BESTi 9 6 0

We always know when an HBR article hits the big time. Journalists write aboutit, pundits talk about it, executives routecopiesof it around the organization,and its vocabulary becomes familiar to managers everywhere -sometimes tothe point where they don't even associate the words with the original article.Most important, of course, managers change how they do business because theideas in the piece helped them see issues in a new light.

"Marketing Myopia" is the quintessential big hit HBR piece. In it,TheodoreLevitt, who was then a lecturer in business administration at the Harvard Busi-ness School, introduced the famous question,"What business are you really in?"and with ittheclaim that, had railroad executives seen themselves as being inthe transportation business rather than the railroad business, they would havecontinued to grow. The article is as much about strategy as it is about market-ing, but it also introduced the most influential marketing idea of the past half-century: that businesses wilt do better in the end if they concentrate on meetingcustomers'needs rather than on selling products. "Marketing Myopia" won theMcKinsey Award in i960.

Marketing Myopiaby Theodore Levitt

Sustained growth dependson how broadly you defineyour business-and howcarefully you gauge yourcustomers'needs.

E VERY MAJOR INDUSTRY WaSa growth industry. But some that

are now riding a wave of growth en-thusiasm are very much in the shadowof decline. Others that are thought of asseasoned growth industries have actu-ally stopped growing. In every case, thereason growth is threatened, slowed, orstopped is not because the market issaturated. It is because there has beena failure of management.

Fateful PurposesThe failure is at the top. The executivesresponsible for it, in the last analysis,are those who deal with broad aims andpolicies. Thus:

• The railroads did not stop growingbecause the need for passenger and

freight transportation declined. Thatgrew. The railroads are in trouble todaynot because that need was filled byothers (cars, trucks, airplanes, and eventelephones) but because it was not filledby the railroads themselves. They letothers take customers away from thembecause they assumed themselves to bein the railroad business rather than intbe transportation business. The reasonthey defined their industry incorrectlywas that they were railroad orientedinstead of transportation oriented; theywere product oriented instead of cus-tomer oriented.

• Hollywood barely escaped being to-tally ravished by television. Actually, allthe established film companies wentthrough drastic reorganizations. Some

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simply disappeared. All of them got intotrouble not because of TV's inroads butbecause of their own myopia. As withthe railroads, Hollywood defined itsbusiness incorrectly. It thought it wasin the movie business when It was ac-tually in the entertainment business."Movies" implied a specific,limited product. This produceda fatuous contentment thatfrom the beginning led pro-ducers to view TV as a threat.Hollywood scorned and re-jected TV when it should havewelcomed it as an opportu-nity-an opportunity to expandthe entertainment business.

Today, TV is a bigger busi-ness than the old narrowlydefined movie business everwas. Had Hollywood been cus-tomer oriented (providing en-tertainment) rather than prod-uct oriented (making movies),would it have gone throughthe fiscal purgatory that itdid? 1 doubt it. What ulti-mately saved Hollywood andaccounted for its resurgencewas the wave of new youngwriters, producers, and direc-tors whose previous successesin television had decimatedthe old movie companies andtoppled the big movie moguls.

There are other, less obviousexamples of industries that have beenand are now endangering their futuresby improperly defining their purposes.I shall discuss some of them in detaillater and analyze the kind of policies thatlead to trouble. Right now, it may helpto show what a thoroughly customer-oriented management can do to keepa growth industry growing, even afterthe obvious opportunities have beenexhausted, and here there are two ex-amples that have been around for a longtime. They are nylon and glass-specifi-cally, E.I. du Pont de Nemours and Com-pany and Corning Glass Works.

Both companies have great technicalcompetence. Their product orientationis unquestioned. But this alone does notexplain their success. After all, who was

more pridefully product oriented andproduct conscious than the erstwhileNew England textile companies thathave been so thoroughly massacred?The DuPonts and the Comings havesucceeded not primarily because oftheir product or research orientation

but because they have been thoroughlycustomer oriented also. It is constantwatchfulness for opportunities to applytheir technical know-how to the cre-ation of customer-satisfying uses thataccounts for their prodigious output ofsuccessful new products. Without a verysophisticated eye on the customer, mostof their new products might have beenwrong, their sales methods useless.

