BC Business
Bad Customers
In the midst of a recession, the credit card company American Express is offering “selected customers” a $300 AmEx prepaid gift card if they pay off their balances and close their accounts.
Other US credit card issuers, equally hard hit by escalating payment defaults, are expected to follow suit. Okay, so we can see encouraging delinquent account holders to pay up. After all, the interest they’re racking up is meaningless if they don’t. Also, they’re a drain on the business, because under the revolving debt system used by AmEx and other credit card companies, the issuer has to borrow to carry that debt. But to tell some customers to get lost? In these days of customer empowerment, who woulda thunk it?
When you look beyond the obvious though, it makes sense. In the old days (ie pre-crash), business was all about gathering masses of customers to boost the top line. That’s why you saw freebies doled out just to get a customer on the books. Then you could upsell some product to them or at the least sell advertising space to other businesses who wanted to reach them. With this 20th Century mass thinking, you assumed that 1,000 listed “customers” might produce 100 profitable ones and the free riders were just a cost of doing business.
So you had companies that were in “high growth mode” spending 99 cents (and often more) on a customer for every dollar brought in. But now, we’re in reverse. In future, business health will be measured by the bottom line – profitability – not by revenue. Instead of measuring success by how many customers they have, businesses will be forced to look at how much they’re earning from each customer.
This belief, which governed business for a thousand years or so is, in the words of one not-very-original observer, “a huge paradigm shift.” Well, say hello to a new world where old truths are back into fashion. Simply, if a customer today isn’t paying his way, he’s outta there.