Document Text Contents
Page 2
PETER FADER AND SARAH TOMS
THE CUSTOMER CENTRICITY
PLAYBOOK
IMPLEMENT A WINNING STRATEGY
DRIVEN BY CUSTOMER LIFETIME VALUE
Page 55
not transformative. It’s rare (but admittedly not impossible) for a particular
cross-selling activity to turn an “ugly duckling” customer into a beautiful swan—
or, to stay with our earlier piscine metaphor, a minnow into a whale.
Having said all that, we do see some promise in companies that are judicious
in how they bring customer-level data (and analytics, such as CLV) into their
customer service activities. Done right, customer service can start to take on
more of an offensive/developmental role. However, realistically, for most
companies that’s still years away, and it’s important to be well calibrated about
what traditional customer service—even if well executed—can and can’t do for
you.
So, to summarize, we see customer service as a critical must-have for
companies, but primarily for defensive purposes. It is easy to overinvest in it, and
the return on investment on those excessive efforts should be watched closely as
they are likely quite limited. But at the same time, we encourage firms to run
limited—and carefully measured—experiments to start to learn how to achieve
growth through customer service as well.
Nuances of Offensive and Defensive R&D Play
The tactics we’ve used as examples in this chapter are by no means meant to be
taken as an exhaustive list of every possible R&D tactic. Indeed, there are many
more—and firms seem to be inventing new ones (or at least relabeling old ones)
every day. We use these examples because they’re common in business and
consumer contexts, which makes them relatable. Our real objective for you is to
think about tuning your R&D implementation to
whether the objective is offense or defense, and
being intentional about where on the customer-value pyramid you are
targeting the tactic.
Another point we want to make, which came up during the SAM and customer
service discussions, is that the tactics we describe may not sit perfectly in one of
the Figure 3.2 quadrants, but may spill into neighboring quadrants. As another
such example, loyalty programs may also play a defensive role, because the
points and extra goodies that customers receive may be keeping them as
customers, even if they’re having some doubts. This kind of customer lock-in
isn’t a source of enhanced value per se, but it can be a great way to play defense.65
We acknowledge that these kinds of spillovers are a limit of the black-and-
Page 109
working with. Master the basic concepts covered by Hughes, along with the concepts in this book, and
you’ll be on your way to taking a wide variety of customer insights to the next level by using modern
data analytics, visualization, and machine-learning techniques.
71 Tisdale, interview.
72 EA uses lifetime value (LTV), but the implementation details are identical to CLV, regardless of the
label.
73 Elizabeth Gurdus, “Gap CEO Art Peck: Big Data Gives Us Major Advantages over Competitors,”
CNBC, April 11, 2018, www.cnbc.com/2018/04/11/gap-ceo-art-peck-big-data-gives-us-major-
advantages-over-competitors.html.
74 “Cox Enterprises on the Forbes Best Employers for Diversity List,” Forbes, December 31, 2016, www
.forbes.com/companies/cox-enterprises/.
75 Gene Marks, “11 Terrible CRM Systems for Your Company,” Forbes, July 1, 2013, www.forbes.com
/sites/quickerbettertech/2013/07/01/11-terrible-crm-systems-for-your-company/.
76 David Reibstein, “House of Brands vs. Branded House,” Economist, Global Agenda 3, 2005, pp. 175–
177, https://www.researchgate.net/publication/262450255_House_of_Brands_vs_Branded_House.
77 Tim Koler, Mark Goedhardt, and David Wessels, Valuation: University Edition, 5th ed. (Hoboken, NJ:
John Wiley & Sons, 2010). On page 821 of the index, under “C,” there is a single reference to
“customer lock-in,” which refers to switching costs.
78 Aswath Damodaran, The Little Book of Valuation: How to Value a Company, Pick a Stock, and Profit
(Hoboken, NJ: John Wiley & Sons, 2011). To Damodaran’s credit, he has recently begun to embrace
some of the elements of customer-based corporate valuation that we espouse here. See, e.g., Aswath
Damodaran, Going to Pieces: Valuing Users, Subscribers and Customers, May 23, 2018, available at
SSRN: https://ssrn.com/abstract=3175652.
