16

FIRING YOUR BEST CUSTOMERS

How smart firms destroy relationships
using CRM

Jill Avery and Susan Fournier

A customer is fired
When Nomla answered the telephone and the persoll on the other end said he
was calling from Filcnc's Uast:ment, her hean soared. Finally, someone from
corporate headquarters was calling to apologize for the abominable treatment she
had received yesterday in a Filene's Basement retail store. Nonna inunediately
began recounting the story of how the store manager, someone Nomll had
knowil for twenty years, had yelled at her and had made her cry in front of other
customers after she asked him to extend a sale price so that she could buy some
flatware at a discounted price. She conveyed the manager's respoI15e: "He
screamed 'NO! When are you genna realize you are nothing special to us?'"
Nonna thought about the hundreds of thousands of dollars she had spent at
Filene's Basement, a retail chain selling designer labels at discounted prices, since
the early 19705, the hundreds of friends she had introduced to the store, and the
many special favors and gifts she had !,>1ven to various Elene's Basement employ-
ees who had become her personal friends over the span of her thirty years as a
Joyal customer. She thought back to the special invitations she enjoyed as a
member of the Filene's Basement Insiders Club, a group created to reward the
firm's best customers with special offers and invitations to intimate events, She
also remembered the many times employees had bent the rules for her. in defer-
ence to her status as one of "The Regulars," a group of women well-known
because of their frequent shopping activity and first-in-line position for all of the
store's sales events and new store openings. She knew she was wonhy of such
acknowledgement. This is what had made the store manager's reaction to her
simple request so puzzling and so upsetting.
 302 Jill Avery and Susan Fournier

As she paused to catch her breath. the voice at the other end of the telephone
S\vitching to thei
asked for her address. Nomla remembe~ the moment: "I honestly thought they
was ludicrous.
were going to send me flowe~! And then this gnlff voice says, 'You ar\'" never to
However. mo
call Filene's Basement again, you are never to set foot in any of our stores again.'
fi~t wave offirinj
[ was so flabbergasted. I honestly don 'r think they knew how much [ spent.
aJization became.
[honestly don't think they knew I was such a good CUstomer."
product launches
began to realize t
The customer is no longer king companies that \\
COIlSUlller produc
How, in a business climate ill which building relationships with customers has
slim down, dimiJ
dominated both managerial thought and marketing budgets (Shah rr al. 2006),
brands and produ{
could FiJene's Basement have fired a loyal customer, one who was fonnally and
were merged; sma
infonllally recognized as a best customer? In today's world, Filene's Basement is
these brands and
not alone: firing your customer, once unheard of in a world where "the customer
from their favorite
is king," is becoming a more common OCCllrrence (Mitral. Sarkees, and Murshed
The 1990s also
2008), albeit one that still makes the national news when it happens.
Martha Rogers' c
We be~,'in this chapter by tracing the recent history of the "fire your custom-
mJnagerial focus f
ers" paradigm, and its radical divergence from the tenets of customer-centricity
The autllo~ recog:
that inspired the rise of relationship marketing. Then, we analyze the relationship
therefore. that the
trajectory of a fired customer to illuminate that a bad customer is often the result
customizing for tl
not of inherent consumer shortcomings, but of a poorly managed customer
personalized value.
relationship at the hands of the fiml. OUT findings indicate that firing customers
in CRM systems;
is often, ironically. a cast' of blaming the victim: manage~ remain largely unaware
analyze the purch;
of their own roles in creating the unprofitable customers they seek to shed.
2008 (MertZ 2009)
Our case study sho\vs how a fiml's CRM programs can paradoxically transfonn
quantifying the CUI
good customers into bad customers, whose value stemming from tht'ir
and then assigning 1
frequent purchasing is eroded by tllt~ir increasing cost-to-serve. We conclude
icy pyramid (Zeith
with practical advice on how managers can improve the overall quality of the
receive differential
customer relationships in their portfolios. and tum troubled relationships
around. The most profitablt
Silver, and Bronze I
Lead, representing t
Customer-centricity is dead: long live customer-centricity Following a stuc
average, 30 percent
Sam Walton, the founder of Wal-Mart, famously claimed that "the secret of
lowest Lead tier we
successful retailing is giving your customers what they want" (Walton and Huey
up as targets for firin
1993). He advocated that customers were the lifeblood of a company and that
2004). Initially. firm
success lay ill attracting them and then delighting them so as to retain them over
tried to shed their u.
their purchasing lifetimes. "There is only one boss. The customer. And he can
Rush out the botton
fire everybody in the company from the chaimun on down, simply by spt'nding
charged Lead-tier cu
his money somewhere else" (Walton and Huey 1993). For decades. companies
ATM machines. In:
embrJced his customer-centric approach, following Levitt's (1960) advice that
customers to encour;
managers should work to fulfill customers' needs rather than focus on selling
it charged sdlers wb
products. Companies lived in fear that their Customers would leave them by
Buy dropped its wor
 Firing your best Customers 303

