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Drucker on marketing: an interview with Peter Drucker

Jenny Darroch

Received: 10 July 2008 /Accepted: 15 July 2008 /Published online: 5 August 2008# Academy of Marketing Science 2008

Introduction

This interview was conducted long before the Special Issuewas conceived. In November 2003, I visited the DruckerSchool to be interviewed as part of the recruitment process.Peter was giving his last public address and I was fortunateenough to hear him speak. Peter was old, 95 in fact. Hearrived at the auditorium, sat on the stage in a large leatherchair, ate a donut, drank a glass of water and, whenfinished, allowed the audience to enter the room. I did notreally know what to expect and, to be honest, I was happyto simply soak up the moment. I have two distinctmemories of the occasion: (1) when Peter recalled historicalfacts, it was likely he was talking about people he had metand events he had witnessed, not just read about—after all,he had lived almost 100 years; and (2) Peter had atremendous ability to tell a story, comprising many parts,and always pulling the threads of his argument together todeliver a powerful conclusion.

My next meeting with Peter was soon after I joinedthe Drucker School in July 2004. My colleague, JoeMaciarello, offered to arrange a meeting with Peter. AsPeter was hard of hearing, Joe suggested I fax somequestions ahead of time. We met at the Drucker Institute onOctober 1, 2004.

What you are about to read is a transcript of thatinterview. The questions cover a range of issues, somerelate specifically to marketing ideas Drucker wrote aboutwhile other questions were motivated by my own researchor were developed in response to material I was reading atthe time. Had I anticipated the Special Issue back in 2004, Imight have asked different questions with the intention ofcomparing Drucker’s answers to those given by Kotler andLafley (see the interviews in this Issue). And, I might haveinterviewed Peter again in order to better develop some ofthe themes Peter covered. The benefits of hindsight! Wedecided to include the interview, however, because theanswers he gave are very Peter-like: provocative, interest-ing and to-the-point. We also believe it is the last interviewPeter gave on marketing. We hope you enjoy it.

You have always talked about the importanceof creating and serving customers through marketingand innovation processes. Realistically, do you thinkcompanies do both? Would you restate your positionon marketing and innovation differently today? Whyis that?

Would I restate my position on marketing and innovationdifferently today? No, I don’t think so. You say companiesdo both marketing and innovation. Most companies doneither. The great majority of businesses, all over the world,are inwardly focused, partly because they see the inwardpeople every day and partly because there is a dilemma ifyou do not take your product or your service seriously, youdo a poor job. You must believe.

J. of the Acad. Mark. Sci. (2009) 37:8–11DOI 10.1007/s11747-008-0111-3

J. Darroch (*)Peter F. Drucker and Masatoshi Ito GraduateSchool of Management, Claremont Graduate University,1021 N. Dartmouth Ave,Claremont, CA 91711, USAe-mail: jenny.darroch@cgu.edu

Do you see any differences between non-profitand for-profit organizations regarding marketingand innovation?

The greatest marketing challenges are among non-profitinstitutions, because they do not know who their customersare. Or they find it very hard to identify their customers.What is the most successful institution of the 20th century?The American College. Easy. In the year 1900 there were250,000 college students and now there are 15 million,nobody has grown like this.

Who are their customers? In a business, you can alwayssay in the end our customers are the ones who pay us. Thatis a dangerous thing to say but it is a safe first position.Who are the customers of my most difficult charity patient,the American Medical Association? It has been my charityclient for the last 30 years. Who are their customers—physicians? Yes, the physicians pay their dues but who aretheir customers? What are the results? So, non-profit is a lotmore difficult.

Let me give you an example. A very large part of mypractice for the last 25 years has been churches. They havedone exceedingly well if you look at attendance and money.But there are almost no churchmen today who areprominent national figures. If you go back 50 years ago,the most prominent non-governmental figure in Americawas the Cardinal Archbishop of New York, Spellman. Hedied in 1967, I believe. But there is not one, or very fewchurchmen today on the American national scene.

