Latest / ContraMinds Podcast - Unlocking Personal Growth and Professional Excellence / The Super CMO Show - Prof. Peter Fader (#002)

Transcript

The Super CMO Show - Prof. Peter Fader (#002) · ContraMinds Podcast - Unlocking Personal Growth and Professional Excellence

• 0:00
  SPEAKER_03: If we can project customer acquisition, retention, repeat purchase, and spend, we can do a better job of projecting revenue and free cash flow over a longer horizon with a better diagnostic understanding of why revenues are leveling off, and basically do a better job of valuing the company, understanding the stock price, and turning around to come up with immediate actions of things that we can do to maintain our momentum or to raise our overall valuation to a higher level.
• 0:32
  SPEAKER_03: It's been for me personally so much fun, so interesting to enter this brave new world of finance.
• 0:40
  SPEAKER_03: Again, I'm a marketing professor.
• 0:43
  SPEAKER_03: But the fact that some of my uh finance colleagues, both academics and practitioners, start to care what I have to say is wonderful.
• 0:51
  SPEAKER_03: I mean, just uh the the Financial Times just offered some some praise for for the new book.
• 0:58
  SPEAKER_03: Uh, and that wow, that's a dream come true that most marketers won't have appetite.
• 1:11
  SPEAKER_01: Hi, Peter.
• 1:12
  SPEAKER_01: Thanks a lot for uh being a part of this conversation, and it's an extreme privilege to have you as a guest and uh as accomplished as you.
• 1:22
  SPEAKER_01: It's something that we are really looking forward to and talking to you in the world of marketing.
• 1:26
  SPEAKER_03: Well, I appreciate the kind words and the opportunity to talk about some of my recent work.
• 1:31
  SPEAKER_03: It's it's just great to have an audience and uh and a really smart person to bounce ideas off of.
• 1:38
  SPEAKER_01: Thanks.
• 1:38
  SPEAKER_01: Uh so Peter, I uh I wanted to talk to you about how did a math major at MIT uh you know got uh you know inspired by marketing, especially by uh you know Lei McAllister.
• 1:53
  SPEAKER_01: And uh that's a that's a lovely story, and why don't we start there?
• 1:57
  SPEAKER_01: Because normally marketing is associated with the soft skills, but here is a math major becoming uh professor of marketing.
• 2:06
  SPEAKER_01: So, how did it happen?
• 2:08
  SPEAKER_03: I am so glad that we're starting off with this because it's it's so important not only to give credit where it's due, but to acknowledge that we would not be having this conversation if it were not for that professor you mentioned, a woman named Lee McAllister.
• 2:23
  SPEAKER_03: Um, when I was an undergraduate at MIT, a math major, as you said, love crunching numbers, uh all kinds of things, whether it's sports statistics or just you know trivia and so on.
• 2:35
  SPEAKER_03: Uh we could we could talk about dollar bill numbers if we can get into that.
• 2:40
  SPEAKER_03: I I just love numbers and patterns.
• 2:42
  SPEAKER_03: I figured I'd end up either on Wall Street or in consulting.
• 2:46
  SPEAKER_03: I was even talking to folks at uh about doing something in in terms of like cryptography, um actuarial science, something that a math major would go into.
• 2:57
  SPEAKER_03: Well, in uh 1982, this professor, this marketing professor, comes up to me and says, You ought to get a PhD in marketing.
• 3:06
  SPEAKER_03: And I said to her, and she will acknowledge it, I said, You ought to get your head checked.
• 3:11
  SPEAKER_03: I'm not I'm I'm a math guy, I'm not going into marketing.
• 3:15
  SPEAKER_03: That's the last thing I would think about doing because I had the same impression about marketing that so many other people do.
• 3:23
  SPEAKER_03: But she not only was very persistent and persuasive, but she painted a picture of what she called at the time the electron microscope of the customer.
• 3:35
  SPEAKER_03: We are building the electron microscope of the customer, and we need people to operate it.
• 3:40
  SPEAKER_03: We need people to understand what we should be looking at, how to interpret those results, what actions we should be taking off of those results, what strategies we should develop.
• 3:49
  SPEAKER_03: And she said, and you're the guy.
• 3:51
  SPEAKER_03: And I thought she was a kook.
• 3:53
  SPEAKER_03: Uh and that's where the persistence and and persuasion came in.
• 3:57
  SPEAKER_03: She kind of forced me to get my PhD, become a professor, and actually come to the Wharton School, even though I was very skeptical.
• 4:07
  SPEAKER_03: And here I am, you know, nearly 40 years later, uh thanking her every day and doing everything I can to pay it forward to find other students who would be equally skeptical about marketing, or at least uh uninformed about the kinds of things that we can do, the kinds of decisions we can affect, the kinds of money that we can help create, uh, and uh and just every day is a joy because that electron microscope of the customer, uh, it works beautifully, and the insights that it provides uh really are life-changing.
• 4:41
  SPEAKER_01: Absolutely.
• 4:42
  SPEAKER_01: The electron microscope is a great analogy to uh really move into our discussion around uh what you really have built your career and a life and purpose around, which is really customer value.
• 4:56
  SPEAKER_01: Uh, I want to start asking this question, uh Peter.
• 5:00
  SPEAKER_01: Marketing is always thought of as a very soft, uh, brilliantly uh you know uh motivational, and you are somebody who talks about the hard skills of marketing.
• 5:14
  SPEAKER_01: And uh, you know, so why is it so difficult for the traditional executive in the marketing room to really have this hard skill?
• 5:24
  SPEAKER_01: And why do you think in the future this hard skill is so important for marketers?
• 5:29
  SPEAKER_03: So there's there's there's three reasons why.
• 5:31
  SPEAKER_03: Uh, one is if we just think traditionally, when we first invented marketing as we know it today, I'm thinking about say the late 1950s.
• 5:42
  SPEAKER_03: Uh like some folks might be familiar with the old TV series Mad Men.
• 5:47
  SPEAKER_03: Uh when we when it was all about the product, it was all about the message.
• 5:52
  SPEAKER_03: Uh there was very we didn't have the electron microscope of the customer.
• 5:56
  SPEAKER_03: And so marketing was all about uh branding and imagery, and really that was it was great.
• 6:02
  SPEAKER_03: That's what really made marketing a powerful force.
• 6:05
  SPEAKER_03: But unfortunately, uh to a large extent, we're still using the same kinds of practices as we were using back then.
• 6:12
  SPEAKER_03: It's just, you know, old habits die hard.
• 6:16
  SPEAKER_03: Uh, and it's been hard for a lot of the data stuff to kind of find its way into marketing.
• 6:22
  SPEAKER_03: So number one is is tradition, and I guess related to that, number two would be organizational structure, that there's kind of nobody in the organization is going to take responsibility for that electron microscope of the customer.
• 6:35
  SPEAKER_03: The marketing people might, but even for them, it's often going to take a backseat to branding and customer experience and and and all that sort of stuff.
• 6:44
  SPEAKER_03: So the idea of customers being assets just doesn't really show up anywhere.
• 6:51
  SPEAKER_03: To the extent the conversation comes up at all, it's dismissed as some kind of intangible asset, and and you can't really measure it or manage it.
• 6:59
  SPEAKER_03: So we would never put customer information uh on, let's say, our uh on our on our 10 Q's and other auditable statements.
• 7:09
  SPEAKER_03: So I think that that's a a big uh issue right there.
• 7:12
  SPEAKER_03: So a variety of different reasons uh why it's been hard to get the customer data to break through.
• 7:18
  SPEAKER_03: And that's the mission that I'm on, is to try to convince people that internally it can help us drive and call attention to more effective decisions, and externally it's a better way to gauge what this company is doing, um, what its future looks like, and what it's actually worth, customer-based corporate valuation.
• 7:38
  SPEAKER_03: So we're fighting those battles.
• 7:40
  SPEAKER_03: Uh, and it's it's a long run kind of thing.
