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Customer Centricity

The customer is King, right? Everyone knows that! Wrong, says Wharton professor Peter Fader in Customer Centricity: Focus on the Right Customers for Strategic Advantage. In this slim volume, the author sets out his ideas about customer centricity in a brisk, jargon-free manner and challenges what many of us think we know about it.

No, Nordstrom’s famous example of taking back a set of old tires even though they don’t sell tires is not an example of customer centricity, in his opinion. Apple, Starbucks and Walmart aren’t customer-centric either. The customer is not always right – the right customers are always right. Fader shows us how standard models of Customer Lifetime Value (CLV) are incorrect, and explains why Customer Relationship Management CRM) has often fallen short of expectation. (Hints: there is no such thing as the customer and CRM is not IT.)

To back up a step, nearly all companies today are still product centric and follow the same fundamental business model: develop a product, market a product and sell a product. Despite being a revolutionary in many ways, Steve Jobs merely improved Henry Ford’s old model. This model works. However, globalization, the speed at which new technologies can be developed and copied, deregulation and the “rising power” of consumers to get what they want, whenever they want and from whomever they want, threaten the product centric model. 

By contrast, “Customer centricity is a strategy that aligns a company’s development and delivery of its products and services with the current and future needs of a select set of customers in order to maximize their long-term financial value to the firm.” Amazon, Harrah’s and Netflix are three examples of customer centric firms mentioned by Fader. Tesco is also cited several times – the book was published in 2012, before hard times hit that company, apparently the result of decisions unrelated to its customer centric philosophy.

He is upfront, however, about the considerable organizational and financial challenges required to move to this still new and unconventional model. It’s not as simple as making a PowerPoint slide. Furthermore, customer centricity is more useful to some kinds of businesses than others – for example, contractual firms based on subscription models, companies selling highly customized offerings, insurance companies and educational institutions that inherently establish long-term relationships with their customers, service industries, and organizations that can easily obtain customer-level data.

Though the book is entirely non-technical, the arguments put forth are often nuanced. Important but frequently misconstrued distinctions between brand equity and customer equity are clarified. Contrary to what the book’s title might suggest to some, the author does not believe companies should disregard ordinary customers. He does not bang the drum for CRM or bash Ehrenberg-Bass – anything but.

However, in his view there are some customers who should be treated differently than most customers – these are the customers and customer segments with high CLV. Peter Fader has published extensively on CLV, often in collaboration with Bruce Hardie, a professor at the London Business School. Readers interested in the theoretical and mathematical details underlying the book’s core concepts can find these articles listed on the authors’ websites. Warning: they are technical, in contrast to this book.

While reading Customer Centricity, many readers may be surprised at how seriously flawed theories and practices purporting to be cutting edge can be. Many are based on assumptions rather than evidence or on questionable applications of statistics. More importantly, the book is a reminder that there are no panaceas, even in this data-rich world. There is no one business model that will work best for every organization at all times. We are still learning how to do business and this learning will never cease…unless progress itself ceases.

Kevin Gray is President of Cannon Gray, a marketing science and analytics consultancy. 

 

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