If you look at the churches from the point of view of thecongregation, they have been a phenomenal success, andare a uniquely American success. In Europe, churchgoinghas come down. In this country it has been going up. Alarger proportion of the population now goes regularly tochurch than 50 years ago. And an even larger growth hasbeen in the fundamentalist side.

So, what’s the bottom line for non-profits? How do youmeasure a non-profit? What is meaningful? But, you begineven more in a non-profit with marketing for a simplereason: nobody in business would say you are in business todo good, you are in business to make money. The non-profitsbelieve in their cause and the less successful they are themore they think they are needed. Non-profits are afraid ofbeing successful.

Do you believe organizations should innovate by stayingtrue to existing core products and customer groupsor by diversifying in order to generate new streamsof revenue? Why is that?

It depends on the organization. Universities, for instance,need to attract non-traditional groups today partly because

there is no more growth from the traditional group. Thedemographics are against you pretty heavily with thetraditional group but also because increasingly the futureis continuous learning and continuous learning begins atage 45. Then you take a course or two but at age 45. That iswhen people, middle executives, go back to school. And so,universities will have to attract non-traditional groups.

On the other hand, when you look at banks, there isnobody in this country who has not been fully monetized.There are no additional customers. You can only take themaway from each other. So, you can only grow by addingnew services or new products.

When you look at the traditional supermarket, it can onlytake customers away from another supermarket. But youknow, in this area, about five or 6 years ago one of the bigsupermarket chains began to add flowers. They made an80% profit margin. Flowers are unbelievably profitable.But, if you can’t sell the flowers today, they are gone.

Stephen Brown (1999)1 recently compared TheodoreLevitt and Morris Holbrook. According to Brown,Levitt contends that the customer is everything whereHolbrook argues that everything is consumption. Whatdo you think of this comparison?

I don’t know who Stephen Brown is and I don’t know whoMorris Holbrook is, or rather I know but I have never paidmuch attention. Look ...I don’t like any absolutes.

A supermarket needs to focus on the customer andbankers need to focus on services. In this country, whereeverybody is basically a customer of bankers, you can onlytake them away from each other. The gap between theinterest rates banks pay on deposits and the interest ratescustomers pay on loans is barely enough to coveradministrative expenses unless the loan is very big. Andso, the banks are not pushing for new customers, they arepushing for rapid turnover of their deposits. That makes nosense for a supermarket, in that sense.

And look at a bookstore, basically, a bookstore losesmoney on fast selling books because the markup is verylow. It makes money on slow moving books where themarkup is 70%, enormous, but it has to push the fast sellingbooks because they bring the customer in and ... you needto accomplish that balance when running a bookstore.Basically, there is no real answer.

Now Levitt is absolutely right in pushing, and don’t forgetit’s a long time back, in pushing for customer focus. And, I

1 Brown, Stephen. 1999. “Marketing and literature: The anxiety ofacademic influence.” Journal of Marketing, 63 (1) 1–15.

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said it first and Ted [Levitt] picked it up. The customerdefines the business. But, Holbrook, consumption, yes,consumption defines the economy but it doesn’t define theprovider. Okay?

In 2004, the American Marketing Association came upwith a new definition of marketing:

Marketing is an organizational function and a setof processes for creating, communicating anddelivering value to customers and for managingcustomer relationships in ways that benefit theorganization and its stakeholders.

In your opinion, does this definition capture the essenceof marketing? Why is that?

It’s much too long; a definition that has more than 5 words.And by the way, this was written by a psychologyprofessor, judging by the language. Do you understand it?I don’t. I don’t understand it.

How would you define marketing?

My definition of marketing is that “marketing is the businessas seen from the customer”. Customers couldn’t care less whatgoes on inside an organization. In fact, 99% of institutionaladvertising is not focused on the customers but on the inside.

