Imagine this scenario. Your tight on cash and you’ve paid a number of bills believing you can pay some of the small ones first so you don’t go over your cash on hand in the bank. One of your vendors is a large bill so you pay that last believing that it will be cashed last and giving you more time to get more cash receipts. On Monday you begin to get calls from all of your creditors politely informing you that your checks bounced. You wonder what happened, not realizing that while you didn’t have as much cash in the bank as you anticipated, the bank chose to cash the largest amount first thereby insuring you would have to pay overdraft fees on all your checks rather than just on one.
If you own a business you’ve possibly had this happen to you at your former bank. I say former bank because if it happens once it so galls you that you absolutely decide to bank somewhere else.
This is an example of bad profits. If you fly you’ve maybe had the airlines charge you excessive fees to rebook your flights. Just this year I had a flight arranged for spring break with my family to Arizona. One of my clients asked me to fly to Colorado to meet with them just before the weekend I was scheduled to fly with my family. I couldn’t keep my old ticket and just fly back on the return trip because this airline wouldn’t allow me to do so. I would have to purchase a separate ticket to fly back and lose the investment I had in my round trip flight. I found a travel agent eventually that had some empathy for my situation and they at least figured out how to rebook my ticket which still cost me $200, but it was a lot less than having to purchase it at the $500+ the airline would have charged me.
If you own a cell phone you probably see offers that detail much better rates to new subscribers than what you have. Direct TV offers a very appealing offer for first time subscribers, yet if you’re moving and sold your Direct TV with your home you’re considered a current customer and you’re ineligible for that deal. It’s kept me from going back to Direct TV for almost 10 years.
You may have your own story on being mistreated as a customer and if so I’d love to hear about it.
What’s this tell you? Fred Reichheld’s The Ultimate Questionserves up plenty of examples of bad profits. The Vanguard Group is offered as an example of a company that recognized they were overcharging their best customers and in essence subsidizing their new customers. The reduced their price to customers who had recently made large investments or who had maintained healthy balances for an extended period of time to recognize their mistake. They realized that bad profits are unethical and don’t make good business sense.
Are you currently doing anything in your business that if you were a customer you would feel is unfair or unethical. Do you charge unfairly for services or products for some silly or long forgotten reason? Are your customers trapped in a long term contract they would love to get out of?
Customer loyalty is the key to profitable growth. Can you define what customer loyalty is for your business? Do you have any measurement that tells you whether or not your customers love you or hate you? What’s inspected gets respected. Measurement creates accountability. If you are not measuring customer loyalty I assure you once you read Fred Reichheld’s book, The Ultimate Question you will quickly do something to change this.
Bad profits, unnecessary charges to your customers that don’t follow the golden rule, create detractors and diminish your businesses ability to grow. If I can convince you to do two things with this blog it would be review your business practices to identify where you might be taking bad profits, and then begin establishing a methodology for measuring your customer’s loyalty.