• 7:42
  SPEAKER_03: It's not gonna change tomorrow, but I really do believe that a lot of the practices, methodologies, concepts that that I've been advocating uh in recent years will become commonplace.
• 7:55
  SPEAKER_03: Let's wait a generation uh and it will become more rule than exception, at least I hope so.
• 8:01
  SPEAKER_01: Brilliant.
• 8:02
  SPEAKER_01: So, which brings me to your uh current work on uh you know customer-based audit.
• 8:08
  SPEAKER_01: Uh a brilliant book, I must say.
• 8:09
  SPEAKER_01: I've read it uh, you know, cover to cover, and uh I think you really talk about one very interesting aspect there, which is to say forget the prediction, talk about simple descriptive analytics and talk to us about it because there's so much of hype around prediction algorithms, and you keep saying, you know what, just go for the simple stuff, think about the present, don't think about the future.
• 8:35
  SPEAKER_01: So uh lovely point that you made there.
• 8:38
  SPEAKER_01: So, what makes you believe that's so critical?
• 8:42
  SPEAKER_03: So, let's first take a step back and let's acknowledge for folks who aren't familiar with my work, I am a forecasting guy.
• 8:48
  SPEAKER_03: I love making predictions.
• 8:49
  SPEAKER_03: That's what I do.
• 8:50
  SPEAKER_03: That's what's the the joy that I have is to make predictions and be held accountable on them.
• 8:56
  SPEAKER_03: Um but I recognize that before we come up with predictions, before we argue about models and forecasts and validation and all that stuff, let's walk before we can run.
• 9:08
  SPEAKER_03: Let's have the data um motivate us, push us to start predicting things.
• 9:14
  SPEAKER_03: So let's just look at the data.
• 9:15
  SPEAKER_03: Let's be unashamedly descriptive.
• 9:18
  SPEAKER_03: Let's just look at the data that we have, look for the patterns about how customers differ from each other, understand how customers change over time, all in a purely descriptive way through the five lenses that we describe in the book.
• 9:33
  SPEAKER_03: And once you see those patterns, you can't unsee them.
• 9:38
  SPEAKER_03: Uh and and once you see them, you're gonna start it's just gonna it's gonna force you to say, I wonder what's gonna happen next.
• 9:46
  SPEAKER_03: So let me get below that observed data and start to tell a story about the true underlying propensities of people to do things and to drop out and so on.
• 9:56
  SPEAKER_03: Build that model, come up with the forecast, understand how the descriptive analysis from the audit fits hand in hand with the predictive and prescriptive analyses that will come out of the models.
• 10:09
  SPEAKER_03: And I think it's gonna make it both easier and and more important for companies to do the descriptive work and give them cover, give them resources to build the model.
• 10:21
  SPEAKER_03: So it all fits well together, but you know, but man cannot live by models and forecasts alone.
• 10:28
  SPEAKER_01: Brilliant.
• 10:29
  SPEAKER_01: So uh, which brings me to the next point that uh you know the book really talks about, uh, which is really the fact that uh you know, look for the diagnostics around customer behavior, okay?
• 10:46
  SPEAKER_01: And it's so beautifully articulated where you explain the various articulations of look at patterns, look at all the uh you know uh underlying behavior, and then you start looking at the persona, and therefore the data tells you a story.
• 11:03
  SPEAKER_01: So, how why why do you think it's so important for the data to tell you a story?
• 11:09
  SPEAKER_01: And do you believe that data can make it creative for the marketer?
• 11:13
  SPEAKER_02: Absolutely.
• 11:14
  SPEAKER_02: Oh, so there's so much good stuff in that question.
• 11:17
  SPEAKER_03: How am I gonna uh pull it all apart?
• 11:19
  SPEAKER_03: Gotta remember it all.
• 11:20
  SPEAKER_03: Um, first of all, the patterns themselves are beautiful.
• 11:26
  SPEAKER_03: Uh, when you when you just look at the data and look at it the right way, it's remarkable.
• 11:32
  SPEAKER_03: And literally how pretty the pictures are, but maybe more importantly, how as we look over time or different groups of customers or different businesses entirely, how these patterns tend to persist.
• 11:43
  SPEAKER_03: They really are like laws of nature.
• 11:45
  SPEAKER_03: And I often kind of lose track of the fact that these are not laws of nature.
• 11:51
  SPEAKER_03: Um, but it's actually it's it's it's it's actually worthwhile to to view them that way, to kind of assume that some of these patterns that we see are are are truth, um, and and learning to be a little bit more humble, learning to understand that we as marketers can't change everything.
• 12:10
  SPEAKER_03: That that some of the these patterns about how customers differ from each other, how they differ over time.
• 12:15
  SPEAKER_03: Um so so part of it is just that, is just stepping back and appreciating the beauty of nature, the nature of customers.
• 12:23
  SPEAKER_03: Uh and we started uh finding that early on when uh and when I say we, I'm talking uh uh first of all about my first co-author, Bruce Hardy, who's also an incredible uh influence uh on me.
• 12:38
  SPEAKER_03: Um when we started laying out some of these lifetime value models back in the early 2000s, um, it was Bruce who said, you know, at some point we need to take a step back and really focus on this idea of a customer-based audit.
• 12:53
  SPEAKER_03: So we actually came up with these words.
• 12:56
  SPEAKER_03: Uh Bruce Hardy came up with these words, I think back in 2004, saying that as we're establishing the models, that's all great, but we really should just step back and just appreciate what we can see in the data without having to do any razzle-dazzle math.
• 13:12
  SPEAKER_03: Uh and that's why I want people to kind of take the audit almost at face value like that, before we even talk about the so what, before we even talk about the actions that we'll take and the money that we'll make, um, just to look at the pictures and then uh ask yourself, do these pictures apply to my company, to my customers?
• 13:33
  SPEAKER_03: And when you see that they do, to start just uh appreciating that, and then start uh getting in deeper.
• 13:41
  SPEAKER_03: And then to the rest of your question, um start layering on some of the qualitative, some of the personas, some of the attitudinal questions.
• 13:50
  SPEAKER_03: Once we start to understand that some customers just buy more often and spend more and stay with us a long time, and others are kind of flighty.
• 13:57
  SPEAKER_03: How are they thinking about things differently?
• 14:00
  SPEAKER_03: Uh, and what kinds of features and functions and messaging uh should we aim towards those more valuable customers?
• 14:06
  SPEAKER_03: And basically that writes out the recipe for all of my work on customer centricity.
• 14:12
  SPEAKER_03: Focus on the right customers for strategic advantage.
• 14:15
  SPEAKER_03: But you can't do this until you first do this.
• 14:20
  SPEAKER_03: And that's why, even though this book comes 10 years later, it really is the first step.
• 14:25
  SPEAKER_03: Uh so both from a uh just a pure aesthetic standpoint as well as an action standpoint, um, the audit, I think, is just a great starting point.
• 14:36
  SPEAKER_01: No, in fact, uh the way I would put it as I read the book, uh Peter, is that it was almost like if I go back to the uh healthcare business, you first have to do a diagnostics of your uh you know your health.
• 14:50
  SPEAKER_01: And to me, the customer-based audit is an equivalent of uh uh diagnostics of my marketing and my customers, and therefore the diagnostics then decides do you want to go to a cardiologist?
• 15:04
  SPEAKER_01: Do you want to go to a you know gynecologist?
• 15:06
  SPEAKER_01: And therefore, the diagnostics is really the key, and that's really where I think for the work that you have done there, it's almost like saying customer-based audit is really the diagnostics of marketing.
• 15:18
  SPEAKER_01: Would you agree?
• 15:19
  SPEAKER_03: I not only would I agree, but it's such a marvelous metaphor.
• 15:23
  SPEAKER_03: Uh, and and so let's stay with it.
• 15:25
  SPEAKER_03: So instead of just saying, oh, something hurts, you know, let me get it checked out.
