Last week I published the first chapter of Peter’s new book. This week I interview Peter on the book, who should read it, what the conclusions are, how it is different from his last two books, and why he is like George Lucas.
If you are interested in buying the book, you can do that on Amazon, but this week it is 40% off if you buy direct from the University of Pennsylvania press. Use the code “HOLIDAY22-FM”
Full transcript below.
I fed the full transcript into ChatGPT and asked it for the main take-aways from the podcast. I then probed it for more, but it could not come up with anything else. I THINK that it only “heard” the first part of the podcast and ignored the rest. But here is what the AI thinks are the take-aways:
Peter's third book, titled "The Customer Base Audit," is a prequel to his other books on customer centricity. The book focuses on providing insights into customer data and is considered a foundational work. Peter believes that if the book were released first, it would not have had the same impact as it does as a prequel to his other books. He believes that starting with the "sexy stuff" and then diving into the details is a better way to grab readers' attention and get them to care about the subject matter.
Edward: All right, Peter. We're back. We're back.
Peter: It's always good to talk to you. Ed. What are we gonna talk about this week?
Edward: We're gonna talk about your book.
Peter: We're talking about my book. Love it.
Edward: I know there's a heck of a lot going on in the world, but we're gonna take a break from fraud and we're gonna take a break from Elon Musk. We're gonna take a break from ai. We're gonna talk about your book.
Peter: We promise not to mention any of those things.
Edward: We told the audience that we're gonna do it. We did an excerpt from your book last week in the newsletter. So if you those listening who have not seen that, you should go back and check that out. And now we're gonna talk to the man himself. It's interesting, Peter, this is your third book, correct? I got the number right?
Peter: It's crazy, but true. Yes.
Edward: Okay. And so my concern always for like big thinkers when they're writing multiple books, is that the first book. The Thing that they've worked their whole career on. It's like the first Beatles album. They've worked on it for the last 20 years of their lives, and they get it down and now two years later, they have to get another album out and they just, okay, let's see what else we can get out. And the sophomore albums tend to be weaker than the first, I feel like with big thinkers like like Clay and Christensen when he releases innovators Dilemma. Earth Shattering book blows our minds on how to think about strategy. And then he proceeds to release four more books after that, that are frankly derivatives of innovators dilemma. Are you being derivative, Peter? What's going on?
Peter: Actually it's a great question. Cuz this book actually comes first, and I mean that literally and figuratively that, if you look at the, of course the book is called the Customer Base Audit, but the subtitle is the first step on the journey to customer centricity. And literally it goes back to a conversation that I had with one of my co-authors, Bruce Hardy, back in 2004 long before I had any inkling of the other work that I would then write on customer centricity. So this stuff is actually much closer to the work that I really do for a living day to day with customer data and so on. Those other books are more of the the so what, like what do we do with the these insights. But this is the book that gives the insights. This is the book that if you were to read the first two and say, wait a minute, how would I know that this stuff is true? Prove it to me. This book does that.
Edward: So is This is like George Lucas making Star Wars. So after he is made that then he can go back and make the movie he really cares about,
Peter: It is the prequel to the other stuff. And again, in some ways it is foundational. In some ways it's really quite different. But I don't think anybody, I'm not saying everyone will like the book, but no one's gonna read it and say it's.
Edward: Okay. And so which I guess if someone's coming to you for the first time, then do they read this book first as a prequel? Do they jump to the prequel? Or is it like, Hey, watch Star Wars first, enjoy that, and then read the next book to understand where that, where that song came from?
Peter: Know, That's beautiful metaphor. And I actually agree with that. See, here's The Thing. I've been doing this kind of work forever. Even since, you were an MBA student 20 years ago and, 20 years before that. And for the most part, with some exceptions, like you people would ignore me saying it's all just quanti and who cares? So what, so I wrote the other books to basically say, pay attention. This stuff matters. You should care your business depends on it. And that's a great way to grab people's attention and get them to lean in and say, oh whoa, how do we do this stuff? This is the book that begins that, how do we do this stuff if we release this one first? People would've read it and said I guess that's nice, but so what? So it's nice to lead with the so what to lead with the sexy stuff and then have people roll up their sleeves and want to dive into the details.
