Here’s something that will knock the old-fashioned “customer is always right” concept right out of your head.
From page one, Customer Centricity demonstrates the need to focus on the right customers, not just customers in general. Author Peter Fader, the Frances and Pei-Yuan Chia Professor of Marketing at the Wharton School of the University of Pennsylvania, outlines the best ways to get these folks on board. He shows that not all customers are created equal.
I interviewed Fader, and what follows is just a teaser to the book’s content.
Q: Customer centricity isn’t really new, is it? Isn’t this the way many successful businesses have been run for hundreds of years? It harkens back to good customer service.
A: Not at all! There are two huge differences here. First and foremost, virtually every company is product-centric, which you can see in all aspects of their operations (the org chart, performance metrics, R&D focus, etc.). Truly customer-centric (CC) organizations are very rare. Secondly, "good customer service” tends to be a thin veneer on the customer-facing front-end of a product-centric company: They treat everyone pretty well, but are unable or unwilling to sort out the truly valuable customers from the so-so ones (and treat both groups differently).
The apocryphal Nordstrom tire story in the intro to the book is a perfect example. A true CC firm is able to sort customers out and is quite willing to treat them differently. Everyone should be treated well, of course, but some should be treated better than others.
Q: You mention loyalty programs as a form of customer-centric activity. Loyalty programs seem to serve the company, not the customer. How can businesses make loyalty programs more customer-centric?
A: Right. A loyalty program is a “necessary but not sufficient” condition for CC success. Too many companies have a “build it and they will come” philosophy: Once they start the loyalty program, great things will happen. Not true! You need the loyalty program to start collecting data and to be able to target customers differently but very few firms get anywhere close to leveraging even a small fraction of the data or insight that the loyalty program offers. Yes, there are some fabulous examples (most notably Tesco in the UK and Harrah’s in the U.S.), but because most firms are still stuck in the product-centric trap, they will never come close to these great benchmarks.
Q: Does customer centricity involve maintaining good demographic information? Or, can we finally admit that demographics are misleading?
A: Right. Demographics are totally useless! I can’t say that enough. They’re a throwback to the old days when that was pretty much the only data companies could easily collect on their customers. Today’s behavioral data demolishes any demographic measures. On virtually all products and services, there are huge differences within demographic subgroups (men vs. women, gays vs. straights) that swamp any mean differences that might exist across the groups. All the action is in the within-group variability, which we can finally see and appreciate, thanks to our ability to track individual customers.
Q. You talk about using data to understand each customer as an individual. How can large companies know each customer?
A: That’s the big CRM challenge. A small business already knows most of its customers and understands which ones to treat really well and which ones to pretty much leave alone. They tend to be more customer-centric than large firms that are obsessed with scale economies (which is a fancy way of saying “cost-cutting”).
This is where customer relationship management (CRM) should enter the picture and help large firms act like small ones. Unfortunately, CRM has failed to meet this promise for most firms. There are a variety of reasons for this disconnect but it’s sad and totally avoidable. It relates to the issue of loyalty programs: Most firms are just not ready to use a CRM system. They don’t know what they’re asking for, and thus they never get good answers. Instead, the CRM system takes on a life of its own, and the marketing folks (who commissioned the system in the first place) are left out in the cold.
Q. So, is this a strategy or a tactic?
A: Both. Customer centricity is a strategy. It involves many fundamental changes to the company, and they only pay off in the long run. But there are lots of tactical aspects to the execution of this strategy. In particular, a company has to be very adept at acquiring the right customers, finding ways to “develop” them to enhance their profitability. It has to be very smart at figuring out which customers to work hard at retaining for the long run. The success of the CC strategy over time is only as good as the firm’s ability to implement these (and other) tactics effectively and efficiently.