The Star System for Customers

5-Star
I’ve written about firing your customers before. It is a topic that interests a lot of companies, especially smaller ones that don’t have the time to deal with really annoying customers on a constant basis. A reader made an interesting suggestion about how to deal with the problem, though. He suggested using what he described as a star system; essentially, you rate customers on some sort of fairly objective basis (i. e. 1 to 5 stars). The rating is based on their value as a customer – how often they buy, what they buy, who they’re referred, how often the company has screwed up with them in the past, if they are an active customer (i. e. lots of feedback, etc.). Customers that meet certain criteria are given a star rating.

Say I am a customer of company X and I’m a good customer – I buy their most expensive products, I visit their store and buy something at least once a week, I refer others, I have a store credit card, they have screwed up one or two times and I am still a customer, I talk to the store manager every now and then, etc. Basically, I am a good customer who helps the company / store. I would be a 5 star customer. If, on the other hand, I was a customer of a services company and used their lowest end plan, called them 3 times a day, never referred anyone, and have canceled twice before, that would make a 1 star customer.

The idea behind the system is that no one is ever really fired. However, the 1 star customer is not given any extra attention when he threatens to cancel. To that 1 star customer, the company offers little to no rebates, credits, future discounts, etc. When that 1 star customer calls and complains that his hosted service was unavailable for two hours, he gets an apology. The 5 star customer gets an apology, plus two months of free service. They may even get a call from their account manager offering a second apology. As the reader who emailed me suggested, they “get the red carpet rolled out every time they call, visit, etc.”

This motivates the less profitable (and/or more annoying customers) to take their business elsewhere, but encourages the more profitable (and/or less annoying) customers to stay with your company. The general idea is good and I think it is something that a lot of companies use and keep in mind when they are deciding what to do for a particular customer. It is more formalized at some companies than it is at others, but the general idea is very similar.

Something that you have to be careful about, though, is how your algorithm works. It should be fairly objective (though I think you should be able to add some subjective points to it as well), but you have to keep certain situations in mind. Say I am a 5 star customer and I refer my neighbor or best friend to your company. He turns out to be cheap and annoying (a 1 star customer). If you don’t give him the same great service that I’m used to, that could be a problem and reflect negatively upon your company. You may have to tweak the algorithm to be setup so that if a 4 star customer refers someone, the new customer will never go below 2 stars, etc.

Technorati Tags: , , ,

3 Responses to “The Star System for Customers”

  1. Contact Centers - Management, Human Resources, and Life said:

    Mar 13, 08 at 11:48 am

    Star System…

    A blog that I just stumbled upon the other day, Service Untitled, wrote about a suggestion from one of his readers. A “star system”.  Interestingly enough, it is quite similar to what some call centers have as a standard within their ranks…

  2. Bill Gammell said:

    Mar 14, 08 at 12:15 pm

    This is a great idea. I especially like adding in the company mess-ups as this could be contributing to the problem. It would also be interesting to track star status on a long-term basis to watch trends.

    But still, I think *some* customers need to be fired and not just down graded. They can take a toll on the morale and time of the company. Like a bad cold that lingers, they can weigh on the overall health of the organization.

  3. Service Untitled said:

    Mar 14, 08 at 11:28 pm

    Bill,

    There are a whole bunch of opinions on whether to fire customers or not. I rarely advocate it, but do feel that sometimes it is the only option.

    Thanks for your comment.