Reading Notes-Marketing Myopia

Format:

? single space, block format, justified margins, 10-point font

?  APA bibliographic citation of the work as your ‘title’

?  Your name, course, section number and date at the upper right

?  Use the bold subheadings below to segment your narrativeContent:

?  Central theme– identify author’s main lesson/argument – what is the author(s) teaching us

?  Critical analysis– evaluate the lesson/argument – strengths/weaknesses – considering pointingto a frame of reference in your own life or your training in the subject

?  Main takeaways– so what and now what? How do we best apply the knowledge fromthisarticle/book?

BEST
i960
We always know when an HBR article hits the big time. Journalists write about
it, pundits talk about it, executives routecopiesof it around the organization,
and its vocabulary becomes familiar to managers everywhere -sometimes to
the point where they don’t even associate the words with the original article.
Most important, of course, managers change how they do business because the
ideas in the piece helped them see issues in a new light.
“Marketing Myopia” is the quintessential big hit HBR piece. In it,Theodore
Levitt, who was then a lecturer in business administration at the Harvard Business School, introduced the famous question,”What business are you really in?”
and with ittheclaim that, had railroad executives seen themselves as being in
the transportation business rather than the railroad business, they would have
continued to grow. The article is as much about strategy as it is about marketing, but it also introduced the most influential marketing idea of the past halfcentury: that businesses wilt do better in the end if they concentrate on meeting
customers’needs rather than on selling products. “Marketing Myopia” won the
McKinsey Award in i960.
Marketing Myopia
by Theodore Levitt
E
Sustained growth depends
on how broadly you define
your business-and how
carefully you gauge your
customers’needs.
VERY MAJOR INDUSTRY WaS
a growth industry. But some that
are now riding a wave of growth enthusiasm are very much in the shadow
of decline. Others that are thought of as
seasoned growth industries have actually stopped growing. In every case, the
reason growth is threatened, slowed, or
stopped is not because the market is
saturated. It is because there has been
a failure of management.
Fateful Purposes
The failure is at the top. The executives
responsible for it, in the last analysis,
are those who deal with broad aims and
policies. Thus:
• The railroads did not stop growing
because the need for passenger and
138
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
tbe 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.
• Hollywood barely escaped being totally ravished by television. Actually, all
the established film companies went
through drastic reorganizations. Some
HARVARD BUSINESS REVIEW
simply disappeared. All of them got into
trouble not because of TV’s inroads but
because of their own myopia. As with
the railroads, Hollywood defined its
business incorrectly. It thought it was
in the movie business when It was actually in the entertainment business.
“Movies” implied a specific,
limited product. This produced
a fatuous contentment that
from the beginning led producers to view TV as a threat.
Hollywood scorned and rejected TV when it should have
welcomed it as an opportunity-an opportunity to expand
the entertainment business.
more pridefully product oriented and
product conscious than the erstwhile
New England textile companies that
have been so thoroughly massacred?
The DuPonts and the Comings have
succeeded not primarily because of
their product or research orientation
Today, TV is a bigger business than the old narrowly
defined movie business ever
was. Had Hollywood been customer oriented (providing entertainment) rather than product oriented (making movies),
would it have gone through
the fiscal purgatory that it
did? 1 doubt it. What ultimately saved Hollywood and
accounted for its resurgence
was the wave of new young
writers, producers, and directors whose previous successes
in television had decimated
the old movie companies and
toppled the big movie moguls.
There are other, less obvious
examples of industries that have been
and are now endangering their futures
by improperly defining their purposes.
I shall discuss some of them in detail
later and analyze the kind of policies that
lead to trouble. Right now, it may help
to show what a thoroughly customeroriented management can do to keep
a growth industry growing, even after
the obvious opportunities have been
exhausted, and here there are two examples that have been around for a long
time. They are nylon and glass-specifically, E.I. du Pont de Nemours and Company and Corning Glass Works.
Both companies have great technical
competence. Their product orientation
is unquestioned. But this alone does not
explain their success. After all, who was
TOP-LINE GROWTH |ULY-AUGUST 2OO4
but because they have been thoroughly
customer oriented also. It is constant
watchfulness for opportunities to apply
their technical know-how to the creation of customer-satisfying uses that
accounts for their prodigious output of
successful new products. Without a very
sophisticated eye on the customer, most
of their new products might have been
wrong, their sales methods useless.
Aluminum has also continued to be
a growth industry, thanks to the efforts
of two wartime-created companies that
deliberately set about inventing new
customer-satisfying uses. Without Kaiser Aluminum & Chemical Corporation
and Reynolds Metals Company.the total
demand for aluminum today would be
vastly less.
Error of Analysis. Some may argue
that it is foolish to set the railroads off
against aluminum or the movies off
against glass. Are not aluminum and
glass naturally so versatile that the industries are bound to have more growth
opportunities than the railroads and
the movies? This view commits
precisely the error I have been
talking about. It defines an industry or a product or a cluster
of know-how so narrowly as to
guarantee its premature senescence. When we mention “railroads,” we should make sure
we mean “transportation.” As
transporters, the railroads still
have a good chance for very
considerable growth. They are
not limited to the railroad business as such (though in my
opinion, rail transportation is
potentially a much stronger
transportation medium than
is generally believed).