"'Y Switching to thl:ir competitors; the thought of finns firing their own CUstOlllers
was ludicrous.
'0 However. more recently. companies have begun firing their customers. The
,. first wave offirings occurred in the 1990s when stock keeping unit (SKU) ration_
alization became a popular COst-cutting strategy. FOllowing a proliferation of new
product launches which filled grocery shelves to their bursting poim, managers
began to realize that carrying so many dilTerent brands and SKUs was costly for
companies that werl: struggling to trim the fat from their supply chains. Large
, consumer product companies like Procter & Gamble and Unilever were first to
slim down, eliminating Ravors, scents, sizes. fomls, and sometimes even entire
brands and product lines. Competing brands owned by the same parent company
were merged; smaller brands were sold or diScontinued altogether. Consumers of
tht'se brands and product variants were lett hanging, summarily fired ell masse
from their favorite brands.
Thl: 19905 also ushered in the age of relationship marketing. 0011 Peppers and
Manha Rogl:rs' classic book TIle Qlle to Otle Fllture (J 993) advocated shifting
managerial focus from managing products and brands to managing Customers.
The authors recognized that all CUStomers wl:rl: not WOrtll the salTle amount and,
thl:refore, that there was value in understanding Customers as individuals and
customizing for them products and marketing programs that reRected thei r
persollalized value. Since then, we have lived through two decades of investment
in CRM systems; sales of sophisticated CRM software designed to collect and
analyze the purchase histories of individual consumers reached $9 billion in
2008 (Menz 2009). Companies across industries have embraced the notion of
quantitying the current and future value each Customer contributes to the finn
and then assignlllg them to a tier ill a hierarchically arranged CUStomer profitabil-
ity pyramid (Zeithaml, Rust, and Lemon 200t). Customers in different tiers
receivl: diffl:remial trcamlent conmlenSUrate with their expected profitability.
The most profitable CUStomers occupy the top Platinum tier, followed by Gold,
Silver, and Bronze level Customers. The least profitable Customers are classified as
Lead. represeming their tendency to weigh down COrporate profits.
FOllowing a study conducted by Bain alld Company that indicated that, 011
average. 30 percent of a company's Customers are unprofitable. Customers in the
lowest Lead tier were branded "below-zero" customers and increaSingly wound
up as targets for firing by finns looking to boost their profits (peppers and Rogers
2004). Initially. finns were subtle about firing their Lead Customers. Companies
tried to shed their unprofitable CUStomers by raising prices, fel:s. or premiums to
flush Out the bOttom tier. Banks instituted minimum balance requirements and
charged Lead-tier CUStomers fees to use live teller services raeher than self-service
ATM machinl:S. Insurance companies raised the premiuIlls of SOme existing
customers to encourage them to switch to their competitors. c1hy raised the fees
it charged sellers who were not selling enough volume (Clagowski 20(6). Best
Buy dropped its worst Customers from its promotional mailing lists. refusing to
304 Jill Avery and Susan Fournier

notify them of upcoming sales and special events (McWilliams 20(4). Then. when they get mt:s
companies tried to persuade lower-tier customers to leave: American Express customer has been cl
offered customers $300 to callcel their credit cards (Pilon 2009). while Citibank light for the rest of h
offered a $500 incentive to leave. Finally. companies became aggressive about renegotiate their relat
firing unprofitable customers: Allstate Insurance dropped homepwners in coastal climb back into the
regions from its homeowners' insurance customer portfolio (Conlon 2010), lNG suggests that fimlS an:
Direct dosed the bank accounts of customers with low credit scores (Taylor shirk from analyzing
2(05), and AT&T and T -Mobile cut off service to customers who were ringing customer when the I
up excessive roaming charges on "unlimited" cell phone plans (price 2008). a customer to highlig
Sprint-Nt:xtel cut loose a thousand customers who were demanding too much renegotiating rdatiom
customer suppon (MSN Money 2007).

