What Business Are You Really In?

Today we take for granted the idea that businesses are supposed to be consumer-centric. This wasn’t always the case. One of the men who introduced a revolutionary idea was Theodore Levitt who wrote a very influential article titled, “Marketing myopia.”

The reason an industry declines is not because demand declines, but because the same needs are filled by other industries.

Levitt pointed out that every industry was once a growth industry. Some still are but the prospect of decline always looms over them.

“The railroads did not stop growing because the need for passenger and freight transportation declined. That grew. The railroads are in trouble today not because that need was filled by others (cars, trucks, airplanes, and even telephones) but because it was not filled by the railroads themselves. They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry incorrectly was that they were railroad-oriented instead of transportation-oriented; they were product-oriented instead of customer oriented.”

– Theodore Levitt

Hollywood survived the birth of television, but only by the skin of its teeth. It wasn’t because of what television offered but because of the myopia of studios. Hollywood thought they were in the movie business (product-focus) but they were really in the entertainment business. They dismissed TV when they should have welcomed it as an opportunity.

Levitt insisted that there is no such thing as a “growth industry.” Dying or dead “growth” industries had fallen for one or more of these four myths.

  1. Our growth is assured by an expanding and more affluent population;
  2. there is no competitive substitute for our industry’s major product;
  3. we can protect ourselves through mass production and rapidly declining unit costs as output rises;
  4. excellence in technical research and development will ensure our growth.

Levitt noted that a market that is growing prevents the manufacturer from having to use their brains. When things are going well, you are tempted to take it easy. The oil industry believed in myth (1) and (2). They concentrated on efficiency rather than improve the generic product or its marketing.

“The difference between marketing and selling is more than semantic. Selling focuses on the needs of the seller, marketing on the needs of the buyer.”

– Theodore Levitt

Nothing can guarantee against a product becoming obsolete, according to Levitt. Either the company innovates, or someone else eventually will. In mass production industries, Levitt noted that volume can be a snare and a delusion. “The prospect of steeply declining unit costs as output rises is more than most companies can usually resist … All effort focuses on production. The result is that marketing gets neglected.”

A fixation with research and development can be as dangerous, producing the illusion that superior product will almost sell itself. Again, marketing is a neglected afterthought, the uncared for stepchild. In all these instances, companies think of themselves as producing goods and services, not customer satisfactions. They should be thinking the reverse. “An industry begins with the customer and his or her needs, not with a patent, a raw material or a selling skill.”

Having started with the customer’s needs, an industry should develop backward, through delivery, creation and, finally, finding the raw materials.

“People actually do not buy gasoline. What they buy is the right to keep driving their cars.”

– Theodore Levitt

Levitt didn’t mean that selling was being ignored. “But selling, again, is not marketing,” he said. “Selling concerns itself with the tricks and techniques of getting people to exchange their cash for your product. It is not concerned with the values that the exchange is all about. And it does not, as marketing invariably does, view the entire business process as consisting of a tightly integrated effort to discover, create, arouse and satisfy customer needs.”

The goal of a company should be to buy customers, not produce products.

  • Source: 50 Management Ideas You Need to Know

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