• 15:31
  SPEAKER_03: Go to your doctor on a regular basis, even if you're feeling great.
• 15:35
  SPEAKER_03: You know, make sure that you have that that physical uh once a year, if not uh more often.
• 15:41
  SPEAKER_03: Uh it's an audit.
• 15:43
  SPEAKER_03: Uh, and it would be great if if the doctor says, you're fine, nothing wrong.
• 15:48
  SPEAKER_03: Things are kind of moving along as they always were.
• 15:51
  SPEAKER_03: It's good to know that.
• 15:52
  SPEAKER_03: Uh, and your doctor is in a position to tell you about problems that you might not even be aware of as you do some of those blood tests and other diagnostic work to give you some of those uh early indicators, and you don't want to wait until it hurts.
• 16:09
  SPEAKER_03: So you uh people understand that when it comes to medicine, and again, people are generally pretty good about going to the doctor.
• 16:16
  SPEAKER_03: Uh, and then we turn to the financial audit, which is another good metaphor.
• 16:20
  SPEAKER_03: In that case, no one wants to do the financial audit.
• 16:24
  SPEAKER_03: You know, it's like, oh, we have to, you know, we gotta do it, we gotta collect all that data.
• 16:28
  SPEAKER_03: But you know what?
• 16:30
  SPEAKER_03: It's good for you.
• 16:31
  SPEAKER_03: It's not only a legal requirement, but the not only the outcome of the audit, but even the process of doing the financial audit can help you uncover some irregularities or just some business processes that need some fine-tuning.
• 16:46
  SPEAKER_03: Same exact thing with your customer base.
• 16:49
  SPEAKER_03: So we can come up with so many metaphors for it, um, yet this is a domain where it very rarely happens.
• 16:56
  SPEAKER_03: We don't do any of these kinds of activities until something is hurting and we have a crisis to solve.
• 17:02
  SPEAKER_03: We need to change that.
• 17:03
  SPEAKER_01: Absolutely.
• 17:04
  SPEAKER_01: And therefore, uh the fact that you need to do a yearly medical checkup is really the way the yearly customer-based audit has to be done.
• 17:14
  SPEAKER_01: And that's really what the book really talks about, right?
• 17:18
  SPEAKER_03: It's it really is that simple.
• 17:21
  SPEAKER_03: Uh, and again, the best audit would be the uninteresting one where things are just moving along.
• 17:27
  SPEAKER_03: That's great.
• 17:28
  SPEAKER_03: And and instead of just um uh ignoring that or or simply checking the box internally, there's gonna be some messaging there to share with your with your investors and your other uh uh stakeholders to say, you know, look, you know, no news is good news, and we're gonna show it to you.
• 17:46
  SPEAKER_03: So it's so it's it's more than just a check the box thing.
• 17:49
  SPEAKER_03: Uh there's actually there's gonna be headlines in the audit, um, even if there are no headlines in the audit, if you catch my drift.
• 17:57
  SPEAKER_03: Uh and I just want to see companies doing it regularly for all kinds of beneficial reasons.
• 18:03
  SPEAKER_01: So uh coming back to uh you know, certain businesses know their customers by name.
• 18:09
  SPEAKER_01: Uh I I would call it the PII data, but there are this whole host of uh uh you know businesses like the CPG business where I really don't know my customers.
• 18:20
  SPEAKER_01: So, how do I look at customer-based audit for a business where you know my tertiary data is something that I don't get?
• 18:27
  SPEAKER_01: And therefore, how do you really apply customer-based audit for such companies where billions of dollars are being invested on marketing?
• 18:35
  SPEAKER_03: A fantastic question, one with that that's very difficult to answer.
• 18:38
  SPEAKER_03: We try, and that's why before we even get into any of the diagnostic stuff in the book, we first have this long conversation about who is the customer?
• 18:49
  SPEAKER_03: You know, is it a distinct individual?
• 18:52
  SPEAKER_03: Is it a family unit?
• 18:54
  SPEAKER_03: Is it a neighborhood?
• 18:55
  SPEAKER_03: Or on the B2B side, you know, is it the person, the procurement person who's actually buying the product, or is it the executive who's using it, or is it a group, is it the company as a whole?
• 19:06
  SPEAKER_03: These are hard questions to answer.
• 19:08
  SPEAKER_03: And I wish I could say, read the book and you'll have the answers to them.
• 19:12
  SPEAKER_03: And no, it's not that simple.
• 19:13
  SPEAKER_03: But at least having that conversation, coming up with some agreement on an enterprise-wide basis about how who or what is the customer.
• 19:24
  SPEAKER_03: You know, we we think about uh all the time, the the metaphor for the data would be that the rows in our spreadsheet are the customers and the columns or the activities they're doing over time.
• 19:33
  SPEAKER_03: How do we define those rows?
• 19:35
  SPEAKER_03: Uh and in different settings, like let's say in pharmaceuticals.
• 19:39
  SPEAKER_03: Is it the patient?
• 19:40
  SPEAKER_03: Is it the physician?
• 19:42
  SPEAKER_03: Is it the insurance company?
• 19:43
  SPEAKER_03: Is it the distributor?
• 19:44
  SPEAKER_03: Is it the pharmacy chain?
• 19:46
  SPEAKER_03: Uh so let's at least get agreement on it before we move ahead.
• 19:52
  SPEAKER_03: And that's gonna not only help us collect the data properly and do the audit properly, but but just have better aligned decision making and accountability.
• 20:00
  SPEAKER_03: So really important to figure that out, or at least, again, um come up with uh with what rules we're gonna use to determine it before we even uh do anything with data.
• 20:10
  SPEAKER_03: Now, to the main point of your question, there are a lot of companies out there that can't tag and track every individual.
• 20:16
  SPEAKER_03: And so that's gonna help drive who the the choice of of the customer might be.
• 20:22
  SPEAKER_03: And so maybe we should do it at kind of one level higher.
• 20:25
  SPEAKER_03: So maybe, for instance, if we are uh a CPG uh manufacturer, instead of the individual customer who he can't tag and track, maybe it's gonna be the store.
• 20:36
  SPEAKER_03: That's fine.
• 20:36
  SPEAKER_03: That will be the customer.
• 20:38
  SPEAKER_03: And indeed, that's the way a company like Procter ⁇ Gamble talks about its customers.
• 20:43
  SPEAKER_03: They know that their customers are Walmart and and uh and Asta and and you know and and so on, uh uh instead of particular individuals, but it's changing.
• 20:54
  SPEAKER_03: The electron microscope of the customer is making it possible to tag and track individuals much more effectively than ever before.
• 21:04
  SPEAKER_03: And it's only a matter of time before even in the faceless, nameless CPG world, uh we'll be able to do that on a regular basis.
• 21:12
  SPEAKER_03: So we need to be prepared for it.
• 21:14
  SPEAKER_01: Brilliant.
• 21:15
  SPEAKER_01: So uh so when you're in a contractual setting, uh, you know, I read the research papers that you uh uh you know you've uh published for so many years versus a non-contractual setting, right?
• 21:26
  SPEAKER_01: So therefore, uh the real challenge uh in a non-contractual setting is really the fact that you know I'm not bound to have uh uh you know uh a relationship with you as a customer, and therefore, you know, I tend to be uh flirting uh with brands versus in a contractual relationship, I can't flirt because of the uh you know the relationship that is pretty much locked in.
• 21:52
  SPEAKER_01: So, given this, uh when I do customer based audit, uh would you discount these factors when you do customer based audit?
• 22:00
  SPEAKER_02: And would that be a part of the overall working in the customer base audit?
• 22:04
  SPEAKER_02: So let's first talk about that distinction because it is so vital.
• 22:08
  SPEAKER_03: When we talk to companies about, you know, if you had to split businesses up, usually they'd say B2B versus B2C or products versus services.
• 22:16
  SPEAKER_03: No.
• 22:17
  SPEAKER_03: The distinction you just described, contractual or non-contractual, is so critical.
