0079 - Stop Wasting Money, Focus on Your Most Profitable Customers ft Peter Fader

Kick off the new year with a fresh perspective on your business strategy! In this episode, Ben Owden chats with Dr. Peter Fader, Wharton professor and co-founder of a predictive analytics firm acquired by Nike. Peter is also the author of Customer Centricity and The Customer Centricity Playbook, and he’s on a mission to debunk the myth that “all customers are created equal.”

Discover why focusing on your best customers—and even paying more to acquire them—can drive sustainable growth, while treating every customer the same can derail your bottom line. Peter explains the power of customer lifetime value (CLV), sheds light on how to measure it without drowning in data, and shows how a “quality over quantity” approach to customer acquisition can transform your organization. Whether you’re planning this year’s strategic initiatives or seeking a deeper understanding of customer behavior, this insightful conversation will help you see why the right customers—not all customers—deserve your full attention.

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Transcript

Peter Fader

It's such an important point. This may be the most important point of all. Let's go back to that expression, you know, it costs X times more to acquire than to retain. So focus on the customers you have. I'm not even saying that the statement's untrue, but what I'm saying is this marketing shouldn't be about minimizing costs. That's not our job as marketers. Our job is to maximize value. And so if there's better customers out there, even if it's gonna more expensive to acquire them, it might cost two or three times more money to acquire them. But if they're ten or a thousand times more valuable, it's worth every penny. So the issue with customer acquisition is that too many companies guide it on the basis of cost for acquisition. Let's acquire as many customers as we can as cheaply as possible. And I want to turn acquisition more into a value play. Can we find the right customers at any price? And so if we can, customer lifetime value as visible, as tangible as we can make customer acquisition costs, we'll strike a better balance in that regard. We'll be focusing at least as much on value as we are on cost. And we'll find just again, a better balance in our customer base of a good mix of high value customers as well as the ones who just happen to come in because they were cheap to acquire. It can't be all of one or the other. Has to be a balance. And that, that's what we're trying to achieve with this customer centric thinking. You need to have enough data, you need to be in business long enough, you need to have a broad enough view of the customer base very early on. When you're just developing that shiny object, you're not quite in a position to do the lifetime value customer centric thing very early on. It really is all about product development, product market fit, even ideas like product LED growth and so on. So I'm actually all in favor of that. For startups to focus on product, product, product, it's just knowing, as you said, that growth is going to slow down, it's going to happen, okay? You're not going to just grow, grow, grow forever. And so you have to anticipate that the growth is going to slow down and you want to be in the position that when it does, or even before it does, that you start making the pivot towards this customer centric world to start looking more carefully at your customers and say what one's different and how do we find more like them. Again, you're not going to do that on day one, but by year five you probably should be investing in CRM systems and so on to be able to sort your customers out and figure out how to best leverage the good ones. Too many companies don't come to these ideas until maybe it's too late, until growth has stopped, sales are really slowing. They might actually go out of business before they even get a chance to pivot. Or even if they do pivot, it might be a little bit too late. So it's anticipating that you're going to make this move and just developing the infrastructure, the mindset, the culture to let you do so before it's too late.

Ben Owden

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Mambo this is Ben Owden, the leadership Mr. Miyagi. My hope is that this conversation will help you find the clarity and conviction you need to lead a more meaningful and impactful life. I have curated some of the best thinker practitioners from all over the world to help you get to your leadership nirvana. So sit tight and let's go on this journey together. Okay, cool. Greetings to you. I hope you are doing well and I having a meaningful and productive day. Welcome to another episode of the why Lead Podcast. I am your host Ben Owden. Now I have an announcement. If you believe that the customer is always right, you're wrong. If you believe all customers are created equal, you're wrong. And these are not my ideas. These are ideas shared by our guest today. And it doesn't stop here by the way, when you think of the most customer-centric companies in the world and you had to choose between Apple or Starbucks. Who would you pick now? If you picked any of them, once again, you might be wrong. In today's episode, we'll be taking a very bumpy ride across the terrains of customer centricity with the sole purpose of helping you achieve sustainable results by maximizing your bottom line as a business. And we have a competent driver who will get us there safely. He co-founded a predictive analytics firm called Zodiac in 2015, which was sold to Nike in 2018. He then co-founded and continues to run Theta Equity Partners to commercialize his work on customer-based corporate valuation. He's the author of Customer Focus on the Right Customers for Strategic Advantage and the co-author of Customer Centricity Playbook. He has been quoted or featured in the New York Times, the Wall Street Journal, the Economist, the Washington Post, and on NPR, among other media. He is the professor of Marketing at the Wharton School at the University of Pennsylvania, and he's trusted by clients across a wide range of industries such as telecommunications, financial services, gaming and entertainment, retail and pharmaceutical. Ladies and gentlemen, Professor Peter Feder. Professor PETER Welcome.

Peter Fader

Hey Ben, great to talk to you. Eager to dive in here and have a nice conversation about customer centricity.

