Unprofitable customers? Rubbish!

Written by on October 27, 2014 in Guest Blog with 1 Comment

It is probably just me, but I do wonder whether discussing customer centricity and customer profitability customers in the same sentence is strange, even acceptable. On the one hand service providers want to gain a deep understanding of their customers’ usage and spending habits so they can encourage them to spend more or, on the other hand, they look to get rid of those customers they know won’t or can’t spend more.

Not doing this basic analysis clearly surrenders responsibility for the business’ profitability to the customers by ensuring that they get products and services that bring value to them, and not necessarily to the service provider in the form of increased revenues/profits? And does the same apply to those customers we deem as breakeven or do they simply help cover costs.

Imagine receiving a message or letter from Netflix, Amazon or Apple iTunes, that read:

‘Dear Sir/Madam,

Our Company is dedicated to customer centricity. We have implemented sophisticated analytics software to better understand our customers and the appreciation our customers have using our service and the products we offer.

As an initiative to ensure our company offers the best possible products and service to our valued customers, we have seen it necessary to control the volume of traffic burdening our network and operation.

Over the last few months our records indicate that your use of our services and spending with us has dropped. Our software has determined you are too busy to fully appreciate our products and services and we will therefore terminate your account by the end of next week.’

Losing Focus

Vision vs Product Mismatch

Did KODAK go belly up because there were suddenly too many unprofitable customers? Or was it because of unattractive, irrelevant products or lack of vision by management?

Did all those ‘dotcom’ companies go bust at the end of the ‘dotcom’ era because of unprofitable customers? Or was it due to products and services based on a ‘hot air’ vision?

Is it the number of unprofitable customers that fly that has made it difficult for traditional airlines to remain profitable?

How is it that budget airlines that fly the same planes, pay the same price for fuel and that often use the same airports are more profitable? Even PER SEAT!

It is understandable why vendors like to emphasize customer centricity and profitable customers this way, but it is an issue the industry needs to address because it often dictates functions and features they look for in a business solution.

For a business, revenue and profit are results and not objectives to be reached through functionality. Revenue is a result of providing customers with value, not of identifying valuable customers and profit is simply the result of an optimized business with lower costs than revenue. Neither is the result of driving cost out of a business by getting rid of unprofitable customers and letting the rest stay.

Our industry needs to focus on two areas:

  1. Bringing value to customers, not customers bringing value to it.
  2. Offering profitable products and services and optimizing operations to meet defined business capabilities

Maybe businesses should be asking – ‘how do I want my target audience to view my business – and by when?’

  • Not everyone wants to be viewed the same way, e.g. Ryanair and Emirates.
  • Ryanair competes by addressing price sensitivity while Emirates competes on value sensitivity.

The next question is:

How do I engage with my customers? Do I drive for collaboration or do I respond to requests?

  • Apple had over a million ordinary users and programmers volunteering and signing up for the newest operating system OS X Yosemite. They provided invaluable input over five months. Then they went out and purchased the latest Mac. That is collaboration, and customers viewed Apple as the preferred solution. Do we need to discuss what happened to Nokia? Does that name exist anymore?

The most important step to take is to ask ‘why does a company offer what it does’ or to analyse a company’s vision and objectives, bearing in mind they are not revenue targets!

  • What are the products and services being offered?
  • How are products and services being offered?

Once this is done, a price can be put on the products and services customers value and appreciate, and regardless of whether they buy one unit or a thousand units, those customers are all valuable.

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Cato Rasmussen

About the Author

About the Author: Cato is an industry veteran and Subject Matter Expert bridging Business Architecture and Support Architecture with more than two decades hands on leadership and management experience performing complex Business Solutions project. Cato also regularly speaks at industry events. He has experience from working with vendors, service providers, management-for-hire and consulting. .

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  1. Avatar Derek Arnold says:

    I totally agree with your arguments in support of the premise that companies need to change their view on ‘unprofitable customers.’ Innovative companies such as the ones you mention are deploying enterprise-wide strategies built on customer segmentation, specifically designing products to meet the needs of specific target groups. The good news in this economic downturn is the successful companies are becoming more customer centric to build long-term value, ensuring the retain their customers.

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