• 22:25
  SPEAKER_03: And the reasons why the non-contractual world is so difficult, it's not merely the absence of a contract.
• 22:31
  SPEAKER_03: There's actually three reasons why.
• 22:33
  SPEAKER_03: First of all, there's latent attrition.
• 22:35
  SPEAKER_03: You never know if that customer is gone.
• 22:37
  SPEAKER_03: All you know is that they haven't bought from you in a while.
• 22:40
  SPEAKER_03: And so you can you'll never know for sure whether they're gone, but you can come up with a probability.
• 22:45
  SPEAKER_03: What's the probability that they'll ever buy from me again?
• 22:48
  SPEAKER_03: So what's the probability that they're still alive as a customer?
• 22:51
  SPEAKER_03: So problem number one is the idea of latent attrition, which in the contractual world it's easy.
• 22:57
  SPEAKER_03: I had a contract, I turn, I'm gone.
• 22:59
  SPEAKER_03: Easy.
• 23:00
  SPEAKER_03: Problem number two would be the timing of the purchases.
• 23:04
  SPEAKER_03: That in the contractual setting, the purchases, the interactions tend to be very regular.
• 23:10
  SPEAKER_03: You know, every month I pay my subscription fee.
• 23:13
  SPEAKER_03: But in the non-contractual setting, let's say you're, you know, you're you're moving to a new house, so you go to the kind of home store to buy boxes and things to pack, and then you go to buy new furniture, and then you don't visit the store again for another two years.
• 23:30
  SPEAKER_03: Doesn't mean that you're gone as a customer, it just means that you don't have needs for it at the moment.
• 23:36
  SPEAKER_03: So the timing of the purchases is much different.
• 23:38
  SPEAKER_03: And finally, the size of the purchases in the contractual setting, you spend pretty much the same amount of money on that on that magazine or that insurance policy or that um telco uh subscription.
• 23:53
  SPEAKER_03: Whereas when it comes to buying in a non-contractual setting, sometimes you're spending thousands, sometimes you're spending very little, it's a mess.
• 24:01
  SPEAKER_03: And it needs the audit even more than the contractual.
• 24:04
  SPEAKER_03: And that's why the main example uh in this book is a non-contractual one.
• 24:10
  SPEAKER_03: And we're and we admit that.
• 24:11
  SPEAKER_03: And then the back end we talk about how things would be different for the contractual setting, and we acknowledge that it will actually be much easier.
• 24:20
  SPEAKER_03: Back of the envelope calculations, like a retention rate, can get you pretty far in the contractual setting, but there's no equivalent of that in the non-contractual because you don't know whether the customer is with you or not.
• 24:33
  SPEAKER_03: So it's much more challenging, much more difficult, but therefore more important to be doing the audit in that kind of non-contractual setting.
• 24:43
  SPEAKER_01: So uh when you're really talking about non-contractual setting, so does the work that you have done on uh customer-based valuation makes a lot of sense because you know I am a CEO of a large CPG company.
• 24:56
  SPEAKER_01: Uh you know, uh I know that uh you know my uh uh my shares and uh stock prices are based on valuations, and suddenly uh you know when you really do customer-based valuations for non-contractual uh relationships.
• 25:12
  SPEAKER_01: So I'm a CPG company, I know that you know I sell so many tons of soap, uh so many tons of shampoo, but literally, if I'm able to retain those customers on a uh you know date uh day over and month over and year over basis, my evaluations become far more larger, and therefore, is that something that the non-contractual company should be looking at and start working on customer-based valuations?
• 25:38
  SPEAKER_03: I love it.
• 25:39
  SPEAKER_03: Of course, the answer is yes.
• 25:41
  SPEAKER_03: I love the way you set that up.
• 25:43
  SPEAKER_03: Uh uh a lot of my recent work has been on this idea of customer-based corporate valuation, taking the the same descriptives that we'll see in the audit, taking the same models of lifetime value that I alluded to before.
• 25:56
  SPEAKER_03: And instead of just stopping with the marketing people and saying, hey, you ought to send this message to that customer.
• 26:03
  SPEAKER_03: I mean, I love doing that kind of thing.
• 26:05
  SPEAKER_03: Let's go a step further.
• 26:06
  SPEAKER_03: Let's talk to the people in finance.
• 26:08
  SPEAKER_03: And basically, if we can project customer acquisition, retention, repeat purchase, and spend, we can do a better job of projecting revenue and free cash flow over a longer horizon with a better diagnostic understanding of why revenues are leveling off, uh, and and basically do a better job of valuing the company, understanding the stock price, and turning around to come up with immediate actions of things that we can do to maintain our momentum or to raise our overall valuation to a higher level.
• 26:42
  SPEAKER_03: It's been for me personally so much fun, so interesting to enter this brave new world of finance.
• 26:50
  SPEAKER_03: Again, I'm a marketing professor, uh, but the fact that some of my uh finance colleagues, both academics and practitioners, start to care what I have to say, uh is wonderful.
• 27:01
  SPEAKER_03: I mean, just just uh uh the the Financial Times just offered some some praise for the new book.
• 27:07
  SPEAKER_03: Uh and that, wow, that's a dream come true that most marketers won't have happen.
• 27:12
  SPEAKER_03: So for me, I'm a marketing professor, I'm never gonna give never gonna give that up.
• 27:16
  SPEAKER_03: Um having impact on finance is is a way is is is not an end onto itself, although it would be for a lot of people.
• 27:23
  SPEAKER_03: Uh for me, it's if I can get the finance people on board, it's gonna give me more respect, more resources, more alignment with the marketing people.
• 27:33
  SPEAKER_03: So we can go ahead and do our marketing things uh with with with more confidence and with with better support.
• 27:39
  SPEAKER_01: Absolutely.
• 27:40
  SPEAKER_01: So uh given the fact that it's so uh I would say uh looks common sense, uh, why do companies find it hard to get this in their in their culture, in their DNA?
• 27:54
  SPEAKER_01: Because they just seem to be moving with averages, moving with uh, you know, uh, you know, I would call it painting the picture, but not really getting to the granular, uh customer-based uh, you know, uh work.
• 28:09
  SPEAKER_01: So why is it so difficult for companies to do?
• 28:12
  SPEAKER_03: It goes back to what we discussed before, kind of tradition, organizational structure, and just some either uh maybe skepticism is too strong a word, but but disbelief that the electron microscope of the customer um can actually drive value.
• 28:28
  SPEAKER_03: Um that that the first of all that it exists and that we can really understand it a granular way.
• 28:32
  SPEAKER_03: You know, too many companies, even if they have all that data, they say, oh, our customer is constantly changing, whether it's COVID, whether it's recessions, whether it's new products that we're launching and that our competitors are launching, our markets are being constantly disrupted, that that that there's just nothing, there's nothing kind of um that there's nothing comp comparable within our customers.
• 28:55
  SPEAKER_03: There's nothing we can learn because everything's changing.
• 28:57
  SPEAKER_03: Well, that's not true.
• 28:59
  SPEAKER_03: And it's and again, that's the beauty of some of these patterns.
• 29:02
  SPEAKER_03: If you kind of forget about all of that noise for a moment, do the audit and do it again next quarter and next year, and you start to see the regularity of the patterns, you start it, it's it's wonderful because it lets you kind of turn off some of that noise and kind of focus on what's there.
• 29:20
  SPEAKER_03: So uh you know, my encouragement is don't knock it till you try it.
• 29:25
  SPEAKER_03: Just just don't don't believe all of that hype, don't believe all of that nonsense.
• 29:31
  SPEAKER_03: Uh just just do the audit, see for yourself, and in many, many cases you'll see the kind of stability that I've referred to.
• 29:39
  SPEAKER_03: And to the extent that you see differences, you'll be able to, you'll first of all have a baseline to understand the magnitude of those differences.
• 29:48
  SPEAKER_03: You'll have some diagnostic understanding of why those differences are arising and what actions you should take to either combat them or to lead into them.