Customer alchem
Taking responsibility for bad relationships
In an effon to unde
CRM systems have been successful at matching companies' marhting effons to conducted a series of c
the perceived profit potential of individual customers. CRM metrics indicate was forbidden to patre
which customers can suppon tht: higher marketing costs that come from special- as a customer. We rev<
ized attention, product customization, and promotional discounts. Companies to uncover the critica
with sophisticated CRM systt:ms utilize software that automatically calculates the relationship trajectol)
wonh of a Cllstomer and directs customer-f.tcing employees to the appropriate customer, to a Gold c
level of service. Traffic light colors. flashing green for Platinum and Gold cus- painfully turns to Lead
tomers, yt:llow for Silver and Bronze customers, and red for Lead customt:rs, We begin this Story
appt:ar on tht: employees' screens, guiding their choin_'S in how much to offer she received. Nomu \
each customer in tenns of discounts, fn:e goods, service levels. or access. For registocred complaints.'
example, hotels use traffic light colors to indicate whether a guest checking in high cost-to-serve: he
should be offered a free room upgrade and airlines use them to indicate whether and her frequocm comf
a passenger deserves to move up in the standby list. relied on economic c
One of the gross simplifications implicated in these practices is the belief that numbers indicated a I
customers can be treated like economic assets that have a measurablt: and predict- legal action if she ente
able value to the fiml, often detennined by a customer lifetime value calculation relationship with ht:r.
that calculates the COSt to acquire the customer and then estimates the expected Nonna looked at d
annual profit generated by the customer and the h:ngrh of the customer's expected profits: "A six-digit n
relationship with the company. What is missing is the realization that the value of value that she brought
a customer is not an inherent, stable. and predictable characteristic of the record. "1 was loyal. I
customer, but ratht:r a dynamic outcome of a negotiated relationship between a shop there. I was geniI
customer and the company. Doth the customer and the company are responsible them." Besides support
for detennining tht: value of the consumer-brand relationship and the actions personal shoppers, and
of both of them create, build, nurture. and negotiate the tenns of their agreement But why did Nanna
(Fournier and Avery 2011). Thert:fore. there is rarely such a thing as a bad Filene's Basement's COl
customer. just a poorly negotiated customer relationship. understand Nomla's ret
Relationship marketing is not only about motivating good customers and relationship to understa
finng the bad. Relational success is also about navigating through relationships when sht: first became a
 Firing your best customers 30S

len,
when they get messy, and turning troubled relationships around, Once a
re" customer has been classified into the Lead tier, is she doomed to trigger a red
.ok
light for the rest of her tenure, or be fired? Or can companies look for ways to
out
renegotiate their relationship with her to increase her profitability so that she can
>tal
climb back into the higher tiers of the profitability pyr:amid? Current pr:actice
,c
suggests that finns are too quick to close the door 011 troubled relationships. They
'lor
shirk from analyzing their own role in creating the problem and blame the
'ng
Customer when the relationship goes bad. Below, we tr:ace the evolution of
8).
~ customer to highlight ways in which firms can become actively involved in
"h renegotiating relationships.

Customer alchemy: the evolution of a best customer

In an effort to understand how consumel'-brand relationships fall apart. we
to
conducted a series of depth imerviews with a consumer wc will caU Nomla, who

"-'"
was forbidden to patronize the Filene's Basemerlt retail stores after a long history
as a customer. We reverse-engineer NOml;!', relationship with Filene's Basement
to uncover the critical incidents and behaviors of each party that shaped their
relationship tr:ajcctory. We trace Nonna·s roll"'Tcoaster path from a new
Customer, to a Gold customer, to a PlatinulIl customer. and watch as Platinum
painfully turns to Lead.
We begin this Story at its end. Why was Nomla fift~d? According to the letter
she rt~ceived, NomIa was fired for her "excessive rcturns history" and "frequent
"n registcred complaints." The company's decision to fire Norma focused on her
high COst-Co-serve: her numerous returns cost the company money to prOCl-'Ss
and her frequent complaints took up valuable employt:t: time. Filene's Basement
relied on economjc data to define and dia!;,'llose the relationship, and these
" numbers indicated a Lead-level CUStomer. The flml threatened Nonna with
legaJ action if she entered any of Filene's l3asemellt retail stores, severing their
relationship with her.
J
NomIa looked at the numbers too, but she focused on revenues rather than
1
profits: "A six-digit customt:r," by Nonna's analysis. She also rt:cognjzed the
f
value that she brought to tht: company that was not captured by her purchasing
reconl. "I was loyal. I was there ~hoppjng. I was buying. I was telling others to
shop thefe. I was gt:tting others to come. Peoplc from all over _ I would bring
them." Be~ides supporting htT own accessorized lifestyle, Nonna acted as others·
personal shoppers, and introduct:d countless friends to thc store.
l3ut why did Nonna underestimatt' her service costs? How could Nomta's and
Filene's Basement's conceptions of the relationship be so very misaligned? To
understand Norma's returns bt."havior. we have to rewind to the beginning of her
relationship to understand the relationship rules and nonns that wt:re established
when she first became a customer.
 306 Jill Avery and Susan Fournier

