Sprint Drops “Demon” Customers

Sprint recently sent 1,000 subscribers a termination notice. These were not dead-beat customers who hadn’t paid their cellphone bills. These were customers who paid their bills on-time but called the Sprint Customer Service department all-the-time.

The terminated customers called the Sprint Customer Service department an average of 25 times a month complaining about billing charges and/or technical issues. In the letter to these disposed customers, Sprint said, “The number of inquiries you have made to us … has led us to determine that we are unable to meet your current wireless needs.”

While the idea of firing customers is counter-intuitive, it’s not new. In the book ANGEL CUSTOMERS AND DEMOM CUSTOMERS (2003), authors Larry Selden & Geoffrey Colvin advocated businesses fire their least profitable customers ("demons") so the business could better focus on satisfying their most profitable customers ("angels").

In an online article, Geoffrey Colvin explains the rationale behind his thinking…

”In our experience across a wide range of industries, companies typically find that the best 20 percent of their customers account for 150 percent of total profits! The worst 20 percent typically lose money equal to 75 percent of profits, while the remaining 60 percent of customers account for the rest. Knowing which customers are angels and which are demons presents an enormous opportunity.

Once you know the true profitability of your customers, you can figure out the reasons behind the numbers. For your unprofitable customers, you'll have to face the reality that you're not offering them a compelling value proposition - a way of meeting their needs so well that they'll reward you with handsome profitability. You'll have to devise new, better, value propositions for them, which our experience shows you can probably do. As a result, you'll start to turn those unprofitable customers into profitable ones, which typically creates a substantial swing in the business's overall profitability.

In the end, you may find that a small percentage of customers just cannot be made profitable. By the time you've figured out who they are, you'll understand very well why they probably aren't worth keeping.”

With over 53,000,000 subscribers, Sprint will feel no pain over losing 1,000 "demon" customers.

---

---

UPDATE ...
Via Seth, by way of gadgettell, we get a look at the letter Sprint sent its "demon" customers:

Comments

[Marianne Richmond]

John,
I have to disagree with your comparison here...the premise of Angel Customers is based upon customer centricity. This is not the case at Sprint.

I can personally attest to this and frequently use them as an example of a company whose business results demonstrate the disconnect between advertising and customer experience. They lose hundreds of thousand of customers for this reason....over 300,000 subscribers in the 4th quarter of 2006.

1000 customers IS a drop in the bucket but these customers probably weren't calling repeatedly to fill a void in their life...they probably were trying to get billing and service issues corrected. I have been trying to do this for over a year and would love it if they would make it 1001.

[johnmoore (from Brand Autopsy)]

Marianne ... I'm not sure what you are disagreeing about. Your angle reads different to me.

I agree with you, Sprint doesn't begin to treat its customers perfectly and that's why customers fire Sprint on a daily basis. But for Sprint to fire customers ... now, that's a different story. We just don't hear about businesses, especially those in a highly competitive field where every customer counts, firing customers.

The aspect of the Angel/Demon connection I referenced is all about the profitability of a customer. Demon customers, as the authors point out, are those customers who for some reason are never happy. They can never be pleased. They drain time and expense from a company who would be better served spending that time and money on customer service issue that can make people happy. These customers are unprofitable.

As you point out, hundreds of thousands of customers "fire" Sprint on a quarterly basis. Ouch. Sprint has issues. No doubt. That makes it even more interesting to me that Sprint will terminate contracts of customers who pay their bill on-time.

You gotta admit that calling the Sprint Customer Service department around 25 times a month is excessive. The article mentions that some of these demon customers called Sprint in upwards of 300 times a month. Ouch.

[Tino]

25 calls a month sounds like one every business day. Based on my experience with every one of the major carriers, I am not disposed to think well of their customer service; so I don't think that it's entirely unfair to assume that a good number of these repeat callers were merely trying to get Sprint to deliver the service that had been contracted for.

Did Sprint refund the customers' activation fees, and buy back their Sprint-network-only equipment? As it's not mentioned in any of the articles I've read, I rather seriously doubt it.

So, even though I've never had any problems with either of the two Sprint devices I have, and even though I have never had any problems with them, I don't think that I will be too likely to renew my contracts with them -- and I certainly won't be buying any new equipment from them.

Because if I *do* develop problems that they can't or won't solve, they've made it clear that there's some invisible line that I cannot cross in trying to get them to live up to their obligations. If *I* decide that they can't meet my needs, they demand an early-termination fee to get out of the contract that I voluntarily entered into. On the other hand, if *they* decide that they can't meet my needs, they leave me with an expensive paperweight of a phone and a new 'activation fee' to pay.

