By- Swati GoyalShikha Sharma

Gaurav MittalSahil Joon

Jagpreet SinghLakshay Mehra

A process where the company stops providing a product or service to an existing customer.

Fast becoming a viable strategy for many organisations.

According to a survey in 2005-06, 38 executives form 32 companies were interviewed.

Also, included a random sample of 236 customers.

90% said they had given serious thoughts to divest customers & 10% had already undertaken divestment.

0f the customers, 23% indicated they have been let go by the company in the past year.

Profitabililty Customers not providing sufficient returns on

investments specially in the Finance and insurance industries where the customer risk factor is really high.

Companies in the retail and service sector have also divested themselves of customers in order to stem losses.

For instance, retailers like sears and best but charged restocking fees to discourage customers from returning products.

Some organisations are systematic about separating the profitable customer from the unprofitable ones. They use analytical tools to compute customer lifetime value scores and other relevant metrics.

Increase employee productivity and morale

Unduly rude and habitually obnoxious customers can impede employees’ ability to get their work done and their desire to stay with the company.

For instance – A frequent Diner at a restaurant who spends a lot on food and wine every evening but condescends with the waiting staff and disturbs the other patrons , so, for the sake of employee retention , the company has to let go the customer.

Capacity constraints

Some companies lack the appropriate expertise , physical capacity or financial resources to continue providing a particular service.

Other companies underestimate customer demand for new regulations or environmental courses.

For instance, an accounting firm divested itself of 100’s of US customers after Sarbanes-Oaxley Act was passed which significantly increased the time that employees had to spend on compliance matters for large, publically traded clients.

E.g.- Even AT&T decided in 2004 to focus mainly on the commercial market and less on residential customers

Shifting business strategies

During the late 90’s, a world class telecommunication firm had indiscriminately signed up large numbers of small business clients in an attempt to gain market share quickly.

By 2004, many of those customers had gone out of business. The companies now paying for that landgrab.

Where high fixed costs are involved, risk of placing more of the cost burden on the remaining clients.

Loss of valuable sources of Information, experimentation and innovation.

An unintended favor to the competitors. Loss of relationship with high value customers. Remaining customers may become insecure. Can be viewed as a form of discrimination. Contradicting the principles of corporate social

responsibility Effect on frontline employees.

Divestment Creeps when the value provided to the customers exceeds the value extracted

However, a broader analysis of the customer company relationship should be undertaken before it can be implemented.

1. Reassess the present customer relationshipUnderstand why the customer is being considered for divestment.

Questions to ask-Do we truly know why this customer segment seems to be

unprofitable ? Has buying decreased because of an unwillingness or inability to spend ? Has the company’s focus changed.

Actions to take-Gain detailed information and qualitative insights about

customers’ attitudes and behaviors.

In practice-A study of a large advertising agency paying less attention to its

smaller clients.

2. Educate the customersShare the company’s perspective with customerQuestions to ask- What are the customer’s relevant knowledge gaps? What is the best way to educate this customer? What can the customer do to help in the education

process?

Actions to take- Manage the expectation of customer so that they are

more willing to adapt. Encourage customers to participate in decision

making and to offer feedback on services

In practice-Fidelity investments educated them about its lower-cost

troubleshooting methods

3. Renegotiate the value propositionRenegotiate the value proposition to achieve mutual

benefits for the company and the customer.Questions to ask- Are we really negotiating or just sending a one sided

message? Have we built into our prices all the secondary and

tertiary benefits we provide our customers Are customers aware of our entire value proposition?

Action to take- Implement differential pricing and service strategies Open the lines of communication between the company

customer( especially B2B settings) Present modular products and services that customers

can mix and match

In Practice-A supplier of commercial dies for heavy machinery charging

extra for onsight service from unprofitable clients.

4. Migrate customersMouse the customer to anew provider (a partner or a

competitor), channel, or form of paymentQuestions to ask- What offerings would better serve this customer? Is the customer willing to move? Which partners would accept this customer?

Action to take- Identify partners of subsidiaries in the same category as

alternatives for the customers Identify alternatives providers, even riavls, in the same

industry.

In Practice-In 2006, satellite TV provider Echo star created a prepaid

service option B2C customers with bad credit histories.

5. Terminate the customer relationshipDiscontinue the relationship with the customerQuestions to ask-Now that we have gone through the proceeding steps, how can

we get the customer to buy in to the decision to end the relationship

Action to take- Setup precondition for disinvestment with the customer Establish mutually agreed upon schedules and benchmark for

moving toward disinvestment. Encourage mutual reviews, which include Feedback from and for the customer In Practice-Texas power company TXU, capitalizing electricity deregulation,

disconnected service to some late-paying customers and offered special perks to those who paid on time.