Drucker on Marketing by William Cohen

Big Idea

There is only one valid purpose for business, and that is to create a customer. This is done through marketing and innovation. The marketer finds out what the customer wants and influences the organization to produce it and approaches the business from the customer’s point of view. Marketing begins with the questions: “What does the other party want? What does it value? What are its goals? What does it consider results?” 

The successful marketer ethically supplies society with what is wanted and needed.

Context

Peter Drucker (1909-2005) is considered by many to be the father of management thinking. William Cohen was one of Peter Drucker’s first PhD students and went on to be a Marketing Professor for over 20 years. He has written 8 books on Drucker’s teachings. Even though Drucker claimed that “marketing encompasses the entire business,” he never wrote a book on the topic. The author has examined Drucker’s work (from 39 books, hundreds of articles and thousands of lectures) and distilled his thoughts on marketing into 5 sections: 1) Drucker’s marketing view 2) innovation and entrepreneurship 3) Drucker’s marketing strategy 4) new product and service introduction and 5) Drucker’s unique marketing insights.

My Personal Story

I first encountered Drucker after college as I studied productivity. His Inc magazine article, “My Life as a Knowledge Worker”, captivated me.  The Effective Executive – written in the 1960s – is my most earmarked book on productivity. I also cover Drucker’s 7 eternal sources of innovation here.

Drucker famously wrote that there were two, and only two, essential functions for any business: marketing and innovation. Everything else, he said, was a cost.

I’ve meditated on this idea for many years. When I rededicated myself to marketing, it led me back to Drucker. How did Drucker define marketing? Why did he think it was so important? What marketing frameworks did he use with clients?

Many of Drucker’s thoughts on marketing were ahead of his time and still are controversial. One example: that marketing and selling could actually be adversarial. Now with nearly 10 years of marketing experience, I find this book’s frameworks invaluable. In many ways, you could argue that his thinking underpins the lean startup and customer development movements omnipresent today.

Exercise 1: Approach the business from the customer’s point of view

This starts with understanding the difference between selling and marketing

Drucker conceptualized that selling was persuading someone to buy something that you had and wanted to sell while marketing was having something that a prospect already wanted to buy. Drucker concluded that if marketing were done perfectly, selling would be unnecessary.

“The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself.”

Marketing begins with the questions: 

  • What does the other party want?
  • What does it value? 
  • What are its goals?
  • What does it consider results?

So perhaps the most important part of marketing is listening to your customer. Not just before you introduce a new product, but after as well.

Drucker particularly emphasized knowing what the customer values.

“Drucker wrote without equivocation that quality in a product or service is not what the supplier puts in. It is what the buyer gets out of it and is willing to pay for. Customers pay only for what they can use and what gives value to them. I emphasize ‘to them.’ Value is as they perceive it, not what the supplier may think.”

Can you answer Drucker’s four key marketing questions above?  If not, you’re probably selling, not marketing.

Exercise 2: Look out the window

“In human affairs, political, social, economic, and business, it is pointless to try to predict the future, let alone attempt to look ahead 75 years. But it is possible and fruitful to identify major events that have already happened, irrevocably, and that therefore will have predictable effects in the next decade or two. It is possible, in other words, to identify and prepare for the future that has already happened.”

Reading this quote set off a lightbulb. And instantly gave me a new product idea. As marketers, we have to constantly look out the window. We need to systematically get out of our own heads and offices, be present to observe what is taking place, and invest the time to think about obvious outcomes.

“In the classroom he was once asked about his ability to predict the future so accurately. With his wry sense of humor Drucker answered, ‘It’s easy. I listen.’ After a dramatic pause he added, “to myself.” After the laughter died down, he explained: ‘I simply look out the window and report what I see and what events that have already occurred mean for the future. This simple step of describing the obvious result of previous occurrences gives some the impression that I am predicting the future. The reality is that I am merely stating the obvious. Most never even look out the window to see what has occurred, or if they do, they don’t invest the time to think much about the obvious outcome of these events.’”

When was the last time you looked out the window? Not just at your competitors and industry, but also at indirect competitors, demographic trends, market trends, and changes in perception? What are the logical conclusions of these observations, and how will that affect what customers want and need?

Exercise 3: Success by Abandonment 

“Every three years, an organization should challenge every product, every service, every policy, every distribution channel with the question, if we were not in it already, would we be doing it now?”

According to Drucker, abandonment is necessary to render an “existing business entrepreneurial”; that is, “to work today on the products, services, processes, and technologies that will make a difference tomorrow.”

Systematic abandonment frees up resources – money, personnel, facilities, equipment, and time – for new opportunities or to take advantage of older ones with higher potential. 

Drucker thought these opportunities were easy to identify. They are opportunities where the results, if successful, earn back what they cost many times over.

If you continue to do what made you successful in the past, you will eventually fail. Drucker called this the sin of “slaughtering tomorrow’s opportunity on the altar of yesterday.”

What products, services, processes and technologies will make a difference tomorrow?And to free up resources for this group, what profitable products or services should you abandon? 

Quotes

“‘It is the customer who determines what a business is,’ he wrote. ‘For it is the customer, and he alone, who through being willing to pay for a good or for a service, converts economic resources into wealth, things into goods. What the business thinks it produces is not of first importance—especially not to the future of the business and to its success. What the customer thinks he is buying, what he considers ‘value,’ is decisive—it determines what a business is, what it produces and whether it will prosper.'”

“There was one type of marketing research for new items that Drucker always favored. He called it the reality test, and it was probably as close as he ever got to marketing research orthodoxy… We must gamble on the receptivity of whatever we want to introduce in the marketplace. Fortunately, this gamble could be substantially reduced in two ways. First, we could integrate new knowledge with one of the other sources of innovation or new product or service development we talk about in Chapter 9 as supply-side innovation. Of course, it is still a gamble, caution still has to be exercised, and what we do must be organized and purposeful. Even more favored to lower the risk in this gamble is ‘the test of reality.’ In other words, get something out in the market and see what happens.”

“[Marketing] encompasses the entire business. It is the whole business seen from the point of view of its final result, that is, from the customer’s point of view. Concern and responsibility for marketing must therefore permeate all areas of the enterprise.”

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