79 C. Arkolakis, “Market Penetration Costs and the New Customers Margin in International Trade,”
Journal of Political Economy 118 (2010): 1151–1199.
80 Kurt Badenhausen, “Apple, Google Top the World’s Most Valuable Brands of 2016,” Forbes, May 11,
2016, www.forbes.com/sites/kurtbadenhausen/2016/05/11/the-worlds-most-valuable-brands
/#542f9a0a36ec.
81 Hal Conick, “Viral Video Tanks United Airlines Brand by Nearly $800 Million,” American Marketing
Association, April 11, 2017, www.ama.org/publications/eNewsletters/Marketing-News-
Weekly/Pages/viral-video-tanks-united-airlines-brand-nearly-800-million.aspx.
82 Wikipedia, s.v. “Brand Equity,” accessed April 24, 2018. en.wikipedia.org/wiki/Brand_equity.
83 “Best Brands,” Interbrand, December 2017, interbrand.com/best-brands/best-global-
brands/2017/ranking/.
84 Leena Rudanko, “The Value of Loyal Customers,” Federal Reserve Bank of Philadelphia, Q2 2017, www
.philadelphiafed.org/-/media/research-and-data/publications/economic-insights/2017/q2/eiq22017
_loyalcustomers.pdf?la=en; François Gourio and Leena Rudanko, “Customer Capital,” Review of
Economic Studies 81 (2014): 1102–36; Thorsten Wiesel, Bernd Skiera, and Julian Villaneuva,
“Customer Equity: An Integral Part of Financial Reporting,” Journal of Marketing 72, no. 2 (2008): 1–
14, doi:10.1509/jmkg.72.2.1.
85 “What’s the Difference between Bottom-Line and Top-Line Growth?,” Investopedia, May 11, 2017,
www.investopedia.com/ask/answers/149.asp.
86 Daniel McCarthy and Peter Fader, “Customer-Based Corporate Valuation for Publicly Traded Non-
Contractual Firms,” published in the Journal of Marketing Research (2018). Pre-publication version
available at SSRN: https://ssrn.com/abstract=3040422.
87 Alex Morrell, “A New Study Shows Wayfair Is Losing Money on Every New Customer—and That’s
http://www.cnbc.com/2018/04/11/gap-ceo-art-peck-big-data-gives-us-major-advantages-over-competitors.html
http://www.forbes.com/companies/cox-enterprises/
http://www.forbes.com/sites/quickerbettertech/2013/07/01/11-terrible-crm-systems-for-your-company/
https://www.researchgate.net/publication/262450255_House_of_Brands_vs_Branded_House
https://ssrn.com/abstract=3175652
http://www.forbes.com/sites/kurtbadenhausen/2016/05/11/the-worlds-most-valuable-brands/#542f9a0a36ec
http://www.ama.org/publications/eNewsletters/Marketing-News-Weekly/Pages/viral-video-tanks-united-airlines-brand-nearly-800-million.aspx
http://www.philadelphiafed.org/-/media/research-and-data/publications/economic-insights/2017/q2/eiq22017_loyalcustomers.pdf?la=en
http://www.investopedia.com/ask/answers/149.asp
https://ssrn.com/abstract=3040422
Page 110
Terrible News for the Stock (W),” Business Insider, September 27, 2017, http://markets
.businessinsider.com/news/1002668626.
88 Daniel McCarthy, “Blue Apron’s IPO Filing Implies Troubling Customer Retention,” LinkedIn, June
17, 2017, https://www.linkedin.com/pulse/blue-aprons-ipo-filing-implies-troubling-customer-daniel-
mccarthy.
