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2010-08-29 BACK
Priorities and the Marketing Concept
Priorities and the Marketing Concept This article originally appeared in the Texarkana Gazette on August 29, 2010 Dr. Robert S. Owen, Professor of Marketing, Texas A&M-Texarkana, College of Business Students in Los Angeles were greeted this week with a new $578 million school. It's the most expensive school in the country, featuring an auditorium modeled after a nightclub and a property that Donald Trump had fought to get. This all came at a cost of about $137,000 per student seat. While the school was being built, the school district's own report predicted that only 52% of 2005 ninth graders would graduate in 2009. Last March, in an attempt to make up a $640 million shortfall, the school district voted to send layoff notices to about 2300 teachers and about 570 librarians, counselors, and other support staff. What do you think are the school system's fundamental obligations to society, what should have been its core goals, and where should it have been investing the most money in order to reach these? For the past two months, we've been reading about the accidental oil spill by the BP Deepwater Horizon in the Gulf of Mexico. Many believe that cost-saving measures were a factor in this historic man-made disaster, and internal BP documents are said to contain a decade of warnings that the company was risking a major accident because of its cost-saving measures. BP estimates that the spill has caused it to leak 4 million barrels of oil and that it will be fined $1,100 per barrel, possibly $4,300 per barrel if gross negligence is found. According to some estimates, the company could also face perhaps $40 billion in future cleanup and litigation costs, having already spent more than $6 billion in costs associated with the spill. With the luxury of hindsight, do you think that cost cutting and higher profits were worth the long run risks? As a marketing researcher and professor, I often have a perspective that is different from my business school colleagues in other disciplines such as accounting and economics. A marketing perspective is that profit is not a simple function of costs and revenues; we look at that as only a short term perspective. Our perspective is that profits, at least over the long run, follow an organization's ability to best meet the needs of all of its stakeholders. In the case of BP, cutting costs did indeed temporarily boost profits and it temporarily met the needs of shareholders. But at some point, that focus on cost cutting began to result in a loss customer confidence, final consumer confidence, lawmaker confidence, industry confidence, supplier confidence, and societal confidence. And all of that ultimately results in the loss of shareholder confidence. There is a term for this idea: the Marketing Concept. It's found within the first few chapters of any mainstream marketing principles textbook. The idea is that if an organization ignores its long term obligations to stakeholders, if it focuses merely on costs or profits in the short run, then it is likely to experience problems in the long run. Some CEOs can cut costs to boost profits in the short run, being rewarded with huge bonuses for doing so. They divest of one of the largest costs - the people who produce the organization's core product - and invest the "savings" into additional management and staff support functions and physical assets. But when those short-term CEOs exit, they often leave behind an organization with a tarnished reputation for product quality, declining market share, and a workforce that is decimated with regard to competitive experience and wisdom. When somebody at General Motors cut labor costs in the 1980s, product quality declined, market share of foreign competition grew, and two decades later, GM has deleted once-profitable brands such as Oldsmobile and Pontiac and has relied on taxpayers to bail it out of a financial mess. According to the Marketing Concept, if an organization instead focuses on meeting the needs and best interests of the all of the constituents that keep it in business – final consumers, employees, investors, suppliers, public policy makers, society – it is likely to be operating at its most competitive level, its best cost efficiency, and its best profitability. This isn't to say that cost is not an element of profitability in either good times or bad times. But I do mean to say that it is only one element, and willy-nilly cutting the highest costs often leads to bad long term effects as does willy-nilly adding expenses in good economic times. During difficult or good economic times, remember that your competitors are in the same economic boat as you, and those who do the best job of meeting the needs of all stakeholders will be the ones who ultimately win in either case. Robert Owen, Ph.D., is Associate Professor of Marketing in the College of Business at Texas A&M University-Texarkana.
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Priorities and the Marketing Concept
Priorities and the Marketing Concept This article originally appeared in the Texarkana Gazette on August 29, 2010 Dr. Robert S. Owen, Professor of Marketing, Texas A&M-Texarkana, College of Business Students in Los Angeles were greeted this week with a new $578 million school. It's the most expensive school in the country, featuring an auditorium modeled after a nightclub and a property that Donald Trump had fought to get. This all came at a cost of about $137,000 per student seat. While the school was being built, the school district's own report predicted that only 52% of 2005 ninth graders would graduate in 2009. Last March, in an attempt to make up a $640 million shortfall, the school district voted to send layoff notices to about 2300 teachers and about 570 librarians, counselors, and other support staff. What do you think are the school system's fundamental obligations to society, what should have been its core goals, and where should it have been investing the most money in order to reach these? For the past two months, we've been reading about the accidental oil spill by the BP Deepwater Horizon in the Gulf of Mexico. Many believe that cost-saving measures were a factor in this historic man-made disaster, and internal BP documents are said to contain a decade of warnings that the company was risking a major accident because of its cost-saving measures. BP estimates that the spill has caused it to leak 4 million barrels of oil and that it will be fined $1,100 per barrel, possibly $4,300 per barrel if gross negligence is found. According to some estimates, the company could also face perhaps $40 billion in future cleanup and litigation costs, having already spent more than $6 billion in costs associated with the spill. With the luxury of hindsight, do you think that cost cutting and higher profits were worth the long run risks? As a marketing researcher and professor, I often have a perspective that is different from my business school colleagues in other disciplines such as accounting and economics. A marketing perspective is that profit is not a simple function of costs and revenues; we look at that as only a short term perspective. Our perspective is that profits, at least over the long run, follow an organization's ability to best meet the needs of all of its stakeholders. In the case of BP, cutting costs did indeed temporarily boost profits and it temporarily met the needs of shareholders. But at some point, that focus on cost cutting began to result in a loss customer confidence, final consumer confidence, lawmaker confidence, industry confidence, supplier confidence, and societal confidence. And all of that ultimately results in the loss of shareholder confidence. There is a term for this idea: the Marketing Concept. It's found within the first few chapters of any mainstream marketing principles textbook. The idea is that if an organization ignores its long term obligations to stakeholders, if it focuses merely on costs or profits in the short run, then it is likely to experience problems in the long run. Some CEOs can cut costs to boost profits in the short run, being rewarded with huge bonuses for doing so. They divest of one of the largest costs - the people who produce the organization's core product - and invest the "savings" into additional management and staff support functions and physical assets. But when those short-term CEOs exit, they often leave behind an organization with a tarnished reputation for product quality, declining market share, and a workforce that is decimated with regard to competitive experience and wisdom. When somebody at General Motors cut labor costs in the 1980s, product quality declined, market share of foreign competition grew, and two decades later, GM has deleted once-profitable brands such as Oldsmobile and Pontiac and has relied on taxpayers to bail it out of a financial mess. According to the Marketing Concept, if an organization instead focuses on meeting the needs and best interests of the all of the constituents that keep it in business – final consumers, employees, investors, suppliers, public policy makers, society – it is likely to be operating at its most competitive level, its best cost efficiency, and its best profitability. This isn't to say that cost is not an element of profitability in either good times or bad times. But I do mean to say that it is only one element, and willy-nilly cutting the highest costs often leads to bad long term effects as does willy-nilly adding expenses in good economic times. During difficult or good economic times, remember that your competitors are in the same economic boat as you, and those who do the best job of meeting the needs of all stakeholders will be the ones who ultimately win in either case. Robert Owen, Ph.D., is Associate Professor of Marketing in the College of Business at Texas A&M University-Texarkana.
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