Q: What’s the first step in analyzing customer behavior?
Sarah Toms: Make sure you have some sort of data tracking system. Before even transacting, sit down and figure out what you want to measure about your customers. A customer relationship management (CRM) system is key. Even a simple Excel spreadsheet is a great way to start.
Peter Fader: The CRM can be really simple. It’s more about having the discipline than technology. Companies often assemble these systems with fancy technology. You just need to collect data to better understand your customer.

Q: What is a customer-centric business model?
Fader: The focus of many businesses is the product. But companies that struggle with keeping growth up or achieving growth need a fundamentally different strategy. Instead of focusing on the product, focus on the customers. Use them as way to leverage growth and differentiation.
Toms: Then you have to figure out how to retain customers and develop them further to extract more value from them. That’s why we categorize them in tiers of high value, mid value and low value.

Peter Fader, left, and Sarah Toms

Q: How do you define customer tiers?
Fader: We determine what makes customers look different from each other and then figure out their inherent value to the firm. It’s all about the customer lifetime value – the projected future value of each customer. That should be the basis of everything you do.
Toms: A lot of companies tend to think about personas and demographics, which are skin-deep and generally don’t have a correlation to lifetime. We track different propensities, such as how likely they are to buy from you, how likely they are to buy premium services and how likely they are to refer others. Referred customers come in with high value.

Q: How do you identify target customers?
Fader: Keep it simple. What’s the entity you’re selling to? Who do you have the most direct relationship with? As you market more and more directly to your clients, you’ll also get a better feel for their target audience’s needs.

Q: How can large companies establish a personal relationship with customers?
Fader: If you have a small number of customers, it’s easy to understand their wants and needs. You get the customer-centric model automatically. When you grow with data analytics and technology, if you set up the right systems and customize them, you can still maintain that same kind of customer intimacy at full commercial scale. Even if you have millions of customers, prioritizing them can still be a central part of your overall strategy.

Peter Fader is a professor of marketing at The Wharton School at the University of Pennsylvania and the co-founder of private equity firm Theta Equity Partners. Sarah Toms is the co-founder and executive director of Wharton Interactive, which provides online educational platforms and simulations. Together, they’ve written The Customer Centricity Playbook, which examines the importance of developing a customer-centric business model in the digital age.