What the railroads lack is
not opportunity but some of
the managerial imaginativeness and audacity that made
them great. Even an amateur
like Jacques Barzun can see
what is lacking when he says,
“I grieve to see the most advanced physical and social organization of the last century
go down in shabby disgrace for
lack ofthe same comprehensive imagination that built it up. [What is lacking
is] the will of the companies to survive
and to satisfy the public by inventiveness and skill.”‘
Shadow of Obsolescence
It is impossible to mention a single
major industry that did not at one time
qualify for the magic appellation of
“growth industry.” In each case, the industry’s assumed strength lay in the apparently unchallenged superiority of its
product There appeared to be no effective substitute for it. It was itself a runaway substitute for the product it so
triumphantly replaced. Yet one after
another of these celebrated industries
has come under a shadow. Let us look
139
BEST OF HBR • Marketing Myopia
briefly at a few more of them, this time nopolies now, but tomorrow they may
taking examples that have so far received be natural deaths. To avoid this prosa little less attention.
pect, they too will have to develop fuel
Dry Cleaning. This was once a growth cells, solar energy, and other power
industry with lavish prospects. In an age sources.Tosurvive,they themselves will
of wool garments, imagine being finally have to plot the obsolescence of what
able to get them clean safely and eas- now produces their livelihood.
ily. The boom was on. Yet here we are 30
Grocery Stores. Many people find it
years after the boom started, and the hard to realize that there ever was a
industry is in trouble. Where has the thriving establishment known as the
competition come from? From a better “corner store.” The supermarket took
way of cleaning? No. It has come from over with a powerful effectiveness. Yet
synthetic fibers and chemical additives the big food chains of the ig3os narthat have cut the need for dry cleaning. rowly escaped being completely wiped
But this is only the beginning. Lurking out by the aggressive expansion of inin the wings and ready to make chemi- dependent supermarkets. The first gencal dry cleaning totally obsolete is that uine supermarket was opened in 1930,
powerful magician, ultrasonics.
in Jamaica, Long Island. By 1933, supermarkets
were thriving in California,
Electric Utilities. This is another one
of those supposedly “no substitute” Ohio, Pennsylvania, and elsewhere. Yet
products that has been enthroned on the established chains pompously iga pedestal of invincible growth. When nored them. When they chose to notice
the incandescent lamp came along, ker- them, it was with such derisive descriposene lights were finished. Later, the tions as “cheapy,” “horse-and-buggy,”
waterwheel and the steam engine were “cracker-barrel storekeeping” and “uncut to ribbons by the flexibility, reliabil- ethical opportunists.”
established distribution and merchandising methods. The companies with
“the courage of their convictions” resolutely stuck to the corner store philosophy. They kept their pride but lost their
shirts.
A Self-Deceiving Cycle. But memories are short. For example, it is hard for
people who today confidently hail the
twin messiahs of electronics and chemicals to see how things could possibly
go wrong with these galloping industries. They probably also cannot see how
a reasonably sensible businessperson
could have been as myopic as the famous Boston millionaire who early in
the twentieth century unintentionally
sentenced his heirs to poverty by stipulating that his entire estate be forever
invested exclusively in electric streetcar
securities. His posthumous declaration,
“There will always be a big demand for
efficient urban transportation,” is no
consolation to his heirs, who sustain life
by pumping gasoline at automobile filling stations.
ity, simplicity, and just plain easy availability of electric motors. The prosperity
of electric utilities continues to wax extravagant as the home is converted into
a museum of electric gadgetry. How
can anybody miss by investing in utilities, with no competition, nothing but
growth ahead?
Yet, in a casual survey I took among
a group of intelligent business executives, nearly half agreed that it would
be hard to hurt their heirs by tying
their estates forever to the electronics
industry. When I then confronted them
with the Boston streetcar example, they
chorused unanimously, “That’s different!” But is it? Is not the basic situation
identical?
In truth, there is no such thing as a
growth industry, I believe.There are only
companies organized and operated to
create and capitalize on growth opportunities. Industries that assume themselves to be riding some automatic
growth escalator invariably descend
into stagnation. The history of every
dead and dying”growth”industry shows
a self-deceiving cycle of bountiful expansion and undetected decay. There
are four conditions that usually guarantee this cycle:
1. The belief that growth is assured
by an expanding and more affluent
population;
2. The belief that there is no competitive substitute forthe industry’s major
product;
But a second look is not quite so comforting. A score of nonutility companies are well advanced toward developing a powerful chemical fuel cell, which
could sit in some hidden closet of every
home silently ticking off electric power.
The electric lines that vulgarize so many
neighborhoods would be eliminated. So
would the endless demolition of streets
and service interruptions during storms.
Also on the horizon is solar energy, again
pioneered by nonutility companies.
Who says that the utilities have no
competition? They may be natural mo-
The executive of one big chain announced at the time that he found it
“hard to believe that people will drive
for miles to shop for foods and sacrifice
the personal service chains have perfected and to which [the consumer] is
accustomed.”‘ As late as 1936, the National Wholesale Grocers convention
and the New Jersey Retail Grocers Association said there was nothing to fear.
They said that the supers’ narrow appeal to the price buyer limited the size
of their market. They had to draw from
miles around. When imitators came,
there would be wholesale liquidations
as volume fell. The high sales of the
supers were said to be partly due to
their novelty. People wanted convenient
neighborhood grocers. If the neighborhood stores would “cooperate with their
suppliers, pay attention to their costs,
and improve their service,” they would
be able to weather the competition until
it blew over.’
Theodore Levitt, a longtime professor of
marketing at Harvard Business School In
It never blew over. The chains discovBoston, is now professor emeritus. His most ered that survival required going into
recent books are Thinking About Man- the supermarket business. This meant
agement (1(^90) and The Marketing Imag- the wholesale destruction of their huge
ination (1983), both from Free Press.
investments in corner store sites and in
140
HARVARD BUSINESS REVIEW
Marketing Myopia • BEST OF HBR
3. Too much faith in mass production
and in the advantages of rapidly declining unit costs as output rises;
4. Preoccupation with a product that
lends itself to carefully controlled scientific experimentation, improvement,
and manufacturing cost reduction.
I should like now to examine each of
these conditions in some detail. To build
my case as boldly as possible, I shall
illustrate the points with reference to
three industries: petroleum, automobiles, and electronics. I’ll focus on petroleum in particular, because it spans
more years and more vicissitudes. Not
only do these three industries have
excellent reputations with the general
public and also enjoy the confidence of
sophisticated investors, but their managements have become known for progressive thinking in areas like financial
control, product research, and management training. If obsolescence can cripple even these industries, it can happen
anywhere.
