Shipping and logistics giant UPS reported its quarterly earnings last week. Results were good and the stock jumped. One reason UPS did well is that it dropped several large customers.
On the surface this makes no sense at all.
Companies generally want to keep customers, not lose them. The way to grow a business is to build penetration by attracting new customers and then increase buying rate by getting your existing customers to buy more. Dropping customers is a counter-intuitive move.
In some cases, however, the best thing you can do to build your business is fire a few customers. Every customer is not a good customer. Every order is not a good order.
Here are three reasons to consider firing a customer:
The business isn’t profitable.
Businesses exist to make money. If you are losing money on a customer, it might be a good idea to walk away.
This isn’t always the case. A new customer might be unprofitable initially and then become profitable later as you phase out trial incentives. Or, you may want to maintain a particular customer for competitive reasons. It could be that the client enhances your reputation.
A good relationship is a win-win. If you are losing money with a particular customer, there has to be something compelling to justify continuing the exchange. Otherwise, it is best to spend your time with more profitable opportunities.
The relationship damages your brand.
If your relationship with a particular customer hurts your brand, you should probably sever the tie.
Brands are shaped by many things. Advertising, social media, customer experience, pricing—the list goes on and on. Your customers, too, can shape your brand.
You want to deal with customers who are consistent with your brand, or at least customers who don’t weaken your brand equity. This is the reason some firms decide not to do business with certain companies. Patek Philippe doesn’t sell through Costco; Nike pulled out of Sears; Bessemer Trust won’t manage my rather modest stock portfolio.
Your customer doesn’t value your proposition.
Some customers simply don’t value what you provide. They may want something else, or they may be completely focused on price. If this is the case, you should consider ending the relationship.
This can be a difficult decision. If a customer is profitable, does it matter whether they value your proposition? In some cases it does.
One problem is that the customer may not be happy. In a world full of customer reviews and social media, an unhappy customer is a problem. This is true even if the customer made a bad decision; you didn’t cause the situation but it is still your problem. If you think someone won’t be happy with your product or service, you shouldn’t sell it to them.
Another problem is that it will be tough to maintain their business. Eventually you will face competition. Your customer will then ask for a better price. This will force you to cut your prices or lose the business. It is a difficult trade-off because you aren’t giving your customer a meaningful benefit. It is better to let them go.
Dropping a customer is not an easy decision, but it is often the best move. Smart marketers know when to walk away.
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