Ben Owden

Great. So I'll start by asking you a question that you've asked people in the thousands, I'm assuming at this point, and I' I would like for our audience to participate in this and I'll start by sharing sort of a parable of sorts. And the question that I want you to answer and for our audience to think about is for which of the organizations is Sarah a customer? So that's the question I'll ask at the end and I'll begin the parable with an hour to spare before she boards a United Airlines flight to London. Sarah is sitting in one of Starbucks outlets at the O'Hara International Airport in Chicago with a Grand Latte in her hand. In front of her is her Lenovo ThinkPad laptop, which she has purchased two years ago and it runs on Windows PC. She is checking her Gmail account, having just paid for an hour's WI-Fi access via Boingo hotspot using her Visa card. At the same time she is checking voicemail, her voicemail on her work phone, an iPhone she purchased six months ago. Now back home in the UK she is on the Vodafone network, but right now in Chicago she is connected to T Mobile. Under the table she has a suitcase which she bought 11 years ago. For which of these organizations is Sarah customer? Is it Starbucks? Lenovo Microsoft, Alphabet, Boyongo, Visa, Apple, Vodafone, or T Mobile. Now, you've asked this question to a lot of people a number of times, and I want to know your response. And at the same time, why is it an important question for businesses and for business leaders to ponder and ask themselves?

Peter Fader

Okay, I love it. And of course, that's taken right from my third book, the Customer Based Audit. I'm always troubled when companies talk about anyone they've done business with as their customer, thinking that if we've exchanged services or products for money, then we have a relationship. And very often we use relationship metaphors, things like dating and family and so on to describe our customers. That's often just not the case. In other words, we like to think about it that way as companies. But for a lot of our. Well, I don't even want to call them customers. For a lot of the folks that we've transacted business with in their mind, I gave you money, you gave me a thing. It was a fair deal. It's done. There's nothing more to be discussed here. You don't need to send me more information. You don't need to upsell me, cross, sell me, remind me that it's time to buy a different thing. And unfortunately, that scenario where it was a transaction, not a relationship, is more rule than exception for many of us, for many of the activities that we engage in, that's the way we're thinking about it. Yet in the minds of the company. Oh, no, no, no, no. It's only a matter of time until we get them to deepen the relationship. It's really important for us to kind of get past a lot of the romantic mythology of, again, families, dates and so on, and realize that business and relationships with customers is different and really needs to be treated that way.

Ben Owden

I like what you just said there because I think in your conversation with Drew, you say sometimes your customers don't think of themselves as your customers, which is what you just explained. Right. And so how does this detachment affect how we think about. I don't even know if it's a relationship. And how should it affect how we think about customer lifetime value in how we calculate it and how we conceive of it in our minds to begin with?

Peter Fader

Yeah, customer lifetime value. That's the key. And for too many organizations, either they feel it can't be done. They say our business is changing so much. The relationship with our customers is so complex. There's so many factors going on, the economy, Covid, all sorts of Things that we can't possibly quantify a financial value of the relationship. So there's a lot of people who just stick their heads in the sand and just kind of give up before they even tried or tried properly. And secondly, there's a lot of folks who, even if we could quantify it, even if they believe that we can, they find it offensive. They say we can't treat our customers as a number. They're human beings, they're blood and flesh, and they have feelings saying, well, not really. I mean, sure they are, but let's not overstate that. And that if we actually treat our customers as a row in a spreadsheet, that actually might be more effective. It might be a better way to run our business. It might actually be a better way to create and extract more value from those customers than trying to treat each one as a distinct human being. It's just not effective. It's not efficient. And again, a lot of the romantic notions of trying to nurture a unique relationship might be against the responsibilities that we have as managers and executives. So we got to figure out where to draw the line. And in many cases, we actually want to lead with the numbers, lead with the lifetime value, and then maybe add a human element to that once we've quantified it.

Ben Owden

Yeah, so I like what you said there, because I think you speak about this idea that customers are not homogeneous, but at the same time, I guess the heterogeneous nature of our customers doesn't necessarily mean we should approach them as single individuals, but maybe more as clusters. You know, talking about efficiency and at the end of the day, making it make sense for the business. Now, something else that you talk about as well in the book, which some of these ideas were like, whoa, okay, they make sense. But, like, just reading them is like, whoa. You say, in our world, the customer centric world, we don't believe that all customers are created equal. We don't believe the customer is always right. We don't bend over backwards to make each customer and every customer happy. And not all customers deserve your company's best efforts. Now, this contradicts some of the things that people have believed for many years. You know, some of the core doctrines of marketing and business are centered around these ideas. So what is the most productive view of customers that businesses need to have?

Peter Fader

Well, first is that they aren't created equal. But at the same time, it's not completely random. There's actually some really good structure and patterns to the nature of customer value, whether it's the historic value they brought to us or the projected value, the lifetime value that we think they will bring. This has been, my job is to basically just calculate that. Let's illustrate it. Let's put the graph out there. Let's show how it changes over time across businesses, across geographies and look for the commonalities. So instead of looking for the differences, instead of looking for the reasons to say, oh, oh, we're different, let's try to show how you actually fit into a lot of those patterns. And so if you kind of go into it with this notion that there really is some science here, there really is some ways that we can understand how customers differ from each other, but not necessarily on each one being unique basis. I mean, you said it before, there can be clusters, there can be again, just well defined groups. And let's let their value, their financial value drive those groups much more than things like gender or age or ethnicity or anything like that. Let's let the, the transactional behavioral data start the conversation.

