Revisiting Theodore Levitt and “Marketing Myopia”

Some business “fundamentals” change over time.  Others don’t, and the lessons of “Marketing Myopia” continue to apply fifty-four years after publication.

Theodore Levitt was born in 1925 in Germany, and in 1935, with his family, fled Nazi Germany for the US.  He earned a PhD in Economics from Ohio State University, began teaching at North Dakota State, and joined the faculty at the Harvard Business School in 1959.  He retired from there in 1990, having served as the editor of the Harvard Business Review from 1985 until his retirement.  He wrote eight books and 25 articles published in HBR.  In 1983, he created the term “globalization” as a strategic phenomenon. One of his singular accomplishments with the publication of “Marketing Myopia” was to vault marketing to a primary role in business; prior to that, it was a “corporate stepchild” (his words).  [http://www.news.harvard.edu/gazette/2006/07.20/99-levitt.html]

In 1960, Levitt published “Marketing Myopia” in the July-August issue of the Harvard Business Review.  It has become one of the most widely read and quoted papers in strategy. The lessons were valuable then, and remain so now.

The opening paragraph of the paper is gripping:

“Every major industry was once 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.”

He then uses the railroads as an example of how management failed:

“The railroads did not stop growing because the need for passenger and freight transportation declined.  That grew.  The railroads are in trouble today not because that need was filled by other (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 the transportation business.  The reason they defined their industry incorrectly was that they were railway oriented, not transportation oriented; they were product oriented instead of customer oriented.”

He calls this an “error of analysis” – defining an industry, product or “cluster of know-how” so narrowly that loss of competitive advantage is assured.

Looking at the company logos in Figure 1, we can see some companies that clearly have their best days behind them, some that have reinvented themselves, and some whose best days are probably still in the future.

Figure 1:  Growth Companies:  Past, Present, and Future?

Applying Levitt’s thinking, what business was Kodak in?  Memories?  Photography?  Image capture?  Wet chemistry?

What about Google?  Search?  Advertising? Data management/organization?

The story arc of “Marketing Myopia” starts with that epic description of management failure along with some rather compelling examples.  Not shying away from controversy, he continues to develop the reasons why this happens:

“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 ever more affluent population;
2. The belief that there is no competitive substitute for the industry’s major product;
3. Too much faith in mass production and 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.

 The Population Myth

Levitt argues that the old “rising tide lifts all boats” mentality leads to lazy managerial behavior.  “An expanding market,” he writes, “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 an absence of thinking. If your product has an automatically expanding market, then you will not give much thought to how to expand it.”  In essence, companies practice active ignorance of the adoption lifecycle.  The nature of competition is principally around adding incremental features and improvements to an established product.

Figure 2:  The Rising Tide Requires Suspension of Belief

The Indispensability Myth

The belief that there is no competitive substitute for what an industry offers is caused by a very narrow definition of the product:  railroads, not transportation; gasoline, not energy; PCs, not productivity. There are two effects of this type of thinking: first, like in the population myth, resources within a firm will be directed to making improvements in the core product.  The second effect is more profound:  no resources will be directed to displacing the core product.  “If a company’s own research does not make a product obsolete, another’s will,” wrote Levitt.  (It’s amazing that this advice still falls on deaf ears!) These effects lead to complacent behavior, which will immediately turn defensive when disruptive products arrive from (unforeseen) competitors.

Production Solves Everything Myth

The previous two conditions cause a drive to increase production to lower unit costs and higher profits.  Research efforts are (once again) focused on how to improve the current product, which leads to a massive investment in the status quo.

It also leads to a lot of inventory, which drives the need for a great deal of selling.  Levitt is quick to point out that selling is not marketing; in fact, in the drive to unload all this production as quickly as possible, marketing gets neglected.  Selling is a company-centric activity, he maintains, whereas marketing is a customer-focused activity.

The net result of all this focus on production and selling is 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 of complementary industries.  The industry has its eyes so firmly on its own specific product that it does not see how it is being made obsolete.”

R&D Breeds Success Myth

It is natural, and is actually at the root of the “fundamental challenge of strategy”, that a company that becomes successful by selling a technically superior product, will try and make it more technical, and thus more superior.  It gets management close to “Field of Dreams” thinking:  If we build it, buyers will come. “…[G]rowth is a matter of continued product innovation and improvement.”

Somewhat predictably, this also leads to massive investments in status quo, incremental improvements in product, and very defensive behavior with respect to competition.

What is the missing element from all these conditions?

Customers!

Technology-based firms tend to have technology-based management, and technology-based management often would rather not deal with customers.  To them (using Levitt’s words, and one of the great phrases of business writing), “customers are unpredictable, varied, fickle, stupid, shortsighted, stubborn and generally bothersome.”

But, he concludes: “An industry begins with the customer and his or her needs, not with a patent, a raw material, or a selling skill.”

Levitt primarily used the petroleum industry to demonstrate how these myths led to flawed decision-making; I would suggest that using the PC industry (and particularly Microsoft’s behavior in the 2000’s) make an equally compelling case.

Figure 3:  PC Sales as Category Matures

Both are examples of product-centric industries; shortly after the iPad was introduced, Steve Jobs proclaimed it the “post-PC era”.  Steve Ballmer of Microsoft countered that it was the “PC-Plus” era.  Whichever it was, more people wanted to consume digital content on tablets than they did on PCs, regardless of how fast the PC was, how big the hard drive was, how much RAM it had, the resolution of it’s display, or the version of the operating system.

Conclusion

Summarizing the lessons from “Marketing Myopia” in four simple bullets:

• Success derives from continually developing value for customers
• Customers don’t buy products, they buy solutions (Levitt was an early proponent of the “jobs to be done” school of thought.  He often said that “people don’t want a quarter inch drill, they want a quarter-inch hole”.)
• Staying in touch with the market is essential for survival, but survival is not a lofty goal
• Great leaders “…feel the surging success of commercial mastery…have the visceral feel of entrepreneurial greatness.”