Population Myth
The belief that profits are assured by an
expanding and more affluent population is dear to the heart of every industry. It takes the edge off the apprehensions everybody understandably feels
about the future. If consumers are multiplying and also buying more of your
product or service, you can face the future with considerably more comfort
than if the market were shrinking. An
expanding market keeps the manufacturer from having to think very hard or
imaginatively. If thinking is an intellectual response to a problem, then the
absence of a problem leads to the absence of thinking. If your product has an
automatically expanding market, then
you will not give much thought to how
to expand it.
One of the most interesting examples of this is provided by the petroleum
industry. Probably our oldest growth industry, it has an enviable record. While
there are some current concerns about
its growth rate, the industry itself tends
to be optimistic.
But 1 believe it can be demonstrated
that it is undergoing a fundamental yet
TOP-LINE GROWTH J ULY-AUGUST 2OO4
typical change. It is not only ceasing to
be a growth industry but may actually
be a declining one, relative to other businesses. Although there is widespread unawareness of this fact, it is conceivable
that in time, the oil industry may find
itself in much the same position of retrospective glory that the railroads are
now in. Despite its pioneering work in
developing and applying the presentvalue method of investment evaluation,
in employee relations, and in working
with developing countries, the petroleum business is a distressing example
of how complacency and wrongheadedness can stubbornly convert opportunity into near disaster.
One of the characteristics of this and
other industries that have believed very
strongly in the beneficial consequences
of an expanding population, while at the
same time having a generic product for
which there has appeared to be no competitive substitute, is that the individual
companies have sought to outdo their
competitors by improving on what they
are already doing. This makes sense, of
course, if one assumes that sales are tied
to the country’s population strings, because the customer can compare products only on a feature-by-feature basis.
I believe it is significant, for example,
that not since John D. Rockefeller sent
free kerosene lamps to China has the
oil industry done anything really outstanding to create a demand for its product. Not even in product improvement
has it showered itself with eminence.
The greatest single improvement-the
development of tetraethyl lead-came
from outside the industry, specifically
from General Motors and DuPont. The
big contributions made by the industry
itself are confined to the technology of
141
BEST OF HBR • Marketing Myopia
oil exploration, oil production, and oil
refining.
Asking for Trouble. In other words,
the petroleum industry’s efforts have focused on improving the efficiency of getting and making its product, not really
on improving the generic product or its
marketing. Moreover, its chief product
bas continually been defined in the narrowest possible terms – namely, gasoline, not energy, fuel, or transportation.
This attitude has helped assure that:
• Major improvements in gasoline
quality tend not to originate in the oil industry. The development of superior alternative fuels also comes from outside
the oil industry, as will be shown later.
• Major innovations in automobile
fuel marketing come from small, new
oil companies that are not primarily preoccupied with production or refining.
These are the companies that have been
responsible for the rapidly expanding
muttipump gasoline stations, with their
successful emphasis on large and clean
layouts, rapid and efficient driveway service, and quality gasoline at low prices.
Thus, the oil industry is asking for
trouble from outsiders. Sooner or later,
in this land of hungry investors and entrepreneurs, a threat is sure to come.
The possibility of this will become more
These have value only if there is a market for products into which oil can be
converted. Hence the tenacious belief
in the continuing competitive superiority of automobile fuels made from
crude oil.
This idea persists despite all historic
evidence against it. The evidence not
only shows that oil has never been a superior product for any purpose for very
long but also that the oil industry has
never really been a growth industry.
Rather, it has been a succession of different businesses that have gone through
the usual historic cycles of growth, maturity, and decay. The industry’s overall
survival is owed to a series of miraculous
escapes from total obsolescence, of lastminute and unexpected reprieves from
total disaster reminiscent of the perils of
Pauline.
The Perils of Petroleum. To illustrate, I shall sketch in only the main
episodes. First, crude oil was largely a
patent medicine. But even before that
fad ran out, demand was greatly expanded by the use of oil in kerosene
lamps. The prospect of lighting the
world’s lamps gave rise to an extravagant promise of growth. The prospects
were similar to those the industry now
holds for gasoline in other parts of the
Then disaster and reprieve struck
again. TVvo great innovations occurred,
neither originating in the oil industry.
First, the successful development of coalburning domestic central-heating systems made the space heater obsolete.
While the industry reeled, along came
its most magnificent boost yet: the intemal combustion engine, also invented
by outsiders. Then, when the prodigious
expansion for gasoline finally began to
level off in the 1920s, along came the miraculous escape of the central oil heater.
Once again, the escape was provided
by an outsider’s invention and development. And when that market weakened,
wartime demand for aviation fuel came
to the rescue. After the war, the expansion of civilian aviation, the dieselization
of railroads, and the explosive demand
for cars and trucks kept the industry’s
growth in high gear.
It is hard for people who hail the twin messiahs of
electronics and chemicals to see how things could
possibly go wrong with these galloping industries.
Meanwhile, centralized oil heatingwhose boom potential had only recently
been proclaimed-ran into severe competition from natural gas. While the oil
companies themselves owned the gas
that now competed with their oil, the
industry did not originate the natural
gas revolution, nor has it to this day
greatly profited from its gas ownership.
The gas revolution was made by newly
formed transmission companies that
marketed the product with an aggressive ardor. They started a magnificent
new industry, first against the advice
and then against tbe resistance of the
oil companies.
apparent when we tum to the next dangerous belief of many managements.
For the sake of continuity, because this
second belief is tied closely to the first,
I shall continue with the same example.
The Idea of Indispensability. The
petroleum industry is pretty much convinced that there is no competitive substitute for its major product, gasoline or, if there is, that it will continue to be
a derivative of crude oil, such as diesel
fuel or kerosene jet fuel.
There is a lot of automatic wishful
thinking in this assumption. The trouble is that most retining companies own
huge amounts of crude oil reserves.
