Marketing research is often viewed as essential for finding a market need and assessing what customers want. Marketing is also responsible for promoting the enterprise’s products to acquire market share. While these are common ways of thinking about marketing, are they in fact correct? Should marketing be responsible for finding and assessing the needs and wants of customers? Does a customer’s needs even define a market? Is acquiring market share a proper way of thinking about producing wealth? These are the questions this essay will address from an Objectivist perspective.
While the efforts of both marketing and sales represent the ultimate validation of a product or service envisioned by an entrepreneur; it is important to remember they follow the entrepreneur’s vision of a creative product. They do not lead it. Customers do not know what they want. They only know whether they value something once it is presented to them. The most innovative products that came from the greatest entrepreneurial minds did not arise from marketing research assessing the needs and wants of customers. In fact, for most of them, there were no customers they could talk to as there were no products as yet for customers to consider. Initially these products existed only as a vision in the creative minds of those entrepreneurs who asked not what is, but rather what could be. Customers only know whether they value something once it is offered to them for consideration. It is the responsibility of the entrepreneur, following their vision, as the creator of a product or service, to present to customers their value proposition, trusting the customer will value it as much as they do. The more innovative the product, initially the more difficult it will be for customers to assess its value as it attempts through “creative destruction” to replace the existing products they are familiar with,
“Embrace change. Envision what could be, challenge the status quo, and drive creative destruction.”
Charles Koch
Here are some real examples. When it was suggested to Steve Jobs that he should do market research to see what customers wanted he replied, “Some people say, ‘Give customers what they want.’ But that’s not my approach. Our job is to figure out what they’re going to want before they do. I think Henry Ford once said, ‘If I’d asked customers what they wanted, they would have told me, “A faster horse!”’
“People don’t know what they want until you show it to them. That’s why I never rely on market research.”
Steve Jobs
Based on that approach Steve Jobs at Apple created a continuous stream of products from the Apple II to the iPhone for which there were no previously existing markets. Similarly Bill Gates had a vision of every individual owning a computer at a time when only large corporations owned computers. This has been the story of many great innovators throughout history, Rockefeller with oil, Carnegie with steel, Ford with automobiles, Carrier with refrigeration. What Richard Warren Sears did for product distribution through catalog sales beginning in the 19th century Jeff Bezos is doing through Internet sales with Amazon in the 21st century. They all had visions of products for markets that did not previously exist.
Next, if the responsibility for creating a product or service belongs to the entrepreneur who envisions it, it is typically the responsibility of marketing to promote and validate its value. But what does it mean for something to be of value, and of value to whom? Does a product have intrinsic value or only objective value? How do you successfully validate it?
One philosophical error many entrepreneurs make is the notion that their value proposition has “intrinsic” value. It is common to see entrepreneurs promoting their product on the assumption it has intrinsic value independent of any objectively defined values. This is particularly common amongst social entrepreneurs (Social Entrepreneurship – An Objective Perspective). While entrepreneurs are passionate about what they create, they need to remember there is no such thing as intrinsic value. No product or service has value without a valuer. It may be of value to the entrepreneur. But if a product is only of value to an entrepreneur, creating it is called a hobby not the basis for a business. To build a business the valuer to the entrepreneur is the customer. The value proposition the entrepreneur offers must be objectively defined and validated in the market by customers to be of value to anybody else besides themselves.
“Value presupposes an answer to the question: of value to whom and for what?”
Ayn Rand
So how does one validate the value of their product in the market and what are the potential pitfalls associated with validating it. One approach is promoted in the book “The Lean Startup” by Eric Ries. The concept behind The Lean Startup is the entrepreneur must validate their value proposition through objective market metrics. He recommends creating the minimum viable product possible that the entrepreneur can offer; and then using market metrics for validation to make improvements or perhaps even make a complete product “pivot” before limited resources are wasted on pursuing a false value proposition. He in fact recommends repeating this process indefinitely through continuous product improvement, marketing experiments and gathering market metrics throughout the full life cycle of a product. This seems wise and is not contradicting what Steve Jobs said above. Customer feedback has validity once a product is produced and presented to a customer for consideration. But it does not relieve the entrepreneur from the responsibility of judging the feedback and creating the improvements they deem appropriate without compromise to the product or service. Entrepreneurs create, customers validate.
“Wealth, in a free market, is achieved by a free, general, “democratic” vote—by the sales and the purchases of every individual who takes part in the economic life of the country. Whenever you buy one product rather than another, you are voting for the success of some manufacturer. And, in this type of voting, every man votes only on those matters which he is qualified to judge: on his own preferences, interests, and needs.”
Ayn Rand
However, one must be careful about relying on market metrics alone as here also there are intellectual pitfalls. Market metrics based on statistical results, whether positive or negative do not themselves reveal their cause nor direct how to respond to them. This is what is meant by the statement “correlation is not causation.” Here is why relying solely on correlation without understanding causation with marketing metrics can be problematic.
“One of the first things taught in introductory statistics textbooks is that correlation is not causation. It is also one of the first things forgotten.’
