Marketing: The customer is the product: Malcolm McDonald says many British companies suffer from an accounting mentality

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The Independent Online
THERE is no such thing as a market - only people with money. Any commercial organisation must offer those people something that will make them want to buy its goods or services rather then someone else's.

To persuade people to part with their money, a company must understand their needs in depth, and develop specific offers that have an advantage over those of its competitors. This implies a continuing dialogue with groups of customers.

These offers are not just physical products, but the full relationship between supplier and customer; they include the supplier's reputation, brands, service levels and the like.

Seen like this, Total Quality can be defined as satisfying customer needs continuously. But such an ideal is impossible unless directors and senior managers understand the central role of customers and create a climate in which professional marketing can take place.

How financial husbandry gets in the way:

In the easy environments of the 1960s and 1970s, characterised by growth and the easy marketability of products and services, production orientation was possible largely because demand seemed limitless. During the 1980s, when demand was not quite as buoyant, financial husbandry began its ascendancy. Indeed, it seemed to work for a while, and profits continued to rise as costs were cut and productivity increased. Knighthoods abounded. The tragedy today for Great Britain Ltd is that this short-term, accounting mentality persists, often with devastating results.

A couple of examples will suffice: Margin management (return on sales) is still the idol worshipped by too many directors. Every product, they insist, must make a mininum prescribed margin of profit over the costs incurred in producing it - otherwise the price must be raised or it must be taken off the market. The trouble with this nostrum is that it takes no account of the number of times any one product is turned over, with the result that low-margin, high-turnover items are likely to be sacrificed.

The problem, of course, is that the overheads tend to remain, or are closed down, as the organisation drives itself upwards towards fewer, more profitable products. The consequence of this is that competitive organisations with a broader, more balanced portfolio are often able to out-focus and undercut the now smaller British company with disastrous results for Britain. No one seems to have learned the lesson from the demise of Britain's motorcycle industry and others.

This mistake is compounded by what accountants actually measure when they define profit. A little thought will confirm that it is customers, not products or services, that make profit - as most of the costs are incurred after the product leaves the 'factory'. One customer worth, say, pounds 1m, might want daily, just-in-time, store-by-store delivery and daily calls from sales representatives, and may take 100 days to pay its account. Another customer with a similar turnover might want one central warehouse drop, and no sales calls, and may pay within 40 days. One does not have to be a genius to work out which is the more profitable account. Yet none of this is taken into account by those who measure only product profitability.

Other factors that get in the way of customer orientation.

Another problem is the depth of ignorance about the definition of marketing. This can be illustrated by a remark made by a managing director during a public seminar: 'There's no time for marketing in my company until sales improve.'

Just as bad, many people in the UK still believe you have only to produce a fine product for the world to beat a path to your door. It won't, unless other elements of the offer are right.

Other companies resort to advertising, believing it is a quick fix for lousy performance. For instance, the vast sums spent on advertising by banks is an insult, given their behaviour towards loyal and long-suffering customers. And, finally, there is the 'have a nice day' school that thinks being nice to customers will overcome everything else. It won't.

The truth is that marketing is an attitude of mind manifested in a management process that uses all the resources of an organisation to satisfy the needs of customers in order to achieve the objectives of both parties.

British corporate cultures are, in the main, hostile to the marketing ethic. Directors who got their jobs as a result of strategies that were appropriate in the 1960s, 1970s and 1980s do not know how to respond to increased competition and static or declining markets. Gut reaction is to resort to old strategies.

Growth, however, is dependent upon customers wanting to buy from us, rather than from our competitors. Mickey Mouse can cut costs. But building for growth takes real intellect, a strategic rather than a tactical orientation, and a totally new attitude of mind. It's not enough to recruit a few professional marketers. We need some, of course, but without massive cultural and organisational change that is driven from the top, functional marketers will remain eunuchs.

Malcolm McDonald, former marketing director of Canada Dry, is professor of marketing at Cranfield School of Management.

(Photograph omitted)