Professor Peter Fader on Customer Centricity
Get ready for interview guest to challenge everything you thought you knew about customer centricity! Peter Fader is the Frances and Pei-Yuan Chia Professor of Marketing at the Wharton School of the University of Pennsylvania, and the author of the book, Customer Centricity.
Peter works with firms from a wide range of industries, such as consumer packaged goods, interactive media, financial services, retailing, and pharmaceuticals — and his expertise centers around the analysis of behavioral data to understand and forecast customer shopping/purchasing activities.
In this interview, Peter:
- distinguishes between customer-friendly and customer-centric companies
- outlines the problems with providing “super-super customer service” to every customer
- describes the difference between growth through customer equity and brand equity
- Martin Lindstrom on Marketing Manipulation
- David Aaker on Brand Relevance
- John Gerzema on Connecting with Today’s Consumer
Hello! Today’s interview is on a topic we’ve all heard so much about: customer centricity. Hundreds credit the success of companies like Amazon and Nordstrom to being customer centric, but my guest today is going to challenge those myths and provide a different perspective on what customer centricity really means. Peter Fader is a professor of marketing at The Wharton School of The University of Pennsylvania and the author of the book Customer Centricity. A mutual colleague introduced me to Peter and I’ve enjoyed learning from his expertise, which centers on the analysis of behavioral data to understand and forecast customer shopping and purchase activities. I’ve really enjoyed his book. It’s my pleasure to welcome you, Peter, thank you for being here today.
Peter Fader: Great to talk to you, Denise.
DLY: OK. So let’s start with how you define customer centricity and how does that differ from the way others understand it.
PF: The best way to define customer centricity is to say what it isn’t. That’s the idea super duper customer service. There are some companies out there that just bend over backwards, so we might be thinking about a Nordstrom or a Zappos, to do anything for the customer. The customer is always right. That’s not being very customer centric. Customer centricity says, “Let’s find who the most valuable customers are and let’s do everything for them,” super duper service and more than that. For the other customers, “Eh, we’re glad to have their business, but it’s going to be more on our terms then theirs.”
DLY: That is very different because I think that perhaps there is confusion between being customer friendly and being truly customer centric.
PF: That’s right. You’ll notice that a lot when you go into a store like a Nordstrom’s. They treat everybody wonderfully well. As a marketing expert, I look at that and say, “They’re wasting their time, wasting their resources, wasting the talent of some of their employees on some really, really light customers who just aren’t worth much, and aren’t ever going to be worth much.” They’d be better off rolling out the red carpet for really valuable customers, who are forced to wait in line for some of that good service.
DLY: So it sounds like there is a real opportunity cost. If you try to treat everyone well, you end up not treating your best customers the way they should be, or the way that you would want them to be.
PF: That’s right. It’s an opportunity cost for the really good customers who have to wait and don’t necessarily get the treatment that they deserve, but it’s more than just that. It’s a whole strategic orientation. Is the whole purpose of the company about service, or is it about, more or less, customer segmentation? I’m much more for the latter. Let’s figure out who’s valuable, who’s not. Let’s organize and create incentives all around those kinds of issues, as opposed to being truly and almost exclusively a service- oriented firm.
DLY: Right. There’s definitely a difference between service and maximizing value it sounds like. What are some of the common challenges that organizations face in implementing the kind of customer centricity strategy that you’re talking about?
PF: In many cases, the biggest challenge facing them is history; this long tradition of being product centric. We’re all in it to develop great new products. We’re going to organize everything around products. Our incentive scheme, the metrics that we use, are very much product oriented. There’s a lot of baggage to go against. In many cases, the product centric approach is still the right way to go, so the big challenge is first to figure out should you be customer centric or not? Then, if so, then it’s a matter of putting aside that product centric mindset, and really organizing around the different kinds of customers; the valuable ones, the not-quite-as- valuable ones, changing the incentive systems, the performance metrics, even what you do for R&D. Instead of just saying, “What are we good at, and what should we do next?” We should be saying, “Who are the really good customers and what kinds of products and services should we develop with them in mind?” There are a number of different challenges, and the vast number and nature of these challenges is often enough for companies to not even want to go down this path in the first place.