89 Eliot Brown, “Stir Fry on Sale? Blue Apron Turns to Deals to Draw Customers,” Wall Street Journal,
June 27, 2017, www.wsj.com/articles/stir-fry-on-sale-blue-apron-turns-to-deals-to-draw-customers-
1498561202.
90 Daniel McCarthy, “A Detailed Look at Blue Apron’s Challenging Unit Economics,” LinkedIn, June 27,
2017, www.linkedin.com/pulse/detailed-look-blue-aprons-challenging-unit-economics-daniel-
mccarthy/.
91 For more information, visit https://www.thetaequity.com/.
92 Marshall Fisher, Vishal Gaur, and Herb Kleinberger, “Stop Chasing the Wrong Kind of Growth,”
Harvard Business Review, January 1, 2017, hbr.org/2017/01/curing-the-addiction-to-growth. A version
of this article appeared in the January–February 2017 issue (pp. 66–74) of the Harvard Business
Review.
93 Louis Columbus, “Roundup of Cloud Computing Forecasts, 2017,” Forbes, April 29, 2017, www.forbes
.com/sites/louiscolumbus/2017/04/29/roundup-of-cloud-computing-forecasts-2017/#67194f3a31e8.
94 Patrick Campbell, “Data Shows Our Addiction to Acquisition Based Growth Is Getting Worse,” Price
Intelligently (blog), June 29, 2016, www.priceintelligently.com/blog/saas-growth-focused-too-much-
on-acquisition.
95 G. T. Doran, “There’s a S.M.A.R.T. Way to Write Management’s Goals and Objectives,” Management
Review 70, no. 11 (1981): 35–36.
96 “Manifesto for Agile Software Development,” 2001, agilemanifesto.org/.
97 Barcenas Cruz, “ITIL 101 for Dummies.” LinkedIn, July 15, 2015, www.linkedin.com/pulse/itil-101-
dummies-francisco-frank-barcenas-cruz.
98 Markey and Reichheld, “Introducing the Net Promoter System.”
99 Peter Varhol, “The Complete History of Agile Software Development,” TechBeacon, March 28, 2018,
techbeacon.com/agility-beyond-history%E2%80%94-legacy%E2%80%94-agile-development.
100 “Sprint (software development),” TechTarget, June 2015, https://searchsoftwarequality.techtarget.com
/definition/Scrum-sprint.
101 Forbes Public Relations, “Forbes Announces MLB Team Valuations: Yankees Top the List,” Forbes,
March 20, 2012, https://www.forbes.com/sites/forbespr/2012/03/20/forbes-announces-mlb-team-
valuations-yankees-top-the-list/#74e0098a63d5.
102 Royce Cohen, interview by the author, August 7, 2018.
103 “The Business of Baseball (2018 Ranking),” Forbes, 2018, www.forbes.com/mlb-valuations/list/.
104 “Dodgers Accelerator,” www.globalsportsventurestudio.com/.
http://markets.businessinsider.com/news/1002668626
https://www.linkedin.com/pulse/blue-aprons-ipo-filing-implies-troubling-customer-daniel-mccarthy
http://www.wsj.com/articles/stir-fry-on-sale-blue-apron-turns-to-deals-to-draw-customers-1498561202
http://www.linkedin.com/pulse/detailed-look-blue-aprons-challenging-unit-economics-daniel-mccarthy/
https://www.thetaequity.com/
http://www.forbes.com/sites/louiscolumbus/2017/04/29/roundup-of-cloud-computing-forecasts-2017/#67194f3a31e8
http://www.priceintelligently.com/blog/saas-growth-focused-too-much-on-acquisition
http://www.linkedin.com/pulse/itil-101-dummies-francisco-frank-barcenas-cruz
https://searchsoftwarequality.techtarget.com/definition/Scrum-sprint
https://www.forbes.com/sites/forbespr/2012/03/20/forbes-announces-mlb-team-valuations-yankees-top-the-list/#74e0098a63d5
http://www.forbes.com/mlb-valuations/list/
http://www.globalsportsventurestudio.com/
PETER FADER AND SARAH TOMS
THE CUSTOMER CENTRICITY
PLAYBOOK
IMPLEMENT A WINNING STRATEGY
DRIVEN BY CUSTOMER LIFETIME VALUE
Page 55
not transformative. It’s rare (but admittedly not impossible) for a particular
cross-selling activity to turn an “ugly duckling” customer into a beautiful swan—
or, to stay with our earlier piscine metaphor, a minnow into a whale.