Ben Owden

And I'm curious, speaking of, I guess some of the work that you've done, particularly with Zodiac, because Nike, it has a very strong brand equity. It's up there with the likes of Apple, especially in the world of apparel. They're very strong brand. And I'm interested to know in terms of the decision to purchase Zodiac and if you have any insight into how that sort of customer equity type of thinking has made them an even stronger company over the course of years since they purchased. I don't know if you have any.

Peter Fader

Issues with some of the. Of course I do. I don't know if it's insights or anecdotes, but I do have some things to say about it. So let's have first back up and so just very briefly, tell the Zodiac story. So I've been building these models for years and years and years and often doing it primarily as an academic, so publishing papers and journals that real companies would never want to read. But these models are good. They predict well, they offer really good diagnostic insight, really good actions that arise from them. So for years I was going to companies and saying, here, try out these models. Here you go, here's some R code and some spreadsheets and some videos and technical notes. Please go use them, use them, they're good for you. And companies would still ignore me. And it was just so frustrating. So that's why we took matters into our own hands, as you said back in 2015, and brought a lot of these models to life at full commercial scale. That was Zodiac let's help companies see that there really are some systematic patterns. And again, let's do it across a wide variety of different business sectors and geographies and big companies and small and B2B and B2C. So no excuses, no limits. Let's bring lifetime value to life. And it worked. And it was just so gratifying to work with each company and saying, oh my gosh, the models apply here. Oh my gosh, the thinking and the actions can be used and can help the companies make more money. So we were having just a really good time doing that. I never had any intention to sell that company. This was my baby. This was my way of connecting with the real world. But then Nike came a calling in early 2018. And at first I was surprised as you, as you described it, like, why would a company like Nike want a company that's doing all this kind of in the weeds, nitty gritty customer prediction stuff? They don't need us. But the fact is, even if they didn't need the models, they wanted the models. And here's why. Because as much as Nike is this beloved brand, if you think about their business, traditionally up until the time they bought our company, how did their business operate? Well, they would sell boxes of shoes to Walmart, Foot Locker and other retailers, but they had no visibility as to who was buying what. They had no direct guidance to either figure out how to fine tune their messaging or their product offerings. And their previous CEO, Mark Parker, said, this is unacceptable. We know that people love us, but we need to know more about them. We need to understand their value. We need to understand how they differ from each other and how we can leverage that. Just be smarter about the way we run our business. And so this was the CEO on his own saying, we need to change. We need to expand the way that we do things and, oh, we need to have the capabilities to be able to tag and track and measure and forecast and then leverage all that. And so they just kind of just swooped in or swooshed in and picked Zodiac up just as a way to help them fulfill the kinds of promise that he was making to himself and his shareholders. And it was brilliant, it was bold, but it was in a way, from my perspective, much more impactful than if a company like, let's say Google bought our company. Because that would have been kind of a natural fit. Oh, they're quantifying things already. Here's just another way of doing that. But for Nike to do it, that got a lot of people to say, wait, A minute, wait a minute. Maybe there's actually something here. Maybe all this lifetime value and customer centricity stuff actually holds water and it's not just some kind of nutty academic talking about it. So it was a really wonderful case study and the results, looking at Nike's performance since then speak for themselves.

Ben Owden

And I think it's ironic that we're having this conversation during customer service week. But when people, some people, when they hear the words customer centric, they tend to confuse it or dumb it down, so to speak, to customer care. And especially heavily product centric companies are comfortable settling for just having good customer care. No complaints whatsoever. We're making our money right now and that's enough. And people are comfortable. Especially because I think sometimes, sometimes when you think about it, and I have conversations with CEOs and they're judged by, you know, bottom line, currently, have you met your quarterly targets? Have we made money this year? Are we operating, you know, having profit within the organization? Like those are some of the questions that are being asked. So it's while people tend to speak about this future forward looking, but at the same time the judgment really comes with what's happening right now. And as a result, when concepts like customer centricity, which is really a forward looking idea, that okay, let's not just look at what's happening right now, but can we look at the lifetime value of a customer? Can we project how much value can we extract from our relationship with this particular customer? Then that can be seen as risky by some CEOs who know that. I have to fight for today, I have to fight for this quarter, I have to fight for this year. And especially if the contract is tenured and you, you only have three, five years with a company, you want to make sure that in those three, five years the impact is seen and felt versus investing in something that will deliver value in the long term. So for business leaders who know that they have to make sure that they are winning in the present moment, yet maybe they do understand that they have to set and build the right infrastructure so that they can continue winning in the long term. Having concepts and models that you speak about as well, how should I start this conversation with people they report to be the board, the investors, so that people who are still stuck in this product centric world where that's the way to do it. And I think when you look at the world and the business world and you have companies like Apple, Coca Cola, for example, and these are the titans, these are the giants and so they seem to be fine. Why should we change? So how should that conversation begin with, you know, especially if you report to people and whatever changes that you have to initiate have to be approved by a body, a group of, you know, board of directors, investors. How should you start to have that conversation with them?

