Mr Nutella and consumer sovereignty
By Alberto Mingardi
Italian industrialist Michele Ferrero passed away last week, at age 89. See his obituary on the New York Times. Though Italians are not very friendly either to entrepreneurship or to businesses generally, the country is home to many great entrepreneurs. Ferrero was one of the greatest, as was acknowledged by Bill Emmott in his book on “Good Italy, Bad Italy”.
Mr Ferrero lived a very private life and gave almost no interviews, but he is a household name to Italians, for he invented some marvels of a modern capitalist economy, such as Nutella and Mon Cheri. He was also a marketing genius. In the late Sixties, when supermarkets were finally starting to take root in Italy too, he thought of placing mono-dose sweets next to the cashiers, so that young kids, typically bored at doing shopping with moms and pops, could ask a reward for their patience in the form of a Kinder Egg (long banned in the United States).
Ferrero is now a massive private company, that sweetens the life of millions all over the world. Mr Ferrero was brilliant in making once-expensive luxury goods such as chocolate (think about Despina in “Così fan tutte”, mischievously trying the chocolate drink she was meant to prepare for her mistresses!) available at a low price for the masses. In a way, his entrepreneurial story epitomises a point about capitalism that was made time and time again by Ludwig von Mises:
Capitalism is not simply mass production, but mass production to satisfy the needs of the masses. The arts and crafts of the good old days had catered almost exclusively to the wants of the well-to-do. But the factories produced cheap goods for the many. All the early factories turned out was designed to serve the masses, the same strata that worked in the factories. They served them either by supplying them directly or indirectly by exporting and thus providing for them foreign food and raw materials. This principle of marketing was the signature of early capitalism as it is of present-day capitalism.
The employees themselves are the customers consuming the much greater part of all goods produced. They are the sovereign customers who are “always right.” Their buying or abstention from buying determines what has to be produced, in what quantity, and of what quality. In buying what suits them best they make some enterprises profit and expand and make other enterprises lose money and shrink. Thereby they are continually shifting control of the factors of production into the hands of those businessmen who are most successful in filling their wants.
Under capitalism private property of the factors of production is a social function. The entrepreneurs, capitalists, and land owners are mandataries, as it were, of the consumers, and their mandate is revocable. (…) The market process is a daily repeated plebiscite, and it ejects inevitably from the ranks of profitable people those who do not employ their property according to the orders given by the public. But business, the target of fanatical hatred on the part of all contemporary governments and self-styled intellectuals, acquires and preserves bigness only because it works for the masses. The plants that cater to the luxuries of the few never attain big size.
(…) However, this unprecedented enrichment of the masses was merely a by-product of the Industrial Revolution. Its main achievement was the transfer of economic supremacy from the owners of land to the totality of the population. The common man was no longer a drudge who had to be satisfied with the crumbs that fell from the tables of the rich. The three pariah castes that were characteristic of the precapitalistic ages — the slaves, the serfs, and those people whom patristic and scholastic authors as well as British legislation from the 16th to the 19th centuries referred to as the poor — disappeared. Their scions became, in this new setting of business, not only free workers, but also customers.
(…). The consumer is king, is the real boss, and the manufacturer is done for if he does not outstrip his competitors in best serving consumers. (from Liberty and Property, II)
In his last interview with Mario Calabresi, editor of the Italian daily “La Stampa”, Mr Ferrero made a similar point, explaining the secret of his career:
“My secret? To always behave differently from the others, keep the faith, hang tough, and always place Valeria front and center.”
-Valeria? “Valeria is the big boss, the CEO, she can decree your success or your demise, you have to show her respect, never letting her down, you need to deeply understand her.” –I stare at him, dumbfounded, and repeat my question: “But, excuse me, Signor Michele, who is Valeria?”
“Valeria is the mum shopping for groceries, the grandmother, the aunt, she is the consumer deciding each day what needs to be purchased. She is the one that decides that Wal-Mart is the biggest department store chain in the world, she decrees the success of an idea or of a product, and if one day she decides not to patronize you any more and she stops buying your wares, you’re done for. You’re done for without notice, because she does not send you a letter from her attorney to serve notice that she’s discontinuing a contract with you, she simply decided to shop someplace else, to cease buying your wares.”