The Notion of Customer #1 concluded with a promise to start exploring the history of what I suppose might be termed ‘Customer-ship’. The endeavor is useful in order to get a handle on the what, why and wherefore of today’s Customer-Supplier relationships and those of the future. So, here goes.
We could go way back in time: after all, people have bought and sold stuff since time immemorial - but that wouldn’t necessarily be helpful. No, our modern world emerged with what was called The Enlightenment or Age of Reason. This was The Great Reset before the present one. And it’s a useful start point. The Enlightenment is generally reckoned to span the eighteenth century and a few years either side but the resultant Customer-Supplier model held sway right through until around 1960 or 1970.
Indeed, rising with the dawn of The Enlightenment, the 100 per cent supply-driven first generation of business in the modern era was so successful at selling its cornucopia of Products, and enjoyed such a long period (around 250 years as indicated above) of having things all its own way that much of its rationale and operating rules became fossilized as though eternal truths.
The situation was validated and reinforced by the fact that the business corporation as we know it was created during this period, specifically to further the economic and social goals of the nation-state: consequently, this model benefited from a triple-lock of Commercial, Social and Political credibility.
Let’s label it GENERATION 1, or G1 for short and try to work out what made it tick.
It’s quite a meaty topic so we’ll spread the GENERATION 1 deep dive over two installments.
G1 - deep dive
In 1776, Adam Smith (1723-1790), variously labelled ‘the father of economics’ and ‘the father of capitalism’, published An Inquiry into the Nature and Causes of the Wealth of Nations. It was a manifesto for capitalism. In it he wrote:
It is not from the benevolence of the butcher the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities, but of their advantages.1
What, you may ask, is the relevance of this now? It is as a foundational rule of modern business: the primacy of the producer and product was the accepted norm. Hence the “if a man build a better mousetrap” idea, known the world over, often attributed to nineteenth century American essayist Ralph Waldo Emerson. In fact, I learn from a web search that Emerson actually wrote:
If a man has good corn or wood, or boards, or pigs, to sell, or can make better chairs or knives, crucibles or church organs, than anybody else, you will find a broad hard-beaten road to his house, though it be in the woods.2
In whatever form Emerson expressed it the point is that, from the Industrial Revolution onward and right through until the late twentieth century, ‘Product’ was the only game in town. And it remains a powerful force to this day. This first business generation of the modern era was built on a straightforward and obvious foundation: A Supplier sold Product. Its Customers bought the Supplier’s Production. Period. We bought lawn mowers because they cut grass; detergents because they cleaned clothes; mousetraps because they caught mice.
Adam Smith also established the basis of value assessment3:
The word VALUE, it is to be observed, has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called 'value in use'; the other, 'value in exchange.' The things which have the greatest value in use have frequently little or no value in exchange; and, on the contrary, those which have the greatest value in exchange have frequently little or no value in use. Nothing is more useful than water; but it will purchase scarce any thing; scarce any thing can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it.
Today, we may regard Smith’s evaluations of water and diamonds as somewhat eccentric but that doesn’t alter the fact that his observation legitimized ‘value-in-exchange’ as the modus operandi of business practice. In the process, this decision led directly to a definition of ‘Customer’ that remained operational and largely unchallenged from the late eighteenth century to around 1970, and remains a force to this day. That is, the Customer as a reactor.
Value-in-exchange is all about products. Under this regimen, the role of a company is to source or create products. The role of its Customers is to buy them. Period. To be clear about the value-in-exchange & product relationship, here’s a quote from a seminal academic paper by Stephen Vargo and colleagues. It succinctly describes the value-in-exchange (Goods-Dominant or G-D logic in this extract) mechanism:
Consider an automobile. A manufacturing firm constructs an automobile out of metal, plastic, rubber, and other parts, arranges them precisely, and packages them together. In their raw form, the metal and other components cannot be used as transportation. According to G-D logic, the firm’s production process creates value for customers through the manufacturing and delivery of an automobile. That is, the automobile manufacturing firm embeds value in the automobile by transforming raw materials into something that customers want. In this sense, value is created by the firm in the form of a good, and this valuable good is exchanged in the marketplace for money (or possibly other goods). Value is measured by this exchange transaction.4
There we have it: in a value-in-exchange world, business success is all about selling products. Lots of them. As many as possible. Volume is virtue. But what about other factors? Corporate social responsibility, for instance? Here again, Adam Smith’s worldview prevailed. His opinion was quite clear:
I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.5
As far as Smith was concerned, and those who heeded his advice, everything rested on products and their performance and an ability to Sell! Sell! Sell! It worked brilliantly. But it is important to keep in mind certain political and geopolitical elements. For instance, the fact that at the start of the Industrial Revolution, for most people, this activity was evolving from an almost zero base. Which explains why, as historian G.M. Young was able to point out, there were customer outcome and social benefits:
Gas-lighting of the streets was hardly an improvement so much as a revolution in public security, cheap cotton goods in personal cleanliness, paraffin lamps in domestic comfort. Finance, the manipulation of wealth and credit as things by themselves, three or four degrees removed from the visible crop or ore, was an adjunct. Production was the thing itself.6
This exactly captures the notion that, although being resolutely underpinned by the “Production was the thing itself” philosophy, the G1 logic did deliver value-in-use. (This topic will be expanded later in the series.)