It could be that I have Sprint all wrong, and that these people were all making totally unreasonable demands. But the record of their company, and their industry, suggests that that might not be the case.

If Nordstrom or L.L. Bean decided to 'fire' some of their customers, most people would come pretty quickly to the conclusion that those customers had it coming, because both of those companies are well-known for high levels of customer service and satisfaction.

When you're in an industry known for poor service, though, and when you have the worst customer-satisfaction numbers in that industry, and when your worst-in-the-industry customer-satisfaction numbers are, unlike those of all your competitors, *dropping* (see the ACSI numbers here), I'm not sure that taking a big PR hit in exchange for getting rid of the worst .00188% of your customers is a winning strategy, or that those customers' 'unreasonable' demands are really much of the problem.

[Marianne Richmond]

John, I agree that it is interesting that Sprint would fire unprofitable customers versus fixing their issues. I have no doubt that Sprint has unprofitable customers but IMHO it is their own flawed value proposition that makes it that way.

The authors of Angels & Demons begin with the premise that profitability is driven by creating, communicating, and delivering value to customers.

I seem to recall reading a related article that cited the example of Best Buy whose Demons were the customer that consistently returned merchandise, demanded discounts, only bought the "lost leaders" and never the high margin add-ons such as extended service agreements versus the Angels who did the opposite.

Sprint begins a relationship with a customer (and I understand this is typical of all the mobile providers) offering a discounted or free phone in exchange for a 1-2 year service contract that frequently includes a confusing array of features and promotions that most likely even the rep doesn't understand or explain correctly.

If a customer finds that when they begin using their phone that the reception is bad or calls are excessively dropped, the attitude at Sprint is not, let's fix the problem, maybe a different phone would work better, it is one of "too bad that sucks for you...unfortunately you signed a contract."

If you just say ok to the person in customer service, that's one phone call and they have an unhappy but profitable customer until their contract is up and they bolt...if the customer persists, then the series of phone calls begins that land you in the oddly named "retention" department and you begin to sprout the horns of the Demon.

At that point, you might be offered a service credit for the dropped calls; something that you will have to call back about every month because the real problem has not been fixed. Or maybe some other financial incentive, extra minutes, to put up with the lousy service which isn't going to ultimately change the fact that the service is lousy. The value proposition is flawed.

This is the point where they should say, you know what, our product isn't going to work for you, we will terminate your contract, refund your money. OR, even GIVE the customer a more expensive phone that might have better reception, fewer dropped calls. But no, they would rather persist in the doomed relationship than meet the expectations and needs of the customer....and eventually that customer becomes a Demon who not only calls Sprint but also tells everyone who will listen.

And as I mentioned, the array of confusing features and promotions that change by the nano second become billing errors from the customer's perspective and billing complaints from Sprint's perspective....I have lived this one for over a year.

And it takes at least 6 phone calls on the months that I decide to deal with it to get the mistakes corrected only to have them reappear the next month in a constant cycle of errors and service credits.

I just don't believe that customers want to call 300 times a month or would if the value proposition was in alignment. This strikes me as a kind of "blame the victim" mentality.

I definitely agree with the thinking that companies should have portfolios of customers, some more profitable than others, and perhaps treated differently based upon their value to the companies P&L; but it still begins in my mind with the requirement that the basic product or service being provided performs at an acceptable standard.

So, the disagreement was not with the Demon/Angel theory, but that it applied to the Sprint; they would probably be wise to read the book. It begins with the customer, those people that I think Sprint views as hostages.

Marianne

[mike]

It is our worst customers who teach us the most about what we need to do to improve our business. That's something no communications company seems to understand. Of course, in the case of Sprint, I guess that's what you get when you convert a railroad into a phone company. (It seemed like a good idea at the time because we had all the wires running beside the tracks...)

[Mel]

I have to say the impact of this move will go well beyond the 1,000 customers. More than likely the customers they are dropping are vocal people (considering they are making so many calls) - now you know they will be showing this letter to any and everyone they can. In fact, the first I heard this was a scanned letter on a technology blog. I think by not analyzing the needs for these customers they have overlooked a growing opportunity and instead have sent the message (to more than just those 1000) Sprint is not a customer focused provider.

[Dr. Puck]

Once cost of customer service became a metric, it soon was modeled and soon enough became subject to all sorts of rationalizing schemes running the gamut from five star solve-every-problem to zero star frustrate-and-terminate. Monopolists, like cable TV, don't have to worry about churn, perhaps, but everybody else does.

Anybody who ever came to hair pulling while negotiating hideous automated phone menus and disempowered help desks, long ago came to wonder how Company Hell remains in business.

Customer acquisition costs and customer overhead figure into complex ROI formulas nowadays, so whether the customer service is gold standard or lead standard, it is very likely that it has been quantified and rationalized.

