Dealing with Bad Customers

[w¡n9Nµ7 §£@¥€r 123]

After her client brought a different woman to every appointment to look at vacation homes in the Hamptons, a light went off for Diane Saatchi. "After about six different women, it was clear that he was using house hunting as a way to impress the women," said Saatchi, a senior vice president with The Corcoran Group. "He had no intention buying."

She quickly dropped the client.

But aren't "customers always right"? Maybe so, but just because they're right doesn't mean there aren't bad ones that drain resources. They also have an opportunity cost. That is, a business has less time to focus on top customers. Bad customers often demoralize employees because of their complaints and excessive demands. Moreover, they are often the source of negative word-of-mouth.

So, how do you deal with bad customers? Here are a few tips:

For many years, thousands of AOL customers took advantage of free trials and then free months from the Internet service provider, now a unit of Time Warner. Obviously, these customers were consistently unprofitable for the firm.

Dennis E. Gonier, former executive vice president of member retention at America Online, asked the acquisition department a simple question: "Why do we continue to mail these people even though we know they have no intention of paying us?"

The answer: "It’s our best list."

Gonier attacked the problem and, as a result, the portion of "free riding" fell from 30% to less than 8%. "When we confronted these freeloaders, their response was usually, 'Well, your product sucks anyway'," he said. "It's funny how it [the free service] was worth the cheating for years. The point is we knew these folks would not talk favorably about AOL from that moment on. That's a bad customer."

So how can you spot a bad customer? Gonier has some suggestions:

--The customer is acquired through the least expensive method or needed a high promotional inducement. The "least expensive" method suggests they sought you--and that is often too good to be true. The promotional inducement suggests sensitivity to price or incentive, which is not good for long-term loyalty.

--The customer has high "service costs" or contacts the company above average.

--The customer exhibits switching behavior (now or in the past) in your product or service sector or in similar sectors.

--A definite signal you have a bad customer: All contact is through their attorney.

Fred Reichheld, customer loyalty expert and author of The Ultimate Question: Driving Good Profits and True Growth, says when companies disappoint their customers, they become detractors.

"Our research has shown that from 25% to 50% of customers are detractors at typical firms today. This enormous unmeasured liability is throttling corporate growth," he said.

Reichheld considers the best way to determine the extent of this problem is to ask customers "the ultimate question": On a scale from zero to ten, how likely would you be to recommend us to a friend?

Detractors score 0-6. "By identifying them, it is possible to probe for root causes and solutions," said Reichheld. "When there is no economically rational solution, then the best alternative is to help those customers find a better supplier for their needs."

Take HomeBanc, a regional mortgage banker based in Atlanta, Ga. The company offers a refund without any conditions. The result: The policy identifies bad customers and also teaches salespeople how to avoid such customers. "Home Banc returns fees to less than one half of 1% of customers," said Reichheld. "But the closed loop feedback creates far more value for the firm and minimizes the number of 'bad customers.'"

Keeping Demanding Customers

HR Staffing Solutions is a small contract employment firm that also has top clients such as Computer Sciences, TMP Worldwide, a unit of Monster Worldwide and Lucent Technologies.

Large or small, customers can be demanding. Such was the case when a client called at 11 A.M. and wanted 20 cable installers by the next morning.

"In this industry, no matter how you slice it, there will be a 10%-20% no-show rate within this labor category," said Graham Atkinson, a principal at HR Staffing Solutions. "To prevent this demanding customer from turning into a bad customer, we had to end their fixation on 20 installers. It took brain and brawn, but we got them to finally commit to 25 techs. Thinking that we were out to up our billings, the customer bucked but finally acquiesced."

Volvo Rents, a construction and industrial equipment rental firm, knows the profile of its target customer and works with a granular list of customers it wants to acquire. About 15% to 20% of Volvo Rents' customers generate about 80% of total revenue. Such customers rent ten to 20 times per year and are willing to pay a premium for the service.

"We proactively go after good customers, which is the best defense against the bad guys," said Nick Mavrick, vice president of global strategy and marketing. "We avoid the 'victim approach' to spray and pray marketing that many take and later lament when they have acquired disloyal customers who want the moon but are unwilling to pay for it. We have designed all of our systems and processes around the best customers as opposed to penalizing best customers by making rules around the non-loyal customers."

http://www.forbes.com/2006/02/22/customers...htup_print.html

[Fandango 1,439]

I always have to judge which customers are worth pursuing. As I'm self-employed, it's vital to my livelihood.