Edward: Got it. So the first book is customer centricity.
Peter: Focus on the right customers for strategic advantage.
Edward: And that, so that book is the why, right? This is how. Not. Not the how, but the why to do it. Why customer centric? So both the what and the how. Which is what and the why.
Peter: Yeah, exactly. What are we talking about and why do we care?
Edward: Cause people, I think back then, I remember talking to you and a lot of people think things like, oh, customer-centricity just means doing whatever all your customers want. Which is, that book says, no, that's not what it is. Let's redefine what customer centricity.
Peter: That's right. And again, it's gotten a lot of people to pay attention and say, wait a minute, we should be doing that. Or, wait a minute, we've been thinking along those lines, but we thought we were alone. So let's start at the C level to get people to really care and to, care about, everything from incentives and organizational structure and corporate culture and stuff that I know nothing about. And then it's gonna charge the the. Quine nerdy people to to do their thing at the service of customer centricity.
Edward: Got it. So number one is, Hey, yeah, buy in. We know what customer centricity is now and we think we want to do it.
Edward: The second book is the Customer Centricity Playbook. Is that like the project plan to actually implement customer centricity?
Peter: Exactly. It's the how do we do it. Yep.
Edward: Got it. And so now we've gone full circle. Now we're back to the prequel, which is the customer based audit, which is the new book. And so that's about. I guess not. I was gonna say how, but it is it how
Peter: it's first steps? It's step one of the how, which is get your data in order. Okay. Don't take our word for it. Look at your data. Let's not even run any models or forecast or lifetime value or any of that stuff, just given the data that you. Look at it the right way. And you'll notice that not all customers are created equal. And you'll get all kinds of insights about how customers change over time. Stuff that you know, I, and you to a large extent take for granted. But for most companies it's sometimes news they don't know about and sometimes it's the polar opposite of what they think they'll see when they look at their customers.
Edward: Who should read which book first?
Peter: See, it depends who you are. That's right. So if, so again if you're c level, as much as I'd like them to dive right into the audit I recognize its place, it would be start with books one and two again, just to be motivated to wanna lean in further. If you are someone who plays around with data, you're a data scientist or maybe you're someone in the CFO's office where you're comfortable with numbers you're, you're interested in accountability and rigor marketing often lacks. Then maybe you start with the audit and maybe after you see the patterns, then you start to say, what does this mean? What do we do about it? And that leads to books one and two. So it really does vary about, who you are and where you are in the org chart.
Edward: Got it. So it, it feels like if you're the CMO and you have the authority to like make this happen, you should probably read the other two books. Probably read the first book. Read customer centricity. If you haven't been bought in on the whole thing, that's gonna get you bought, that's gonna get you bought in or you're gonna reject it, but at least you'll know what you're rejecting and so on. If you're not in the marketing department, so if you're not in the marketing department at all, if you're in the finance department, you could be as bought in as you are on customer centricity, but you're not gonna be. The marketing department to do what you want it to do instead, read the customer based audit. Now you can go and , it's right in the title. You can go and audit the marketing organization to to see what's going on with your customers. And you can provide that information just generally to the organization. And hopefully that causes things to move.
Peter: That is exactly right. And really. That's a really big part of our motivation for doing this. A lot of the work that I've been doing recently, as has been this idea of customer based corporate valuation. Let's basically show the finance people that we can be their friend. We can be their partner by basically projecting revenue and free cash flow accurately and diagnostically. And again, this would be the first. Towards that. Cuz doing that requires models, projections, forecasts and sometimes people will be skeptical about that. How do we know you can forecast it? If we can look at the raw data, simple, just simple data summaries as we say in the book, unashamedly descriptive and see some of these patterns. Daring us in the face about the differences across customers and all that then it just makes you more curious, more willing to start taking that next step and forecasting things out. So this is the starting point for all that.
Edward: It's more than just the numbers though. It's also how you interpret those numbers. Cause I feel like if you just come up like a chart and these are the numbers, that's one thing. But if you pull up the chart in the numbers and they look in a certain way, and you could, and you know what that means when they look that way? Then that's a lot more powerful than just having the chartered numbers.
