Published on Aug 10, 2015
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Breaking up is hard to do. It’s even harder when a business makes the risky decision to sever relationships with hard-earned customers. But that’s just what an increasing number of businesses are choosing to do after taking stock of whether existing commercial relationships are worth the investment.
So what does a business do when it realises that when it comes to some customers, they’re just not that into them?
It’s called customer divestment and it’s a strategic trend in the world of big business where a company ceases to provide a product or service to existing customers, based on information about the commercial relationship.
An example is American Express who in 2009 offered to pay some customers $300 to settle up and close their accounts. The company had determined it could not meet the billing and service needs of that segment of customer profitably.
Customer divestment has also been shown to increase employee morale and production. Removing consistently rude, highly demanding customers can result in longer staff tenure, better job satisfaction and a happier, more productive workforce.
American Express was able to segment its existing customer base and focus more on retaining the right customers. The most profitable customers to all businesses are those who cost less to service, and those who bring in the most revenue.
However, this approach can be risky. Small and micro businesses perhaps don’t have enough customers to afford dismissing any of them. While a business might decide to maintain its relationships and give its customers a second chance, there are still many lessons to be learned from understanding market segmentations.
Segmenting customers can be a very profitable strategy. It is important for businesses to know all about their customers. Sales can be more effectively targeted by understanding sales histories, demographic or geographic information about customers.
This approach can prove very useful when contacting customers regarding a new product, expanding into new areas or reaping greater conversions from direct marketing or paid social media promotion.
Tips to segment customers:
- Collect Data – e.g. postcode at point of sale
- Membership / loyalty programs
- Record sales histories for customers
- Use your Facebook Insights and Google Analytics data
Check out the Small Business Toolkit for free walkthroughs on a range of up to date business information including a chapter on Market Segmentation. Free advice is available to businesses in Cessnock City seeking support with achieving their marketing goals. Advance Cessnock City partners Hunter Region Business Enterprise Inc. (phone 4936 2557) and The Business Centre (phone: 4925 7700) offer free advice and referrals on a range of business topics including marketing.
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