Peter Fader – Professor of Marketing, the Wharton School of the University of Pennsylvania [Customer Centricity]
o What is Customer Lifetime Value
o How companies grow the current customer instead of cross/up-sell
Peter talks about Customer Centricity
o What’s more important between Brand Equity or Customer Equity?
Nick Glimsdahl 0:04
Hello, everyone, my name is Nick Glimsdahl. And I want to welcome you to the Press 1 For Nick podcast. My guest this week is Peter fader, his expertise centers around the analysis of behavioral data to understand and forecast customer shopping, purchasing activities. Peter is the author of customer-centricity which focus focused on the right customer for centric advantage, and co-authors with Sarah Tom’s of the book customer-centricity playbook, which we’ll talk about here shortly. Peter, welcome to the Press 1 For Nick podcast.
Peter Fader 0:36
great to talk to you, Nick.
Nick Glimsdahl 0:37
Yeah, it’s my pleasure. So I asked everybody at the very beginning of every podcast I’ve ever guessed, what is the one nugget that people might not know about Peter?
Peter Fader 0:50
Wow. Okay, so I got one for you. Turns out that I have the world’s greatest collection of dollar bills with interesting serial numbers. So I own the domain name cool. numbers.com cool numbers. COMM check it out. And I collect you, you see him all over the place, I collect dollar bills, but I would interesting serial numbers. And you could take him to that website and type it in and it will tell you on the zero to 100 universal coldness index, how cool that number is. And then when they’re really good. I have my special stamp. And I stamped them to say check this out and cool numbers calm. And yeah, it’s an affliction of mine. I’ve had since I was a little kid. And there’s a lot of people around the world with too much time on their hands. I don’t know. But that’s my thing.
Nick Glimsdahl 1:48
That’s awesome. So what makes what makes it a cool number?
Peter Fader 1:52
Yeah, that’s a good question, Nick. So I care about interesting mathematical patterns. So is that like, Is it a prime number? Like, if you look at the one that I just showed you, it has no repeated digits to it. Or it’s a different kinds of math properties. There are other people who will collect bills on the basis of birthday bills, like you know, 1207 1941 Pearl Harbor day, you get like 50 bucks for that on eBay. But for me, I don’t go there. I’m just interested in kind of pure objective math like things. So you know, you can love it or hate it. But it’s my universal coolness index. So I get to decide,
Nick Glimsdahl 2:31
that is your universal cool index. That is awesome. Very, very unique. Something definitely people might not know about. Yeah. So to get started, you know, your first book is about customer centricity. What are the misconceptions of customer centricity?
Peter Fader 2:52
You know, since we had this conversation about the cool numbers, I got to take a step back. Yeah, I have to build the bridge. Why a nerdy guy who obsesses about numbers and math properties, would be writing books on customer centricity because you sound kind of opposite to each other. And my point is actually to bring all that stuff together. Because what I’ve been doing for 30 plus years as a Wharton professor, is building models that predict customer behavior. So how many customers always acquire, how long will they stay? How many purchases will they make, how much will they spend, when they do I really want to understand behavior, again, at an at a mathematical level, not at some kind of, you know, soft qualitative level, not there’s anything wrong with qualitative stuff. But I really want to break it down to those fundamental aspects of behavior in particular had I’ve been doing that for years and years and years. And I see the patterns. And I see the implications, which in many cases go completely against the grain of best practices in marketing. And that’s why I started writing these books to say that a lot of that conventional wisdom is wrong, and goes against what the data tells us. And companies are doing the wrong things and allocating money and appropriately. So part of the reason I wrote the books, the main reason I wrote the books isn’t to sell books. I’m a professor, I got my day job. But this is a wake up call is to build that bridge between the quantitative understanding customer behavior, and the managerial decisions. And so it was really I wrote the books man of frustration than desire, because I’ve had a hard time getting companies to actually wake up and pay attention. The books really helps to get people to say, Oh, I hadn’t really thought about that before. How do I do this? And then I say, I got the models for you. Phrase things back together.
Nick Glimsdahl 4:42
Yeah. You you, all of a sudden become authority. When you have when you write a book and you write put words to paper, and all of a sudden the whole time prior, Peters saying you got to do this. You got to do this. Hey, have you seen this book? And they’re like, oh, light bulb,
Peter Fader 4:58
you know, Nick, it’s It’s a fantastic point because as a professor, we write these journal articles and fussy academic journals that no one reads are filled with Greek letters, all that sort of thing. That’s what we do publish or perish. writing books is something that we actually, believe it or not, it’s kind of held against me. Because books tend to be backwards looking and tends to be a summary of stuff you’ve already learned, as opposed to pushing the frontiers of knowledge. But I figured I just owe it to the world. And if even if I lose one journal article or two, the impact that these books can have and have had, you’re absolutely right, that it gets people to pay, it’s a book, can you sign it for me, and all that sort of thing, which
again, I don’t get
all caught up on that. But if that’s what it’s going to take to get people to pay attention, and start thinking about what all this stuff means and to start making the right decisions, that I’m all in for it. And I’m working on books three and four right now.
