36. Peter Drucker in his own words interpreted for small business part 8
“What is our business? Who are our customers? What do they value? These are Drucker’s three classic questions and they reduce to very simple non-academic terms what is often turned into a highly theoretical strategic debate. These questions reduce that debate to the essential simplicities – for business is basically simple although it is often difficult to see the simple truths when engaged in the market.
These three questions are not a straightforward progression; they impact on each other (so you may modify the business you are in when you understand better what your customers want) and change over time with the market. For example, if you looked at Tesco when it started you would say the business was retailing groceries, the customers were housewives, mostly mid and lower socio-economic groupings and they valued choice but most of all price – hence ‘pile it high and sell it cheap’.
That has all changed. Firstly, those customers also valued non-foods and so Tesco moved away from being only a grocer. Then as stores developed and spread and general wealth increased (and hence the customers’ wants changed) so did the range of products and the breadth of customer base. So they not only became an off-licence but also added fine wine sections etc.
Like most grocery businesses Tesco served a community within 2 miles of their stores; people came to them and shopped and left, and occasionally they would employ market researchers to find out more about them on a sampled basis. But despite the fact that they walked through their doors, they did not know who their customers actually were.
The redefinition went further as the clients wants were analysed more deeply and other services were added – for instance, financial services. Tesco’s deeper understanding of its customer base was ennabled by their loyalty scheme and data collection at point of purchase. They now knew exactly what a large part of their customer base were buying and when, who they were and had the means to contact and engage with them directly. This has increasingly helped them hone in on what their customers value and is shown in their market share, which has grown from a minor player to fourth in the top four, then second to Sainsbury and now to number one by a long way.
To answer Drucker’s three questions properly takes a lot of thought about what is special about your business and what opportunities and possibilities this opens. Can you honestly say you understand what business you are in, who your customers actually are and what they value?