Thomas Sowell
Consider the following. If you ran a market study and the metrics showed that only 10% of potential customers responded favorably to your product offering, what would that mean to you? Would you infer the product was inferior? You can’t answer that question without knowing the full context; what caused only a 10% favorable response?
Consider this humorous anecdote of market research to illustrate why. When salesmen first began to sell toilettes for use in people’s houses I am sure the response from most customers was negative. After all, who would want to put a stinky outhouse from their backyard into their home? However, in this context, a 10% positive response may well be deemed a great success. Understanding hesitancy as the cause those 10% who were positive are more appropriately viewed as the “change agents” who see the value of this new product. Ultimately their purchase demonstrated to the remaining 90% the value of a purchasing a toilet for use in their house.
But to elaborate a bit more on causality not correlation being essential to understanding, consider the following more general question. If an event occurred nine times in a row, what is the probability of it occurring a tenth time? One might infer very likely. But without knowing the cause of the event one cannot answer that question. If the event were the rising of the sun each morning, the answer would be effectively100%. If the event were the flip of a coin, the answer would be 50%, no matter how unlikely is it that the flip of a coin turned up heads nine times in row. If the event were winning the lottery for the tenth time in a row however, the chance would be so low as to assume the lottery was somehow rigged. Correlation is not causation.
But note, even the effective chance of the sun rising tomorrow being100%, it is not based on the empirical evidence that throughout all of recorded history the sun has risen every morning. This is the error of an Empiricist, who believes the observed facts speak for themselves without having to understand their cause. Again it is based the erroneous assumption that correlation is causation. The Objectivist’s answer instead would be causal. Because of the very nature of the Earth spinning on its axis the sun appears to rise in the sky each morning. Therefore one can be certain it will do so tomorrow. (See essay Doubt vs. Certainty). So it must be when evaluating all market research. The power lies in understanding the cause not discovering the correlation.
“… by direct perception of immediate facts, with no recourse to concepts (the Empiricists)….[are] those who clung to reality, by abandoning their mind.”
Ayn Rand
So, is there any value to correlation at all? Yes, correlations should be viewed like clues in a murder mystery that has not as yet been solved. When a correlation is discovered an Objectivist entrepreneur will immediately ask what the underlying cause is. Market validation based on correlation may well suggest something important but cannot be relied upon solely. As stated above correlations alone can be deceiving and unreliable. An Objectivist entrepreneur always attempts to understand what causal factors underpin a potential correlation. Correlation is speculation. Causation is realization. Correlation is a cause for inquiry not a cause for action. This is why understanding the causal reason customers like or don’t like a product when doing market validation of a product is more important than the statistics showing that they do or do not.
Next, is the idea that need defines a market correct? There are two responses to that question? The first was covered in the essay Why Become an Entrepreneur. The need of the entrepreneur to create is more important than the need of the customer for what the entrepreneur creates. Entrepreneurs do not create products for customers. They have customers so they can create.
“The need of the creator comes before the need of any possible beneficiary.”
Ayn Rand
Secondly, an entrepreneur may discover a need and be motivated to create a product to meet that need. But need does not define or create a market. Need only provides an opportunity to create a product by an innovative entrepreneur when motivated to do so. But even the product created is only half of what is necessary to create a market. The second half requires someone who values the product and is willing to buy the product to meet their need. Only when a product is created that someone is willing to purchase is a market created.
The reason this is important to understand is because you often hear those in marketing claim wealth is achieved by acquiring “market share”. But acquiring wealth is not the same as producing wealth. Acquiring wealth is based on the false premise that wealth is a zero sum game, where for one person to get a bigger piece of the pie it must be at the expense of someone else getting a smaller piece. Conversely producing wealth is based on the premise that it must first be produced and then exchanged with others in trade. It is erroneous to think there is a “market pie” to be divided up. Everything produced is produced by someone, which they exchange between each other using money as the medium of exchange. At the foundation there is only the pie each individual produces. Summing them up is only an illusion of a total market divided up into pieces to be acquired. Markets are created, not acquired by dividing up.
Here is a metaphor to help illustrate this point more definitively. I may be an expert at producing blueberry pies. You may be an expert at producing strawberry pies. We may both wish a bit of variety in our diets and therefore agree to exchange one piece of blueberry pie for one piece of strawberry pie. Neither of us tried to acquire a piece of pie by stealing or mooching off one another; but rather by offering a piece of our pie in exchange for a piece of theirs. We each voluntarily exchanged that which we produced. It was a win/win trade, a “value given for value received” trade.
As a blueberry pie making entrepreneur, my marketing efforts promote blueberry pie to those who value it. My sales efforts validate their value by selling to those who want to trade a piece of my blueberry pie for a piece of their pie, be it strawberry or just money. It is not a zero sum game as we each produced our own pie, which did not exist before, and by trading with others received in exchange something we wanted more. The lesson here is each new product created and sold creates a new market of its own. Markets are created they are not acquired. It is not about acquiring a bigger piece of the proverbial pie. It is about producing more pieces of pie, better, cheaper, faster. That is the goal of an Objectivist entrepreneur.
“Wealth is the product of main’s intellect, of his creative ability.”
Ayn Rand