I recommend to all an excellent podcast with my colleague, Professor Peter Fader of The Wharton School, facilitated by Denise Lee Yohn: http://www.linkedin.com/share?viewLink=&sid=s977482175&url=http%3A%2F%2Ft%2Eco%2F4DDOixmO&urlhash=7Kd3&uid=5587948256073093120&trk=NUS_UNIU_SHARE-lnk
Peter is also the Co-director of Wharton’s Customer Analytics Initiative, and author of Customer Centricity: What It Is, What It Isn’t, and Why It Matters (Wharton Digital Press, Philadelphia, 2011), so he knows the title topics quite well. In the podcast he explains the differences between customer centricity and customer friendliness. In customer-friendly companies, all customers are served in an equally positive way. While on the surface customer friendliness appears to be a desirable concept and objective, it is suboptimal because there is, for all intents and purposes, no actionable customer segmentation. The reality is that all customers are NOT created equal, but customer friendly companies don’t recognize that fact. Poor customers are served as well as excellent customers, so this is an inefficient use of resources. In such companies, there is little lifetime value data (purchase and downstream advocacy behavior) generated, or leveraged, for individual customers.
Next, many companies are actively product-centric. As stated by Professor Fader, they believe that strategic advantage is based on the product and the expertise behind the product. The organizational structure (divisions, groups, and teams) are set up around products, employees are rewarded based on their ability to sell existing products or create new products, and brand equity is seen as having greater value than the customer. There are, however, cracks in this concept, due principally to globalization, speed of new technologies, deregulation, and the rising power of consumers (to get what they want, when they want it, and from whomever they select to provide it). Some companies, principally FMCGs like Coca-Cola and P & G, will (and should, according to Professor Fader) continue to be brand-focused and product-centric because of the difficulty of getting data on an individual customer basis. For the rest, product centricity puts them at risk relative to companies that are customer-centric.
Customer centricity, as Professor Fader points out, is a strategy to fundamentally align a company’s products and services with the wants and needs of its best customers and those which can readily be bootstrapped (through research segmentation tools such as advocacy level) to become more financially attractive. It is about identifying the most valuable customers and then doing everything possible to bring their (positive and negative) ideas into the center of the enterprise, create value for them, generate revenue from them, and to find more customers like them. That strategy has a specific business outcome goal: more profits for the long term. This objective is one that every enterprise would like to achieve; and, it can be attained if an organization is willing to move past outdated ideas about customer-company relations and rethink organizational design, key performance metrics, product development, and resource allocation.
I’ve read Prof. Fader’s book. It’s a good intro to CRM, not a rounded view of customer-centric business.
His definition of CRM is that it’s a “manifestation of the customer centricity business philosophy” and it “represents a firm’s front-line efforts to gather data and better understand the unique characteristics and expected value of its focal customers and to use that information to appropriately allocate resources.”
Although he discusses customer-centricity, it’s still mostly from an inside-out orientation — what’s good for the company. There’s little discussion about what drives customers’ perception of value and how to create loyalty.
His recent article about “fattening up customers” had the same inside-out orientation. CRM 1.0.
It seems that Prof. Fader is re-packaging CRM ideas as customer-centricity. If you can segment and target individual customers, calculate their value, etc. — it’s customer-centric. If you can’t (e.g. CPG companies) — it’s product-centric. In Fader’s view, apparently being customer- or product-centric are mutually exclusive ideas. They are not.
Customers don’t care whether you can target them. They care about the value they get, and yes it includes friendliness and even products.
A few years ago Dick Lee and David Mangen (with CustomerThink’s support) did a study of what customers believe being “customer-centric” means to them:
* high-quality products and services
* empowered employees and
* customer-friendly behaviors.
The complete study is available for free download here.
I’ll admit customer-centric is a mushy concept. Some say it’s just being nice to customers. Others say it’s about segmenting customer data. Personally, I think customers should have the final say on what being customer-centric means.
