Customer Centricity: What It Is, What It Isn't, and Why It Matters

Citation

Harris, J.E. (2012), "Customer Centricity: What It Is, What It Isn't, and Why It Matters", Journal of Consumer Marketing, Vol. 29 No. 5, pp. 392-393. https://doi.org/10.1108/07363761211247523

Peter Fader has written a book that captures the content and essence of a marketing lecture series that developed directly from his research stream. One can sense how the work's history has informed the presentation of the material. In doing so he presents a fairly approachable argument to reassess current business practice with regard to the domain of customer lifetime value (CLV). Using the lens of customer centricity Fader states plainly upfront that “not all customers are created equally” (p. 10). In brief, his book's agenda is to have current and future managers consider how they align market offers with select customers. These customers, once correctly identified and categorized, should have the highest future profit potential, and should be invested into accordingly. As such, Customer Centricity integrates well‐established marketing topics in segmentation, CLV, and customer relationship management (CRM) into a compact, well‐organized, and personable narrative that marketing managers and students alike might find of value.

Customer Centricity starts with an amusing retail anecdote that seeks to illustrate the difference between customer service and customer centricity. The point of the story is that most managers tend to confuse these notions and opportunities are lost. The basics of the difference lay in the intent behind the actions. As Fader sees it, most firms simply seek and placate any customer, when, in fact, they should be seeking only the most profitable ones. Fader goes to lengths to build a case that many well‐respected firms are not optimized as well as they could be for this interactive age. Their collective undoing could be investing in product‐line extensions and operational efficiencies, over that of investing in their best clients.

I see this book as having three parts that create a so‐called storyline arc. The first part, which is made up by the Introduction, Chapter 1, “Product centricity: cracks in the foundation,” and Chapter 2, “Customer centricity: the new model for success,” delves into how businesses are not responding as well as they perhaps could be, given the ubiquitous forces of globalization and technology. There seems to be two sources of managerial inertia according to Fader. One is the traditional approach to business from an operations‐driven perspective, what he deems “product centricity” (p. 19). The other is the lost opportunities that develop because firms are not properly segmenting the current customer base. In not doing so, true customer heterogeneity cannot be capitalized on and competitive advantages are missed. To the more advanced reader I think this particular argument might be considered an overreach. Especially when Fader claims “99%” (p. 21) of firms are guilty of this oversight. However, given the jocularity of the rhetoric and key pedagogical points, I think most will easily forgive the slight flourishes and progress through this section equipped with a solid background for what comes later in the book.

The second of three parts, Chapter 3, “Customer equity: new views on value,” takes on what I believe to be a more conceptual approach that leads quite well into the substantive aspects of the closing chapters. Specifically, Chapter 3's discussion on brand equity segues into a contrasting description and definition of customer equity. Brand equity is described in the traditional manner as the difference between the tangible assets and the capitalized value of the firm. (Fader is quick to mention though that the actual valuation of brand equity remains problematic.) Conversely, customer equity is more demand driven and equals the sum of customers' lifetime value. Fader sees brand equity as an outcome of the “staid world” (p. 58) of product‐centric enterprise. He goes on to suggest that customer equity is a better approach because its balance‐sheet justification is on solid footing. Brand equity, conversely, is built upon some “nebulous” (p. 61) reasoning with regard to a proper, future‐focused market orientation. For the record, there is ample evidence he likes both approaches. (He is a marketing academic after all.) The simple truth is that Fader prefers the customer equity approach because it is more in line with the spirit of CLV calculations. Overall, if one teases apart the line of argument to this point in the text, it might be realized that Fader is progressing toward notions of demand‐derived actions versus that of supply‐sided responses. With this perceptual change, his major thesis is that the firm will gain an advantage.

It should be said at this point that what makes this section conceptually richer than perhaps some others' work targeting practitioners is that it is nuanced without the managerial absolutes that sometimes creep into similar texts. Indeed, an important caveat that Fader develops in Chapter 3 is that a firm's circumstances allow it to adopt a customer‐equity perspective over that of a brand‐equity one. Fader is quick to admit that while brand equity might be an outcome of a product‐centric focus, it is sometimes an optimal approach given certain circumstances. In this clarification the bounds of the argument are presented in an if‐then situational fashion (pp. 66‐7).

Chapter 4 “Customer lifetime value: the real worth of your customers” and Chapter 5 “Customer relationship management: the first step toward customer centricity” round out the book by showing the reader how to employ these new perspectives. In Chapter 4, Fader claims there is oftentimes “a good bit of confusion” (p. 72) about what exactly CLV is and how it is derived. He then spends some time describing it and subsequently implores the reader to be forward looking, relevant in approach, and understand it has probabilistic underpinnings. Fader then ties this discussion back to the notion of customer equity and proposes that this is the manner in which a firm can assess its own value. Moreover, by having this information at one's proverbial fingertips, a manager would now be able to employ case‐by‐case strategies and tactics that work well with the inherent efficiencies gained by target marketing.

One point should be made about this particular chapter's level of mathematical sophistication considering its intended audience. In short, it is rather rudimentary, albeit, sound in approach. In my opinion it probably serves the progress of the overall narrative best. However, if someone is looking for more advanced modeling techniques, it would be a good idea to augment this text with another source. A potentially good start finding such a source would be Fader's own 2005 Journal of Marketing Research piece entitled “RFM and CLV: Using Iso‐value Curves for Customer Base Analysis,” a challenging but informative read.

Chapter 5 discusses aspects of customer relationship management (CRM). In keeping with the relative accessibility of the text, Fader gives an example of a simple index‐card based client system of a main‐street business. Much like customer files many salespeople employ, each card carries relevant individualized information. In a sense, it is an external memory device that creates a more intelligent and agile seller. This leads to the author's observation that talk of a CRM “system” (p. 105) has given way to CRM client “recommendation” (p. 105). Some will find the direct applicability to the topic refreshing considering that many times textbooks take a fairly technocratic approach to CRM topics that at times leaves students grasping for relevance.

Overall, this book's strongest aspect is that it helps the reader gain a more concrete and nuanced understanding of what a proper customer‐oriented marketing program is. If there are small quibbles they have to do with the repetition of some points. Repetition, however, is an acceptable pedagogical tool in the classroom, and I see it serving the same purpose here. Additional qualms include my being a touch leery of the author's claims that this is a total departure from current thinking on segmentation. I also believe that some of his claims are not nearly as controversial as sometimes decreed. On the whole though, the themes and reasoning remain consistent throughout. In terms of prose, the reading is fairly easy‐going and enjoyable. There is also a real sense of personality that one can relate to throughout. Major conceptual and substantive points should fit easily into most marketing classes. It is imagined that this reading would be a strong addition to an undergraduate capstone in marketing or an MBA‐level elective. It might also interest managers who want to brush up on core components of the field or current thinking within the academy.