Managing customers profitably

Lynette Ryals
Cranfield School of Management

When making an offer to your customers, make sure they are worth it first and won't end up costing your company a lot of profit over the long term.

Consider this scenario. An insurance company develops a new product and the marketing team puts together an attractive offer package for the launch.The roll-out is across the entire customer base.Thousands of delighted customers sign up. So, a successful launch?

Well in fact, no. It was a disaster. Customers applied for the amazing offer in their thousands, almost all were customers who were barely profitable at the best of times. The additional costs of the launch package tipped these customers over from barely profitable to positively unprofitable. And, having to look after thousands of unprofitable customers damaged the service levels that the company was able to provide to its more valuable customers, many of whom subsequently defected.