Rejecting a customer

[Vishwadeep Khatri 265]

Q. 195 While customer may be akin to God in business world, not every customer is worth the time and effort. What could be some guidelines for customer rejection ? Use examples from industries that you are comfortable with.

 

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[Ram Rajagopalan 1]

Customer is always King!. But all organizations need to determine what type of Kings they want to deal with, which will help them in achieving a sustainable and profitable growth.

 

In IT services sector, ideally you want to work with Customers who treat you as Transformation partner, to work in join partnership on solving their business requirements. This is in contrast to vendor partnership resulting in staff augmentation. But to get there takes a lot of effort to build the Brand, capability and delivery excellence etc. for customers to treat you that way.

 

Working with larger Fortune 500 Corporations means a more structured approach for contracts, services and payments. But they also typically tend to mitigate risks by having more than one vendor for their requirements. Working with small to medium size organizations, may lead to challenges on size of contract, payment issues etc, with upside of becoming a strategic partner when the customer organization grows. Working with customers mean investments in Customer Relationships, Proposals, Proof of concepts etc, which are justifiable only if the relationship grows. Its better to trim the tail (where returns are meagre compared to investments) and refocus on profitable customers.

 

Organizations need to decide on their customers based on the products and services they provide, their stage of growth,  risk appetite and financial situation. Its better to turn down customers, when the requirement is not a skill the company has or wants to build, or there is insufficient capacity to meet the requirement, or requirements are not clear leading to potential scope creeps.

 

There is an Explicit and Implicit way of selecting the customers to do business with. Implicit is indirectly stated or implied, while Explicit is directly stated and spelled out.

 

In Explicit, companies usually spell out policies to meet to work with customers and vendors. There might be a minimum revenue size requirement, years of existence, credit worthiness, geographical location etc. This usually changes as the organization grows.

 

In Implicit, Companies can segment the customers they want to work with and design appropriate strategies so that customers self select. For example, a high end luxury brand Retailer, will have stores located in Premium locations or malls, offer limited but exquisite products and pricing is in the higher range. They offer excellent customer service (Nordstorm, Coach, Burberry etc). Similarly Retailers, like Walmart offering Every day low price, target the general population, offer a wider catalogue at affordable price range. There is a dynamic of margin vs volume play, and based on which companies design their investments. This is visible in many sectors Hotel (2 or 3 star vs 5 star), Mobiles (Apple vs Android), Cars (BMW vs Hyundai) etc.

[Venugopal R 60]

Benchmark Six Sigma Expert View by Venugopal R

 

One of the very important goals of every business is to expand the customer base and to excel in customer services. However, there could be numerous situations where a business finds itself unable to accept certain customers. Often, this inability to accept a customer could be temporary and may get reversed when the situation turns favorable.  Below are some situations when, it may not be possible to accept an approaching customer:

 

1.     Inadequate price offered by customer

2.     Insufficient bandwidth to accommodate the customer

3.     Lack of competency / capability to serve customer’s requirement

4.     Customer not satisfying security requirements

5.     Merit based acceptance

6.     Customer supplied part not meeting requirements

7.     Rejection due to unacceptable data inputs

8.     Upholding professional ethics

9.     Competitor to existing customer

 

1. Inadequate Price offered by customer

This would probably be one of the common reasons for rejecting a customer. Over time, the price would be determined by a competitive market. However, businesses who have earned reputation for higher quality, delivery and service will expect premium price for their products / services.

 

2. Insufficient bandwidth to accommodate the customer

When the supply is not sufficient to meet the demand, customer rejections happen. A very popular example would be to turn away a passenger because the flight is fully booked. You would be aware that some airline do ‘overbooking’ with the anticipation that there would be some last minute cancellations, but then there is a limit beyond which you will have to regret customers, who might be lost to competition or may come back subsequently

 

3. Lack of competency / capability to serve customer’s requirement

It is important for any business to understand needs and expectations customer – and evaluate whether the business has capability and competency to meet those expectations. I once witnessed a motorcycle service center who had clearly displayed the brands that they would service, and turning away one customer whose product was not one among the displayed list, though they would certainly have had the necessary tools and expertise. This occurred to me as an example where the service provider did not want to perform outside his circle of capability and competency, for which they are reputed.