A new customer: relationship rufes are established

When Nomla began shopping at Filene's Basement in the 1970s, the seventy-
year-old retail chain had already established a unique shopping culture, into
which this new customcr was acculturated. Filenc's BasenH::nt was the United
States' original outlet store, offering discounted prices on ' overstock designer
goods from Boston's and New York's finest department stores and boutiques.
Filene's Basement was known for its fantastic bargains, sometimes offering 50-75
percent off designer prices, and for its fiel,ting inventory, most of which was
made up of one-of-a-kind items that disappeared as soon as they hit the sales
floor.
The Boston store, the original location and the chain's fiagship store, was
known for its frenetic sales, when people lined up for hours just to be kt in the
doors. By 1990, 15,000-20,000 customers lined the aisles of Filene's Basemem's
Boston store each day, rummaging through racks, tables, and counters of
discounted merchandise ("Filene's Basement" 2011). Merchandise went quickly:
in 1992, brides participating in Filene's Basement's bridal sale cleared racks of
wedding dresses within 37 seconds of the store's opening (Foxman and Dobscha
1997). Nonna explained what it was like: "It was crazy. I would leave Monday
mornings free because there were sales. Huge line-ups. We were held back with
a rope. A security guard was always present. When the bell rang, it was everyone
for herself. The doors were held open for us and we would feast on the bargains.
The bargains were phenomenal." Shopping was a contact SpOrt at Filene's
Basement and customers were ruthless in their quest to grab the most desirable
merchandise. "The women would go absolutely crazy. One day, this woman hit
me. 1 was in line for a markdown. I got there first. She said, 'You can't have it.'
I called security and they said, 'We didn't see anything.' YOLl were taking your
life in your own hands when you shopped there. It was brutal. Another time a
woman was trampled. Customers just walked by. I ran co the manager and told
him. I thought he would care. But he said, 'There arc people who look after
that.' I was surprised." As Nanna's recollections report, employees often looked
the other way when customers misbehaved.
As Filcne's Basement opened new stores in the Boston suburbs and expanded
to other cities, the company began to split designer shipments so that each store
received only a fl'"w ito:ms to sell. This made shopping more diffICult 3nd sent
consumers nmning to different stores to find what thl'"y needed to makl'" a set.
NOlll13 cxplained. "It's crazy, you have no idea. You don't know what you have.
It's always discombobulated ... we would go from store to store. I'd buy pants
in one store, a matching jacket in another. I'd get one wine glass in Doston. then
run to Framingham to see if I could make a mat(;hing set. Every purchase is a
gamble; I'"wrything is hunt and peck."
The first fitting rooms were installed in 1991; prior to that time, customl'"rs
stripped down in the aisles to try on the merchandise. Nanna and her fricnds
 Firing your best customers 307

wore ieourds so that they could easily try on clothing or gr..bbed their approxi-
mate size and then tried the merchandise on at home, retu nung unwanted Items
to the store to receive merchandise credit. Noml:! explallled, "Returns are a big
pan of the expenence. There are no fitting rooms. You can't inspect anything.
Merchandise gets bounced around. It's crazy. You cOlnnot think in the nOlsemellt.
You charge it all up - then try it on at home." Returns were costly III both time
and money, as customers had to pay for parking and then stand III long lines
wamng for customer service to process them. A banering system evolved among
customers. "We 'd call each other later and fIlter discards amongst ounelves.
There was a big coat sale. This beautiful white coat was S29.99. My mother saw
a woman with it and said to her, 'My daughter would love that coat. Can I have
your name and number so that I can caU you and see if you w;mt to keep it?
If you decide that you don't want it, yo u can call me. '"
When questioned by us about her excessive returns, Nonna laughed. Those
were not onl y justifiable in her mind, but appropriate to the shopping culture that
Filene's Basement had cultivated. "That's ridiculous. Everyone returns stuff.
That's JUSt what you do." Filene's Basement's 4P marketing decisions - product
stntegy, pricing strate~, place strategy, and promotion strategy - were brgely to
bbme for Nonna's behavior. Elene's Basement's chaotic store design, one-off
and incomplete product assortments, limited-ti.me sales, and automatic discounted
pricing contributed to creating a shopper culture in which customers were frantic
to buy III the mOlllent, leading many to regret their purchases and retum unwanted
Items later. With this perspective, Nomla appears largely innocent of blame for
her chronic returns, and becomes a mon: sympalhetic character - a shopper doing
the beSt she can w ithin a brokcn sy~tem that encourages bad behavior.
There a~ many examples of company behaviors that unwittingly encounge
'"bad customer behavior." In the telecommunications seclor. progr..ms offering
customen incentives to change providers spark chaill5 of switching behavior to
take advanuge of the free cash. In reui!, frequent sales [nin customers to wait if
they want to buy at discount prices. Promotional deals for data-hungry <.man
phones encoura~e users to liberally surf and download, creating system over-
loads.

A go/den customer is recognized

Nonna did not fi:-:ate on a revenue/cost equation to define her brand relation-
ship. She looked to the rdational signals the finn was sending her, and the Signals
she provided in retum. Early on in her relationship, the staff acknowledged
Nanna as aile of "The Regulan" and most employees addressed her by name.
The Regulars were a group of women who shopped frequently, purchased III
great quantitiL'S, and were first in line for every sale. The Regulars met for brunch
each Sunday before embarking on their weekly shopping ritual, shopping together
and hc1plllg each other with their purchases. When a new store localion opened,
308 Jill Avery and Susan Fournier

