Companies such as Wal-Mart, Apple and Costco are product-centered. The companies decide which products and price points their customers in a particular area would be more apt to buy and that’s what they develop or stock on the shelves. Peter Faber, author of a new Wharton Executive Education series book, has a different model that he proclaims as more profitable and more workable.
In his book, Customer Centricity (Wharton Digital Press, 2011, ISBN: 978-1-61363-007-5), he explains how using customer-centered can make a company more competitive, smarter and more strategic.
Radical Business Model Shift
Faber writes, “Despite everything you may have ever learned about business; despite all that you’ve been told about customer relations by your bosses, peers, and mentors and despite even your gut instinct, I am here to let you in on this little secret: the customer is not always right.”
He goes onto to write that not all customers are created equal. Instead of treating every customer like a king or queen, companies should only focus on those ‘good’ customers, and everyone else is just that, everyone else.
Faber defines his premise by covering the following related topics:
- Why the product-centered business model is more vulnerable than ever before.
- How companies can gain a competitive edge with custom centricity.
- Some cutting-edge companies and leading business minds are rethinking the idea of equity.
- Shows how traditional business models for determining CLV (customer lifetime value) are flawed.
- Using CLV and other data to make decisions.
- How CRM (customer relations management) systems have lost their way.
Companies Using Product-Centered Business Model
Faber tells readers that 99 percent of today’s companies use the product-centered model. There are cracks in that model because today, more than ever before, the customer holds the power with his or her buying decisions. While the book and its title are pretty clear that the topic is about customer centricity, Faber doesn’t define the concept until page 39 in the book, there are only 117 pages in total.
Customer centricity is “a strategy that aligns a company’s development and delivery of its products and services with the current and future needs of a select set of customers in order to maximize their long-term financial value to the firm.”
Nordstrom, Wal-Mart, Costco and Starbucks Not Customer Centric
The author does a really good job of detailing the business model that Nordstrom, Wal-Mart, Costco and Starbucks use to stock their stores and sell to their customers, any ole’ customer that is. While Nordstrom is well known for its exceptional customer service, Faber believes the company really doesn’t do a good job of knowing much about its customers and then sharing that data between stores.
One good example is Starbucks. Your local baristas at Starbucks may know your name, your dog’s names and what your favorite drink is but when you go to a Starbucks in a different town or a different state, those baristas don’t know anything about you, including your purchasing history.
With customer centricity, Faber writes, “Once you have identified your right customers the next steps are obvious. You mine those customers for information. You find out what they want, what they need, and what they will demand going forward.”
Observations About CRM Systems
While Faber’s concept and theories are radical, he does make several observations about the failure of CRM (client relations management systems). He uses the analogy of a salon owner tracking information about each client on an index card. Salon owners are good examples of how customer-centric CRM systems can make a world of difference.
Many salon owners will record product and service details about their clients on index cards. Those that are customer-centric may also record birthdays, anniversaries and other personal information that salon employees use to make customers part of their salon family.
Faber writes that 70 percent of companies that implement CRM, fail to use that system to its fullest or fail to profit from interpreting and using the data once it is collected.
Customer Centricity
Faber admits that the customer centric model is radical and transitioning will not be easy. Nonetheless, he is convinced that it is a better business model for the future than what has been used for centuries. His short list of customer-centric companies include Amazon, IBM, Harrah’s, Tesco, and Netflix.
The book is well written, easy to read and follow and is short. The concept and business model on the other hand may not be so easy to implement into existing businesses. The book is certainly worth a read.
Read a review of Wharton’s Executive Education, Finance and Accounting.
