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. Customers tend to be rewarded for complaining. 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.
But this strategy could also be leaving money on the table, according to marketing consultant Betsy Kruger.
“No one likes hearing a complaint, so when a customer complains, a business quickly and resoundingly rectifies the complaint,” said Kruger, 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. Your business should focus on gratifying your most profitable customers.”
Contrary to popular opinion, the customer is not always right, Kruger contends. This is an interesting premise that differs wildly from operators in the convenience store industry have been preaching for decades.
“It’s wrong to reward complainers,” Kruger said. “You should reward loyal customers since they reward your business with higher profit. You should value their business since loyal customers value your business.”
Kruger says the 80/20 rule governs all results, including profits from customers.“When you sort customers by their profitability, this universal law predicts that the top 20% of your customers will generate 80% of your profit. Conversely, the bottom 80% of your
customers will generate only 20% of your profit—and virtually all of your complaints. This means you should target the top 20% with a top market strategy.”
Your business, Kruger said, can profit from the 80/20 rule by enacting these steps:
• Distinguish your top customers. Identify ways the top 20% of your customers differ from other customers and what characteristics they have in common. Realize that your top customers are highly profitable.
• Target your top customers. Gratify your top customers with a top market strategy. Discontinue marketing to the bottom 80% 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.
“You may feel it’s rude to consider some customers as less valuable than others, but research proves it’s true,” Kruger said. “The top 20% of your customers magnifies your profit, whereas the bottom 20% of your customers magnifies your complaints. I feel it’s rude to reward complainers since loyal customers deserve to be rewarded. When you prioritize your customers with the 80/20 rule, you are prioritizing your profit.”
So what do you think? Is this a strategy that can work for convenience store retailers as we begin 2012? Or is the risk too great with numerous social media platforms often right at your customers’—any customer’s—fingertips? You can email your opinion to me at [email protected].