Professor Fader certainly doesn’t need me to defend his perspectives or his book – but I will. The content of his book, Customer Centricity, and his recent podcast, are presented more from the enterprise’s point-of-view than the customer’s; so, in that respect it is “inside-out”. He very well understands the conjoined concept of customer-perceived value, however; and another quote from his book recognized this fact, as covered in my recent CustomerThink article: http://www.customerthink.com/article/inside_out_advocacy_creating_and_sustaining_customer_centricity_and_loyalty
Per the main points of your comment, I definitely agree that it’s important and desirable to have a holistic outlook where customer centricity is concerned, i.e. addressing what tangible and emotional elements drive customer loyalty and advocacy behavior from both the customer’s and the company’s side, so that it is a less “mushy” concept, to use your term. Professor Fader fully understands this as well. I know that because we have discussed it in some depth.
He also understands that product centricity and customer centricity are not the mutually exclusive concepts you have stated. They are different, but connected. In fact, he says so in his book: “…even if you create the most thoroughly customer-centric company that has ever existed, you will still need to be product-centric in a significant way.”
Just as you’ve offered CustomerThink readers the opportunity to review the Mangan and Lee study from a few years ago, which was excellent content by the way, I’d offer them the opportunity to view my recent customer centricity and customer behavior measurement presentation given last month for Villanova University’s Center for Business Analytics: http://www.youtube.com/watch?v=_BtTsiT1MiM Hopefully, they will find the key messages approached in a balanced manner, representing what is valuable for both the customer and the enterprise.
Michael, the title of your blog post suggests an either/or mentality.
In my view, customer-centricity includes inside-out CRM, which is about extracting value. Of course enterprises should focus on more valuable customers.
But it also includes CEM, which includes things like customer-friendliness, and a whole lot more. And BTW, some companies have excelled by treating *all* their customers well, not trying to figure out who is the most valuable.
And customer-centricity also includes great products. Why? Because customers value them.
You’ve had the benefit of some other interactions with Prof. Fader. I’ve read his book and his article, and together I found his views expressed there are skewed towards enterprise-centric CRM thinking. Yes, value creation is addressed but only in a passing reference. It’s a short book, but I was disappointed that it didn’t cover this important topic more holistically.
I do agree with his closing chapter: “CRM: The First Step Towards Customer Centricity.”
What I’m principally addressing in the blog post is enterprise propensity and orientation, rather than all-or-nothing and either/or models. Customer experience optimization should be a focus for all organizations, because it is good for the customer and the company; but, if the company is only, or largely, about experience, then there may be challenges at some point. Companies like Starbucks, for example, appear to have more of a customer-friendly than a customer-centric orientation, even going so far as to institutionalize the experience, as discussed in a recent CustomerThink blog: http://www.customerthink.com/blog/improved_customer_service_at_starbucks_or_just_scriptease
And, of course, product is important; but all elements which create customer experience, including service, usually trump product alone. Companies, if they are not concentrating on experience optimization for their customers, can drift into a form of complacent product-centricity, and even some degree of commoditization. Witness the recent experience of a writer with selecting a new BMW from a dealership: http://news.consumerreports.org/cars/2012/03/just-in-2012-bmw-328i—not-the-ultimate-buying-experience.html
Actually, I fully agree with three of Bob's main points:
(1) Yes, I have an "inside-out” orientation towards customer centricity – and I feel strongly that it's the right perspective for most enterprises that wish to embrace it. Sure, it's nice to give customers a feeling that they have a say, but companies need to take more control over their customer relationships. The bland (and oversimplified) mindset of "the customer is always right” is exactly what has gotten companies away from being able to create and leverage the most profitable customer relationships. Firms need to take a stronger stand on this issue so that customer centricity can move away from being a "mushy concept” towards something that can drive meaningful profitability for firms that are truly willing and able to take a bold step here.
(2) Yes, many of my views stem from what Bob labels "CRM 1.0″ – or at least what "CRM 1.0″ should have been. Unfortunately, most CRM efforts have been disappointing because companies didn't (and still don't) fully understand the real patterns underlying their customers' shopping behaviors. In other words, most firms got the "cart before the horse” when it came to CRM. So let's take a step back and start talking about (and implementing) CRM correctly. That might sound kind of boring and old-fashioned, but it really is step #1 in being customer centric, and most firms are still not doing very well along these lines.