By all the logic of the situation, the
oil companies themselves should have
made the gas revolution. They not only
owned the gas, they also were the only
people experienced in handling, scrubbing, and using it and the only people
experienced in pipeline technology and
transmission. They also understood heating problems. But, partly because they
knew that natural gas would compete
with their own sale of heating oil, the oil
companies pooh-poohed the potential
of gas. The revolution wasfinallystarted
by oil pipeline executives who, unable to
persuade their own companies to go into
gas, quit and organized the spectacularly
successful gas transmission companies.
142
world. It can hardly wait for the underdeveloped nations to get a car in every
garage.
In the days of the kerosene lamp, the
oil companies competed with each other
and against gaslight by trying to improve the illuminating characteristics
of kerosene. Then suddenly the impossible happened. Edison invented a light
that was totally nondependent on crude
oil. Had it not been for the growing use
of kerosene in space heaters, the incandescent lamp would have completely
finished oil as a growth industry at that
time. Oil would have been good for little else than axle grease.
UARVARD BUSINESS REVIEW
Marketing Myopia • BEST OF HBR
Even after their success became painfully evident to the oil companies, the
latter did not go into gas transmission.
The multibillion-doilar business that
should have been theirs went to others.
As in the past, the industry was blinded
by its narrow preoccupation with a specific product and the value of its reserves.
It paid little or no attention to its customers’basic needs and preferences.
The postwar years have not witnessed
any change. Immediately after World
War II, the oil industry was greatly encouraged about its future by the rapid
increase in demand for its traditional
line of products. In 1950, most companies projected annual rates of domestic
expansion of around 6% through at least
1975- Though the ratio of crude oil reserves to demand in the free world was
about 20 to 1, with lo to 1 being usually
considered a reasonable working ratio
in the United States, booming demand
sent oil explorers searching for more
without sufficient regard to what the
future really promised. In 1952, they
“hit” in the Middle East; the ratio skyrocketed to 42 to 1. If gross additions to
reserves continue at the average rate of
the past five years (37 billion barrels annually), then by 1970, the reserve ratio
will be up to 45 to 1. This abundance of
oil has weakened crude and product
prices all over the world.
An Uncertain Future. Management
cannot find much consolation today in
the rapidly expanding petrochemical industry, another oil-using idea that did
not originate in the leading firms. The
total U.S. production of petrochemicals
is equivalent to about 2% (by volume)
of the demand for all petroleum products. Although the petrochemical industry is now expected to grow by about
10% per year, this will not offset other
drains on the growth of crude oil consumption. Furthermore, while petrochemical products are many and growing, it is important to remember that
there are nonpetroleum sources of the
basic raw material, such as coal. Besides,
a lot of plastics can be produced with
relatively little oil. A 50,000-barrel-perday oil refinery is now considered the
absolute minimum size for efficiency.
TOP-LINE GROWTH JULY-AUGUST 2004
But a 5,000-barrel-per-day chemical
plant is a giant operation.
Oil has never been a continuously
strong growth industry. It has grown by
fits and starts, always miraculously saved
by innovations and developments not of
its own making. The reason it has not
grown in a smooth progression is that
each time it thought it had a superior
product safe from the possibility of competitive substitutes, the product turned
out to be inferior and notoriously subject to obsolescence. Until now, gasoline
ecration of the countryside with advertising signs, and other wasteful and vulgar practices. Galbraith has a finger on
something real, but he misses the strategic point. Mass production does indeed generate great pressure to “move”
the product. But what usually gets emphasized is selling, not marketing. Marketing, a more sophisticated and complex process, gets ignored.
The difference between marketing
and selling is more than semantic. Selling focuses on the needs of the seller,
The history of every dead and dying “growth”
industry shows a self-deceiving cycle of bountiful
expansion and undetected decay.
(for motor fuel, anyhow) has escaped this
fate. But, as we shall see later, it too may
be on its last legs.
The point of all this is that there is
no guarantee against product obsolescence. If a company’s own research does
not make a product obsolete, another’s
will. Unless an industry is especially
lucky, as oil has been until now, it can
easily go down in a sea of red figuresjust as the railroads have, as the buggy
whip manufacturers have, as the comer
grocery chains have, as most of the big
movie companies have, and, indeed, as
many other industries have.
The best way for a firm to be lucky
is to make its own luck. That requires
knowing what makes a business successful. One of the greatest enemies of
this knowledge is mass production.
Production Pressures
Mass production industries are impelled
by a great drive to produce all they can.
The prospect of steeply declining unit
costs as output rises is more than most
companies can usually resist. The profit
possibilities look spectacular. All effort
focuses on production. The result is that
marketing gets neglected.
John Kenneth Galbraith contends that
just the opposite occurs.” Output is so
prodigious that all effort concentrates
on trying to get rid of it. He says this accounts for singing commercials, the des-
marketing on the needs of the buyer.
Selling is preoccupied with the seller’s
need to convert the product into cash,
marketing with the idea of satisfying
the needs of the customer by means
of the product and the whole cluster of
things associated with creating, delivering, and,finally,consuming it.
In some industries, the enticements of
full mass production have been so powerful that top management in effect has
told the sales department, “You get rid
of it; we’ll worry about profits.” By contrast, a truly marketing-minded firm
tries to create value-satisfying goods and
services that consumers will want to buy.
What it offers for sale includes not only
the generic product or service but also
how it is made available to the customer, in what form, when, under what
conditions, and at what terms of trade.
Most important, what it offers for sale
is determined not by the seller but by
the buyer. The seller takes cues from the
buyer in such a way that the product becomes a consequence of the marketing
effort, not vice versa.
A Lag in Detroit. This may sound
like an elementary rule of business, but
that does not keep it from being violated wholesale. It is certainly more violated than honored. Take the automobile industry.
