Consumer Behavior

Retailers likely to ‘break up’ with a poor-fit customer

Photo by istock.com

March 11, 2022

The increasing cost of retaining a customer will likely drive retailers to break up with a poor-fit customer and proactively end the consumer relationship rather than wait for the consumer to end the relationship.

In fact, 75% of retailers will take such action by 2025, according to Gartner Inc. research.

"Business leaders are starting to recognize how costly keeping a poor-fit customer can be for business, such as overcustomization, custom-made solutions and outsize time spent on servicing," Neha Ahuja, director, team manager in the Gartner marketing practice, said in a press release on the research findings. "Combine that with costs associated with emotional damage that leads to attrition among customer service reps and sellers, which are two talent pools already under pressure. Long-term profit erosion must also be kept top-of-mind, as investments in poor-fit customers may boost revenue in the short run, but compromise profitability in the long run."

As organizations explore breaking up with this customer segment, Gartner recommends the following to align across teams:

• •Create a customer-fit score to inform actions to take with a customer, such as deciding to further grow the relationship, maintain the relationship or break up with the customer.
• •Work closely with the CFO and the CFO's team to ensure the organization's ability to adequately grow business with, and acquire, good-fit customers to compensate for the loss of revenue from poor-fit customers.
• •Adjust organizational KPIs, including employee incentives, to include customer breakups along with growth targets.
• •Communicate the breakup strategy to the board and investors to ensure they understand that any reduction in overall retention is intentional, and done to improve the company's growth.
• •Revise retention targets to center on the percentage of good-fit customers retained, not overall customers retained.