 

4. Not satisfying security or ‘worthiness’ requirements

These situations are common with bank customers who seek loans or credit cards. Banks will have a defined criteria to evaluate the risks and credit worthiness to approve a customer or not. An air passenger may also be rejected, if there are security concerns. These are situations, where accepting a wrong customer can put the other customers or the business into jeopardy.

 

5.  Accepting based on certain merits / qualifications

The parent of a student would be a customer for an educational institution. The institution is going to accept the student only based on the students past academic records and / or an entrance test. Students who do not satisfy these requirements will not be admitted and amounts to ‘customer rejection’

 

6. Acceptance based on Customer supplied part

This is similar to the situation as per point no.5, but applicable in an industrial situation where a ‘customer supplied’ part has to be utilized for delivering the product / service. This is a situation where the customer is also a ‘supplier’ and if the ‘supplied part’ may not meet the requirements for manufacture-ability

 

7. Rejection due to unacceptable data

An advocate may sometimes reject a case from a plaintiff, if the evidences available are insufficient or not convincing enough.

 

8. Upholding professional ethics

Where there is risk of violating statutory or legal requirements, customers may not be accepted. A goods forwarding company may refuse to provide services to a client, who is not willing to follow the customs and import regulations as applicable.

 

9. Competition to existing customers

For certain contractual agreements, there could be a requirement that services by a service provider be dedicated to a client. It could either be as a captive supplier or with a restrictive clause to prevent providing parallel services to a competing customer. This could result in rejecting such customers to comply to the contractual requirements.

 

While a few situations have been discussed above, I look forward to read the varied experiences from the other responses. While writing this, the thought that occurs to me is that, out of the above situations, there are some where the business can work on actions that would enable them to overcome the situations and make the customers acceptable to that extent.

[Indrani Poddar 1]

The whole purpose of a service or manufacturing of a product starts and ends with customer. Hence customer is the integral part of every product or service. Organisations have become far more flexible in today's time to meet customer goals and objectives. Driving value beyond expectation is something that the leaders in the market are thriving for to maximize growth and hence their top line and market share.

Very rarely do we see  a service provider or a manufacturer reject a customer. However citing key examples and criteria which is actually leading to a customer rejection in the value chain and offerings.

1) Credibility of the customer in the market, their credit rating and financial position determines whether one would deal with or reject the customer

2) Every organisation has a vision and a mission. If there is alignment to the vision with that of the customer a partnership can start and sustain. However any de-alignment of the same which leads to deviation of the vision and values of the organisation can lead to rejection  of the customer

3) Confidentiality is very  key between a provider and the customer. If there is any deviation to the confidentiality terms and conditions would definitely end up with customer rejection and legal suits

4) Customers supporting directly/ indirectly illegal organisations or customer themselves are involved in illegal activities or transactions, unethical activities or behaviour is another critical factor for customer rejection

5)Delivering value or service to a customer if the profitability falls below the company's minimum threshold can lead to customer rejection

6) Specification of a product for a manufacturing company undergoing too many changes w.r.t LSL and MSL very frequently could lead to customer rejection

 

 

 

[R Rajesh 39]

Mahatma Gandhiji said once , that 'Customer is the King'. If we want to do business successfully, it means that we should satisfy our customers. Else we would loose the race in the respective field(area of business). Having said this, there are some interesting places where we would think as a business provider that we can better stay away from a customer.  

In my opinion, there are multiple reasons as why we may not like to have some customers(in a corporate world or an individual business)

 

In a corporate world it could be because
1.Of a high demanding customer to which the 3rd party or service provider organisation cannot cope with
         - It could be due to high expectation on performance , end-user satisfaction
2. The service providing organisation may not see a long-term benefit(profit) in its engagement with a customer as it had originally envisaged and the effort in putting the work therefore may not be the worth. 
3.  Of a stringent regulatory compliance/mandatory in a given location (in/from which the customer is operating) that the service provider cannot afford to have for various genuine reasons(like infrastructure/logistical challenges, lack of specialized skill,...)
   Eg: Take Automobile industry for instance. Indian car makers need to comply with European automobile standards 
4. Of a tough SLA compliance which the service providing organisation may not be able to meet or may be fraught with much risk in terms of penalty for non compliance which may not be worth for the benefit that it gets. Especially in an IT industry say in a production support(maintenance) where penalty clause might be stringent and the organisation may not want to get involved for that kind of work for the benefit it gets.

