Dealing With Bad Customers
Forbes.com, 2/22/06, by Tom Taulli
Synopsis: TARP CEO Dennis Gonier discusses the techniques for identifying problem customers he employed while in his former role as Executive Vice President of Member Retention at AOL. A section of the article can be found below.
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For many years, thousands of AOL customers took advantage of free trials and then free months from the Internet service provider, now a unit of Time Warner (nyse: TWX - news - people ). Obviously, these customers were consistently unprofitable for the firm.
Dennis E. Gonier, former executive vice president of member retention at America Online, asked the acquisition department a simple question: "Why do we continue to mail these people even though we know they have no intention of paying us?"
The answer: "It’s our best list."
Gonier attacked the problem and, as a result, the portion of "free riding" fell from 30% to less than 8%. "When we confronted these freeloaders, their response was usually, 'Well, your product sucks anyway'," he said. "It's funny how it [the free service] was worth the cheating for years. The point is we knew these folks would not talk favorably about AOL from that moment on. That's a bad customer."
So how can you spot a bad customer? Gonier has some suggestions:
- The customer is acquired through the least expensive method or needed a high promotional inducement. The "least expensive" method suggests they sought you--and that is often too good to be true. The promotional inducement suggests sensitivity to price or incentive, which is not good for long-term loyalty.
- The customer has high "service costs" or contacts the company above average.
- The customer exhibits switching behavior (now or in the past) in your product or service sector or in similar sectors.
- A definite signal you have a bad customer: All contact is through their attorney.
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