The Yin and Yang of Dealing with Good and Lousy Customers
One of the most fascinating figures in modern retailing is Bradbury H. (Brad) Anderson, a Northwestern Seminary dropout who went to work for a small midwestern music store called Sound Music. Over the years, Anderson turned the little shop into electronics behemoth Best Buy, with 1,400 stores across the United States and Canada, $45 billion in sales and 155,000 full- and part-time employees.
The corporate philosophy of most giant retailers is to drive every possible consumer into the store with TV advertising, cents-off coupons, mail shots, special newspaper offers and all the other bells and whistles of marketing wizardry.
But Anderson saw that many of these giants were performing poorly.
Several years ago in analyzing Best Buy's customer file, he discovered that of the 500 million customer visits a year, 20 percent—or 100 million—were unprofitable.
So he hired on as a consultant Columbia Business School Professor Larry Selden, author of "Angel Customers and Demon Customers: Discover Which Is Which and Turbo-Charge Your Stock."
It was Selden who came up with the revolutionary theory that a company is not a portfolio of product lines, but rather a portfolio of customers.
Direct marketers have operated on that premise since the 1920s.
Selden divides customers into "angels" and "devils." Angels are the desirable customers who buy stuff and keep it—the kind of folks worth doing business with.
"The devils are its worst customers," writes Gary McWilliams in his Wall Street Journal account of Best Buy. "They buy products, apply for rebates, return the purchases, then buy them back at returned-merchandise discounts. They load up on 'loss leaders,' severely discounted merchandise designed to boost store traffic, then flip the goods at a profit on eBay. They slap down rock-bottom price quotes from Web sites and demand that Best Buy make good on its lowest-price pledge."