The Right Way to Manage

Unprofitable Customers
1. Priya, a young IT entrepreneur, travels across India frequently for business meetings. She uses

services of Galileo Travel Port, a travel commerce platform which provides ticketing and other

value-added services on a commission basis. Given her busy schedule and clients’ indecisiveness,

Priya mostly makes last minute travel decisions, many of which still gets rescheduled or cancelled.

As she has been a long-term user of Galileo Travel Port services, she has mastered how to extract

best value from the portal, and often manages to bend some of the soft rules the company has. For

example, she mostly manages to get free premium seat upgrade (in case of vacant seats), free meal on

board, minimum cancellation charges, priority check-in etc. Moreover, she regularly calls priority

customer care support personnel at the last minute, for relentless modifications. For the company, all

this adds up to cost of servicing, and often reduces the profit margins drastically.
 • However, Galileo Travel Port being new player in the competitive Indian market, had strategically

positioned itself as a highly customer friendly company, and has mission “to serve customer needs

delightfully.” Being in service industry, the leadership at Galileo Travel Port well realizes that the way to

success for them is to provide unmatched customer experience and service. The company has grown

aggressively, and so has its different customer segments. Nevertheless, the proportion of customers like

Priya has also grown, pressuring Galileo Travel Port to reassess its customer service offerings. You have

been hired by the company as consultant and need to help Galileo Travel Port by giving an appropriate

solution.

• Frame a strategy to manage customers like Priya? Clearly state what steps can Galileo Travel Port and

how would it help the company. (20 marks)

 “A customer who calls you
everyday is less profitable than
those who pays on time and never
calls you.”
Some Popular Strategies to Check the
Unprofitable Customers
• Minimum balance charge by banks
• High insurance premium to aged customer groups
• High re-connect fees
• High late payment charges
• Deciding the threshold limits
 Why (Think to) Divest?
Profitability
• Customers those who return / exchange a lot
• Customers those who complain a lot
• Customer who damage the products (rental business)
• Low CLV, CUV, and CLVROI
• Poor Credit History
• High Maintenance charges
Increase Employee Productivity and Morale
• Unduly Rude and habitually Obnoxious Customers
• NH Restaurant Example
• If not addressed, employee attrition rate will increase. Issue is bigger in B2B industry.
 Why (Think to) Divest?
Capacity Constraints
• Some companies lack the appropriate resources to continue providing a service.
• E.g. companies planning to foray into B2B service may let off their B2C customers,
and vice-versa.
• Tax consultation service example.
Change in Management Strategy
Is it Always Profitable to Divest the
Unprofitable Customers?
• May loose out on valuable source of information, experimentation,
and innovation.
• Remaining customers may become concerned and vulnerable.
• Adverse impact on corporate reputation
• Employee dis-satisfaction especially frontline staffs.
• Ethical and legal dilemmas
• Essential services e.g. Stopping utility services due to non-payment
The Link Between Customer Satisfaction, Customer
Loyalty, and Profitability

Current
Current
 Easier to convince
Satisfied
Satisfied
Customers
Customers
 Resistant to competitor’s
blandishments
Lower
Costs

Profits
Profits

Source: Professor Sundar Bharadwaj, Emory University

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The Link Between Customer Satisfaction,
Customer Loyalty, and Profitability
Current
Current
Satisfied
Satisfied
Customers
Customers Word of Mouth/
Reputation

 Higher price

 Buy more

New Competitor’s
Customers Customers
Adoption
Switching

Higher
HigherShare,
Share,
Revenues,
Revenues
Profits
Profits
and
andHigher
HigherPrices
Prices
Source: Professor Sundar Bharadwaj, Emory University
13
The Link Between Customer Satisfaction,
Customer Loyalty, and Profitability
Current
Current
 Easier to convince
Satisfied
Satisfied
Customers
Customers Word of Mouth/
 Resistant to competitor’s Reputation
blandishments
 Higher price
Lower
 Buy more
Costs

New Competitor’s
Customers Customers
Adoption
Switching

Higher
HigherShare,
Share,
Revenues,
Revenues
Profits
Profits
and
andHigher
HigherPrices
Prices
Source: Professor Sundar Bharadwaj, Emory University
14
 The Link Between Customer Expectations,
Firm’s Performance, and Satisfaction
Past Performance/
Quality

Expectations

Needs, Values, and

Satisfaction with Past Negative
Performance Disconfirmation

Satisfaction

Positive
Disconfirmation

Perceived
Performance/
Quality

Disconfirmation = Performance — Expectations

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How Does Satisfaction Change Over Time?
Change in
Satisfaction