DLY: I guess that’s what you’re talking about in terms of, you should decide whether you should be customer centric or not. It kind of sounds like, why wouldn’t you make that decision?
PF: Before making that decision, I first want companies to be really well informed. It goes back to our first point about what it means to be customer centric. For many companies, it doesn’t make sense, but I still want them to make an educated decision. I want them to really think through all of the upsides, as well as the downsides we touched on. To say if, when, and how they would go in that direction. That’s the first thing, “Should we do it or not?” I’m not necessarily an advocate for customer centricity. I’m not saying that makes sense for everybody. It does make sense for everybody to know what they’re talking about.
DLY: It’s interesting to hear you talk about this, because I think I come from a different point of view where I’m much more of a brand-building person. I actually would say that you might get yourself into trouble by trying to figure out who your valuable customers are and what they want versus leaning into your strength of the company and the strength of the brand and your equity as a brand, and saying, “We really need to build that, and then find the customers who value that.” It seems like there is a big difference. In your book, you definitely differentiate between growing with your brand and your brand equity versus growing via customer equities. Can you say more about that, maybe explain more about the differentiation and provide examples?
PF: Of course. First, it starts of the two words that any academic hates the most, which is “it depends.” What we really understand about the nature of companies or industries is that it really should be focused on the idea of customer centricity and measurements such as customer equity versus those who should continue to stay focused on their brand their and product orientation that goes along with it. For instance, in the case of a Coca- Cola, where it’s next to impossible for them to be able to track individual users and to be able to segment on behavior, and so on. We have a company that should continue to put its brand first and grow through the brand. Whereas a lot of service firms that have a lot of direct contact with customers, such as telecommunications or financial services, I would contend that being able to come up with appropriate customer segments really focus on the valuable ones and do all of their measurements around that. Understand the lifetime value of each and every customer and at that point of a customer equity. In many cases, that might be the better way to build, not to suggest that they should let go of the brand. It’s very important to use branding as a way to create and extract the value from the customers. It wouldn’t necessarily be job one, as it is for so many companies today.
DLY: It also strikes me. I’m kind of blending these two companies that we’re talking about, that companies that have the infrastructure and the ability to invest in the infrastructure, in order to collect and manage customer data, to be customer centric. There is a requirement there. Maybe smaller companies or companies who aren’t at a point where they can make that investment have a limitation there in terms of trying to become customer centric. Is that a fair statement?
PF: You hit the nail on the head. Being able to develop a good customer relationship management system, and similarly, being able to develop and implement a good loyalty program, those are absolute requirements for being customer centric, but by no means are they guarantees. Too many companies out there say, “If we build this date warehouse and we roll out this loyalty program, then all that customer centric goodness is going to come to us.” It’s not that easy, which is one of the reasons why most companies look at CRM as an utter disaster. It’s not enough to just jam a flag into the ground and say, “We’re customer centric now.” Part of my goal is to recognize that it is very valuable to have good systems in place, but not nearly enough. It’s really these other kinds of issues I mentioned. Everything from the organizational design, the incentive schemes, just the priorities that a company places on what kind of R&D it’s going to do, all of that matters so much more when those things are being done right. Then, the CRM and the loyalty programs, they fit much more naturally, they make much more sense, and they can start to see the value, instead of saying, “What the heck do we do with this?” In many ways, I want to wipe out the bad history that so many companies have had with CRM. These are product centric companies hoping that it would be magic fairy dust to help them cope with the changing times, but it’s much more difficult than that. It’s going to take a long, long time because of all of the inertia that product centricity has created for most companies.
DLY: Right. Well, Peter, this has been enlightening. Thank you for sharing all of these great insights. I really encourage all of my listeners to get Peter’s book because he goes into these topics in more detail, but it’s not a difficult read at all. I think it’s something that’s very digestible and very provocative. For my listeners, if you’re interested in continuing the dialogue with Peter, he can be reached via e-mail at firstname.lastname@example.org or through Twitter. Peter, your Twitter handle is @FaderP, right?
PF: That’s correct.
DLY: All right. Well, Peter, thanks for setting the record straight on customer centricity. I look forward to hearing feedback to this interview. I really appreciate you taking the time to talk with me.
PF: Thanks very much, Denise.
(transcript by Speechpad)