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By- Swati Goyal

Shikha Sharma
Gaurav Mittal
Sahil Joon
Jagpreet Singh
Lakshay 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 relationship
Understand 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 customers
Share the company’s perspective with customer
Questions 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 proposition
Renegotiate 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 customers
Mouse the customer to anew provider (a partner or a
competitor), channel, or form of payment
Questions 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 relationship
Discontinue the relationship with the customer
Questions 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.

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