“The purpose of a business is to create and retain a customer.”
I love that definition of the purpose of the business. It originally comes from Peter Drucker, and I’ve quoted it multiple times in this newsletter. Let’s take inventory:
“The true purpose of a business, Peter Drucker said, is to create and keep customers.” (“Customer Creation”, May 7, 2020)
“Peter Drucker reminds us that the purpose of a business is to create and keep a customer.” (“Reinforcing Feedback Loops”, April 22, 2021)
“The purpose of a business, according to Peter Drucker, is to create and keep a customer.” (“Physical to Digital”, December 9, 2021)
As it turns out, I’ve gotten my attribution wrong, so I’d like to correct the record. Plus, I’ll share a third purpose I’ve learned that makes a worthy addition to creating and retaining customers.
I’m take a course this semester on Marketing & Consumer Behavior and we read part of a paper called Framework for Marketing Strategy Formation. Right at the top of the paper, it begins:
In the early 1970s, Peter Drucker, the renowned management scholar, noted that “the purpose of business is to create a customer.”1 A decade later, Theodore Levitt, a Harvard Business School marketing professor, made an important addition in his book The Marketing Imagination: “The purpose of a business is to create and keep a customer” (emphasis added).2 Levitt also noted that achieving those goals and, implicitly, the financial goals of the firm, requires “differentiating what you do and how you operate.”3
Huh. While I knew that “create” originated from Drucker, I has assumed “retain” did as well. I’ve retained the original sources in the footnotes below. It’s good to know where these ideas come from.
Formal education
As a brief aside, one of the things I appreciate about my MBA program at Georgia Tech is that I really get to study business. I’m able to spend considerable time with the concepts from an academic standpoint. This presents so many opportunities not only to learn completely new concepts (like corporate finance), but to clarify and correct concepts with which I thought I was already familiar (like marketing and customer experience). The experience is both refreshing and humbling.
Active brand ambassadors
Part of what I love about the simple definition of a purpose of a business from Drucker (and Levitt) is that it’s so simple. Create and retain. That’s arguably the entire customer journey. The paragraph from Framework for Marketing Strategy Formation continues:
In a highly connected world where a social media platform can average more than two billion users a month4, it is useful in many product categories to add a third purpose: to make customers active ambassadors for your brand.
The addition from Dolan “to make customers active ambassadors for your brand” turns the journey into a virtuous feedback loop that then goes on to create new customers. The retention phase for one customer feeds into the creation phase for another customer.
In “Reinforcing Feedback Loops”, we explored this concept as part of a system:
I said at the time (emphasis added):
Yes, yes, yes, there are reinforcing feedback loops on the retention side of the business as well. First of all, you don’t often hear of “Retention” teams, do you? The hot name at start-ups these days is Customer Experience, which gives us some good signal as to one of the reinforcing feedback loops on the retention side of the business. If a paying customer has a remarkable experience, they’re more likely to tell other people in their network, some of whom may be prospective customers. This creates a reinforcing feedback loop that increases the rate of flow of new customers coming into the business.
There you have it, active ambassadors for your brand!
Create customers, retain customers, and make those customers active ambassadors for your brand. That’s the entire customer journey.
As noted in the original: Peter F. Drucker, Management: Tasks, Responsibilities, Practices (New York: Harper & Row, 1973), p. 61
As noted in the original: Theodore M. Levitt, The Marketing Imagination: New, Expanded Edition (New York: Free Press, 1986), p. 5.
As noted in the original: Theodore M. Levitt, The Marketing Imagination: New, Expanded Edition (New York: Free Press, 1986), p. 128.
As noted in the original: Facebook, 2018 Annual Report, p. 37, https://s21.q4cdn.com/399680738/files/doc_financials/annual_reports/2018-Annual-Report.pdf.
When I was in my 20s I read Seth Godin's book Purple Cow: Transform Your Business By Being Remarkable (https://www.thriftbooks.com/w/purple-cow-transform-your-business-by-being-remarkable_seth-godin/247075/item/5156410/). Inspired by what I read, my keen sense of organization, my sharp communication skills, and my love of music I started a booking agency called Remarkable Booking. It was a near-thankless struggle but I got to work with some dynamic people and learn a lot about myself. I hadn't thought about my love of the idea of remarkable in quite a while.
Thanks for the reminder, friend!