the Regulars were the f1I'St ones to arrive and soon became a store's most prodi-
gious shoppers.
t'
The Regulars wen: granted special privileges that otht:r customers did not
enjoy. Nomla recounted the many times employt:es had bent rult:s for ht:r, grant-
ing pre-sale prices and sale extt:nsions, or pet:ks at just-in Illt:rchandise that had
yet to reach the floor. "The fur buyer calkd me about a silvt:f fox. Tht:y held
things for me evt:n though they wt:ren't rt:aliy supposed to." [n the days when
there wert: no dressing rooms, Nanna and ht:r mt:nds wt:rt: invited into the staff's
private offices to try on the clothing. "Mr. X. the store manager, used to "th
say 'sure' to whatever [ asked. They did it fOf some customt:rs. But not for
everyont: "m
Imponantly, thest: practices created a history of interactions in the life of w
Nonna's relationship that served as clues to the type of relationship the store
wished to establish with her. Nonna understood the official rules of tht: standard
Filene's I:hsement customer relationship; she was savvy t:nough to understand the '"m
protocols rt:garding sale prices, sale notification, and product retums, but she was m
trained over time to understand that tht:Se rules did not apply to her. New rules
and nonm for behavior were forged during interactions, as employees poimed
",th
the way to a dt:eper, more special relationship. The company was an enabler ,,]
for Nomla's rule breaking.
No matter how she looked at it, Nonna was singled out as a best customer.

,,
She was invited, through the finn's own CRM efforts, to engage ill a deep, close, 1Il!
and higluy personalized relationship. For more than thirty years. Filene's Basement
differentiated Nonna from the masses. Nonna was special, appreciated. even po
loved. The appreciation was mutual. Nonna told us about her interactions with
Filt:nt:'s Basement employees over the years, people who she regarded not as he;
service representatives, but as close. personal friends. When she walked into a re~

Filene's Basement, she felt like she was coming home. "We were like family," he:
she explained. "I brought presents when they got married or had babies. They ch;
showed me their family pictures. Thert: was a lot of camaraderie." kn'
'w
Transforming Gold into Platinum t"
we
Over the yt:ars, Nonna's relationship with Filene's Basement deepened. With
pride, Nomla reca!lt:d tht: special invitations she enjoyed as a member of the
Filene's Basement Insiders Club, a group that rewarded the company's best
Pic
cmtO!llt:rs with special offt:rs and events. It was here that she mingled with Th
store managers and execlltives from the corporate ht:adquarters who always em
st:emed so pleased to hear her ideas for improving the stort:. bel-
Nonna happily petfonIlcd the extra-role behaviors characteristic of the det:p- om
est relationships, recognizing tht: special favors she was rt:ceiving: from employt:es. "I ,
"It's a two-way stred. When they do good, you want to go back and givt: ers;
them a favor in return. Like, if they call me before sales, I give them a gift for w"
 Firing your best customers 309

their baby." She brought the staff Italian pastries after ChriSIDlas, "so when
everyone rerumed stuff, they would not feel so bad. At least they knew some
customers appreciated them." She took a stock girl diagnosed with cancer out to
dinner. "It was not a big deal. Just a nice thing. She was walking home from
work one day and was hit by a car and killed. [ called Mr. Z (the CEO). 'You
better do something,' [ said. So they had a memorial service for her. I did a little
bit of pushing to make sure they knew it was important." She also pushed to help
employees get promoted, writing letters to senior management to express her
thoughts about their merit. When a Filene's Basemem executive passed away, she
attended his funeral and made sure other customers accompanied her. She recog~
nized the special treatment accorded her by Filene's Basement and reciprocated
with her own special gifts.
Nomla also reciprocated by working hard to maintain her good-customer
status. She went outside her role as a customer to serve as a collaborative team~
mate. She offered floor employees product infomlation for new lines, suggested
merchandising tips to move inventory faster, and caught labeling mistakes on the
floor. "They were selling Barovier glass. J printed a bunch of information about
the brand and the product so that the salesgirls would know what they were
selling, I helped them." The employees were gnteful for her assistance and often
sought her advice on new merchandise. "I showed them how the tags they used
ruined the leather gloves and the silk scarves. Now they pm scarves in brass rings
instead of tagging thelll." Nonna envisioned herself not just as a customer, but as
a partner to Filene's Basement and actively looked for ways to improve the fillll'S
perfonnance.
When Filene's Basement declared bankruptcy in 2009, Nonna was shocked to
hear the news. Ht'T first response was sympathy for the employees, Then she
realized what the bankruptcy might mean for her and grieved for the loss of
her partner and community. "I first heard about the bankruptcy when 1 was
chatting with M, the giftware buyer. She ~id. 'I want you to be the first to
know.' When she told me, I (.:ame to tears. I started to cry. She started to cry.
'What's going to happen to your job, your pension?' J said. Why did J come to
tears? Because I wouldn't have that store to shop in anymore. The community
would be broken up,"

Platinum turns to Lead

Things started to go downhill as NOlllla's expectations escalated in response to
continued special treatment. Validated through the finn's reinforcement of her
behaviors. Nomu came to expect personalized recognition and attt:ntion from all
employees all of the time, An evolving relationship nonn dcveloped in her mind:
"I will be honored with benefits and infonnation not available to other custom-
ers; Jlonnal rules and policies do not apply to me," However, not all employees
were on board with her defmition of their relationship. "I came in for the
310 Jill Avery and Susan Fournier

