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customer centricity

Wharton Professor Peter Fader believes ‘not all customers are created equal’

Rebuilding businesses around the right customers.

For centuries, businesses have adopted one of two strategies: Performance superiority or operational excellence

The former optimizes for quality, producing the very best products possible. Apple, BMW, and Louis Vuitton are all prime examples. Conversely, the latter strategy prioritizes cost. Businesses like Walmart, IKEA, or Zara invest in efficient processes to drive prices down.

The two options differ greatly, but bear one overarching similarity: product centricity. That is, their business relies on innovation and invention. For example, Apple enjoyed amazing success through the early-2000s because Steve Jobs ushered in the age of the iPod, and IKEA continues to grow on the back of new, attractive furniture ranges.

But there is a lesser known third strategy available: customer centricity.

Peter Fader, professor of marketing at The Wharton School of the University of Pennsylvania, has spent much of his career championing this approach. First via his company Zodiac, and then through books Customer Centricity and The Customer Centricity PlaybookFader has advocated for a break from product centricity and demonstrated how organizations can rebuild their business around their best customers.

Freshworks sat down with Fader to discuss what a customer-centric world looks like, and how we can all get there.

Freshworks: How did you get into marketing?

Peter Fader: I’m a math guy. I like to predict things. Whether it was sports or song movement through Billboard charts, I don’t care. I like to look at things happening over time and predict where they will go next.

In particular, I enjoy doing that with customer behavior. How many customers will we acquire? How long will they stay? How often will they buy? How much will they spend? What we as a firm should do about that.

A lot of the conventional thinking and practices around those issues are just downright wrong. A lot of marketers are just making stuff up because it sounds romantic.

What are marketers getting wrong?

All the shiny objects around them—influencers, personalization, and so on—reinforce the old way of doing things. They’re letting the product people run the show. They’ll say, “R&D people, come up with the next blockbuster. Tell us what it is and we’ll find you customers for it.”

That’s opposed to putting customers—a wide variety of customers—front and center, and letting their understanding of them and their differences drive the decisions about who they should target and what they should develop in order to do so.

Why do companies stick with product-centric approaches?

As much as some marketers would like to break out of the mold, the finance and accounting people don’t let that happen. They are incentivized to do two things: sell as much as possible, as cheaply as possible. Today’s accounting systems reflect the old business practices and it’s really hard to change that.

It’s down to finance and accounting, but I’m not blaming them. They are just responding to what the investors and regulatory agencies are insisting on. It’s a whole ecosystem built around the product, volume maximization, cost minimization. 

What’s the alternative to product-centricity?

Customer centricity is a strategy that aligns a company’s development/delivery of its products/services around the current and future needs of a select set of customers in order to maximize their long-term financial value to the firm.

I’ll come at it in different ways. I’ll come at it from the patterns. I’ll say, “I’m the data guy. I’m the numbers guy. Trust me, these models really work.” But that doesn’t work as well when I talk to the CMO, who will say, “You can go talk to the nerds in analytics over there. They’ll love your stuff. But I’m the CMO and I need to focus on the brand. I need to figure out which celebrity to get for our Super Bowl ad.”

It wasn’t until around 10 years ago that I decided to break out of the academic mold. Instead of writing a lot of research papers, I started writing lightweight, accessible books [for business leaders]. I wanted to get the CEO on board by saying, “You are doomed to fail. There is no way you’re going to be able to break out of the rut that you’re in until you just shake things and make customer lifetime value (CLV) the focus of your business instead.”

Fortunately, companies have started to do so. The one that really changed things was Nike. We developed a company called Zodiac to spread the gospel about customer-centricity. When we sold the company to Nike, that changed everything. All of a sudden, other companies were saying, “This stuff must be real. I want to get me some of that.” That was just an incredible validation of the theory.

How disruptive is customer-centricity to a company’s business-as-usual operation?

