clients and "work with people who appreciate you a bit more. You have to value yourself and what you do, and in a service industry like PR you don't have to put up with bad treatment," she says. Many of the clients who caused DiMattina grief were, in dollar terms, profitable. But when the negative impact on the firm – any firm, in any industry – is quantified, not just in terms of employee stress levels but also clients' ability to ruin the ambience for other customers (and thereby sully the brand), it becomes clear that the organisation is better off without them.

"There are many customers who even though they deliver a financial return are likely to impact or taint other customers," says Payne. "The issue is at what point do you make the call that doing business with a particular customer is more trouble than it is worth? The answer is that it is different for every business, but there is a point for everyone."

Southwest Airlines has been a spectacular success in the cutthroat world of US civil aviation, partly due to its customer-centric focus. But one particular customer was too much for the company's legendary chairman and president, Herb Kelleher. One woman was a serial complainer and letter writer to the airline, regularly corresponding about poor service and insinuating that she deserved compensation, reports Payne. "One class of bad customer are those who complain all the time without legitimate reason, in some cases to get refunds and free goods, sometimes dishonestly," says Payne. "This woman had serially written to the senior offices of Southwest Airlines saying 'your service is lousy' and over a long period of time they gave her all of these apologetic letters, sent her flowers, reimbursed airfares." Eventually Kelleher got all these together and sent the annoying customer a letter saying "we will miss you in the future". "The company had recognised that enough was enough."

If the Shoe Fits?

Another example is Nordstrom, the apparel designer, which has a policy of accepting product returns from customers. "Certain people might buy a pair of shoes, wear them several times and then return them with clear wear marks. And, Nordstrom's [policy is to] take them back," says Payne. But, at what stage is it appropriate for the company to stop accepting that this is the general cost of doing business?" Nordstrom does not see such people as bad customers, instead the company understands that while it may lose money on a particular transaction, it assumes that by looking after those people they will turn into good customers. "Keeping customers happy and encouraging positive word of mouth and advocacy is paramount to Nordstrom," notes Payne.

Such examples are anecdotal, but is there any methodology to help organisations make qualitative assessments of client relationships? At branding consultancy the Right Group, projects director Jo Woodfield offers some "qualitative KPI characteristics" to test and define the quality of a relationship. She lists: control mutuality – the degree to which both parties in the relationship are satisfied with the amount of control they have over the relationship; trust – the level of confidence both parties have in each other; transparency and openness; dependability; competence; ability (and capacity) to deliver; commitment – the extent to which both parties believe the relationship is worth investing in, and expending energy to maintain and promote; exchange relationship parameters; and, satisfaction – the level to which both parties feel favorable about each other (that is, does the company engage in positive steps to effectively maintain and manage their client relationships?)

Patterson talks about a "customer-value" approach to segmentation, and how the division of customers into "value creators or value diluters" is worked out according to a "customer's profitability matrix" where the criteria is cost of service. Firms should either protect the customer relationship, by "cost re-engineering it" – building it – or thinking about terminating it when it crosses into the "danger zone" section of the matrix. "Marketers should adopt a strategic approach to retaining, upgrading and even terminating customers," argues Patterson.

"Customer retention involves developing long-term, cost-effective links with customers for the mutual benefit of both parties, but these efforts need not necessarily target all customers with the same level of intensity. Service firms, in particular, need to understand the different tiers of customer profitability, and that these tiers often have different service expectations, and the firm has to adjust their service levels accordingly."

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