Aarron Spinley | The Concept of Customering - Is Technology Overwhelming the Customer Experience?

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0:22Aarron Spinley:Welcome to CMO Confidential, the podcast that takes you inside the drama, decisions, and choices that go with being the head of marketing. Hosted by five-time CMO Mike Linton. Welcome marketers, advertisers, and those who love them to Chief Marketing Officer Confidential. CMO Confidential is a program that takes you inside the drama, the decisions, and the politics that go with being the head of marketing at any company in what is one of the most scrutinized jobs in the executive suite. I'm Mike Linton, the former chief marketing officer of Best Buy, eBay, Farmers Insurance, and Ancestry.com, here today with my guest, Aaron Spindley.

1:03Today's topic, the concept of customering. Is technology overwhelming the customer experience? Now, Aaron is a fellow and co-founder of the Field Bell Institute, an organization that provides MBA-level education for executives and teams on customer management and the customer experience. He has also authored a book called The Customering Method. Not surprisingly, he and his team are focused on professionalizing customer management. Welcome, Aaron. Thank you. Thank you, Mike. Very much appreciated. Good to be here. Good to have you. So the first question, is customer experience a real management discipline or not?

1:55Well, managing customers is definitely a real management discipline. We've been doing it in repeat patterns since the Bronze Era, right? If you look at the economics of it, that's where historians first started to see these patterns. Brand codes, things like that, go back a lot further than that, but managing customers in sort of repeat patterns, about 5 ,000 years. So we've been doing it for a long time. We've got a little bit lost. And a lot of that has to do with the digital era. Service really collapsed under the weight of channels and touch points and device proliferation and things like that.

2:32And so we now need to manage the customer base in a much more formal way than we used to do that. Customer experience, well, that's sort of become a term that's an umbrella for a whole lot of different things. And a lot of those things are really just digital era inventions that aren't particularly effective, right? There's a lot of conflation of technology product marketing with management theory that goes on. So yeah, in short, we do need to manage the customer base, but we need to know what we're doing when we're doing that and and not being so guided by our tools. So tell me what is customering?

3:11Or what is customer experience for real? Let's define it on your terms. Okay, okay. Well, I think customering, obviously I would say this, I think customering is one of the most logical terms in the world. It's really just the other side of the coin from marketing, right? In marketing, we go out to the market to attract customers and build a customer asset, right? So market is the root word. We now have an asset. We have a customer base that requires management. Customer is the root word of customaring. So we go out to the market with marketing. We manage the customer base with customaring. Okay.

3:53So I want to conjugate the whole verb like I am customaring, you have customarized, or I could do the whole conjugation thing. it's, but tell me what is the key to customering? Well, look, it's, and often this comes around with this sort of sort of customer science type concept as well, right? Customering is, is again, simply, it's a management model. It's a management method. Like any other method that we have in business, you know, it answers the question, how do we do something in this case, how do we manage a customer base properly, right? not from the perspective of a particular vendor's angle, not from a research industry perspective, but firstly, understanding what a customer base is.

4:39Most folks don't know what a customer base is, which sounds like a weird thing to say, but it's really nothing more than a series of economic patterns that happen broadly across every customer base in the world. And folks in sort of CX have never learned this stuff. So there's kind of this important sequence. So I have to interrupt because I will say the whole bunch of people will say, gosh, we do this all the time. We have NPS. We have our patterns. We have purchase patterns through whatever the brand is. We have segments. Why is that not customary? So a couple of things going on there. Number one, we're conflating marketing concepts with customer concepts.

5:18We have to be a little bit careful. Market diagnostics, for instance, is appropriate. Customer research is less useful, right? Because we've gone from market economics to service economics. Service is about the individual. Markets are about either a mass market or about the segments they're in. So we import marketing concepts over into customer bases. That then moves us into things like targeted triggering and messaging. And there's lots of good literature that shows that will actually damage a customer base. That's not service oriented, Right. So when we talk about patterns in a customer base, we know broadly what the distribution of revenue will be across a customer base by heavy and light buyers.