Nick Glimsdahl 5:58
That is awesome. Um, you know, maybe one thing that could make it more compelling, is if you actually stamped the book, Ah, that’s a focus on this.
Peter Fader 6:10
That’s right. So I could I know how to make these things.
Amp enhance, right, customer centricity step,
I like it. But seriously, it’s been a been an interesting challenge, because there’s just a lot of talk out there. That’s either dismissive of customers, so many companies that either ignore them completely or refer to them as like rate payers, you know, who, or the other on the spectrum. There’s companies that say, we can’t sleep at night until every customer is satisfied. They live and die by their net promoter score, and they just can’t stand the detractors. They take it as a personal insult. And I’m saying truth is somewhere in the middle. Yeah. And the reality is, but both parties are right. To some extent. The reality is that not all customers are created equal. And we want to be like the latter group that love them for the really good, valuable customers, and be a bit more dismissive and don’t over invest in them for the many customers who are just so we got to run basically, two businesses at once, instead of ignoring everybody or being everybody’s best friend. That Yeah, point.
Nick Glimsdahl 7:17
Yeah, that’s a great point. So why do companies need to focus on customer centricity?
Peter Fader 7:23
Because the usual ways of making money have kind of slowed down for most companies, and you name it, any company you can think of. And they found success through one or two paths, either because they had the best, best products. You think about Apple, you think about Ritz Carlton hotels, you think about the Wharton School, whatever, you know, where the best you are, the best you come to us price is no object, or companies like McDonald’s, Amazon, Walmart, that the stuff that they sell is as good as anybody else’s. But it’s incredible efficiency that they bring to it. Your ability to kind of create stuff quickly distributed, effectively, get it out there cheaply, and all that. And so it’s all about either, you know, product wonderfulness, or efficiency, pretty much every company rests upon one or both of those things. Okay. And I’m just saying that both of those have kind of plateaued a bit, you know that as soon as you come up with a great idea, your competitor is going to knock it off tomorrow. So you can open up that that gap over other companies on the product side. And the efficiency side is basically a race to the bottom. I’m not saying it’s a bad thing. But if we just spend all of our time thinking, how little Do we need to spend to acquire customers? How little Do we need to spend on that Google search term, then believe in a lot of money on the table, we’re ignoring the fact that there’s some really valuable customers out there. And if we if we can figure out who they are and what it costs to get them, that we can make more money in a sustainable, defendable, ethical way than taking one of those other paths. That’s all I’m saying.
Nick Glimsdahl 9:03
Yeah, so you’re talking about the value of your customers? What is customer lifetime value?
Peter Fader 9:11
So that’s my thing. I didn’t invent it. In fact, the first time I heard about it, I was kind of curious, dismissive, skeptical. Back in the late 80s, really. But what happened is a couple of things. Number one, frustrated by companies on willingness and ability to focus on the tactics one level, lower the things I mentioned before, how long will they stay? How much will they do? lifetime value is just all of that stuff added up. If we know how long you’re going to stay what you’re going to over that horizon, what you’re going to spend, that’s your lifetime value. So So one thing is that it takes these mundane behaviors and elevates them up a level where it starts becoming more strategically important. So that’s number one. Number two, Right around 2002, I was already into this fight 15 years, I stumbled into some models again that other people have developed for other purposes. Long story, and I’m happy to share it at another time over drinks. As we look over your your beautiful veranda there in New Zealand, or Columbus, Ohio, yeah. And I basically found this amazing, amazing model that can predict really well over long horizons and basically do all of those things started shouting even louder about that. And basically, that’s the model that I spent a lot of time not just writing books about. But commercializing really, really, really working with companies. And we could talk more about that. Yep. So everybody understands lifetime value from this kind of conceptual idea. Yeah, it’s how much money we’re gonna make off of you. But a lot of people either think that they can’t do it, because their business is different. Or their or their, they’ll kind of do it badly over either a limited horizon, not really doing the math the right way, or not using it for the right purposes, not fully exploiting it in lots of different ways. It’s my job, to get people to be motivated to want to do it to do it the right way, and think of a breadth of different use cases for it. And again, that’s really what’s underlying these books, and these companies and everything I say and do.
Nick Glimsdahl 11:19
Yeah, yeah. So you got books and companies. One thing that I really enjoy, well, I’m gonna break this down is something called a customer centricity Manifesto. So tell us more about what that is first, before we break it down.
