Marketing, Innovation and the Creation of Customers

Recently, one of my projects went through a rapid, but nearly imperceptible phase change. It went from being an “innovation-first” project to being a “marketing-first” project. The marketing hat feels at once comfortable and uncomfortable, familiar and unfamiliar. It feels like listening to unfamiliar lyrics set to a familiar tunes. This disconcerting feeling of being caught up in the dance of a yin-yang pair has had me pondering the best-known Drucker quote (from The Essential Drucker) for weeks now:

“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 define each other in yin-yang ways. Thinking about the fundamentals of this dual pair of concepts led me to a curious definition  of the most important word in business: customer.

The Yin-Yang Evidence

Let me first treat you to two lists of weird symmetries and similarities between marketing and innovation, in the Lincoln-Kennedy-assassination similarities mode. I want to convince you there is a pattern here and, unlike the Lincoln-Kennedy stuff, that there is a reason for the pattern. Let’s start with the similarities, and then look at the polarities.

Similarities

• Both functions are systematically misunderstood, compared to other business functions. Innovation is often reductively understood as “invention and R&D,” while marketing is often reductively understood as “promotion and advertising.” By contrast, nobody seriously misunderstands what HR, accounting or manufacturing are about.
• Ideally, both are in a balance: the optimal ratio of marketing spend to engineering spend in a product launch (known as the Grabowski Ratio) is 1.
• Both functions lay claim to the DNA of the organization. Marketing owns the overt form, the brand, that integrates the self-image and story of the company, while innovation owns the individuation behind the brand, within the society of corporations.
• Both functions frame their basic processes in terms of an “increasing certainty” funnel metaphor. In innovation, the funnel narrows from basic R&D through various stage gates to “successful commercialized product/service” while in marketing, the funnel narrows from a customer who is unaware of your offering, through stages of awareness, interest, purchase, repeat purchase and the ultimate stage, “loyalty.” In both cases, the fundamental dynamic is a weeding out, a filtration. Of ideas in one case, of people in the other.
• Both functions are numbers games by definition. You try to factor in all the information you have, and are still left with a situation of incomplete information, at which point you have to make a leap of faith and push a button. The prototype either flies, or it does not. The customer either pays attention, or s/he does not. By contrast, every other function in business can reach much higher levels of certainty.
• Both functions revolve around the concept of differentiation. Innovators deal in differentiation in product/service features, while marketers deal in differentiation in customer perceptions.
• A notion of creativity is at the heart of both functions. The idea that it is easier to invent the future than to predict it applies to both marketing and innovation. Innovators seek to shape future material realities. Marketers seek to shape perceptions.
• Both have a love/hate relationship with a downstream partner function (production and sales respectively) that deals in scale and repetition. One design, a production run of a thousand. One user-story, a thousand registered users. One advertisement, a thousand sales calls. Even in the age of mass customization, you can always tell the two sides apart. Production and sales are always repeating something (indeed, their raison d’etre is skill in creating perfect repetitions efficiently, even if the repetition is at a level of abstraction above “mass customization”). Marketing and innovation, on the other hand, depend on novelty and uniqueness to add value. This is necessary. If innovation and marketing did not create repetition opportunities downstream, you would not have a business. You’d have a one-off project.

There’s a lot more that I am sure you can dream up. But let’s look at some polarities.

Polarities

• The stereotype of the innovator is the unsociable recluse, hiding unkempt in a lab. The stereotype of the marketer is the uber-sociable, immaculately turned-out social sophisticate.
• Both groups are known for extreme precision in their use of language, but in one case it leads to discourses impenetrable to others, while in the other, it leads to models of clarity, brevity and comprehensibility.
• Marketing and innovation play a zero-sum game driven by the clarity of the “customer.” When the “customer” has been created with great clarity, marketing leads innovation and you get sustaining and/or incremental innovations. When the customer is a mystery, innovation leads, and you get disruptive and/or radical innovations (here’s what those adjectives mean, if you don’t know).
• Though the ideal balance of marketing to engineering spend may be 1, this is a dynamic balance. In general, you can cannot be doing both at once. The two have to dance, creating a conversation.

There seem to be fewer polarities than similarities. We’ll ponder that another day. Right now, let’s move on to the theory that can elevate this above Lincoln-Kennedy level.

The Creation of the Customer

To understand this yin-yang stuff, we have to tease out the substance behind the “create a customer” bit from Drucker’s famous quote. What exactly is this deified construct known as the “customer?” Why do we speak in terms of reverential awe? Why do we impute Godly attributes to this creature (omniscience: “the customer is always right,” omnipotence: “the customer will ultimately decide.”)? Why does this creator-like creature need to be created rather than discovered? You and I are customers, and I don’t exactly feel Godly when deigning to buy socks at the store. Rather small, controlled, overwhelmed by choices and intimidated actually.

That’s because a customer isn’t a human being. Repeat after me:

A customer is a novel and stable pattern of human behavior.

You shouldn’t be surprised. What, after all, are user stories (innovation) and psychographic profiles (marketing) but hypotheses about the stability of human behavior patterns? Underneath humanistic rhetoric about authenticity, the creation of a customer is an act of control.

A beautiful example of this principle can be found on the streets of Bombay, where vendors will offer to sell you “time pass.” Time-pass, as it happens, is a paper cone of roasted and salted peanuts. But you don’t buy peanuts. You don’t even buy a snack. The branding as “time pass” tells you what you buy: a way to pass the time as you stroll along on the beach, or wait for your train to arrive. The customer created by the innovation (peanuts in paper cones made available at certain locations) is the pattern of modification of waiting and relaxation behaviors. You used to stroll. Now you stroll munching peanuts. You used to fret, looking at your watch, cursing railway delays. Now you peacefully munch peanuts instead.

This explains why customers need to be created, and what innovations really are. Innovation isn’t about creating novel products or services.

An innovation is a stimulus that causes a novel and stable pattern of human behavior to emerge.

Google isn’t fundamentally an innovative search engine. It is a stimulus that creates a novel pattern of information-discovery behavior known as “Googling” that is different from what “searching” used to be before Google. Cars aren’t products that replace horses. They are novel patterns of human movement and settlement.

That then is at why marketing and innovation are deeply linked in a yin-yang pattern. They are both exploring the same uncertainties in free human behavior, and seeking ways to stabilize it into predictable patterns. When both look at uncertainties in human behavior, or uncertainties in potential stimuli, you get similarities and harmonies. When they are looking in different directions (typically, marketing looking at the customer, while innovation is looking at the stimulus), you get polarities. This tension is necessary. If ever innovation became truly “customer-led” you’ll be in a universe of faster horses. If ever marketing becomes truly “product-led,” you’ll be in a universe of stuff nobody will buy.

The Death of the Customer

This definition of a customer also explains the life cycle of a product. With every enhancement of the stimulus, the pattern that is the customer evolves and becomes more complex. At some point though, there is no more novelty emerging in the pattern. The customer is rather predictably asking for a faster horse, and it is costing you a lot more to add every extra bit of speed to your horses. At this point, you either have to look for less mature patterns on the periphery (disruption-ready categories) or look for new base patterns. The category is dead from the point of view of innovation and marketing. The product/service is end-of-life, and more importantly, the “customer” is end-of-life. The pattern cannot sustain itself. You put both in a hospice, and harvest residual value.