Following up on my last post, 7 Signs It's Time to Drop a Client, the latest issue of Harvard Business Review has an in-depth report on the practice of "customer divestment", entitled The Right Way to Manage Unprofitable Customers. The full article requires an HBR subscription, but there's a summary at BNET.
While the authors recognize that there may be situations in which customer divestment is the best course of action, they see it as a last resort, and recommend a five-step process to try to salvage the relationship first, and to gracefully exist if it can't be saved:
- Reassess the relationship. Why has the customer become a problem? And is there other value in the relationship besides just immediate profitability?
- Educate customers. Can you retrain your customers to use lower-cost support options? Or perhaps they're unaware of your additional offerings that they might consider purchasing.
- Renegotiate your value proposition. Can you create a pricing and service strategy that meets the client's needs while maintaining profitability? They may be willing to pay for that extra service they're demanding.
- Migrate customers. Can you switch the client to a different distribution or support channel? A partner company? Perhaps a new payment plan?
- Divest as a last resort. But do so in ways that minimize potential negative fallout. For example:
- With B2B clients, communicate your decision to divest months before a contract-renewal date comes up. Explain your reasoning in person, and help clients recognize that termination may be mutually beneficial.
- With B2C customers, provide advance notice in person or by a human voice rather than by an after-the-fact email message or letter. Also, focus your explanation on external factors (such as mounting competitive pressure to change your strategy) rather than simply a desire to increase profits.
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