There's no reason to call Sprint 25 times a month when the persons worth bugging are working in investor relations where customer pain potentially can hurt the most.

[Matt Steele in the Hour of Chaos]

It is at least good to know that if I want to get out of my contract with Sprint without paying the early termination fee, all I have to do is break off 1 phone call per day to customer service.

[John]

If a person make an average of 25/mo service calls, I won't describe him/her as a happy customer, they should drop out of the service long time ago. I am saying Sprint is doing them a favor. Way to go Sprint!

[Nat_Nudge]

It’s all nice and fuzzy to talk about how they could have fixed the problem to leverage better customer service for all, ort the worst customers are our best learning tools, but really, would this be viable. If a problem (for these customers) was not going to be fixed by the 3rd call (let alone 20th) something must not be right.
Imagine if it was a product line that causes a business this much trouble. They would eliminate the unprofitable SKU's and focus their energy (and money) to where they would get the best response (and ROI).
There is nothing wrong with selecting your customers.
However, from a marketing and PR perspective, the best approach is to offer product and service bundles so that customers self-select (and self-deselect) themselves either to higher cost offerings (for more expensive customers) or not at all.
Cheers

[Bryan]

I think this was a GREAT move by Sprint. My brother works in a call center for another wireless company, and he tells me about some of the calls they get. Many people will call in on a regular basis just to get free credit on their account.

Many of them will play "dumb" about certain charges or services, and then use that to get the Customer Service Representative to waive charges or add credit to the account. He says that he can look back through the history of certain customers' accounts and see where they do this on a repeated basis. In those cases, I say "Fire Them"!

As a business owner myself, I know all too well how a few of the "Demon" custsomers can drain all of your time and resources. In fact, I have been tempted to "fire" a few customers myself. Afterall, if they're so unhappy with the service, shouldn't they go find another carrier anyway?

I am currently a Sprint customer, and have also been with Cingular. To be honest, I believe that all wireless carriers have their issues - some more than others. For me, Sprint seems to meet my needs the best so here I am.

[Chris Houchens]

My favorite thing about the letter is that it ends with them giving the phone number to call

[johnmoore (from Brand Autopsy)]

Great point Chris. That's hilariously ironic!

[Jacquelina]

Do you know what's going to happen now? Customers are you going to see this as an oppertunity to get out of their contracts, they're going to call in excessively until Sprextel decides to let go of them without penalty. I see people taking advantage of this in the future.

[Dan]

The consumerist has a source inside the call center - frontline experience. Sounds like the 1000 were true demons. Not people with an issue. READ MORE.

[Paul Welty]

This makes complete sense. Business is not about giving free service, it's about making a profit. The hitch is that Sprint gets to decide which contracts they want to keep.

The more interesting discussion seems to be on how this idea can be extended. Should everyone do this? In every industry?

[Mack Collier]

"With over 53,000,000 subscribers, Sprint will feel no pain over losing 1,000 "demon" customers."

Aside from the negative attention they are getting over this, right?

[johnmoore (from Brand Autopsy)]

Mack ... I still do not think Sprint will feel the pain over this. It's hard to believe Sprint will have customers voluntarily leave because of this.

It would have been better if Sprint had shared some of the stories we are hearing about these fired Sprint customers trying to milk money from the company.

On the surface, firing customers deserving of attention and scrutiny. When details are explained, as they are slow emerging with the Sprint case, it doesn't look like a bad decision to me.

[Paul (from Idea Sandbox)]

breaking up is hard to do.

[scraps]

As an ex-Sprint customer, I can understand why someone would have 300 calls in a month to them - I have been told to call another number several times in the same day when trying to resolve a billing problem. In fact, I fired them in June because nobody had a clue how to solve the problem and because they treat their customers so poorly. They promised me one set of services, delivered another, promised to correct it, did not, and eventually told me it was my problem.
And my new service is a better deal for the same price. Plus friendly people.

[Missy]

Let's just face it Sprint Sucks for Service!

I had them a couple of years ago and talk about dropped calls, NO Service in MANY AREAS, and when you ask them why a brand new phone is not working.... the customer service people are the dumbest and rudest!!!!

and on top of it cant fix any of your problems and then try to sell you other services!!!!

WHAT A LOAD OF CRAP!!!!

I AM GLAD I HAVE T-MOBILE NOW IT IS THE LEAST EXPENSIVE PLAN AND GIVES YOU TONS OF OPTIONS FOR THE LEAST AMOUNT OF MONEY!!!

Sorry folks but Verizon is the biggest and most expensive RIPOFF and Sprint has sucked for years in phone service and now they are just complete assholes!