When management consultant and bestselling author Peter Drucker wrote his famous words: “Because the purpose of business is to create a customer, [..]” he was right – given the prevailing business model in the fifties and sixties: product centricity. Later, Drucker added the words ‘and to keep’ to his legacy.
I truly admire how Drucker elaborated on these words: “Regardless of whether your business is a for-profit or not-for-profit, we must understand that while profit is essential to support innovation and marketing actions, profit maximization is “not only not the primary purpose of a business,” but it could be detrimental to society, and dangerous to the organization’s health.”
But let’s not get astray.
The question I have been asking myself is: Where does Drucker’s believe on the purpose of business, ‘to create (and to keep) a customer’, come from?
We have to go back to when Drucker first published his book “The Practice of Management” (1954) to understand the context. Mass-production and advertising were the common practice of business. Advertising was used to generate customer demand and grow market share – in order to achieve the economic benefits of large-scale production. The objective of product innovation was to extend the product life cycle for as long as profitable. Undeniably the purpose of business was ‘to create a customer’.
But while ‘to create a customer’ was the domain of marketing, his later addition ‘and to keep [a customer]’ was all about the perceived value (the value ascribed by the customer to the brand, following the experience with the product and/or the service). Something marketing had (and still has) very little to say over, due to the way marketing-driven product-centric organizations are structured (siloed).
Generating customer demand wasn’t limited to the demand the product was designed to meet. Marketers took far more pride in creating the need (ie. desire) that the product would than meet. This has led to decades of mass consumption. A habit most of us still can’t seem to escape from.
While mass production and mass consumption yielded high returns on capital, some of the side effects are gruesome: unbridled growth is unsustainable. Gandhi made it brilliantly clear: “Earth provides enough to satisfy every man’s needs, but not every man’s greed”.
Co-founder John Battelle of Wired Magazine wrote: “We’re on the brink of an entirely new approach to business, one built on shared principles of integrity, transparency, and sustainability. [..] business, as Douglas Rushkoff puts it, is our core operating system. [..] we’ve got to consolidate what we’ve learned from the tech revolution and apply it to building a new kind of business culture.”
Kate Raworth, author of “Doughnut Economics“, wrote that we have to consider: “.. meeting the human rights of every person within the means of our life-giving planet.”
Unbridled product-centric growth isn’t sustainable. Growth without health isn’t sustainable. We need a healthy planet, as well as a healthy economy, healthy businesses, and healthy customers.
So, now what?
In Juli 1993 Don Peppers and Martha Rogers Ph.D. published a book called “The One to One Future“. The authors believed that the objective of marketing should be to find the twenty percent of their loyal customer base and to discover what those customers want.
As Rogers would later admit, the concept of one to one marketing was kind of a utopia in 1993. There were no systems available capable of doing mass customization. Nevertheless, the book did give rise to a radical new business model, which would later be named: customer centricity.
In 2012 Prof. Peter Fader from Wharton University published the book “Customer Centricity: Focus on the Right Customers for Strategic Advantage“, in which he explained that customer centricity was primarily about focusing on the most valuable customers, rather than the most loyal, as Peppers c.s. suggested in 1993.
Both authors agree that sales-driven customer centricity is about fulfilling the demand of customers, rather than generating demand. They also agree on the focus of customer differentiation, rather than product differentiation.
At first sight, they seem to disagree on the objectives. While Rogers c.s. focus on data, cost-effective customer interaction and mass customization to increase customer loyalty, Fader suggests to predict the individual value of each customer and focus on those that yield the most value.
But in their book “Return on Customer” Don Peppers and Martha Rogers fully align with Peter Fader – or is it the other way around? It is the first book (2005) to focus on how firms create value, not just by driving current profits, but by preserving and increasing customer lifetime value.
A third perspective, that of Jonathan Byrnes, senior lecturer at MIT, can be found in his book “Islands of Profits in a Sea of Red Ink“. He confirms that a well-performed execution of a combined customer-centric approach is worthwhile. His research shows that in general, a mere 9 percent of customers yield to 142% of the profits, while 62 percent account for 51 percent of its losses of a business.
If a business can thrive by extending the customer lifecycle, offering more value to that customer over the lifetime of the relationship, thus gaining a larger share in their wallet at a significantly higher profit, .. then customer centricity is a step forward.
But only just. Because the business model is still linear by design. In another blog, I’ll discuss two far more sustainable, circular business models: service-driven resource centricity and platform-driven network centricity.
There is still a lot of confusion with regards to customer centricity and customer experience, that I feel I need to address. This here seems like a good place, I hope you agree.
Let me first reiterate that customer centricity is a business model. It isn’t about whether or not your customer lives ‘in the center’ of your organization – they don’t. It is a business strategy with strong implications on how to build your organization, what culture to nourish, what information to gather, where and how to get it and what to measure. And most importantly: it is a complementary business model: it cannot sustain without a secondary business model.
Customer experience (CX) on the other hand is a forthcoming of the execution of a strategy. It is often portrayed as the total of all experiences with a brand, across all silos. CX is all about creating meaningful and remarkable moments in the customer journey, that are both memorable and shareable.
Customer experience management (CX) can coexist with any of the four given business model. Whatever best suits your objectives:
A product-centric brand (1) could offer a memorable moment to all of its customers, while a customer-centric brand (2) would only offer such a moment to a select group of its customers.
Although I haven’t gone into details on the other two business models:
A service-centric brand (3) could charge more for a more memorable experience, while a network-centric brand (4) could focus their efforts on their most influential customers.
Purpose Relative to the Business Model
Based on what we discussed here before we can now conclude that the purpose of a product-centric business (1) is ‘to create (and keep) a customer’. Furthermore, that the purpose of a customer-centric business (2) is ‘to develop a customer’, while the purpose of a service-centric business (3) is ‘to serve a customer’. And finally, the purpose of a network-centric business (4) is ‘to foster a customer’.
Did you notice that none of these definitions mention the product? Yet, most advertising today is still very much about products.
So, in essence, it is about choosing the kind of differentiation that allows your brand to thrive: either on competitive advantages (1), on customer lifetime value (2), on customer experience (2) or on influence (4). It’s up to you.
As long as it helps your brand to thrive, to grow in health. Cheers!
This blog is derived from the Customer Dynamics SONAR™ – a 360-degree, multi-tier, cross-silo perspective on the dynamics, the Customer Dynamics™, that forge strong customer bonds, drive value and create lasting differentiation.
Edwin Korver (52) is a management consultant with a 360-degree view on business. After a career in IT, working for companies like SCSK Corporation, Dow Jones, CMG Finance and The Internet Plaza, he founded his first internet company in 1998, serving both SMB and large companies. As an interim manager, he enjoyed sharing his knowledge and broad insights into the management team of start-ups.