By 2025, 75% of companies will “break up” with poor-fit customers as the cost of retaining them eclipses good-fit customer acquisition costs, according to Gartner, Inc. When “breaking up” with a poor-fit customer, organizations proactively end the relationship on their own terms rather than waiting for the customer to end the relationship.
This shift will expose silos among customer-facing functions, as a customer breakup strategy must be developed cross-functionally, and force leaders in sales, marketing, customer service and customer experience (CX) to collaboratively execute a common customer-facing strategy.
“Business leaders are starting to recognize how costly keeping a poor-fit customer can be for business, such as overcustomization, custom-made solutions and outsize time spent on servicing,” said Neha Ahuja, director, team manager in the Gartner Marketing practice. “Combine that with costs associated with emotional damage that leads to attrition among customer service reps and sellers, which are two talent pools already under pressure. Long-term profit erosion must also be kept top-of-mind, as investments in poor-fit customers may boost revenue in the short run, but compromise profitability in the long run.”
Gartner research shows that all functions must agree on a common set of attributes that define a poor-fit customer and then determine how each of those attributes would appear in related functions. Functional leaders must adjust their teams’ processes to deselect poor-fit customers. For example, customer service and support leaders will need to rethink their routing and queuing processes and ensure reps don’t give preferential treatment to poor-fit customers. Marketing teams will need to adjust their advertising strategies to deliberately deprioritize customers who are not a good long-term fit for the organization, instead of repeatedly marketing to every existing customer.
“Organizations will need a consistent data analysis strategy to capture and align customer data across different silos. This analysis strategy will be critical for predicting poor-fit customers,” said Emily Potosky, senior principal, research in the Gartner Customer Service & Support practice. “While future potential is critical, organizations cannot overlook how poor-fit customers impact the bottom line in different ways: emotional toll on employees, brand and credibility risks, and misallocation of resources. Once a ‘fit’ measure is established, organizations will need to determine a threshold beyond which to break up with a customer that makes financial sense for the organization.”
As organizations explore breaking up with this customer segment, Gartner recommends the following to align across teams:
–Create a customer-fit score to inform actions to take with a customer, such as deciding to further grow the relationship, maintain the relationship or break up with the customer.
–Work closely with the CFO and the CFO’s team to ensure the organization’s ability to adequately grow business with, and acquire, good-fit customers to compensate for the loss of revenue from poor-fit customers.
–Adjust organizational KPIs, including employee incentives, to include customer breakups along with growth targets.
–Communicate the breakup strategy to the board and investors to ensure they understand that any reduction in overall retention is intentional, and done to improve the company’s growth.
–Revise retention targets to center on the percentage of good-fit customers retained, not overall customers retained.