Peter: So let's talk about that. It's a really great point because yeah, just charts and numbers, eh but on the other hand, if we over interpret, if we start, getting too colorful with the interpretations and start bringing in things like you, Demographics and personality, character no. For us that next level down would be instead of just looking at overall sales, let's break it down into, were you active or not? How often do you buy, how much did you spend when you did? So let's come up with a, simple but powerful decomposition of sales and start looking at those separate drivers.
And here we are, it's holiday season and every company is out there acquiring a bunch of really bad customers. Why are they bad? Is it cuz they're not gonna stick around or they're not gonna buy often or they're only gonna buy when things are on sale? It's really good to know that stuff. And then you could bring in the marketing messaging and all the targeting and all that stuff to basically, Either take advantage of or combat some of those next level patterns.
Edward: So I remember even back when I was a student of yours, we talked about, you talked about how you use this the, when you go and do these analyses, these datas you see the same patterns everywhere, whether it's a long before eCommerce came around and then eCommerce companies, church attendance going to on cruise ships. It just didn't seem to matter what you were doing. You kept seeing the same patterns. I assume that's still the case.
Peter: That's it and that's why doing it in this audit manner, that sounds so formal. And that's exactly the point that instead of just making it up as we go along, which is all too often what happens on marketing because we expect certain patterns to be relatively persistent, that we should be doing basically the same kinds of analyses on a persistent basis every quarter, every year, whether there's a crisis or not, whether there's a new product being launched or whatever. Let's look at things the same way, anticipating that those basically same patterns are gonna be there. And if there are differences, that's when it gets interesting. And that's when we get,
Edward: So let's talk about that. So if the patterns are gonna be the same all the time, you do the audit and you almost know what your answer's gonna be before you start, because hey, this is just, it's almost like a. Let's go and measure. I remember we do these science experiments when I was a physics major in undergrad, and you do the science experiments and at the end of the day, you knew what the answer was going to be before you started because physics is what it is. And if it was wrong, you were more likely that you did the experiment wrong. Then gravity is different than it was last week. And if that's the case here where it's, hey, these are almost laws of nature, that you're gonna see these same patterns over and over again. But what are the differences in the audit? What's the gravity's not changing? What are the variables that change from one audit to the next?
Peter: I love it. So we can take the, the two most obvious metaphors. One would be a financial audit. Again, you do your required financial audit from one quarter, one year to the next. And 99% of things haven't changed. But it's, the little bit of stuff that has changed is what makes the audit interesting and valuable. It's those discrepancies. Those variances, and then, Understand what happened and what we need to do about it. Same thing here. The basic patterns are gonna be the same but the, there's gonna be some nuanced differences for from one period to another. So just like we look for those variances in the financial order. The other great example would be your. Your annual medical checkup. just an audit of a sort and you want nothing to change. , you want it to be exactly the same from one year to the next. That's good. But there's always gonna be some kind of variance. And once again, we're gonna wanna understand what that means. I think it's a absolutely perfect analogy for why we do this and what we expect to see from it.
Edward: And so can we get specific, are there examples that you can be like, okay, here's an audit. Or even a specific company, whether it's disguised example or not, of we did this audit, here's. The second audit, here's the third audit, here's what changed, or here's what we saw. Here's what surprised us to the, even the first audit. Let's start there. You do a company, you do a first audit. What are the surprises that you saw in a specific example?
Peter: Yeah. One of them, as I alluded to before, and again, you and I have talked about endless times, is the holiday season is those customers who we acquire in q4. And again, I've gone on and on about this for years, about how those customers be acquired during that season aren't so good. And sure. Boom, we do this, you using real data set from a real company. And not only is it plain as day when you see it, but it's nice to then be able to go that next level down and say, again, as it purchased, frequency or spend or whatever. So we'll just see differences across, say, Cohorts of customers might be due to holidays, might be due to new product launch competition. Who knows what. You'll very often you will see those kinds of cross. They're slight, but they're persistent and they're important cuz it might be the case that you've overfished your waters. There are no new customers left to acquire. You're only getting crappy ones. So if you start seeing. These cohort level changes, it might tell you that your company is, your customer base is going over Cliff. So it's it's really good in that way. And the other part would be to tie it back to action, to tie it back to products. So let's, instead of just looking at which products we sell the most, let's look at our products through the lens of what's the quality of customers who buy. And to give us real guidance about what kinds of products we should be producing, developing, promoting and it's just, it's a whole different way of looking at product development, but through the appropriate lens.