6:00We know the sort of loyalty effects that occur, where they come from, and their differentials between big brands and small brands, for instance. These are things we learn. They're empirical science, if you like. They're empirical knowledge. But so many folks in the field don't know that. And so, you know, to your point around NPS or surveys and things like that, it's a bit of a poor man's proxy. The idea that you can understand a customer base by asking it questions is great for survey software vendor market cap. Doesn't do much for your knowledge of a customer base. And there's another problem with that, which is that you're generating self-reported data.

6:43We've known for a long time that self-reported data is among the most unreliable forms of data known to mankind. Now, if your customer base is your most strategic, valuable asset. Oh, that's a strong statement. The most unreliable data known to mankind. Wow. Among, absolutely. Because of the way that our cognition works and the way that our memory works. We can't self-report on so many areas. So if your customer base is your most valuable strategic asset, you want to be managing that on a more solid footing than that. Hey, can you give me an industry or a product example of what you're talking about here?

7:21Like where the science or, you know, the NPS says one thing and then the customer pattern is different. Yeah. So what you'll get, there's a bunch of them. I think probably a good example here is that when we look at loyalty, for instance, we know, I mean, first of all, loyalty is in strict economic terms. It's just your company's share of the category purchase frequency rate, right? So if someone buys something 10 times a year and they buy off you eight times, they're a heavy buyer or they've got high loyalty to you. If they buy off you once or twice, they're a low level loyalty. But the category purchase rate at 10 per year is baked in at the market level.

8:06You can't do much about that. So it's just about your share of that purchase frequency. And we know that what drives that level of loyalty is a number of factors, but the underlying one are brand effects. So the salience, the coming to mind of your brand, the physical availability of your brand, So how easy it is to find the brand, access it, how easy it is to work with the brand. We know those are your primary underlying drivers of that level of loyalty. Now, you raised NPS. NPS uses terms like detractors and advocates and those sorts of things. The reality is in most categories, they don't exist.

8:49They don't. It's a useful frame if you're trying to sell surveys, software. It's a useful frame if you're trying to build consulting around it or sell a form of measurements like MPS. But we know empirically that that doesn't exist. And so there's a big difference between customering or customer science, if you like, good solid data for managing a customer base versus some of this kind of populist narrative out there like that. Can you give me like a category like candy bars or cars or insurance or banking and give me an example of the difference that you're talking about here? Well, look, there's what you'll typically see, and there's always exceptions, right?

9:32What you'll typically see in those patterns, and the reason they're called laws and law-like patterns is because they continue and they repeat across categories. And most of the studies done here are across categories and across geographies and things like that. So you tend to, you know, for them to be defined as a pattern, you tend to see them present everywhere. There's exceptions, like, for instance, in my own category where I provide professional education, you will see, you know, folks that talk about the course and things like that, and you'll get some growth from those sorts of promoters, if you like.

10:08But in most categories, that doesn't exist. Another place that does exist is hospitality, right? Or where there's got new buyers that have enjoyed a level of novelty. They just discovered a product and they're excited about it and they tell someone, but that doesn't happen in your heavy buyers because they've been buying for a long time. There's no novelty there. No one goes to the barbecue and talks about the new brand of toothpaste. So there's those sorts of things. Now, there's a really interesting study when you talk about industries. a guy named John Dawes who's a professor of marketing science at the Ehrenberg Bass Institute looked again at this loyalty thing and he used banking as where he had a good look at loyalty and what he found is that you know the idea that's been very common that satisfaction is what drives loyalty we've had suspicions about whether that's been true for a long time haven't we and satisfaction is self-reported right that's right that's right and there's a difference okay so i'm i'm going to the bank i'm going to my you know aaron spindly bank and i i have a i have satisfaction on this and i have checking there maybe i have some investments or maybe i have a mortgage there now now make your i'm sorry i'm interrupting but now now make this make this Austin totally real for me.

