Reaction Paper

 

Reaction Paper to “Marketing Myopia”

Andy Gruenbaum

January 20, 1998

 

 

The leaders of today’s most successful companies appear to have taken the words and principles expressed by Theodore Levitt in “Marketing Myopia” to heart. In fact, the concepts expressed in his article have so vastly permeated the mind set of American business, that his ideas appear to recite good common business sense. Levitt believes that successful companies have broad policies and aims. Second, and at least equally important, companies need to have a fully integrated marketing program. These are two of his important concepts which still hold very true today. However, in 1960, I am sure these concepts seemed more revolutionary.

I agree whole-heartedly with Levitt’s statement that companies need to broadly define themselves. Further, I generally agree that in today’s highly technological and rapidly changing business environment, companies must choose the industry, not the product, in which they will compete. Although Levitt alludes to it, he does not discuss in detail, that a leader in the industry must also be very innovative. A company in a single industry must always remain on the cutting edge of innovation in order to remain the leader. To do so, management must commit resources to monitoring market trends, knowing customer demands and fully using technology. Often times, the innovative company is willing to take some calculated risk by introducing new concepts in its products which in return may yield rewards.

Bank One is an example of a very successful and innovative company which illustrates Levitt’s concepts of broadening its aims and policies. First, Bank One has always been willing to develop and market leading edge products for its industry. It was the first bank to market the VISA card outside of California. It also developed the first automatic teller machine. Clearly, Bank One’s early innovation has changed the market place of banking and has contributed to it being respected as a leading financial institution in the country.

However, innovation alone will not keep a company on top. Had Bank One relied solely on its VISA card marketplace or its ATM technology, it would probably be out of business today. A large part of its success is also attributable to its commitment to being in the investment management business, not just the banking business. Recognizing that it, like most traditional banks, was losing huge market share to the investment firms (e.g., Merrill Lynch), Bank One developed a top rated investment management business meant to compete directly with investment firms. Had Bank One been narrow minded and believed that its business was only to be a conservative lending and depository institution, it would not have survived. As those who lived through the Great Depression pass on and the baby boomers are planning for retirement, American investors are looking for more aggressive investments with better returns. Traditionally, banks have not been able to provide that. However, a company, such as Bank One which is in the investment management business has broad enough aims to remain competitive. This type of effort and behavior is precisely what Levitt preaches, and, in the case of Bank One, it has proven to be successful.

In his discussion of broadening aims and policies, Levitt does not warn businesses of some of the potential pitfalls a company may encounter while it endeavors to broaden its purpose. Levitt makes it seem easy, but clearly, it is not. Without focus, commitment, or expertise, a company’s efforts to broaden its aims and policies are doomed to fail. Certainly, a business which fails to adequately plan for its broader purpose puts the companies success, both financial and personnel, in jeopardy. Total executive management and vision is needed, and such vision must be clearly communicated to the rank and file employees. In some companies, changing the mind set of the business is an almost impossible task without a turnover in personnel. However, this is such a costly consequence to a company that great care and effort should be given from the onset. If it is a “take it or leave it” ultimatum, employees will be very reluctant to “buy in” to top management’s changes.

Furthermore, broadening the companies aims does not guarantee success if the company focuses on the whims of every customer. A company cannot be everything to every one. Those that try find out that customizing its products for every consumer results in an inefficient and unprofitable business. Such company will also invariably also have poor customer service, and thus, a poor reputation in the market place, because exception processing is not good service. Again, Levitt does not discuss this potential danger in his article. His principle that a company should serve the customers in its respectively defined industry is valid, but it is a very difficult goal to achieve. It requires astute wisdom to balance between providing good service and creating value and over servicing a customer to the point of unprofitability.

I believe that Levitt’s discussion of broadening the company’s aims and policies is still an important message in today’s market. His main reasons for the need of a company to broaden its aims is to fend off the obsolescence of its products. He does not, however, discuss the important fact that some company’s survive due to the fact they have diversified their lines of business as opposed to merely broadening their aims and policies. For example, had the tobacco companies not diversified their businesses to also invest in non-tobacco related products, they could not have survived the recent attacks against them. In fact, I think that Levitt underestimates the power that sheer size of a company has in the market place in that it permits companies to take advantage of economies of volume and scale which in turn, translate to lower prices for the consumer. Customers will tolerate lesser service (an indication that the company has not achieved perfection in its marketing efforts) for lower prices. This is especially true in the retail industry.

Another important concept that Levitt discusses is that companies have neglected marketing and have focused on selling. He defines marketing as a sophisticated and complex process of satisfying the customer’s needs. Selling, on the other hand, is employing tricks and techniques of getting rid of its products. In 1960, the marketing concept may have sounded like a good idea, but most companies probably did not adhere to this principle since the market place was continuing to rapidly expand. Thus, companies in mass production did not need to focus on “marketing” since great demand for their products still existed as the customer base expanded.

Levitt points out that most companies only focus on their products. For example, in a highly technical field too much emphasis may be placed on the profit possibility of research and development. R&D focuses on developing a superior product which the company believes will sell itself. That trend still continues today in some high tech companies. For example, Applied Innovation has been a very successful company through the years. In the past it has provided high tech products which have been in great demand by the giants of the telephone industry. However, over the last 12 months it has experienced much financial difficulties. Part of the reason for the down turn is due to changing market conditions and the inability to redefine their customer base. However, part of the reason is also due to Applied Innovation’s engineers’ focus on developing a product that it wanted to sell, not a product that its customers wanted to buy. Through classic Levitt marketing philosophy, Applied Innovation is in the process of focusing on the customers’ needs and creating a product that has value to them. Those efforts have already yielded positive results for the company in the form of a stronger stock price.

Levitt’s article, “Marketing Myopia” provides great insight into the need for corporate America to adopt a “marketing” philosophy. Unfortunately, by broadly defining the main principles, without discussing much detail, Levitt’s principles for success sound so easy to achieve. The reality is that although Levitt’s comments articulate the major concepts, the proof is in the details. I believe that most businesses are philosophically committed to having a fully integrated marketing approach within their businesses so that such companies can provide products which create value and satisfaction for their customers. The sad truth is that most companies still appear to be “selling” their products instead of “marketing” them. This is done because the skill of marketing is much more difficult and expensive to perfect than the skill of “selling”. Nevertheless, with the philosophy of marketing so firmly entrenched in the mind set of most companies, perhaps the next generation of management will be able to put it into action.

 

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