One of the savviest marketing executives I know is JohnBachman of Edward Jones who has built Edward Jones as amarketing organization, not as a financial organization. AndBachman, looks at an ad for Edward Jones as directed at the15,000 people who work for Edward Jones, not at thecustomers, basically. He says, bluntly, that nobody readsads except our own employees. When they change acomma in an ad and they get 5,000 letters from employees.They read and use it. The Edward Jones ad is on Page 2 ofthe Wall Street Journal’s money section; you open that pageand on the left hand column is the ad from Edward Jones.Who reads it? Every Edward Jones employee reads the adevery morning even though it is the same ad day after day.They are the audience. And advertising agencies don’t liketo hear that, they would lose their mystique.

The most sophisticated advertiser I ever knew was LeoBurnett. Do you know whom he tested his ads on? Only onthe wives of the executives. They are the only ones whohave judgment and they were devastating. I once sat in onone those sessions with about nine ladies who are marriedto executives of the company for whom he created the ads.And one said, I will never forget it, when an ad came up,“that’s why I am divorcing my husband”.

Do you believe there is a disconnection betweenbusinesses and their customers? Why is that?

Adisconnection between businesses and their customers—no.First, I hope you don’t mind me saying but you make themistake to believe that businesses are the American dominantinstitution. That was true 100 years ago. Businesses have notgrown more than the economy.

The fastest growing institutions are universities and hospi-tals and non-profit organizations. The Girl Scouts of the USA,were founded in 1906, as an imitation of the English. Andwhenone of our friends, Francis Hesselbein, retired as ChiefExecutive Officer of the Girl Scouts in 1991, they had 9million members, the world’s largest women’s organization byfar. Nothing has grown like that. And if you look, the same istrue of any number of non-profits and especially of associa-tions. And, there has been no disconnection between theorganization and the customers.

On the contrary, look at the American Medical Associ-ation, it is very successful and is becoming an incrediblypowerful organization. They make sure that every well-known physician in the community is active in theAmerican Medical Association. The same is true of theBar Association for lawyers. And when you look atrelationships between the non-profit institutions and theircustomers, they have become closer whether that is lawyersor doctors or what have you.

When a consumer purchases a product, he or sheis more interested in the brand and what the brandrepresents. In most cases, consumers have no interestin or knowledge of what goes on inside an organization.Do you think managers place enough emphasison the role of brands within organizations?

Take Proctor and Gamble, for one simple reason, that Ihave known them exceedingly well for 40 years. When thepredecessor succeeded the CEO who had been there for25 years, he realized that everybody knew Tide and otherbrands but no one had heard of Proctor and Gamble, andthat was a very major drawback in its strategy. He thoughtthat the stock price was very low because people knew Tideand Ivory soap but nobody knew who made Ivory soap—Istill don’t know whether it is Proctor and Gamble. And heset about to make Proctor and Gamble known and he wasexceedingly successful. And the stock price, as a result,went up and so he could make acquisitions, which havemade P and G exceedingly profitable. But that was acomplete reversal of strategy. Previously, the view was thatnobody wants to know a corporation, people want to buy abrand, well, that worked beautifully up to a point but it hadto be reversed and so you have to look at the situation.

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Business, you will still hear quite a bit of argumentfrom the advertising community, that businesses should beunknown; you want brands and profits to be known. Onereason for this is that if people buy a company, rather thana brand, you are stuck with it and can’t resell any brands.And the advertising community, if you look at themclosely, there is a fairly big debate whether you shouldpush the product or the company. All our studies showthere is no customer loyalty to a company. None, thecustomer loyalty, if there is such a thing, and between youand me, there isn’t, but, if there is such a thing, it is to abrand.

Businesses do not necessarily want to have a connectionto their customers. They want the product to have one. Letme say, I consider institutional advertising is insidedirected. Nobody outside has the slightest interest whatgoes on inside GM.

What do you believe are the main marketing issuesfacing organizations today?

The shrinking of the mass market, the mass market of the1950s is shrinking. Highly specialized markets areemerging.

What do you believe are the main issues facingconsumers today?

There is far too much choice and not enough difference andsecondly, the choice between price and service—there ain’tno service that a 5% price cut can’t overcome and that islargely true.

Thank you.

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