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The Well-Grounded Yuppie

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Tuesday, July 31, 2007

The Customer Is Always Right

I’ve read an article today, and it said Sprint just got rid of 1200 of its "worst customers". They basically said "You’re off the contract, go get another cell phone service, no penalty".

Well, the "official" release statement of Sprint was those people were dialing in "40 to 50 times as often" as the "average customer," and after failing to appease them, Sprint chose to "terminate the relationship with those customers to allow them to pursue other options."

The firm also got rid of its habitual roamers, which I’m guessing is costing Sprint a lot more in operating cost in comparison to Sprint's average customers.

I personally couldn’t agree more with this decision Sprint made. In business variable costs, time is opportunity cost, money is operating cost, and both are resources. Most businesses probably spend 80% of their variable resources on 20% of its customers, and that 20% should be cut to be more profitable, assuming they can be replaced with "normal" customers. If they can’t, then the "additional" 20% of gross revenue (from the costly customers) probably isn’t worth the additional 400% (20%-80% split) resources to achieve.

Customers usually say "The customer is always right". Of course customers would say it, it benefits them the most. Management would usually tell clerks or associates "The customer is always right" because it’s safer to assume they’re right than the other way around; clerks don’t really know which customers are costly and which aren’t. But top management understands the theory of "The customer is right unless s/he becomes unprofitable", then it’s wiser to just drop that customer. One last concern about that approach is the company's reputation. But if the company refuses service to "bad customers", they're probably "bad customers" in other businesses too, and their word probably isn't taken too seriously by most people around them.


Blogger Andrew said...

I agree with the decision to cut the dead weight but I don't think the tactic is the best. They probably could've come up with another way to accomplish the same thing without making headlines. They could change their Terms to charge money for excessive support calls. This would accomplish the goal of making revenue on the abusive customers and since the Terms are changed, people would have a certain amount of time to choose to leave their contract. Problem solved and no one looks poorly at Sprint's customer service. Of course, the fact that Sprint is one of the worst cell phone companies as it is doesn't help things....

8/07/2007 8:39 AM  

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