• 29:58
  SPEAKER_03: The audit gives you all that.
• 30:00
  SPEAKER_01: So, which brings me to the most important point uh of this conversation, which is therefore when I do the customer-based audit, uh do you believe time has come for uh you know companies to add uh you know uh a customer PL to balance sheets?
• 30:19
  SPEAKER_03: I absolutely believe that.
• 30:20
  SPEAKER_03: And I've I've come about it uh kind of indirectly, and it's been a long journey for me.
• 30:25
  SPEAKER_03: Uh, I used to say things that in hindsight are terribly naive, that we should calculate customer lifetime value and put that, that that future asset value of our customers, put that on the balance sheet.
• 30:36
  SPEAKER_03: No, we can't do that.
• 30:38
  SPEAKER_03: You you can't put you know forecasts, estimates on a balance sheet like that.
• 30:42
  SPEAKER_03: It would just make no sense.
• 30:44
  SPEAKER_03: You can't audit that like you can actual observable customer behavior.
• 30:51
  SPEAKER_03: And we have seen some companies do it.
• 30:53
  SPEAKER_03: And when I when I say we, in this case, once again, giving credit where it's due, is another one of my former PhD students, Dan McCarthy.
• 31:01
  SPEAKER_03: See, Dan uh uh used to be a hedge fund guy and then came back to Wharton, where he had been an undergraduate, to get his PhD.
• 31:10
  SPEAKER_03: And all of this work we're doing on customer-based covert evaluation, it was his dissertation work.
• 31:15
  SPEAKER_03: And I have learned so much from him about how to take these models, how to take these metrics, how to take the audit and frame them in a way to get the finance people to care and to start to really push the idea of disclosing formal, auditable customer metrics.
• 31:34
  SPEAKER_03: Uh and I hope that that the folks who are watching and listening to this, first thing you gotta do, don't connect with me, I mean, do that too, but connect with Dan McCarthy.
• 31:45
  SPEAKER_03: Because what he does is he reads the statements that the companies are saying about themselves, about their customers, or what uh what external folks are saying about it, Wall Street analysts and so on, and looking at them through this proper lens to understand what is the health of the customer base, what is the health of the business, and what are the drivers that are either preventing them from being more valuable or that would allow them to do so.
• 32:09
  SPEAKER_03: And we've been on a letter writing campaign along with Rob Markey, Bain Consulting, the net promoter score guy, to try to get financial accounting standards boards to demand or at least set guidelines for customer metrics about acquisition, retention, and development.
• 32:30
  SPEAKER_03: And here's what you should disclose.
• 32:31
  SPEAKER_03: Here are the caveats about it based on what kind of company you are.
• 32:35
  SPEAKER_03: We're seeing more and more lawsuits about this, all kinds of litigation about uh either the presentation of customer metrics or the failure to do so.
• 32:45
  SPEAKER_03: Uh and on one hand, I kind of love those lawsuits because it's creating more scrutiny, it's it's forcing us to be a little bit more specific.
• 32:53
  SPEAKER_03: On the other hand, if we had these standards out there, then there wouldn't be as many arguments about it.
• 32:59
  SPEAKER_03: So that is absolutely the future.
• 33:02
  SPEAKER_03: And again, it's going to be a long time before we get there, but we are going to look back 20 years from now and say, what were we thinking?
• 33:09
  SPEAKER_03: Uh, how did we not have this stuff in place?
• 33:12
  SPEAKER_03: Businesses will operate more effectively, stakeholders will know what they're buying and how all those investments are performing.
• 33:20
  SPEAKER_03: Regulators will benefit from it as well.
• 33:22
  SPEAKER_03: Uh, and therefore, just overall social welfare will be improved by having a greater transparency about customer behavior.
• 33:36
  SPEAKER_00: ContraMinds is a podcast dedicated to decoding people, minds, strategy, and culture.
• 33:42
  SPEAKER_00: We interview and learn from high performers so that you can apply these lessons on your journey to becoming the knowledge worker athlete you are meant to be.
• 33:50
  SPEAKER_00: The ContraMinds podcast is available on all leading podcast players.
• 33:54
  SPEAKER_00: And if you are interested in revisiting past episodes or taking a look at our show notes from this episode, please visit us at www.controlominds.com forward slash blog.
• 34:05
  SPEAKER_00: And now back to the show.
• 34:09
  SPEAKER_01: So which uh uh which brings me to uh you know the question of uh customer centricity, because uh, you know, once you do customer-based audit, because it's very uh it's very fashionable to talk about customer centricity today, and uh, you know, without actually having the metrics or the audit in place.
• 34:28
  SPEAKER_01: And uh, you know, it's because it's great to talk about digital transformation, talk about customer centricity.
• 34:34
  SPEAKER_01: So if you were to really look back and then say, here is a math guy turned into a marketing professor looking at customer centricity, what would be your blueprint of customer centricity?
• 34:48
  SPEAKER_03: So I I stand by my blueprint of customer centricity, the idea that not all customers are created equal, and here we go again, that if we can focus on the right customers for strategic advantage, we'll make more money in a sustainable, defendable, ethical manner.
• 35:03
  SPEAKER_03: Um and so I love everything we say about it, but the issue is how do we get going with it?
• 35:09
  SPEAKER_03: Uh and it's it's kind of nice that some companies just kind of take my word for granted and say, well, let's just do it.
• 35:16
  SPEAKER_03: But I I kind of like the ones who are skeptical and the ones who kind of push back and say, prove to me that not all customers are created equal.
• 35:23
  SPEAKER_03: Prove to me um what are the the the patterns over time that were that we need to take advantage of.
• 35:28
  SPEAKER_03: And again, that's why the audit is the first step.
• 35:32
  SPEAKER_03: Now, if I had written this book first, it might not have the same impact and reception that it has when I first kind of get people all juiced up and jazzed up.
• 35:47
  SPEAKER_03: Customer centricity, rah-rah, let's do it.
• 35:50
  SPEAKER_03: Um, so this so the first book, even though in some senses a sequel to the third book, very confusing, um, it was a great way to get people to wake up and start asking the right questions and aspiring to do a certain kind of thing, and and basically saying, so how do we do it?
• 36:06
  SPEAKER_03: And that's where the audit comes in, and that's where lifetime value comes in.
• 36:09
  SPEAKER_03: So sometimes kind of starting at the top, starting with the North Star before we kind of map out the whole journey is the more effective way to go.
• 36:19
  SPEAKER_03: Uh uh, but you know, once you want to begin the journey, you gotta make sure that you have the right map.
• 36:25
  SPEAKER_03: And I think the audit provides that.
• 36:28
  SPEAKER_01: So uh assuming that the audit provides me that, and if I were to build a customer blueprint, uh, you know, the way I then need to re-engineer it certain functions in the organization would be very different, right?
• 36:40
  SPEAKER_01: So, for example, if all customers are not equal, uh, all customer service is not equal, all sales is not equal, all marketing is not equal, right?
• 36:51
  SPEAKER_01: And therefore, then how do I really re-engineer my org?
• 36:55
  SPEAKER_01: Okay, if I were the CEO of the company, and that is a big transformation waiting in its wings to be done, right?
• 37:02
  SPEAKER_03: And it's so hard, and of course, I am not an organizational transformation guy, although I've I have to say, uh exactly to your point, as I've learned about these challenges and have started to kind of lay out in broad strokes what it is a company needs to do.
• 37:18
  SPEAKER_03: You need to organize around the customers instead of the products.
• 37:22
  SPEAKER_03: Um, I've I've developed much more appreciation for that work.
• 37:25
  SPEAKER_03: There's a marvelous book by a gentleman named Jay Galbreth called Designing the Customer-centric organization.
• 37:34
  SPEAKER_03: Uh, and it's it's beautiful because I encourage people to pick up a copy of that book.