11:31Sure, sure. Well, here's the question. How many banks do you have? I only have the Spindley Bank because I'm very loyal. Okay, you're very loyal. You like my bank. Okay. I wish I had one, by the way. Me too. If you had one bank, you are going to be, you're going to have a level of satisfaction with that bank. Yeah. If you have two banks, So maybe you've got a mortgage with one bank and credit cards and saving and things like that. Maybe I have three banks and I have investments somewhere. So, yeah. For each one of those banks that you have, the more banks that you have, the less satisfied you are with each of them compared to someone that has less banks.

12:16So if you've got three banks, you will be less satisfied with each of those banks than someone that only works with two banks. And if you have two banks, you'll be less satisfied with each of those banks than you are with someone that has one bank. So you see, again, we know that satisfaction doesn't drive loyalty. It's a pre-existing loyalty that has a direct impact to the way that we report satisfaction. So these are, again, it's a good example. This is something that applies, we think, across industry, but it was done in the banking sector, something we can all relate to. And you see these patterns repeat over and over again.

12:52Transatisfaction is a bad measure. What is a good measure? What should I be looking at there when I have, say, four banks? Ah, now measurement, measurement. This is one of these subjects that I often talk about, you know, trendy rabbit holes. And one of the things that happens, particularly in sort of this sort of CX. Trendy rabbit holes, I like that. Trendy rabbit holes. One of the things that happens in the CX industry is measurement is very important, but over-indexed. What do I mean by that? Well, you can't start with measurement, right? If we're constantly talking about measurement, we've skipped two important things.

13:29The first thing is you can't build a system of management for an asset you don't understand, right? And you can't measure a system for an asset if you don't understand the system. So there's a really important sequence. We need folks to have an understanding of the customer base as an asset. Then to understand the system of management for that asset. And then you can get to measurement. Until you're there, you don't know what you're measuring. You don't know what you're looking at. So let's go back to the banking thing. I have four banks. Sure. And I have credit cards with some. I have credit cards with others.

14:06Tell me what I have to understand in addition to the measures that I have. Like you used your checking account this much. This card is top of all. This card is second. What do I need to have that I don't have? Well, look, it depends what you're looking to achieve, right? If it's all about, and let's just from a marketing perspective, since the industrial era, we've been in market-based economies, yeah? And marketing is the management response to that. The objective of marketing is always either to protect market penetration or to grow it, yeah? that's what growth is. So if the objective or the question you're asking is about how do I grow that, well, we know that's primarily through brand effects, which is about that mental availability, the salience, the fame, the coming to mind and buying and non-buying situations, that sort of thing.

14:59And then that physical availability is an important piece. In other words, how quickly or how easily someone finds the brand, how they're able to engage with it. So if your question is, well, how do I drive a particular product or things like that, the first question would be, if that product is for a particular segment or is there a greater propensity in a particular segment for that product, what kind of mental availability do I have in the segment and how readily available and easy is it to access that product? So those are your first two questions. And how do I measure mental availability?

15:37like it's that because that it can't like we've already said self-reported is bad so like how how am i thinking about mental availability and measuring it well you're getting into into brand tracking and all of that sort of good stuff that's not per se my area of where i focus my expertise and okay to leave that for the for the for the brand managers for the marketing um managers at that level but yeah you're definitely looking for those kinds of things there's been a bit of nonsense over the last few years where people have been looking at clicks and impressions and things like that. Brand managers and scientists will say they're not sort of the measures you're looking for.

16:15But if you're in your customer base, and again, if we distinguish between market and customer base, it's two different things. In your customer base, the way that we're thinking about interaction or engagement is quite different to the way that we think about outbound messaging only into a market. And so your objectives in a customer base are things like what is obviously my attrition rate and particularly unnatural attrition. You hear, you know, folks will often say, you know, we're on a mission to get to zero churn. Like that doesn't exist. You know, I have a newsflash for you. People die and dead people don't spend much money, you know, or people move into.

