Notes

[MUSIC]
Hi, I'm Pete Fader, I'm the Pei-Yuan Chia
Professor of Marketing
at the Wharton School and co-director of
the Wharton Customer Analytics Initiative.
I'm really excited to be starting my
module of our introduction to marketing
course.
But the fact that I run a research center
called, The
Customer Analytics Initiative suggests
that I'm a data guy, and that's true.
I love looking at data about customers,
try to figure
out which customer is doing what and for
how long and
for how much money, and what kind of
tactics can
companies use to create and extract more
value from the customer.
So for me, it's all about the customer
behavior, the, the patterns that we see
over time
and the kinds of strategies that companies
can build
around those patterns or to do better for
themselves.
So I want to start by going back to one
of the frameworks that Barbara Kahn used
in her modules.
You might recall this slide over here,
where she laid
out the basic kinds of strategies that
companies can follow.
And a couple of these strategies are
really clear.
Everyone understands what performance
superiority means.
It's, it's just having the very best
product out there.
So whether you're an Apple, a BMW or a
luxury product like a Louis Vitton or a
Gucci.
You want to have the best.
Operational excellence is also pretty
clear.
you want the lowest price, you want the
most
efficient operation or the most efficient
experience for your customer.
So whether you’re talking about a Walmart
or an IKEA or a Zara,
you are really interested in keeping the
cost low, keeping the process very
efficient.
That gives us operational excellence.
But it's the third leg of this diagram
that we're going to spend a lot of time
on.
This idea
of customer intimacy.
The basic idea makes sense.
Let's focus on the customer.
But exactly what does that mean?
Who is the customer?
Are we going to focus on all customers the
same way?
Just how intimate do we want to get.
And how do we actually make more money on
something
that actually adds costs than some of
these other strategies.
So that's going to be the main focus of
our efforts, is taking this idea of
customer intimacy.
Or, as I like to call it,
customer centricity and really
understanding what it is.
Clarifying what it isn't, motivating why
it's important, and trying to get firms to
make a well informed decision about
whether
they want to pursue that kind of strategy.
And, whether when or how to actually go
after it.
So that's going to be the focus of our
work.
[NOISE]
I'm here on South street.
One of the popular shopping areas in
Philadelphia.
And all around me would be stores that
represent
the different kinds of, of strategies that
Barbara spoke about.
Just over my right shoulder, you'll see
one of my favorite pizza places.
That's performance superiority.
Right down the block, there's a number of
fast food restaurants.
That would be operational excellence.
But what about customer intimacy?
What kinds of stores would really be
customer intimate, or
customer-centric, as I like to say.
And what makes them different?
So let's really understand how these
different strategies compare
with each other, and then take the deeper
plunge.
Into customer centricity.
So give me a few minutes to review the
traditional steps of running a business.
Running a business in a performance
superior or operationally excellent kind
of
way and that's going to give us the basic
foundation so we can really
understand how customer centricity is
different.
Some of the challenges associated with it.
And some of the opportunities that
customer centricity can provide, that you
might
not be able to achieve, with a
performance superiority or an operational
excellence strategy.
So let's take a step back and review these
traditional steps of running a business.
For most commercial enterprises the
overall objective, beyond everything else,
beyond all the tactics that a company is,
is using and
the strategy that it's hoping to follow,
it's all about making money.
And again, Barbara reviewed this and you
don't need to be told this.
it's all about maximizing the value of the
whole corporation.
It's looking at the money that we make
today, the money that
we'll make tomorrow, the money that we'll
make ten years from now.
And when we recognize that time value of
that money, that today's dollars are more
important
to us than tomorrow's dollars.
When we take the discounted flow of the
company's profits,
that in theory, gives us the overall value
of the corporation.
So, our job as a manager to maximize the
value of the corporation which
means, maximizing the net present value of
profits that the company is going to get.
So we agree on that.
That part is pretty easy, conceptually.
But the question is,
how do companies achieve it?
And that takes us back to those core
strategies that Barbara laid out.
