Turning Unprofitable Customers into Profitable Relationships

Earlier this month, I was part of a team that hosted a Customer Experience Innovation Workshop for a group of business executives from large corporations in Palo Alto. The workshop zeroed in on the practices and techniques that monetize customer experience. Participants agreed that companies need to be as targeted—or even surgical—in their approach as possible. Otherwise, customer experience management cannot reach its business potential and instead will drop off as the latest corporate fad. Discussions revolved around how to establish a profitable relationship with the problem child of the customer segments: the frequent and unprofitable customer.

This customer is a major concern. Every call into the call center (or other type of interaction) costs companies money. Some companies say each call center call costs in excess of three dollars. The dollars add up quickly. If the profit generated by the customer does not outpace how much it costs to interact with that customer, or if such customers only purchase when motivated by deep discounts, something needs to be done. There are two basic options with customers like this: You can fire them (pretty much guaranteeing you will never have a profitable relationship with them), or you can attempt to move them up the customer value chain.

One thing is certain—these customers know how to pay full price when they see the value of what they are getting. These are the same customers who spend $100 for a bottle of fine champagne for a special occasion or sleep in line in front of the Apple store to buy the latest iPhone at full price. They just don't see value in what you are providing!

How do you move this type of customer up the value chain? Participants at our workshop agreed that if you take a deeper dive into understanding what kind of experience your customer wants and needs from you, you can add services or other special touches that will make the whole experience invaluable. If you can get that right, all agreed, the customer will be, if not completely immune to price, at least not in a mood to comparison shop.

A great example is Moishe's Moving and Storage company. To avoid being commoditized, the New York-based company listened to what customers valued most and used the customer input to change its business. Moishe's transformed itself, branching out from a moving company to a wine storage company and finally into Mana Contemporary, the largest art center in Jersey City, New Jersey. Anybody can move my boxes and store my old books and papers—but who do I trust with my best bottles of wine or a piece of art that I inherited from my grandparents? Suddenly price is less important!

The key is to look at your business as a provider of solutions or complete experiences, rather than just as a vendor. Take, for example, a flower shop, a market highly subject to comparison shopping and price sensitivity. Let's say the flower shop gets a call from someone who says he needs same-day shipping on a nice bouquet for his wife. The customer says it is very important that the flowers are delivered that day, because yesterday was his wedding anniversary, a fact that he had overlooked.

At this moment, the florist has an opportunity. The customer needs more than flowers, he needs redemption. If the florist can somehow be the agent of that redemption, this customer will come back for life. So, sizing up the situation, let's say the person taking the order offers to send a note apologizing to the wife for the florist's mistake in sending the flowers a day late. It's a bit of subterfuge, to be sure, but one that could lead to the customer's undying gratitude. There is little more valuable than spousal forgiveness. This customer is likely to stick with this florist at least as long as he has anniversaries.

A common mistake that companies make is viewing themselves as providers of a commodity product, as opposed to purveyors of a full, rich experience. Take the B2B example of a company that sells stents used in heart surgeries.

This company might view itself as just another player in an overcrowded, if important, market. But peeling back the layers, we discover that this company has an unsurpassed record of speed and reliability in order delivery. This is a critical element of the experience it provides. Emphasizing its delivery speed and reliability, this company can now tout itself as a life-saver, as opposed to a humdrum commodity provider. It helps its customers (surgeons) provide life-saving procedures. As value propositions go, "life" is even more powerful than marital forgiveness.

Companies often get so wrapped up in the day-to-day activities of business they somehow lose sight of their own value, seeing themselves as no more than a commodity. Exiting the commodity trap means adding value in the form of services or additions that boost your offering from product to savior. It is not always possible to be a life-saver, marital or otherwise, but by understanding exactly where your customers are coming from, you have a much better chance of filling in the gaps and increasing value to them. And if you can do that, they will increase their value to your organization.

Reza Soudagar is the coauthor of The Customer Experience Edge and senior director of SAP's CRM Solution Marketing.

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