Home > Blog > News > Managing price leakage – Which customers are not pulling their weight?

Posted 08 Sep, 2017 | Posted in: News

Holden Advisors - Trusted partner to global organizationsOver the years, we’ve done some pretty sophisticated analysis – customer profitability, segments, buying intent, and what it’s like to work with them. But being in my KISS mode today, I’d like to share a story from some work we did in the transportation industry
We were interviewing a freight terminal manager, and he was discussing the different types of freight they handled. His statement to us was: “Listen, we have two types of freight, green and brown. The green freight is stackable and easy to handle, the brown isn’t.” We used that simple statement as the basis of the price strategy where the green freight was priced lower and the brown freight priced higher, and it worked quite well.
Think about how this ties to customers. Replace the word “freight” for “customer” – green customers and brown customers.

You all have green customers that are efficient and easy to deal with, maybe even fun. Then you have those brown customers that are always asking for extras, exceptions, special terms, requests to expedite, and never paying for them. Interestingly, brown customers often focus much of their complaints around getting lower prices, and they are usually quite successful. These brown customers often suck away resources and profits so that the green customers don’t get the services they so richly deserve.

So here’s my suggestion. Try to simply classify your customers as green and brown. I don’t care how big they are; size is not the point. In fact, we worked with one company where their worst brown customer was also their biggest, constituting 30% of their revenue. This customer was horrible to work with. They routinely harassed employees, expected extras, and demanded an incredibly low price. Well, after a couple of discussions, my advice to the General Manager was to fire the customer. After much internal angst, they did. I’m not going to kid you. The first half of the year was tough, as they refocused their development efforts and tightened their expenses. But they didn’t lay anyone off and in the words of the GM, “We got through it and are better for it.” Go ahead. Flush a couple of those brown customers. You might be better for it, too. And remember to take care of your green customers better!

Reed HoldenWritten by Reed Holden

Dr. Reed Holden is a Founder and Coach at Holden Advisors.

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