Theodore Levitt - son of a Jewish cobbler in Nazi Germany who immigrated to the US - was a highly acclaimed economist, professor at Harvard Business School and one-time editor of the Harvard Business Review. Apart from the one credited with coining the term 'Globalization' he's probably most remembered for his best-known article, "Marketing Myopia" published in 1960; not so much an article as a manifesto.
Picking up threads that he and others had prepared, Levitt wove a powerful argument that companies should stop defining themselves by what they produced or offered ("the drill") and instead reorient themselves toward customer needs ("the hole"). No one before had so aggressively and practically made the case for centering companies on Customers, and his ideas remain as relevant today - although often forgotten - as they were over half a century ago.
Let's start with a few examples: Does a person buy a Rolex to know the time? An upwardly mobile millennial buys a BMW to get from point A to point B? An industrialist buys a Mont Blanc pen to write? The answers are obvious: all these objects are clearly 'drills' … not the 'holes' the customer wants!
Levitt's central theme was about the shortsightedness of businesses defining what business they were in. Railroads in USA in the 60s were in deep trouble after almost a century of heady growth and huge profits. (They still are! Amtrak the regional rail network in USA, despite generous taxpayer subsidies has run operating losses every year since it began operating in 1971. This year it's expected to lose over $1 billion).
According to Levitt railroads got into trouble not because the need for passenger transportation had declined or even because that need had been filled by cars, airplanes, and other modes of transport. Rather, the industry had assumed they were in the railroad business rather than the transportation business. They were railroad oriented instead of transportation oriented; product oriented instead of customer oriented.
Fast forward and let's look at some of the products and services in the market today: Flipkart claims it was the first e-commerce company to hit the $1 billion sales mark in India with consumer electronics being the biggest revenue generator among all categories with the lifestyle category growing the fastest.
But exactly what business are Flipkart in? What benefit are they offering the Customer? Discounted products? Cheap mobile phones? Or is it 'Convenience'? If it's the last, how are they any different from say, Grofers, BookMyShow, MakeMyTrip or IRCTC - who all essentially offer the same - 'Convenience'? Buying on a computer or a smart phone instead of walking or driving to a physical point of sale.
The differentiation they all make is based on the 'product' or 'service' offered - the 'drill'; not the 'hole' the Customer is really looking for.
Facebook was launched in 2004 by Mark Zuckerberg with his college roommates and fellow Harvard University student Eduardo Saverin. The website's membership was initially limited to Harvard students but was expanded to other colleges in the Boston area, and later by September 2006, to anyone 13 years or older with a valid email address. 10 years later, at 1.8 billion, Facebook today has more monthly active users than WhatsApp (500 million), Twitter (284 million) and Instagram (200 million) - combined. It recently announced a profit of $3.57 billion in the last quarter of 2016, more than double the $1.56 billion it reported a year ago - and there no signs of any slowdown in growth.
But exactly what business is Facebook in? Sure, members don't pay for usership in cash, but it's their 'eyeballs' that enable Facebook to sell advertising. Actually each pair of eyeballs generated $4.83 in revenue in the fourth quarter of 2016, jumping from $3.73 a year earlier, helping send the company's revenue up 51% to $8.81 billion.
Are they in the 'Communication' business like CNN, 'Advertising Media' business like Star World, 'Entertainment' business like Netflix or in the 'Networking' business that enables people to 'meet', 'socialize', and exchange 'news and views' with friends like they used to do face-to-face before Facebook came along? Or are they in the business of providing 'emotional security' to young people who constantly need the oxygen of validation and peer approval ("Likes") to survive?
Not sure if Mark Zuckerberg has ever given this much thought, busy as he is counting all the money pouring in! What's the 'hole' his users want? Could Facebook be the railroad business of the 21st century?
Finally, let's look at Apple - financially the strongest company today, by far. Among global tech companies it has the highest revenue ($233 billion), profit ($53 billion), cash reserves ($216 billion) and market cap ($675 billion) which incidentally is more than that of Google and Microsoft combined. It's also a relatively 'old' company - set up in 1976 and it actually fumbled along for many years losing a long drawn patent infringement lawsuit to Microsoft in the 90s. So what changed? The answer: Steve Jobs.
He understood exactly what business Apple was in. To market portable lifestyle consumer electronic hardware that not just looks great but makes the Customer feel good. Remember the iPods around the turn of the century that drove Walkmans out? They were quietly phased out without a murmur when technology moved on. Jobs was a marketing genius who understood the 'hole' the Customer wanted. Theodore Levitt would have totally approved.
Guest Author
The author is a New York-based independent marketing consultant