Edward: Got it. So the customers that bought Product A tend to churn out fast product customers that with their first purchase of Product B tend to last a long time. Therefore, we can afford to lose money when we sell Product B, but we can't lose money when we sell product a.
Peter: Exactly. And I've been saying stuff like that and, General hand wavy terms for years. But it's really great to actually not only demonstrate that it's true, but to be a little bit more specific, a little bit more guided about it. Say, here's how you look at the data to see those differences and again, what they mean. And then of course, the back end is. Audit to action, what do we do about it? And that's where our third coauthor, Michael Ross comes in. Cause I'm like Hardy and me, he's a real world guy and he's been basically doing this kind of thing, again, not a formal audit like we're proposing but informal bits and pieces of it. And then talking about the, so what he's been doing that for years. And all we're trying to do is to make it a little bit more formal, make it a little bit more standardized. And I think the subsequent actions will be easier
Edward: great. Excellent. So that's the first audit. So now you've done that and you've found all those low hanging fruit and you've made the changes but now you recommend what an audit every year, every quarter. How often?
Peter: Yeah. It depends on the cadence of the company. For a lot of, I don't know, say a packaged goods company or a restaurant chain. Yeah. Quarterly would probably make sense. If you're selling mattresses, then probably yearly is more than enough. Really. It's not much different than how often you should be doing a financial audit. It just depends how how turbulent the company or the the ecosystem is. Could be a lot of different factors. You know what, I love that question cuz it implies we are gonna do it regularly. , you know how often I like that as opposed to should we do it at all?
Edward: That is my next question, which is, okay, so going to the specific examples, we've done the audit once we've cleared up all the low hanging fruit. Now is there an example of a company who's done that and then when they do their second or third audit, they find something new and different because of some sort of.
Peter: Oh yeah. Inevitably that's gonna happen. Again, it might be small. You of hope it's small, you kinda hope there's nothing. But the, but unlike physics, the world is constantly changing. There's all these forces on us, and in many cases we don't recognize the nature of the impact of that change until it's like too late and it's really showing up on the bottom line. The audit's kind of a, an early warning system about that. So again, it's fine if nothing's going on, that's good status quo, stay right on course. But when you see those little changes, then you're gonna wanna pursue them because those little things can become big.
Edward: You talked about this kind of like being at the same cadence as financial statements is there any company that's sharing, is any publicly traded company that's sharing these as a financial statements or even, I guess a private company that's sharing it in board meetings privately that are doing these on a regular basis and sharing them public?
Peter: We are starting to see it. And through my company, theta, there's been a couple of companies publicly traded, big, dry and publicly traded companies who have said that we want to start disclosing some of these metrics. We wanna know which ones we should disclose. We want to know what, caveats and guidance we can offer as a result of it. And then basically educate our investors and analysts to understand what that metric means and how it, it shines. A better light on just how healthy our company is. There, there's one that's about to start doing it I think in their next quarterly filings in in probably in February. And it's been really gratifying to see that again, though, I gotta admit, those companies are still exceptions and we want it to be more rural, that more companies will be doing this thing just on their own without needing us read the book and. Do it and that companies are doing it voluntarily just for, the right reasons instead of doing it because they're in trouble or they're defending against something.