Peter Fader 11:34
Okay. So when I started writing these books, and coming up with these models, I had the naive belief that Rogers put this tool, this lifetime value magic wand in the hands of executives, that money would come raining down from the sky that once you have CLB, once you see that it works, it’s like game over. Yeah, well, turns out that’s not true. And it turns out that the getting buy in, you know, kind of corporate culture and just you know, the language a company speak, is actually a much more difficult task, a much more important task. And these models will have limited impact, until we really get people aligned around them and thinking about them and thinking about it less in terms of tools, and models, and more about these bigger, broader strategic ideas. So you know, a lot of book number two that you mentioned, customer centricity playbook is all about implementation. And again, a lot of it is kind of tactical stuff, acquisition, retention development. But it was very, very important to say, how do we get companies to really align around these things? How do we take it up to a higher level, and I gotta say, I gotta give all the credit in the world to my co author, Sarah Tom’s on this one, because she comes from a technology background, and she was part of the whole revolution around 20 years ago, when agile took over. Because software development was kind of like, predictive analytics is today, it was a total mess. And companies were slow, and they weren’t on the same page. And it was hard for the, you know, for the for all the software people to get buy in from senior management. Until a group of people got together somewhere in Utah, I forget, I don’t know. And basically came up with this whole Agile Manifesto, right around the turn of the century. And the rest is history. It’s just amazing what impact that had not only on software development, but you look at the way that people take the agile mindset to pretty much anything, everything. huge success, it really it’s just changed the way we think, change the way we talk change the way we act. So Sarah said, we were walking right down locust walk in the middle of Penn’s beautiful campus, which I haven’t seen in a long time. Anyway, he said, We need a manifesto, and it was like lightbulb time. So we spent a bunch of time saying if we could take, you know all of this thinking, again, don’t worry so much about the math and all that stuff. But if we can boil it all down to kind of four basic principles for things, you know, just purely conceptual, that we can get companies to understand, to agree upon and to kind of spread the gospel throughout their organizations, and with their internal and external partners, we can find success. So we’ve put together the customer centricity Manifesto, which of course I’m delighted to talk about with you, Nick, you’re obviously familiar with it. I haven’t asked about it. But I’m happy to take the deep dive in and if people are interested, by the way, you go to customer centricity manifesto.org
and sign
up for it, you know, join the mission to spread the gospel. We’re always looking for more.
Nick Glimsdahl 14:50
Yeah, no, absolutely. I think you can actually legitimately go and go to the website and sign it and I think that is read it. And see the importance of it after you listen to the podcast, of course. But number one, what is number one? Peter?
Peter Fader 15:07
Number one is that we want to focus on customer heterogeneity over the average customer. Okay, it goes back to, to my very first point that not all customers are created equal, don’t just tell me what the average value of the average conversion rate or the average spend, don’t give me those averages. I’m not saying it’s unimportant, but as important would be to understand the spread, is it that all the customers will be around for that same amount of time? Or will spend the same amount of money? The answer is no. And so we want to know just how variable is it. And in particular, how many people are way out there in that right tail, customers are going to stay with us forever, purchase a lot, spend a lot when they do, we need to understand the spread as much as we understand the averages. So all the time, all companies come to me saying, Oh, we love our lifetime value stuff. And you know, every time we’re acquiring customers or even acquiring companies, we’re looking at the LTV to CAC ratio, what is the lifetime value relative to the cost of acquisition? And I’m saying Don’t tell me what that number is. Okay. I mean, again, I I’m sure, I’d like to know it. But I want to know how it varies across the customer base. And it turns out that for marketing people, and I don’t mean any disrespect, because I’m one of them. But we tend to like averages, but we get kind of all freaked out by notions of variance and spread. But we have to get over that it’s really important for us understand what that right tail looks like, because that’s going to tell us a lot more about the upside potential of this company. I mean, you have to admit that if we have that group of really valuable juicy customers out there, there’s much more growth potential than if everybody is the same thing. That there’s tremendous strategic importance by celebrating, not just understanding, not just tolerating, but celebrating the differences across our customers, instead of just the averages. You know, in the old days in the 1950s 1960s, all you get were averages, we didn’t have the kind of granular data. So we’re perfectly happy to just focus on averages and look at things like demographics. But today, we can look at the difference according to customers, not in terms of how old they are, what colors their skin, but just in the value, the potential value they bring to the firm. So it’s all about those differences.
Nick Glimsdahl 17:30
Yeah, no, I think that’s interesting. You know, you mentioned the company that talks about a good game, but then says, Hey, but also, how much does it cost to bring us in? And let’s look at the bell curve. And let’s do this stuff, because it’s the far right and far left, and then the people in the middle? But how do you keep that conversation of number one? How do you get that message to keep going and being ingrained in that in that culture?
