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12/19/2007
09:42 AM
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Fire Low-Value Customers. No, Wait… Doh!

The reasonable-sounding CRM conventional wisdom is that you should "fire your low-value customers," but it turns out to be not so reasonable after all. The theory is that low (or negative) value customers are a drain on limited resources, so getting rid of them should raise margins and make the company more profitable. Except it doesn't, according to a recent study by two Wharton marketing professors.

The reasonable-sounding CRM conventional wisdom is that you should "fire your low-value customers," but it turns out to be not so reasonable after all. The theory is that low (or negative) value customers are a drain on limited resources, so getting rid of them should raise margins and make the company more profitable. Except it doesn't, according to a recent study by two Wharton marketing professors.It's an "oh crap!" moment for consumer marketers who've invested heavily in determining customer value and getting rid of the devils who cost the company money. Ah well, maybe they can re-hire them.

"One reason why actual results differ from expected outcomes could be that, hitherto, researchers and industry experts have by and large looked at firms in isolation without considering competitive reactions"

Experts ignored competition. That's classic!

I love how ideas are so often implemented without being tested first. In this case, it sounds like a good idea and fits in with gut intuition, and it's been hyped as a use case by CRM vendors, so get out there and do it. Wharton has a less academic regular guy write-up too.

Mark Madsen is president of Third Nature, a consulting and research firm focused on business intelligence, data integration and data management. He is a principal author of Clickstream Data Warehousing and speaks about data warehousing and emerging technology. Write him at mmadsen0@yahoo.com.The reasonable-sounding CRM conventional wisdom is that you should "fire your low-value customers," but it turns out to be not so reasonable after all. The theory is that low (or negative) value customers are a drain on limited resources, so getting rid of them should raise margins and make the company more profitable. Except it doesn't, according to a recent study by two Wharton marketing professors.

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