Aluminum has also continued to bea growth industry, thanks to the effortsof two wartime-created companies thatdeliberately set about inventing newcustomer-satisfying uses. Without Kai-ser Aluminum & Chemical Corporationand Reynolds Metals Company.the totaldemand for aluminum today would bevastly less.

Error of Analysis. Some may arguethat it is foolish to set the railroads offagainst aluminum or the movies offagainst glass. Are not aluminum andglass naturally so versatile that the in-dustries are bound to have more growthopportunities than the railroads and

the movies? This view commitsprecisely the error I have beentalking about. It defines an in-dustry or a product or a clusterof know-how so narrowly as toguarantee its premature senes-cence. When we mention "rail-roads," we should make surewe mean "transportation." Astransporters, the railroads stillhave a good chance for veryconsiderable growth. They arenot limited to the railroad busi-ness as such (though in myopinion, rail transportation ispotentially a much strongertransportation medium thanis generally believed).

What the railroads lack isnot opportunity but some ofthe managerial imaginative-ness and audacity that madethem great. Even an amateurlike Jacques Barzun can seewhat is lacking when he says,"I grieve to see the most ad-vanced physical and social or-ganization of the last centurygo down in shabby disgrace for

lack ofthe same comprehensive imagi-nation that built it up. [What is lackingis] the will of the companies to surviveand to satisfy the public by inventive-ness and skill."'

Shadow of ObsolescenceIt is impossible to mention a singlemajor industry that did not at one timequalify for the magic appellation of"growth industry." In each case, the in-dustry's assumed strength lay in the ap-parently unchallenged superiority of itsproduct There appeared to be no effec-tive substitute for it. It was itself a run-away substitute for the product it sotriumphantly replaced. Yet one afteranother of these celebrated industrieshas come under a shadow. Let us look

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briefly at a few more of them, this timetaking examples that have so far receiveda little less attention.

Dry Cleaning. This was once a growthindustry with lavish prospects. In an ageof wool garments, imagine being finallyable to get them clean safely and eas-ily. The boom was on. Yet here we are 30years after the boom started, and theindustry is in trouble. Where has thecompetition come from? From a betterway of cleaning? No. It has come fromsynthetic fibers and chemical additivesthat have cut the need for dry cleaning.But this is only the beginning. Lurkingin the wings and ready to make chemi-cal dry cleaning totally obsolete is thatpowerful magician, ultrasonics.

Electric Utilities. This is another oneof those supposedly "no substitute"products that has been enthroned ona pedestal of invincible growth. Whenthe incandescent lamp came along, ker-osene lights were finished. Later, thewaterwheel and the steam engine werecut to ribbons by the flexibility, reliabil-ity, simplicity, and just plain easy avail-ability of electric motors. The prosperityof electric utilities continues to wax ex-travagant as the home is converted intoa museum of electric gadgetry. Howcan anybody miss by investing in utili-ties, with no competition, nothing butgrowth ahead?

But a second look is not quite so com-forting. A score of nonutility compa-nies are well advanced toward develop-ing a powerful chemical fuel cell, whichcould sit in some hidden closet of everyhome silently ticking off electric power.The electric lines that vulgarize so manyneighborhoods would be eliminated. Sowould the endless demolition of streetsand service interruptions during storms.Also on the horizon is solar energy, againpioneered by nonutility companies.

Who says that the utilities have nocompetition? They may be natural mo-

Theodore Levitt, a longtime professor ofmarketing at Harvard Business School InBoston, is now professor emeritus. His mostrecent books are Thinking About Man-agement (1(^90) and The Marketing Imag-ination (1983), both from Free Press.

nopolies now, but tomorrow they maybe natural deaths. To avoid this pros-pect, they too will have to develop fuelcells, solar energy, and other powersources.Tosurvive,they themselves willhave to plot the obsolescence of whatnow produces their livelihood.

