Was Sprint's Sacking of 1,200 Customers Sound Business?
SAN FRANCISCO (AdAge.com) -- Sprint Nextel's decision to "fire" some of its customers may be a good business decision -- but could come back to haunt it in the long run.
In the highly competitive sector where the cost of acquiring a new customer can be as high as $300, the nation's No. 3 carrier -- which already had one of the highest customer-loss rates in the business -- decided to shed some 1,000 to 1,200 subscribers.
Hundreds of calls a month
In a statement last week that kept blogs buzzing, Sprint said the group it ditched made frequent complaints to the company, sometimes hundred of calls a month for six to 12 months, even after the marketer had resolved their issues.
"These customers represent a very small minority of our base and we are taking this action to enhance the level of service we will provide our remaining 53 million customers," Sprint said. Some web accounts implied the offending customers were trying to milk money from the Sprint system, in some cases allegedly getting service for free for years.
A Sprint spokeswoman declined to comment on the web postings or to discuss the strategy behind its decision to eliminate some of its most difficult customers. The move, however, does echo a policy, espoused by Columbia Business School professor emeritus Larry Selden, to center a brand's marketing around the customers a business wants, i.e., those who are most profitable, rather than those who are inclined to milk the system. Best Buy, for example, in late 2002 reformulated its stores around the customers it wanted, a policy that formed the backbone of its most recent success, despite a spate of initial press indicating the store was planning to shun problem customers.
Profitability aside, branding experts called for caution in Sprint's case. "It's a really prickly issue," said Ed Keller, director of the Chicago office of Landor Associates. He compared it to a decision by Southwest Airlines to require overweight customers to buy two seats if they couldn't fit into one, a decision that resulted in some customer pushback because it was viewed as being arbitrarily enforced by gate agents.
"If [the complaining Sprint customers] called and were not getting satisfaction, why haven't they switched carriers a long time ago?" asked Mr. Keller. Although brands will never be able to please all customers all the time, "companies need to be sensitive to what the average person is going to think," said Mr. Keller. "Brand is all about relationship." Like a product recall, "it's less about policy but how you implement [it]," he said.
Southwest now has a policy whereby large customers are urged to buy two tickets in advance. If the flight is not full, Southwest refunds the money for the second ticket. "We have tried to educate our customers," said Marilee McInis, a Southwest spokeswoman, calling the issue "very delicate" and "in place for safety reasons."
It was unclear whether Sprint's decision to drop about 1,200 of its subscribers will result in any measures to improve its call-center performance. In a recent University of Michigan Customer Satisfaction Index study, wireless providers recieved low ratings, with customer satisfaction below that of catalog retailers and banking services. The study found that 74% of customers who have a bad call-center experience will consider switching brands.
"In the highly competitive cellphone industry, companies cannot expect to retain loyal customers if one if five is not having their needs meet," the report said.
"You can't just fire customers and be done with it," said Sheri Teodoru, program director and author of the study. "While it may have made financial sense, there's word of mouth, bad press and a bad image. It could end up as a PR nightmare."