The Path to Customer Centricity

Abstract

The concept of customer centricity and its benefits have been discussed for more than 50 years. Despite this fact, many firms are still struggling to fully align themselves to the customer-centric paradigm. This article identifies fundamental issues and challenges that typically deter a firm from becoming customer-centric. These are mainly related to the organizational culture, structure, processes, and financial metrics of the firm. To overcome these barriers, the article suggests a path to customer centricity that is driven by a strong leadership commitment, organizational realignment, systems and process support, and revised financial metrics. The article concludes with directions for further research.

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Journal of Service Research
DOI: 10.1177/1094670506294666
2006; 9; 113 Journal of Service Research
Denish Shah, Roland T. Rust, A. Parasuraman, Richard Staelin and George S. Day
The Path to Customer Centricity
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The concept of customer centricity and its benefits have
been discussed for more than 50 years. Despite this fact,
many firms are still struggling to fully align themselves to
the customer-centric paradigm. This article identifies fun-
damental issues and challenges that typically deter a firm
from becoming customer-centric. These are mainly
related to the organizational culture, structure, processes,
and financial metrics of the firm. To overcome these bar-
riers, the article suggests a path to customer centricity
that is driven by a strong leadership commitment, organi-
zational realignment, systems and process support, and
revised financial metrics. The article concludes with
directions for further research.
Keywords: customer centricity; product-centric to
customer-centric; market-driven; market-
oriented; organization change
The concept of customer centricity is not new. More
than 50 years ago Drucker (1954) wrote in his book, The
Practice of Management, that “it is the customer who
determines what a business is, what it produces, and
whether it will prosper.” Levitt (1960) proposed that
firms should not focus on selling products but rather on
fulfilling customer needs. Still, the importance of cus-
tomer centricity has only recently been embraced by the
business community. According to a 2003 Gartner Group
Report, “By 2007, fewer than 20 percent of marketing
organizations among Global 1000 enterprises will have
evolved enough to successfully leverage customer-
centric, value-added processes and capabilities.” The same
report said that “by 2007, marketers that devote at least
50 percent of their time to advanced, customer-centric
marketing processes and capabilities will achieve mar-
keting ROI that is at least 30 percent greater than that
of their peers, who lack such emphasis” (Marcus and
Please send all correspondence to Roland T. Rust, Robert H. Smith School of Business, University of Maryland, College Park, MD
20742; phone: 301-405-4300; fax: 301-314-2831; e-mail: rrust@rhsmith.umd.edu.
Journal of Service Research, Volume 9, No. 2, November 2006 113-124
DOI: 10.1177/1094670506294666
© 2006 Sage Publications
The Path to Customer Centricity
Denish Shah
University of Connecticut
Roland T. Rust
University of Maryland
A. Parasuraman
University of Miami
Richard Staelin
Duke University
George S. Day
University of Pennsylvania
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Collins 2003, p. 1). Thus, it would seem important to
understand how a firm can successfully transform itself
and thus reap the potential payoffs.
There are five trends reinforcing the need for firms
to make this transformation—(a) intensifying pressures
to improve marketing productivity, (b) increasing market
diversity, (c) intensifying competition, (d) demanding and
well-informed customers and consumers, and (e) acceler-
ating advances in technology (Sheth, Sisodia, and Sharma
2000). In such an environment, companies are realizing
that customer centricity provides the best means to develop
close and profitable relationships with their customers—
an advantage that is hard for rivals to understand, copy, or
displace (Day 2000). However, as witnessed by the above
Gartner Group report (2003), a large number of the com-
panies today are still struggling to become customer-
centric. This forms the basis for our motivation to explore
the topic in this article.
CUSTOMER-CENTRIC FIRMS:
MYTH OR REALITY?
Historically, firms have tended to be product-centric.
Economies of scale and scope were central, because prof-
its were primarily a reflection of market share (Buzzell
and Gale 1987). As a result, firms were more internally
oriented, with their attention focused on manufacturing
superior products rather than on being oriented toward
the purchasers and users of those products (Levitt 1960).
In short, production efficiencies held the highest priority.
The information technology (IT) revolution in the lat-
ter part of the 20th century introduced extraordinary
improvements in collecting, storing, analyzing, and
transmitting huge amounts of information. Firms realized
that this presented a great opportunity to invest in IT for
managing customer relationships. Customer relationship
management (CRM) became a buzzword and companies
started investing millions of dollars in CRM software
packages, database marketing initiatives, and IT infra-
structure to support technology-driven marketing. These
companies were motivated by the opportunity to achieve
a continuing dialogue, across all customer touch points,
with personalized treatment of the most valuable cus-
tomers. In reality, most companies lacked the requisite
customer centricity to realize these benefits.
A study by the Gartner Group in 2001 estimated global
CRM failure rates to be 65% and expected this rate to rise
as high as 80% in the next 2 years before falling and sta-
bilizing at about 50% in the following 5 years (Nelson
2001). The U.K.-based Direct Mail Information Service
(DMIS; 2004) noted that even though there was a three-
fold increase of direct mail volume there was no perceived
improvement in communication relevance over the past
18 years of their study. About 41% of the respondents in
their study said communications were “relevant less
often” compared to 11% who said they were “relevant
more often.” A survey conducted by Forrester in 2005
across marketers from different industries indicated that
whereas approximately 70% of executives polled indi-
cated that their companies had a centralized customer data
warehouse, less than 20% of respondents indicated that
their companies had a 360-degree view of each customer
across the organization, and only 4% of those polled indi-
cated complete satisfaction with their firm’s customer
centricity (Anderson 2005).