Having said all that, we do see some promise in companies that are judicious
in how they bring customer-level data (and analytics, such as CLV) into their
customer service activities. Done right, customer service can start to take on
more of an offensive/developmental role. However, realistically, for most
companies that’s still years away, and it’s important to be well calibrated about
what traditional customer service—even if well executed—can and can’t do for
you.
So, to summarize, we see customer service as a critical must-have for
companies, but primarily for defensive purposes. It is easy to overinvest in it, and
the return on investment on those excessive efforts should be watched closely as
they are likely quite limited. But at the same time, we encourage firms to run
limited—and carefully measured—experiments to start to learn how to achieve
growth through customer service as well.
Nuances of Offensive and Defensive R&D Play
The tactics we’ve used as examples in this chapter are by no means meant to be
taken as an exhaustive list of every possible R&D tactic. Indeed, there are many
more—and firms seem to be inventing new ones (or at least relabeling old ones)
every day. We use these examples because they’re common in business and
consumer contexts, which makes them relatable. Our real objective for you is to
think about tuning your R&D implementation to
whether the objective is offense or defense, and
being intentional about where on the customer-value pyramid you are
targeting the tactic.
Another point we want to make, which came up during the SAM and customer
service discussions, is that the tactics we describe may not sit perfectly in one of
the Figure 3.2 quadrants, but may spill into neighboring quadrants. As another
such example, loyalty programs may also play a defensive role, because the
points and extra goodies that customers receive may be keeping them as
customers, even if they’re having some doubts. This kind of customer lock-in
isn’t a source of enhanced value per se, but it can be a great way to play defense.65
We acknowledge that these kinds of spillovers are a limit of the black-and-
Page 109
working with. Master the basic concepts covered by Hughes, along with the concepts in this book, and
you’ll be on your way to taking a wide variety of customer insights to the next level by using modern
data analytics, visualization, and machine-learning techniques.
71 Tisdale, interview.
72 EA uses lifetime value (LTV), but the implementation details are identical to CLV, regardless of the
label.
73 Elizabeth Gurdus, “Gap CEO Art Peck: Big Data Gives Us Major Advantages over Competitors,”
CNBC, April 11, 2018, www.cnbc.com/2018/04/11/gap-ceo-art-peck-big-data-gives-us-major-
advantages-over-competitors.html.
74 “Cox Enterprises on the Forbes Best Employers for Diversity List,” Forbes, December 31, 2016, www
.forbes.com/companies/cox-enterprises/.
75 Gene Marks, “11 Terrible CRM Systems for Your Company,” Forbes, July 1, 2013, www.forbes.com
/sites/quickerbettertech/2013/07/01/11-terrible-crm-systems-for-your-company/.
76 David Reibstein, “House of Brands vs. Branded House,” Economist, Global Agenda 3, 2005, pp. 175–
177, https://www.researchgate.net/publication/262450255_House_of_Brands_vs_Branded_House.
77 Tim Koler, Mark Goedhardt, and David Wessels, Valuation: University Edition, 5th ed. (Hoboken, NJ:
John Wiley & Sons, 2010). On page 821 of the index, under “C,” there is a single reference to
“customer lock-in,” which refers to switching costs.
78 Aswath Damodaran, The Little Book of Valuation: How to Value a Company, Pick a Stock, and Profit
(Hoboken, NJ: John Wiley & Sons, 2011). To Damodaran’s credit, he has recently begun to embrace
some of the elements of customer-based corporate valuation that we espouse here. See, e.g., Aswath
Damodaran, Going to Pieces: Valuing Users, Subscribers and Customers, May 23, 2018, available at
SSRN: https://ssrn.com/abstract=3175652.