    

In an Individual business it could be because
1.  There is a perennial problem with payment from the customer side
2.  There is loss of trust due to the happenings in the earlier dealings 
3.  Of ethical and moral values which the customer may not practice for whatever reasons.

Conclusion

Every organisation/individual running business would a benefit to cost ratio. Especially , in a corporate world, how much profit an organisation (Service provider) would get from the customer/customer segment is what the top mgmt would think of. If the customer is not going to be of any benefit to the growth of the organisation or not helping the image for that organisation, then there is no point in having such a customer.  For individual business, there can be any number of reasons. 

[Natwar Lal 35]

I couldn't agree more to the statement "not every customer is worth the time and effort".

 

Some of the most common reasons for denying business with a potential customer are as follows

 

1. Business ideologies or work ethics do not match

2. Product is developed for a specific customer segment. E.g. Credit cards are issued basis the annual salary of an individual. Some of the high end credit cards might not be available to some customers

3. Financials do not work out between the service provider and the customer

4. Regulatory restrictions. E.g. tobacco products could not be sold to people below the age of 25

5. Customer does not follow the guidelines laid down by the service provider. E.g. in some fine dine restaurants, they require the customers to be dressed up in formals and if the customer is not dressed up accordingly, the restaurant may deny entry

6. Customer is too demanding and/or is finicky and/or is unruly. E.g. recently airlines have become intolerant to unruly customers and they might blacklist such customers from flying

7. Background of the customer. E.g. Services not being sold to people or companies with criminal background

8. Sanctions (economic or financial or military). E.g. Financial transactions are prohibited with companies in OFAC countries

 

[KiranKumar 2]

Q. 195 While customer may be akin to God in business world, not every customer is worth the time and effort. What could be some guidelines for customer rejection ? Use examples from industries that you are comfortable with.

Ans : Interesting Question !! Yes, we all want as many customers. However, there are some products / services where the "customer" need to be qualified. Eg : SPA membership in a 5 Star Hotel / Customer for a Maybach/Rolls Royce car / a Villa in a Uber Elite Limited Edition complex of just 51 Villas etc

Why? The experience is beyond Monetary Viability/Affordability. For right or wrong reasons, not everyone knows the nuances of using a top notch spa and the etiquettes that need to be followed in such spaces. It's not about saying NO, more so about all the users having a common understanding of the dos/donts etc. same goes with the Maybach Car or a Luxury Complex...

This is the ONLY reason why the sellers/providers request for a discussion to understand the customer and educate the customer not about the place but also help them understand the fitment in such a way that the "DECISION" taken is for the GOOD of seller & buyer of product or service....[ Thought we have taken a Luxury example for convenience reasons, this fitment check applies to many products/services at all income/affodability levels ]

[Anupama 3]

Generally, the customer's nomenclature is to get value for money.  In the process, they end up demanding over and above the services provided and presume that they be attended to.  Its more like a master and a servant (Sorry if it sounds rude) than a B2B.   There are customers who understand the limits of the services but there are few customers who demand more than the services offered. 

 

(Though not an industry example, quoting a simple one for better understanding)

 

All of us have pani puri and we feel getting two more extra is our birth right, yes we do ask and the pani puriwala also obliges for our request.   After serving those two extra puries if you ask for more, certainly you get to hear an assertive “No “ as a reply.  The customer further demands - he may serve one more extra; but he will certainly remember this customer for long.  Next time the same person comes, he’s now prepared to say a firm - No.

 

He senses the ‘greed’ pulse of the customer and does not mind losing one.  

 

Similarly, we find such ‘greedy’ customers who not only expect more and also bargain for a discount.  No industry is void of such customers. Extended services, complimentary services, services at an extra cost can be provided with an incremental or calculated expenditure.  

 

Few cases, customer goes overboard to get the best bargain or to get the maximum benefit. Such greedy customers are not worth the time.  No matter what they are offered, they will remain unsatisfied.

 

General guidelines

1. Understand the exact requirement / demand of the customer

2.  Gauge the extent of the demand.

3. Look for alternatives, until you exhaust all the options.

4. Know when to say a No

5. Know, why you are saying a No

6. Politely say a No.

7. Else, create a win win situation.

[Vishwadeep Khatri 265]

The winning responses this week have been selected as those from Ram Rajagopalan, Indrani Poddar, Natwar Lal and R Rajesh. 

 

Noteworthy perspectives from Anupama and Kiran Kumar

 

Also, please read response from Benchmark expert, Venugopal.