Ferragamo sale and the size 7Y.. shoes were not out on the Aoor. [ asked the girl
to go get them and she refused and told me to come back later. 1 said, ' I am here
now. Go down to the stock room and get my size 7Y.. Ferragamos.' The shoes
were just sitting there ill the stockroom." As the company grew larger, new
employees were not familiar with Nonna and failed to give her the specialized
attention she thought she deserved.
The more the company acknowledged Nonna's status via CRM ourreach, the ,
J'

more she came to expect. And, as tht" effort needed to serve Norma increased,
ht"r direct profit contribution declined. She rt"counted a story about how she was
"
able to get her way through levenging her rdationships with various employees.
"They were having a sale - Waterford lamps were 25 percent off. J bought two. ,
b

Six months later. the sale was over, but there was one lamp still there. The tag b
said $375. But it read S210 when the tag was scanned. Tht"re was a 25 percent J'
store-wide sale going on, so I told the cashier that J should get 25 percent off of ,I
the S2\o price. She said, 'No, [ can only give you $375 m.inus 25 percent.' So ,
1 bought it and later asked the store manager about reducing the price for me, F
and he said. 'Oh no, [ can't give it [Q you for the lower price.' But then B
{a salesclerk) gave it to me for S210 minus 25 percent and said, 'Don't tell the n
manager.' I kissed her." As ownership of the company transferred from Federated
Dt"partment Stores to various n:tail holding companies over the years, profit mar- d,
gins tightened, corporate strategy evolved, and managers were under pressure to ,~

perfonn, making it more difficult for them to accommodate Nomla's special

requests.
Just as the company's CRM had helped build Nanna into a Platinum-level re
customer, it also slowly transfonned her into a high-maintenance Lead customer
whose value was eroded by her high cost-to-serve. The first clue came when she
'0
was not invited to join the Insiders Club for the Newton store, after being a I"
member at the Boston store: "I always felt a little excluded in Newton. They had
an Insiders Club and no one ever told me. It was five minutes from my house.
1 felt very bad when I found out. We had spent so much money. I felt [ should
have been invited." Nonna was confused and hurt that her strong relationship
A
with the company was not recognized, but rebounded when a new manager at
the store later invited her to join tht" club when he heard she was upset. N,
These events served as critical incidents in the life of Nonna's rdationship co
with Filene's Basement. While all behaviors in a consumer-brand relationship shi
constitute signals and hence hold the potential to change aile parmer's under-
standing of the relationship, research has shown that certain behaviors are more
diagnostic of the type of rdationship being executed and its rules. Signals that
possess a higher probability of precipitating revisions to the relationship include
actions taken by partners in response to situations when the immediate interests cu'
of one partner are at odds with the collective interests of the relationship re~

(Wieselquist et III. 1999). Filene's Basement employees' resolution of these two ,~

incidents reinforced Nomla's belief that she was a Platinum customer. entitled to pUI
 Firing your best customers 3 T1
d
e rtsprct, special trcannem, and her own set of rules. When the relationship was
, put to the test, Nanna's needs won Out over the company's.
, Then, suddenly, overworked employees started rejecting her merchandising
help, teUing Iler to go directly to headquarters executives with her ideas.
"I bought a necklace in an ugly box. The necklace cost $1,499. I drove to a
jewelry store in BOSton to get a nice box so that I could give it as a gift. I showed
Mr. X (the store manager) and asked him, 'Why don't you put the necklaces in
nice boxes like this?' He said, 'Talk to Mr. Y (the CFO). Don't talk to me.' J also
told him that I didn't like the newspaper ad coming out the same day as the sale
because then you couldn't plan in advance. I got the same response: 'Talk to
Mr. Y. Don't talk to lIle.''' Nomla was puzzled by his response. He had always
been open to her suggestions in the past. "He took it as a complaint I guess. I was
just making a suggestion trying to make it a better store, a better place to
shop. Ijust walUed a better Store for us all to shop in. I thought I was doing them
a favor. I thought I was being helpful." What Nanna failed to realize was that
Elene's BasemeJJt's new holding company was centralizing decision-making at
corporate headquarters, Stripping managers and floor employees of their decision_
making power and leaving them discouraged and disillusioned.
Leveraging her relarionsllips fomled through the Insiders Club, Nomla
decided to go to the corporate headquarters to air her ideas. "/ had to speak to
the top. / arrived unannounced on a Friday. There was no one there. TIlcn
I went in another time. Mr. 2 (the CEO) would not see me. About two weeks
later, I caUed him again. His secretary practically hung up on me. When I finally
reached the CFO, he said. 'You have all these complaints. Maybe you don't need
to shop hert:. '"

FOllOwing her visit to headquarters, Nonna rt:ceived a telephont: call and a

letter infonlling her that she was no longer welcome to shop at Filene's Basement
owing to her excessive levels of returm and complaints. She was devastated. How
could a company fire its "best CUStomer"?

