Gartner Urges Strategically Severing Ties with Poor-Fit Customers
By 2025, 75 percent of companies will sever ties with poor-fit customers as the cost of retaining them eclipses good-fit customer acquisition costs, Gartner noted in a new report.
"Business leaders are starting to recognize how costly keeping a poor-fit customer can be for business, such as overcustomization, custom-made solutions, and outsize time spent on servicing," said Neha Ahuja, director, team manager in the Gartner Marketing practice. "Combine that with costs associated with emotional damage that leads to attrition among customer service reps and sellers, which are two talent pools already under pressure. Long-term profit erosion must also be kept top-of-mind, as investments in poor-fit customers may boost revenue in the short run but compromise profitability in the long run."
When breaking up with poor-fit customers, organizations proactively end the relationship on their own terms rather than waiting for customers to end the relationship. But, doing so must be a cross-functional effort, according to Gartner, which warned that such efforts could expose organizational silos.
Gartner research shows that all functions must agree on a common set of attributes that define a poor-fit customer and then determine how each of those attributes would appear in related functions. Functional leaders must adjust their teams' processes to deselect poor-fit customers. This could mean that customer service and support teams will need to reconfigure their routing and queuing processes to ensure reps don't give preferential treatment to poor-fit customers. Marketing teams will need to adjust their advertising strategies to deliberately deprioritize customers who are not a good long-term fit for the organization instead of repeatedly marketing to every existing customer.
As organizations explore breaking up with poor-fit customers, Gartner recommends the following:
- Create a customer-fit score to inform actions to take with a customer, such as deciding to further grow the relationship, maintain the relationship, or break up with the customer.
- Work closely with financial teams to ensure the business can grow business with and acquire good-fit customers to compensate for the loss of revenue from poor-fit customers.
- Adjust organizational metrics, including employee incentives, to include customer breakups along with growth targets.
- Communicate the breakup strategy to the board and investors to ensure they understand that any reduction in overall retention is intentional, and done to improve the company's growth.
- Revise retention targets to center on the percentage of good-fit customers retained, not overall customers retained.
"Organizations will need a consistent data analysis strategy to capture and align customer data across different silos. This analysis strategy will be critical for predicting poor-fit customers," said Emily Potosky, senior principal, research in the Gartner Customer Service & Support practice. "While future potential is critical, organizations cannot overlook how poor-fit customers impact the bottom line in different ways: emotional toll on employees, brand and credibility risks, and misallocation of resources. Once a fit measure is established, organizations will need to determine a threshold beyond which to break up with a customer that makes financial sense for the organization."