Peter Fader is a major figure in the study of customers. Specifically, he is closely linked to the idea of how companies value customers and focus on serving the customers that are most important to the firm. His 2019 book with Sarah E. Toms, The Customer Centricity Playbook, looks at customer centricity and CLV. The idea is to offer some practical advice to achieve a more customer centric company.
Customer Centricity
The key idea underpinning the playbook is customer centricity. This is that:
…not all customers are created equal, which means that they don’t all deserve and equal share of your organization’s valuable time and resources.
Fader and Toms, 2019, page 2
Heterogeneity (differences) between customers are critical to this way of thinking. To comprehend the differences you need to know a lot about the customers. To serve them appropriately you need to understand their value (CLV). The authors tell a great story of a CEO who had a quest to stop employees talking about ‘the customer’. There is no voice of ‘the customer.’ They all have their own voices. This is really useful and important.
Personas
Personas are a much more holistic concept than straight demographics, attitudes, or even behavioral metrics.
Fader and Toms, page 33, 2019
The authors are strongly against the use of personas in marketing. I largely agree with them. I even thought of doing some work on this when I was a Ph.D. student. The worry is that a persona is evocative and encourages the manager to think of the persona as an actual customer. You aim to serve ‘Harriet Housewife’. The challenge is that customers differ and so you end you serving your stereotypes rather than your actual customers. I never did the study so I can’t give supportive data but I buy the author’s argument.
Customer Goodness, Customer Centricity And CLV
In this post, I will focus on one particular idea that I wasn’t convinced about.
I think there is great potential for tightening our thinking about customer valuation. Fader and Toms discuss the idea of customer goodness. Basically, some customers are, and always will be, higher value for the firm. So far this makes sense. To be customer centric you have to understand that customers differ. The customer’s values are going to differ too whatever you do.
Where I was much less convinced was their claim that it was a mistake, or at any rate an omission, not to get “beyond dollars and cents” sometimes when attempting to put a value on CLV.
…there are some businesses where limiting your CLV to finances is inadequate.
Fader and Toms, 2019, page 15
The problem isn’t the argument that we can, indeed should, care about hard-to-measure factors. That a customer is, for example, a good ambassador for the brand is potentially very important. I believe that marketing is complex. Challenges exist and we should embrace them. The authors even discuss that healthcare matters well beyond the financial outcomes. Non-financial things matter to life and so they should matter to decisions.
Important Doesn’t Necessitate “In CLV”
Still, I don’t think we can shoehorn ill-defined notions into CLV without losing the benefits of CLV. If we want accountants and other non-marketers to buy our numbers they need to be transparent. How do you adjust CLV for non-financial factors as the authors suggest?
To be clear, adjusting a dollar-based metric for non-financial factors (without converting them to financial factors) seems impossible to me without creating a mess. Furthermore, given CLV is a financial measure I’d argue you shouldn’t even try to add non-financial factors. (I suggest following the money measurement concept from accounting — see my 2017 Marketing Accounts paper for more here).
Elsewhere I felt the authors seemed to suggest CLV was about cash flows, i.e. only financial factors. I agree with that. If cash is flowing surely you can measure it. If cash isn’t flowing, to my mind it at least, it ain’t CLV.
Don’t Mess With CLV
I disagree with their advice to get beyond dollars and cents in CLV. Yes, I agree that we should make sure to understand and communicate that there are factors of importance that are not covered by CLV. This is 100% correct. Still, don’t mess with CLV. Marketers have enough problems being taken seriously. Let’s not multiply our challenges with credibility by adding additional unspecified non-financial wiggle room into the dollar-based ideas that we present.
For more on CLV see How To Use, and Misuse, Customer Lifetime Value (CLV).
Read: Peter Fader and Sarah Toms, 2019, The Customer Centricity Playbook: Implement A Winning Strategy Driven By Customer Lifetime Value, Wharton School Press