Here mass production is most famous,
most honored, and has the greatest
143
BEST OF H B R • Marketing Myopia
impact on the entire society. The industry has hitched its fortune to the relentless requirements of the annual model
change, a policy that makes customer
orientation an especially urgent necessity. Consequently, the auto companies
annually spend millions of dollars on
consumer research. But the fact that the
new compact cars are selling so well in
their first year indicates that Detroit’s
vast researches have for a long time
secondary importance. That is underscored by the fact that the retailing and
servicing ends of this industry are neither owned and operated nor controlled
by the manufacturers. Once the car is
produced, things are pretty much in the
dealer’s inadequate hands. Illustrative
of Detroit’s arms-length attitude is the
fact that, while servicing holds enormous sales-stimulating, profit-building
opportunities, only 57 of Chevrolet’s
If thinking is an intellectual response to a problem,
then the absence of a problem leads to the absence
of thinking.
failed to reveal what customers really
wanted. Detroit was not convinced that
people wanted anything different from
what they had been getting until it lost
millions of customers to other small-car
manufacturers.
How could this unbelievable lag behind consumer wants have been perpetuated for so long? Why did not research reveal consumer preferences
before consumers’ buying decisions
themselves revealed the facts? Is that
not what consumer research is for-to
find out before the fact what is going
to happen? The answer is that Detroit
never really researched customers’wants.
It only researched their preferences between the kinds of things it had already
decided to offer them. For Detroit is
mainly product oriented, not customer
oriented. To the extent that the customer is recognized as having needs
that the manufacturer should try to satisfy, Detroit usually acts as if the job can
be done entirely by product changes.
Occasionally, attention gets paid to financing, too, but that is done more in
order to sell than to enable the customer to buy.
As for taking care of other customer
needs, there is not enough being done
to write about. The areas of the greatest
unsatisfied needs are ignored or, at best,
get stepchild attention. These are at the
point of sale and on the matter of automotive repair and maintenance. Detroit
views these problem areas as being of
144
7,000 dealers provide night maintenance service.
Motorists repeatedly express their dissatisfaction with servicing and their apprehensions about buying cars under
the present selling setup. The anxieties
and problems they encounter during
the auto buying and maintenance processes are probably more intense and
widespread today than many years ago.
Yet the automobile companies do not
seem to listen to or take their cues from
the anguished consumer. If they do listen, it must be through the filter of their
own preoccupation with production.
The marketing effort is still viewed as
a necessary consequence of the product – not vice versa, as it should be. That
is the legacy of mass production, with its
parochial view that profit resides essentially in low-cost full production.
What Ford Put First The profit lure
of mass production obviously has a place
in the plans and strategy of business
management, but it must always/o/Zow
hard thinking about the customer. This
is one of the most important lessons we
can learn from the contradictory behavior of Henry Ford. In a sense. Ford was
both the most brilliant and the most
senseless marketer in American history.
He was senseless because he refused to
give the customer anything but a black
car. He was brilliant because he fashioned a production system designed to
fit market needs. We habitually celebrate
him for the wrong reason: for his pro-
duction genius. His real genius was marketing. We think he was able to cut his
selling price and therefore sell millions
of $500 cars because his invention of
the assembly line had reduced the costs.
Actually, he invented the assembly line
because he had concluded that at $500
he could sell millions of cars. Mass production was the result, not the cause, of
his low prices.
Ford emphasized this point repeatedly, but a nation of production-oriented
business managers refuses to hear the
great lesson he taught. Here is his operating philosophy as he expressed it
succinctly:
Our policy is to reduce the price, extend the operations, and improve the
article. You will notice that the reduction of price comes first. We have
never considered any costs as fixed.
Therefore we first reduce the price to
the point where we believe more
sales will result. Then we go ahead
and try to make the prices. We do not
bother about the costs. The new price
forces the costs down. The more usual
way is to take the costs and then determine the price; and although that
method may be scientific in the narrow sense, it is not scientific in the
broad sense, because what earthly use
is it to know the cost if it tells you
that you cannot manufacture at a
price at which the article can be sold?
But more to the point is the fact that,
although one may calculate what a
cost is, and of course all of our costs
are carefully calculated, no one knows
what a cost ought to be. One of the
ways of discovering…is to name a
price so low as to force everybody in
the place to the highest point of efficiency. The low price makes everybody dig for profits. We make more
discoveries concerning manufacturing and selling under this forced
method than by any method of leisurely investigation.Product Provincialism. The tantalizing profit possibilities of low unit
production costs may be the most seriously self-deceiving attitude that can aff I ict a company, particularly a “growth”
company, where an apparently assured
HARVARD BUSINESS REVIEW
Marketing Myopia • BEST OF HBR
expansion of demand already tends to
undermine a proper concem for the importance of marketing and the customer.
The usual result of this narrow preoccupation with so-called concrete matters is that instead of growing, the industry declines. It usually means that
the product fails to adapt to the constantly changing patterns of consumer
needs and tastes, to new and modified
marketing institutions and practices,
or to product developments in competing or complementary industries. The
industry has its eyes sofirmlyon its own
specific product that it does not see how
it is being made obsolete.
The classic example of this is the
buggy whip industry. No amount of
product improvement could stave off its
death sentence. But had the industry defined itself as being in the transportation business rather than in the buggy
whip business, it might have survived.
It would have done what survival always entails – that is, change. Even if it
had only defined its business as providing a 5timulant or catalyst to an energy
source, it might have survived by becoming a manufacturer of, say, fan belts
or air cleaners.
What may someday be a still more
classic example is, again, the oil industry. Having let others steal marvelous
opportunities from it (including natural
gas, as already mentioned; missile fuels;
and jet engine lubricants), one would expect it to have taken steps never to let
that happen again. But this is not the
case. We are now seeing extraordinary
new developments in fuel systems specifically designed to power automobiles.
Not only are these developments concentrated in firms outside the petroleum industry, but petroleum is almost
systematically ignoring them, securely
content in its wedded bliss to oil. It is the
story of the kerosene lamp versus the
incandescent lamp ali over again. Oil is
trying to improve hydrocarbon fuels
rather than develop any fuels best suited
to the needs of their users, whether or
not made in different ways and with different raw materials from oil.