A relationship in ruins

Nomla's Story indicatt:s that company actions taken in the name of CRM
contributed to the crt:ation and subsequent demise of a certain type of relation_
ship unique to tht: commercial world: Ihe best CUStomer. The best Customer is
cultivated and recognized by company t:mployees as special and receives increas_
ing rewards. But a "trap" of SOrts presents itself in managing best CUstomers.
Tht:se company behaviors start a downward spiral which paradoxically rums a
PlatinullJ_Ievel CUstomer into a Lead-level Customer as the expectations of best
CUStomers escalate over time. CRM programs which continuously rccognize and
reward CUStomers ttansfoml best CUstomers from highly profitable, loyal custOIlJ_
ers into high-maintenance CUStomers whose value stemming from their frequent
purchasing is eroded by their increasing COSt-to-serve.
312 Jill Avery and Susan Fournier

How could a finn and its so-called "best customer" become so misaligned?
Nomla continues to struggle to understand what happened. She pins the blame
on the store's inability to track her purchase history. "I honestly don't think they
knew how much I spent. I honestly don't think they knew [ was such a good
customer." Unlike Filene's Basement. she recognizes the int,;mgible value her
brand evangelism brought to the fiml. Were excessive returns the culprit?
Nornla's reasoning rejects this idea as well: returns were part of the Filene's
Basement shopping experience and everyone returned goods to the store. H ow
about the chronic dissatisfaction and complaining that were mentioned in [he
letter that Filene's Basement sent? In her mind, Nonna was not complaining: she
was trying to collaboratively help build a better store and increase Filene's
Basement's profitability. She struggles to understand how the stores' employees
did not appreciate that distinction.
In the final analysis, Nomta's lack of profitability was mutually deternlined,
and Filene's Basement failed in its relationship oversight role. Management failed
to see how its own actions fed a downward spiral in the relationship. They
neglected to play by the rules of the evolved relationship that they themselves
helped to create. Trapped in an untenable situation, Filene's Basement failed to
renegotiate their relationship with Nonna. They fired her instead of working
to tum things around.

Can bad customer relationships be saved?

,
,
Ironically, firing customers is often a case of blaming the victim: many manager";
remain unaware of their own roles in creating unprofitable customers. Managers ,f
who execute CR..M programs without a deep understanding of the meaning of ,
relationships and a process understanding of their dynamic evolution embark 011
a dangerous path. Before firing a customer, managers should take a hard look at
I
their own CRM practices to see whether they bear or share responsibility for
creating the problem. Is the fiml punishing customers for problems that managers 1
themselves enabled? Has the blind and optimistic application of CRM programs i,
ignored relationship realities?
Below, we outline a series of practices that managers must consider in ,"
analyzing how actions taken in the name of CRM may be creating problems in p
the customer portfolio.
"
n

Attraction and acquisition stage

,
[
Relationship problems can occur at many stages of a rela tionship, but most can d
be traced back to the relationship's earliest days. The time during which a u
company works to attract and acquire a new customer is rife with opportunities ,
to invite bad customers into the customer portfolio . Managers need to take a f,
hard look at their customer acquisition practices to detemline whether they are
"
 Firing your best cU5tomers 313
isaligned?
targeting the wrong customers with their marketing outreach. Smart companies
:he blame
know that CRM begins bifore someone becomes a Customer. Getting to know
lrink they
prospects before signing them on as Customers helps companies like Progressive
h a good
Insurance and HubSpot maximize the value of their customer portfolios.
'alue her
Progressive Insurance uses its comparison quotes system to weed out unprofitable
culprit?
drivers before they enroll as CUstomers. Progressive provides prospective custom-
Filene's
ers with their own price quote and a comparison price quote from three of
reo How
their competitors. Progressive prices its own quotes below the competition fo r
d in the
customers that it wants, but raises them above those of its competitors for
ling; she
customers whose profiles indicate that they may bl: unprofitable, thereby driving
Filene's
bad Customers towards its competitors (Frei 2(04). HubSpot, a company that sells
lployees
Software products that help companil:S eXl:cute inbound markl:ting programs,
takes time upfront to analyze the potential of prospective Customers bl:fore invest_
mined,
ing m a relationship with them. Rather than firing customers in whom the
It failed
fim] has invested significant financial and human resources, HubSpot weeds out
They
50 percent of the people who come looking for its product, firing prospects
nselves
rather than Customers, based on its knowledge of which types of Customers will
liled to
most benefit from the company's produce and therefore remain as customers
orking
the longest (Steenburgh, Avery, and Dahod 2010).
Managers should also look at the marketing conununications that are used to
attract clistomeiO to the finn. Some messages attract thc wrong kinds of custom-
el>. For example, price-based advertising will attract price-sensitive customers
who are likely to switch to competitive brands when a better price deal can be
13gers
had. Other messages transfoml good prospects inco bad customers. Programs like
lagers
Tweetcr's automatic price protection guarantee taught custOIl1CiO to value the
ng of
electronic rl:taill:r's low prices, rather than its enhanced service and support.
rk on
ok at
y for Relationship exploration and temp/ating stage
agers
The first few interactions between a company and a new customer are critically
nnll
important for setting the stage for their relationship. It is during this phase that
relationship rules and nomlS are fonned that will guide the Customer's behavior
'r 10
and create expectations for relating with the company. It is also during this time
IS 10
period that the Customer is oriented into the culture that defines the company's
relationships with its customers at large. Managers must examine what explicit
rules are specified during these early interactions and what implicit rules organi-
cally cmerge as the customer interacts with employees and with other customers.
Dissecting bad Cllstomer behaviors and tracing them back to their origins offers
con
the opportunity for managers to discem whether any employee actions contrib-
h ,
ute to the creation of rules or 1101"015 that engendcr unprofitable relationships. for
ties
example, Best Buy realized that its return policies were creating opportunitics
" for Customers to misbl:have; customers wen:! purchasing products at fill! pricc,
'" retuming them to a store, and then retuming to repurchase these sallle products
314 Jill Avery and Susan Foumier

