What business are you really in?
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 are unattractive.

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 again.

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 growth.

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?

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