Peter Fader 17:54
So a couple different ways. Number one is, is a card that I played with you just a few minutes ago is to say, you know, you’re not going to achieve growth in the conventional ways. All the time, people just thinking about innovation, innovation, innovation, we got to keep innovating, stay ahead of our competitors got to innovate, got innovate, Blue Ocean Strategy design thinking, I don’t say it’s tough. It’s really, really tough. And the others have said, is efficiency, Six Sigma, we got to find ways to cut costs and do it faster. And I’m saying you’re doomed to fail, if that’s all you’re doing. So part of it is this kind of like, you know, you’re screwed if you don’t open up this new horizon. So that’s one little gloom and doom. Another in a more positive way would be by analogy, you know, I mentioned before, net promoter score. And I am sure, Nick, that you and most of your listeners are familiar with NPS, we ask people that question, would you recommend us, we basically bucket them into promoters versus detractors. And we say we don’t say what’s the average satisfaction, which a lot of satisfaction measures do? No, we’re talking about the differences. We’re saying what percent of people are out there on the right tail versus on the left tail. So the whole notion of net promoter score itself is a celebration of heterogeneity. And I don’t want people to use NPS just as some kind of blunt instrument, I want them to think very carefully about what’s going on under the hood. And why is it that Fred reichheld and Rob Markey, of Bain consulting, chose to measure it that way and use that metric. And so if you really understand net promoter score and its history, that itself is a celebration of heterogeneity. So I’ll try lots of different angles, you know, often making connections with or borrowing from other frameworks, other companies, because a lot of people have stumbled upon these ideas independently. I’ve done only a little tiny bit in that regard. But I just want to kind of pull it all together and say, there’s a consistent message here. You can’t ignore it.
Nick Glimsdahl 19:57
Yep, yeah. And keeping that message. At the forefront is key.
Peter Fader 20:02
Exactly right. And that’s why it can’t just be a marketing thing, got to bubble it up all the way to the sea level got to make sure that the CEO herself understands that message and spreads it through the organization. And yeah, talk more about that.
Nick Glimsdahl 20:15
That’s great. So number two is cross functional uses of CLV, over siloed applications. What does this mean?
Peter Fader 20:23
So like I said, sometimes people will pay attention to my stuff, it’s usually the marketing people. And so sometimes the stuff will bubble up to the top of the marketing silo, and then the CMO will bring it to the attention of all this other C level people, you know, at that senior executive meeting, and the rest of them ago, yeah, it’s just those crazy kids in marketing playing around with their new shiny object, you know, okay, they say whatever you want. But you know, I, you know, I don’t mean to be so harsh about marketing. But, you know, what I’m saying is true. And so it’s very important for me, for us to find ways to motivate differences among customers, lifetime value, predictive analytics, all of this stuff to each part of the organization, I get to get the slot supply chain, people on board with me, I got to get the r&d people on board, me, the people in talent manager, and of course, the CEO herself. So part of my job is to come up with use cases, that will be very, very appealing to all those other folks, even if they have nothing to do with marketing. So for instance, one of the big things that I’ve been working on these days, and the real essence of startup number two, is the idea of customer based corporate valuation. And I can help the C f o and the VP of investor relations, do their jobs better. By understanding the kind of marketing behaviors I was talking about, then we can figure out how many customers going to add, how long are they going to stay within the span to blah, blah, blah, that’s our cash flow. So I can do a better job of forecasting cash flow over longer horizons with a better understanding of why it’s plateauing. And what we can do about it purely for financial purposes. Yeah, went over the CFO using the same models, as it used with the CMO. And again, do things with the with the other C level people as well, let’s get all of them on board and sing it from the same page. Not only to understand this stuff, but to be able to align with each other work more effectively get stuff done.
Nick Glimsdahl 22:30
Yeah. No, it sounds like a great plan. And I want to talk more about the executive team here in a little bit. But how do companies grow their current base their current customers, instead of just always trying to, hey, leadership, hey, VP of sales, I’m going to cross sell, and I’m going to try to upsell you. Like, what
what, how
else can we do that?
Peter Fader 22:50
First, let’s talk about the why then we’ll talk about the how
you’re one of the quotes
out there, this is gonna really resonate with you. There’s this very famous quote, you know, it costs whatever five times more to acquire a new customer than to retain the ones then tend to retain once you better focus on the ones you have. I hate that quote. I hate that quote. I’m not saying it’s wrong, by the way, maybe it’s true. But my point going back, something I said earlier, is stop being such a friggin cheapskate, don’t run marketing on the basis of cost minimization, or on the basis of value maximization. And as much as we have some customers out there, and yes, we should be doing some of the cross selling and upselling Don’t get me wrong, but there’s probably even better efficiency. Even better customers out there, we’ve been too cheap to acquire them or too dumb to find out what it would take to do. So, man, oh, man, we could find some of those wells, we can make so much more money. So that’s my point is to focus on acquisition, less from the perspective of Oh, we need more customers, can you go out there and bring us another bushel of customers as cheaply as possible. And just the way most companies operate, instead to say there’s some some whales out there. And I should be careful with that. I guess whale hunting has its own ethical concerns. But anyway, you get the idea. There’s, there’s really good customers out there. And we have to be on the lookout for that. And if we can find out ways to acquire them, that will move the needle so much more effectively than taking the so-so customers and trying to just cross sell them more stuff. Yeah. Okay. Again, we’re going to do that too. But that’s not a growth strategy nearly as much as acquiring the right customers can and should be.