And when you think about the most
traditional
one among them, again performance,
superiority, operational excellence.
It's all about coming up with a
blockbuster product or service.
Coming up with a brilliant idea that puts
us steps ahead of all of our
competition, and then figuring out ways to
bring
that idea, that product or service to
market.
So it's conceptualizing it,
it's developing it, it's manufacturing,
distributing, marketing that idea.
That's what business is traditionally all
about.
And so the key, for most firms for making
money, isn't only coming up
with that idea but then figuring out ways
to produce lots and lots of it.
And one of the things that we've
discovered
over the years, is that producing lots and
lots of quantities of this product or
service
that we want to deliver, not only helps us
make greater revenue.
But the fact that we're producing and
distributing so,
so much of it also brings our cost down.
So the, the core focus of most traditional
businesses is high volume, low cost.
And again, coming up with a great idea
that enables us to do that.
So, so many companies have built their
business.
Around that.
And even today a common question
that we always ask ourselves, particularly
when we
have a new business is will it scale?
Can we produce or deliver this product or
service at scale so we can do so
much of it that it's going to let us bring
in the revenue and bring our costs down.
So that's, that's, that's the basic way
that most companies operate.
And over the years, many different metrics
have arisen that help companies understand
how
well they're doing it.
Obviously they can look at the volumes
that they're delivering.
Obviously they can look at changes in
their costs.
Are costs coming down as we develop and
deliver more and more of this product or
service?
So some metrics that show us how well
we're, we're doing our business are fairly
clear.
Some of them are less clear.
For instance, a very powerful metric is
market share.
So many
companies today obsess over market share,
because not only does it
give them an indication of how well
they're doing relative to their
competitors in a given industry, but it
also has these interesting properties
of being a leading indicator of how well
you will be doing.
There's a lot of research that goes back
to the 1960's, the 1970's that shows
that market share is not only a
good backwards indicator of how well
you've done,
but a leading indicator of how well you
will likely be doing in the future.
So, so many other metrics, like market
share and others,
are central to this product superiority,
or operationally excellent strategy.
Beyond running your business and measuring
to see how well you're
doing it, a company isn't only interested
in fine-tuning those metrics.
They're interested.
And in fact,
they're mandated to have growth.
It's not enough just to do what you're
doing a little bit more efficiently and
effectively.
Your shareholders demand growth.
They want more.
They want more than you can possibly have
delivered before.
And so where does growth come from?
In a world characterized by a performance
superiority or operational excellence.
What are the sources of, of major growth
that,
that a company can enjoy?
And we really see two different sources,
that at
first sound fairly distinct from each
other, but when we
think about it a little bit more carefully
they're
actually just different flavors of the
same kind of growth.
So let's think about them a little bit.
One source of growth is taking the
products and services
that we've been delivering already and
bringing them to new customers.
Either going to new customer segments or
to new geographies.
So it's taking this great product or
service and bringing it to new customers.
That's clearly a new source of growth.
The other source of growth that I'm sure
all of you could think about, would be
innovation.
So in addition to producing and
distributing a certain
set of products or service, what more can
we do?
So let's go back to the folks who
developed
these great products and services in the
beginning, and say
give us some new products and services.
Let's go back to the R & D people and say.
Okay you have a certain degree of
expertise that
has enabled you to bring us the current
product.
What more can you do to bring us either
variance
of that product, or entirely new ones that
haven't existed before?
So that's an obvious source of growth
would
be new products, or extensions to existing
products.
So at first, this idea
of taking our current product and bringing
it to new customers, or
coming up with new and different products
seem fairly different from each other.
And indeed the tactics associated with
them, the expertise within
the corporation does indeed have to be a
bit different.
When we step back and think strategically,
both
of them actually have a lot in common.
Both of them share this basic idea.
We have a certain degree
of product expertise.
How can we extend it?
How can we take that product expertise,
and either extend
it to new customers or extend it to new
products?
