Thursday, September 29, 2011

It's not me it's you: Dropping a customer who doesn't spend enough

We've all been there. That customer who soaks up an inordinate amount of time and energy without spending enough for you to justify the level of resourcing.  And now it's crunch time - how should you move a customer who had face to face sales representation to a less frequent cycle and/or telesales account management without losing their business?  Here are some pointers from behavioural economics to change your service mix.

You don't know what you've got till it's gone...aka "Endowment effect"
You can be sure that the customer took face to face (F2F) representation for granted when they had it - but now that it might be taken away it's seen as a catastrophe. Endowment effect is our tendency to overvalue what we own - in your customer's case, they "own" the level of service they have been used to.

Tell them they can have F2F representation again...but they need to meet the criteria and to do that they can work with their very smart new telesales account manager who will help them get there. Will they like it? Most possibly not because it will be seen as personal affront. But guess what, you're in business and are entitled to treat customers who spend more differently. 

Business Class vs Economy, it's your choice
Procedural fairness explains our tendency to accept a judgment if it has been fairly considered and you know the rules.  If you've ever flown Business Class and then had to go back to Economy, you will know which you prefer, but you also know what it takes to get back to Business Class - money.  Do your customers know what it takes to get F2F representation?  Share the decision and the objective criteria (eg spend more than $5,000 pa...) to help them understand that they are actually in control of their servicing - all it takes is increased spend. 

But I'm special!  I'm an important account!
This type of change reminds the customer that they are one of many, upsetting their sense of uniqueness. Talk to the customer about what makes their business special and why you see a continuing relationship with them, albeit through a different channel.

Don't think about it as losing something
We hate to lose more than we love to win. In this case, the customer may react badly if they perceive the service mix as losing something so do everything you can to frame the change as a gain. Can they get more frequent attention via the phone for example? Do they get the resourcing support of a whole team rather than one individual? Will shorter appointments save them time?  Mark out potential reasons why F2F may not have been the best method of contact from that customer's perspective and consider how to use it in your justification. A word of caution though, the change will most probably be seen as cost cutting, so don't go too heavy on the "it's better for you" angle unless you can actually prove a better service level.

Quick like a bandaid
With unpleasant news, get it over quickly because we adapt more readily if we are not constantly reminded of what has changed. Handover the accounts (and do this properly by thoroughly briefing the new rep and telling the customer) and move on so the healing can begin. 

Still scared to act?
If you are still procrastinating about making the changes, know that you are falling into the trap of loss aversion - you are more fearful of losing the business of some difficult customers than motivated by the gains you can make by having your F2F sales reps concentrate on the accounts with most potential.  And you may well lose some customers.  So to get over this mental hurdle, do some number crunching. How much does it cost you to service those accounts, what's your margin, and what's the opportunity cost between these accounts and the potential accounts your rep could be growing?  Overcome your reticence with a good dose of fear busting.

By no means is changing service mix an easy thing to do, but it is an important aspect of managing your business. If you want to take it a step further and fire a customer, you may want to check out "Firing a Customer - what holds us back?".  Until next time, happy dropping!

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