at lower, used-product prices. By rewiring its returns process and sending returned
goods to faraway stores, Best Buy was able to nip this bad behavior in the bud
(McWilliams 2004).
The rules that emerge during the early interactions begin to suggest the type
of relationship at play. Consumer-brand relatioruhips come in many shapes and
fomB and each type of relationship is govemed by a unique set of ruJes. Thus,
managers need to think about what kind of relationships they would like to have
with their customers and then work backwards to detennine what kind of rules
need to be established to seed those relationship types that can be profitable for
the finn.

Critical incidents and relational renegotiation

Opportunities for renegotiating relationships arise during each interaction
between the company and its customer. Interactions serve to either buttress the
existing rdationship when both parties play by the existing rules, or adjust its path
towards the operative goals of either party when one party deviates from the
nIles. Customers often test their relationships with companies by behaving ill
ways that break the rules. For example, a frequent patron of a restaurant may ask
the hostess to seat him/her ahead of other patrons who afe waiting for a table, or
a frequent customer of a grocery store may ask to purchase mo re than the allowed
minimum of a sale item. It is during these times when the company must assess
the state of the current relationship and whether there is a strategic desire on the
part of the company to deviate from the existing relational path. Importantly, in
the moment, managers lUust look forward into the future to ascertain how its
response will affect the ongoing profitability of the customer.
Companies should also keep a keen eye out for opportunities to intervene to
change the trajectory of relatiomhips that are veering astray. HubSpot watches to
see wheth.:r customers are receiving value from the use of the product by closely
monitoring their online activity. Customers are given a Customer Happiness
Index score based on the frequency and depth of their usage, and those with
scores that drop below a certain level are targeted for relariona! intervention.
A customer service representative contacts the customer, offering assistance,
additional training, or resources to get the relationship back on track.
Anoth.:r critical intervention comes at the point of the decision to fire a
customer. Before firing a customer, managers must look inward and carefully
analyze how their own actions are contributing to the relationship state.
Table 16.1 contains a checklist of questions managers can ask to illuminate their
role as a relational partner. It is through this understanding that relationships can
be properly assessed, renegotiated as needed, and set along a profitable path for
both the customer and the company.
Today, Nonna still grieves for her relationship with Filene's Basement. "I will
never go in, never ever. No ... defmitely not. Well . maybe. It breaks my heart.
 Firing your best customers 315

TABLE 16.1 Illuminating the company's role as a relational partner

Attraction and • Did we do something to attract the wrong kind of customers:

acquisition Do we need to adjust our market segmentation :md targeting
stage str.ltegies:
• An: we promising too much in our customer acquisition
marketing communications: Do we need to adjust our
promotion strategies:
• Are we taking any customer we can get or are we discriminating
about who we hire as a customer?
• Are we analyzing our prospects before they become customers
and weeding out those that are likely to become unprofitable?
Relationship • How are we orienting our customers to our relationship?
exploration • What explicit rules are we communicating to new customers?
stage • What implicit rules are organically developing?
• What are customers learning about how to relate to us from our
customer culture?
• What expectations are we building in new customers?
• How might our explicit rules contribute to the creation of bad
customer behaviors:
Relationship • WhJt type of relationship do our emerging rules suggest? What
definition are the rules of that type of relationship?
sug~ • Does our interpretation of the relationship match the customer·s?
Do we share a common vision for who we are together?
Critical • What important relational tests occurred and did we pass or fail
incidents them? How might we have unknowingly escalated a relationship
that was unprofitable to the finn?
• How did we test the relationship to make sure it was healthy?
Ongoing • How did our ongoing interactions cement or change the
renegotiation relationshIp?
• Where did things go wrong and how might we have contributed
to them?
• Did we actively and explicitly work to renegotiate tenll5 that
were detrimental to the flml?
• Did we try to fix our relationship when it went off track?

Is there anything they could do to bring me back? Yeah! Just let me in. I want to
go back. I really miss the store. I have fantasies. My little heart starts to palpitate."
Nonna is open to relationship renegotiation, but Filene's Basement still i~n't
listening.

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