16:58I've heard that about dead people. Yeah, it's true. It's true. I've checked. Or they move, right? And so the local bar is no longer their local bar. That physical availability is broken. Or they leave a category. You know, I've gone back into buying baby seats in recent times in my life, which I never thought I would do again. Before that, I'd left the category, right? You don't go buy a baby seat. Not for fun, yeah. Right? So you have natural churn in any market, and that's appropriate. What you're looking for is unnatural churn. Unnatural churn is just about always triggered by service failure.

17:33And so when you're getting into measures, you're looking at attrition rates, particularly understanding the difference between heavy buyers and light buyers. Because a light buyer might buy off you twice every five years. If you're using churn on an annual basis without understanding that law, you end up accounting for light buyers who haven't churned in your churn statistics because you don't understand light buyers versus heavy buyers, right? So how do I figure this out? Like if I go to the bank thing, I have NPS and I can look at my heavy buyers and other buyers. NPS will say, okay, I can see them.

18:11But you'll say that is not actually showing the service failure. That's showing the outcome of the service failure. Well, it's not even that. I mean, you're leading a horse to water with MPS, you know, will you recommend sort of thing. It's not great. It's not great method. We know, again, empirically, and some folks like to shoot at me over this, but I don't teach my opinion. I just teach the data, right? We know empirically that MPS doesn't, now it's not a pre-indicator of sales performance. It doesn't indicate growth and it's not a measure of loyalty. So it doesn't do the things that's on the tin, if you know what I mean.

18:51And then you have some - They would say it's a good measure for retention, no? No. And because, again, we're getting into self-reported data. And what you'll see if you look at retention properly, and again, we come back to what loyalty is, right? Share of purchase frequency. So you can actually track that in fairly hard numbers. if you're doing that and you compare that to mps you can see massive differences and so we know that the correlations aren't there there's lots of good studies um on on that that you know by marketing scientists that have looked at it that you know if you want to understand the broad sentiment of a customer base that's about it's only really solid utility okay except c-sat does a better job of that because it doesn't ask you to take an action on top or your likelihood of taking an action or recommending on top.

19:42It just seeks reported satisfaction. Now, satisfaction is just a proxy for sentiment. It's just an act of memory. And that's a little bit, memory is dubious, but if you're capturing a point in time piece of satisfaction on a specific thing, you know, the gala fireworks or a product piece of feedback, that sort of thing, it's relatively accurate and relatively directionally gives you good solid data. Are you arguing for much more precise measures at time of activity? I want to, I want to, I want to, I, I, I, I, I, MPS, and I haven't done that customer lifetime value measure question yet, but I want to make sure everyone that's listening knows what you're arguing for versus.

20:31Well, look, the, the main argument, and I've come back to this, this sequence, asset, system, measurement. Because folks haven't grasped the asset properly, they jump to measurement as a kind of a way to try and understand the asset. Yeah. It's what should I measure in order to understand what's going on? That's not how professions work, right? If you're a lawyer, you don't go measuring, I don't know, NPS or CSAT across your client base to understand how to practice law. You were trained as a lawyer. You know the subject. You have technical managerial expertise. If you're a scientist or you're a neuroscientist, you have an underlying medical degree and then you have specialist training.

21:17This is a science. This is a learnt thing. What we need folks to understand is you can do exactly the same thing in a customer base. If I'm invited right now with no notice at all to go into a boardroom in a company I've never met, in an industry I've never worked in, and brief that board on their customer base and some of the patterns that are manifesting in their balance sheet, I can do that on a moment's notice. I don't need a measurement or a piece of survey to do that because I know the subject, right? In the same way that if they asked an engineer to come into the room and explain to them how bridges stand up, an engineer, construction engineer in particular, could actually do that because it's technical knowledge.

22:00And so we need folks to get beyond thinking about customer bases as a group of measures and into understanding it properly as an asset. So let's go back to the banking thing. How would I do that for me as a banking customer? As the bank itself? Yeah, like if you're trying to say, I'm trying to dissect the customering view of banking customers. Okay, well, all customers we know, for instance, again, follow those patterns. There's laws of double jeopardy, there's purchase duplication law. So we don't deceive ourselves that there's this mystical exclusive loyalty. That's very, very rare. We know that our customer base will overlap with that of our competitors in line or in proportion to the relative market share of each of those competitors.