Clearly, despite extensive media coverage of firms
declaring their commitment to customer centricity, real-
ity more often than not reflects an entirely different pic-
ture. Managers seem to be running product-centric firms
with merely a cosmetic gloss of customer focus sprinkled
around the edges (Galbraith 2005). As one CEO of a
company put it, “Customer focus and customer centricity
is in every annual report, but who can really do it?”
(Sawhney and Brobst 2002). In other words, customer
centricity seems to be easy to assert but difficult to build
and sustain in large organizations (Hart 1999).
In this article, we discuss the fundamental issues and
challenges faced by a firm striving to be customer-
centric. Much of our discussion pertains to issues and
challenges encountered in the transformation from the
still prevalent product-centric firm to a customer-centric
firm. Based on this discussion, we propose a road map to
achieve customer centricity. We conclude with a brief
agenda for further research.
PRODUCT CENTRICITY VERSUS
CUSTOMER CENTRICITY
As a backdrop for our discussion of the impediments to
customer centricity, we begin with a comparison of the dis-
tinguishing features of product centricity and customer
centricity. This comparison is summarized in Table 1,
which is compiled based on an eclectic collection of
research insights, theories, and methodologies offered by
past researchers pertaining to areas that have contributed to
the literature on product centricity and customer centricity.
The product-centric paradigm draws its foundation
from the early years of marketing. The first marketing
scholars directed their attention toward commodities
exchange (Copeland 1923) and the functions that needed
to be performed to facilitate the exchange of goods through
marketing institutions (Cherington 1920; Weld 1917).
Even though as early as the 1950s, the importance of cus-
tomer focus in the marketing functions was recognized by
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several researchers (e.g., Drucker 1954; Kotler 1967;
Levitt 1960), it was not until the 1990s that research
related to customer centricity gathered momentum.
For instance, there was a growing awareness of the
need to increase focus on customer-related factors such
as customer satisfaction (Oliver 1999), customer service
(Parasuraman and Grewal 2000), customer loyalty
(Kumar and Shah 2004; Reichheld 2001), and quality as
perceived by the customer (Boulding et al. 1993; Rust,
Moorman, and Dickson 2002). Concepts such as market
orientation (Kohli and Jaworski 1990; Narver and Slater
1990), the market-driven organization (Day 1999), and
market-based learning (Vorhies and Morgan 2005) were
developed to enable firms to better understand individual
customer needs and wants, which in turn would lead to
superior performance in the marketplace.
1
Several
researchers framed their discussions in terms of shifts
in management paradigms (e.g., shifts from product-
based strategy to customer-based strategy; Gale 1994;
Kordupleski, Rust, and Zahorik 1993; Sheth 2005),
product portfolio management to customer portfolio
management (M. D. Johnson and Selnes 2004), and
goods-centered to service-centered dominant logic
(Vargo and Lusch 2004). Furthermore, recent research
has emphasized the superiority of firms’ financial per-
formance by making marketing investments customer-
centric (e.g., Rust, Lemon, and Zeithaml 2004;
Venkatesan and Kumar 2004).
Although this extensive literature addresses numerous
specific issues concerning the benefits of being customer-
centered, the overarching collective insight from this lit-
erature suggests that the true essence of the customer
centricity paradigm lies not in how to sell products but
rather on creating value for the customer and, in the
process, creating value for the firm; in other words, cus-
tomer centricity is concerned with the process of dual
value creation (Boulding et al. 2005).
ISSUES AND CHALLENGES
The fundamental differences in the two paradigms (as
presented in Table 1) serve as a good backdrop for dis-
cussing some major issues and challenges typically faced
by firms attempting to change from a product-centric to a
customer-centric orientation. The discussion is organized
around four broadly defined—and interrelated—impedi-
ments in the path to becoming customer-centric as illus-
trated in Figure 1.
Organizational Culture
Cultures have many levels and facets, which makes
them very resistant to change. At the deepest levels are
values that express enduring preferences. Customer-
centered organizations are held together by a central
value that every decision begins with the customer and
anticipated opportunities for advantage.
A more accessible level of a culture is the norms,
which are shared beliefs about appropriate or expected
behavior. A common norm within customer-centered
organizations is that employees are customer advocates.
Another distinguishing norm shapes the individual
employee’s willingness to share information with his or
her counterparts, so the entire firm is in a better position
to meet customer needs. Conversely, a destructive norm
found in many firms is that sales “owns the customer,”
which greatly impedes information sharing.
Shah et al. / THE PATH TO CUSTOMER CENTRICITY 115
TABLE 1
A Comparison of the Product-Centric and Customer-Centric Approaches
Basic philosophy
Business orientation
Product positioning
Organizational structure
Organizational focus
Performance metrics
Management criteria
Selling approach
Customer knowledge
Product-Centric Approach
Sell products; we'll sell to whoever will buy
Transaction-oriented
Highlight product features and advantages
Product profit centers, product managers, product
sales team
Internally focused, new product development, new account
development, market share growth; customer relations
are issues for the marketing department
Number of new products, profitability per product, market
share by product/subbrands
Portfolio of products
How many customers can we sell this product to?
