Customer centricity: What is it?

According to Peter Fader (2020), customer centricity is the strategy that aligns the company’s development and delivery of its products and services with the current and future needs of a select set of customers to maximize their long-term financial value to the firm. The key to this definition, you have here on this slide, is the idea that not all customers are created equal because this means that they don’t all deserve an equal share of the organization’s valuable time and resources. 

Manage customer relationships according to value contributions

To be clear on this: it doesn’t mean you should fire your worst customers or ignore them to sell to them. But it does mean that you should know at what point you’re throwing away valuable resources on customers who aren’t valuable enough to deserve the level of attention you’re giving them. Okay, of course, we still live sometimes by this mantra “the customer is king.” But, again: not every customer should be king – or all should be king but perhaps at different levels and should um be served according to the actual value they bring to the company. 

Product centricity versus customer centricity

So, let’s confront the customer-centric and the product-centric view here in one table. Okay, product-centric here on the left, customer-centric on the right. So, what is the basic philosophy?

We need to put that in a nutshell: to sell products, we’ll sell to whoever will buy. This is the product-centric approach. In the customer-centric approach, it is: serve customers. All decisions start with the customer. Opportunities for advantage business orientation: in a product-centric world, it is transaction-oriented—transaction by transaction. A customer-centric approach – and this is why we see customer centricity as a focal concept here – is relationship-oriented. Relationships are a multitude of different transactions, of course. But it’s as well inherent in this approach that firms can develop relationships further. 

Differentiating both views in terms of positioning and structures

Product positioning: a product-centric approach here highlights product features and advantages. On the other hand, customer-centric approaches highlight product benefits in terms of meeting individual customer needs. Okay, we’re starting its consumer-led thinking. Okay, we start from the needs and see how the different attributes and benefits of the product can respond to and satisfy those needs. Organizational structure: product-centric approaches mean product profit centers, product managers, product sales teams. And in reality, if you go on the internet and see the organizational structures of many firms, they are still very product-centric. What would this mean in a customer-centric approach? It would mean that there are customer segment centers or customer relationship managers, customer segment sales teams.

What’s the organizational focus?

The product centricity is internally focused: new product development, new account development, and market share growth. Customer relations are issues for the marketing department. The customer-centric firm is externally focused: customer relationship development profitability through customer loyalty; employees are customer advocates.

Performance metrics

And we’ll look into performance metrics in the customer analytics part of this course as well. The number of new products profitability per product, market share by product or sub-brands. For the customer-centric approach, share-of-wallet, customer satisfaction, customer lifetime value, and customer equity.

Management criteria

For product-centric approaches: it’s the portfolio of products. And, as you might expect for the customer-centric approach, it’s the portfolio of customers selling approach. How many customers can we sell this product to versus how many products can we sell this customer? It’s just one sentence, and they’re just one or two words that we repositioned here, but it shows that the mindset behind it is entirely different. And finally, customer knowledge, customer data are control mechanisms.

On the other hand, in customer-centric firms, it’s customer knowledge is a valuable asset. 

Conclusion

Okay, I think this wraps it up. We see how product centricity and customer centricity are opposed and understood. Customer centricity is the idea that businesses should put their customers at the center of their decision-making. Customer centricity is not a new idea, but it’s been gaining a lot of traction in recent years. More and more executives embrace the idea that customer centricity is necessary to provide the best customer experience, stay on top of the competition, and move the company forward. In this video, you will understand what customer centricity is and where product-centric and customer-centric firms differ. Interested in learning more about customer centricity, relationship marketing, and customer analytics? Head over to the comprehensive online course “Relationship Marketing and Customer Analytics​.”