Customer Prioritization - A Double-Edged Sword

What is it about?

Customer prioritization strategies, which focus a firm’s efforts on its most important customers, are expected to improve account profitability. Anecdotal evidence suggests, however, that such strategies may also undermine account profitability by inducing customers to become overly demanding. Building on social exchange theory, this research evaluates these competing perspectives across two field studies and finds that prioritization is best understood as a double-edged sword. Specifically, the results reveal that prioritization efforts initiate both a gratitude-driven process, which enhances sales and profit, and an entitlement-driven process, which increases service costs and reduces profit. Importantly, the findings indicate that prioritization tactics differ in the extent to which they trigger these competing processes and thus in their ability to influence account profitability. Finally, the results also reveal that critical moderators (competitive intensity and prioritization transparency) determine the extent to which the entitlement-driven process undermines the gratitude-driven process. For managers, the findings suggest that both the tactics employed and moderating conditions determine whether prioritization has a positive, negative, or negligible effect on prioritized accounts’ profitability.

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Why is it important?

Allocating resources to customers according to their importance can be a double-edged sword. In this study of German industrial good makers, Hauke Wetzel, Maik Hammerschmidt, and Alex Zablah show that customer prioritization generated feelings of gratitude which boosted profits, but also resulted in feelings of entitlement which reduced profits. Counterintuitively, being transparent with consumers about the details of the prioritization scheme led to more entitlement behavior and lower profits.