Not all customers are equal

Are all customers created equal?


When I read in the paper about Bill Gates donating another few hundreds of millions to another charitable cause, I started thinking about how marketers would (and do) treat Bill Gates as a consumer. Are all customers created equal? Do all justify the same level of service and caring? Should you kow-tow to all customers regardless? Is Bill Gates with his tens of billions of dollars worth the same to you as John Doe, scrapping by from check to check? Should you treat them both the same? Or differently? If so, how?

Some banks have evolved the personal banker position for personalized customer service. Although, the level of service you get is dependent upon the amount of business you do with the bank. One level and you receive the regular ATM and teller service. More deposits and loans and you might be able to transact business with your (shared with hundreds of others) very own personal banker. Upscale further and you may likely have your own (truly this time) contact. And at the upper end, you call and the bank will send a limo down to get you or a messenger over to pick up any business or to deliver them to you personally. Is this wrong? No. and this time it does not depend.

A marketer should view a customer from the point of view of expected current profits and the present value of the stream of future profits that customer can be expected to deliver. If examined from this perspective, not all customers are created equal. The 80-20 law is in full force here: 80% of a company’s sales is typically derived from 20% of its customers. And it is equally true for profits as well. If the law is true, the inverse is equally true: 80% of your customers provide only 20% of your sales. And what do they expect, in the way of service and time, for their miniscule sales? That is what you must calculate.

The alert profitable marketer constantly examines and updates the customer base. What is this customer costing me? What is he providing me in terms of revenues? And what is the net profit I am getting from him? A cold-hearted examination of one’s customer base could well indicate the following: numerous customers who order small quantities only randomly from you, are always late paying or not paying, and are always on the phone with the company demanding quicker deliveries, more service, or higher levels of support than you ordinarily provide. If one were to do a cost-benefit analysis, one would more likely than not find these customers are costing you money. Not only do you not make money on them, you are actually subsidizing them.

Each customer should be examined likewise. A caveat though: Do not blindly discard those customers who end up in negative (costing you money). You must then review them in terms of whether they are providing some other strategical purpose, provide competitive fodder, or you believe they are young firms who will someday grow up into very large firms and you wish to remain in good standing and on the ground floor with them. Nonetheless, the principle is the same. Does this customer make me money or does this customer cost me money? Good customers understand their suppliers need to make money in order to survive and thrive as well. The other ones, those that want to nickel and dime you every where they can, are probably the ones you don’t need to have.

No, not every customer is created equal. And you need not treat them equally as well.