Why You Have Bad Customers
Bad customers are everywhere. Showing up with coupons, but no cash. Wanting written estimates so they can price shop elsewhere. Bad customers make "frugal" a four letter word.
Even loyal and good customers are behaving badly -- how did it get so bad? Is it just this economy or has something else gone wrong?
Imagine that you sell and install "parts". You could sell auto parts, or you could sell specialized advice based on standard legal documents as an attorney or insurance broker.
Any business that has a specialized service component bundled with a standard good is a "parts" business. And most of us in North America and Europe are in this type of "parts" business.
Imagine your perfect "parts" customer. Call her "Maria". Why is Maria ideal? She is the perfect customer because;
- She showed up for her regular appointments;
- She accepted your service upgrades without hesitation, and;
- She didn't haggle over the price of "parts" and service.
was good. For you and Maria.
Now, however, the "parts" business is getting hard.
On one hand, there are after market stores which will sell "replacement parts", even specialized IP is not immune to being sold as a "part". With their large, or on demand inventory, they can undercut you on the price of a "part".
On the other hand, is the rise of the "do it yourself mechanic", an unregulated body of individuals mimicking specialized work. The DIY crowd can "install parts" cheaper than you, given the right diagnostic./
And now, Maria is getting wise. She shows up, more often than not, asking only for a written diagnosis of her problem. Or she wants you to install "parts" she has bought from a competitor.
Maria has become a bottom feeder. Soon, you will only see her when, in desperation, you put out another ill conceived marketing offer - buy one and get one free, or a BOGO.
You don't want to turn down business. But, you would like to fire Maria. Except, so many of your customers are starting to look a lot like Maria.
One response is tempting. You can raise prices and drive out the bottom feeders. This response risks alienating your good customers - turning them into "Marias". You cannot afford that solution.
What do you do with a problem like Maria?
What You Need is a A Bad Customer Detector
No, what you want is a permanent or real solution- a Maria detector if you will.
Your strategic problem is this. You are being asked to give away confidential information - a diagnostic scan, a specialized legal opinion or insurance solution- to a user that is not yet committed as a customer.The user may thank-you for your valuable information and take it without paying.
You may respond by charging something for this confidential information. And, this may work for a short period of time -but it may also turn more of your loyal customers into price conscious shoppers - on the slippery slope to being a Maria.
So, what you need is a way to detect Bad Customers.
How Would This Work? Create A Specialized Bad Customer Training Exercise
If you knew a user was going to turn out to be a Maria, your staff could gently turn her request for confidential information down. Staff would explain that it is policy to only give away confidential information to proven and loyal customers.
How could you get a Bad Customer detector? How could you train your staff to play "Spot the Maria Game"- staff that were top notch Maria detectors? How much would you be willing to pay get train your staff with the Bad Customer detector?
(The "Spot the Maria" is a fairly simple variant of a well known negotiation training exercise. The logic of this strategy can be found by googling "deterrence" or "sub-perfect Nash equilibrium". But, you don't need to know why this games has attracted the attention of theorists; you just need to know that there is training exercise, which could be customized for your unique problem.)
Who Also Uses Negotiation Role Playing?
, there are cheaper solutions - the custom solution should prove to expensive. There are many excellent providers of standard negotiation training exercises. Most of these providers or their affiliates can address standard negotiation exercises and provide training that sticks to your staff.
Two top notch Universities are: Northwestern's Kellogg School of Management Dispute Resolution Research Center, and Harvard's Program on Negotiation, each which provide standard negotiation exercises, which you can review on line for free. Each has its own Linkedin Group, DRRC Linkedin Group, and PON Linkedin Group.
DRR and PON have free newsletters, seminars and useful resources. They also have for profit training seminars.
Here is a partial list of the DRCC and PON testimonials:
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Interesting exercise Michael. We like to detect Bad Customers through the discovery of Decision Criteria during the information-sharing and discovery phase. However, if a Bad Customer happens to sneak by, we can also use MEO's (Multiple Equal Offers) to determine if he is a Bad Customer and deal with them in turn.
