Even though the data often shows that managing customers is more profitable than managing products, this lack of control is uncomfortable for students and company executives alike.
Professor of Marketing
Wharton School, University of Pennsylvania
If you could wave a magic wand and see every customer’s lifetime value (or CLV) instantly, wouldn’t you run your business differently? Wouldn’t you work harder to cultivate relationships with the customers who have the highest CLVs? Wouldn’t you actively seek (and pay good money) to find more customers like them? That’s exactly what customer-centric marketers do. They concentrate more of their marketing efforts on their highest-value CLV customers. Different from conventional product-centric practices, which focus on short term inventory sales, customer-centric marketing looks at the long term, equity-building picture as measured by the value of customers over their lifetime.
<p>At Wharton, I teach a full-semester MBA elective course that is organized around these and other related questions. The students spend the first 11 weeks learning about customer centricity. I teach them the vocabulary, the metrics, and some of the emerging best practices that are arising across a variety of industries. These students are indoctrinated in customer centricity, and are ready to put all of this knowledge to work to start transforming a real-world business into a customer-centric leader. Or so I thought.
And then came week 12. That’s when I exposed the students to a compelling new customer-centricity simulation (http://whr.tn/CCsim). The students were excited to show off what they’d learned. And they discovered that as soon as they had to make real business decisions, based on customer-level data, they fell back into traditional product-centric thinking. They learned that the way we have approached business for many years is so deeply ingrained, that it’s hard to act on new ideas; even when you understand the long-term value of those new ideas.
These students are not alone. I find the same results when I take our simulations to business. The impulse to drive product revenue is strong, and it drives different decisions. Why is the product-centric model so hard to fight, especially when a company is making a conscious effort to become more customer-centric? I believe that a company falls back into its product-centric ways for two reasons:
- The instinct to make some money now, rather than wait for a bigger pay out later, is strong.
- Managers cling to, organize, and build businesses around a product rather than their customers. They’ve been trained to do this for years, and a single semester of classroom discussions isn’t enough to change it.
Products are very tangible objects that can be bought and sold and put on balance sheets. Even though people are tangible, customers are seen as “intangible” assets. It’s not as easy to manage customers as it is to manage products. You can literally hold, manufacture, and distribute the product. In other words, you feel like you can “control” a product, but you can’t control a customer to the same degree. You can nudge him and hope he will follow, but you can’t control a customer’s actions. Even though the data often shows that managing customers can be more profitable than managing products, this lack of control is uncomfortable for students and company executives alike.
The customer-centricity simulation helps people overcome that fear. Over the course of a day, or two weeks—depending on the audience—the simulation presents a series of scenarios that allow participants to really understand the tactics, strategies, and benefits of customer-centric management. Simulating real business decisions, the participants can see the impact of those decisions – and can appreciate the power and value of focusing on driving profitable growth through customer relationships more than product development.
You can’t learn to swim without getting into the water. Learning to be customer centric is the same; you can’t just read case studies and then act on them. You have to jump in the water—even if it is merely simulated—to start acting and practicing the strokes of customer centricity. After a few rounds, participants start to get the hang of it. Then, after a few more rounds, they start to reap the rewards.
The simulation helps managers experience the power of customer centricity. They learn to trust the CLV models and their ability to fully leverage them. They learn to use those insights to make long-term, customer-focused choices instead of falling back on typical short-term, product-focused decisions. The simulation makes customer centricity feel less like a leap of faith and more like a solid business strategy that will feed the growth engine. Marketing leaders can experience the power of this simulation at Customer Centricity Conference 2017 May 10 and 11. See more details on the simulation here.