Most likely, you have heard before that organisations should treat high and low value customers differently. I, for one, recommend that on a regular basis! Today, though, I am doing the opposite – this article is about the reasons to treat all customers the same.
We are all different. We all like to feel special.
As customers, we all have different needs. We also differ in the value that we generate for organisations.
Some of us generate revenues well above the costs of providing the products we buy. We may even be feverous advocates for the brand, engage in co-creation and forgive the odd mistake.
Others generate a net loss for the firm because we always choose the high cost channels and buy the low margin product – you know, the type of customer who always uses the bank’s branch, only keeps a current account and never gets tempted by the firms’ attempts at cross or up selling.
Others, still, are outright disruptive. They make unreasonable complaints, they are rude to staff, they ‘deshop’… and these are just a few of the numerous types of customer misbehaviour that cost firms billions of pounds per year. [PS – notice how I changed from ‘we’ to ‘they’ there??? 😉 ]
It is because of such differences in customers’ value that the relationship marketing literature recommends that managers concentrate marketing resources on promoting the valuable customers, demoting less valuable ones and terminating disruptive relationships. This principle is not only widely accepted among academics and practitioners, it is deemed to be essential for the long-term survival of firms in today’s hypercompetitive environment.
In today’s society, where there is so much data about our customers, and it is possible to reach out to them through so many channels, this proposition becomes even more relevant, right?
At times, it is not advisable to treat high and low value customers differently – a practice called ‘customer prioritisation’.
The downsides of customer prioritisation
1. High dependency – prioritising high-value customers means that the organisation’s profits may become dependent on a very small number of customer accounts. This presents a risk for the firm.
1. Economies of scale – developing differentiated offers for targeted customers may result in the loss of economies of scale and increased complexity. This may undermine the profitability of said customer promotion initiatives.
1. Perceptions of unfairness – as some customers become aware that they received an offer different from that received by others, they may feel that they have been treated unfavourably (even if they were initially pleased with the offer). Knowing that other customers received different offers is even more likely to happen, today, amid all the updates, shares and blog posts. Dissatisfied customers may opt out of the relationship or spread negative word of mouth.
1. Profiling errors – customer profiling may be a widespread activity, but it is not devoid of challenges and, let’s face it, costly mistakes. The attributes that might be a warning sign about bad customer behaviour may mean exactly the opposite when looked at from a different perspective, or the short vs. the long term. Moreover, profiling models are often developed from historical data and, thus, have limited predictive power.
1. Technical and legal barriers – demoting customers or terminating undesirable relationships may look like a good idea on paper but, in practice, it may be difficult to implement. For instance, there may be contracts that need to be honoured, sometimes involving third parties; legal requirements to provide services to certain segments of the population; or bad publicity if the organisation is perceived as acting in a discriminatory manner.
The bottom line is that customisation is expensive. Hence, in some circumstances, it may be better for organisations to go against the grain and simply treat all customers the same. At least until the organisation finds a way of dealing with the downsides of customer prioritisation.
Having said that, my experience is that marketers resist this message. They find it counter-intuitive.
What about you? What are your experiences – on either side of the fence?