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In my days as a wholesale baker, I had a customer in Washington, D.C., who ran five high-volume delis. To obtain his business, I had to cut my margin to the bone.
He was a bully. Two or three times a week, he would call the office to yell at the customer service reps. He abused my delivery drivers. The outside sales rep was terrified to call on him because of his belligerent behavior. After two years of this problem, I visited to say that even though we valued his volume, we no longer valued his business. We obviously could not satisfy his needs and no longer were willing to try. I gave him a two-week notice to find a replacement company.
When I returned to the office, I announced the decision to my staff. There were cheers. In the weeks after, the office was calmer. I attributed it to the fact that my staff learned that I valued them over one lunatic customer. All of us were happier.
Two months later, the customer called to see if I would meet with him. I did. In the eight weeks since he was "fired" he had used three of my competitors. He did not like their products or their service. His customers were complaining that the great muffins were gone. He did not realize how good we were, and he wanted us back. I agreed, with conditions, and he became a model customer.
The lesson is simple. When we allow our fears to run our business, we lose. I feared the loss of volume that was barely profitable. I feared the confrontation with the customer. I feared that my staff would learn that they do not have to bend over backward to satisfy customers. None of the negative consequences happened.
In the pizza business, the fear I hear expressed most is, "I can't raise my prices."
Costs are up, competition is fierce and volume is spotty, especially during the week. Many operators fear that raising prices will drive down volume. In my experience, the volume you lose is from the coupon shoppers that are not your core customers. They are opportunity customers who only buy because of price. If you did activity-based accounting on these customers, you would find they are the same ones that complain to your staff, use lots of napkins, rarely buy drinks, opting for a glass of water and demand extra service, crowding out your core customer from receiving excellent service.
The top line rules our hearts, but profitability should rule our heads. Serving demanding customers at a discount does not build a sustainable business. Take the time instead to create better products and service so your core customer base expands. Find new avenues in catering, office parties and schools. Get out of your shop and meet new customers in your neighborhood. Tying on the apron to prepare for the rush is a thrill, but serving meals that do not drive profitability is not worth the time.
Dig deep into what really drives your business, and do not be afraid to fire some customers. Raise your prices and provide more value, which will attract the type of customer you really want. Let go of the screamers that elbow their way to the front of the line, waving their coupons all along the way.
Topics: Operations Management
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