Last summer, Sprint Nextel, a US mobile phone company, got rid of about 1,000 of its high-maintenance and therefore unprofitable customers. Some of them were people who called the company's helpline hundreds of times a month with problems that Sprint believed had been resolved.

Customer divestment, where a company stops providing a product or service to an existing customer, was once considered an anomaly. Now, however, it is fast becoming a viable strategic option for many organisations.

The cost of acquiring new customers is skyrocketing and customer retention is vital. But some firms are now taking advantage of new approaches and technology that allow them to focus on retaining the right customers while showing problem clients the door.

Our research identified four common reasons why businesses end relationships with their users: declining profitability of specific customers; lower productivity of employers who have to deal with such customers; changes in the capacity to serve large volumes of customers; and shifts in business strategy.

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Done right, customer divestment can be an effective last-resort strategy; however, it also carries risks. These include: placing more of the cost burden on remaining clients; losing valuable sources of information, innovation and experimentation; changing the dynamics with competitors who take on your company's former customers; and bad publicity created by customers who feel that the company is discriminating against them.

Before making any moves to divest, firms would do well to walk through a framework that we've developed from our research into this area.

1. Reassess. Understand why the customer or customer segment is being considered for divestment.

2. Educate. Share the company's perspective with your customers.

3. Renegotiate. Look for an agreement that benefits both customer and company.

4. Migrate. Move the customer to a new provider (either a partner or a competitor); a new channel; or a new form of payment.

5. Terminate. End the relationship with the customer.

Where termination is necessary, companies must deliver the news in a way that minimises negative fallout. There are several ways that this can be done; approaches vary according to whether a company is dealing with business customers or consumers. Consumers, in particular, report feeling embarrassed or angry at being cut off - and reasonably so. In many cases their unhappiness could have been eased and the inevitable word-of-mouth publicity squelched.

This is an edited extract from The Right Way to Manage Unprofitable Customers, by Vikas Mittal, Matthew Sarkees and Feisal Murshed, published in Harvard Business Review (April). See hbr.org for more.

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