Page 240 - (DK) The Business Book

238 UNDERSTANDING THE MARKET

Skaterboarders are a niche market,
and have a specific set of requirements
from equipment and fashion brands.
Micromarketing can help businesses
reach niche markets such as this one.

insulted one of his own products,
joking that its low price was
possible due to its poor quality.
Offended customers abandoned
the store and $800 (£500) million
was wiped off the value of the
company, which nearly went under.
This notorious example shows how
businesses who treat customers
with contempt can pay a very
high price.
This theory placed the wealth of the because the corporate-centered
corporation, rather than the needs strategy has proved no guarantee Knowing the market
and wants of the customer, at the of longevity. Business in the 21st Since Drucker’s initial proposition
core of a business. It held that century has become more people- that a business must get to know
business should be run solely to centered with a number of huge the customer intimately, the market
increase profits, which would boost success stories helping to sway place has matured, making the task
the value of stock prices and allow management further toward of understanding the consumer,
the company to return value to the customer-oriented strategies. customer groups, and the market
shareholders—who, after all, own In 2010, business professor as a whole, far more complex. One
the business. This way of thinking Richard Martin wrote an article for of the reasons is fragmentation,
had been introduced by economist the Harvard Business Review, meaning that consumers are now
Milton Friedman in an article he heralding “The Age of Consumer divided among many small markets
wrote for The New York Times in Capitalism.” He claimed that we are that are constantly in flux, and may
1970, and it was later developed now living in an era in which suddenly emerge from nowhere.
further by business professors shareholder value is no longer the These micromarkets are defined by
Michael Jensen and William primary goal. “For three decades, the common aspirations, likes, or
Meckling in their paper, “Theory of executives have made maximizing needs of the consumers within
the Company.” As the title implies, shareholder value their top priority,” them. Each consumer is subject to
Jensen and Meckling’s thesis was he wrote. “But evidence suggests
not generally concerned with the that shareholders actually do better
world beyond the company—it when firms put the customer first.”
focused on the relationship between An example of a serious failure
upper management and shareholders, to prioritize the customer is that of
rather than the relationship between the British jewelry company, Ratners. Whether it’s Google or Apple
management and the market. By the late 1980s, Ratners was the or free software, we’ve got
world’s biggest jeweler, with 2,000 some fantastic competitors
21st-century thinking stores on two continents. The and it keeps us on our toes.
The concept of shareholder stores sold jewelry at low prices Bill Gates
maximization was a dominant force and were very popular—until the
CEO of Microsoft (1955–)
in the last few decades of the 20th disastrous speech by the company’s
century, but the importance of chief executive, Gerald Ratner, at
understanding the market and of the Institute of Directors in 1991. In
customer-centered management his talk, supposedly about the
has gradually gained favor, partly company’s success, he instead