Grocery Stores. Many people find ithard to realize that there ever was athriving establishment known as the"corner store." The supermarket tookover with a powerful effectiveness. Yetthe big food chains of the ig3os nar-rowly escaped being completely wipedout by the aggressive expansion of in-dependent supermarkets. The first gen-uine supermarket was opened in 1930,in Jamaica, Long Island. By 1933, super-markets were thriving in California,Ohio, Pennsylvania, and elsewhere. Yetthe established chains pompously ig-nored them. When they chose to noticethem, it was with such derisive descrip-tions as "cheapy," "horse-and-buggy,""cracker-barrel storekeeping" and "un-ethical opportunists."

The executive of one big chain an-nounced at the time that he found it"hard to believe that people will drivefor miles to shop for foods and sacrificethe personal service chains have per-fected and to which [the consumer] isaccustomed."' As late as 1936, the Na-tional Wholesale Grocers conventionand the New Jersey Retail Grocers As-sociation said there was nothing to fear.They said that the supers' narrow ap-peal to the price buyer limited the sizeof their market. They had to draw frommiles around. When imitators came,there would be wholesale liquidationsas volume fell. The high sales of thesupers were said to be partly due totheir novelty. People wanted convenientneighborhood grocers. If the neighbor-hood stores would "cooperate with theirsuppliers, pay attention to their costs,and improve their service," they wouldbe able to weather the competition untilit blew over.'

It never blew over. The chains discov-ered that survival required going intothe supermarket business. This meantthe wholesale destruction of their hugeinvestments in corner store sites and in

established distribution and merchan-dising methods. The companies with"the courage of their convictions" reso-lutely stuck to the corner store philoso-phy. They kept their pride but lost theirshirts.

A Self-Deceiving Cycle. But memo-ries are short. For example, it is hard forpeople who today confidently hail thetwin messiahs of electronics and chem-icals to see how things could possiblygo wrong with these galloping indus-tries. They probably also cannot see howa reasonably sensible businesspersoncould have been as myopic as the fa-mous Boston millionaire who early inthe twentieth century unintentionallysentenced his heirs to poverty by stipu-lating that his entire estate be foreverinvested exclusively in electric streetcarsecurities. His posthumous declaration,"There will always be a big demand forefficient urban transportation," is noconsolation to his heirs, who sustain lifeby pumping gasoline at automobile fill-ing stations.

Yet, in a casual survey I took amonga group of intelligent business execu-tives, nearly half agreed that it wouldbe hard to hurt their heirs by tyingtheir estates forever to the electronicsindustry. When I then confronted themwith the Boston streetcar example, theychorused unanimously, "That's differ-ent!" But is it? Is not the basic situationidentical?

In truth, there is no such thing as agrowth industry, I believe.There are onlycompanies organized and operated tocreate and capitalize on growth oppor-tunities. Industries that assume them-selves to be riding some automaticgrowth escalator invariably descendinto stagnation. The history of everydead and dying"growth"industry showsa self-deceiving cycle of bountiful ex-pansion and undetected decay. Thereare four conditions that usually guar-antee this cycle:

1. The belief that growth is assuredby an expanding and more affluentpopulation;

2. The belief that there is no compet-itive substitute forthe industry's majorproduct;

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3. Too much faith in mass productionand in the advantages of rapidly declin-ing unit costs as output rises;

4. Preoccupation with a product thatlends itself to carefully controlled sci-entific experimentation, improvement,and manufacturing cost reduction.

I should like now to examine each ofthese conditions in some detail. To buildmy case as boldly as possible, I shallillustrate the points with reference tothree industries: petroleum, automo-biles, and electronics. I'll focus on pe-troleum in particular, because it spansmore years and more vicissitudes. Notonly do these three industries haveexcellent reputations with the generalpublic and also enjoy the confidence ofsophisticated investors, but their man-agements have become known for pro-gressive thinking in areas like financialcontrol, product research, and manage-ment training. If obsolescence can crip-ple even these industries, it can happenanywhere.