Peter Fader

Such an important question. And really it's been a great learning journey for me in recent years because it used to be as a marketing professor, I'd focus on marketing tactics and just basically say, trust me, trust me that if we can figure who the best customers are and enhance their value, that good things will happen and your investors will be pleased. And there was always a little skepticism, there's always a little, no, I need to see it now. That's why a lot of the recent work, a lot of the work that we do at Theta now focused on this idea of customer based corporate valuation. That if we can start with finance instead and demonstrate the asset value of these customers, not that we're necessarily going to put customers on the balance sheet, although down the road it's not out of the question. But if we could demonstrate them as bona fide assets and if we could show how much value they have in them and therefore what is really the value of the company, then it's going to both let us run the company more effectively, it's going to let us, it's going to give us more leeway and support to do the kinds of marketing tactics. So it doesn't have to be just a trust me that we can actually demonstrate that value. We can use it as a, as a signal to our shareholders. We can use it as a moat against our competitors. And so this idea of CB CV customer based corporate valuation has really been a game changer and it's been so interesting to start conversations with more financially oriented people, whether it's the CFO within the company or say a private equity firm and other kinds of outside investors to get them to put a lot of this customer stuff and marketing stuff at the top of the list instead of it being an afterthought if they think about it at all. And it's been just a wonderful experience to start stepping into that world of finance and building a solid bridge to my world of marketing.

Ben Owden

Wow. Do you have any sort of success stories or case studies, so to speak, of how? Because I know that's part of what you do. I think at thetor, sure. That have shown how.

Peter Fader

I got case studies that go both ways. So let's focus on kind of the identifying and capturing the positive. So when we're looking at a company again, we're going to calculate the lifetime value of each customer. We're going to understand that distribution, there's no average. We're going to say how many customers are really valuable and who are they and how valuable are they. So we were working with a company, I can't identify who it is, but a content company, family run, that was looking to basically sell itself. And they did a bunch of back of the envelope calculations to figure out what they're worth and kind of in the usual top down, product oriented way. And we said, wait a minute, wait a minute, wait a minute. When we do it through the customer lens, from basically the bottom up, you have some incredibly valuable customers who are going to basically stay with you forever and buy a lot. And even though they might be few in number, they carry just an incredible amount of value. Bottom line is we demonstra the company was worth twice as much as they thought they were worth. And this is very interesting because often companies think that they're worth more than they think they are, they're drinking their own Kool Aid, then they just have a hard time justifying their value to potential outside buyers. In this case, we said there's a lot of money that they were leaving on the table by not fully leveraging all of that customer value. And so they actually had us come in and speak to a bunch of the potential buyers to demonstrate, to basically defend the analysis that we did and to show where this value exists and how they could tap into it. And the company ended up being sold for 70% more than they thought they would be. And I'm thinking to myself, that's incredible that as nice as it is to demonstrate value through traditional marketing mechanisms, when we do it through finance, wow. I mean, that really moves the needle. So sometimes we can actually demonstrate tremendous excess value that wouldn't be seen if you didn't look at the customer level. And sometimes it goes the other way. So we've worked with companies where again, on paper, on a traditional financial analysis, they look really, really, really, really good. But if you look at the new customers they've acquired, you notice that the latest cohort of customers is much smaller and much less valuable than the cohort before it or the cohort before that one. Basically, for whatever reason, this company has kind of overfished the waters. There aren't a lot of really good customers left. And the future of the company is much grimmer than what the past would suggest. Stay away from that company. Private equity firm, don't buy that one, because again, the past is not a good guide to their future. So basically we can help investors or senior executives see value that they might be overlooking or give them warning signs about kind of lack of value that they might be counting on. Now, last thing, I don't want to say that these kinds of extreme cases are typical. They're not. Most of the time when we do our kind of bottom up customer oriented calculation, the number we come up with is actually, actually pretty close to what the top down estimate will provide. I'm not saying that traditional diligence by a private equity firm is all messed up, but it's nice first of all to be able to support it, to look at it a different way and.

Ben Owden

Say, you know what, you're right, something that happened. And I think this is a pattern that we see as well, especially in the startup world where investors tend to have a very product centric view because it's a new idea, it's a new company, There isn't a lot of history around customers. And typically, or usually you see companies invest money because it's a shiny product, maybe the pilot worked. And because of the over glorification of acquisition, you've acquired X number of customers, but not really understanding how many of those customers are repeat customers. They are retained over the long term. And so as a result there's a lot of hype around a company, there's a lot of hype around a product, but eventually the decline starts to happen and investors lose money, companies close down. And I think there was even a story in your book as well to explain that a company that went public and the value of the stock just went down over time because there was a lot of emphasis and a lot of hype around the acquisition. They have X amount of customers, but how much do they spend, how long do they stay with the company, what's their lifetime value? All of those are not things that a lot of people look into. And so you see a lot of hype around companies and products and then eventually there's no sustainability and they just die out. So it will be very interesting to see in the future how investors, how companies just approach their businesses very differently. And I like this bottom up approach better because again of the sustainability nature of it. And I think predictions are predictions, but I think it sounds like we have a better shot predicting from this bottom up lens versus a top down approach, so to speak.