79 C. Arkolakis, “Market Penetration Costs and the New Customers Margin in International Trade,”
Journal of Political Economy 118 (2010): 1151–1199.
80 Kurt Badenhausen, “Apple, Google Top the World’s Most Valuable Brands of 2016,” Forbes, May 11,
2016, www.forbes.com/sites/kurtbadenhausen/2016/05/11/the-worlds-most-valuable-brands
/#542f9a0a36ec.
81 Hal Conick, “Viral Video Tanks United Airlines Brand by Nearly $800 Million,” American Marketing
Association, April 11, 2017, www.ama.org/publications/eNewsletters/Marketing-News-
Weekly/Pages/viral-video-tanks-united-airlines-brand-nearly-800-million.aspx.
82 Wikipedia, s.v. “Brand Equity,” accessed April 24, 2018. en.wikipedia.org/wiki/Brand_equity.
83 “Best Brands,” Interbrand, December 2017, interbrand.com/best-brands/best-global-
brands/2017/ranking/.
84 Leena Rudanko, “The Value of Loyal Customers,” Federal Reserve Bank of Philadelphia, Q2 2017, www
.philadelphiafed.org/-/media/research-and-data/publications/economic-insights/2017/q2/eiq22017
_loyalcustomers.pdf?la=en; François Gourio and Leena Rudanko, “Customer Capital,” Review of
Economic Studies 81 (2014): 1102–36; Thorsten Wiesel, Bernd Skiera, and Julian Villaneuva,
“Customer Equity: An Integral Part of Financial Reporting,” Journal of Marketing 72, no. 2 (2008): 1–
14, doi:10.1509/jmkg.72.2.1.
85 “What’s the Difference between Bottom-Line and Top-Line Growth?,” Investopedia, May 11, 2017,
www.investopedia.com/ask/answers/149.asp.
86 Daniel McCarthy and Peter Fader, “Customer-Based Corporate Valuation for Publicly Traded Non-
Contractual Firms,” published in the Journal of Marketing Research (2018). Pre-publication version
available at SSRN: https://ssrn.com/abstract=3040422.
87 Alex Morrell, “A New Study Shows Wayfair Is Losing Money on Every New Customer—and That’s
http://www.cnbc.com/2018/04/11/gap-ceo-art-peck-big-data-gives-us-major-advantages-over-competitors.html
http://www.forbes.com/companies/cox-enterprises/
http://www.forbes.com/sites/quickerbettertech/2013/07/01/11-terrible-crm-systems-for-your-company/
https://www.researchgate.net/publication/262450255_House_of_Brands_vs_Branded_House
https://ssrn.com/abstract=3175652
http://www.forbes.com/sites/kurtbadenhausen/2016/05/11/the-worlds-most-valuable-brands/#542f9a0a36ec
http://www.ama.org/publications/eNewsletters/Marketing-News-Weekly/Pages/viral-video-tanks-united-airlines-brand-nearly-800-million.aspx
http://www.philadelphiafed.org/-/media/research-and-data/publications/economic-insights/2017/q2/eiq22017_loyalcustomers.pdf?la=en
http://www.investopedia.com/ask/answers/149.asp
https://ssrn.com/abstract=3040422
Page 110
Terrible News for the Stock (W),” Business Insider, September 27, 2017, http://markets
.businessinsider.com/news/1002668626.
88 Daniel McCarthy, “Blue Apron’s IPO Filing Implies Troubling Customer Retention,” LinkedIn, June
17, 2017, https://www.linkedin.com/pulse/blue-aprons-ipo-filing-implies-troubling-customer-daniel-
mccarthy.
