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I'm Steve cob executive director of
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Wharton digital press and I'm here to
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interview Pete fader whose new book in
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the Wharton Executive Education
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essential series is customer centricity
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Pete welcome it's great to be here uh
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let me ask you about something in the
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book Pete you argue that Apple Nordstrom
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and Starbucks are customer friendly but
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not customer Centric what does that mean
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too many people think that they're the
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same thing too many people think that
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being customer Centric means doing
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everything that your customers want for
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them and that's not the case being
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friendly offering good service is a part
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of customer centricity but it's not the
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whole thing and one of the differences a
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huge distinction in customer centricity
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it means that you're going to be
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friendly you're going to provide good
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service you're going to develop new
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products and services for the special
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focal customers the ones that provide a
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lot of value for you but not necessarily
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for the other ones you need to pick and
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choose some customers deserve the
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special treatment and some well if they
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want to buy from you that's great but
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they're not going to be treated the same
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does that mean you ignore all of the
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customers who aren't special you're not
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going to ignore customers you're not
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going to fire customers you're not going
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to treat them badly but you will treat
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some better than others and you're going
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to be real careful in in uh who you
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choose to treat that way and what that
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treatment means does it mean you give
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those special customers absolutely
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everything maybe not but you're
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definitely going to give them more
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consideration than customers that
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frankly aren't worth that much to you
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what does it mean to be a customer centc
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company and can give me some examples of
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companies that you think are customer
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Centric so the primary distinction that
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makes a a company customer Centric or at
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least a requirement behind customer
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centricity is the ability to understand
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customers at a fairly granular level to
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be able to identify the customers or the
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segments of customers who are valuable
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from the ones who aren't if you can't
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sort out your customers if you can't
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look at them and know who's good and
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who's bad then you can't be customer
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Centric so that's step one uh step two
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is is having an ability both uh an an
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operational ability as well as an
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organizational capability to be able to
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deliver different products and services
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uh to different kinds of customers and
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that's tough to do for the most part we
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think about uh the the most customer
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centered companies being online firms
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such as Amazon and Netflix those are
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great examples but by no means is it
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limited to e-commerce firms we'll see
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others like like Capital One and Harris
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and even IBM as examples of of companies
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that are are are fairly customer Centric
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how would a company go about identifying
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the customers it should focus on that
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should pay the most attention to so
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companies have been sorting through
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their their customers for a long time uh
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uh ever since they they first realized
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that customers are different from each
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other and and and might deserve some
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differential treatment so the basis that
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that companies use to come up with this
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segmentation that's the key in the old
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days the basis of segmentation used to
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be simple observable things like
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demographics or or or or geography you
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know just easily identifiable
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characteristics but the real key is to
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segment customers on their value and I'm
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not talking about historic profitability
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I'm talking about futur looking customer
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lifetime value which might be related to
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profitability but we want to sort our
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customers out based on what they will be
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worth to the firm in the future okay and
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how would you go about calculating how
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do you determine customer lifetime value
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that's a key question that's actually
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been a big focus in my research for for
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a number of years now so I've been
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focusing on those methods and how clv
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would vary based on whether you're in a
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contractual business or a
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non-contractual business lots of
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different characteristics that will lead
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to lots of different clv form formulas
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and it's fairly Technical and we won't
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necessarily get into those details here
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but there's a couple of important
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considerations one I just mentioned is
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you must take into account the different
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kind of business setting that you're in
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secondly you must take into account
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heterogeneity the fact that different
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customers are going to have very
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different clv values uh and and thirdly
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you're going to look at at other kinds
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of factors the cost of acquisition the
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likelihood that different kinds of
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customers are going to stay with you so
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there's a number of factors that come
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together unfortunately for a lot of of
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firms it they feel it's just too
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complicated they don't want to think
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about it and they'll oversimplify it
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they'll ignore some of these
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distinctions and they'll use a a onsize
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fits-all formula across all the
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customers that doesn't vary based on the
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business model and it leads to more or
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less a garbage in garbage out situation
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along the same line Pete you talk a lot
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in the book about CRM customer
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relationship management and you mention
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that most firms don't handle it well
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what do they do wrong how do you do it
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right so CRM is a really critical step
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if you're going to be C customer Centric
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that's that's the front line that's
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going to help you collect the data and
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organize it properly and understand
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which message you're going to send
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through which custo to which customer
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through which channel at which time so
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CRM is is is really the interface that
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pulls it all together but unfortunately
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it's kind of Taken on a life of its own
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uh and instead of it being just a tool
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that helps you achieve customer
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centricity it becomes this massive
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system or set of systems that that get
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embedded in a company become this huge
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operational Challenge and then once it's
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there people don't know quite what to do
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with it because it's often so complex so
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the first step of CRM is keeping it real
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simple just uh first starting with real
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simple data uh and then simple queries
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that you want want to make on that data
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keeping the operational parts around it
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simple and then building up and adding
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complexity as a company has a genuine
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need for it so CRM has gotten kind of a
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bad reputation I think it's undeserved I
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don't think it's the fault of CRM or the
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vendors that sell CRM systems but the
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companies that are bringing it in are
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are biting off more than they can chew
