Every company claims to be customer-centric. A business is not a business without customers. But many businesses do not put their customers at the centre of their decision making, consciously or not.
Why is this a problem? Because how attuned the business is to its customers is a key driver performance. Big companies can lose sight of what their customers want, leading to irrelevance. That's when big opportunities open up by focusing on how customer needs shift. This is especially true living through a pandemic, as we saw in my newsletter last week about Peloton. When it comes to understanding human behaviour context is everything.
Some businesses claim to be customer-centric to mask decision making that is motivated by (usually short-term) profit. Dilbert sheds light on some uncomfortable truths.
Yet, many businesses have the right intentions and see the value in putting their customers first. Their problem is the lack of a clear definition and confusion over what it means to be customer-centric.
Searching around Google doesn't provide much clarity. There is an open proposal on Wikipedia for customer centrism to merge with customer satisfaction. That sounds insane because customer centrism should be a way of thinking and operating not a performance metric.
Another popular reference source Investopedia provides a very generic definition:
"Client-centric, also known as customer-centric, is an approach to doing business that focuses on creating a positive experience for the customer by maximizing service and/or product offerings and building relationships."
There are a few interesting supporting notes to this definition which begin to point to some of the issues with the term:
- The typical customer-centric strategy is to offer a one-stop-shop of products to save the customer time and money. The aim is to lock the customer into a long-term relationship through prices advantages.
- Investopedia highlight that it is a buzzword especially in service-oriented industries. They call-out financial services as a main offender 👀
This is an old-world industrial view of customer centrism. It's a view based on rational economics where price determines customer's decisions.
You could go down a rabbit hole (and I almost did) looking at the different interpretations of what it means to be customer-centric. Rather than produce a comprehensive review, I've pulled out two perspectives that provide an interesting comparison.
Two "colleges" of thought: Wharton vs. Harvard
I would argue there are two types of customer-centrism; business-first and customer-first.
Wharton Business School has a strong perspective on the subject. Peter Fader, a professor there, has written a book called "Customer Centricity". Fader defines customer-centricity as:
“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.”
The priority of this perspective is to maximise business value, generating customer value is secondary. Exploring, Fader's work a little more I found he had published a more recent book called: "The Customer Centricity Playbook". The foundation of being customer-centric is segmenting your customer base by customer lifetime value (CLV). Using the CLV calculations, businesses then target their highest-value customers. Targeting is done by looking at the common traits and attributes of high-value customers. Products are pushed to customers through direct response marketing or indirect approaches like personal referrals and mass-market advertising.
Fader's approach is a CRM and big data approach to marketing. It's about using transactional data (recency, frequency and monetary) to build predictive models.
I would call this "business-led" customer centrism, an approach that is very common in big corporations. Customer data and research exist, but only to optimise and maximise profits. Understanding why the customer buys the product and how it fits into their life has little focus. Because the approach is very quantitative, it's hard to find decision-makers who have spoken or listened to customers.
This approach intends to shift the business's focus from product-centrism to customer-centrism. But because the primary outcome is maximising profit the business will fail in this shift every time.
Hang on 🤔. Making a profit is good, right?
Yes! But to maximise the profit you need to understand how to generate demand. To do that your product, marketing, sales and customer support functions should align on maximising value for the customer. As a result, profits will follow.
Whilst not explicitly calling it customer-centrism, Harvard Business School has a lot to say about it. One of the most well known Harvard Business School professors, Clayton Christensen, said:
“Customers don’t buy products or services; they pull them into their lives to make progress.” (Competing Against Luck)
Clay's theory of Jobs to be Done is about maximising customer value first knowing that business value will follow. Jobs to be Done helps business leaders make the shift from being product-first to customer-first. It is inspired by another Harvard Professor, Theodore Levitt who famously said:
“People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!”
The bottom line, stop focusing on the drill and start focusing on why the customer uses it.
Bob Moesta, a lecturer at Harvard and close colleague of Clayton Christensen, critiques this type of business-led customer-centrism. He calls this supply-side thinking:
“With supply-side thinking the focus is on the profit—the product must make money inside a specific cost structure. Everything you talk about goes through the lens of the product or service. You push your product. The supply-side does not see how the product fits into people’s lives.”
In his new book, he outlines the benefits of demand-side thinking. He builds on Clay's theory of Jobs to be Done by creating a toolkit for businesses. His frameworks aim to help businesses better understand how to sell more product by focusing on the customer's Job to be Done. In his book, Demand Side Sales 101, he states:
“If you take the time to listen and truly understand, you will quickly realize it’s not about your product’s features and benefits; it’s about the customer’s struggling moment and the outcome they seek.”
There are many examples of successful technology and digital businesses who have used Jobs to be Done to great effect. Basecamp is one (Jason Fried wrote the foreword to Bob's book), Intercom, Intuit and Autobooks (who I did a podcast with a few weeks back) to name a few.
