Some customers are not always right, they're hell
July 18, 2004
Minneapolis - So much for the customer always being right.
Some US retailers are deciding that the customer can be very, very wrong - as in unprofitable. And some, including Best Buy, are discriminating between profitable customers and shoppers they lose money on: like a customer who ties up a salesperson but never buys anything, or who buys only during big sales. Or one who files for a rebate, then returns the item.
"That would be directly equivalent to somebody going to an ATM and getting money out without putting any in," says Brad Anderson, Best Buy's chief executive. "Those customers, they are smart, and they are costing us money."
Anderson says Best Buy is tightening its rebate policies in the case of customers who abuse the privilege, but declines to say what else it is doing to discourage its most costly customers.
"What we are trying to do is not eliminate those customers, but just diminish the number of offers we make to them," he says.
Larry Selden calls them "demon customers". Selden, a consultant who works for Best Buy, is a co-author of Angel Customers & Demon Customers. The book says that while retailers "probably can't hire a bouncer to stand at the door and identify the value destroyer", they are not powerless.
Selden, a business professor emeritus at Columbia University, says an investment firm found that one customer with a portfolio of $500 000 (R3 million) was tying up three financial advisers almost full-time with requests for help.
"Eventually, reluctantly, and very politely, in this one case the company asked him to go elsewhere."
Selden worked as a consultant for Royal Bank of Canada, which at one time traced cheques faster for its most profitable customers, while other customers waited up to five days. While that is a bit out of date, the bank now has other ways of prioritising customers.
Laura Gainey, the vice-president of client segment strategies, says the bank's phone system sends certain customers to the front of the line, where they get the most experienced service representatives. One of the criteria used is the size of the client's account.
"I don't really believe that any customer at Royal Bank is a demon customer," she says. "But there is no doubt that there are different ways of approaching different customers, which will allow us to better serve their needs and allow us to serve the bank and our shareholders' needs."
Sometimes it is the retailer's fault that a customer is unprofitable, Selden says. He cites the case of an up-market retailer in New York that lost sales because its changing rooms were dirty and in bad repair. Women were declining to change in those rooms, and declining to buy.
"Then there are those customers that are just evil customers ... fundamentally they are out to cheat us," Selden says. "It is not a large number of customers, but they can have a material impact on a business."
Once in a while, stores need to "fire" their worst customers. Filene's banned two sisters from all 21 of its stores last year after the clothing chain's corporate parent decided they had returned too many items and complained too often about service.
The sisters claimed they had been loyal customers for years.
Best Buy executive vice-president Philip Schoonover says the idea of firing some customers is one place where Best Buy disagrees with Selden.
The company tries to find ways to make money-losing customers profitable, he says.
Retail consultant Karl Bjornson of Kurt Salmon Associates says the idea of discouraging bad customers can work if a company is careful. It generally works better to, for example, offer fewer sales rather than discouraging individual customers who shop aggressively on price.
Best Buy customer Steve McCuskey ponders the company's efforts with a set of computer speakers in his hand.
McCuskey, an industrial chemical salesperson, says he shares Best Buy's frustration with "extreme price shoppers" who are so low-cost orientated that it is tough to make money from them.
He says he recently paid extra to buy a better portable CD player for his son after the first one lasted just four months.
"I am definitely looking for the best price, but I'm also tired of cheap stuff that's going to break right away," he says. - Sapa-AP
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