Nick Glimsdahl 24:32
Yeah, yeah. I think it’s interesting because even though you’re there, your current customer, doesn’t necessarily mean that you should upsell them and cross sell them even maybe it’s not because it’s what right for them, but maybe there’s not a profitable customer. So there’s all sorts of other things to think about. But you know, kind of going back to the customer lifetime value, who are the companies who are doing this right and who have the customer, the highest customer lifetime value.
Peter Fader 25:00
So let me answer them separately with kind of each add on who is doing it right. They’re the company that I praise a lot of companies, I’m actually not afraid to name names in these books, companies that aren’t doing it well, as well as those who are. And right over here on book number two, I sing the praises of Electronic Arts, the gaming company, what they’re doing with the stuff is on believable, every single day they look what games you’re playing for, how long what micro payments you making into games, and they update your lifetime value. For billion customers around the world every single day. They say, how much more valuable are you today than we thought you were yesterday. And then they use that that’s, that’s, you know, by itself nice to know, then they use that for basically every tactical strategic decision they make, when ad copy they should have when new games they should develop, they have found that alignment beautifully, well, tremendous credit to their former chief analytics officer, Zachary Anderson to create that alignment, to get people on board with it, and to help them make more money in the process. So there are companies out there that in different ways, have embraced different aspects of this whole mantra and the lifetime value tools itself. But on the other end of the spectrum, I mentioned this work of going with customer based corporate valuation kind of illiquid companies from the outside in, in terms of the kinds of metrics that they are sharing on some of their financial statements. And can we reverse engineer it to say how much lifetime value Do they have, and in many cases, Wall Street doesn’t see it. So I look at a lot of companies and I get I’ll name names, I’ll talk about companies like revolve clothing out in LA Farfetch, the online luxury marketplace, slack. Everyone knows Slack, the you know, they’re the corporate enterprise messaging company. And these are companies that when we did the analysis on them, we said, Whoa, there’s gold in them there hills, they have such valuable customer bases, and Wall Street didn’t fully recognize it.
I think
all three of those companies, Wall Street has finally caught up. Also, it usually does eventually catch up, when they see those revenues growing and cost staying the same. We’re working on a couple of companies right now many private, where we’re doing this kind of thing to basically see the lifetime value and then help the company communicate it, or investors better understand it. Like I said, starting with finance has been a very powerful way to get people to buy into it.
Nick Glimsdahl 27:27
Yeah, and then how far ahead? Are you seeing it before the investors do?
Peter Fader 27:34
It varies. In some cases, it’s years and years and years. In some cases, they they catch up pretty quickly. Of course, in some cases, it goes the other way. So one of the companies that are most famous for talking about is Wayfair, the online Furniture Company, we’ve done these valuations to Wayfair. Admittedly haven’t done it since COVID. And they got a great COVID pop. But just before COVID, we were basically saying they’re worth about, you know, 10 to $20 a share. And they were trading in the hundreds they’re trading about $200 a share their grossly overvalued, I guess I should be careful what I say because they really have done much better things. Since this whole crisis started. I still think they’re overvalued so. So a case like that is going to be yours, if ever for the market catches up. So it doesn’t always happen. But nine times out of 10, it does. And usually it will happen in the space of you know, a couple of quarters to a year or so you can hide beauty for that long. But it is easier to hide ugliness for much longer.
Nick Glimsdahl 28:43
It kind of sounds like Wayfair they tend to send you cookies and Christmas cards every year. They don’t like
Peter Fader 28:52
they should I love them. Actually, I give them a lot of credit for what they’ve done. I give a lot of credit for the information they disclose in their public filings of other customers is incredible. I mean, very few companies do that. And that that says a lot about a company right there. So it’s nothing against them. It’s really that their investors just seem to be feeling a bit of irrational exuberance.
Nick Glimsdahl 29:16
Hmm. So what’s more important to you between brand equity and customer equity? Oh,
Peter Fader 29:22
Nick, I love these questions, you know. So you got all these companies out there that are trying to put $1 value on brand equity. And I’m saying that if possible. And part of the reason why is because brands are so powerful that the power of the brand manifests in so many different ways. There’s no single thing you can look at, or not even two things you can look at to see the value of the brand in financial terms. Because branding just makes everything work a little bit better. It makes it easier to acquire more customers a little bit more cheaply. They’ll stay with a little bit longer, it will be a little more risk. Sponsored to our retention messaging, it helps us hire better employees who will then lead to better customers, it gets governments to like us so we can get better tax breaks. It’s amazing how the power of the brand shows up, but therefore how impossible it is to measure. On the other hand, with the customer side, I already said it before, if I can predict how many countries are going to choir how long their stay, what they’re going to do, I can do all those things. And that’s it. That’s the value of the customer base. So I really do believe I’m a little skeptical about the words, customer equity, even though I say them over and over in my books. And I’m happy to tell you why I’ve clarified it. But that idea of overall customer asset value, I think is very measurable is very transparent, accountable. Now, we just talked about some of the financial things, I can tell in a couple of quarters that people have caught up to it and that that that kind of gas in the tank, asset value for the customers kind of shows up in in, you know, greater performance. Much, much, much harder to do that with the brand. But I’ve had some great conversations with some of these companies, companies like Interbrand, that probably has the most famous brand equity scorecard, spending a lot of time talking to them, their CEO Charles travail, about this idea of kind of bringing it all together, understanding that it shouldn’t be one or the other. There’s no doubt, as I said, but I’ll say it explicitly, that brand is a huge reason why we have as much customer asset value as we do. So I like to believe that that the brand equity is kind of subsumed within this idea of customer equity or customer asset value. Hmm.
