Why it's time to develop a 'customer break-up' strategyby
Three-quarters of companies will kick poor-fit customers to the curb by 2025, as the cost of retaining them eclipses good-fit customer acquisition costs.
Three-quarters of companies will kick poor-fit customers to the curb by 2025, as the cost of retaining them eclipses good-fit customer acquisition costs – but these businesses will need to develop a 'customer breakup strategy' in order to prevent doing more harm than good.
New research by Gartner – Predicts 2022: Customer Service and Support Strategy and Leadership – suggests that companies are increasingly aware of the financial impact of poor-fit customers, with director and team manager in the Gartner Marketing Practice, Neha Ahuja, commenting:
“Business leaders are starting to recognise how costly keeping a poor-fit customer can be for business, such as over-customisation, custom-made solutions and outsize time spent on servicing.
"Combine that with costs associated with emotional damage that leads to attrition among customer service reps and sellers, which are two talent pools already under pressure. Long-term profit erosion must also be kept top-of-mind, as investments in poor-fit customers may boost revenue in the short run, but compromise profitability in the long run.”
The research goes on to stress that being aware of the issue is not enough, and that organisations must also be able to define precisely what constitutes a poor-fit customer.
Customer service and support leaders must ensure that preferential treatment is not given to poor-fit customers.
To achieve this, all functions must agree on a common set of attributes shared by poor-fit customers, and then determine how each of those attributes would appear in related functions.
Once the criteria has been selected and the poor-fit customers have been identified, it will then be the responsibility of customer service and support leaders to ensure that preferential treatment is not given to these customers, by rethinking their routing and queuing processes.
This strategy will also need to be adopted by marketing teams, who will likewise need to look at deprioritising the customers outlined as poor-fit, rather than repeatedly marketing to every existing customer.
As organisations explore breaking up with this customer segment, Gartner recommends the following to align across teams:
- Create a customer-fit score to inform actions to take with a customer, such as deciding to further grow the relationship, maintain the relationship or break up with the customer.
- Work closely with the CFO and the CFO’s team to ensure the organisation’s ability to adequately grow business with, and acquire, good-fit customers to compensate for the loss of revenue from poor-fit customers.
- Adjust organisational KPIs, including employee incentives, to include customer breakups along with growth targets.
- Communicate the breakup strategy to the board and investors to ensure they understand that any reduction in overall retention is intentional, and done to improve the company’s growth.
- Revise retention targets to centre on the percentage of good-fit customers retained, not overall customers retained.
Gartner’s research clearly highlights a highly relevant and potentially profitable aspect of customer service. However, as outlined above, it is essential that organisations are detailed and thorough in their definition process, or else they run the risk of alienating good customers.
This sentiment is echoed by Emily Potosky – a senior researcher within the Gartner Customer Service and Support Practice:
“Organisations will need a consistent data analysis strategy to capture and align customer data across different silos. This analysis strategy will be critical for predicting poor-fit customers.
"Once a ‘fit’ measure is established, organisations will need to determine a threshold beyond which to break up with a customer that makes financial sense for the organisation.”