Twenty years ago if you wanted to watch a recently released movie, you would have rented a movie from your local video store such as Blockbuster. Ten years later, you could have a movie delivered to your home using Netflix, a mail order DVD delivery service. A few years later you could pick up a movie at one of the conveniently located Redbox kiosks in your drugstore or supermarket. Today, you can instantly download a movie through your local cable or satellite provider and Netflix and Redbox are offering their own instant streaming plans. Even online retailer Amazon.com is jumping into the fray. And where is Blockbuster, the movie rental company that in 2004 had over 60,000 employees and 9000 stores? It filed for bankruptcy in 2010 and was sold at auction in 2011. So what happened? How did Blockbuster go from being the number #1 movie rental company to bankrupt in six short years? Blockbuster fell into the trap of what Theodore Levitt labeled “marketing myopia”, a tendency for firms to define themselves in terms of their products and services instead of the needs they satisfy.
Levitt, in his now classic article, “Marketing Myopia” which was published in the Harvard Business Review in 1960, described the short-sightedness of companies when they define their businesses too narrowly. According to Levitt, marketing myopia occurs when a company fails to see the “big picture”. Levitt used the railroad industry as an example of how companies define their businesses too narrowly. He attributed the decline of the railroad industry in the 1960s not to a declining need for transportation, but to the railroads’ short-sightedness in failing to realize they were in the transportation business, not the railroad business. As other forms of transportation, such as automobiles and airplanes, became more popular, the railroads lost business. According to Levitt, “not because that need was filled by others (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.” By failing to broaden the scope of their business, railroads missed opportunities in the growing auto and air transportation business. Instead they focused on their declining railroad business while their customers satisfied their transportation needs elsewhere.
Kodak is another example of a company that failed to broaden the scope of their business. Kodak developed the first digital camera in the 1940s, yet they missed opportunities in the growing digital business because, like the railroads, they defined their business too narrowly and let others satisfy their customers. Kodak thought they were in the film business and failed to realize they were in the storytelling business. Although their customers changed the way they told their stories using digital instead of film, the need to share their stories didn’t change. Kodak paid the price for failing to broaden the scope of their business and filed for bankruptcy protection in 2012.
Two companies that have done a good job of broadening the scope of their business are Coca-Cola and McDonalds. Both have redefined their businesses, while still satisfying their customers’ basic needs. In the 1970s and 1980s, Coke was engaged in what was referred to as “the cola wars” with Pepsi Cola. The two corporate giants had defined their business as the soft drink business and they were vying for the title of the best tasting cola drink. Most of their marketing efforts during that time were focused on how to crush the other with taste test comparisons and Coke even went so far as to introduce a new Coke formula. By the early 1990s, who won the Cola wars was irrelevant since both companies were losing market share as their customers started drinking other beverages besides cola drinks. As their customers began consuming new categories of drinks including sport drinks, bottled water and energy drinks, Coke expanded their offerings to include beverages such as fruit drinks (Minute Maid and Simply), sports drinks (Powerade), energy drinks (Monster) and bottled water (Dasani). In over 100 years, Coke has expanded their offerings to over 500 branded drinks in order to satisfy their customers’ beverage needs.
The name McDonalds is synonymous with fast food and hamburgers. McDonalds was suffering losses in the early 2000s because their menu was not appealing to their customers’ changing tastes. McDonalds continued to lose market share until they realized they were in the fast food business, not the hamburger business. They made a concentrated effort to satisfy their customers’ needs and although they still sell hamburgers, their menu has expanded into salads, wraps, coffee drinks, smoothies and even grits for breakfast. McDonalds realized their continued success depends on their ability to satisfy their customers’ needs.
For companies to be successful they must focus on satisfying their customers’ needs. New technologies, cultural trends and social policies may change the product or the way the need is satisfied, but the underlying need will still be there. Companies must remember they sell solutions, not products, and if the solution changes, then the company must be willing to change in order to satisfy their customers’ needs. While no one can predict the future, in order to survive, companies must focus on satisfying their customer needs, not just the products they produce. They must define their businesses broadly to avoid marketing myopia. Companies must ask themselves, “What business are we in?”
Dr. Patricia Humphrey is a professor at the College of Business at Texas A&M University-Texarkana.