So regardless of the specific way that you
go after growth, the
main source of growth is extending our
overall product or service delivery.
And that's what most companies have to be
really good at.
We're, we're good at doing a certain kind
of thing.
We're going to try to do it as, as
efficiently or effectively as possible.
Now how can we take that product expertise
and extend it in new directions?
And how do companies go about doing that?
How do they go about running the existing
business as
well as figuring out how to extend the
existing product.
Well if you look at the organizational
chart of almost any company on the planet.
The company tends to be organized around
the different kinds of products and
services that it delivers.
So you'll have a product manager or a
brand manager, but it's all about having
separate silos around the different
products or services
and then organizing all the activities
that way.
And so, so, very often each of these
different silos will be responsible not
only to run its own operation as
efficiently as possible, but think about
it's
own way of extending that kind of product
expertise.
And so, if we sum up the way that most
companies
operate, it's all about this idea of
product or service expertise.
That's the competitive advantage that so
many managers, so many academics,
so many industry experts have focused on
for so many years.
We are the best at conceptualizing,
developing,
delivering a certain kind of product or
service.
And we're going to stay ahead of our
competitors by becoming more efficient.
By going to new markets, and always
developing new products
and services that are going to keep us a
step ahead.
Product expertise.
So what I've just described to you is
pretty standard stuff.
For most of you, if you look at your
experience as a consumer or
through your work experience, you'll
realize that
that's the way that most businesses
operate.
And instead of just calling it business,
we can now put a label on that.
And that label I like to use is product
centricity.
See, in the old days we didn't need a
special label for it because for most
companies this was business, and business
was this
set of steps that I just described to you.
But today, we're seeing different kinds of
business models emerging.
And so we want to now distinguish
the set of practices that I just
described.
In fact I like to use a metaphor about a
fish swimming around in water.
So while the fish is in the water.
It doesn't realize that it's in water
until it jumps into a new environment.
It jumps out of the water for a, for a
moment.
And realizes, uh-oh, I'm in a different
environment now.
And I kind of like the old environment
better.
I'm going to stay in the water.
And this
is exactly the kind of issue that many
companies are facing today.
They're swimming around in their own water
of product centricity.
It works.
It keeps the business going.
It gives them some opportunities for
growth.
And for many companies that's totally
fine.
But for other companies, whether it's out
of desperation or
out of opportunity, they're looking for
different kinds of environments.
They're looking for different kinds of
strategies.
We're seeing more and more companies,
jumping out of
the water, and saying is it better out
here?
How can I operate out here?
Should I operate out here?
And that's why we're now going to put a
specific
label on the old way of doing things,
product centricity.
So again, most of you understand that,
this is business as usual.
many of the concepts that Barbara was
talking about implicitly refer to a
product-centric approach.
And just to sum up the product-centric
world before we kind of start
moving away from it, I have this one other
slide for you here.
That shows you many of the
classic characteristics of a product
centric business.
And if you look up and down the slide, you
won't find
a lot that's tremendously insightful, and
that's the point I want to make.
Is that the traditional product centric
approach
to business, again, focusing on
performance superiority or
operational excellence.
is, by now, second nature to most
managers.
So if you look at as the slide shows,
the kinds of customers that we're going
after, the
kinds of metrics that we're using, the
overall focus
in the organization and the business, it's
pretty standard stuff.
I just want to call your attention to this
one point to, towards the bottom of the
slide.
The idea of the mental process.
And I love this idea of divergent
thinking.
And it goes back to an idea I mentioned a
few minutes ago.
We have this product expertise, what can
we do with it?
How can we spread it out to other kinds of
customers, and other kinds of businesses?
Again, implicity, that's the way that most
businesses operate.
And we hire people who can think
divergently, who can take our particular
core business, and think about ways of
spreading it out, to new markets, and
new products and services.
So I want to make that explicit, because
as we go
on, we're going to talk about some very
different mental processes, as
well as different metrics, and all of the
points that
you see on this slide are going to become
quite different.
[MUSIC]