Population MythThe belief that profits are assured by anexpanding and more affluent popula-tion is dear to the heart of every indus-try. It takes the edge off the apprehen-sions everybody understandably feelsabout the future. If consumers are mul-tiplying and also buying more of yourproduct or service, you can face the fu-ture with considerably more comfortthan if the market were shrinking. Anexpanding market keeps the manufac-turer from having to think very hard orimaginatively. If thinking is an intel-lectual response to a problem, then theabsence of a problem leads to the ab-sence of thinking. If your product has anautomatically expanding market, thenyou will not give much thought to howto expand it.

One of the most interesting exam-ples of this is provided by the petroleumindustry. Probably our oldest growth in-dustry, it has an enviable record. Whilethere are some current concerns aboutits growth rate, the industry itself tendsto be optimistic.

But 1 believe it can be demonstratedthat it is undergoing a fundamental yet

typical change. It is not only ceasing tobe a growth industry but may actuallybe a declining one, relative to other busi-nesses. Although there is widespread un-awareness of this fact, it is conceivablethat in time, the oil industry may finditself in much the same position of ret-rospective glory that the railroads arenow in. Despite its pioneering work indeveloping and applying the present-value method of investment evaluation,in employee relations, and in workingwith developing countries, the petro-leum business is a distressing exampleof how complacency and wrongheaded-ness can stubbornly convert opportu-nity into near disaster.

One of the characteristics of this andother industries that have believed verystrongly in the beneficial consequencesof an expanding population, while at thesame time having a generic product for

which there has appeared to be no com-petitive substitute, is that the individualcompanies have sought to outdo theircompetitors by improving on what theyare already doing. This makes sense, ofcourse, if one assumes that sales are tiedto the country's population strings, be-cause the customer can compare prod-ucts only on a feature-by-feature basis.I believe it is significant, for example,that not since John D. Rockefeller sentfree kerosene lamps to China has theoil industry done anything really out-standing to create a demand for its prod-uct. Not even in product improvementhas it showered itself with eminence.The greatest single improvement-thedevelopment of tetraethyl lead-camefrom outside the industry, specificallyfrom General Motors and DuPont. Thebig contributions made by the industryitself are confined to the technology of

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oil exploration, oil production, and oilrefining.

Asking for Trouble. In other words,the petroleum industry's efforts have fo-cused on improving the efficiency of get-ting and making its product, not reallyon improving the generic product or itsmarketing. Moreover, its chief productbas continually been defined in the nar-rowest possible terms - namely, gaso-line, not energy, fuel, or transportation.This attitude has helped assure that:

• Major improvements in gasolinequality tend not to originate in the oil in-dustry. The development of superior al-ternative fuels also comes from outsidethe oil industry, as will be shown later.

• Major innovations in automobilefuel marketing come from small, newoil companies that are not primarily pre-occupied with production or refining.These are the companies that have beenresponsible for the rapidly expandingmuttipump gasoline stations, with theirsuccessful emphasis on large and cleanlayouts, rapid and efficient driveway ser-vice, and quality gasoline at low prices.

Thus, the oil industry is asking fortrouble from outsiders. Sooner or later,in this land of hungry investors and en-trepreneurs, a threat is sure to come.The possibility of this will become more

These have value only if there is a mar-ket for products into which oil can beconverted. Hence the tenacious beliefin the continuing competitive superi-ority of automobile fuels made fromcrude oil.

This idea persists despite all historicevidence against it. The evidence notonly shows that oil has never been a su-perior product for any purpose for verylong but also that the oil industry hasnever really been a growth industry.Rather, it has been a succession of differ-ent businesses that have gone throughthe usual historic cycles of growth, matu-rity, and decay. The industry's overallsurvival is owed to a series of miraculousescapes from total obsolescence, of last-minute and unexpected reprieves fromtotal disaster reminiscent of the perils ofPauline.

