In today’s market, competition is fierce and customers have increasingly high expectations. The businesses flourishing are the ones embracing customer-centricity, and placing the customer at the center of every decision they make. Customer-centricity begins with a foundation of reliable data — this allows brands to understand every facet of a customer’s journey and their wants, needs, and preferences. Armed with this knowledge, brands can craft segment-specific campaigns and effectively personalize, boosting loyalty and improving buyers’ experiences.
Professor Peter Fader, the Frances and Pei-Yuan Chia Professor of Marketing at The Wharton School of the University of Pennsylvania, sets the record straight about all things customer-centricity.
Help us define customer-centricity, as it relates to your own work.
When we invented marketing as we know it back in the 1950s — the era of Mad Men, soap operas, and big, scalable mass media — marketing energies and resources were concentrated on figuring out what pitch to use that would get the customer on board. When marketers realized that their customers weren’t all the same as each other and that they each have different wants and needs, companies weren’t happy. It meant more expense, more complexity, more uncertainty, and it didn’t scale. So they ignored it. They continued to try just to shout very loud, with one message that would be as appealing to as many people as possible. And that really has been the guiding principle for marketing for the last half-century. My view is the opposite of that, instead of saying, “The customers are different. How can we align them around our product?” we should embrace the reality that customers are different, and that some are going to be inherently more valuable than others. So instead of trying to be everybody’s best friend, marketers should strive to understand those differences at a deep level, figure out which customers are best aligned and born to be with them, and then build their business around them.
What do you think people misunderstand about customer-centricity?
In a sense, this is just about aligning with the reality of the 80/20 principle. It’s not a theory. Over 20+ years of modeling and analysis, data consistently reaffirms that a small minority of customers are responsible for an outsized portion of revenue and growth.
How does this idea of customer-centricity differ from traditional definitions of customer service or customer care?
Customer service is a classic example of the one-size-fits-all approach. There’s this fashionable idea, inspired by the late Tony Hsieh and others, that every customer should be treated with the same level of care and attention. It’s a noble idea, but it’s neither efficient nor effective for a business to try and surprise and delight everyone at once. Customer service and customer experience are a function of the product. It’s important to have high standards for it. But customer-centricity is about understanding who can live with the basic standard and who warrants some extra attention, knowing where to draw the line and manage both simultaneously.
"It’s not a theory...data consistently reaffirms that a small minority of customers are responsible for an outsized portion of revenue and growth."
How should companies tackle customer-centricity when they don’t know who their best customers are yet?
Early on, companies don’t know who their best customers are. So you can’t really be customer-centric right out of the gate, and that’s what’s paradoxical about it. Many companies need a couple of years to build all that infrastructure for identifying and targeting their top 20%. Even once you have the CRM system, it’s still not enough to look at the customers on the top of that list and give them the white glove service. While they might be more valuable than the other customers you’ve gotten so far, but they might not be the best possible ones. Companies need to be patient, and constantly be fishing for even better customers. There could always be better ones out there, and they could be changing. The ones that you thought were the best yesterday may not be the best tomorrow. It’s a constant focus on customer acquisition. Too many companies get distracted by the fact that it costs so much more to acquire customers than it does to retain them. While that’s true, it’s critical to invest the resources to figure out who those best customers are, because it’s going to be much more effective to find them and then build your business around them, rather than just looking at the ones you have and trying to make them great. It takes time. It’s a never-ending process. And even when you find success, you can’t stop. Too often companies declare victory because they think they’ve found the right ones, then they tend to take their foot off the pedal with customer acquisition. When they do that, they are sub-optimizing their next generation of customers.
Who in a consumer-facing enterprise is responsible for customer-centricity?
There’s no easy answer. The most obvious would be to say Marketing because they’re the ones who, in theory, would be managing the customer stuff. I think that’s why we see the category of CDP, for example, become defined by the marketing use cases. We also see a lot of CTOs lead the charge, like the ones putting together all the data systems and all that infrastructure. But what I see more and more these days is CFOs taking the lead. A big focus of my work just in the last couple of years is the idea of customer-based corporate valuation. We go to the CFO and say, “We’re going to help you to do your job better, both in terms of overall valuation and in terms of forecasting revenue,” and we do that by giving them an understanding of the customer behavior underneath the traditional metrics, and the differences among those customers. What we’ve seen is that, when you win over the CFO, then the other parts of your organization fall like dominoes. I’m not saying that all companies must start that way, but on the other hand, if you don’t get the CFO on board as an active partner, it’s going to be hard to make things happen. This buy-in from the CFO has opened up a lot of doors. It’s gotten a lot of companies to wake up and smell that customer-level data and to leverage it in a way that they would never do if it were only a marketing issue.
Read our blog on how customer-centricity helps brands locate high-value customers.