Peter F. Drucker symposium on market segmentation and change, healthcare, demographic values and wealth, capital markets and globalization, and market regulation
Samuel Craig, Associate Dean for Academic Affairs at NYU’s Graduate School of Business, begins the symposium introducing Peter F. Drucker alongside Donald E. Nicholson, president of Paine Webber Inc. Drucker then begins his talk discussing the topic of the symposium, the myths and realities of market segmentation. He states that markets began to become fluid in the late 1960s to early 1970s, and how, since then, some markets have changed beyond recognition. He goes on to say that, in all markets, changes have been very great, including the market for academia, where the changes may be even greater than in others. However, at the same time, most of the changes predicted have not happened, and Drucker states that it’s not easy to say what the new market segmentations will be, but it is already possible to see what does not work and what is not going to work. He then states that it is possible to see where the boundary lines are for some markets, giving the healthcare market as an example, which requires an organized center. When it comes to testing and life-threatening surgery, people need the hospital, and to the hospital business it is not necessarily desirable because no one knows how to run a hospital. Fundamental changes are not caused by what is happening in finance, healthcare, or consumer markets; it is simply a coincidence that in half a dozen major areas, separate and independent things are moving. Drucker then discusses the history of hospitals and how they have decentralized over the last several decades, and how education has been the most centralized of all organization structures. In the last few years, liberal arts colleges have begun receiving an increase in applications, while major research universities are holding their own. Drucker comments that this trend is a sign that, even in education, decentralization is strong. The final trend, Drucker notes, is demographics--the basic and fundamental changes in the value system of different kinds of customers. The only demographic values that have remained stable, he notes, are those of blue-collar workers, and this segment of the population is rapidly disappearing. The U.S. is producing more wealth per person, but most of this wealth has gone to leisure, rather than material goods. The next share of the wealth has gone primarily to education, and the next share, to healthcare. According to Drucker, these three share segments have taken approximately 70-80% of the wealth, and while each of these needs goods, none of them is seen as a good. Drucker proceeds to state that the U.S. has reached a level of income, as in all developed countries, in which income is no longer a relevant factor for 80% of the population. These 80% are restrained by income, so that income classifications are irrelevant for them. The failure of the consumer market, Drucker notes, is exemplified by Sears, Roebuck and Company, which, after fifty years of success, started encountering many problems. Macy’s is an example, on the other hand, of how department stores have changed to accommodate new demographics in a changing economy. In examining the global market, there is global marketing for some things, but mostly for immediate consumer goods with high visibility. For everything else, however, markets are fragmenting--they are not becoming bigger and more global. This is because the distinction between different kinds of customers has become greater, not lesser. Drucker goes on to emphasize how various markets have been fragmented and how organizations have accommodated such fragmentations, particularly banks and the banking system in the United States. The new market segmentation, he concludes, is not accomplished by traditional products and distributive channels, but by customer acceptance of the kinds of institutions that are fitting for these kinds of businesses. The most important people to know, Drucker states, are one’s non-customers because they are the ones that should be customers but are not. He states that the market is changing in ways that are not historical, so one needs to meet such changes head on, and, second, one should look for the fundamentals of the change, because it is a general change and not one specific to a particular sector of the market economy. These changes are occurring, in part, because of information dissemination, but also because individual income no longer determines the buying for the bulk of people. Donald Nicholson then begins discussing capital markets and how they are becoming global. He states that all of America’s markets, in terms of performance, have underperformed compared to all of the developed countries in the world except for Canada. The value of the stocks listed on the New York Stock Exchange have grown eight-and-a-half times, so the value of transactions has gone from roughly 165 billion a decade ago to almost half one trillion today. However, if one looks at Tokyo, Japan, they have grown twelve times in that period. The major player banks, that is, the seventeen largest banks in the world in terms of capital value, are outside of the United States. Nicholson notes that the location of the most successful banks outside of the United States represents a tremendous shift in the capital bases around the world, and he believes this trend will continue. However, technology and communication have permitted the U.S. to enter into such capital markers, while competition itself has forced the U.S. into them. Nicholson goes on to observe that competing in regulated environments generates better profits, and it should not be surprising that deregulation in the financial business has not done as well for America’s earnings base as a regulated environment. Nicholson therefore recommends an increase in regulation; however, a more positive aspect of the U.S.’s deregulation is that it allowed the nation to build expertise that hasn’t been built in the rest of the world. Nicholson goes on to relate that, as American issuers looked for the cheapest way to issue securities, the country began to look overseas, and the first to do so was Morgan Stanley, which established a large presence in London and Tokyo. He goes on to identify six things that will be--or have been--important to American firms’ success in overseas markets. To begin, American strengths have been leveraged overseas, because foreign regulations have not allowed the U.S. to be very broad in its approach. Currency swaps and foreign exchange are the primary areas in which the U.S. has excelled, and are required for success when handling large, multinational transactions. Moreover, executing a good strategy is just as important as having an optimal strategy. Moving forward, the biggest problem American investment firms may have is mindset, as the U.S. is one of the most insulated countries in the world. American executives typically lack knowledge of foreign languages and cultures, and Nicholson encourages viewing the world from the vantage point of other countries and cultures. Japan, on the other hand, is excelling in this area of understanding the culture of one’s competitors. Global markets, Nicholson says, are going to be global within the context of the movement of money; however, Americans are not going to be able to buy anything other than the largest stocks or government bonds. The upside is that the demand for the best prices, particularly by the issuers of money, will compel issuers to seek it out wherever it is. From this standpoint, the markets will increasingly become more global as issuers seek the country with the most financial resources. He closes his portion of the symposium stressing that financial supermarkets are a myth, and will continue to be an unrealistic expectation. The group then turns the discussion over to the audience for questions, and Drucker begins clarifying an earlier topic concerning how to know one’s non-customers, specifically, how to make the necessary time to know one’s non-customers.
Drucker, Peter F. (Peter Ferdinand), 1909-2005 Craig, Samuel New York University New York University. Graduate School of Business Administration Nicholson, Donald Paine Webber Inc Market segmentation Change Surgery Hospitals Decentralization in management Education Demographics Blue collar workers Wealth--United States Sears, Roebuck and Company Macy's (Firm) Consumer goods Banks and banking New York Stock Exchange Tokyo (Japan) Technological innovations Communication Competition Competition, International Regulation of economic activity Securities Morgan Stanley Dean Witter (Firm) Morgan Stanley & Co Morgan Stanley (Firm) London (England) Japan Markets Symposia Healthcare market Consumer markets Decentralization in healthcare Education change Liberal arts education Overseas markets Market fragmentation
Source
Original recording, April 30, 1987; Drucker Archives; Box 68
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