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in many cases uh let me ask you another
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question the book you talk about this
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current generation of consumers is
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spoiled as knowing what they want and
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wanting it immediately what are the
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implications of that for firms for
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companies well well well first of all
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let's think about the driver of it it's
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all about technology that today's
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customers are so much more informed
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Economic Times in general tend to be
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better than they were say 50 or 60 years
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ago so so customers are are far more
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empowered than they ever were before a
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lot of companies spend their time
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pushing back and uh uh hoping for the
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old days when they could just put a
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product out there and just leave it to
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the customers to figure out how to use
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it and how to integrate it with other
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products and services well that's not
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the case anymore so instead of just uh
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again pushing back and complaining uh
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companies have to realize that instead
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of just putting products out there that
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they really need to be a Solutions
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provider and that's kind of a corny
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phrase these days but but I think
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there's some validity to it that
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companies need to help consumers figure
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out how their products and services are
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going to fit into their lives and offer
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Solutions and not just ingredients you
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talk a lot in the book pet about the
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difference between a product Centric and
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a customer Centric strategy could what's
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the difference can you spell it out
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quickly product Centric strategy would
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be pretty much every company on the
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planet uh you look at their or chart
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where it's broken up by different kinds
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of products you look at the incentives
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you look at the language they use you
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look at the performance metrics that
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they they that they rely on it's it's
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all based on different kinds of products
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the whole business model is based on
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producing something or a set of
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something uh in really high volumes and
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at really low cost and that's going to
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drop to the bottom line so that's more
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or less business as usual and I'm not
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suggesting that it's easy and I'm not
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suggesting that it's going away tomorrow
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but I'm suggesting that there are
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alternatives and instead if you organize
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the company around customers different
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types of customers having customer
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segment managers who are just as
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powerful as today's product managers are
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and giving them the right incentives and
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giving them the right resources and
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tools that for many companies it can
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actually be a more profitable way to go
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to market one of the things that
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surprised me in the book is you say that
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the customer doesn't
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exist uh we've been talking about
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customers all afternoon what does that
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mean well let's phrase that real
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carefully it's the the notion of the
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customer doesn't exist one of the things
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that drives me crazy is when I hear
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managers or entrepreneurs talking about
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the customer doing back of backof the
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envelope calculations about what the
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customer will be worth or how the
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customer will respond to this kind of
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product or that kind of offer and by
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talking about the customer or by talking
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about the the the average customer that
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doesn't do justice to the vast
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heterogeneity the incredible differences
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across our customers in terms of their
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propensity to buy in terms of their
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propensity to to talk to each other
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their propensity to respond to different
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kinds of offers and so again step one of
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being customer Centric is not only
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acknowledging the heterogeneity but
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celebrating it saying wow all this
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heterogeneity is a great thing because
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it lets us pick and choose different
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kinds of customers so when we say the
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customer we're we're we're we're selling
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ourselves short and I think it's
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important to to not use those words and
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to always have a plural there great let
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me ask you what was your biggest
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surprise in writing this book well the
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reason I wrote the book is because as I
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said before I'm a model builder I'm
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interested in the methods I'm interested
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in helping companies improve their
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quantita of literacy to be able to to uh
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to assess the value of the customers and
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do more effective targeting and so on
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and I realized that I need to take a
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step back or actually a step up I need
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to understand the strategies into which
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these models and methods and analyses
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would fit so as I stepped back and and
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and looked at the kinds of strategies to
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looked at what people what experts are
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saying about customer centricity and
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loyalty and and and all these these
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higher level terms I was surprised at
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just how biguous a lot of these
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definitions were or how contradictory
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they were so you pick up three different
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books on customer centricity and you get
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four different definitions about it so
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for me a really big piece of it uh was
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to bring Clarity was to try to bring
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some consensus to it I'm not sure I'm
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going to achieve that goal but I think
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it's it's it's important for everyone
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especially for firms that want to call
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themselves that because they have to
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understand what it means sure I think
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the book does a great job of making a
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custom Centric approach clear well
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that's my objective and I'm glad you saw
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it that way I I hope that other readers
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do as well really there's a lot of
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provocative aspects of the book part of
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it because a lot of the things that I
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believe are actually at odds with a lot
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of the conventional wisdom but part of
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it is to provoke a discussion is to get
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people to really think about what this
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stuff means whether it's even right for
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them for many firms this customer
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centricity stuff might not even be
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essential they shouldn't even go there
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but I want firms to be uh able to make
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an intelligent informed decision about
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whether to go there and what it means
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when they start to do it how does the
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book help a firm become customer Centric
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well for one thing it does bring some
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clarity so it's going to help them
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understand what it is what are the steps
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not only the the models that they need
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to run but the organizational structures
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the the incentives for employees and so
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on so so it's getting organized around
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the strategy and once again it it's it's
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real hard to just pick a strategy and
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run with it you need to understand what
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all these consequences are going to be
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before you get into it so I'm hoping to
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lay out a bit of a road map of firms to
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to understand where they're going if
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they choose to go there well thank you
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Peter we've enjoyed talking about your
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book customer centricity and thank you
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for taking the time to talk with us I've
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always enjoyed doing so thanks Steve
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