22:57That typically happens across most sectors, right? So we understand that about our customer base. We understand that if we're a smaller brand, we will lose a higher proportion of our customer base than a bigger brand loses. That's just, these are, again, empirical. It's not very fair, right? Why is bigger brands get an easier job? Well, they just do. Because they're bigger. There's brand effects. They have better mental availability. Gravity matters. That's right. So we know those things. So we can teach people those things. We also know, because we have 5 ,000 years of precedent from service economics, that service preempts sales, right?

23:41And so if you think a lot of, I'm going to talk about MarTech later, I think, but if you jump directly into sales activation, which is what a lot of MarTech does, it breaks the service dynamic and actually reduces propensity to purchase. We know that. So you see, there's a lot of things you can, if I come back to that bank, you can teach folks in their customer teams and their MarTech teams and their contact center teams, their digital asset teams, you can teach them how a customer base actually works. So in this example, then we'll go to the MarTech stack and how we feed it. But if my bank is trying to sell me a mortgage versus trying to understand what I need, is that the mistake they're making?

24:26Yeah, it can well be. It's a little more nuanced, but yeah, that's 100 % right. I mean, look, and I talked before about how we often conflate market concepts and inject marketing concepts into a customer base. a lot of folks are very very common to segment your customer base yeah right yeah it's not really good practice it's good practice to segment a market but a customer base is operates on service economics and that's based on individuals what happens when we start to segment a customer base we import that idea of targeting and sales activation and we constantly live in that world So we think about a customer base as kind of the bottom of a marketing funnel, as opposed to the nuanced customer journeys of individuals.

25:15When you move into nuanced customer journeys of individuals, that's a service dominant logic. That's a mindset that is quite different. Use technology different. You measure different things. And so there's a big distinction between those two elements. Let's talk about the MarTech stock and the information you get that is providing different experience or different information for the folks. Well, look, whenever we use technology, we tend to use it to advance the thing that we understand or the belief system that we have. if we are predisposed to constant sales activation, in MarTech, we will do that.

26:01And so we will use the data that we see. Yeah, and sell more stuff. To try and sell more stuff. And that's totally understandable, right? If I come back to marketing for a moment, this concept of market orientation, which underlies all market diagnostics, is the simple idea that you have to be oriented to the market. And when you learn about market orientation, you learn about the enemies of market orientation. Advertising orientation is an enemy of market orientation because it says I've got to constantly be advertising them up, which isn't necessarily untrue, but the mindset is about messaging at customers, not understanding what customers need and building products and aligning the business to those needs and then speaking to that or positioning based on those needs.

26:47Another enemy is sales orientation. and ironically lots of studies will show that a company that has a sales orientation will underperform in sales compared to a company that is properly oriented to the market. The same parallel happens in the customer base. Most Martech, one of the challenges that it has is it takes its title literally, marketing technology, right? But it's actually not engaged. You think about where all the automation happens. It's to existing customers within existing customer channels. It's not out in the wide market a lot. There's exceptions like ad tech and things, right?

27:29But generally, you're in customer channels. And so you want to be engaging with customers on a customer management basis, not necessarily on a marketing basis. And if you're in a marketing mindset, you're in a sales mindset, and you see the erosion of service. We know service preempts sales performance. So we have it backwards. So what's a good example of someone that's doing it the right way? Well, a lot of the key tools, you know, tend to actually not be new. So for instance, decisioning is a really important capability. And what that allows you to do is ask the right question more than anything.

28:10A lot of marketing automation is classic segment sale, right? So Mike abandoned cart, put Mike into segment, send Mike new offer. Yeah. And what that does though, it erodes profit massively. The number one killer of profit is price promotion, right? Unnecessary price promotion. So a lot of marty is actually automating the destruction of economics and a customer base without understanding it. but you're asking what good looks like. Yeah, what does good look like? Because I get all the problems with the sales and the marketing people, but what's good? What good looks like is needs-based, context-based interaction.