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

Answer

Unprofitable customers can be a problem for business. Being able to identify them and make them more profitable can be key to your company's success. So first company should to try to restore customers' profitability before dropping Unprofitable customers in following manner.

Reassess the Relationship: Determine why the customer has become a "problem." Consider company's overall relationship with the customer, not just profitability.

Educate Customers: Provide information or training to help problem customers better understand and use your offerings. Fidelity Investments identified low-margin customers who were frequently phoning service representatives. Instead of divesting them, Fidelity taught them to use its other options like automated phone lines and the company Web site.

Renegotiate Your Value Proposition: If education doesn't improve things, consider pricing and service strategies that restore the balance between the costs of serving the customer and the benefits generated. A supplier of commercial dyes for heavy machinery started charging extra for on-site service to some unprofitable clients as part of a renegotiated price structure. It became a win-win scenario for the company and its customers.

Migrate Customers: For unprofitable customers, company can also consider moving them to a different distribution channel. A associate company can be better positioned to satisfy their needs, or a new form of payment. Satellite TV service provider EchoStar Communications created a prepaid service option for customers with bad credit history, thus migrating them to a different form of payment.

After doing all above things, If company cannot find proper solution for unprofitable customers then it should consider to drop unprofitable customers.

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.