Customer data are a control mechanism
Customer-Centric Approach
Serve customers; all decisions start with the customer and
opportunities for advantage
Relationship-oriented
Highlight product's benefits in terms of meeting individual
customer needs
Customer segment centers, customer relationship
managers, customer segment sales team
Externally focused, customer relationship development,
profitability through customer loyalty; employees are
customer advocates
Share of wallet of customers, customer satisfaction,
customer lifetime value, customer equity
Portfolio of customers
How many products can we sell this customer?
Customer knowledge is valuable asset
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Customer-centered cultures are further shaped by the
beliefs and mental models people use to make sense out
of a confusing, fluctuating market reality. Two distinctive
beliefs found within customer-centered organizations are
that understanding comes from living with customers and
that customer loyalty is the key to long-run profitability.
A further set of beliefs concerns whether marketing is an
expense (implicitly to be reduced) or an investment.
The most obvious outcroppings of a customer-centered
culture are the behaviors that senior managers and employ-
ees exhibit as they make choices about how to spend their
time. Time spent with customers sends an important signal.
Overall, culture can be either an important facilitator of
performance or a major impediment. When Deshpandé,
Farley, and Webster (1993) compared four types of orga-
nizational cultures based on the degree of emphasis on
customers, they found that market cultures that place the
customer’s interests first were the most profitable.
Cultural change follows from behavioral change.
Although culture is generally the most significant imped-
iment to change, there is no evidence that efforts directly
aimed at changing a culture are likely to succeed. Culture
change is achieved by altering behavior patterns and
helping employees understand how the new behaviors
benefit them and improve performance. So how does
behavior get changed? As with any change program,
there must be senior management commitment, persis-
tence, and intense communication to overcome the
inevitable impediments. But the odds of success are
much improved if there is a sense of urgency and a com-
pelling strategic rationale. Then it is possible to justify a
change in the organization structure and processes and
base the incentives on customer-centered metrics.
Organizational Structure
An ideal customer-centric organization implies having
all functional activities integrated and aligned to deliver
superior customer value. This is in contrast to a typical
product-centric company that is organized around func-
tional silos and defined by product categories or product
type. Such companies will have product managers and
sales managers assigned to each product or product cate-
gory. As such, the organizational structure and resources
will be based on the type of product(s) being manufactured
and sold. Such a structure is not conducive to customer
centricity as each product/sales manager may end up push-
ing different product offerings to the same customer with-
out first determining what the customer’s true needs are.
There is mounting evidence that organization struc-
tures are evolving toward closer alignment with markets,
especially for firms that are implementing solutions,
strategies, and/or with assertive customers that want a
single point of contact (Day 2006). This development is
being applauded by organizational theorists who endorse
smaller, customer-responsive units.
The first stage of this evolution is the emergence of
informal coordination activities that aim to overcome the
familiar deficiencies of product or functional silos. Well-
trained and well-incentived product managers can serve
this role. If this is not sufficient, then integrating func-
tions such as key account managers or segment task
forces are added to coordinate all customer-contact activ-
ities. Fuller structural alignment is achieved by strength-
ening the customer dimension of the organizational
matrix with segment managers or customer-based front-
end units that work with product-providing back-end
units to assemble complete solutions.
116 JOURNAL OF SERVICE RESEARCH / November 2006
Product
Centricity
Customer
Centricity
Organizational Barriers
Structure
Culture
Financial Metrics
Processes
FIGURE 1
Path to Customer Centricity: Potential Roadblocks
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The challenge of moving from product-centric to cus-
tomer-centric arises from the fact that functional differ-
ences are deeply rooted in incentives, backgrounds and
interests, time scales, and task priorities. Hence, any effort
to improve alignment is tantamount to balancing numer-
ous contending forces (Day 1999). For example, one of
the key benefits of a customer-centric organization struc-
ture lies in creating accountability for managing customer
relationships. This function typically would be handled by
marketing in a customer-centric firm. Not only does this
imply that the function of marketing may need to be
expanded or restructured, it also implies transferring the
management of marketing resources from a brand/product
manager to the customer manager of the firm.
Until recently, marketing (including customer-
management-related functions) has had poor visibility in
the corporate boardroom. For instance, until 2004, less
than 50% of the Fortune 1000 companies had a CMO
(chief marketing officer). However, in the past 3 years,
several firms like McDonald’s, Revlon, GE, JP Morgan
Chase, and Charles Schwab have created a CMO posi-
tion.
2
More recently, more than a dozen Fortune 1000
firms (such as Coca Cola, Hershey, Intel, HP, and JD
Edwards) have created a more specialized function—chief
customer officer—to acknowledge the importance of cus-
tomer centricity related issues in the boardroom (Buss
2003). Companies that have taken this initiative are still a
small minority, but they send a strong signal to their stake-
holders regarding their intent to align their organization
towards a customer-centric paradigm.
We believe changes in organization structure are often
an important perquisite before one can address problems
specific to organization processes as discussed in the next
section.
