Select, Not Fire Customers

Sprint made news lwhen it sent “you are fired” letters to about 1000 customers who, the company claimed, made excessive amount of calls to customer service. Apparently, these 1000 customers combined made more than 40,000 calls a month in total! See a termination letter sent to a customer. Notice Sprint’s attempt to make it “easy” for customers to end the relationship.

Sprint, not surprisingly, received a lot of flak for this move. Most of the blogs I’ve seen have been highly critical of Sprint’s actions. The 1000 problem customers represent a miniscule percent of Sprint’s 53 million customer base. When you have that many customers, there will be some that are not profitable. Was the negative publicity created by the termination of a small number of high maintenance customers worth it? It appears that some of Sprint’s competitors may benefit from the fallout. Did Sprint make a mistake?

Before I answer it, I’d like propose a three-step approach which can help avoid such problems.

  1. Customer Selection. Very few companies seem to pay careful attention to who they choose to serve. Businesses can and need to select their customers carefully. Segment your market and choose the segments you wish to target. This will ensure a better fit between the company’s offerings and the customers’ needs. In a category like wireless/mobile, usage patterns and needs are not homogeneous across customers. It is important to understand these segments and create offerings that are meaningful and offer value. By choosing not to serve certain segments or types of customers, a lot of subsequent pain can be avoided.
  2. Creating Expectations. Even if you target the “right” customers, it is still important to create the right expectations in terms of service features and service standards. Most of the time, in my experience, customer experience is rated poorly because the firm did not do a good job of setting appropriate and realistic expectations. Sprint said in the letter sent to the 1000 customers, “The number of inquiries you have made to us during this time has led us determine that we are unable to meet your current wireless.” When these customers were sold the Sprint service, was a proper assessment of their needs made? Or did the customer needs change over time? Where the customers over-promised?
  3. Delivering on Expectations. As I’ve said in other posts on this blog, delivery is critical to customer expectations. If a brand does not fulfill its promise, it loses its credibility. In this case, Sprint does not seem to be doing a good job here too. According to a Zogby poll commissioned by MSN, Sprint ranked at the top of the list on the Customer Service Hall of Shame. It is possible, that the 1000 customers who were terminated were the most vocal among a large number of dissatisfied customers. The Zogby poll was based on a national sample of over 5000 customers. So, there is mounting evidence against Sprint. I’d rather promise a little less and deliver more.

This is not rocket science. It is surprising to see so many companies not getting the basics right.

Was Sprint’s action prompted by bottom line concerns? According to an article in the Contact Center World the average cost per call to a contact center varies from $3.50 and $32.74. If assume $5 per call in Sprint’s case, 40,000 calls per month to serve 1000 customers translates to $200,000 cost or $200 per customer. The cost could have been higher. Clearly Sprint was losing money on these folks. Some CRM and customer profitability and customer lifetime value (CLV) proponents would argue that dropping these customers is the right thing to do.

Incidentally, I had the same discussion with a group of executives last week at a seminar I gave on Customer Experience and Loyalty Management. Most of them were uncomfortable with the idea of saying “you’re fired” to a customer and some even suggested that certain companies have a larger societal obligation that goes beyond generating profit from each customer. Their arguments were compelling.

Saving about $200-500K by getting rid of these customers will not make a big impact on the bottom line. Clearly these consumers were using an extraordinary amount of resources. In my view, the situation has been mishandled badly. The negative publicity could end up costing more.

There is a deeper malaise within Sprint, given the very low service rating in the Zogby poll. They have to address this service delivery issue first At the same time, set the customer expectations appropriately to match the service standards.

Under the right conditions, it may be appropriate for a business to choose not to continue the relationship with certain customers. There are cases where ethical and societal considerations would suggest otherwise. Most businesses would rather swallow the losses and carry a certain percentage of unprofitable customers. Sprint’s decision was bold. But if they had a great reputation for service excellence and customer satisfaction, they would’ve been on firmer ground.

I’ve noticed that this topic gets most people riled. Look forward to your comments.

(This post originally apppeared on July 15, 2007)