It also gave rise to the notion of ‘Customer’ that I suspect many people still hold (not that we ever think much about it). It’s the view of the Customer as a passive recipient of products. It is an outcome of the Enlightenment and the Industrial Revolution. And it became self-perpetuating. As historian Norman Davies pointed out:
Once the Industrial Revolution was in motion, a long series of consequences ensued. In the purely economic sphere, the growth of the money economy turned self-sufficient peasants into wage-earners, consumers and taxpayers, each with new demands and aspirations.7
This hints at another key factor: the expansion of commerce in the second half of the nineteenth century coincided with the rise of the nation-state as the dominant constitutional order across the western world. At this time, the United States of America, Germany, Italy and more joined the list of nation-states and found, in the business corporation, the perfect partner for success. The legitimizing basis of the nation-state was …
The State will better the welfare of the nation.8
… and the business corporation was its indispensable ally. Its indispensable ally for tax revenues on business profits. Its indispensable ally for the provision of jobs to bring prosperity to the citizens of the nation-state. Its indispensable ally to produce tax revenues from those employed, directly and via sales taxes. Its indispensable ally to produce tax revenues to finance welfare payments and retirement benefits. As author, academic and lawyer Philip Bobbitt has written:
[T]he corporation was a nation-state vehicle to improve the welfare of its citizens. Replacing the great trusts and partnerships of the state-nation [forerunner of the nation-state], the corporation bureaucratized the management of business, making it feasible for the State, through regulation, to temper the profit motive with concern for the public welfare, replacing the enterprising if ruthless entrepreneur with the modern manager.9
Nation-states came to depend more and more upon corporations and their Customers for their wealth. With reference to the Depression years of the 1930s, the authors of a book on World’s Fairs wrote:
Progress, in addition to its other definitions, now meant increased consumer spending as world’s fair sponsors tried to persuade Americans that they had to set aside older values such as thrift and restraint and become consumers of America’s factory and farm products. By rebuilding America’s domestic market, so the argument ran, consuming citizens could hasten America’s economic recovery and put the United States back on track toward fulfilling its utopian potential.10
For a long time, the G1 modus operandi working in harmony with the nation-state was a rip-roaring, money-generating, society-enhancing success:
Production transformed the lives of mill and factory owners and their financial backers by making them rich
Production transformed the way we live by attracting people off the land to urban centers where they were able to earn and form new social groups
Production made Customers of us all
Products begat ever more products. And as the demands of customers were increasingly met, companies responded by increasing the sophistication of their organizational and business development strategies (e.g. the work of Frederick Taylor, Alfred P. Sloan, Peter Drucker, Michael Porter and many more) and slicker marketing and advertising (e.g. the work of Edward Bernays, Albert Lasker, Bill Bernbach, David Ogilvy, the Saatchi brothers, and their peers).
Production (& Risk) First
To emphasize the point: G1 is Production led; Consumption follows.
This puts all of the risk on the Supplier. Which is to say, under this modus operandi it is the Supplier, and the Supplier alone, who bears the burden of identifying and sourcing or creating new products to bring to market.
Now, of course, we realize that this mode can be wasteful because, although we are aware of those enterprises that succeed, there are a far, far higher number of failures that not only take a great toll on entrepreneurs and their financial backers, but may also have a negative impact on sustainability. Later in this series, we’ll come back to this issue because it is an important driver in the modification, or outright change, from G1.
Next, let’s take a look at the period when G1 achieved its greatest power and maturity.
Customer Expectation & Entitlement
The G1 mode rose to its peak in the first half of the twentieth century when industrial developments made greater sophistication possible. Next in this series we’ll look in more detail at some of the aspects of this sophistication but, for now, let’s just recall how the presentation of the world was changed as marketing and advertising increased to lure more and more Customers to buy more and more products.