Processes
The firm processes for developing and sustaining cus-
tomer relationships differ from those aimed at the execution
of efficient customer transactions. Payne and Frow (2005)
surveyed a number of CRM executives and identified five
generic processes that are essential for a firm to be
customer-centric: (a) the strategy-development process that
includes not only a business strategy but also a customer
strategy, (b) the dual value creation process that is at the
heart of the exchange process, (c) the multichannel integra-
tion process that encompasses all the customer touch
points, (d) the information-management process that
includes the data collection and data analysis functions, and
(e) the performance-assessment process that ties the firm’s
actions to firm performance. Payne and Frow pointed out
that each one of these processes requires cross-functional
coordination, something that is a challenge for many firms.
Another key challenge concerning customer-centric
processes is developing the ability to optimally match the
customer’s requirements with the right product/service. To
achieve this, analysis should be ideally aimed at the individ-
ual customer level so that the issue of customer heterogene-
ity can be fully addressed. Hence, the more a company can
break down its customers into different groups with differ-
ent needs and expectations, the better it can serve them (Day
2003). An underlying premise of developing individual-
level marketing efforts is that such personalization will gen-
erate superior response and profitability as compared to any
other (aggregated) levels of customer segmentation. This
was empirically shown by Rust and Verhoef (2005), whose
CRM model exploited the high level of heterogeneity in
customers’ responsiveness to marketing interventions.
Recent advances in IT and database marketing have
greatly facilitated such customer-centric processes as
increased dialogs with the customer, collecting informa-
tion about each of these dialogs, making this captured
information available to others and analyzing the col-
lected information to allow the firm to make more valued
offers. However, firms need to be careful in terms of the
level of IT-based automation employed to manage cus-
tomer interactions. For example, many banks made huge
investments in IT to automate and standardize numerous
banking-related transactions only to find out that they
were losing human interaction with their customers. By
offering virtually all services online or through auto-
mated phone/ATM centers, many banks had unknow-
ingly distanced themselves from their customers and
rendered the interaction of the customers with the bank
purely transactional in nature. Sensing this as a problem,
ING Direct (a hugely successful pure online banking
product offered by ING Financial Services) has set up
ING Direct cafes in the city of Manhattan where existing
and potential customers can browse the Internet for free,
sip coffee, and learn more about other products being
sold by ING. Umpqua bank entices customers to its
branches by offering a richly designed interior and ambi-
ence to encourage customers to transact and interact in
person with the bank’s employees (Mount 2004). More
generally, Jayachandran et al. (2005) showed that IT
investments do not directly increase customer relation-
ship performance, but instead enhance the firm’s ability
to perform the required customer-centric processes.
Customer-centric process changes will also require
changes in marketing metrics. For instance, these metrics
should be modified toward measures such as share of cus-
tomer wallet, customer processes, customer equity, and
customer relationship management and away from con-
cepts such as market share (Deighton 1997). Rust,
Zeithaml, and Lemon (2004) argued that even brand man-
agement should be based on the metric(s) of customer
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equity. For example, companies should be willing to let
customers transition across different brands if it results in
the net increase of customer equity. However, more often
than not, companies marketing different products under dif-
ferent brand names end up having brand/product managers
who are fiercely possessive of their products/brands and
who argue that any loss of share will hurt the brand’s equity.
This implies that if a firm is to become customer-centric
it must establish correct financial metrics to support firm
processes and management practices that breed possessive-
ness of the firm’s customers and the associated customer
equity instead of possessiveness of the products/brands.
Financial Metrics
Financial metrics are not only important in motivating
individual employees to be more customer-centric, they
also are useful in helping marketing managers measure
the financial implications of their decision making and
to think of marketing expenditures as investments
(Srivastava, Shervani, and Fahey 1998). This latter point
is important because the path to customer centricity often
involves substantial investment by the firm to facilitate
the transformation from a product-centric to customer-
centric business paradigm. Hence the need to measure
and track the financial impact of customer orientation.
Tracking this transformation may not be an easy task.
Devoting resources to a customer-centric system is tanta-
mount to investing in the construction of a virtual factory
that generates intangible outputs such as customer satis-
faction, loyalty, advocacy, reduced price sensitivity, and
so on (Hart 1999). The intangible outputs may be diffi-
cult to measure directly. Hence, the challenge lies in
quantifying the financial impact of customer centricity
by determining the optimal levels of investment in such
measures as customer satisfaction and loyalty.
In recent years, customer lifetime value (CLV) and its
implications have received increasing attention (Berger
and Nasr 1998; Reinartz and Kumar 2000, 2003; Rust,
Lemon, and Zeithaml 2004). Brand equity, a funda-
mentally product-centric concept, has been challenged
by the customer-centered concept of customer equity
(Blattberg, Getz, and Thomas 2001; Rust, Zeithaml, and
Lemon 2000, 2004).
3
Some researchers have proposed that tracking and
measuring individual-customer-level value helps firms
manage resources at the individual customer level,
thereby making the financial orientation of the firm com-
patible with its customer orientation. For example, cus-
tomer equity has been shown to be a reasonable proxy for
firm value (Gupta, Lehmann, and Stuart 2004), implying
that strategies that improve customer equity will also
enhance the value of the firm.
