Find Your Best Customers and Build Around Them

What it is

It’s a short book, five chapters, by the Wharton marketing professor Peter Fader. Wharton Digital Press first published it in 2011 as Wharton Executive Education Customer Centricity Essentials, and it took its current title in 2012. An updated edition, with a new preface and afterword, came out from Wharton School Press in May 2020.

It opens with the Nordstrom tire story. In 1975, as the legend goes, Nordstrom’s new store in Fairbanks, Alaska, took back a set of worn tires it had never sold. Fader writes that “Nordstrom was probably wrong to do this,” and the only way to know is to ask what that customer was worth.

“the customer is not always right. Rather, the right customers are always right. And yes, there is a difference.” Introduction, pp. 8–9 (2012 edition)

What you’ll take from it

Start with his definition, which has nothing to do with being nice to customers.

“Customer centricity is a strategy to fundamentally align a company’s products and services with the wants and needs of its most valuable customers. That strategy has a specific aim: more profits for the long term.” Introduction, p. 9 (2012 edition)

Then the tool for finding those customers, customer lifetime value. You sort customers by what they’re going to be worth, not by what they bought last month. Fader argues the traditional way of calculating it is flawed, and he shows a simple change that gives a much more accurate picture of what customers are really worth.

He doesn’t tell you to fire everyone else. The rest “shouldn’t be ignored,” he writes, and he isn’t suggesting you “ditch them, treat them shabbily, or ignore their wants and needs.” He’s also upfront that the model doesn’t suit every company, and a chapter on customer equity sorts out which ones it does.

Where it shows up in your numbers

A minority of accounts make up a majority of the revenue, and this book turns that into a strategy. Volume KPIs do the opposite. Cost per lead, cost per acquisition and churn rate count every customer the same, so the one who buys once and the one who carries your book for ten years each count as one.

So score every customer on expected future value and split them into A through D. Put your best service and your retention budget on the A’s and B’s, and keep serving the C’s and D’s without letting them set the plan. Then judge acquisition by how many new customers look like your A’s.