Nick Glimsdahl 31:44
Yeah, that’s an interesting, interesting concept. I like that. And I want to talk about customer equity, maybe we’ll add that to our, our list when we meet again. But when it comes to, I mean, what happens when customers see you as a trusted advisor? What changes in their mindset or their perspective?
Peter Fader 32:04
Well, obviously,
once we get them to a trusted adviser point, I’d like those two words. We use them too casually. Sometimes it almost is it almost becomes dislike business buzzword. But once customers genuinely have trust, they really believe that you have their best interests in mind, which is pretty rare. And once they actually come to you, and say, you know, what should I see or do next? You know, not many companies can achieve that goal. But you look at some that have been able to withstand incredible competitive headwinds, companies like Netflix, apple, USA, in the insurance space, there are so many others, I wish there were more. So what happens? Well, your customer is going to stay with you longer spend more refer more customers be cheaper to serve, be more receptive to your cross selling and upselling efforts, like they wouldn’t be recommending this unless they knew was in my best interest. So I mean, that that’s an amazing place to be. But it’s really, really, really, really, really difficult to get there. And you will never, ever, ever get there for all of your customers. goes back to the title of the first book, not these words. But these words, if we can figure out who the right customers are the ones who really do see us as a trusted adviser, and get more of them, which takes us back to the idea of the promoters and net promoter score. That so instead of trying to cure problems for the detractors, as nice as that is to do, we’re better off trying to clone the promoters, who will see us as trusted advisors, and then we’ll do all of those good things. That’s really what we want to achieve. Again, hard to do. Not all companies can do it. And even the best companies can’t do it for everybody. But when you can do it for a reasonable number of customers, amazing things can happen.
Nick Glimsdahl 34:05
Yep. Yeah. So you mean that the promoters actually promote your business? What a weird concept.
Peter Fader 34:11
Yeah, I’m imagine that and, and we want to achieve that. And, you know, these ideas that I keep saying, Let’s find those customers who will do all of those things, including promoting the business. It’s not new, I’m going to go back to Net Promoter Score Fred reichheld, name consultant, father of net promoter score, he wrote a book back in 1996 1996. That’s like 500 years ago, called the loyalty effect, where he laid these ideas out that not all customers are created equal, if you can figure out who the loyal ones are, and then create kind of a flywheel around them, that great things will happen. And all I’m doing is channeling Fred reichheld. When I talk about all this stuff, I’m just trying to bring the these hardcore quantitative models to help us do it more effectively and accountably.
Nick Glimsdahl 34:59
Yeah, no Great. So number three, you have it’s called clear communication with external stakeholders over misalignment and misunderstanding. What does that mean to Peter,
Peter Fader 35:10
it’s just a thinly veiled version of what I was saying before this idea of, of customer based corporate valuation, that and different uses of lifetime value, that that sometimes companies are putting different kinds of messages out there. Sometimes the marketing people are saying things that aren’t as well aligned with what they say the supply chain people are doing. Now, marketing is always going to be out there saying, Where are the best, best, best, best best, you’re gonna love us. But then you get the supply chain, people who are just trying to, you know, put things out there as cheaply and quickly as possible. And those things aren’t really aligned with each other. But once we look at things through the lens of lifetime value, and once we get people to understand how lifetime value should drive the decisions they make, and then evaluate the ongoing future profitability of those decisions, that’s when we can create the kind of alignment and then getting our folks in finance to kind of put a cherry on top. By disclosing some of these metrics, again, let me go out back out to my praise for coming like wayfair, say, we got nothing to hide. And we’re going to put the metrics out there that show you how well or in some cases, how poorly we’re doing this stuff. So that we really can be on message across the silos. And this is going to take us directly to to point number four as well, which was point number four, you have that in front of you.