Here are some things tbat nonpetroleum companies are working on:
TOP-LINE GROWTH JULY-AUGUST 2004
• More than a dozen such firms now
have advanced working models of energy systems which, when perfected,
will replace the internal combustion engine and eliminate the demand for gasoline. The superior merit of each of these
systems is their elimination of frequent,
time-consuming, and irritating refueling stops. Most of these systems are fuel
cells designed to create electrical energy
directly from chemicals without combustion. Most of them use chemicals
that are not derived from oil-generally,
hydrogen and oxygen.
• Several other companies have advanced models of electric storage batteries designed to power automobiles.
One of these is an aircraft producer tbat
is working jointly with several electric
utility companies. The latter hope to use
off-peak generating capacity to supply
overnight plug-in battery regeneration.
Another company, also using the battery approach, is a medium-sized electronics finn with extensive small-battery
experience that it developed in connection with its work on hearing aids. It is
collaborating with an automobile manufacturer. Recent improvements arising
from the need for high-powered miniature power storage plants in rockets
have put us within reach of a relatively
small battery capable of withstanding
great overloads or surges of power. Germanium diode applications and batteries using sintered plate and nickel cadmium techniques promise to make a
revolution in our energy sources.
• Solar energy conversion systems are
also getting increasing attention. One
usually cautious Detroit auto executive
recently ventured that solar-powered
cars might be common by 1980.
As for the oil companies, they are
more or less “watching developments,”
as one research director put it to me.
A few are doing a bit of research on fuel
cells, but this research is almost always
confined to developing cells powered by
hydrocarbon chemicals. None of them is
enthusiastically researching fuel cells,
batteries, or solar power plants. None of
tbem is spending a fraction as much on
research in these profoundly important
areas as it is on tbe usual run-of-tbe-mill
things like reducing combustion chamber deposits in gasoline engines. One
major integrated petroleum company
recently took a tentative look at tbe fuel
cell and concluded that although “the
companies actively working on it indicate a belief in ultimate success…the
timing and magnitude of its impact are
too remote to warrant recognition in
our forecasts.”
One might, of course, ask. Why should
tbe oil companies do anything different? Would not chemical fuel cells, batteries, or solar energy kill the present
product lines? The answer is tbat tbey
would indeed, and that is precisely the
reason for the oil firms’ having to develop these power units before their
competitors do, so they will not be companies without an industry.
Management might be more likely
to do what is needed for its own preservation if it thought of itself as being
in the energy business. But even that
will not be enough if it persists in imprisoning itself in the narrow grip of its
tight product orientation. It has to think
of itself as taking care of customer
needs, notfinding,refining, or even selling oil. Once it genuinely thinks of its
The marketing effort
is still viewed as a
necessary consequence
of the product-not vice
versa, as it shouid be.
business as taking care of people’s transportation needs, nothing can stop it from
creating its own extravagantly profitable
growth.
Creative Destruction. Since words
are cheap and deeds are dear, it may be
appropriate to indicate what this kind
ofthinking involves and leads to. Let us
start at the beginning: the customer. It
can be shown that motorists strongly
dislike the bother, delay, and experience
of buying gasoline. People actually do
not buy gasoline. They cannot see it,
taste it, feel it, appreciate it, or really
test it. What they buy is the right to continue driving tbeir cars. The gas station
145
BEST OF H B R • Marketing Myopia
is like a tax collector to whom people
are compelled to pay a periodic toll as
the price of using their cars. This makes
the gas station a basically unpopular
institution. It can never be made popular or pleasant, only less unpopular, less
unpleasant.
Reducing its unpopularity completely
means eliminating it. Nobody likes a tax
collector.noteven a pleasantly cheerful
one. Nobody likes to interrupt a trip to
buy a phantom product, not even from a
handsome Adonis or a seductive Venus.
this day and age for a company or industry to let its sense of purpose become
dominated by the economies of full production and to develop a dangerously
lopsided product orientation. In short, if
management lets itself drift, it invariably drifts in the direction ofthinking
of itself as producing goods and services, not customer satisfactions. While
it probably will not descend to the
depths of telling its salespeople, “You
get rid of it; we’ll worry about profits,”
it can, without knowing it, be practicing
It is not surprising that, having created a
successful company by making a superior product,
management continues to be oriented toward the
product rather than the people who consume it.
Hence, companies that are working on
exotic fuel substitutes that will eliminate the need for frequent refueling are
heading directly into the outstretched
arms of the irritated motorist. They are
riding a wave of inevitability, not because they are creating something that
is technologically superior or more sophisticated but because they are satisfying a powerful customer need. They are
also eliminating noxious odors and air
pollution.
Once the petroleum companies recognize the customer-satisfying logic of
what another power system can do, they
will see that they have no more choice
about working on an efficient, longlasting fuel (or some way of delivering
present fuels without bothering the
motorist) than the big food chains had
a choice about going into the supermarket business or the vacuum tube
companies had a choice about making
semiconductors. For their own good, the
oil firms will have to destroy their own
highly profitable assets. No amount of
wishful thinking can save them from the
necessity of engaging in this form of
“creative destruction.”
I phrase the need as strongly as this
because I think management must make
quite an effort to break itself loose from
conventional ways. It is all too easy in
146
precisely that formula for withering
decay. The historic fate of one growth
industry after another has been its suicidal product provincialism.
Dangers of R&D
Another big danger to a firm’s continued growth arises when top management is wholly transfixed by the profit
possibilities of technical research and
development. To illustrate, I shall turn
first to a new industry-electronics-and
then return once more to the oil companies. By comparing a fresh example
with a familiar one, I hope to emphasize
the prevalence and insidiousness of a
hazardous way of thinking.
