Friday, February 19, 2010

What is a "Bad" Customer?

I ran across a brief article titled "Get Rid of Bad Customers" that was published February 17th and was on the web under
The essence of the article was that companies should get rid of bad customers. This is a statement that some companies have a difficult time accepting. The author lists four kinds of bad customers:
1. Slow-paying customers - if they continue to be a slow payer the author suggests they be put on a cash-only status. There is additional discussion but essentially the story is that a slow-paying customer is a "bad" customer although the author does not suggest getting rid of them.
2. Customers with constantly changing and ever-expanding needs - the author suggests these are not bad customers but ill-educated customers who don't know how to create project specifications and keep adding requirements. Once again the author does NOT suggest getting rid of them.
3. Price-sensitive, demanding customers - these customers resist standard pricing and insist on high levels of service and numerous product features. The author suggests that the company should decide what prices and terms are necessary to maintain the relationships. If the customers have already been given sufficient concessions, the author suggest it's time to refuse additional business at any price. (This is the first bad customer that the author actually suggests eliminating.)
4. Conniving customers - these customers "misrepresent problems to extract restitution in the form of full refunds or heavy discounts."

The author closes the article with the comment "Start making hard decisions, push away those who drag you down, and cultivate the right relationships."

While I generally agree with the author I think there are some additional points that should be made. The author seemed to limit the kinds of bad customers to those customers who had a direct impact on costs. The first point that seems appropriate is to suggest that customers are not "bad" or "good." Customers either fit your company or they do not. If they fit your company, then there should be a strategy in place to accommodate the needs of the customer. If a customer does not fit your company, it is a waste of your time and resource to try to "put a round peg into a square hole." By that I mean it is rarely cost-effective to stretch your resources to accommodate a customer whose needs are not a good fit with your products and/or services. More often both sides, customer and company, are not satisfied with the results.

It might be appropriate to add some other types of customers to the list of those that don't belong. For example,
1. A customer whose business strategy has changed and now is no longer a good fit with your products and/or services.
2. A customer who has out-grown you so that you cannot meet that customer's demands for products/services.
3. A customer who is not profitable when all the costs for customer support exceed the margin of the products/services purchased by the customer.
4. A customer whose needs have changed in such a way that your company would have to make significant changes to accommodate the customer (such as going to ISO 9000 certification when all of your other customers do not have that requirement).

The bottom line is there are no good or bad customers. The ideal customer is one whose needs for products and/or services matches the company. In addition companies want customers who they can trust and who trusts them. These customers will allow for occasional mistakes. They also understand that you must make a profit.

Most companies keep customers that are no longer worth keeping for any number of reasons - not that they are "bad." Too often an executive will say "we can't afford to lose another customer." This statement is naive and points out that the executive hasn't thought the process of what kind of customers the company needs to prosper and that not all customers will help the company prosper. One of the most difficult processes in business is knowing when it is time to say goodbye to a customer and how to say goodbye and still have the customer have a positive perception of you and your company. These are lessons that needs to be taught.


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