• 37:39
  SPEAKER_03: Because some of the challenges that he lays out, some of the again, the the the changes that need to be made, align so well with everything I've been saying.
• 37:48
  SPEAKER_03: You know, how do we focus on some customers?
• 37:50
  SPEAKER_03: How do we do that organizationally?
• 37:52
  SPEAKER_03: How do we develop the right culture around it?
• 37:55
  SPEAKER_03: Uh and so that there are ways to do that.
• 37:57
  SPEAKER_03: I'm just starting to learn that now.
• 38:00
  SPEAKER_03: In fact, I'm I'm already starting to think about book number four, the five C's, creating a customer-centric corporate culture.
• 38:08
  SPEAKER_03: So the Goldberg book tells you how to lay out the organizational design.
• 38:13
  SPEAKER_03: But even that isn't going to get you success unless you have the right culture in place.
• 38:19
  SPEAKER_03: And there's all this great work, again, by colleagues that I I I'm not one of them.
• 38:26
  SPEAKER_03: I'm not a culture guy.
• 38:28
  SPEAKER_03: But uh but a lot of people have written great books on creating you know effective corporate culture, but so often it's how do we build the right culture around the product, around the stuff that we sell and the stuff that we deliver.
• 38:41
  SPEAKER_03: Uh, I'm I'm not saying that the work is irrelevant for a customer-based organization.
• 38:46
  SPEAKER_03: A lot of it does transfer over, but there's a lot that is different and a lot we need to add into the mix to develop a customer-centric corporate culture.
• 38:56
  SPEAKER_03: So in early stages of that, and it's been just like my foray into finance through my new company Theta, uh, it's just great to be learning.
• 39:06
  SPEAKER_03: It's just great to be uh uh getting some perspective on areas of research and practice that not only have I known nothing about, but five or ten years ago I would have said, why would I want to learn about it?
• 39:19
  SPEAKER_03: Uh and that's the great thing about being a professor, is being surrounded by smart people who like to collaborate.
• 39:25
  SPEAKER_03: Uh, and and I'm hoping that I can continue to learn and continue to contribute uh through these allied areas that that you know are near but distinct from marketing.
• 39:36
  SPEAKER_01: So uh you also said uh you're not just uh you know a descriptive analytics guy, but you're also uh forecasting guy, and therefore, when I look back at marketing measurement, okay, uh marketing mix is talked about a lot.
• 39:52
  SPEAKER_01: Given now that you have done customer-based audit and not all customers are equal, do you believe the fundamentals of even market mix modeling needs to change given this uh you know phenomenal stuff that you have done around customers?
• 40:06
  SPEAKER_03: Yes, yes, yes.
• 40:07
  SPEAKER_03: And this is it's a very important statement because earlier in my career, uh, as we were just in the process of building the electron microscope, really for the first 10 or 15 years of my career when I was working mostly with packaged goods firms, so we did not have the kind of granularity that we want.
• 40:26
  SPEAKER_03: It was very product-oriented, did a lot of marketing, mixed modeling, and things like that.
• 40:30
  SPEAKER_03: But it was the late 1990s.
• 40:33
  SPEAKER_03: It really was a combination of the beginning of the dot-com era where we could start to tag and track customers, and just kind of natural curiosity on my part and the part of Bruce Hardy and others, to basically see whether these patterns that we first observe in the packaged goods world, do they apply elsewhere?
• 40:52
  SPEAKER_03: Do they apply to, for instance, sports, media, entertainment, healthcare?
• 40:59
  SPEAKER_03: And they do, they do, they do, they do.
• 41:02
  SPEAKER_03: It was at that point, right around the turn of the century, where we kind of made that pivot from developing these models at the service of selling more product to gaining better customer understanding and all of the stuff we've been talking about.
• 41:16
  SPEAKER_03: And a lot of the kinds of models that were good when we take the product focus, marketing mix modeling, uh, aren't as effective today because the customers are massively different from each other.
• 41:29
  SPEAKER_03: And it's not enough just to say, okay, here's our media budget.
• 41:32
  SPEAKER_03: How should we allocate it?
• 41:34
  SPEAKER_03: We should be doing that differently for different groups of customers.
• 41:39
  SPEAKER_03: So I'm not saying that that say MMM is completely useless, but but the way that we tend to use it uh as at this broad corporate level instead of doing it kind of in a more customer-centric manner.
• 41:53
  SPEAKER_03: So, yes, a lot of the metrics, a lot of the models, I mean, even the you know, the the the North Star metric for most companies, market share.
• 42:04
  SPEAKER_03: You know, if you think about the origins of market share, very product-centric, um, it's because back in the 1920s, Arthur C.
• 42:11
  SPEAKER_03: Nielsen, yeah, the TV guy who invented market share, um, that was the only thing they could measure is you know, how many cans of beans were on the shelf last week, how many were on the shelf this week, and what is it for the other companies?
• 42:24
  SPEAKER_03: Very product-centric measure, which isn't nearly as useful in the customer-centric world.
• 42:30
  SPEAKER_03: We need new metrics, we need new organizational structures, and again, we need new disclosures uh for our for our stakeholders.
• 42:39
  SPEAKER_03: It all fits together, but it's very, very challenging to do.
• 42:42
  SPEAKER_01: So uh, having seen the era before dot-com, uh, and having seen the era with AI and you know technology being there today, uh, how do you see the marketing department of the future?
• 42:58
  SPEAKER_03: Well, I'm an old school kind of guy, even though I'm doing all this new stuff, and and for years and years, as I was learning these practices, going through this pivot that I described in the late 1990s, I found that the sector, or say the part of the organization that did this stuff best, was direct marketing.
• 43:19
  SPEAKER_03: Old school direct marketing, where they they'd send you a postcard in the mail and say, you know, would you want to buy this product?
• 43:26
  SPEAKER_03: And uh I I I uh we all are familiar with direct marketing.
• 43:31
  SPEAKER_03: We tend to associate it with schlocky products and annoying advertisements.
• 43:37
  SPEAKER_03: And I'm not gonna comment on that.
• 43:39
  SPEAKER_03: But if you look behind the scenes, below the surface, they understood that not all customers were created equal.
• 43:45
  SPEAKER_03: They understood that if we could figure out who the best customers are and then use them to determine what kinds of products we should develop instead of the usual product first approach.
• 43:56
  SPEAKER_03: So a lot of what I've been espousing is taking that.
• 44:00
  SPEAKER_03: Some of that old school direct marketing and kind of dusting it off and finding ways to do it better, faster, and more impactfully through digital marketing and machine learning and so on.
• 44:13
  SPEAKER_03: So, you know, if you you look at the the books behind me over there, you'll see all these, well, you probably can't see them, but a lot of books on direct marketing.
• 44:22
  SPEAKER_03: Really terribly out of vogue for people who are doing things with, you know, you know, TikTok and Instagram and and whatever else.
• 44:30
  SPEAKER_03: But all these firms, it really is just direct marketing.
• 44:35
  SPEAKER_03: Uh, and so let's learn from our forefathers and use that kind of data and those channels more effectively.
• 44:43
  SPEAKER_03: Uh, and again, combining with the digital capabilities that we have today, very powerful combination.
• 44:50
  SPEAKER_01: So, therefore, uh, I did see that uh interview of yours where you really thought about that.
• 44:55
  SPEAKER_01: So, do you see the fusion of direct and indirect marketing?
• 45:01
  SPEAKER_03: So uh direct marketing is so out of vogue that when I say the kind of statement I just said, you know, read those old books, no one's gonna do that.
• 45:12
  SPEAKER_03: And so, what I want to do instead, and really so much of what I did in the first book, um, without saying um be a direct marketer, be a direct marketer, oh you know, once or twice, maybe, um, let's pretend it's something new.
• 45:26
  SPEAKER_03: Like, hey, we have all of this new stuff out there that didn't exist before, and that makes it a little bit shinier, and that makes it a little bit more tolerable, a little bit more, it invokes a little bit more curiosity.