Marketing Shortchanged. In the case
of electronics, the greatest danger that
faces the glamorous new companies in
this field is not that they do not pay
enough attention to research and development but that they pay too much
attention to it. And the fact that the
fastest-growing electronics firms owe
their eminence to their heavy emphasis
on technical research is completely beside the point. They have vaulted to affluence on a sudden crest of unusually
strong general receptiveness to new
technical ideas. Also, their success has
been shaped in the virtually guaranteed
market of military subsidies and by mil-
itary orders that in many cases actually
preceded the existence of facilities to
make the products. Their expansion has,
in other words, been almost totally devoid of marketing effort.
Thus, they are growing up under conditions that come dangerously close to
creating the illusion that a superior
product will sell itself. It is not surprising that, having created a successful
company by making a superior product,
management continues to be oriented
toward the product rather than the people who consume it. It develops the philosophy that continued growth is a matter of continued product innovation
and improvement.
A number of other factors tend to
strengthen and sustain this belief:
1. Because electronic products are
highly complex and sophisticated, managements become top-heavy with engineers and scientists. This creates a
selective bias in favor of research and
production at the expense of marketing. The organization tends to view itself
as making things rather than as satisfying customer needs. Marketing gets
treated as a residual activity,”something
else” that must be done once the vital
iob of product creation and production
is completed.
2. To this bias in favor of product research, development, and production
is added the bias in favor of dealing
with controllable variables. Engineers
and scientists are at home in the world
of concrete things like machines, test
tubes, production lines, and even balance sheets. The abstractions to which
they feel kindly are those that are testable or manipulatable in the laboratory
or, if not testable, then functional, such
as Euclid’s axioms. In short, the managements of the new glamour-growth
companies tend to favor business activities that lend themselves to careful
study, experimentation, and control the hard, practical realities of the lab,
the shop, and the books.
What gets shortchanged are the realities of the market. Consumers are
unpredictable, varied, fickle, stupid,
shortsighted, stubborn, and generally
bothersome. This is not what the engiHARVARD BUSINESS REVIEW
Marketing Myopia • BEST OF HBR
neer managers say, but deep down in
their consciousness, it is what they believe. And this accounts for their concentration on what they know and what
they can control – namely, product research, engineering, and production.
The emphasis on production becomes
particularly attractive when the product can be made at declining unit costs.
There is no more inviting way of making money than by running the plant
full blast
The top-heavy science-engineeringproduction orientation of so many electronics companies works reasonably
well today because they are pushing
into new frontiers in which the armed
services have pioneered virtually assured
markets. The companies are in the felicitous position of having to fill, not find,
markets, of not having to discover what
the customer needs and wants but of
having the customer voluntarily come
forward with specific new product demands. If a team of consultants had been
assigned specifically to design a business
Reinventing L
A Breakthrough Approach
October 17-22
A program where Ihe business world’s most
courageous minds tackle Us most challenging
issues, execed.kellogg.northwestern.edu
847-491-3100
situation calculated to prevent the emergence and development of a customeroriented marketing viewpoint, it could
not have produced anything better than
the conditions just described.
Stepchild Treatment. The oil industry is a stunning example of how science, technology, and mass production
can divert an entire group of companies
from their main task. To the extent the
consumer is studied at ail (which is not
much), the focus is forever on getting
information that is designed to help
the oil companies improve what they
are now doing. They try to discover
more convincing advertising themes,
more effective sales promotional drives,
what the market shares of the various
companies are, what people like or dislike about service station dealers and
oil companies, and so forth. Nobody
seems as interested in probing deeply
into the basic human needs that the industry might be trying to satisfy as in
probing into the basic properties of
the raw material that the companies
work with in trying to deliver customer
satisfactions.
Basic questions about customers and
markets seldom get asked. The latter occupy a stepchild status. They are recognized as existing, as having to be taken
care of, but not worth very much real
thought or dedicated attention. No oil
company gets as excited about the customers in its own backyard as about the
oil in the Sahara Desert. Nothing illustrates better the neglect of marketing
than its treatment in the industry press.
The centennial issue of the American
Petroleum institute Quarterly, published
in 1959 to celebrate the discovery of oil
in Titusville, Pennsylvania, contained 21
feature articles proclaiming the industry’s greatness. Only one of these talked
about its achievements in marketing,
and that was only a pictorial record of
how service station architecture has
changed. The issue also contained a special section on “New Horizons,” which
was devoted to showingthe magnificent
role oil would play in America’s future.
BEST OF H B R • Marketing Myopia
Every reference was ebulliently optimistic, never implying once that oil might
have some hard competition. Even the
reference to atomic energy was a cheerful catalog of how oil would help make
atomic energy a success. There was not
a single apprehension that the oil industry’s affluence might be threatened or a
suggestion that one”new horizon” might
include new and better ways of serving
oil’s present customers.
But the most revealing example of
the stepchild treatment that marketing
gets is still another special series of short
articles on “The Revolutionary Potential of Electronics.” Under that heading,
this list of articles appeared in the table
of contents:
• “In the Search for Oil”
• “In Production Operations”
• “In Refinery Processes”
• “In Pipeline Operations”
Significantly, every one of the industry’s major functional areas is listed,
except marketing. Why? Either it is believed that electronics holds no revolutionary potential for petroleum marketing (which is palpably wrong), or
the editors forgot to discuss marketing
(which is more likely and illustrates its
stepchild status).
The order in which the four functional
areas are listed also betrays the alienation of the oil industry from the consumer. The industry is implicitly defined
as beginning with the search for oil and
ending with its distribution from the
refinery. But the truth is, it seems to me,
that the industry begins with the needs
of the customer for its products. From
that primal position its definition moves
steadily back stream to areas of progressively lesser importance until it finally comes to rest at the search for oil.
The Beginning and End. The view
that an industry is a customer-satisfying
process, not a goods-producing process,
is vital for all businesspeople to understand. An industry begins with the customer and his or her needs, not with a
patent, a raw material, or a selling skill.
Given the customer’s needs, the industry develops backwards, first concerning
itself with the physical delivery of customer satisfactions. Then it moves back
148
further to creating the things by which
these satisfactions are in part achieved.
