Question

Managers are required to make many tough decisions over the course of a work day. One of the tough decisions a manager may be faced with is the decision to drop an existing customer from their portfolio.

Some companies refuse to drop customers (including non-profitable customers) in the hopes that these unprofitable customers will become profitable in the future.

Other companies do not want unprofitable customers impacting their bottom line year after year and choose to drop them.

In your opinion, when should unprofitable customers be dropped (if at all)? Provide personal examples or research to help support your arguments.

Answer 1

In a new concept of running business, customer divestment has emerged as an option where companies like of telecom, airlines and insurance sector choose to drop their customers or provide them with more customized deals to cover up the costs. In a recent past it is seen that customer divestment has become more like an strategic option for the companies to save their profits and high level assets.

It is widely regarded that company should not drop customers not making profit if overall they are profitable because of the hope that they will turn profitable in future. Companies try to buy them some time by educating them, helping them make better choices and charging extra cost sometimes. However when none of the methods work than it is suitable to drop the customers line, many a times extra ordinary reasons are also the cause of dropping out like when Allstate and Nationwide dropped 95000 and 35000 home insurance customers respectively in 2005 because of fear of hurricanes in Florida. However these may seem as unethical practice, but in reality it is purely business.

In my opinion, company should drop customers only when it is quite sure that they are not worth anymore and are instead causing rucckus. Many a times it is better to have 10 good customers than 20 bad customers as it will allow company to focus more on those 10 valuable customers. For instance, FedEx in the late 1990s crunched the numbers on its 30 largest clients—a group that generated about 10% of the shipping firm’s total revenues and volume.