From Knowledge at Wharton
Fire your bad 카지노 게임 종류.
That advice has become widely accepted in recent years as companies have sought to manage their relationships with 카지노 게임 종류 in more sophisticated ways.
The rationale is clear-cut: Low-value 카지노 게임 종류 -- such as the ones who hardly spend any money on your services or products yet tie up your company's phone lines with questions and complaints -- end up costing more money than they provide. So why not jettison them and focus your customer-relationship efforts on more profitable individuals? Or, as an alternative, why not at least try to increase the worth of the low-value 카지노 게임 종류 to your firm?
It sounds quite rational, and many corporations have jumped on the bandwagon. But a new study by two Wharton marketing professors, Jagmohan Raju and Z. John Zhang, and Wharton doctoral student Upender Subramanian, cautions that firing low-value 카지노 게임 종류 may actually decrease firm profits and that trying to increase the value of these 카지노 게임 종류 may be counterproductive.
The notion that firing unprofitable 카지노 게임 종류 is a smart thing to do has emerged out of the broad acceptance of a practice usually referred to as Customer Relationship Management (CRM). With CRM, firms often use information technology to quantify the value of individual 카지노 게임 종류 and provide better privileges, discounts or other inducements to 카지노 게임 종류 identified as having high value.
In their study, Raju and Zhang have coined the term Customer Value-based Management (CVM) to describe this central component of CRM. These customer analyses have often shown that a small proportion of 카지노 게임 종류 contribute to a large percentage of profits, and that many 카지노 게임 종류 are unprofitable.
Financial institutions are perhaps best known for treating low-value 카지노 게임 종류 differently from good ones. For instance, bad 카지노 게임 종류 at Fidelity Investments are made to wait longer in queues to have their calls taken by call centers. But other types of firms have embraced CRM and are giving low-value 카지노 게임 종류 the cold shoulder. Continental Airlines e-mails only its high-value 카지노 게임 종류, apologizing for flight delays and compensating them with frequent-flier miles. At Harrah's, room rates range from zero to 9 per night, depending on customer value.
Some firms fire 카지노 게임 종류 outright. In July 2007, CNN reported that Sprint had dropped about 1,000 카지노 게임 종류 who were calling the customer-care center too frequently -- 40 to 50 times more than the average customer every month over an extended period.
In the study, "Customer Value-based Management: Competitive Implications," Zhang, Raju and Subramanian break ground by analyzing CVM in the context of a competitive environment. The researchers acknowledge that firing bad 카지노 게임 종류 may make some sense in industries where there is little or no competition. If a firm treats all 카지노 게임 종류 equally, the argument goes, not only does the company waste resources on attracting and retaining unprofitable 카지노 게임 종류, it also under-serves profitable 카지노 게임 종류, who may become unhappy and leave.
For the overwhelming majority of companies operating in a competitive environment, however, firing low-value 카지노 게임 종류 can be counterproductive, the researchers conclude. The key reason: Companies that rid themselves of low-value 카지노 게임 종류 -- or take steps to turn low-value 카지노 게임 종류 into high-value ones -- leave themselves open to successful poaching by competitors. If the competition knows that you have fired many or all of your low-value 카지노 게임 종류, they are likely to intensify their efforts to take your remaining 카지노 게임 종류 away from you because they now know that all, or most, of those remaining 카지노 게임 종류 are of the high-value variety.
"What our analysis tells us is companies make money, in part, by confusing their competitors about their 카지노 게임 종류," Raju says.
Instead of firing unprofitable 카지노 게임 종류, some companies have tried to turn them into high-value 카지노 게임 종류 by giving them inducements to change their behavior, such as teaching them to spend more or to use low-cost support channels. But the Wharton researchers found that this idea is also wrongheaded. "If you make low-value 카지노 게임 종류 more valuable, this can also be counterproductive because it also encourages your competitors to poach more intensely," Raju says.
So what is the proper way to manage relationships with low- and high-value 카지노 게임 종류? "Our research finds that a better approach is to improve the quality of your high-end 카지노 게임 종류 at the same time that you keep your low-end 카지노 게임 종류, but you should find other, cheaper, ways to manage the low-value 카지노 게임 종류, such as encouraging them to use automated phone-response systems or the Internet or offering minimal discounts or other benefits," says Raju. "You have to keep your competition confused about who your good and bad 카지노 게임 종류 are."
The new study should help convince firms to reconsider the notion that firing bad 카지노 게임 종류 is a smart decision.
"What we'd like readers to take away from our paper is that just 'cleaning up' your customer base is not good enough," Raju says. "You should focus on good 카지노 게임 종류 and try to improve their quality and not just try to get rid of the bad ones. Firms should find cheaper ways to keep low-value 카지노 게임 종류 because they are confusing your competition to your advantage and there's a chance someday that they will become good 카지노 게임 종류."