How these materials are created is a matter of indifference to the customer, hence
the particular form of manufacturing,
processing, or what have you cannot be
considered as a vital aspect of the industry. Finally, the industry moves back still
further tofinding the raw materials necessary for making its products.
The irony of some industries oriented
toward technical research and development is that the scientists who occupy
the high executive positions are totally
unscientific wheu it comes to defining
their companies’ overall needs and purposes. They violate the first two rules
of the scientific method: being aware
of and defining their companies’ problems and then developing testable hypotheses about solving them. They are
scientific only about the convenient
things, such as laboratory and product
experiments.
factory to retail outlet. Their successful
concentration on products tends to convince them of the soundness of what they
have been doing, and they fail to see the
gathering clouds over the market.
Less than 75 years ago, American railroads enjoyed afierceloyalty among astute Wall Streeters. European monarchs
invested in them heavily. Eternal wealth
was thought to be the benediction for
anybody who could scrape together a
few thousand dollars to put into rail
stocks. No other form of transportation
could compete with the railroads in
speed, fiexibility, durability, economy,
and growth potentials.
As Jacques Barzuu put it,”By the tum
of the century it was an institution, an
image of man, a tradition, a code of
honor, a source of poetry, a nursery of
boyhood desires, a subiimest of toys,
and the most solemn machine – next
to the funeral hearse – that marks the
The customer (and the satisfaction of epochs in man’s life.'”‘
his or her deepest needs) is not considEven after the advent of automobiles,
ered to be “the problem”- not because trucks, and airplanes, the railroad tythere is any certain belief that no such coons remained imperturbably selfproblem exists but because an organi- confident. If you had told them 60 years
zational lifetime has conditioned man- ago that in 30 years they would be fiat
agement to look in the opposite direc- on their backs, broke, and pleading for
tion. Marketing is a stepchild.
government subsidies, they would have
thought
you totally demented. Such a
I do not mean that selling is ignored.
future
was
simply not considered posFar from it. But selling, again, is not marsible.
It
was
not even a discussable subketing. As already pointed out, selling
ject,
or
an
askable
question, or a matter
concerns itself with the tricks and techthat
any
sane
person
would consider
niques of getting people to exchange
worth
speculating
about.
Yet a lot of “intheir cash for your product, it is not
sane”
notions
now
have
matter-of-fact
concerned with the values that the exacceptance
for
example,
the idea of
change is ai! about. And it does not, as
100-ton
tubes
of
metal
moving
smoothly
marketing invariably does, view the enthrough
the
air
20,000
feet
above
the
tire business process as consisting of a
earth,
loaded
with
lOO
sane
and
solid
tightly integrated effort to discover, create, arouse, and satisfy customer needs. citizens casually drinking martinis The customer is somebody “out there” and they have dealt cruel blows to the
who, with proper cunning, can be sepa- railroads.
rated from his or her loose change.
What specifically must other comActually, not even selling gets much at- panies do to avoid this fate? What does
tention in some technologically minded customer orientation involve? These
firms. Because there is a virtually guar- questions have in part been answered
anteed market for the abundant fiow by the preceding examples and analyof their new products, they do not ac- sis. It would take another article to show
tually know what a real market is. It is in detail what is required for specific inas if they lived in a planned economy, dustries. In any case, it shouid be obvimoving their products routinely from ous that building an effective customerHARVARD BUSINESS REVIEW
Marketing Myopia • BEST OF H B R
oriented company involves far more than
In order to produce these customers,
good intentions or promotional tricks; the entire corporation must be viewed
it involves profound matters of buman as a customer-creating and customerorganization and leadership. For the satisfying organism. Management must
present, let me merely suggest what ap- think of itself not as producing products
pear to be some general requirements. but as providing customer-creating value
The Visceral Feel of Greatness. Ob- satisfactions. It must push this idea (and
viously, the company has to do what sur- everything it means and requires) Into
vival demands. It has to adapt to the re- every nook and cranny of the organizaquirements of the market, and it has to tion. It has to do this continuously and
do it sooner rather than later. But mere with the kind of fiair that excites and
survival is a so-so aspiration. Anybody stimulates the people in it. Otherwise,
can survive in some way or other, even the company will be merely a series of
the skid row bum. The trick is to survive pigeonholed parts, with no consolidatgallantly, to feel the surging impulse of ing sense of purpose or direction.
commercial mastery: not just to experiIn short, the organization must learn
ence the sweet smell of success but to to think of itself not as producing goods
have the visceral feel of entrepreneurial or services but as buying customers, as
greatness.
doing the things that will make people
No organization can achieve great- want to do business with it. And the
ness without a vigorous leader who is chief executive has the inescapable redriven onward by a pulsating will to sponsibility for creating this environsucceed. A leader has to have a vision ment, this viewpoint, this attitude, this
of grandeur, a vision that can produce aspiration. The chief executive must set
eager followers in vast numbers. In busi- the company’s style, its direction, and
ness, the followers are the customers. its goals. This means knowing precisely
where he or she wants to go and making
sure the whole organization is enthusiastically aware of where that is. This is
afirstrequisite of leadership, for unless a
leader knows where he is going, any road
will take him there.
Ifany road is okay, the chief executive
might as well pack his attachd case and
go fishing. If an organization does not
know or care where it is going, it does
not need to advertise that fact with a
ceremonial figurehead. Everybody will
notice it soon enough.
^
1. Jacques Barzun, “Trains and the Mind of Man,”
Holiday, February 1960,
2. For more details, see M.M. Zimmerman, The
Super Market: A Revolution in Distribution (McGrawHill, 1955).
3. Ibid., pp. 45-474. John Kenneth Galbraith, The Affluent Society
(Houghton Mifflin,i9s8).
5. Henry Ford, My Life and IVor/r (Doubleday, 1923).
6. Barzun,”Trainsandthe Mind of Man.”
Reprint R0407L; HBR OnPoint 7243
To order, see page 191-
“My goal is for our company to be a square on the Monopoly board.”
TOP-LINE GROWTH |ULY-AUGUST 2004
149