An Interview with Wharton Marketing Professor Peter Fader

We asked Wharton’s Peter Fader, creator of the popular Customer Centricity simulation and author of Customer Centricity: Focus on the Right Customers for Strategic Advantage and coauthor with Sarah Toms of The Customer Centricity Playbook about his simulation and his innovative approach to teaching.

What is Customer Centricity?

The point of the Customer Centricity simulation is that not all customers are created equal. The key to success lies in understanding the differences among customers and appropriately allocating resources. Customer Centricity centers around the idea of Customer Lifetime Value — each customer really does have a differential value to a business. Instead of trying to transform every “ugly duckling” customer into a beautiful golden swan, businesses need to recognize the value of each customer and make appropriate decisions based on that knowledge.

Really good customers are far more valuable than the average ones. To succeed, businesses need to put the high-end customers at the center of everything they do — they need to give them a special 1-800 number to call, give them special hours and, generally, treat them very well. As businesses develop new products and services, they need to make sure that those products don’t just aim for the average customer but disproportionately aim for those high-end customers. At the same time, businesses need to treat their average customer respectfully and make sure that they keep up with minimal levels of service. They need to have the chutzpah to recognize customers for who they are and treat them accordingly. If you can do those things well, then that’s a sustainable, defendable, and ethical way to grow a business. That’s what Customer Centricity is about.

What do students get out of learning with simulations versus traditional approaches?

To me, traditional case-oriented teaching is a dated approach and not a good use of students’ time. Why do we teach with cases? A big reason is that we like to follow a script: we can read the teaching note and know exactly what to write on the left board, on the right board, when to take our jacket off, and when to highlight the big “aha!” moment that we spent lots of time to build up. We make it look like we are running a free-flowing interactive discussion, when in fact it’s all scripted out for us.

Of course, I see the value of detailed real-world examples, and I use them all the time. But I’d rather raise the example concisely then dive into the depths of the underlying analytical arguments and the research that supports them. There is no justification for taking a 15-minute example and stretching it out to 80 or 90 minutes. That’s taking a good idea and beating it to death.

Teaching with simulations is the opposite of that experience.

“Simulations are all about compressing a lot of material and context and ideas into a limited time. Students want to spend more time on simulations because simulations are rich and engaging experiences.”

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So you see the sharp contrast here: with many cases, students are thinking “get to the point already!” But with a good simulation, they’re thinking “whoa – give me more time to figure this out and fully explore the various possibilities.” Not all simulations are created equal, however. Some simulations show students the obvious while others, the worthwhile ones, bring students insights that they couldn’t get out of standard lectures and discussions.

I’ve been a big fan of simulations, going back to my undergrad days at MIT, but it wasn’t until coming here, having a complex story to tell and leveraging the technology that we have today, that I realized the full potential power that simulations have to offer.

How do you teach with Customer Centricity?

Customer Centricity has been transformational in my teaching. When I first developed an initial version on my own, it was terrible. Despite my intentions, I couldn’t do justice to the richness of the content with the limited tools I had at my fingertips. I knew it wasn’t right and that I needed some real experts to do it right.

That’s when I turned to Sarah Toms and her team. Together, we developed a simulation that not only does justice to the content of the course but actually raises it to a higher level. This simulation lets us explore ideas that I don’t cover in-depth in the course. Different course components could be covered by lectures or stand-alone exercises, but only the simulation can surface the synergies between those concepts and methods.

I used to teach this simulation as a capstone exercise, but over time, I have found that it works best as a lead to a course or as a stand-alone, rich exercise. In my classes, I start with the simulation and then, once students have a better sense of Customer Lifetime Value and all the other elements, we begin to talk about how to apply what we have learned.

“The simulation is an exercise in trial and error. It’s important that players figure it out on their own and create their own mental models. The experience allows players to build the bridges between the tactics and strategies of the world of the simulation and apply it to the world that they know.”

Do you notice a difference in how players approach issues or problems after the simulation?

No one ever starts the simulation with a high level of familiarity with the main “moving parts” in the simulation. It isn’t a twist on a conventional strategy; we are throwing players into this wild new world and nobody goes into it with comfort and familiarity. And that is really important.

Once players have gone through the simulation, then they are ready to take a deeper dive. They understand concepts in a more profound way. I could talk for days about a loyalty program and give students lots of examples, but until they experience the complexity of the simulation, the stress of limited resources, different needs, and different financial pressures, they can’t see the full context. The experience prompts students to figure out how they can use what they have learned.

What made you decide to work with us to build simulations?

Working with Sarah Toms and her team has been a unique experience. In building this simulation, we combined my knowledge of how things really work with customers and companies with her deep expertise in technology and pedagogy. In collaborating with Sarah, I developed an appreciation for finding that balance.

“The science of how people learn is built into the system, ensuring that players encounter just the right degree of challenge at the right time.”

While it can be tempting to throw a wrench into a game to keep students on their toes, the harder but far more productive way to build a simulation is by carefully designing the experience so that it maps to learning objectives. The learning is at the center of the simulation – not the out of left field “gotcha” moments that are so tempting to build in. For me, this was a primary learning point from working with Sarah, and our students greatly benefit from it.

What tips would you give people teaching with Customer Centricity and with simulations in general?

There are two challenges in working with this simulation. First, you have to get people past their preconceived notions of what “customer centricity” really means. My introductory lecture is about that — getting people to put aside simplistic notions of being nice to every customer, and not carefully measuring/accommodating the differences across them. Additionally, the wonderful way that Sarah and her team have built the onboarding experience (having the CEO welcome you, setting up the interface and advanced content) sends a strong signal: this is a sophisticated simulation and there is a lot under the hood.

The second challenge is building up the complexity at the right pace. We draw players into the game and gradually ramp up player choices and decisions. In the beginning, the inputs are deceptively simple but by the end, they are incredibly complex. We move players from the shallow to the deep end and by the end of the game, they can swim in some pretty deep waters. It may seem chaotic, but there is order in the chaos.

What do players tell you after the experience?

What I do for a living is develop models of Customer Lifetime Value. The whole simulation is a façade or a trojan horse to get people to appreciate the technical stuff I do for a living. And it works.

“By the time people are done playing, not only do they understand what Customer Lifetime Value is and the use cases for it, they start to be really creative on their own. They come up with ideas and takeaways that are not even hinted at in the simulation. This kind of learning transfer is very rewarding to watch.”

We also get a lot of unsolicited emails from players and faculty who are playing on their own and want to share new approaches that their students tried, new ways of getting students to better compete and/or collaborate with each other, and new ways to assess their performance and provide feedback. It has spurred our own creativity as we discuss how we can add or change the simulation and it has spurred the growth of a community of enthusiastic users who share creative outputs. This has been wonderful to see.