In the world of ecommerce, the customer is king. But what happens when the king becomes too costly? As counterintuitive as it may seem, there are times when an ecommerce business needs to consider “firing” certain customers to maintain profitability and operational efficiency. This strategy, while controversial, can be crucial for long-term success, especially when dealing with customers who generate excessive returns, pose credit card processor risks, or diminish overall lifetime value.

The Hidden Costs of Customer Retention

While customer retention is generally a positive goal, not all customers are created equal. Some customers, despite their loyalty, may actually be costing your business more than they’re worth. Here are some key factors to consider:

Excessive Returns: Customers who frequently return items increase operational costs and tie up inventory.

Credit Card Processor Concerns: High chargeback rates can lead to increased fees or even account termination by payment processors.

Diminished Lifetime Value: When the cost to serve a customer outweighs their long-term value, it’s time to reassess the relationship.

Identifying High-Cost Customers

Before implementing any strategy to manage or potentially “fire” customers, it’s crucial to have a clear understanding of who these customers are. Utilize your ecommerce platform’s analytics to identify:

• Customers with above-average return rates
• Those with a history of chargebacks or disputed transactions
• Customers whose average order value doesn’t offset the cost of returns and shipping

Strategies for Managing High-Cost Customers

Once you’ve identified these customers, consider implementing the following strategies:

1. Adjust Shipping and Return Policies

For customers with high return rates, consider:

Implementing paid returns for non-defective items

Offering store credit instead of full refunds

Limiting the return window

2. Implement Risk-Based Pricing

Use customer data to adjust pricing or shipping costs based on their historical behavior. This could mean:

Charging for shipping for customers with high return rates

Implementing restocking fees for frequent returners

3. Enhance Pre-Purchase Information

Reduce returns by providing more detailed product information:

High-quality images and videos

Detailed size guides and product specifications

Customer reviews and Q&A sections

4. Offer Alternatives to Credit Card Payments

For customers who pose a risk to your payment processing relationships, consider alternative payment methods:

Bank transfers or wire payments

PayPal or other digital wallets

Buy now, pay later options

Case Study: Mytheresa.com’s Approach

Luxury retailer Mytheresa.com has implemented a strategy to manage high-risk customers. For certain customers with a history of excessive returns or chargebacks, Mytheresa now requires wire transfers for purchases instead of allowing credit card payments.

This approach serves multiple purposes:

• It reduces the risk of chargebacks, protecting Mytheresa’s relationship with payment processors.
• This approach discourages excessive returns by making the refund process more complex.
• It ensures that high-value purchases are more likely to be final sales.

While this strategy may seem extreme, it demonstrates how even high-end retailers are taking steps to protect their bottom line from costly customer behavior.

Implementing a “Customer Firing” Strategy

If you decide that certain customers are simply too costly to retain, here’s how to approach “firing” them:

Data-Driven Decision Making: Ensure your decision is based on solid data analysis, not emotion or anecdotal evidence.

Clear Communication: If you’re changing policies for specific customers, communicate these changes clearly and professionally.

Offer Alternatives: Before completely cutting ties, consider offering alternatives like different payment methods or adjusted shipping policies.

Legal Considerations: Consult with legal counsel to ensure your actions don’t violate any discrimination laws or consumer protection regulations.

Feedback Loop: Use this as an opportunity to gather feedback. Understanding why customers behave this way can help improve your overall business processes.

The Role of AI in Customer Management

Advanced AI solutions, like those offered by CoherenceAI, can play a crucial role in managing customer relationships more effectively. AI can:

Predict customer behavior, including likelihood of returns or chargebacks

Segment customers based on profitability and risk

Automate personalized communication strategies for different customer segments

Optimize pricing and shipping strategies based on customer behavior

By leveraging AI, ecommerce businesses can take a more nuanced approach to customer management, potentially avoiding the need for drastic measures like “firing” customers altogether.

Conclusion

While the idea of “firing” customers may seem at odds with traditional business wisdom, in the world of ecommerce, it can sometimes be a necessary strategy for maintaining profitability and operational efficiency. By carefully analyzing customer data, implementing targeted policies, and leveraging advanced technologies like AI, ecommerce businesses can better manage their customer relationships and ensure long-term success.

Remember, the goal isn’t to alienate customers, but to create a sustainable business model that serves both the company and its valuable customers effectively. With the right approach, you can maintain a healthy customer base while protecting your bottom line.

FAQ

1. How do I identify high-cost customers in my ecommerce business?

You can identify high-cost customers by analyzing your sales data for return rates, chargeback history, and average order value. Look for customers who frequently return items or have a high number of disputes with payment processors.

2. What steps can I take to reduce returns from high-cost customers?

To reduce returns, enhance your product descriptions with detailed information, provide size guides, and include high-quality images. Additionally, consider adjusting your return policy to limit the return window or charge for returns on non-defective items.

3. Is it legal to refuse service to certain customers?

While you can implement policies to manage high-cost customers, be cautious to avoid discrimination based on protected characteristics. Consult with legal counsel to ensure your policies comply with consumer protection laws and regulations. This addition provides readers with quick answers to common questions related to the article’s topic, enhancing the overall value of the content.

About me

As a CFO, I’ve navigated complex financial landscapes to drive growth and maximize shareholder value for companies. My expertise in analytics and data science enables me to deliver actionable insights that shape strategic decision-making. Connect with me on LinkedIn to discuss how my Fractional CFO expertise can support your company’s growth trajectory with CFO PRO+Analytics.

Citations:

[1] https://www.comarch.com/trade-and-services/loyalty-marketing/blog/top-8-ecommerce-customer-experience-retention-strategies/

[2] https://www.drip.com/blog/ecommerce-customer-retention-strategies

[3] https://www.helpscout.com/blog/ecommerce-retention-marketing/

[4] https://www.yotpo.com/blog/what-is-ecommerce-retention/

[5] https://www.gorgias.com/blog/ecommerce-retention-rate

[6] https://thegood.com/insights/improve-ecommerce-customer-retention/

[7] https://www.shopify.com/blog/customer-retention-strategies

[8] https://www.convertcart.com/blog/customer-retention-strategies