The application of customer equity as the focal point
for guiding financial impact of marketing actions is
apparent in its versatility, spanning several applications
and instances of managerial decision making. For
example, customer equity can be used as a basis for opti-
mally allocating a firm’s resources across customers
(Venkatesan and Kumar 2004) or for managing brand
equity (Rust, Zeithaml, and Lemon 2004). A comprehen-
sive overview of how customer equity and other market-
ing assets relate to financial impact and other measures of
marketing productivity is given in Rust et al. (2004).
Another important issue related to both financial
impact and the challenge of achieving customer centric-
ity is downsizing—that is, cutting costs through reducing
headcounts to enhance financial performance. Cost-
reduction programs (e.g., downsizing customer service
staff or outsourcing customer service to a cheaper off-
shore location to reduce costs and improve productivity)
transfer savings associated with these programs directly
to the bottom line and look great on firms’ annual reports.
However, the apparent financial attractiveness of such
cost-cutting measures and consequent propensity to
adopt them hastily are a potential impediment to achiev-
ing customer centricity. Decisions to downsize or out-
source should be carefully evaluated as they may result in
increased productivity in the short term but may threaten
future profitability if customer satisfaction is highly
dependent on the efforts of the downsized personnel or
quality of the outsourced functions (Anderson, Fornell,
and Rust 1997; Oliva and Sterman 2001). Furthermore,
the implementation of a cost-cutting emphasis (instead of
revenue expansion emphasis) has the tendency to initiate
unpleasant initiatives such as firing and/or loss of bene-
fits and perks, which may lower the morale of employees
who operate at the market interface (Rust, Moorman, and
Dickson 2002). This, in turn, may lower customer
service, customer loyalty, and sales, which lead to further
cost cutting—a vicious circle (Gronroos 1984) or “death
spiral” (Rust, Zeithaml, and Lemon 2000) that may seri-
ously affect the firm’s performance in the long run.
HOW DO WE GET THERE?
What then are the critical steps necessary to become
customer-centric? A 2002 study conducted jointly by the
American Marketing Association, Braun Consulting, and
Deep Customer Connections Inc. explored the challenges
faced by senior marketing executives as they led their
organizations to adopt new strategies, technologies, per-
formance practices, and behaviors for building customer
value. The study found that the most formidable chal-
lenges were within the organization, in developing
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interunit cooperation, influencing change, and leading
integrated corporate-wide initiatives that are focused on
building customer value (Band and Guaspari 2003).
Postaudits of failed change efforts have identified numer-
ous obstacles to overcome, including (a) absence of lead-
ership, (b) stifling cultures, in which there is suspicion of
ideas outside the status quo, (c) management turmoil dur-
ing the change initiative, (d) lack of urgency, and (e) system
deficiencies that mean that essential information is not
available to management.
In this section we attempt to offer a broad road map
that is likely to be relevant to any firm striving to become
customer-centric. We acknowledge that the specific game
plan for achieving customer centricity will vary from
company to company based on the unique nuances of each
firm and its environment. However, we believe that if any
transformation is to be successful it must start with the
leadership commitment and be synchronized with orga-
nization realignment, systems and process support, and
revised financial metrics. As illustrated in Figure 2, these
organization-level initiatives act as catalysts for shrinking
the barriers to customer centricity.
Leadership Commitment
Webster (1988) asserted that “customer-oriented
values and beliefs are uniquely the responsibility of top
management” (p. 37). According to Day (1999), the follow-
ing three actions can signal the commitment of senior
management toward a “customer first” paradigm:
1. An enthusiastic emphasis on superior quality of
service and customer relations, with occasional
direct interventions to help solve a customer’s
problems. For example, Bill George, the ex-CEO
of the $10 billion Medtronic (a medical device
maker) required all engineers and designers to
attend at least one surgical procedure a year to
get live customer feedback from the surgeons
while they are using Medtronic’s products
(Kaihla 2006).
2. Time spent visiting customers and listening
aggressively for their point of view and an insis-
tence that all senior managers spend time with
these customers.
3. An emphasis on customer and market issues—
trends, needs, requirements, opportunities for
advantage—during strategy reviews. This needs to
be supported with a willingness to invest resources
in the deeper understanding of customers.
For example, Bob Nardelli, the CEO of the $82 billion
home-improvement company Home Depot, requires all
of his board members to make daylong visits to a dozen
stores each year and report the findings to the executive
management board. During these field trips, the board
members typically spend time inside the store or in park-
ing lots, chatting with customers to learn firsthand
whether there are any customer-related issues. This form
of direct customer feedback is then discussed with the top
management during quarterly board meetings (Kaihla
2006).
In essence, leadership commitment is critical for both
initiating as well as sustaining all initiatives for customer
centricity including those related to organization realign-
ment, systems and process support, and revised financial
metrics.
Shah et al. / THE PATH TO CUSTOMER CENTRICITY 119
Product
Centricity
Customer
Centricity
Shrinking the Barriers
Leadership
Commitment
Organizational
Realignment
Systems &
Process Support
Revised Financial
Metrics
FIGURE 2
Path to Customer Centricity: Paving the Way
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Organizational Realignment
Organizational realignment may start with the market-
ing function whose role is critical in transforming the firm
to customer centricity. Moorman and Rust (1999) dis-
cussed how the value of the marketing function is related
to the degree to which it develops knowledge and skills by
connecting the customer to the product, the service deliv-
ery system, and the financial measurement system of the
firm. This may be achieved by setting up a horizontal
organization structure that is less hierarchical than the tra-
ditional vertical structures. A horizontal organization is
built around natural work flows and core processes, and
information is readily shared between all team members.
