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The Purpose of a Business

As follow-on to my previous post (Welcome) I thought it might be helpful to provide some context on the quote from Peter Drucker about marketing being one of the two, and only two, basic functions of a business enterprise (the other being innovation).

The quote appears in Drucker's "The Practice of Management" written in 1954. The book is about management as a discipline; it is not about marketing. Peter Drucker was a writer, professor, and management consultant; he was not a marketing guy. As such his thoughts on the role and importance of marketing carry no bias, in my opinion.

The quote appears in chapter 5 "What is a Business?" and I think it is worth reading the section leading up to the quote. Here it is verbatim:

The Purpose of a Business

If we want to know what a business is we have to start with its purpose. And its purpose must lie outside of the business itself. In fact, it must lie in society since a business enterprise is an organ of society. There is only one valid definition of business purpose: to create a customer.

Markets are not created by God, nature or economic forces but by businessmen. The want they satisfy may have been felt by the customer before he was offered the means of satisfying it. It may indeed, like the want for food in a famine, have dominated the customer's life and filled all his waking moments. But it was a theoretical want before; only when the action of businessmen makes it effective demand is there a customer, a market. It may have been an unfelt want. There may have been no want at all until business action created it - by advertising, by salesmanship, or by inventing something new. In every case it is business action that creates the customer.

It is the customer who determines what a business is. For it is the customer, and he alone, who through being willing to pay for a good or for a service, converts economic resources into wealth, things into goods. What the business thinks it produces is not of first importance - especially not to the future of the business and to its success. What the customer thinks he is buying, what he considers "value," is decisive - it determines what a business is, what it produces and whether it will prosper.

The customer is the foundation of a business and keeps it in existence. He alone gives employment. And it is to supply the consumer that society entrusts wealth-producing resources to the business enterprise.

It is this creating a customer, this creating a market that Drucker attributes to marketing. I would argue that once marketing is viewed this way the tremendous value of marketing is clear.

In my next post I will provide a bit more context for the quote and talk about how it applies to today's business.

— R. Davis

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