Managers are required to make many tough decisions over the course of a work day

Question

Managers are required to make many tough decisions over the course of a work day. One of the tough decisions a manager may be faced with is the decision to drop an existing customer from their portfolio.

Some companies refuse to drop customers (including non-profitable customers) in the hopes that these unprofitable customers will become profitable in the future. Other companies do not want unprofitable customers impacting their bottom line year after year and choose to drop them.

In your opinion, when should unprofitable customers be dropped (if at all)? Provide personal examples or research to help support your arguments.

Explanation / Answer

Unprofitable customers are the ones that use more resources than the revenue they generate for the company. Firing the unprofitable customers(often also known as customer divestment) might sound as the obvious decision, but this become counterproductive and can pose issues like the competitors identifying who are company’s profitable customers and trying to poach them selectively, loss of good will, etc. hence to deal with the unprofitable customers profitably, company can focus and improve the quality of services for the profitable customers, and keeping the unprofitable customers with providing them lower cost alternative services like automated response in customer care centres, less discounts, or nominal benefits. Also, at times just teaching the customers about the offerings the company has to provide them, and giving them more options for the products or services they tend to purchase can even turn a low profit customer into a profitable one.

If at all the unprofitable customer is not increasing his/her investment in the company’s products and services, or cause ruckus by making obnoxious calls to the customer care, etc or is causing negative publicity for the company affecting its good will the customer needs to be dropped. For example: Filene’s Basement, a Boston based organization, banned two of its customers from its stores nationwide due to their nature of making unnecessary complaints and repetitive returns.

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