I'd like to see the full exercise, if you have it. Thanks,
I do not agree there are bad customers. There are uneducated customers.
If you take the time to educate and discuss there problems and issues you can turn them in to a customer even if they are bringing in there own parts.
You tell them about warranty's and labor cost to them when they bring in their own parts.
Most will come around to your way of thinking.
If not you just charge accordingly.
When that person comes in wanting a diagnoses you tell them we can take care of that for you and charge them accordingly.
Helping them understand their problem and why you are the right place to take care of their problems.
Instead of them taking it to that guy down the street who could not figure it out for them to start with!
But, if they make that decision to go down the street you still got paid for your information.
Joe, thanks for the kind words.
For those not familiar with MEOs, here is a brief explanation.
Many "hard-nosed" customers want low price, high quality, and great service. The snappy reply to such a demand is: you can have two out of three.
Joe and his company, Think! Inc., http://www.e-thinkinc.com/ have a more subtle reason, using Multiple Equivalent Offers to generate movement from the customer. A MEO is a series of tradeoffs which are all of equal interest to the seller, designed to get the interest of the buyer. For example, you might offer a bundle of goods/services like:
a) 10% discount, 5 year warranty, and call center level help.
b) no discount, 10 year full warranty, but email level service,
c) 15% discount, 1 year basic, and full service help.
Joe screens bad customers who try to cherry pick from the bundle containing his MEO, {a,b,c}.
It is a clever idea.
(There is a good example of the strategic difficulties in presenting an MEO, in the Manager as Negotiator and the City/Cable game.)
Check out some of the offerings at Think! Inc.
(Joe, I will send you the exercise over the weekend and bundle it with some original material. The teaching goal is to get people able to model the interaction and not just play it. If you cannot teach it, then you haven't learned it.)
Tim, you are making some good points.
I agree that this is a customer service issue.
And in a franchise system, you can establish what the good, better, and best way is to communicate this information to the customer.
As you point out, good customer service just goes beyond the friendly smile.
Good comments Michael and thanks for the links at the end.
Consumers expectations are changing based on the what they read on social media and the news and in the end it may not be what their initial purchase intent was anyway. Price and service will always be two differentiators in buying decisions. Price comparisons are easier for the consumer to make but service and value are ore difficult and can be two things that a company can focus on to impact the decision. Joe concept above might,MEOs,be a solution as well and is worth consideration.
Game theory can be such a great source of good, standard responses to problems like that.
I wonder how a standard response would work of requiring payment for an estimate, but crediting that back to the customer if they have you do the work, so the estimate costs them nothing.
That way the "Maria - bad customer" ends up paying or better yet, refusing the estimate (so now you KNOW she is a bad customer, and don't have to follow up with her) and "Maria - good customer" gets a free estimate.
I know if I have every intention of having the work done by the estimator, I would agree to that.
Edmund, the real life problem is a little bit more difficult.
Yes, if there was separate price for the estimate which was established in a competitive market place, you could certainly rebate some or all of back for a completed job.
The problem is to establish what the price should be - when previously it was offered to the customers for free.
Hard to get people to pay or value something that was either free or given to them.
Can game theory suggest a price?
I would think the price should simply be the regular hourly rate. You will certainly get "no's" but who will you get those "no's" from?
Good Maria or Bad Maria? It's a winnowing process with a change in your goal from getting and keeping as many customers as possible toward getting rid of bad customers and keeping good ones.
Edmund, there may be a number of ways of pricing what was formerly free. Your idea about the hourly rate may work. It may be the best idea.
(Merely winnowing the good from the bad is not sufficient - there are a number of conditionally good customers who you may have turned into conditionally bad customers.)
A great use of game theory works like this:
a) We have difficult commercial problem - we are losing sales.
b) Game theory structures the problem in simple way.
c) From this simple structure, we can build a role playing exercise or a negotiation war game. We speed up real time interaction by playing this exercise quickly and a number of times in the simple world.
d) Then we can try out everyone's intuition about how to solve the problem in a) -without adjudication or argument. Let's just do it and see what we can make work for us.
Many different things will work for many different people, and we need to focus on which ones will work for us.