Edward: It almost feels more and more like this book should be targeted at finance rather than marketing. I, what I was writing my figuring out who my target audience was for, even for the newsletter, for marketing bs. And I often thought, you know what? I'm saying marketers are doing stuff wrong and people don't like to be told they're doing it wrong. When I get brought in to help out companies, it's almost always the CEO who's bringing me in or the investor bringing me in, not the cmo. If the CMO either is you know what? I'm comfortable with what Ed's doing, I don't need his help, or he's, they're like, you know what? I don't like what he's doing. Please don't help me. And so it's usually the CEO or the CFO that's bringing me in. And so I almost thought about, hey, marketing BS and having a tagline of marketing for finance people. I don't quite go that far, but this almost feels like it's that far. It almost feels like you should be going on finance podcasts and telling them all, start doing this audit, your freaking marketing team.
Peter: Yeah, it's no doubt, and of course we're not doing out there to trash CMOs but you do have to acknowledge that the CEOs and CFOs do have more power and. In many cases are skeptical about, all what those customer experience campaigns or The Thing or the or, a lot of the other customer experience campaigns. What all that is buying them. This is a way to hold marketing accountable to basically say let's see, in the audit, can we see that we're getting a different mix of customers, that they're doing more stuff with us. So again, it's a very regular, accountable, rigorous way to demonstrate the impact of those marketing actions. We hope that the C'S will embrace it as well because they really are moving the needle. This would be the best way to demonstrate it, as opposed to, brand favorability, indices or customer satisfaction. Not that there's anything wrong with that stuff but the audit on these more financial metrics are kind of closer to the bottom line and therefore closer to the hearts and minds of the people who matter most.
Edward: You know what I think this would be great for is a new cmo. If I'm going into a new business one of my philosophies when I started a new company is the first most important thing is getting all your metrics in order and get all your reporting done and getting that all set up. And then, and only then do you create five or six initiatives that we go after this stuff for. And then figure out if you have the team to do it, and then go and figure out your team. But this feels it's like a standardized way to go in and be like, no matter what your company is, use this format to go and get all your metrics set up. Cuz chances are when you come in, they aren't gonna be set up this way. And you need the, if you get them set up this way, you'll understand the business a lot more and you'll be able to track whether your initiatives and your team are gonna be. Moving things in the right direction.
Peter: Amen. I like to give you a specific example of that. I know you like specifics. One of my favorite people who's been doing this, even if you haven't called it an audit for quite some time, is Zachary Anderson who runs all data analytics for NatWest Bank over in the uk, but in his previous gig in the same role at Electronic Arts, the gaming company, that's what he was tasked to do by the ceo, Andrew Wilson said, Zach, I want you to give me the four or five metrics that I should care. And I'm going to tie my compensation like for the next year or two to those metrics. And it was wonderful to see, first of all a CEO kind of going out on a loom like that and trusting marketing type metrics. Giving this kind of marching orders to not just one person but the entire organization and then saying some wonderful results emerge from it. So we wanna see that kind of thing happen. And once again, The metrics shouldn't be cherry picked by the CEO or any one person in the company. We should agree in advance should be a standard set of metrics, standard set of analyses that would apply to pretty much any company. And again, that's what the audit's all about.
Edward: That's great. And so I think what we should do is in February when this company you think is gonna release their financial statements with this format, we should definitely dedicate an episode just to walking through those statements.
Peter: I would love to do that. And of course, this is the kind of thing we're doing informally all the time. Big shout out to my former PhD student and co-founder, Dan McCarthy who really we talk about customer race, corporate evaluation. He's the man he invented as part of his dissertation and every time he sees companies talking about different kinds of customer metrics, like just last week he was talking about clear. Wonderful company and they put out some really interesting metrics and it was just really great to see Dan tear them apart in a positive way to say what it all means and what this, what light this sheds on the company that we wouldn't have known otherwise. And so then there's a lot of examples like that. And again, We just want that to become part of just the, a regular process and not this kind of one off thing that occasionally happens.
Edward: That's good. Hey let's start here. So instead of just talking about Elon's latest adventures, let's when companies release earnings that have this information, or Dan releases one of his deep dives, let's make sure we talk about it on here and we can be the the heart bringers of.
Peter: This is the right place to talk about Ed. Cuz not only do you appreciate and understand this stuff, but you do a great job of putting it in the right context to know where it all fits in. It's not just metrics for the fun of it. And I think it's important to get that full picture.
Edward: That's right. Come here for your marketing news and your Star Wars metaphors.