Perf = Exp

x p
Perf > E
Performance —
Perf < Exp
Expectations

s
ain
tha om
ng
ger s l o
lar Losse

16
What Is the Impact of Customer Loyalty on
Loss Aversion?
Change in
Satisfaction

Perf = Exp

x p
Perf > E
Performance —
Perf < Exp
Expectations

s
ain
tha om
ng
ger s l o
lar Losse

17
What Is the Impact of Customer Loyalty on
Loss Aversion?
Change in
Satisfaction

Perf = Exp

x p
Perf > E
Performance —
Perf < Exp
Expectations

s
ain
tha om
ng
ger s l o
Loyalty should reduce the
lar Losse

asymmetry

18
 What’s Wrong with a Focus on
Satisfaction?
• Satisfaction
• How well did I do in the past?
• Objective: I want you to come back and buy more
• Assumption: A satisfied customer will come back
• Management Approach: Increase satisfaction and you increase
profits
• Reality: It does not happen all the time.
• The relationship between satisfaction and coming back is strong and
true only at the highest level of satisfaction

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Is It All About Getting Customers Back?
• Firms try to BUY satisfaction
• Let me give you a great deal — are you happy now?
• I will do this for you if you tell me (and my boss) that you are happy
• I know the product is not good. How can I make you satisfied?
• Satisfaction goes up — Customers don’t come back

• What firms need to do is BUILD satisfaction

• Satisfaction goes up — Customers come back and buy more
• In the face of competition
• YOU MAKE MORE MONEY

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 Customer Loyalty

LOYALTY is BUILT by the FIRM,

OWNED by the CUSTOMER,
ERODED by TIME, the ENVIRONMENT, and the
COMPETITION

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How Does Satisfaction Affect Loyalty?

Loyalty

1 2 3 4 5
Satisfaction Rating
22
How Well Do Satisfaction Measures
Predict Defection?
Brittle
Relationship

Satisfaction

Soft
Relationship

Time

23
 Step 1: Reassess the Present Customer
Relationships
Thoroughly review the historical buyer-seller relationship beyond
profitability.
Try to answer following:
• Has the customer needs changed or different?
• Has the company focus changed or different?
• Is the change in buyer-seller equilibrium is natural or market-driven or due to
lack of coordination?
• Has the customer been provided with suitable product / service to optimize the
positive disconfirmation?
• Does the company have the resources to fulfil the client requirement?
• What is CLV, CUV, and CLVROI of the buyer / segment?
• What the options that can be offered to meet the customer’s requirements?
 Step 2: Educate the Customers
Customers who deemed to be unprofitable – may not be fully aware
of full range of offerings.
Try to answer following:
• Has the customer been informed about the SOP of the product usage and
relevant support links?
• Has the product demonstration or training sessions for the customers
arranged to mitigate the product failure possibilities?
• Has the customer been informed about the downgrade and upgrade options
available to customers?
• What the steps company has taken to meet the customer requirement
profitably?
 Step 3: Renegotiate the Value Propositions
Engage with the customers to discuss about the ongoing business
relationships and how this relationships can be taken further.
Communicate the client about the ongoing business scenario and how it
can affect the existing negotiated value propositions and trade
relationships.
Aim to fill the knowledge gap between your capabilities / resources and
your clients.
Try to answer following:
• Has the final price offered to customer include secondary and tertiary benefits
being availed by the customers?
• How much add-on prices should be charged for additional services being offered
or to be offered?
• What are the possible downgrade / upgrade options are available?
• What will be aftermath impact of revised terms on CLV, CUV, and CLVROI?
 Step 4: Migrate the Customers
This should exercise only when step 1 to step 3 been repeatedly
exercised, and exhausted.
Study the impact on your business performance with and without
the existing customer / segment?
Study the competitive impact of migrating the customers to the
competitors.
Try to answer following:
• Is the customer himself willing to move (Hostage vs Defector)?
• Should migrate to competitor or consider partnership with relevant firm(s)?
• What would be the monetary and non-monetary cost of migrating the
customers?
• Who should be given charge of migration process?
 Step 5: Terminate the Customer Relationships
This should be considered minimally, as the last resort.
ONLY WHEN COST OF ON-BOARDING CUSTOMER MAY
HAVE STARTEGIC IMPACT ON ACHIEVING TOP-LEVEL
MANAGEMENT GOALS.
As far as possible, this option should be communicated to the
customer through personal communications.
Decide the timeline and process of termination.
Media response should be analyzed and suitably responded.
Do not terminate the customers for short-term profitability reasons.
Take the employees (especially front-line staff) into confidence
before such considerations are being made.
Questions and Other Inputs?