Peter Fader

But let me give you one exception to that. Going back to the story you just told, you need to have enough data, you need to be in business long enough, you need to have a broad enough view of the customer base. Very early on, when you're just developing that shiny object, you're not quite in a position to do the lifetime value, customer centric thing very early on. It really is all about product development, product market fit, even ideas like product LED growth and so on. So I'm actually all in favor of that. For startups to focus on product, product, product, it's just knowing, as you said, that growth is going to slow down, it's going to happen, okay? You're not going to just grow, grow, grow forever. And so you have to anticipate that the growth is going to slow down and you want to be in the position that when it does, or that you start making the pivot towards this customer centric world that just start looking more carefully at your customers and say, what makes the good ones different and how do we find more like them? Again, you're not going to do that on day one, but by year five, you probably should be investing in CRM systems and so on to be able to sort your customers out and figure out how to best leverage the good ones. Too many companies don't come to these ideas until maybe it's too late. Wait until growth has stopped, sales are really slowing. They might actually go out of business before they even get a chance to pivot. Or even if they do pivot, it might be a little bit too late. So it's anticipating that you're going to make this move and just developing the infrastructure, the mindset, the culture to let you do so before it's too late.

Ben Owden

And speaking of customers, you talk about this idea of customer goodness which you define as a combination of customers, potential preference and propensity. Now, zooming in on the propensity aspect of the goodness, how can we begin to identify customers with high propensity to be loyal, to refer our business and to buy products of higher value? How can we begin to identify those types of customers?

Peter Fader

I love it. Key question. So a couple of things on that. First of all, it's good to know that the these things tend to line up with each other, that if you are going to stay a long time, you're probably going to buy off and you're probably going to spend more, you're probably going to recommend others, you're probably going to be cheaper to serve. So the idea that goodness does have multiple dimensions, but in many, many cases they line up. So it's not a matter of you're great on one, but you stink at another, which would make life really complex, this idea. So how do we find the customers who, you know, tend to be good, and how do we do so before we have a lot of data on them? This question was first posed by a consultant, not even by an academic, close to 30 years ago in a book called the Loyalty Effect, a book written by a gentleman named Fred Reicheld, who's a consultant at Bain, who basically said this whole point that not all customers are created equal. If we could figure out who the good ones are, they're gonna be good on all these different dimensions. Great. Now how do we figure that out? So this is the ultimate question. And the answer to that is, well, the ultimate question, because Fred Reichel turned around and in looking for that magic metric, he basically found it in the form of Net Promoter Score, nps, which I'm sure that you and many of your listeners are aware of, but you often think about it in a very different way. What can we do to turn those detractors into promoters? So Reichelt first came up with Net Promoter Score as a way of identifying companies that were, for whatever reason, were good at finding a high proportion of, let's call them high goodness customers. That's the origins of Net Promoter Score. And it's just interesting to see how people have misinterpreted it, misused it. It's kind of a shame in a way. Let's go back to this idea that, oh, we have to find every detractor and do whatever it takes to turn them into a promoter. I mean, it would be great if we could do that, but it's hard, it's expensive, and it's less efficient and effective than saying, what makes the promoters different from the detractors and how do we find more like them? So Net Promoter Score is just one example of a metric that lets us do this kind of thing. And of course, a lot of companies have had a great success with it, and there's others as well, because Net Promoter Score is more of an attitudinal measure. Would you recommend us? For me, it's more about behavioral measures. Can we look at your early behavior again? How long you've been with us, or even what products have you bought? One of the things that we notice in the Customer Base Audit Book number three is that certain kinds of products tend to be disproportionately purchased by higher value customers. And if we see you putting certain products in your basket on your first or second trip, that's an indication that you might be born to be a really good customer. And so there's going to be a lot of telltale signs, some behavioral, some attitudinal that will help us identify the better kinds of customers and then to double down on them by finding more like them. These are things that don't come naturally to a lot of companies, but it's not that hard. And if you get good at, then you can actually find a lot of customer centric success.

Ben Owden

And there is a line that I read in your book and I was like, I wanted to ask you a question, actually, everything is now everywhere, all at once. Did you get any royalties from the movie? I mean, yeah.

Peter Fader

I think I said that before the movie. That's right. I said to them. So yeah, that's a good point. But it's a really good point that everything is available everywhere, all at once. And so in the old days, we could make money just by moving to a new channel, by moving to a new geography. There was always green pastures for us. But because of Internet, because of technology, everything is available everywhere. And so it's hard to grow just by expanding our footprint. The old days are. And so we need to say, okay, given the limited abilities to grow just by kind of spreading out, the way to grow is by focusing on the right customers for strategic advantage. And that again, doesn't come naturally to a lot of companies. But at the same time, it's not that hard. And if you can just learn those dance steps, you can do very well for yourself.