Listen to Bob talk about his book this Wednesday and look out for my book review later this week.
Key principles of being customer-centric
Even though the definition of customer-centrism is super fuzzy, here are five key principles that are a good starting point. These are things I have found impactful to my work over the years, along with some very experienced folks I've spoken to on the JTBD Slack community and the Mind the Product Slack community:
- Listening. Rather than talking about your product or pitching your business, think about how your product fits in your customer's life. You can only do this if you ask good questions and spend time listening.
- A problem-first mindset. Before we start considering solutions we need to obsess over the problem. This means spending the time upfront understanding the pain customers face making progress. When you're solving the wrong problem there's no right execution.
- Hypothesis validation. Whether you have early product design prototypes, marketing creatives or in-market product campaigns you need hypotheses. What is the purpose of this thing? How can you test, qualitatively or quantitatively (ideally both), whether the hypothesis is true or false? Importantly, the hypotheses should be informed by the problem-first mindset.
- Cross team customer engagement. Speaking to customers is not something only customer support teams or research teams do. All business functions should tune into their customers. Any opportunity to engage with customers should be seen as a way to ensure the business stays relevant in their customers' eyes.
- Customer success as a key performance metric. Customer advocacy, delight, satisfaction (whichever way you measure it), should be a metric that guides your business. It's as important as revenue and profit. If used well, it can be a leading indicator of long term financial health.
A good friend and former colleague Jamie Hill said on Twitter:
"It depends on the company strategy, business model & values. Do you centre around the end-user or the buyer? The value you create or the costs you reduce? The service you deliver or the products you make? People/human-centred is probably a more universally useful way to think"
There's a multi-stakeholder perspective to customer centrism. Businesses increasingly operate in ecosystems with many partners and various customers on different sides of a platform. Are we, thus, moving to a post-customer-centric world?
Human-Centric > Customer-Centric
The problem with customer-centrism is that the use of "customer" is limiting the focus. The customer is not the only stakeholder businesses serve.
Businesses are a powerful force in the health of the global community. But in an interconnected global economy there are other levels the business should be operating on, "the customer" is just the first level.
Let's take Facebook for example. Facebook is successful at being customer-centric. It serves the needs of advertisers at everyone else's cost. This is the root cause of the widely talked about issues related to Facebook today. Those issues arise from not thinking about the impact their decision making has on other stakeholders.
Facebook is less focused on other stakeholders in their ecosystem (level 2), for example, the digital wellbeing of its users. Their services are designed to be addictive. Addictiveness is important because it drives attention which is what its customers (advertisers) buy. Attention is most attracted to inflammatory or shocking information. As a result, fake news is allowed to flow through their network. At a societal level (level 3), Facebook is degrading democratic systems and doing the bare minimum to take responsibility. Why? Because it is good for business. Facebook is being customer (advertiser) centric.
This is not only an issue for Facebook, they are just an easy business to critique. And the issue is bigger than Facebook (or any other business). The system rewards these business behaviours. The market rewards them by increasing their share price. This is as much a systems failure as it is a business failure.
In a connected global economy, businesses have to make the shift from being customer-centric (laser-focused on only customers) to being human-centric (focused on positive outcomes for all stakeholders at all levels).
The societal level is shifting rapidly. It's not only democracy under threat. Racial divisions are still deeply rooted (BLM protests). Poverty levels are set to increase during the pandemic setting us back a decade (according to the UN). Little progress is being made on the climate crisis. When I watch the fires burn in California and the Amazon it brings added meaning to the contention:
"It is easier to imagine the end of the world than to imagine the end of capitalism". (Fredrick Jameson)
Businesses are central to solving the challenges in all these areas. And it all comes down to how you measure success. Delighting your customers has become only part of the solution. We have to move into a post-customer-centric way of doing business, a human-centric mindset.
Ideas worth your time
I was listening to an episode Twenty Minute VC with Shishir Mehrotra, Founder & CEO of Coda. He was talking about making good product decisions at YouTube/Google. He described the conflicts he faced between doing what's best for the customer vs. what's best for the business. Let's face it, even though we want to do the best by our customers, making the decision is not always simple.
Shishir talked about the power of reframing the decision around their team's core principles. These principles are what the team know, or believe, to be truths that will help them win in the market. In this case, it was consistency versus comprehensiveness. In the early days of the iPhone, the YouTube app was pre-installed and built by Apple. Google decided to build it themselves sacrificing 100% distribution. They chose greater consistency of experience with YouTube elsewhere over pre-installation (comprehensiveness).
Decisions related to the future of your product or business are difficult. Having a set of core principles is helpful for not only making those decisions but aligning the team over why you made those decisions.
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