February 15, 2008
In defence of the low rollers
Banks, airlines and other big companies often use software to find out, among other things, which of their customers contribute little to their bottom line. Those marked down as low rollers might have to wait longer to have their call answered, or miss out on special offers. Some companies might even be tempted to sever ties with their least remunerative clients, reasoning that they can never be made profitable.
But firing your worst customers might not be a good idea, according to research by Upender Subramanian, Jagmohan Raju and Z. John Zhang of the Wharton business school at the University of Pennsylvania.
For one thing, the customer relationship management (CRM) software might not be very accurate in the way it segments people, creating a risk that the company might fire some profitable clients by accident. Secondly, the authors claim that jettisoning the less valuable customers would also send a signal to competitors that the remaining clients were of high quality. The competitors might then poach these high rollers.
I find the first threat to be more plausible than the second. Having just moved back from Paris to London – with all the address changes and other administrative hassles that entails - I have been struck by how bad many companies are at maintaining and updating basic personal details (a certain UK bank shall remain nameless). My faith in their ability to keep a running tally of my profitability to them is limited. But it is useful to be reminded that customer service decisions do not happen in a competitive vacuum.