Ben Owden

Now, the prerequisite for customer centricity is data. But a large number of businesses collects data, but most of it goes unused. I think it's either they don't have the necessary technology to access the data, but I think that's less true as these technologies become easily available and cheaper and cheaper, or maybe they lack the expertise to refine that data into actionable incident. I guess my question here is why do you think organizations take these initiatives to collect the information but not necessarily use it? What needs to change in our mindset as business leaders? Is it because I think we operate with this sense of organizational apocalypse, like thinking, I'll collect it because maybe I'll need it one day, but actually not use it instead, instead of really trusting the data, as you say in your book? Right. How can we get to that point where we trust the data so that we don't just collect it, but we actually use it?

Peter Fader

So we need to be very disciplined about what kind of data we're collecting, what kind of data we're leaning to first see the issue is as companies are doing everything everywhere, all at once that generates a lot of different data. And you summed it up perfectly, Ben, which is companies will just kind of collect it and they'll put it in a CRM system or a data room or a data lake, whatever metaphor they want to use, and then just hope that there'll be some kind of. They'll get struck by a lightning bolt and they'll just have great insight arising from it. Well, it's not that easy. You need to know where to look. You need to figure out which bits of data, data are going to be most valuable, what to do with them, and what data is essential and what data is merely nice to know. So that's been. My job is to really help companies focus on the metrics that really are going to be much more predictive, much more diagnostic and actionable, instead of just throwing it all into some big machine learning model and just hoping that the answers emerge. So discipline, discipline, focus. And going back to the very beginning of the conversation, the idea that there really are some well established patterns and that we really can learn from other companies and learn from our own past instead of saying, well, it's all different now. How do we make all this up? You got to be open to learning, you got to walk before you run and you got to look for the patterns instead of rejecting.

Ben Owden

Yeah, I like that because I think something that I'm thinking about in terms of where do we draw the line between being data inspired versus being data driven? What's the healthy balance to have as far as being a purely customer centric organization? When do we use the data for inspiration and when do we trust the data to influence our course of action? What's that line that exists between those?

Peter Fader

It's a really, really, really good point. And in many ways I might have like jumped the gun in my early books, but jumping right to customer lifetime value and that just scared a lot of people. And it kind of might have even overcomplicated it. Which is why, ironically, the third book, the Customer Base Audit, if you look at the subtitle of it, is it's the first step on the road to customer centricity. So before we come up with fancy models, before we make forecasts, before we get all complicated, let's just look at the basic data and let's really understand again the patterns, the regularity, the must know versus the nice to know. So starting with a customer base audit and doing something like that on a regular basis, making it as kind of boring and routine as possible before we get all fancy with models. That's the natural starting point. And I really hope that companies will start to do that as just again, a regular, routine, periodic thing, even if they don't have a new product being launched or a new geography that they're going into. Do the audit and see what kinds of patterns emerge from it.

Ben Owden

Yeah. And I think for our listeners, I would definitely recommend. Recommend to read the book in the order they were published, because that's how I read them. And once I got to the final book, because there are a lot of tables and charts and a lot of analytics. I think because I read the first two books, I understood why I have to go through everything where I'm not.

Peter Fader

That's a great point.

Ben Owden

But I think if someone who's not a researcher, someone who's not, they don't work in finance, if they start with the third book, they might be intimidated.

Peter Fader

Ben, that's a great observation. And maybe that is indeed why I wrote the books in the order that I did is let's first motivate people. Let's get them to lean in and say, tell me more. Show me the patterns. You're absolutely right that if I started with the third book and said, here's the patterns for some particular company, you and others would have pushed back, saying, well, that's all well and fine for that company, but my business is going to be different, so what am I going to learn from this one? So it's kind of getting people to understand that there really are some regularities out there and to then kind of trust the examples in that third book, it might have been harder to do. So if you don't read the first two books initially. Great point. Never really discussed that with. Anyway.

Ben Owden

Yeah. Something else. And you know, as we're winding down, another deeply held belief that businesses have is that, you know, it costs more to acquire new customers than it is to retain an existing one. And so we should focus, you know, on the customers that we already have. But you say we have to be careful in how we conceptualize this. You know, another mis guided belief, so to speak, that we have is because we actually sometimes might have the wrong customers. And so focusing on the customers we do have might be focusing on the wrong customers. And so maybe it actually, in this case costs more to focus on existing customers than to acquire new ones because we have the wrong customers to begin with. And how should this sit with people who work in marketing and sales departments? Because those are deeply and heavily heavily Acquisition heavy departments, it's all about acquiring new customers. And CEOs are pushing retain the customers that we do have. So how should they make sense of this reality, so to speak?

Peter Fader

It's such an important point. This may be the most important point of all. Let's go back to that expression, it costs X times more to acquire than to retain. So focus on the customers you have. I'm not even saying that the statement's untrue. True. But what I'm saying is this marketing shouldn't be about minimizing costs. That's not our job as marketers. Our job is to maximize value. And so if there's better customers out there, even if it's going to be more expensive to acquire them, it might cost two or three times more money to acquire them. But if they're ten or a thousand times more valuable, it's worth every, every penny. So the issue with customer acquisition is that too many companies guide it on the basis of cost for acquisition. Let's acquire as many customers as we can as cheaply as possible. And I want to turn acquisition more into a value play. Can we find the right customers at any price? And so if we can make customer lifetime value as visible, as tangible as we can make customer acquisition costs, we'll strike a better balance in that regard. We'll be focusing at least as much on value as we are on cost. And we'll find just again, a better balance in our customer base of a good mix of high value customers as well as the ones who just happened to come in because they were cheap to acquire. It can't be all of one or the other. Has to be a balance. And, and that's what we're trying to achieve with this customer centric thinking.

