Final answer:
Customers who are both low revenue and low profit generators generally require strategic evaluation to determine whether to de-prioritize, maintain, or divest them based on long-term value considerations and potential to become more valuable over time.
Step-by-step explanation:
Customers who are both low revenue generators and low profit generators for a firm present a strategic dilemma. It is often thought that such customers should be de-prioritized or sometimes even divested because they may not contribute significantly to the financial health of a company. However, it's important to approach this decision with nuance and strategic thinking.
Customer Segmentation
Understanding the customer base through customer segmentation is crucial for developing tailored strategies. Customer segmentation involves dividing customers into groups based on characteristics such as their buying behavior, revenue generation, and profitability. Low revenue and low profit customers fall into a segment that typically demands careful attention to determine their long-term value or potential.
Strategic Decision Making
Firms have to decide whether to invest in these customers to enhance their value, maintain the status quo, or divest. Investing might involve targeted marketing or better engagement strategies to turn them into higher value customers. If a firm decides to maintain the status quo, they might provide standard service levels without additional investments. Divestment might be considered if the customer's lifetime value is assessed to be low and not worth the effort and resources required to maintain the relationship.
Long-Term Value Consideration
Sometimes, low revenue and profit customers can potentially become more valuable over time. It may be worth considering if these customers can provide long-term strategic value, such as being strong brand advocates or providing a foothold in an emerging market. Therefore, each customer should be evaluated not only on current financial metrics but also on potential future contributions to the business.