89 Eliot Brown, “Stir Fry on Sale? Blue Apron Turns to Deals to Draw Customers,” Wall Street Journal,
June 27, 2017, www.wsj.com/articles/stir-fry-on-sale-blue-apron-turns-to-deals-to-draw-customers-
1498561202.
90 Daniel McCarthy, “A Detailed Look at Blue Apron’s Challenging Unit Economics,” LinkedIn, June 27,
2017, www.linkedin.com/pulse/detailed-look-blue-aprons-challenging-unit-economics-daniel-
mccarthy/.
91 For more information, visit https://www.thetaequity.com/.
92 Marshall Fisher, Vishal Gaur, and Herb Kleinberger, “Stop Chasing the Wrong Kind of Growth,”
Harvard Business Review, January 1, 2017, hbr.org/2017/01/curing-the-addiction-to-growth. A version
of this article appeared in the January–February 2017 issue (pp. 66–74) of the Harvard Business
Review.
93 Louis Columbus, “Roundup of Cloud Computing Forecasts, 2017,” Forbes, April 29, 2017, www.forbes
.com/sites/louiscolumbus/2017/04/29/roundup-of-cloud-computing-forecasts-2017/#67194f3a31e8.
94 Patrick Campbell, “Data Shows Our Addiction to Acquisition Based Growth Is Getting Worse,” Price
Intelligently (blog), June 29, 2016, www.priceintelligently.com/blog/saas-growth-focused-too-much-
on-acquisition.
95 G. T. Doran, “There’s a S.M.A.R.T. Way to Write Management’s Goals and Objectives,” Management
Review 70, no. 11 (1981): 35–36.
96 “Manifesto for Agile Software Development,” 2001, agilemanifesto.org/.
97 Barcenas Cruz, “ITIL 101 for Dummies.” LinkedIn, July 15, 2015, www.linkedin.com/pulse/itil-101-
dummies-francisco-frank-barcenas-cruz.
98 Markey and Reichheld, “Introducing the Net Promoter System.”
99 Peter Varhol, “The Complete History of Agile Software Development,” TechBeacon, March 28, 2018,
techbeacon.com/agility-beyond-history%E2%80%94-legacy%E2%80%94-agile-development.
100 “Sprint (software development),” TechTarget, June 2015, https://searchsoftwarequality.techtarget.com
/definition/Scrum-sprint.
101 Forbes Public Relations, “Forbes Announces MLB Team Valuations: Yankees Top the List,” Forbes,
March 20, 2012, https://www.forbes.com/sites/forbespr/2012/03/20/forbes-announces-mlb-team-
valuations-yankees-top-the-list/#74e0098a63d5.
102 Royce Cohen, interview by the author, August 7, 2018.
103 “The Business of Baseball (2018 Ranking),” Forbes, 2018, www.forbes.com/mlb-valuations/list/.
104 “Dodgers Accelerator,” www.globalsportsventurestudio.com/.
http://markets.businessinsider.com/news/1002668626
https://www.linkedin.com/pulse/blue-aprons-ipo-filing-implies-troubling-customer-daniel-mccarthy
http://www.wsj.com/articles/stir-fry-on-sale-blue-apron-turns-to-deals-to-draw-customers-1498561202
http://www.linkedin.com/pulse/detailed-look-blue-aprons-challenging-unit-economics-daniel-mccarthy/
https://www.thetaequity.com/
http://www.forbes.com/sites/louiscolumbus/2017/04/29/roundup-of-cloud-computing-forecasts-2017/#67194f3a31e8
http://www.priceintelligently.com/blog/saas-growth-focused-too-much-on-acquisition
http://www.linkedin.com/pulse/itil-101-dummies-francisco-frank-barcenas-cruz
https://searchsoftwarequality.techtarget.com/definition/Scrum-sprint
https://www.forbes.com/sites/forbespr/2012/03/20/forbes-announces-mlb-team-valuations-yankees-top-the-list/#74e0098a63d5
http://www.forbes.com/mlb-valuations/list/
http://www.globalsportsventurestudio.com/
