January 10, 2004

What's the Purpose?

"Because its purpose is to create a customer, the business has two basic functions: marketing and innovation. Marketing and innovation produce results, all the rest are costs."

Hmmm. A company's purpose is to create a customer? I can think of plenty of companies who 'created' customers... and have since gone out of business. But according to Peter's statement, these companies successfully accomplished their purpose.

A business' purpose is to attract and keep customers. Its one basic function is to reliably solve customer problems... through innovative products, or exceptional customer support, or a powerful customer experience, or even low price (ie. WalMart). What attracts and keeps customers is the value offered by the company. Marketing comes second.

Comments

Paul and Jackie have got this spot on - when you read what Drucker has to say on business, he is talking about the real function and discipline of marketing, not the PR or sales promotion department. What seems to be considered here as 'marketing' by many is really just selling in one form or another. Branding and advertising and PR and all the rest are just the tools that can be used to communicate with your customer - the only problem is that without understanding their 'needs, values and realities', how can you utilise any of these tools? And even if you are limiting your definitions to the different work departments, there is inherent danger of overestimating the worth of any single one by automatically stating 'branding comes first', or 'Dept X comes first'. Without a customer none of these departments can be effective in what they do. Sure, once you have attracted a customer you can still stuff up, but then you probably weren't paying attention to your marketing anyway - good execution is as a result of good marketing in its widest sense.
As I see it Drucker also places a huge emphasis on innovation in business, he just takes a wider view of innovation than chips'n'bits - "it is not necessary for a business to grow bigger; but it is necessary that it constantly grow better". This seems to place innovation right at the heart of business practice. Everything else traditionally associated with business, such as finance,admin, production and distribution, customer services, R&D and all the rest, flow from these two disciplines. Marketing and innovation are more than just nameplates on a door, they are the philosophies that underpin everything else that gets done in a business.

This is nitpicking. When Drucker says that the purpose of a business is to create a customer, OF COURSE it is implied that the aquisition of that customer is profitable. By the way, there is no inherent need to keep any customer, just profit from serving them. A reading of the book, "Management", where the bulk of Druckers' theories come from, reveal the basis for this statement and the statement about innovation and marketing, which are sound, as proven many times over through experience.

branding comes before marketing and that statement works more, in a mature market where sales volumes are flatlining. A great reputation will rationalize marketing costs and turn benefits up. I think it's more important to build a brand and we should take more time on it, in order to make the difference between Brand "ABC" and Brand "XYZ".

"What attracts and keeps customers is the value offered by the company. Marketing comes second."

Value offered means nothing without communicating that value to a potential customer. And how do you do that?

Marketing.

I submit that everything a company does is marketing-related. From how you answer the phone, to what is printed on your invoices, to how engineering thinks about design, to how the CFO establishes and communicates financial policy, everything should be evaulated on the basis of whether or not it improves the companies ability to get and keep a customer.

The point of Drucker's comment is that without a customer, there is no business. Without thoughtful product/service development, there is no value to communicate. Winning the hearts of customers is the job of marketers. Do that, and their wallets will follow.

To that end, innovation and marketing are the only things that can sustain a company's continued growth. Forget the dot.coms, many of which didn't have solid business plans to begin with. Ask Western Union, who saw no inherent value in the telephone. Ask Decca Records, who told The Beatles that guitar music was on the way out. Ask the Big 3 auto makers how a lack of innovation and marketing enabled the Japanese carmakers to take a big chunk out of their market. Ask Xerox, whose Palo Alto Research Center innovated but failed to market many technologies now in everyday use. Ask Coca-Cola how Pepsico out-thought and out-marketed them to overtake them in revenue.

Did these companies "sustain". Of course they did. But, they missed vital opportunities to grow because they failed to innovate and market effectively.

Every business transaction has its root in a person-to-person relationship. Marketing is how those relationships are established, nurtured, and sustained long-term.

If we consider that Drucker's definition of marketing is *not* advertising and promotion, then I think his quote does make sense.

I agree with Jennifer that a business' purpose is to attract and keep customers, and that what attracts and keeps customers is the value offered by the company.

But what department or function has the primary task of getting new customers, keeping current customers, and developing innovative new products?
* Operations? No.
* Finance? Hell no.
* Engineering? Mostly no, but they often spark ideas for new products.

It's Marketing. If we consider the discipline of marketing broadly -- encompassing marketing strategy and being the advocate for the customer -- then I believe Drucker's quote is right on.

The best companies are marketing/customer driven. I remember reading a great quote by Erskine Bowles, formerly of Krispy Kreme's board of directors. He said, "This is a marketing company. Scott Livengood [Krispy Kreme CEO] once told me if a finance guy ever gets a hold of Krispy Kreme, sell every share."

Jennifer - in reference to your last paragraph, you might want to point your readers at "The Discipline of Market Leaders". In it, the authors argue that all market leaders, while good at every facet of business, must truly excel at one thing, divided into three categories:

The Drucker quote you reference (not sure what the rest of his argument might have been in context) may discuss purpose but it surely does not address execution. If we learned anything from the dot.com years, it's that innovation and marketing, while vital, truly can not sustain a company.

It's as if Drucker never bothered to stop and question: if marketing is a basic function, then what is responsible for making said marketing possible in the first place, and what is it that is being marketed and why? I get the impression that he thinks business results are ultimately solely the domain of who can be the best snake oil salesman and trick the customer into buying *whatever* (that it doesn't matter what you're producing & selling, just whether you can get the customer to buy it via marketing). Not to mention that his whole approach nullifies the true place and value of innovation in the business process.