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When is the Customer Wrong?
Identifying valuable customers using CRM solutions is key, because it allows retailers to target them with increased service levels, this generating more revenue.
Posted Jul 16, 2003
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When is it good business to stop doing business with certain customers? When it is becomes unprofitable, according to CRM industry-watchers. Earlier this week The Boston Globe published a report about two sisters that have been banned from shopping at Filene's Basement due to their chronic customer service complaints and excessive returning of merchandise. The sisters, residents of Newton, MA, claim they have been loyal customers of the chain's off-price stores for decades and are stunned about receiving a sharply worded letter in May that specified that they are never to set foot in any of the retailer's 21 outlets again. According to the published report, the ban, which was handed down by Filene's corporate parent, Value City Department Stores, of Columbus, OH, says, ''Given your history of excessive returns and your chronic unhappiness with our services, we have decided that this is the best way to avoid any future problems with you and your sister,'' wrote David E. Sherer, vice president of loss prevention. James McGrady, the CFO at Value City, acknowledged the two sisters had purchased many items at Filene's stores, but he also said they had returned ''an incredible amount.'' According to the published report, McGrady declined to provide more specific details, but said the time spent handling returns and the chronic complaining of the two sisters took a toll on sales associates. The sisters acknowledge having made returns over the years, and sometimes having made complaints about service. They also say there were recent run-ins with a few managers, but claim the accusations contained in the letter banning them from Filene's are totally unfounded. In fact, the sisters are currently looking for a lawyer to represent them in negotiations with the company, the newspaper story states. Denis Pombriant, vice president and managing director of CRM for Boston-based market researcher Aberdeen Group, says that it is not that uncommon for businesses, which are considered private property, to send letters of disinvite to customers. "It happens more than you might think, but retailers don't usually talk about it," Pombriant says. "Retailers will usually bend over backwards to offer good service. Now CRM is making it possible for retailers to see which customers are not profitable. If those nonprofitable customers are treating stores like their own personal wardrobe--buying items wearing them once and returning them--then stores might be right to ban them. There are many people who do this for sport."
Identifying valuable customers using CRM solutions is key, because it allows retailers to target them with increased service levels, thus generating more revenue. Identification allows retailers to target those customers for specific direct mail and email campaigns, interacting with customers in ways that will reward their spending. Still, Pombriant says it's not likely there will be an increase in evicting customers of retail establishments. "Banks don't refuse deposits," he says. "But increasingly CRM lets them identify their best customers and offer them an increased level of service. Then less profitable customers are charged for services. Banks don't just stop doing business with you." Dianne Durkin, president of the Loyalty Factor, a Newcastle, NH, training and consulting firm, says that businesses need to acknowledge that there are situations in which you cannot make the customer happy, you are being taking advantage of, and it's no longer in your interest to have this person as a customer. Durkin, who says most businesses go by the 80/20 rule (whereby 80 percent of business typically comes from 20 percent of customers), need to make hard decisions on whether to keep nonprofitable customers or find ways to increase customers' profitability. "It's a hard decision to evict a customer, but each company must have criteria for determining who it will do business with and whether or not it is willing to take a loss to deal with customers who do not meet the criteria."
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