How to Deal with Unprofitable Customers Using Data Driven Marketing
Data driven marketing can help you deal with unprofitable customers. Some businesses talk about “firing” their unprofitable customers. They may choose to raise prices or reduce service levels to drive these customers either into profitable territory or drive them away altogether. This is a somewhat risky strategy.
Bad publicity is one potential negative consequence. But another is cutting off a potential future revenue stream. In some businesses, it takes time to move a customer into profitable territory. You may need to get customers in the door and then expand the relationship until it’s profitable.
Actively trying to drive customers away should be an approach of last resort. A more passive strategy is to just not spend a lot of time and effort marketing to unprofitable customers. If a customer isn’t profitable, it doesn’t make much sense to keep sending them discounted offers, for example.
It may also be possible to turn unprofitable customers into profitable ones by expanding the relationship. The profitability of customers in the banking industry is at least partly related to the number of different products they have purchased. You may find a group of unprofitable customers who only have a checking account.
It may be possible to turn them profitable by selling them a credit card and driving some of their transactions from the checking account to the credit card.
In developing a strategy to deal with unprofitable customers, it’s important to understand what’s behind the situation. Is it the product the customer buys? Or is it the way the customer is interacting with you? You might be far more likely to “fire” a customer who returns a large number of purchases than fire one who just doesn’t buy that much.