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Creating Value for Customers

Remember the McLean Deluxe? You probably don’t because it was not around very long.  McDonald’s had tried many times in the past to introduce healthier items to their food menu and every time they met with failure.

Reacting to change and understanding customer needs

Actually, in early 2003 McDonald’s suffered its first ever quarterly loss. Same-store sales have been declining for 12 straight months and the ideas McDonald’s have been trying to turn things around they just weren’t working.

Many people thought the solution for McDonald’s was to start offering healthier foods. People are getting more health conscious after all. The book Fast Food Nation had been released just a few years before and Supersize Me was just around the corner. Eating healthier and railing against unhealthy fast foods was part of the cultural zeitgeist.

So McDonald’s should introduce some healthier foods. But how can it pull something like that off?!  What would you do if McDonald’s hired you to introduce a healthier food item to their menu one that people would actually order, one that would actually improve sales what would you develop?

If McDonald’s had any hope of developing a healthier food item that people would actually buy it had to start by figuring out to whom it will be selling that particular item and what does that particular group of people want, and this is where marketing comes in. The biggest mistake people make in thinking about marketing is to define it too narrowly.

Marketing is about putting customers first

Many firms treat marketing is something that is done after a product been developed and simply needs to be sold. They essentially treat marketing as just advertising and just sales. But, if that’s how you your are using marketing you are fighting with both hands tied behind your back.

According to this view McDonald’s should go into their food labs use the latest in fast food science, whip up something healthy and then they should contact the marketing department, and their job would just be to push that newly developed food on the customers, and design a cute commercial, maybe something with dancing vegetables.

What marketing does

Marketing’s job is to create value for customers not just to communicate value that’s already been created and marketing does this by understanding who the customer is, what they value and how they can deliver that value better than the competition.

In this way marketing is the most important discipline in business, but you don’t have to take my word for it. The management guru Peter Drucker once famously said that business has only two functions: marketing and innovation.

So there you go that was Peter Drucker and to his wisdom I would add that to the extent that many of the most important business innovations are actually customer facing new ways of providing even more value to customers marketing is even an important part of innovation to.

A definition for marketing

This definition of marketing as the function of a business that creates value it’s not accepted by everyone even within business schools. Some say that value is created by innovations which happened in the lab. Value is created by scientists and engineers and value is, most definitely, not created by marketers.

The disagreement between economists is rooted in a difference of opinion over what constitutes value from a business perspective.  Some people view value as something intrinsic to the offering. So if you take an offering and add a feature, give it up faster processor, make it more fuel-efficient or more powerful then you are increasing the value of that offering. Which makes sense.

Yet, this is not correct! From a business perspective adding some new features or improving some attributes will only increase the value of the offering if some group of customers decide that they value that improvement.  In fact there are settings in which removing features can actually make customers like something more.

A customer centric approach

For businesses, an offering’s value should be determined only from the perspective of the customers who are willing to buy it. And, if we use this customer centric definition of value then we understand that innovations are not developed in a lab and if they are there not intrinsically valuable.

Those innovations need to be matched with a set of customers who actually appreciate them and those innovations need to then be explains to customers in a way that they will understand them, and then they need to be priced in such a way that those customers will be willing to pay for them and then sold in locations where the customers are willing to buy them, and all of those decisions are functions of marketing.

In other words marketing is what turns something with the potential for creating value in the something that actually creates value for the customer and for the company selling.