Nick Glimsdahl 36:38
So the next one I want to talk about is specifically around getting buy in. So when it comes to getting executives, we talked about the CFO a little bit and then kind of went from there, but how do you get the executives to be on board when it comes to customer centricity valuations? It’s been so
Peter Fader 36:55
hard, so hard. Like I said, it used to be I go to CEOs and say, here’s the magic wand, go wave it and no, but by broadening the conversation, by talking about big, broad strategic issues, not only offering solutions, but also problems with the traditional approaches. So you know, between taking that this big picture strategy thing, between having these manifestos between creating alignment with the CFO and supply chain, everybody else, a lot of executives are starting to pay attention. A lot of them just I can’t tell you how, how heartwarming it is, when I’ll hear from senior executives I heard from you know, from one and I won’t say who it is, but fortune 500 company just this week, and it was kind of as if he found religion in this stuff. That that, again, he had been thinking a lot of these ideas, and then someone kind of put these little books in front of them. And, and all these, they didn’t even give them new ideas. It just helped crystallize. And kind of broaden upon some of that thinking. So many ways. For me, it’s kind of right place right time. But to give people to make a tangible instead of to say, Okay, here’s the tool, but you know, how do we create the alignment, how to create the corporate culture, by the way, that’s, that’s book number four, the five C’s, creating a customer centric corporate culture, to really, you know, go beyond just a pure Manifesto, and say, you know, how do we get people talking the same language and all that sort of thing. I’m no expert about it. But I have some collaborators who are. So coming to executives, instead of just saying, this is just a marketing thing. And this is just a technical thing. If it’s going to affect you, and everyone across the organization, it’s working, we still have a long way to go. In book number one new version of it that just came out, I tell the story about how I went to Starbucks over because they were pretty skeptical. I was very harsh about them in the original version of this book 10 years ago. And so they sent an executive to kind of set me straight. And I want her over. And she said, you know, and he’s right. What he’s talking about is what we really mean. And it was wonderful to see why Starbucks started falling along with some of these ideas and finding success with it. So it’s been wonderful for just a nerdy academic like myself, to get, you know, serious sea level people to pay attention to my work. It’s very gratifying. And just gonna gives me just a lot of motivation to keep on going.
Nick Glimsdahl 39:26
Yeah, yeah. So and I think we’ve we, you’ve talked about the CFO multiple times, so they’re the first ones you would start with?
Peter Fader 39:35
Yeah, it’s so ironic for me to say that, but it’s true. That is like, let’s face it. The CFO has so much power and respect within the organization, again, that if I can get the CFO on board these ideas, then it’s going to be much easier to get everybody else and by the way, when the CFO goes to the CMO and says, Oh, I got some model And books and things. And the CMS Oh, yeah, I’m kind of aware of that stuff already. I didn’t think you care about it CFO. But you know, right away, it makes each one of them feel just so much better, and so much more empowered to start talking to the other folks around the table. So yeah, that’s, and this is like a very new idea. It’s basically since 2018. The idea of Let’s start with the CFO, and I’m still learning a lot, a great deal from my co founder, Dan McCarthy. He himself is a finance guy, who’s kind of come over to the marketing side. And he’s helping me learn much more about that language, about that culture, about the metrics, the things that they talk about, so that a marketing guy like me can actually stand in the room with them and not look like a total idiot. I often do. But I’m getting there. And it’s been really, really great.
Nick Glimsdahl 40:52
So did he or did you go to the dark side?
Peter Fader 40:55
Oh, boy, it’s great. It’s funny that in our respective worlds, each of us thinks you know that we’re a sellout. And the dance is an interesting story, because he worked for a hedge fund for a long time. And then he came back to you to speech, not in marketing, but in statistics, and then stumbled into my office around five years ago. And I sit down, I’m working on these lifetime value models, but I want to be able to do with very limited data. Because I got a lot of companies coming to me saying either we don’t have good data, or we’re looking at some of the regulations that keep us from using and sharing the data. So I kept asking the question, how little data do we need Dan, work on that problem and find a use case for it. And for him, it was obvious finance, his companies are disclosed on some occasions are disclosing metrics. And can we look at the metric they’re disclosing and reverse engineer it as if we had all the raw data. And so basically, a lot of that work is due to Dan McCarthy. And rather than choosing one side or another, but really are trying to build a bonafide bridge between marketing and finance, and accounting, and all the other areas that are often skeptical of marketing, to say, It’s not what you think it’s much, much better, and it could be much more helpful to help you do your job better as well. Yeah,
Nick Glimsdahl 42:16
yeah, absolutely. So I actually wrap up every podcast with two questions. And it’s the first question is what book or person has influenced you the most in the past year? And it can’t be you or your books? And the second question is, if you could leave a note to all the customer service professionals, what would it say? And it could be customer experience, who built it will throw them in there? And it’s gonna hit everybody Monday morning? 8am? What would it say?
