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Real Customer Centricity Is About Profitability

Contrary to popular belief, customer centricity isn’t really about being nice to your customers or taking back used car tires your company didn’t sell in the first place. Rather, says Wharton’s Peter Fader, it means “identifying your most valuable customers—and then doing everything in your power to make as much money from them as possible and to find more customers like them.”

Fader explored this important concept in a one-day workshop, “Making Customer Centricity Profitable,” at the Wharton School on June 4, 2014. As co-director of the Wharton Customer Analytics Initiative and author of Customer Centricity: Focus on the Right Customers for Strategic Advantage, he is an authority on the topic.

The ends of customer centricity are similar to the product-centric approach employed by many firms: long-term profitability, Fader explains. The means of customer centricity, however, are radical, and require companies to embrace new ways of thinking. For example:

  1. Not all customers are created equal. “This is something airlines and hotels have understood for a long time,” Fader writes. Firms need to identify the customers who matter most, and dedicate a disproportionate amount of resources to understand and deliver what they want. You still want your other customers to buy your products and services; “you just don’t want to burn any calories worrying about them,” he says. “While the right customers get your best efforts, others don’t—and there’s nothing wrong with that.”
  2. Traditional methods of valuing customers often don’t work. Created to give companies the precise value of “the customer,” traditional approaches treat all existing customers as a massive homogeneous group. That’s completely wrong, says Fader. Segmenting customers—by propensity to renew, for example—can create a much truer picture of the value of your customer base.
  3. Companies must be willing to suffer a hit in the short term for long-term gain. As companies shift from a product-centric to a customer-centric approach, product teams may be eliminated in favor of customer segment teams. R&D processes may be rebuilt, new metrics rolled out, and employee rewards programs revamped.

Companies willing to undertake the hard work, however, can create a hedge against the pressures of today’s business world: commoditization, technology, globalization, deregulation, and unyielding competition, says Fader. Leaving old thinking and old practices behind, companies can leverage their single most valuable asset: their customers.

Related links

How Can Customer Centricity Be Profitable?
Peter S. Fader (2013) [Conference presentation]

Customer Centricity: Meaning and Misconceptions (2010) [Video]

Customer Centricity: Focus on the Right Customers for Strategic Advantage
Peter Fader (2012) [Book]

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