What business are you really
Written by Shirley Lichti for The Record,
August 20, 2003
What business are you in? No I mean what
business are you really in?
Many companies define themselves through
the products or services they offer. At the outset, this sounds
like a reasonable approach. In reality, however, taking a product-based
approach may narrow your focus and limit your organization's ability
to be competitive.
Theodore Levitt, a former Harvard Business
School professor, wrote that companies that took a product approach
suffered from marketing myopia. Although his classic article titled
Marketing Myopia, was written in 1960, it is still relevant today.
To avoid marketing myopia Levitt said businesses
should answer the question "What business are we in?" from the perspective
of what customers want, taking their opinions and input into consideration.
Companies that are product focused often
look to build the better mousetrap. They reason that if they can
come up with the best product or service, then people will beat
a path to their door.
Unfortunately, that is not always true. Many
a company has come up with offerings no one wants at prices that
A better strategy is to use a marketing approach.
Start by looking outside the company and analyzing your customers'
needs and wants. After all, if the focus of marketing were product,
it would be called "producting." It's not.
Adopting a marketing approach depends on
focusing on the customers and prospects who make up the marketplace.
Only after you understand them should you try to design goods and
services to satisfy their needs.
One of the industries Levitt lambasted in
his article as myopic was the petroleum industry. For years gas
stations took a product-based approach, defining themselves as being
in the business of selling gasoline.
More recently, with profit margins razor
thin, they have had to ask what business they were really in. Although
they still use the sale of gasoline to draw customers into their
stations, today it is the sale of convenience and food items that
helps them to stay profitable.
This change has been critical to the survival
of gas stations. Retailers that continued to focus only on gas,
such as Sunys and Pay Rite, have either gone bankrupt or exited
the market. Without new sources of revenue, they were unable to
carry on as gross revenue margins slipped to one cent a litre from
seven cents a decade earlier.
Today, successful retailers no longer define
themselves as being in the gasoline business, but ask what else
customers need and want that they can provide.
For example, American petroleum company,
Phillips 66, started transforming its Circle K and Union 76 gas
stations and convenience stores into e-commerce stations last year.
Customers can now stop for gas, make a pit stop, grab a drink and
a sandwich, check email and download MP3s before hitting the road
Levitt also criticized the railway industry
as being myopic. He felt that railways got into trouble because
they defined themselves too narrowly. They assumed they were in
the railroad business and, as a result, let automotive, trucking
and airline companies take customers away from them.
Yet not all rail businesses have become victims
of marketing myopia. Canadian Pacific Railway (CPR) has been very
successful. It was the world's largest privately owned transportation
firm until going public two years ago.
Rather than defining itself as being in the
railway industry, CPR embraced the concept of transportation and
expanded into trucking, airlines, shipping, and telecommunications.
It was also successful in a number of non-transportation areas such
as mining, hotels and real estate development, largely because of
its land holdings.
These companies were all spun out as separate
entities when the company went public, leaving CPR to focus on freight
services. Although the company has narrowed its focus, it recognizes
that satisfying customer needs is still its most important goal.
According to its web site, CPR is more than
just track and trains; it creates innovative solutions to meet customers'
unique shipping needs.
Focusing on its core competencies, the company
has invested heavily in new high-performance locomotives, information
systems, Intermodal terminals, track and signal improvements positioning
the company to operate more efficiently and accommodate traffic
Organizations need to continually re-evaluate
what business they are in. To continue growing you have to determine
what your customers need and want and then act on that information.
Regardless of what industry you are in, we
can all learn a lesson from Charles Revlon, owner of Revlon International
Corp., who clearly understood his customers and once said, "In the
factory we make cosmetics. In the department stores we sell hope."
How about you? What business are you in?