Advertising became a part of everyday life. ‘Golden Age’ crime writer, Dorothy L. Sayers, started out as an advertising copywriter which might explain the conclusion of her novel, Murder Must Advertise. It conjures the cacophony of messaging that, by the 1930s, had become commonplace:
Tell England. Tell the World. Eat more Oats. Take Care of your Complexion. No More War. Shine your Shoes with Shino. Ask your Grocer. Children Love Laxmalt. Prepare to meet they God. Bung’s Beer is Better. Try Dogsbody’s Sausages. Whoosh the Dust Away. Give them Crunchlets. Snagsbury’s Soups are Best for the Troops. Morning Star, best Paper by Far. Vote for Punkin and Protect your Profits. Stop that Sneeze with Snuffo. Flush your Kidneys with Fizzlets. Flush your Drains with Sanfect. Wear Woolfleece next the Skin. Popp’s Pills Pep you Up. Whiffle your Way to Fortune … Advertise, or go under.11
All of the G1 activities, including extraordinary amounts of advertising and promotion, were designed to ‘train’ Customers to sit back and expect businesses to present them with a never-ending cornucopia of products and services. This may sound like an entirely passive role but it does fulfill a vital function – the assessment, in any instance, as to whether or not an offering possesses ‘goods-character’:
[I]t is unknown at the time the entrepreneur engages in production whether what is being produced will have goods-character. For this, an item must facilitate want satisfaction when offered to consumers.12
All of it was designed to serve the objective of more product sales because it was volume that delivered the economies of scale necessary for profitability and longevity.
To sum that up, the role of the Customer in G1 was to audit the value of any offering, the acceptance or rejection of offerings forming an independent judgement on the endeavors of entrepreneurs. This gave rise to what we term the Customer Expectation & Entitlement mode of behavior that utterly dominated the industrial age, in both B2B (Business-to-Business) and B2C (Business-to-Consumer) scenarios.
The Production-driven G1 mode had things all its own way for a very long time. Make stuff. Sell stuff. Simple! And, progressively, Customers’ buying motives became ever better understood as businesses learned more and more about the science of management, branding and selling:
The thinking became so much a part of our everyday lives that, for example, French author Michel Houellebecq was able to reference it in a novel for a broad readership. Here, the protagonist in one of his novels explains his thinking while visiting travel agencies:
According to the Marshall model, the buyer is a rational individual seeking to maximise his satisfaction while taking price into consideration; Veblen’s model, on the other hand, analyses the effect of peer pressure on the buying process (depending on whether the buyer wishes to be identified with a defined group or to set himself apart from it). Copeland demonstrates that the buying process varies, depending on the category of product/service (impulse purchase, considered purchase, specialised purchase); but the Baudrillard and Becker model posits that a purchase necessarily implies a series of signals. Overall, I felt myself closer to the Marshall model.13
Life and shopping continued in this manner for a very long time. Although Suppliers carried all the risk of product development, they liked Customer Expectation & Entitlement because it meant they could keep Customers at arm’s length. Customers liked it because it cost them little effort and, anyway, it was all they knew.
The fact that Suppliers were able to operate in a manner that was, emotionally at least, rather detached from their Customers resulted in Production and Finance becoming the dominant ‘power functions’ of the value-in-exchange era corporation. Because ‘me-too product’ capabilities were limited at this time, it was a reasonably safe assumption that product advantages could be retained over a long period. Consequently, employees did need not to worry overmuch about innovation.
In pre-digital times, consistency of manufacture was relatively hard to achieve so, generally, quality was a function of time and money. Which is to say, product choices tended to divide between high quality (limited quantity, high price) and low quality (mass quantity, lower price).
After the Second World War manufacturing resources grew in sophistication (the term is, of course, relative) and companies realized more ways to generate repeat business. A classic instance of this was the ground-breaking thinking of Alfred P. Sloan (1875 – 1966) at General Motors. Sloan came up with the divisional structure (in this instance, five brands: Chevrolet $, Pontiac $$, Oldsmobile $$$, Buick $$$$, Cadillac $$$$$) as a means to focus design and manufacturing resources to serve specific target Customer categories.
So, for example, it is thanks to Sloan that the 1949 Buick Roadmaster was the most life-enhancing, status-reinforcing machine on the road for its identified customer segment ... until the release of the 1950 version rendered it, overnight …
a heap of outdated junk.
Thanks for reading.
Coming soon: The Notion of Customer #3 will continue this dive into the G1 era and its logic.
Images: Shutterstock.
Smith, Adam. An Inquiry Into the Nature and Causes of The Wealth of Nations (1776)
Lienhard, John H. Inventing Modern: Growing up with X-rays, skyscrapers and tailfins (2005)
Smith, Adam. Ibid
Vargo, Stephen L.; Maglio, Paul P.; Akaka, Melissa Archpru. On value and value co-creation: a service systems and service logic perspective (2008)
Smith, Adam. Ibid
Young, G.M. Portrait of an Age (1936)
Davies, Norman. Europe, A History (1996)
Bobbitt, Philip. The Shield of Achilles: War, Peace and the Course of History (2002)
Bobbitt, Philip. Ibid
Robert W. Rydell, John E. Findling, and Kimberly D. Pelle. Fair America – World’s Fairs In The United States (2000)
Sayers, Dorothy L. Murder Must Advertise (1933)
Bylund, Per L. The Austrian Free Enterprise Ethic: A Mengerian Comment on Kirzsner (2019).
Houellebecq, Michel. Platform (2001) Translated: Wynne, Frank.