Tuesday, July 10, 2007

Choosing to Lose

Did Sprint Nextel do the right thing when they 'fired' some of their most needy customers?

RRW holds a strong belief that business strategy must be based on customer profitability. We're forever preaching to our clients that it makes no sense whatsoever to implement programs that acquire unprofitable customers. And, we're always trying to push them to direct retention efforts to customer segments that are highly profitable.

Yet, we continue to be amazed at how few companies really have a handle on value or customer profitability.

On the other hand, we are huge proponents of top-notch customer service. We believe that if you treat your customers right then they'll respond in turn with high loyalty. Heck, they may even become evangelists and spew your praises to all of their friends and family, if you treat them the right way.

That's why it's been so tough to develop an opinion on the recent Sprint decision to dump some of their high maintenance clients. This article in Washington Post, however, firmed up my opinion. Sprint Nextel Defends Cutting Customers.

I think that Sprint made the right decision, IF you're only looking at the decision in terms of profitability, or even from a service perspective. Those 1,000 or so customers that Sprint Nextel chose to cut were making 40-50 calls each month to customer service. Clearly this wasn't the right fit (and they may just be kinda wacky to begin with--who has the time to make 50 calls a month??). Handling those calls was certainly detracting from legitimate customer issues.

However, look at all the bad press that this customer-firing incident has caused Sprint Nextel. When you consider that, overall, their subscriber base is more than 50 million customers, how much impact could servicing 1,000 pesky customers really have?
Then, balance service requirements to handle 1,000 wacky customers against the bad press generated from this incident.

Did they do the right thing, overall? The jury is still out, in my opinion.

10 comments:

Roger Anderson said...

I think that Sprint did the right thing in the wrong way. A business should look at its customers and decide if they are a profitable customer to have. What such an analysis should lead to is a change in price to that customer so that the relationship is profitable for the business. Sending a letter in such terms is just going to get a lot of bad press. Raising their rate due to the inordinate amount of resources they consume would be less controversial.

One thing Sprint and other businesses should realize is that some complainers are good for the business. They help to uncover poor service personnel, poor product quality, and systematic errors. Firing your trouble-shooters is like firing the messenger. Firing trouble-makers is like finding more time to help your best customers.

Suzanne Obermire said...

Roger,
Great perspective on this. I really like your take on looking at the complainers as being good for the business. Sometimes it's the squeaky wheel that creates positive change.
Suzanne

Roger Anderson said...

Thanks Suzanne,
After my recent exchanges regarding the iPhone with Paul Paetz of the Disruption Group, I was beginning to worry about my ability to contribute valuable opinions. :)

Suzanne Obermire said...

A little controversy never hurt anyone :)

Ron Shevlin said...

Couple of thoughts....

I'm not sure Sprint had the legal right to simply raise rates for these customers. If no contractual provision was made in advance to charge a fee for excess service, then I don't see how Sprint could have done that.

But I think I agree w/ Roger that getting rid of the "pesky 1000" improves service to the other 53,999,000 customers.

I'm not sure this group as the "constructive complainers" that I think Roger is alluding to. While no one (outside of Sprint) can say for sure, it sounds to me like this group was more a bunch of "pathological complainers".

It's my

Suzanne Obermire said...

Ron, I hear you.
The only thing that scares me a little--was it a good thing to generate all of this bad press about Sprint firing customers when in fact it was only 1,000 customers, a tiny percentage of their overall subscriber base?

Marketers tend to 'get it'. We get the fact that it's a good thing to get rid of unprofitable segments. However, the general public may just see this move by Sprint as another example of a big company treating their customers poorly.

Paul said...

Lots of issues here.

Legally, Sprint couldn't change the price to these customers for two reasons. One is that they are probably mostly under contract. Secondly, it isn't legal to price discriminate based on help you need from billing to correct mistakes.

From a marketing perspective, the bad media coverage that results from "firing" 1000 customers all at once for something that wasn't illegal is far more costly than whatever they perceived they were saving by getting rid of them. If they felt the need to drop customers that are costing money, far better to do it quietly at contract end, with 60 days notice, and only the 10-15 most egregious at a time. It's believable that 10-15 people are so bad you don't want to renew them. 1000 sounds a lot more like Sprint was at fault.

The last suspicion is one that I suspect is widely held. Cellular carriers are pretty widely reviled for awful customer service -- right up there with airlines and politicians for trustworthiness. Lack of awareness of the image baggage they carry, and how they got it is a root problem here.

