Tuesday, 27 May 2014

Why Customer-Centricity May Be Missing the Point

If you've been following this blog you'll have noticed that I've started studying Coursera's Introduction to Marketing course (I highly recommend that you sign up for it if you're interested in marketing). This has gotten me thinking a lot about marketing principles and business ethics, and I've been involved in some pretty heated debates on the Coursera course forums.

The most recent has involved the principle of customer centricity, as it was presented in the lectures by one of Wharton's professors, Peter Fader. TAKE-AWAY AT THIS POINT: it's going to be long post, but this speaks directly to what I see as the new corporate crisis evidenced in many aspects of presumed 'poor customer care'. If you're in marketing this will be of interest, and even if you're not it might be illuminating.

The one thing you need to understand beforehand is a rough definition (mine as I understand it) of customer centricity: 
Customer Centricity is a corporate philosophy (existing in opposition to 'product centricity') that uses detailed information about customers' buying habits and personal profiles to identify which customers have the highest Customer Lifetime Value (i.e. a measure of the total they would be likely to spend in the future with the company) and then tailors product-development and marketing activities directly at this 'high-risk, high-reward' segment of consumers (in order to retain them and attract more customers just like them), while still retaining enough of the other less-valuable customers for overall stability and as insurance if the gamble taken with the first group backfires in some way (e.g. if they change loyalty rapidly). It is argued that this approach allows companies to make smarter marketing choices by optimising their marketing spend and operational processes to extract the maximum value from the individuals who will ultimately be the most valuable to the company in the long run. 

On the face of it, it sounds like a very sensible practise, right? I however have a few cautions/objections to this, which I outlined in my forum post on the Coursera course forums this morning - copied in full below:

Ok guys, first-off a big thanks for turning this into such an engaging discussion. I realise that a lot of confusion has resulted from me trying to unpack an initial gut reaction on a logical level by responding to engagements here, but I think that the point I'm making is highly valid and I'd appreciate one last chance to present it in a more logical manner for you all. Below I'm not just going to take you through a series of Q&A, but rather a progression of realisations that depend on each other. 
Q1: Why do you say that you disagree with Professor Fader when you're not disagreeing with what he says?  
A1: In so far as Professor Fader is arguing for what I will go on to demonstrate is a sub-set of a broader whole, I am not disagreeing with his specific sub-set (which makes sense in and of itself) but rather some underlying philosophies and their ramifications on the customer experience. 
Q2: In what way is customer-centricity as outlined by Peter Fader a 'sub-set'? 
A2: I'd argue that true customer-centricity should be judged from all customers' perspectives. We're using 'customer-centricity' here to distinguish it from 'product-centricity', where companies are focusing on analysing their customers to increase their profitability, but while the central goal remains the companies' wealth and not the customer's well-being the tactic isn't so much 'customer-centric' as it is 'company-centric with insights from customers'. With this in mind, my take on customer-centricity is even MORE customer-centric in a true sense, because I'm concerned with all customers, while Peter Fader's customer centricity (*important proviso below) is a triage mechanism which focuses the maximum resources on attracting and retaining a small group of customers deemed to be valuable and gives them a better customer experience than the rest. 
Q3: Oh dear, so is this just semantics? What are those ramifications you spoke about in a real sense? 
A3: This is where it gets fun. You see, making the leap from VALUABLE customer-centricity (sub-set) to TOTAL customer-centricity (all customers) is as big a leap as the one from product centricity to customer centricity in the first place. Remember that the key point with this latter approach is that you often end up doing the very same sorts of things but with a different initial intention, so the outcomes are different? Small changes at the start - e.g. in 'initial motiviation' make a big difference later on. The defining ramification here is one of consumer trust. Can ALL consumers walk through your store's doors and trust that they will receive the best service from friendly salespeople who will advise them in their personal best interests, or is it rather a case of ALL customers walk through your doors and trust that they will receive the best service from friendly sales people IF they are categorised to be valuable customers, who will advise them in their best interests IF that advice still enables extracting the maximum profit from them later on? 
Q4: Ok, and why is corporate trust important? 
A4: We've already spoken over and over again about how consumers are getting more discerning and they need to be able to trust your brand and your company. If presented with two competing companies and the only distinguishing factor is that the one is trusted and the other isn't, consumers will always go with the one they trust. By implementing a corporate policy which only favours a limited sub-set of consumers based on what will be best for the company in the long-run, a company will at best be at risk of losing their customers' trust and at worst be vulnerable to being accused of hypocrisy (marketing messages tend to make all customers feel that they'll receive the VIP treatment when in reality only the valued sub-set do). 
Q5: So what is the alternative? 
A5: I'm not saying that 'traditional' customer-centricity is a completely bad thing, in so far as it entails actually getting to know your customer base more and figuring out how you can delight them with products which are matched to them. Where it gets to be a bad thing is where you filter out the customers you deem to be less profitable right at the start, tailoring everything only for the richest's needs.This affect is further exacerbated when you use data you gain on your customers (more than some would feel comfortable with you having in some cases) to sell to them at times when they are weak, despondent or less able to make rational decisions, solely in favour of making a sale. I'm going to call it as I see it, and that is manipulation. The real alternative here is a moderated approach: get customers buy-in to share their data with you to deliver services to them which surprise them pleasantly, and keep your focus on ALL customers equally in recognition that customers you'd skip over otherwise now may actually be great later on. Do this so that customers can genuinely trust you, not only confident that they'll attract your attention in a real manner when they exude wealth (whether physically through their clothes or intangibly through the data categories you have on them).
IMPORTANT PROVISO: Why single out Peter Fader?I have nothing against Peter Fader personally - I don't know him, apart from his words in these videos. The picture he has painted with those words in no uncertain terms paints him as an advocate of the limited form of customer-centricity, although in reality he may have all kinds of fuzzy 'be nice to all consumers' philosophies that he just hasn't shared here. I'm happy to allow for that, so when I talk about 'Peter Fader's customer-centricity' it is only as a label to distinguish it from what I'm proposing. 
CONCLUSION: Corporations have for too long run on faulty premises. We recognise on a personal level that the majority of the world is classed as poor, and therefore we are arguing (with no melodrama) against humanity when we want to pursue tactics which automatically benefit the richest people unfairly (i.e. we give them the best service before they even have to buy it from us). Another faulty premise is that permanent improvement is possible. Again we recognise individually that this is impossible, and time and again companies' management are placed under mind-bending pressure to try and deliver improving results in declining economies. Just like there will only be one winner in a race, not all companies can be winners. A final faulty premises is that the data doesn't lie. It does - too often we can see from profiles that search engines build of us based on what we search for (for example) that the picture a sub-set of our data paints about us is completely not who we are in reality, so anybody using that data to target us would make wrong decisions all day long. The bottom line is that if ALL companies switched to absolutely perfect customer centricity overnight, there would still be businesses closing down simply because there is constant competition for share-of-wallet/mind, and we'd just have shifted the goal-posts. Let's take a moment to pause sometimes and ask what will be genuinely sustainable and ethically sound, and what will earn us the unreservedly genuine trust of our staff, customers and suppliers.
Phew, that's it. I'd love to know your thoughts. Sometimes I get the feeling we're so busy trying to make the 'right' decision that we lose sight of our shared humanity and the kind of world we actually want to live in.

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