Ben Owden

Yeah. So I like what you said there. Right. If they are the right customers out there, they might be worth the cost. But I also like, because I think it's, and I like the way you write it because I think if you look at it from the surface level, it almost sounds contradictory. How can you say this and then they say something else? Because in another part of your book, you speak about this idea of an unhealthy addiction to customer acquisition. So what constitutes an unhealthy addiction? Because if somebody says, yo, I see, you know, we've identified 100 right customers and we just go, go, go, go, go. How do you define an unhealthy customer? You know, acquisition sort of addiction? And when is it a good time to take the. And when is it a good time to take the foot off of the customer acquisition, acquisition accelerator, as you put it in your book.

Peter Fader

So this unhealthy addiction to acquisition shows up in a couple of different ways. First of all, as we discussed, it'll show up if we're focusing too much on cost instead of value, that we're just acquiring a lot, A lot, a lot, a lot of customers. Again, that might make our top line look healthy, but our bottom line and our future might not be so good because we're not acquiring the right kinds of customers. So that's number one. Number two is a belief that we can grow acquisition. And we're seeing big issues with that right now with Disney. Disney plus just announced that they've acquired fewer customers than they did in their previous quarter. Like, what happened there? How could it be that the acquisition curve is turning over? Well, it always does. You're always going to start saturating your potential pool of customers. And it's going to happen much quicker than you think and much more dramatically than you think. Especially if you were growing fast. What goes up must come down. And the faster one happens, the faster the other happens. So you need to be using proper statistical models to try to anticipate where is acquisition going to peak and therefore, how can we start to redeploy some of our assets? How can we start to focus a bit more on retention instead of acquisition before it's too late? So there's a bunch of telltale things that we can do to manage the acquisition process more effectively. Too many companies don't start thinking about doing them until acquisition slows down or until the quality of customers were acquiring is getting considerably worse. Just need to think ahead. You just need to leverage some of these ideas that I've been doing research on and talking about in the books. And again, understanding that this is going to happen to you as well.

Ben Owden

Something else that you speak about again, this idea of evolution by natural selection. A Darwinian approach, so to speak, to customer centricity is evolution by natural selection. As far as we start thinking about our most valuable customers, from just nice to have customers, so to speak, should we just allow nature to take its course or should we be more proactive in how we approach it?

Peter Fader

Oh, Ben, you asked such good questions. So let me get a little bit more specific here. Very often when companies are looking at their retention curves, they notice that over time, more and more of the customers are sticking around. Too often they'll say, oh, that's because we figured it out. That's because we've learned and we're catering to their needs and they're learning to love us. But in many cases it really is just this natural selection that the so so customers, the eh, customers, they drop out early. And so as the SOSO customers drop out, we just have more and more of our good customers who were born that way. So the right answer is there's going to be a little bit of both. There will be a lot of natural selection and that's in many cases going to be the predominant thing. But we can't count on that alone. We do have to start being proactive and we do have to start saying, well, what makes those good customers different? So as we acquire the next batch of customers, let's start to get a little bit smarter about how we do so that we can be a little bit more effective even if we're being a little bit less efficient. That if we can go for kind of quality over quantity, that we can find these lessons. So we could really balance the natural selection with kind of some of the proactive activities. But let me just go back to the beginning there. That for many, many companies it really is the natural selection that's kind of driving the shakeout and the dynamics in the customer base more than it is any kind of action they're taking. And so don't give yourself more credit than you actually deserve.

Ben Owden

I like that. Now there's a question that we typically ask all of our guests. It's called the One one one. What is the one book that you wish you had read earlier in your life? And the assumption here is that it was published. Let's even if it came out yesterday and you read it today, let's assume that it was published. And then what is the one half habit that you've developed over the years that you say, you know, my life would probably be a lot more meaningful or better or I would be happier sooner if I developed this habit. And the last one is what is one personal value that you know you've again selected over the course of your life that you wish you had made that choice earlier as well?

