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Wednesday, August 21, 2013

What Business Are You In?

Recently I was cleaning out some boxes in my attic. I stumbled across one that I had not opened in decades. It contained my notes, a few textbooks, and some articles that I had copied during my MBA program at Boston College some 40 years ago. When I saw one of the articles, I stopped dead in my tracks, laughed, and reread it immediately. The article was by Theodore Levitt, from The Harvard Business Review (HBR) in 1960 and was entitled “Marketing Myopia.”

Some of you may have heard of Levitt. He is widely credited with coining the term “globalization” in 1983.  Actually, if you dig a bit, the New York Times was using it in 1944 but a more accurate description may be that he popularized the term in an HBR piece entitled “Globalization of Markets.” Current writers on global business, such as Tom Friedman, owe a debt to him.

The other thing that he is famous for is the article “Marketing Myopia.” The basic thrust of the article was that businesses had a better chance of succeeding if they would zero in on meeting their customers needs rather than on selling products. Also, he felt that many told themselves that they were in a “growth” industry which lead to complacency.

The article according to some business historians marked a watershed moment. Many said that this was the beginning of the modern marketing movement. Most businesses, according to Levitt, did not really understand what business that they were really in. The paper had some wonderful examples of such confusion and others chimed in as a million copies of the article were distributed throughout the business world. Movies did not prepare and react properly to TV growth because they felt that they were in the motion picture business. No, they were in the entertainment business and should have embraced TV when it was in its infancy. Warner Brothers got it eventually and then other studios followed suit.

Oil companies morphed into energy companies as a result of Levitt’s trailblazing. He said profoundly,  "People do not actually buy gasoline. What they buy is the right to keep driving their cars.”

Railroads were a great example and I quote at length “the railroads did not stop growing because the need for passenger and freight transportation declined. That grew. The railroads are in trouble today (1960) not because that need was filled by others (cars, trucks, airplanes, and even telephones).......They let others take customers away from them because they assumed themselves to be in the railroad business rather than the transportation business.”

All these examples showed that they were product oriented rather than customer oriented. Did people get it? Some did and some did not. Think of the giants of recent years. No one is more laser focused on the customer than Jeff Bezos of Amazon. And, how about the late Steve Jobs. He did not design the laptop or the smartphone--he made them easy to use for the everyday person. The focus was 100% on the consumer.

This may seem obvious in 2013 but it was revolutionary stuff in 1960! Back then the emphasis was mass production of products and lowering unit costs. Levitt went on to make an important distinction that many ad agencies today still do not understand.

He stressed that selling is not marketing. “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.”

Customer-creating satisfactions were his key to marketing success and it had to permeate an entire organization. The best marketers do this be it Amazon, L.L. Bean, Apple, Procter & Gamble, ESPN, or Harley Davidson.

Mid sized and small ad agencies like to produce good advertising. That is fine but long term the trend is away from it (see Media Realism, The Slow Death of Advertising, 5/13/13). WPP Chief Sir Martin Sorrell, said that a full third of their billing is digital rather than conventional and some clients are clamoring for a 50% allocation to digital. That leaves the mid-sized players in a tight spot unless they shift gears and relentlessly focus on the ultimate consumer. Levitt used the hackneyed example of buggy whip manufacturers to make this point. When the automobile came on stream, no amount of improved product development was going to save the industry. Had it considered itself a transportation firm, maybe they could have produced tires or fan belts as those industries emerged from the car explosion.

People who still talk nearly exclusively of making great TV and radio spots (and believe me, they still exist) need to get real. The pace of change is rapid and they need to adapt or go the way of the buggy whip manufacturers.

As Levitt put is so well in 1960, “The best way for a firm to be lucky is to make its own luck.”

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

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