Peter Fader 42:42
I love it. Okay. So on the first one, I like the restrictions that you put on it. And I’m kind of toeing the line a little bit. But I mean it with great sincerity. I’m going to say Dan McCarthy, my former PhD student, and now co founder, the education that I’ve gotten from him about what words to use. And I’m going to go back to one that I said before, I’ll now elaborate on it. Customer equity for years and years and years have been shouting about customer equity, customer equity. And Dan sat me down, you know, just about a year ago, it’s a Pete, you got to stop saying that. If you want to have any credibility with the finance people, you got to stop saying that, because if we’re going to talk about equity, it’s not just a matter of adding up lifetime value, because then we got to start taking into account costs, and capital structure, and all that accounting and finance stuff that most marketers would rather not think about. And so we lose credibility when we talk about customer equity. But all we’re referring to is added up lifetime value. So it’s been a real education for me to basically not only learn more about finance, but to unlearn some of the things that I and others in marketing talk about very casually. So we can have that conversation and have the credibility instead of having the finance people roll their eyes at us. So Dan McCarthy, thank you, Dad, for the education. Keep it coming. Question two, what’s that note for customer service people? Let’s go to go back to, you know, point number one of our manifesto and the point I’ve been saying throughout this conversation, not all customers are created equal. Don’t take it personally. You’re not going to get them all those of you. It’s not necessarily your fault. Yes, there are some who will love you. And there are some Oh, it’s just such a pleasure talking to them. But on the other hand, they love us so much. They’re going to buy everything that we’re offering. And so in some sense, I don’t say it’s a waste of time, but you know, they’re, they’re great, okay, and they were born that way. And the same way we shouldn’t beat ourselves up about the subject customers. You shouldn’t give ourselves too much credit about the good ones, but there are the social ones. And so many companies are saying that you must educate You must redeem them, you must find ways to take those ugly ducklings and turn them into beautiful swans and customer service people, I want you to push back and say, you know, some of those people who are on the phone, and they’re just angry, and, and they’re just demanding. And you look at their past history and you find out, you know, they only buy from us like once every 10 years anyway, at some point, it’s worth saying, screw it, and to basically, you know, it’s not your fault, there’s only so much you can do, your time can be better spent, your life can be better allocated. And I want companies to see that and that there’s only so much you can do with customer service. There’s only so much you can do with customers. And once we realize that, and we’re freed of this notion that we have to turn everyone into a great customer, we can operate more effectively. And I think you know, for those customer service reps, that job can be just much more rewarding.
Nick Glimsdahl 45:55
Yeah, no, it’s great advice. So what’s the best way that my audience or listeners can connect with, with you?
Peter Fader 46:04
You know, I’m a professor, I love to profess. So I have lots and lots of content out there. So you could follow me on twitter at fader P. connect with me on LinkedIn, please, please, please do or just Google my name and reach out to me directly. Because I have tons of content about this stuff. I’m just trying to sell ideas. You know, and most of them are in the public domain. Most of them are just out there for you to use. There’s no doubt there’s no there’s some secret sauce in the in the commercial companies. But share is my middle name. I mean, it really is. Peter share fader. And so I’m very happy to share ideas and resources and whatever it takes to help you to better understand and act on these ideas of customer centricity.
Nick Glimsdahl 46:49
Yeah, no, that’s great insight. And then last but not least, I highly recommend you go and grab a go to Amazon or wherever you buy books and take a look at not number one. customer centricity, but the playbook, the customer centricity playbook, and then sneak peek. What is that? What is the number three going to be about? You talked about? Ah,
Peter Fader 47:13
but what’s number three? Number three is CBA, the customer base audit. So you know, before we get to all the predictive models, before we have the magic lifetime value one before we forecast anything, let’s first understand our customer base as it is. So again, borrowing from accounting, let’s talk about the customer base audit. So how do we look at the historical data, we have to tell whether we’re doing a pretty good job. In some sense, the subtitle of it is that it’s going to be the first step towards customer centricity. Let’s understand what we have before we know which customers to go after before we even decide whether this is the right strategy for us. So we’re actually about two thirds of the way done with book number three. If anyone’s interested, I could send kind of a sneak preview of the of the table of contents and all that. But you can see we’re just kind of taking this basic idea and broadening it out to bring in the culture part to bring in almost the backward looking historical part. And there’s more to come. I really do believe in this stuff out but some of you do, too. And very happy to keep talking about and lots of different ways.
Nick Glimsdahl 48:26
Yeah, Peter, thank you so much. I learned a bunch and got to ask the questions that I want to ask. So hopefully the listeners did as well and I appreciate your time. It was a wealth of knowledge.
Peter Fader 48:37
Thanks, Nick. I really appreciate your questions. Really, really great set and hope that everyone finds it worthwhile.
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The Press 1 For Nick podcast is both educational and engaging, and each episode offers listeners a dynamic blend of insightful stories, best practices, and invaluable lessons.
Nick’s guests – each with a unique wealth of knowledge – include leaders from a variety of backgrounds and industries. Some of his guests include:
Customer service & customer experience leaders- A hostage negotiator
- Award-winning authors
- Home Depot’s Senior Director of Customer Care
- Former VP of Disney’s Magic Kingdom
- Lyft’s Head of Partner and Customer Engagement
- Deputy Chief Veteran Experience Officer from the U.S. Department of Veteran Affairs
On every episode Nick asks his guest two questions:
- What book or person has influenced you the most in the past year?
- If you could leave a note to all the Customer Service and CX professionals, what would it say?
You can find all the podcast guests’ answers under their episodes below.
If all you want is the guests’ book recommendations, you can go here.
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