Should profitable customers be the top priority for our customer service efforts?

Should profitable customers be the top priority for our customer service efforts?

Do you recommend focusing customer service efforts on only the most profitable customers? How does this affect customer equity?

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That is a very loaded question. And the reason it is is because we have to think very carefully about how we define the most profitable customers. If we're thinking of those most profitable customers as the people that are the most profitable to us in this moment, then we might lose some real opportunities to build the value of the company by looking at a customer who may not be profitable today, but will almost certainly be valuable tomorrow. So we think it is important to understand not only who the most valuable customers are, but also who the most "growable" customers are. Who are the ones who will never be huge, but will be solid and loyal to us if we give them a chance?

And we need to know who the below-zero customers are, the customers who are actually costing us money, which really means that they are costing the best customers money. And when we don't get rid of them, we are really asking our best customers to subsidize them.

So when we look at whether or not we recommend focusing customer service only on the best customers, what we really need to ask is what the cost of that customer service is? If we're talking about Web banking, or a Web retail site, then it turns out it is really not more expensive to serve the least valuable customers than it is to service the most valuable customers, because the electronic cost is fairly low. On the other hand, if we're talking about special, high-touch kind of expensive things, then it probably makes the most sense to lavish our resources on the places where we are going to see the greatest return for our company and shareholders. In many cases that will mean those customers who are the most valuable to us today, who are keeping us in business, and those who --while they may not be today -- certainly could be tomorrow, if we can identify them and make sure we are treating them very well.

So that's how we create customer equity -- in every given day a customer is becoming more or less valuable to us, whether we know it or not or do anything about it or not. And our goal is to make sure that we do know about it, that we do understand it, and that every day we are increasing the opportunities for customers to become more valuable to us, to be more likely to recommend us to their friends, to come back and do more business with us in the future. So taking the customer who is of medium value and making him of a little more value is a worthwhile thing to do. Taking a customer who is very valuable and keeping him that way is likewise a very valuable thing to do. Doing what Sprint did and taking the bottom 1,000 customers of your 53 million and cutting them loose so they can go find "telecom nirvana" with the competitor is also a very valuable thing to do. It will provide more resources for the company to serve the most valuable customers the best.

Hear more in Creating Customer Value, a SearchCRM.com monthly podcast series with Peppers and Rogers.

This was first published in July 2007