(3) Yes, I agree with Bob that "some companies have excelled by treating *all* their customers well, not trying to figure out who is the most valuable.” But these companies tend to be the rare exception, and it's becoming increasingly difficult to find lasting success in such an (inefficient) manner. Concepts such as "customer experience management” should be seen, for the most part, as icing on the cake rather than the cake itself. Too many firms are chasing after CEM because they are afraid or unable to embrace their customer-level data. Super-duper customer service can be replicated and commoditized; super-duper understanding of a particular customer's current and future value is a better source for sustainable profitability.
What a useful conversation! Let's keep it going and get the rest of the world to think about (and debate) these issues…
Put me firmly in Bob’s camp. I believe that, to be customer-centric, you have to work from the Outside-In.
That being said, its not about “every customer is always right”, nor is it about “giving customers exactly what they think they want.”
You still need to leverage inside-out CRM to segment customers, so you can focus on the most profitable. You need to deeply understand customer goals so you can address what they need (even if they don’t know it until you tell them). And you have to relentless collect and use customer information to make future interactions more relevant, using all that information (and more) for contextual interactions.
I personally believe that it is much easier to design a customer-centric business from the Outside-In. Working with customers to understand their buying process and needs is not that complicated. It gets complicated as fulfilling that moves into the business where politics, organizational silos, and status quo start rearing their ugly heads. A well implemented CRM may provide the data and some of the process to help alleviate this, but its also embracing the customer centric culture.
What definitely feels like a non-starter to me is companies professing to have Customer Experience Solutions without any CRM integration or capabilities.
Hank
@HBonCX
Thanks very much for the comments. Good debate!
Experiences are an important factor in driving customer loyalty, so I think it’s more than the icing on the cake these days. True it’s not the cake for most companies. I’d say it’s a layer of the cake!
When I recently bought a new BBQ grill, I chose the Weber grill because of the innovative design but I bought it at Home Depot because of the online/offline purchasing experience.
I did all of my research/shopping anonymously, so there wasn’t an opportunity for Weber or HD to assess how valuable I was as individual (and I’ve spent a lot of money there over the years).
CRM is a good and necessary step to getting the organization’s house in order. Is it the first step? On that point, I’m not so sure.
Which comes first, the chicken or the egg? For up-and-running organizations, they think their products, services and customers have always existed, so CRM makes a lot of sense to extract the maximum value from these assets.
But companies also need to continue innovating and creating value for customers, to stay competitive. CEM and new product innovation is more valuable here.
The top companies excel at CRM and CEM. It’s not either/or, nor is it steps 1 and 2. Both are needed to optimize the value created for customers and the value created for the company.
For more on this “yin-yang” perspective, see CRM and CEM: Managing the Yin-Yang of Customer Relationships.
Hank –
In your response, my interpretation is that you are actually arguing for a holistic, inside-out and outside-in, more balanced approach to customer centricity. It’s the kind of issue that Stephen Covey addressed in Habit 2 of his landmark book, The 7 Habits of Highly Effective People. I also covered this (22 pages worth), in Chapter 8 of my 2011 book, The Customer Advocate and The Customer Saboteur: “Intersecting Inside-Out and Outside-In Customer Advocacy”.
A significant component of customer centricity is strategic design, structure, training, and processes to optimize customer value and experence, and doing so in a manner that rewards best customers and also generates attractive profit for the enterprise. When companies Begin with the End in Mind, every element of value delivery reflects a clear vision of their desired direction and destination. Then, as Dr. Covey states, they “continue by flexing their proactive muscles to make things happen.”
To paraphrase another of Dr. Covey’s recommendations, modified to address customer centricity creation, one of the best ways to incorporate Habit 2 into corporate DNA is to develop a Customer Mission Statement. In the case of customer centricity as the End in Mind, it should focus on what the company wants to be and do, with respect to all stakeholders. It is their plan for success. It reaffirms who they are, puts their goals in perspective, and moves their ideas into the real world.