I had a personal experience with Nextel prior to the merger with Sprint that makes me question this whole scenario very directly. I was a customer of Nextel's about 6 years ago. I signed up for a contract, and I loved my phone, and the people at the local store where I got it were always very helpful and courteous, however, in the entire 11 months that I had one of their phones I never once got a bill that was calculated correctly according to the contract that I signed (and the published rate plan that I still have a copy of).

As a business user, this was very problematic, because I couldn't submit my expenses until I had an accurate statement. I had to call billing every single month, some times as many as five times to get a corrected statement sent.

Often the first two or three people would deny there was a problem, but eventually, after a hour or so of talk time and 1.5 to 3 hours of hold time, I would get to a supervisor who would immediately recognize the problem, acknowledge that there was an error in the system, and fix it manually. But, that often meant my expenses were filed 1-3 months late.

It also meant that about 1/2 the time, my bill was paid late, because I wouldn't agree to pay until the account was fixed after the second month of problems.

In the 11th month, my bill was wrong by about $200. I went through the same process (and you can imagine that each time I had to do this, I got increasingly testy), but after 5 calls I wasn't getting anywhere and there's only so much time you can allocate to fix someone else's problem. I was 2 weeks past the due date without a resolution, and Nextel cut off my phone without notice and cancelled my contract. Their excuse was almost identical to what was stated here.

All this would have been a good thing, (wow, lucky me -- no termination fees) except that I had to have a phone, and I needed it immediately because I was going out of the country. And, all the people who had my number thought our business had gone under or something because of the nasty message Nextel put on the line.

There is more to the story (it gets worse) but I'm sure you can see a pretty strong parallel with what many of the "fired" customers said, so I have a pretty strong inclination to believe that there was more going on than hard-to-service customers. Even if there wasn't, their reputation is so bad, a large percentage of people who hear about this will assume it was Sprint's fault.

Lastly, I agree with Roger's perspective that companies that ignore unhappy customers do so at there own peril. Sure, it is highly likely that some number of them were just bad business. Unpleasant to deal with. Complaints that appear unjustified from Sprint's point of view. But, with the churn problems in the mobile business, I have to believe that the majority of these 1000 are the tip of the iceberg, and that most customers don't and won't call every month no matter what happens to them -- they just get fed up and leave as soon as they can.

What Sprint hasn't done is use these customers as a conduit to identify possible reasons for churn, or to find money left on the table with other customers who just don't complain or call or "cost money", or to learn ways to gain a positive reputation as a company that actually exceeds customer expectations, rather than barely meeting them.

In fact, a progressive marketer would have turned turned these lemons to lemonade and created a program to gather and analyze data from these people about exactly what it would take to do better -- how high is the bar of expectations, and what things could they do that would make even those people happy. Issue a press release about it. Get people blogging about the research they're doing to improve service. Study them to death. Give them free service until all is good.

Then, get out of the commodity trap, and create programs that I'd be happy to pay the highest rates in the industry for based on that input. How many hundreds of millions of dollars is that knowledge worth?

In general, I think most companies would benefit from figuring out what they think makes the most sense to do, and then asking the question "What if we do exactly the opposite? What would be the result, and how could that help us?" They might still make the same business decision, but there's a chance they'd also find a pony in the pile of manure.

Suzanne Obermire said...

Paul,
I tend to agree with your comment about the bad media coverage making this 'firing' not worthwhile.

And, I hated to read about your customer service and billing woes. Can't believe you hung in there that long!
Suzanne

Paul said...

re: hanging in there so long.

I didn't really have a choice. Remember, in those days service plans were a lot more expensive (I regularly spent $2-300/month, some times over $500 -- should have made me one of Nextel's most highly valued customers) and I had my wife attached to the same account. If I had done an early termination on them, it would have cost me hundreds, maybe over a thousand dollars, depending when. The only logical way out was to let the contract run its course (or to have them fire me, which of course, I never expected).

My point though was that a) Sprint/Nextel have a history of this behavior -- I'm sure they thought I was a bad customer, or why fire me? So no matter how bad these customers were, they have more credibility with me than Sprint does. And, social media being what it is, Cory Doctorow's "reputation
economy"
is becoming quite real, but companies like Sprint haven't figured that out yet.

Suzanne Obermire said...

Oh, I remember those days. And, those were the days when Nextel's ARPU (avg. revenue per unit) significantly exceeded ANY of its competitors. They had business customers on the hook, locked into a contract. Plus, their phones and their push-to-talk were substantially different from their competitors. They were also a client of mine at that time :)