Integration comes through a shared concept of how to
meet customer needs better than competition (Day 1999).
However, realigning an organization around customers
may be a daunting task, especially for firms with decades
of success in product-led growth (C. R. Johnson and
Schultz 2004). Most firms are neither willing nor able to
shift to a purely horizontal form. A more feasible approach
is to adopt a hybrid structure—a practical compromise
between horizontal and vertical structures. Here, integrat-
ing functions such as marketing, strategy development, and
human resource management provide the mechanisms for
coordinating and allocating resources to the core processes,
whereas specialist functions such as research and develop-
ment (R&D) and marketing research support and enhance
the horizontal processes with new ideas (Day 1999).
Wells Fargo, a leading financial institution and bank, has
successfully realigned its organization by creating a two-
tiered sales structure where a relationship manager man-
ages the relationship with the customer and is externally
focused whereas a product specialist who is internally
focused helps in providing the technical inputs for product
development as well as helping the relationship manager
sell the product more effectively. This sort of a matrix orga-
nization structure that seeks to strike a balance between
customer and product management may be an ideal way for
today’s heavily product-centric firms to restructure them-
selves to become more customer-centric and in the process
address both sides of the dual creation of value issue.
Another example is firms that adopt contemporary sales
force automation (SFA) systems that allow the sales per-
sonnel to be tightly integrated with production engineers.
As with most organizational changes, realigning the
structure is not enough. It is also necessary to institution-
alize the appropriate systems and procedures. We discuss
these next.
Systems and Process Support
Consistent with our discussion of setting up a horizontal
organization, firms would need to adopt a horizontal
process view rather than a vertical function view. The hori-
zontal mind-set is essential to be able to include all
processes and activities that contribute toward value cre-
ation for the customer. Because these processes and capa-
bilities would typically span across different vertical
functional groups, firms may need to redefine new hori-
zontally aligned processes that are focused toward superior
value creation. Day (1999) provided a good discussion of
instances where the traditional vertical (and functional)
processes of a firm may be redefined. For example, the
human resources (HR) function can redefine itself by man-
aging with the philosophy that customer satisfaction and
loyalty are the cause and result of employee satisfaction.
This concept can be institutionalized by evaluating employ-
ees based on measurable improvements in customer satis-
faction and loyalty and recruiting new employees based on
their customer.
From the systems point of view, a critical component of
customer-centric organizations is a centralized database.
This serves as the means to provide a unified, comprehen-
sive, and organization-wide view of individual customers
irrespective of the products purchased or channels
employed by the customer. This entails a substantial IT
investment commitment to set up an infrastructure for col-
lecting, tracking, and integrating data at the individual cus-
tomer and transaction level. Jayachandran et al. (2005)
specified several systems-related activities that can allow
customer-centric firms to successfully build a viable rela-
tionship with their customers. These activities include
information exchange, the capturing of this exchange and
integrating the information into a database that includes all
exchanges with this customer, making this integrated data-
base accessible to those responsible for managing the cus-
tomer relationship, and using the database to analyze past
performance with the goal of understanding the “why”
behind the customer behavior (Rust and Chung in press).
For example, USAA (United States Automobile
Association) archives complete information about its cus-
tomers in the form of electronic files. These files are
accessible to all of its approximately 2,500 service repre-
sentatives throughout the organization who can then use
the information to personalize and customize each
service encounter (Day 2000). This organization-wide
sharing of customer information is a key contributor to
USAA’s impressive customer retention rate of 96%.
Revised Metrics
Realignment of an organization and its systems and
processes will help infuse a customer-centric decision
making within the organization. However, this has to be
supported with customer-centric metrics because what
gets measured gets done. As discussed earlier, customer-
centric organizations typically rely on metrics such as
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customer equity, customer satisfaction, customer advo-
cacy, customer loyalty, and so on to measure and manage
the efficacy of their marketing initiatives. A recent book
on customer equity (Rust, Zeithaml, and Lemon 2000)
focuses on broad managerial issues related to the opera-
tionalization of the customer equity metric in a firm.
To truly embed customer-centric metrics within the
organization, firms should include at least two or three of
the most important customer metrics among the key per-
formance indicators that are reported regularly to the top
management and the board (C. R. Johnson and Schultz
2004). An equally important task is synchronizing the
incentives and rewards system with the customer-centric
paradigm. This may be as simple as ensuring that employee
appraisal and salary revisions are based on clearly defined
customer contact metrics or customer outcomes (Day
1999). For example, sales/account managers are rewarded
for increasing the equity of their customers, relationship
managers are rewarded for extending the profitable lifetime
duration of the customers, and so on.
Learning and Continuous Improvement
Having set up a customer-centric organization, there is
always scope for learning and continuous improvement to
sustain the performance excellence and competitive advan-
tage gained by virtue of customer centricity. Day (1999)
suggested using the power of positive examples and suc-
cess stories to motivate learning throughout the organiza-
tion. For example, during Wal-Mart’s regular Saturday
merchandising meetings, managers with outstanding
achievement share their success stories with other store
managers organization-wide through a satellite link.
The cycle of learning and continuous improvement
can often breed innovation in customer-centric firms.
