What drives your business: finance or marketing?

Sales Pitch

Herman Alvaranga

Wednesday, March 21, 2018

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Today we pay tribute to Herman Alvaranga, who died last week, by reprinting his first column for the Business Observer , first published on February 3, 2016.

Long ago Peter Drucker, the father of business consulting, made a very profound observation that many thought was lost in the sands of time: “Because the purpose of business is to create a customer, the business enterprise has two — and only two — basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.”

Until just a few years ago, when top management was surveyed their priorities, in order, tended to be finance, sales, production, and management. Why? Theories abound, but here is a current example from the mighty Apple Inc.

Last week Apple announced the results for its fiscal 2016 first quarter ended December 26, 2015. The company posted record quarterly revenue of US$75.9 billion and record quarterly net income of US$18.4 billion, or US$3.28 per diluted share. These results compare to revenue of US$74.6 billion and net income of US$18 billion, or US$3.06 per diluted share, in the year-ago quarter. Gross margin was 40.1 per cent compared to 39.9 per cent in the year-ago quarter. International sales accounted for 66 per cent of the quarter's revenue. But what was the source of its gross revenues?

“Our team delivered Apple's biggest quarter ever, thanks to the world's most innovative products and all-time record sales of iPhone, Apple Watch and Apple TV,” said Tim Cook, Apple's CEO.

So what is the source of Apple's success? Finance? Finance is important, but it does not create the gross revenues that make up the first line of the profit and loss account. Neither is it production or management. And it is not merely the work of your outstanding sales force — it is marketing. Which raises the question, “What is marketing, and what is its purpose?”

Way back in 1964 E Jerome McCarthy introduced the four Ps of marketing, consisting of a mix of product, price, place and promotion. But with most practising marketers being unschooled in the discipline, too many became “1P marketers” who mostly developed promotional campaigns and were mainly implementers instead of being strategy makers.

But how times have changed! Kerin and Peterson (2013) begin their seminal work, Strategic Marketing Problems — Cases and Comments with the statement, “The primary purpose of marketing is to create long-term and mutually beneficial relationships between an entity and its publics (individuals and organisations) with which it interacts.” They add, “The transition of the marketing manager from being an implementer to being a maker of organisation strategy has resulted in the position of chief marketing officer (CMO) in most Fortune 1000 companies. Although responsibilities may vary across companies, the common expectation is that the CMO will assume a leadership role in defining the mission of the business; analysing environmental, competitive, and business situations; developing business objectives and goals; and defining customer value propositions and the marketing strategies that deliver on these value propositions.”

Undoubtedly, Tim Cook was alluding to the power of Apple's marketing and their ability to create exceptional products, offer them at a price that yielded 40.1 per cent gross margin, promote the iPhone 6 in particular in such a manner that people were pre-ordering them, and making them available to target markets across the globe. That's marketing in practice — the 4Ps! And then extending the mix to include the softer Ps of people, processes and physical evidence. Physical evidence, you ask? Yes? Just step into a Mac store!

But shrewd marketers instantly agree with Sergio Zyman (1999) who claimed that, “The sole purpose of marketing is to sell more of your products to more people more often, for more money,” — not merely creating brand awareness. Which takes us back to our subject; we know what drives Apple, but what's at the centre of your business? Finance? Or marketing?

Herman Alvaranga FCIM, MBA was president of the Caribbean School of Sales and Marketing.

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