CSD: Are Customers Always Right?
Through a special arrangement, presented here for discussion is a summary of an article from Convenience Store Decisions magazine.
As anyone even remotely associated with the service industry will tell you, the customer is king. But a new book is challenging that theory and takes a critical look at the true value of disgruntled customers.
For example, in a retail setting, the squeaky wheel almost always winds up getting the grease. They get discounts or free merchandise outright, not to mention calls from executives looking to smooth a tense situation in hopes of protecting the brand’s good image. There is a lot of merit in this strategy, especially in this era of social media where one remark on Twitter or Facebook could tarnish an otherwise pristine brand image.
"No one likes hearing a complaint, so when a customer complains, a business quickly and resoundingly rectifies the complaint," said Betsy Kruger, marketing consultant and author of Top Market Strategy: Applying the 80/20 Rule.
The problem with this strategy is that disgruntled customers bring in less profit than loyal customers.
"It’s wrong to reward complainers," Ms. Kruger said. "You should reward loyal customers since they reward your business with higher profit."
A retailer, Ms. Kruger said, can profit from the 80/20 rule by enacting these steps:
- Distinguish your top customers. Identify ways the top 20 percent of your customers differ from other customers and what characteristics they have in common.
- Target your top customers. Gratify your top customers with a top market strategy. Discontinue marketing to the bottom 80 percent of your customers by automating all interactions with that group.
- Promote to top prospects. Focus resources on converting similar prospects into top customers. When you replace your less profitable customers with these new customers, you can expect your total profit from customers to quadruple.
"The top 20 percent of your customers magnifies your profit, whereas the bottom 20 percent of your customers magnifies your complaints," Ms. Kruger said.
Discussion Questions: Are retailers overreacting to disgruntled customers? How should stores handle high-maintenance shoppers?