What is customer centricity for a subscription?

Sep 21

As a subscription product and marketing leader, you’re closer to the customer than most — a subscription is a relationship, after all. And while a recurring revenue product business provides inherent customer familiarity, operating with a truly customer-centric approach takes even more intentional effort to realize the gains promised. Let’s look what makes better customer centricity for a subscription product and how executives can start or optimize the effort in a meaningful way.

**The benefits of customer centricity are well-documented:**

**Category performance leadership**
**More loyalty**
**More advocacy**

The Qualtrics XM Institute spoke to over 33,000 consumers across 29 countries about what makes them loyal to brands. The answer? Brands need to be more human - and they’ll reward companies that make them feel a real connection.
McKinsey research found that companies that excel at personalization generate 40 percent more revenue from those activities than average players.
The gap in stock prices between CX business leaders and CX laggards grew from 24% points in 2019 to 66% points by the end of 2021.

Most everyone agrees that customer centricity is essential, but struggle with execution. According to the CMO council only 14 percent of marketers say that customer centricity is a hallmark of their companies, and only 11 percent believe their customers would agree with that characterization.

We’ve found there are common barriers to overcome, we’ll dig into the first item below and tackle the rest in future newsletters…

Building a Common Understanding - Clarify what real customer centricity entails across the organization.
Incorporating Employee Experience - Your people create your customer experiences, make it good for them to make it better for customers.
Breaking Down Silos - Enable collaboration on customer journeys across teams. Share insights cross-functionally.
Rethinking Metrics - Incentives and KPIs need to align to customer retention and lifetime value, not just short-term revenue.
Long(er)-Term Mindsets - Resist pressure to over-optimize for immediate revenue at the cost of CX.
Closing the Feedback Loop - Act on robust voice of customer programs and inform strategy discussions.
Accountability and Consistency - Set customer-centric goals and track them. Audit practices across the organization.

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Building a Common Understanding

As I stepped back and looked at what experts are saying about customer centricity and loyalty and all these higher-level terms, I was surprised at just how ambiguous a lot of these definitions were or how contradictory they were. You pick up three different books on customer centricity, and you get four different definitions about it. Peter Fader, Wharton professor and author of several books on customer centricity.

It’s a phrase getting a lot of use and causing some friction about what it actually means in terms of expertise and organizational operations. For any executive looking to adopt or strengthen the practice, you’ll need to have your own perspective on what it means for your business and actively manage the understanding and expectations of your stakeholders for clarity as you move ahead with your plans.

For starters the battle between Product Centricity and Customer Centricity often manifests as the default or preferred perspective amongst members of your stakeholder group. The former prefers focus on selling as many products as possible to the customer. Whereas the latter believes that the customer must be the focal point of all decisions relating to the delivery of the product.

Truthfully, these groups are both partially correct, looking at the same thing from different perspectives. At HoK, we often speak about a key to sustainable growth being empathy and adaptability — using and understanding of subscribers to adapt the product and better accomplish their goals. A sustainable subscription product has to be willing to adapt in-line with their understanding of evolving subscriber need.

Fader: Nearly every company on the planet is product centric. You look at their organizational chart, and it’s broken up by different kinds of products. You look at the incentives. You look at the language they use. You look at the performance metrics that they rely on. It’s all based on different kinds of products. The whole business model is based on producing something or a set of somethings in really high volumes and at really low costs, and that’s going to drop to the bottom line.
That’s more or less business as usual. I’m not suggesting that it’s easy, and I’m not suggesting that it’s going away tomorrow. But I am suggesting that there are alternatives. If you organize the company around different types of customers and have customer segment managers who are just as powerful as today’s product managers are — giving them the right incentives and the right resources and tools — that can actually be a more profitable way for many companies to go to market.

Where these base perspectives are both incomplete, however, is in reference to “the customer” as a singular entity. Customer centricity requires that understand the complete diversity of the entire customer base in order to maximize value. In a subscription business, this often includes looking at regular consumers who aren’t yet subscribers across the full audience of a publication, for example.

Fader: One of the things that drives me crazy is when I hear managers or entrepreneurs talking about “the customer,” doing back-of-the-envelope calculations about what “the customer” will be worth or discussing how “the customer” will respond to this kind of product or that kind of offer.
By talking about “the customer” or by talking about “the average customer,” that doesn’t do justice to the vast heterogeneity and the incredible differences across our customers in terms of their propensity to buy, to talk to each other and to respond to different kinds of offers.
Again, step one of being customer centric is not only acknowledging the heterogeneity, but celebrating it; saying, “Wow, all this heterogeneity is a great thing because it lets us pick and choose different kinds of customers!” When we say “the customer,” we are selling ourselves short. I think it’s important to not use those words and to always have a plural there.

Prioritizing valuable customers is critical but we must not hyper focus on one singular segment — strength and sustainability comes from diversity — there’s likely many valuable customer segments. Knowing each of them is key to avoiding the paradox of customer centricity: the trap of myopic focus that actually increases risks, opens the door to competition and overlooks the opportunity of valuable adaptations.

The simplest and perhaps the most powerful understanding of customer centricity ties back to the purpose - why even consider it? Simply put, you can use customer centricity to create loyalty & advocacy above and beyond the alternatives. These are the penultimate goals, the functional drivers of net-growth, increased profitability, and it’s what makes subscribers better customers.

To do this well, it requires first looking at your full spectrum of subscribers and segmenting by their CLV metrics, not simply their demographics. Customer centric strategies embrace the differences between customers by understanding the value different customers bring to the table and they’re able to allocate resources to that optimize experiences and maximize CLV.

The final component of creating a common understanding of customer centricity is placing it atop a foundational culture of optimization — understanding that things never stand still and need to be continuously improved.

The House of Kaizen approach, detailed in this workshop, looks like this:

Our Subscriber Growth Framework is used to inventory the complete subscriber journey and all the parts of the business you’re will and able to improve
Use Goal Alignment to understand the subscribers’ and their needs, then align business objectives accordingly.
Develop the appropriate metrics to measure the effectiveness of efforts — e.g., CLV or other North Star Metrics.
Diagnose current performance to potential across the entire framework of opportunity.
Use experiments to test acquisition, engagement, retention, and expansion programs that contribute to CLV.
Use learnings from experiments to re-align priorities to maximize value.
Repeat.

Customer centricity is an opportunity to lead the category, to step above the averages and the alternatives. Shifting from product-centric strategies to customer-centricity starts with a common understanding amongst decision-makers. That’s the first challenge for you to figure out and address within your organization, and we’re always here to help.