• 45:38
  SPEAKER_03: Um, so let's just basically take old direct marketing and kind of worm it over and call it something new, customer centricity, um, and then weave it in with other contemporary marketing practices.
• 45:52
  SPEAKER_03: And so that's kind of what I've been doing.
• 45:54
  SPEAKER_03: It's maybe a little bit, you know, dishonest, but I at least I admit that I'm doing it.
• 46:00
  SPEAKER_03: Uh, and I just want to get people to be willing to pay attention to what was going on with direct marketing back in the late 60s, 70s, and 80s, because that stuff is still very powerful and applicable today.
• 46:12
  SPEAKER_01: Fantastic.
• 46:13
  SPEAKER_01: Uh, so which brings me to uh the end of our conversations, and I have some rapid-fire questions for you.
• 46:20
  SPEAKER_01: Uh so uh the first question, uh Professor Peter Federer, is what does uh success mean to you?
• 46:29
  SPEAKER_03: Well, what does it mean to me personally?
• 46:32
  SPEAKER_03: Uh it it means um uh waking up in the morning and looking forward to whatever I have in front of me.
• 46:38
  SPEAKER_03: Uh just uh uh whether it's work, whether it's play, whether it it's family, uh just uh just enjoying what you're doing, um uh feeling satisfied with how you're doing it, have wonderful people around you who who appreciate what you do again, personally and professionally.
• 46:56
  SPEAKER_03: That's success.
• 46:57
  SPEAKER_03: You know, can can money buy you that?
• 46:59
  SPEAKER_03: I don't know.
• 47:00
  SPEAKER_03: But but I wake up every day just just uh eager to teach, to uh to consult, to do research, uh, and I'm and again going back to my fairy godmother, Lee McGallister, uh I'm the luckiest man and the most successful man on the planet because of the joy that I find in what I do.
• 47:20
  SPEAKER_01: Great answer.
• 47:21
  SPEAKER_01: Great answer.
• 47:22
  SPEAKER_01: My next question is uh given that you've had such a long career, if you go back and reflect, what's one single piece of best advice that you ever got?
• 47:36
  SPEAKER_03: Well, of course, the advice uh from McAllister, get that PhD in marketing.
• 47:41
  SPEAKER_03: I wish that I was more open to it.
• 47:45
  SPEAKER_03: I mean, I did it, I listened, but it was more kind of against my will.
• 47:49
  SPEAKER_03: She made me.
• 47:50
  SPEAKER_03: Um I wish I would I I leaned into it um um earlier and um and more willingly.
• 47:59
  SPEAKER_03: Um uh again, things have have worked out wonderfully well.
• 48:02
  SPEAKER_03: But when I'm working with students, uh I I instead of you know fighting with them instead of dragging them by their hair to go into this field, um, I want to make them understand why it's gonna make their life interesting, um, even though they would have never thought about this before.
• 48:19
  SPEAKER_03: So I think it's so it's it's um so I guess the the the answer to the question then is is first of all, um be willing to take some some bold steps, um, but but seek um kind of guidance and and mentorship along the way to to make sure you're on the right path and and pursuing it the right way.
• 48:38
  SPEAKER_01: Brilliant.
• 48:39
  SPEAKER_01: Uh if uh you know uh you were to give a piece of advice to an 18-year-old in a university, what would be that advice?
• 48:51
  SPEAKER_03: Oh, that's gonna there, it's gonna be very specific and it's it's gonna be uh very tangible.
• 48:56
  SPEAKER_03: Um well, especially if you have some kind of quantitative leaning, um, you need to get a nice variety of technical skills.
• 49:06
  SPEAKER_03: I mean, everyone talks about AI and machine learning, and there's no doubt that that's part of the portfolio, but it's not the only, and in fact, it might not even be the biggest part.
• 49:16
  SPEAKER_03: So there's gonna be uh other kinds of technical skills you need to pick up.
• 49:20
  SPEAKER_03: So a lot of the work that I do, I mentioned in passing before that I was thinking of being an actuary, the people come up with the insurance rates.
• 49:28
  SPEAKER_03: Um, that's basically what I do.
• 49:30
  SPEAKER_03: It's more about probability and statistics than it is about AI and machine learning.
• 49:35
  SPEAKER_03: So you want to take a bunch of courses on that, again, old school just how we do probability and statistics.
• 49:43
  SPEAKER_03: And then we also want to do a little bit of econometrics, so the kinds of work anyway.
• 49:48
  SPEAKER_03: So there's it's a variety of different technical skills.
• 49:50
  SPEAKER_03: Want to have this broad platform.
• 49:53
  SPEAKER_03: And then, besides just the technical stuff, there's just I want people to be really analytical.
• 49:58
  SPEAKER_03: I want them to be able to ask the right questions, um, to be able to harness, uh, to be resourceful about how to approach them.
• 50:05
  SPEAKER_03: Uh, I want them to be able to argue and persuade.
• 50:08
  SPEAKER_03: And so if you notice, a lot of things that I'm saying would tend to be a more liberal arts education than a business education.
• 50:15
  SPEAKER_03: Here I am, professor in a business school.
• 50:17
  SPEAKER_03: Um, but I'd rather people study math or philosophy or things that are just going to help them think and analyze broadly rather than worrying about all of those downstream applications.
• 50:30
  SPEAKER_03: That stuff's gonna be easy to learn later on, uh, but you want to make sure that you have the right foundation to be able to pursue it.
• 50:37
  SPEAKER_01: Great.
• 50:38
  SPEAKER_01: Uh so what's one thing that you believe in, uh, Professor Peter Federer, that others don't believe uh in uh in whatever you you say?
• 50:49
  SPEAKER_03: So, in uh when when I'm building my models and when I look at the world, um I believe that there's a lot of things happening, especially with customers, as if randomly.
• 51:05
  SPEAKER_03: This is a really important point, really important point.
• 51:07
  SPEAKER_03: Because too often we we give either our customers too much credit and and we kind of overcomplicate their decision process, or we as outside observers looking at them try to attribute everything that they're doing.
• 51:20
  SPEAKER_03: Why are they turning left?
• 51:21
  SPEAKER_03: Why are they turning right?
• 51:22
  SPEAKER_03: Why are they going straight?
• 51:23
  SPEAKER_03: And in many cases, it's as if they're acting randomly.
• 51:28
  SPEAKER_03: They're flipping a coin, they're rolling a die, they're spinning a wheel.
• 51:31
  SPEAKER_03: So rather than trying to explain every little thing that's going on, again, let's be humble.
• 51:38
  SPEAKER_03: Let's be let's let's have that humility to say there's certain things that we just can't explain.
• 51:42
  SPEAKER_03: And let's view them through an as if random mechanism.
• 51:46
  SPEAKER_03: I tell my students on the first day of class that not only do I want to teach you a bunch of technical skills, but I want to change the way you look at the world.
• 51:55
  SPEAKER_03: And I want you to see everything, not just customer behavior, not just business, but whether it's the spread of a pandemic, whether it's it's uh whether it's sports, whether it's politics, you name it, as the outcome of an as if random process.
• 52:12
  SPEAKER_03: And if you can just understand both the the uh the the nature of that random process, but also the limitations of just uh of how much we can explain, you'll live a better life.
• 52:28
  SPEAKER_03: You'll make better decisions.
• 52:30
  SPEAKER_03: Uh and and and you know, it it's just uh just inherently more interesting to view things that way.
• 52:36
  SPEAKER_01: So it's almost like saying add a bit of uh you know, irrationality to the rationality you've done.
• 52:42
  SPEAKER_03: Well, yeah, you know, I I'm gonna jump in and say I I don't even like talking about irrationality or rationality.
• 52:48
  SPEAKER_03: This is one of the concerns I have with economics.
• 52:51
  SPEAKER_03: They're kind of our baseline feelings that people are rational.
• 52:55
  SPEAKER_03: And then we have all of this work on behavioral economics.
