What business are you in? Or how not to be a railroad man

Levitt

Theodore Levitt was a marketing pioneer worth reading.

In his 1960 essay, “Marketing Myopia,” Harvard Business School professor Theodore Levitt famously asked readers to consider what business they were really in.

He argued that the railroads lost their market share (and nearly disappeared) because they incorrectly thought they were in the railroad business instead of the transportation business.

He suggested that Hollywood was losing ground to television because Hollywood myopically thought it was in the movie business rather than the entertainment business.

If you look at the best brands and most innovative companies, they are not really in the business of producing things, at least not in a narrow, utilitarian sense. They are in the business of meeting human needs.

When I think back to the introduction of the iPod, it’s real power lay not in storing and playing back MP3 files but in the way it revolutionized the music industry. iTunes was a game-changer because it pretty much made record companies obsolete. It seems the record companies forgot they were in the music business, not the CD business.

So what business are you in? Whether you work for a large organization or are self-employed, Levitt’s admonition to create satisfaction and value versus products is one worth remembering.

Here are five questions that will help you get at the root of the business you’re really in:

  1. Why do people buy your product or service? Probing deeply into the “why” question may just open your eyes—and present you with new possibilities. Are you truly meeting the needs of your customers? If not, what steps must you take to meet those needs?
  2. Are you the best at what you do? Successful people and companies figure out what they are great at (not just good at) and that’s what they pursue. Being great also means constantly reassessing where you are and what you do, so you don’t find yourself the last producer of slide rules or buggy whips.
  3. Are you willing to innovate and take chances? Levitt says beware of the “belief that there is no competitive substitute for the industry’s major product.” He gives example after example of how this kind of thinking has led to decline. Which brings me to my next point:
  4. Are you mired in incremental change? If this year’s model gets 1.5 miles to the gallon more than last year’s model, ho-hum. Levitt warns against “[p]reoccupation with a product that lends itself to carefully controlled scientific experimentation, improvement and manufacturing cost reduction.” Be willing to make big changes!
  5. Are you paying attention to trends? The reason trends are important is because they show patterns in consumer behavior, and they can point to new markets you should be exploring. Don’t put your head in the sand like the railroad barons of yesteryear and ignore your customers.

Great organizations understand that it’s always about the customer. “In short,” says Levitt, “the organization must learn to think of itself not as producing goods or services but as buying customers, as doing the things that will make people want to do business with it.”

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