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AT&T
Today AT&T faces a serious dilemma in whether or not to continue a relationship with their least profitable customers. AT&T's customer base today perfectly fits the 80/20 rule first devised by Italian economist Vilfredo Paereto in the 19th century (Krotz). Currently, over 80% of AT&T's revenue is generated by the top 20% of customers. By eliminating the least profitable 80% of customers, the company would make a profit similar to what is currently being seen. This raises the serious question of whether AT&T should consider eliminating these customers from their customer base. In the solution proposed today, this lower 80% of customers would be "sold" or outsourced to other firms that offer higher rates than AT&T.
Advantages
The most obvious advantage of getting rid of these least-profitable customers would be financial. Eliminating these customers would free the company from spending money on maintaining a customer relationship that is not profitable. Company resources could be focused more closely on increasing profit, rather then gaining revenue...
As such, customer service resources could be better focused on keeping the top 20% of customers happy with AT&T. This is especially important, as Krotz notes, the "cost of acquiring new customers... runs 8 to 10 times more than the cost of keeping existing ones." Thus, marketing to existing customers and to potential customers that fit the profile of the top 20% of customers may be a more efficient use of marketing resources than current efforts, which do not discriminate between the top 20% of customers, and the other 80%. As Peebles notes, these lower 80% of customers often waste energy, time and resources; resources which may be better spent on maintaining a relationship with the top 20% of customers.
Pitfalls
The most salient pitfall of "firing" the lowest 80% of AT&T's customers lies in the potential for serious damage to company credibility as a result of the outsourcing of customers. It is important to remember that "every relationship is an important link to other customers" (Staples). As such, it is crucial to avoid alienating…
Works Cited
Krotz, Joanna L. Keep your customers happy and coming back for more. Microsoft Small Business Center. 25 June 2004. http://www.microsoft.com/smallbusiness/issues/marketing/customer_service_acquisition/keep_your_customers_happy_and_coming_back_for_more.mspx
Peebles, Noel. Fire Your 'Bad' Customers And Send Them To A Competitor! Pandecta magazine. 25 June 2004. http://pandecta.com/fire-bad-customers.html
Staples. Find Your Highest Potential Customers. http://www.staples.com/content/Open/HighestPotentialCustomers.asp
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