Past research has shown that a customer-centric culture is
more conducive to an organization’s innovativeness
throughout its entire business system as opposed to solely
in goods or services (Parsons 1991). Han, Kim, and
Srivastava (1998) found that customer orientation has a
positive impact on innovativeness in the technical and
administrative areas of the firm as well. Thus, companies
can further leverage their journey down the path to cus-
tomer centricity by making continuous learning and
improvement an integral part of their operations.
In summary, transforming a company from being
product-centric to customer-centric is not an easy task,
nor is there one way to accomplish this. With this said, it
is informative to briefly document one such transforma-
tion. In the early 1990s, Continental Airlines was ranked
near the bottom of the airline industry both by its cus-
tomers and by its employees. In January 1995, President
and CEO Gordon Bethune unveiled a four-point Go
Forward Plan designed to improve Continental’s opera-
tional performance and working environment for
employees and achieve sustained profitability. This plan
was predicated on getting the employees and upper man-
agement to trust each other and in the process create a
work environment that would allow for continuous
improvement where improvement was measured in terms
of customer-centric metrics. The results were dramatic.
By 1998, the National Airline Quality Rating ranked
Continental as the most improved airline for the second
year in a row, the J.D. Power Customer Satisfaction
Study ranked the airline second among all U.S airlines,
and Fortune named the airline one of the “100 Best
Companies to Work for in America.” Just as important,
profits more than tripled from 1995 and the stock price
rose from less that $5 per share in January 1995 to more
than $50 per share by the end of 1998. The company was
able to maintain these financial results and employee-
and customer-satisfaction levels until the events of 9/11.
DIRECTIONS FOR FURTHER RESEARCH
In the years to come, the concept of customer centric-
ity will continue to evolve as advances in technology
introduce newer and better ways to collect, store, and ana-
lyze customer-centric information. The onus will be on
the research community to explore substantive issues
relevant to customer centricity that may offer additional
insights to practitioners and the marketing field in general.
Our discussion in the preceding sections only provided
a broad overview of the general barriers to achieving cus-
tomer centricity and ways to overcome those barriers.
There is a need and an opportunity for conducting in-depth
research focusing on a variety of specific issues pertaining
to each of the four types of barriers discussed in this arti-
cle. For example, an interesting issue worth exploring in
the domain of organization culture is whether two compa-
nies can have strikingly different organization cultures and
still be able to have the same level of customer centricity.
For instance, UPS and FedEx are highly successful com-
panies that have a reputation for being customer-focused,
but their organization cultures are also known to be strik-
ingly different. What factors might account for the success
of these companies despite their disparate corporate cul-
tures? Likewise, can different organization structures (with
any attendant differences in processes and evaluation met-
rics) be equally conducive to fostering customer centric-
ity? There is, thus, an opportunity to explore research areas
relevant to the contingency theory of organization struc-
tures in the context of customer-centric firms.
Advances in technology are introducing new ways and
means of interacting with the customer. For example, the
Shah et al. / THE PATH TO CUSTOMER CENTRICITY 121
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Internet has redefined the rules of traditional business by
creating an alternative channel of selling and interacting
with the customers. Future research could explore how
these new technological advances could potentially
impact an organization from its customer centricity
standpoint. This is imperative as systems and processes
defined by a firm to create customer centricity in the
offline (brick and mortar) business setting may not hold
in the online (Internet) business setting. In such a sce-
nario, it may be interesting to explore what kinds of
changes may be necessary.
The relevance, importance, and associated benefits of
customer centricity may vary across different industries.
For example, customer centricity could provide more long-
term benefits to a financial services firm selling multiple
products as compared to, say, a utility company selling a
single product. It would be interesting to research how the
relative value of customer centricity could vary by type of
industry or by number of different products sold by a firm.
A major research stream relevant to customer centric-
ity is warranted in the context of exploring its financial
implications. Large-scale cross-sectional and longitudi-
nal studies that link the extent of customer centricity of a
firm with shareholder value could have a major impact on
the speed with which firms transform themselves to be
more customer-centric. Furthermore, cost reduction in
firms is generally associated with measures to improve
efficiency or boost profitability. An interesting and
underexplored research issue pertains to studying the
negative impact of cost reduction on revenue and prof-
itability of a customer-centric firm. A related yet differ-
ent perspective could address the substantive issue of
how to shift an organization from cost-reduction focus
to revenue-augmentation focus. This is imperative espe-
cially in the context of customer-centric firms where
cost-reduction measures could easily adversely affect the
firm’s ability to create value for its customers. Another
promising area of research could be an empirical study to
investigate how and to what extent improving retention
through customer centricity impacts both growth and
profitability. Such a study could help measure and quan-
tify the return on investment on customer centricity-
related activities in an organization. Finally, it is possible
to study the impact of different approaches for firms to
simultaneously enhance customer and company value.
CONCLUSION
Customer centricity has proven to be an elusive goal
for many organizations. This is primarily due to a failure
to understand and address one or more of the organization-
level issues and challenges discussed in this article.
