b.cognosco

A little over a year ago I ended an eight-year relationship with Bank of Abuse, when their fee structure became so onerous it looked like they were going to try and charge me $3 for talking to a teller. I never voluntarily joined BoA, but through a series of mergers they became my bank by default. By the time my account came under the actual BoA banner I was paying more in bank fees than I had ever paid in my life -- an average of $25/month for a standard, household, joint checking account with DirectDeposit. I've no doubt that BoA was trying to get rid of me as a customer, and they did a fine job. But apparently it worked too well and customers left in droves. This was all done in the name of Customer Management and focusing on MVCs (most valuable customers), which was quite the mantra for big CRM consultants over the past few years. Turns out the shoot-from-the-hip dumping of customers wasn't all that smart and banks, among others, are now running as fast as they can in the other direction. Hence, the 180-degree pivot on consumer banking customers by BoA.

In a white paper entitled The Customer Profitability Conundrum: When to Love 'Em or Leave 'Em strategists from Booz, Allen, Hamilton and the Wharton School examine this new reality:

"Some of my clients now tell me they’re sorry they listened to consultants five years ago when we told them to get rid of unprofitable customers," says Chris Dallas-Feeney, senior vice president in Booz Allen’s New York office. "In banks, where I spend a good bit of my time, executives in the 1990s were told to get out of the mass market and focus on more affluent, profitable customers. Today, they’re saying, ‘To heck with that, we want to serve every customer we can.’ As consultants we have to amass significant evidence to prove a particular customer segment is a dog and therefore you shouldn't bother."

According to Wharton marketing researcher Peter Fader the idea doesn't work because you can't readily predict the value of individual customers, especially in the consumer sector. As Fader says,

"Despite our desire to explain everything a customer does, much customer behavior is very random... It's hard to look at the past and say with confidence this is a good customer and this is a bad one."

At the recent CRM Technology Decisions conference this theme was reinforced, as speakers talked about using customer data to model business behavior and build collaboration, not as a culling mechanism. Certainly, some customers should be invited to leave, but far more often the business needs to simply learn to serve customers in a way that makes them more profitable. Did BoA make a mistake in firing me? I don't know, but according to Wharton marketing professor Barbara Kahn, firing customers should be a last resort.

"It’s more expensive to acquire a new customer than to retain an existing one," Kahn says. "It’s even more expensive to bring back a customer that you’ve gotten rid of. It’s costly and it’s a mistake you don’t want to make."

Where the banking industry erred was in its belief that technology could somehow invert the free market model. They thought they could find and deal only with customers interested in what they had to sell, and avoid having to figure out how to provide what customers wanted -- that was, and still is, the lure of CRM. But technology is no substitute for common sense and businesses that dedicate themselves to ever smaller sets of customers may soon find themselves chasing the stampede as BoA now does. The value in CRM is in providing a channel for customers to tell you how your business can do more, not less, and in opening your eyes to new markets, new products, and new opportunities for growth.