Peter Fader

I love it. Ben, these are great questions. I'm going to do them in reverse order order. So that one value which I really take great pride in is to be relentlessly positive is to always find the good in situations and people, even when things aren't looking so good. So I'm not just a glass half full guy, I'm a glass four fifths of the way full that I'm always seeing the positives in adversity and really want to encourage others to do the same, because the things aren't as bad as they may seem. And even if they are, we're going to learn from it. We're going to be stronger, we're going to do better the next time around. So relentless positivity, the one habit I have to make a decision about, this one, it's either swimming or walking. Two things that came to me relatively late in life. Kind of a lazy person growing up, but I try to swim every day, swim a mile every day. It's just so cleansing. It's good for you mentally, physically, it's just a wonderful activity. But also, why drive when you can walk? And again, it's not something I was born with, but I just happened to live just about a mile from my office now, and I look forward to that walk every day. And it kind of extends to everything I do, which means taking the stairs instead of the elevator and just kind of relying on kind of yourself rather than relying on vehicles or technologies to get from place to place. And then the book, you know, all the time with this customer centricity stuff and with this not all customers are created equal and all that. I'm always looking for metaphors. I'm always looking for books that kind of convey similar ideas, maybe in an indirect way. And the one that I'm going to go with right now is going to be the book the Black Swan by Nicholas Nassim Taleb. So a lot of people are familiar with the Black Swan idea that you can't anticipate everything and that sometimes it's either terrible things are going to happen or sometimes amazing things are going to happen. Those things are going to be few and far between, but when they happen, they're going to have tremendous impact. Well, if you think about it, that's exactly what I'm talking about with our customers. Most of our customers are eh.

Ben Owden

So.

Peter Fader

So. But a few of them are going to be incredible. So I've gone back and read not just this one book, Black Swan by Tao, but in fact, well, your listeners can't look behind me, but you can. Taleb has a whole series called Incerto, taking his five leading books and bringing them together. And all of them have the same flavor to them, which is to say that kind of our lives are governed by probabilistic processes. But rather than just throw up our hands and say, oh, it's random, I give up. But there's real patterns, there's real order to the different kinds of probabilistic processes and if we can really understand what they are, that we can look at the hand we've been dealt and understand how much of it is kind of luck versus skill and understand how to abide by the laws of nature, but how to take appropriate actions to control what we can control. I think that the story links everything together. Everything that I've discussed, even my value that I mentioned before. And a lot of this customer centricity stuff, it is not necessarily limited to customers. I think that the same ways that we look at things applies to just people doing things. It applies to our employees, it applies to life itself. I like people to think about these models and the customer centric ideas and think about them much, much more broadly than just how to manage a customer base. And I think you'll, you know, run a better business, live a better life.

Ben Owden

Definitely. And I think even as I, you know, as you're speaking, I'm thinking of my own life and, you know, the idea of I can look just at my habits and how I spend my time. I can look at my hobbies. You know, I like to do a lot of things, but not all of them can deliver great value in the long term for me personally. Personally. And so this idea of having a more reduced surface area in my life, in my relationships, not every relationship. You know, when I think about, if I was to do this relationship, lifetime value, you know, habit lifetime value. If I was to take that same model and just look forward in different aspects of my life, I would see that, you know, not all habits are created equal, not all relationships are created equal, so to speak, not all hobbies exactly equals. So, you know, it definitely applies to different parts of life, so to speak. Now, my last parting question, so to speak. There is a metaphor, there is more, a parable, more than a metaphor, really, that you speak of. And it's one of my favorite things in the world where you talk about the drunk person who's under a lamp, street light, just looking for his lost keys. And the police is asking him, you know, where did you drop them? And he says, you know, points to another location, is like, why are you looking here? Because, you know, there's light here. And the idea that, you know, sometimes we should aim to, you know, go to places and pursue things that maybe are difficult. And so my question to you is, you know, with where you are right now in your career and in your life, what is the question or the questions that you're currently pursuing? Maybe you're. And maybe some of these questions are, you know, like that whole metaphor of, you know, looking for a black cat in a dark room where maybe there is no cat, but the joy of pursuit. What are some of the questions that you're currently asking yourself?

Peter Fader

I love it. First of all, I love that parable. I'm so glad that you raised it. I really do believe in it. And sometimes we have to work a little bit hard. Sometimes we're going to find success in places where we're not as comfortable, where our own personal light doesn't shine as brightly. So one such example was, as I said before, is realizing that I can have more impact with these models if I approach them from a direction of finance instead of marketing or in addition to marketing. And you got to learn and you got to work hard and you got to take some lumps and you got to be uncomfortable with it. So I'm actually quite willing to do that kind of thing. And I'll give you another example. I have a new startup right now that's looking at HR assessment. How do we judge the employees within our organization? Again, it's a topic that I know nothing about. I'll claim no expertise about how to manage people. But let's get a little uncomfortable. Let's go to unfamiliar areas and if you do it the right way, you might find that the light shines even brighter than it does in the area where you first started. So always learn, take chances, but do so in a smart, data driven way. Acknowledge that sometimes you will go down a dark alley and there's no light there. But that's okay. We learn something and then the next place we explore is going to be even brighter.

Ben Owden

Oh wow. Thank you so much, Peter, for the time and for the conversation. You know, this has been great for me and I'm sure it's been great for our dear listeners as well. And you know, we'll put all of your information in the description so people can find, you know, all your books and some of the publicly available research as well that's available. And to our dear listener, this has been the WhyLead Podcast and I'm your host, Ben Owden. This podcast is brought to you by WhyLead Consultancy. We are dedicated to helping orgWhyLeadanizations develop leaders who inspire conviction, commitment and congruence. If your organization wants to develop leaders worth following, please email us at yoda@whyleadothers.com or visit our website at www.whyleadothers.com.