• 52:59
  SPEAKER_03: Wait a minute, no, they're not.
• 53:00
  SPEAKER_03: And I'm just agnostic about the whole thing.
• 53:02
  SPEAKER_03: I'm basically saying people aren't rational, but they're not irrational either.
• 53:06
  SPEAKER_03: They're just flipping coins and rolling dice and spinning wheels to decide when to buy, how often to buy, and so on.
• 53:13
  SPEAKER_03: So I'm I'm I'm not making any claims about stuff like that.
• 53:17
  SPEAKER_03: Um, again, having said that, it's still important to learn economics uh and be respectful of it, because it is a natural mindset that a lot of people have, but I rarely invoke anything like rationality or irrationality in my work.
• 53:32
  SPEAKER_03: For me, it's all actuarial science, coin flips and so on.
• 53:37
  SPEAKER_01: Brilliant.
• 53:38
  SPEAKER_01: Uh, if you were to uh invite uh a few people for a dream dinner, uh who would they be and who would you love to have on the table?
• 53:48
  SPEAKER_03: Well, uh this is gonna sound terribly corny, but but I mean it sincerely.
• 53:54
  SPEAKER_03: Albert Einstein.
• 53:56
  SPEAKER_03: Okay.
• 53:57
  SPEAKER_03: You know, I go back to what I just said about things acting as if randomly.
• 54:02
  SPEAKER_03: Einstein had this very famous quote saying, you know, God isn't playing dice with the universe.
• 54:08
  SPEAKER_03: I kind of disagree with him on that.
• 54:11
  SPEAKER_03: Now, you know, who am I to tell Albert Einstein what to do?
• 54:15
  SPEAKER_03: But I'd love to have that conversation.
• 54:17
  SPEAKER_03: You know, when he was doing his work, it was just when things like quantum physics, quantum mechanics were just being born.
• 54:24
  SPEAKER_03: He was skeptical about that stuff.
• 54:26
  SPEAKER_03: I wonder what he would think about it now.
• 54:29
  SPEAKER_03: So, so uh so there's Albert Einstein, uh, because you know what he did to come up with a very simple model of the universe uh that that today, you know, 120 years later, we're still true viewing as if it's true, even though it's just a theory, uh love to talk to him.
• 54:47
  SPEAKER_03: Um, and then um the the two gentlemen who first took a lot of the a lot of the techniques that I that I develop and and first popularize them, both within the field of marketing and in practice.
• 55:01
  SPEAKER_03: One, a gentleman named Andrew Ehrenberg, um fascinating person, um uh who basically was the first in marketing to lay out a lot of these patterns, to do things kind of like an audit.
• 55:14
  SPEAKER_03: Um some people, some of the folks watching this program might be familiar with the work of Byron Sharp down at the University of South Australia.
• 55:23
  SPEAKER_03: Everything that that he's doing is just an homage to Andrew Ehrenberg.
• 55:28
  SPEAKER_03: Fascinating guy.
• 55:28
  SPEAKER_03: I did have the the pleasure and privilege of having a lot of conversations with him before he passed away, but there's still a lot more to talk about.
• 55:35
  SPEAKER_03: And then last and maybe least familiar would be a gentleman named Don Morrison, um, who is still alive, uh a retired professor at uh at UCLA, who did just great work to take some, to basically take some of the kinds of things that Aaronberg first observed, come up with the statistical models, and kind of bring them into marketing.
• 55:55
  SPEAKER_03: A lot of my lifetime value work are models that he and some of his former PhD students, including one of my former beloved colleagues, Dave Schmidtlein, who's now dean at the Sloane School at MIT, first brought into the field.
• 56:10
  SPEAKER_03: And all I've been doing is standing on their shoulders to take their models and add bells and whistles and talk more about the so what and popularize them and make them more accessible.
• 56:21
  SPEAKER_03: Um so there you go.
• 56:22
  SPEAKER_03: Hey Dave, you can come to dinner too.
• 56:24
  SPEAKER_03: So Dave, Don, uh, Andrew, and Albert.
• 56:27
  SPEAKER_03: I could go on for days.
• 56:29
  SPEAKER_03: But I I really do uh I I uh even though I get a lot of credit for this stuff, um, I I recognize that it's just the uh the people who did the work previously and who I've had the the uh ability to collaborate with and who have made all of this possible.
• 56:45
  SPEAKER_01: Brilliant.
• 56:46
  SPEAKER_01: Uh now that you know a little bit about the Contraminds uh podcast, uh Peter, uh if you were to uh think of a guest who you believe you would want to listen, uh who would that be?
• 57:00
  SPEAKER_03: Well, um if you notice, a lot of what I've said is academic, academic, academic.
• 57:06
  SPEAKER_03: Even though I get outside of the Ivory Tower myself and form these companies and so on.
• 57:11
  SPEAKER_03: Um but there's a number of people who have been amazing, who have been willing to read the papers and understand the science, but at the same time, they're they're firmly grounded in the real world.
• 57:22
  SPEAKER_03: Uh and so here's here's two of them.
• 57:24
  SPEAKER_03: Uh one of them is a gentleman named Neil Hoyne.
• 57:27
  SPEAKER_03: He's at Google, uh, and he's remarkable about his ability to take what we do and translate it into the practical.
• 57:37
  SPEAKER_03: So his book sitting over there, the yellow covered one, converted.
• 57:41
  SPEAKER_03: There you go.
• 57:42
  SPEAKER_03: Um, and then uh uh and Zachary Anderson, who was so inspirational to me when he was the chief data analytics officer at Electronic Arts, the gaming company, now in the same role at Nat West Bank in the UK, um, again, discovering some of these things on his own, doing an amazing job of getting people within the organization to buy into it, as we were discussing, doing that more effectively than anyone else have ever dealt with.
• 58:11
  SPEAKER_03: I mean, uh I could go on again with many others, but but Neil and Zachary have been remarkable about their abilities to get this stuff done inside companies and to get others to really uh appreciate and want to do it.
• 58:26
  SPEAKER_01: Brilliant.
• 58:27
  SPEAKER_01: So we already have had Neil on the show, and uh, so that's brilliant.
• 58:31
  SPEAKER_01: And he's the one who gave us that you should talk to Peter Feder, and that's really how the connections happen.
• 58:39
  SPEAKER_01: So, therefore, uh thanks a lot, and brilliant having a conversation with you.
• 58:44
  SPEAKER_01: It was inspiring, extremely refreshing.
• 58:46
  SPEAKER_01: Your points of view on marketing completely something that uh, you know, really aligns with some of the thoughts that I had being a direct marketer myself, and then I moved into uh data and analytics.
• 58:58
  SPEAKER_01: I believe what you've said is absolute truth, and thanks a lot, and lovely talking to you.
• 59:03
  SPEAKER_03: And wonderful talking to you too.
• 59:05
  SPEAKER_03: I'm inviting you to that dinner as well because I I love the questions you've been asking.
• 59:09
  SPEAKER_03: Uh, the fact that you've done your homework so carefully and doing such a wonderful job of getting all these ideas out there.
• 59:15
  SPEAKER_01: Thanks.
• 59:16
  SPEAKER_01: Thanks a lot.
• 59:17
  SPEAKER_01: Thanks a lot, Peter.
• 59:20
  SPEAKER_01: Thanks for listening to this episode.
• 59:22
  SPEAKER_01: For selected links and detailed show notes, visit www.contramines.com slash blog.
• 59:30
  SPEAKER_01: Follow Contraminds on social media and let us know who you would like to see next on the podcast.
• 59:36
  SPEAKER_01: If you are listening to Contraminds on Apple Podcasts, do share your comments and give us a rate.
• 59:44
  SPEAKER_01: Contra Minds is also on YouTube.
• 59:47
  SPEAKER_01: If you are listening to the podcast on YouTube, hit the subscribe button and stay up to date on all our releases.
• 59:54
  SPEAKER_01: Thanks for listening and stay safe.