It’s problematic because one of two bad things will happen. The CEO may declare an all-hands meeting and say, “We are now customer-centric. Start being customer-centric.” In that case, employees don’t know what the hell they’re doing and the whole initiative collapses under its own weight. 

Problem number two is my fault. When I go to companies with all my customer centricity models and say, “Here’s the magic wand. If you could just wave it over each customer’s head and see their value shining as a great big number, money will come raining down from the sky.” Again, that doesn’t work. We need to come up with very specific tactical use cases [for customer centricity]. We need to worry about the cultural part. We need to take it baby step by baby step. We need to run little experiments and see what works. It’s a process. There’s no easy solution for it.

It’s important to let both our internal and external stakeholders know that we are on this mission. It is going to take us a while. Be patient with us. Use the right words and put the right metrics [such as number of gross new customers and revenue per new and existing customer] out there. I’m just now starting to learn that language.

How does customer centricity differ from great customer experience?

That question shows you what an idiot I am. When I was putting these ideas down in Customer Centricity, I obviously didn’t anticipate that most people would misread the words “customer-centricity” as “great customer experience”.

It just drives me bananas when I see someone holding up my book next to a book from Tony Hsieh, the former Zappos CEO. I have deep respect for him, and he was transformative in a lot of ways. He said, “We’re going to love every customer. We’re going to spend as much time with each and every customer as they want.”

To me, it’s super clear that we can’t be centered around everybody. We’re not talking about the same thing. Customer centricity is about deciding which customers we want to be centered around. 

How does customer service differ between product-centric and customer-centric organizations?

It goes back to the Zappos example. There’s this belief among a lot of companies that reps aren’t just customer service representatives, they’re ninjas. The myth is that if you deliver excellent customer service, you can turn ugly ducklings into beautiful swans. You can’t.

What we need to figure out is the appropriate place for customer service. What is its role? It’s obviously important, but it’s not this panacea. In The Customer Centricity Playbook, we have this framework that I love.

From The Customer Centricity Playbook, by Peter Fader and Sarah Toms, copyright 2018. Reprinted by permission of Wharton School Press.

Our basic point is that customer service is how we play defense with low value customers. We’ve got the so-so customers, and there’s a lot of them. We’re never going to make them great. Let’s just make sure we’re there for them when they have a problem or a question. But let’s recognize that customer service really is playing defense, not offense. It’s not making customers better. It’s just keeping them from leaving.

For our high value customers, we need to do something different. We don’t want them calling an 800 number and waiting on hold for 20 minutes. Give them a separate number, where a human being answers the phone.

It’s important to recognize the specific role of frontline customer service. We’re not diminishing it, but we are recognizing who it’s aimed at and what its role is. The terrible metaphor that I use is that customer service is like having clean bathrooms in your place of employment. You want to make sure the bathrooms are clean. That’s a reflection on you as a firm and an executive, but don’t have people in there using a toothbrush to get every nook and cranny. There’s not going to be a lot of ROI on that.

What’s changed in the nine years since Customer Centricity first came out?

Three things.

Number one, much of the world is starting to jump on the bandwagon. A lot of companies, because of desperation as much as opportunity, are finding customer centricity. They’re realizing they can’t fight their way out of stagnation simply by innovating faster or becoming more efficient. They need something fundamentally different.

Two, a lot of the problems that motivated me to write the book in the first place have only become amplified. 

And three, direct-to-consumer. A lot of D2C companies were born to be customer centric. That doesn’t mean they’re all doing it well, but some of them weave it into their DNA from day one. It’s heartening to have conversations with some of those companies. I remember about a year ago, pre-COVID, I was having a conversation with Allbirds’ then CFO. It was just amazing to hear her. I didn’t even know who she was. I had never met her before. She was just this person sitting over there at the table. She was saying all the right things.

I turned to the CEO and said, “Joey, who is that?” He said, “Oh, Janine. Yeah, she’s the CFO.” I thought it was awesome that the Chief Financial Officer was on board with customer-centricity now.

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