However, firms that have managed to successfully tra-
verse the path to customer centricity have reaped rich
rewards in the form of superior financial performance and
loyal customers. This is because customer centricity
enables firms to achieve a competitive advantage that has
proven to be sustainable and not easily countered by com-
petition. In essence, customer centricity is a necessary
condition for 21st-century firms to succeed in the market-
place. This article is only a modest attempt at providing a
general road map for understanding and overcoming the
key managerial challenges to achieving customer centric-
ity. We hope that it provides managers with some food for
thought and also serves as a starting point for much more
in-depth and extensive work in this domain that is needed
for enabling managers to successfully steer their firms
toward a customer-centric paradigm.
NOTES
1. For the purposes of this article, the terms customer-focused and
market–oriented or market-driven are interchangeable. More generally,
the notion of customer-centered or customer-focused is embedded
within the broader market orientation construct, which recognizes the
need to consider competitive factors. Thus, a market-driven organiza-
tion has superior skills in understanding, attracting, and keeping valu-
able customers (Day 1999). That is, a firm can be customer-centered
and still not gain an advantage if the competitors are equally customer-
centered.
2. See Association of National Advertisers (ANA)/Booz Hamilton
Study (2004).
3. We note that Keller (1993) and Rust, Zeithaml, and Lemon (2005)
actually defined brand equity in terms of customer perceptions and in
this way bridged the gap between a brand focus and a customer focus.
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Denish Shah is a doctoral student in marketing at the University
of Connecticut. His research areas are customer loyalty, cus-
tomer lifetime value, and marketing strategy management.
Currently, he is researching how companies can maximize prof-
itability by managing customers at the individual level. Under
marketing strategy management, he is researching how firms
can make marketing more accountable by optimizing the alloca-
tion of marketing budget across different marketing activities.
Roland T. Rust holds the David Bruce Smith Chair in Marketing
at the Robert H. Smith School of Business at the University of
Maryland, where he is chair of the Marketing Department and
executive director of the Center for Excellence in Service. His
lifetime achievement honors include the American Market-
ing Association’s Gilbert A. Churchill Award for Lifetime
Achievement in Marketing Research, the Outstanding
Contributions to Research in Advertising award from the
American Academy of Advertising, the AMA’s Career
Contributions to the Services Discipline Award, fellow of the
American Statistical Association, the Elsevier Distinguished
Marketing Scholar Award from SMA, and the Henry Latané
Distinguished Doctoral Alumnus Award from the University of
North Carolina at Chapel Hill. He has won best article awards for
articles in Marketing Science, Journal of Marketing Research,
Journal of Marketing (three times), Journal of Advertising, and
Journal of Retailing, as well as MSI’s Robert D. Buzzell Best
Paper Award (twice). His book, Driving Customer Equity (writ-
ten with Valarie Zeithaml and Katherine Lemon) won the Berry-
AMA Book Prize for the best marketing book of the previous 3
years. He is the founder and chair of the AMA’s annual Frontiers
in Services Conference and was founding editor of the Journal
of Service Research. He is currently editor of the Journal of
Marketing. He has consulted with many leading companies
worldwide, including such companies as American Airlines,
AT&T, Chase Manhattan Bank, Comcast, Dow Chemical,
DuPont, Eli Lilly, FedEx, Hershey, IBM, Microsoft, Nortel,
Procter & Gamble, Sears, Unilever, and USAA.
A. Parasuraman is a professor and holder of the James W.
McLamore Chair in Marketing at the University of Miami. He
has received many awards for his teaching, research, and pro-
fessional contributions, including the AMA SERVSIG’s Career
Contributions to the Services Discipline Award (1998) and the
Academy of Marketing Science’s Outstanding Marketing
Educator Award (2001). In 2004 he was named a distinguished
fellow of the Academy of Marketing Science. He is the lead
author of Marketing Research, a college textbook published
in 2006, and is a coauthor of three other business books:
Delivering Quality Service, Marketing Services,and Techno-
Ready Marketing.
Richard Staelin is the Edward and Rose Donnell Professor of
Business Administration at the Fuqua School of Business, Duke
University. He graduated many years ago from the University of
Michigan and taught at Carnegie-Mellon University (13 years),
the University of Chicago (one semester), and the Australian
Graduate School of Management (1 year) prior to his arrival at
Duke in 1982. Since then he has been deputy dean, associate
dean of executive education, executive director for the Teradata
Center for CRM and the initial managing director of GEMBA
at Duke. He has published more than 80 articles in academic
journals and received best articles awards at JMR and
Marketing Science and the Outstanding Educator award and the
Converse award from the AMA.
George S. Day is the Geoffrey T. Boisi Professor, professor
of marketing and codirector of the Mack Center for Technolog-
ical Innovation at the Wharton School of the University of
Pennsylvania. He has published numerous articles in top
journals such as the Harvard Business Review, Journal of
Marketing, Journal of Consumer Research, and Journal of
Marketing Research. His most recent books are Wharton on
Dynamic Competitive Strategy (jointly with David Reibstein),
published in 1997; Wharton on Managing Emerging Technologies
(jointly with Paul Schoemaker), published in 2000; The Market
Driven Organization, published in 1999; and Peripheral Vision:
Sensing and Acting on Weak Signals (with Paul Schoemaker),
which is forthcoming. He has received numerous awards,
including two Alpha Kappa Psi Foundation Awards and two
Harold H. Maynard Awards for the best articles published in the
Journal of Marketing, and in 2003 he received the Sheth
Foundations Journal of Marketing Award for articles making
long-run contributions to the field of marketing.
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