The other day, I was running late, which is a complete rarity btw. I was on 'floor' which means I handle the phones/customers (with the aid of a receptionist as well) for 2 hours. All those leads during that time are mine to pursue.

Well, as I said, I was late. Supposedly, a once-in-a-lifetime thing happened. A man came in saying he wanted to list his house. Now, a listing doesn't usually fall into your lap like that - especially considering the market last summer. Anyways, I had someone covering me (which means that person wouldve gotten the lead), and my cover was on the phone with another customer. He asked the man to have a seat & told him he'd be right with him.

The man was very annoyed.....he stuck around for like 15 seconds, then left.

Now, I could kick myself that I was late & missed a good opportunity. But then I asked myself how I would I want to work with someone so demanding/unyielding/etc.

In other words, I'm not too bothered....it's prolly for the best.

[Fuzzness 2]

I've always wanted my own business so that I could tell bad customers to go f### themselves.

[ChristinaM 0]

I find that a significant of my time is taken up by existing, demanding clients. They're a pain in the butt, but they keep our bread and butter money coming in.

[Mr. Big Dog 10,747]

We have tons of bad customers - sometimes it sems that's all we have. Our sales people will do anything to get the sale. And I mean ANYTHING. Simply because their commission is paid no matter how much maintenance a customer is and how much money the company actually makes (or loses) on any of them. I always say that we seem to be the garbage collectors picking up anything and anyone that the competition doesn't want to touch or actually kicked out. It's hard to make people in the organization see that. Hope that my new boss will help in that effort - so far it looks that way.

[ChristinaM 0]

You can't call someone a money-grubbing salesperson who does whatever it takes to get the sale and can't distinguish the good customers from the bad when the company gives them a quota to meet. Salespeople have to pay the rent too, and we get our own sh!t back soon enough

[Mr. Big Dog 10,747]

You can't call someone a money-grubbing salesperson who does whatever it takes to get the sale and can't distinguish the good customers from the bad when the company gives them a quota to meet. Salespeople have to pay the rent too, and we get our own sh!t back soon enough

I didn't say it's the sales person's fault. I know why they do what they do. I'd do the same if I was in their shoes facing the same setup. It's the way their compensation is set up that causes the problems. There is no incentive for a sales person to even consider that the "business" they bring in will really turn a profit. That's asking for trouble...

[ChristinaM 0]

It depends how the internal structure is sometimes - I'm an Account Exec rather than just a "salesperson", so I get to deal with the sh!t my customers drop on the company. If you just sell and then pass it on to a service department, there's no reason to even think about who you're selling to. Then it's just a numbers game.

It's actually a bone of contention at the place I work - the admin staff don't like the freedom that we have as sales staff to come and go, be out of the office a lot. On the flip side, they don't see us get up at 5:30am to find the clients, they're not the ones grovelling when something goes wrong and they're not the ones working the 50/60 hour weeks just so that they can pay their rent at the end of the month.

There comes a point with some customers where you just have to say "enough is enough", but it depends who has to deal with it where that point comes often!!

[meauxna 15]

Darn.

I was hoping that the 12 guage was going to be an option....

[Mr. Big Dog 10,747]

Darn.

I was hoping that the 12 guage was going to be an option....

It would be guided missiles for me. 12 gauge doesn't reach far enough nor causes it enough destruction...

Edited March 2, 2006 by ET-US2004

[Hilarious Clinton 452]

For many years, thousands of AOL customers took advantage of free trials and then free months from the Internet service provider, now a unit of Time Warner. Obviously, these customers were consistently unprofitable for the firm.

Dennis E. Gonier, former executive vice president of member retention at America Online, asked the acquisition department a simple question: "Why do we continue to mail these people even though we know they have no intention of paying us?"

The answer: "It’s our best list."

Gonier attacked the problem and, as a result, the portion of "free riding" fell from 30% to less than 8%. "When we confronted these freeloaders, their response was usually, 'Well, your product sucks anyway'," he said. "It's funny how it [the free service] was worth the cheating for years. The point is we knew these folks would not talk favorably about AOL from that moment on. That's a bad customer."

AOL would still suck even if they paid ME $25 a month. Nevermind free.