The Perils of Petroleum. To illus-trate, I shall sketch in only the mainepisodes. First, crude oil was largely apatent medicine. But even before thatfad ran out, demand was greatly ex-panded by the use of oil in kerosenelamps. The prospect of lighting theworld's lamps gave rise to an extrava-gant promise of growth. The prospectswere similar to those the industry nowholds for gasoline in other parts of the

It is hard for people who hail the twin messiahs ofelectronics and chemicals to see how things couldpossibly go wrong with these galloping industries.

apparent when we tum to the next dan-gerous belief of many managements.For the sake of continuity, because thissecond belief is tied closely to the first,I shall continue with the same example.

The Idea of Indispensability. Thepetroleum industry is pretty much con-vinced that there is no competitive sub-stitute for its major product, gasoline -or, if there is, that it will continue to bea derivative of crude oil, such as dieselfuel or kerosene jet fuel.

There is a lot of automatic wishfulthinking in this assumption. The trou-ble is that most retining companies ownhuge amounts of crude oil reserves.

world. It can hardly wait for the under-developed nations to get a car in everygarage.

In the days of the kerosene lamp, theoil companies competed with each otherand against gaslight by trying to im-prove the illuminating characteristicsof kerosene. Then suddenly the impos-sible happened. Edison invented a lightthat was totally nondependent on crudeoil. Had it not been for the growing useof kerosene in space heaters, the incan-descent lamp would have completelyfinished oil as a growth industry at thattime. Oil would have been good for lit-tle else than axle grease.

Then disaster and reprieve struckagain. TVvo great innovations occurred,neither originating in the oil industry.First, the successful development of coal-burning domestic central-heating sys-tems made the space heater obsolete.While the industry reeled, along cameits most magnificent boost yet: the in-temal combustion engine, also inventedby outsiders. Then, when the prodigiousexpansion for gasoline finally began tolevel off in the 1920s, along came the mi-raculous escape of the central oil heater.Once again, the escape was providedby an outsider's invention and develop-ment. And when that market weakened,wartime demand for aviation fuel cameto the rescue. After the war, the expan-sion of civilian aviation, the dieselizationof railroads, and the explosive demandfor cars and trucks kept the industry'sgrowth in high gear.

Meanwhile, centralized oil heating-whose boom potential had only recentlybeen proclaimed-ran into severe com-petition from natural gas. While the oilcompanies themselves owned the gasthat now competed with their oil, theindustry did not originate the naturalgas revolution, nor has it to this daygreatly profited from its gas ownership.The gas revolution was made by newlyformed transmission companies thatmarketed the product with an aggres-sive ardor. They started a magnificentnew industry, first against the adviceand then against tbe resistance of theoil companies.

By all the logic of the situation, theoil companies themselves should havemade the gas revolution. They not onlyowned the gas, they also were the onlypeople experienced in handling, scrub-bing, and using it and the only peopleexperienced in pipeline technology andtransmission. They also understood heat-ing problems. But, partly because theyknew that natural gas would competewith their own sale of heating oil, the oilcompanies pooh-poohed the potentialof gas. The revolution was finally startedby oil pipeline executives who, unable topersuade their own companies to go intogas, quit and organized the spectacularlysuccessful gas transmission companies.

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Even after their success became pain-fully evident to the oil companies, thelatter did not go into gas transmission.The multibillion-doilar business thatshould have been theirs went to others.As in the past, the industry was blindedby its narrow preoccupation with a spe-cific product and the value of its reserves.It paid little or no attention to its custom-ers'basic needs and preferences.

The postwar years have not witnessedany change. Immediately after WorldWar II, the oil industry was greatly en-couraged about its future by the rapidincrease in demand for its traditionalline of products. In 1950, most compa-nies projected annual rates of domesticexpansion of around 6% through at least1975- Though the ratio of crude oil re-serves to demand in the free world wasabout 20 to 1, with lo to 1 being usuallyconsidered a reasonable working ratioin the United States, booming demandsent oil explorers searching for morewithout sufficient regard to what thefuture really promised. In 1952, they"hit" in the Middle East; the ratio sky-rocketed to 42 to 1. If gross additions toreserves continue at the average rate ofthe past five years (37 billion barrels an-nually), then by 1970, the reserve ratiowill be up to 45 to 1. This abundance ofoil has weakened crude and productprices all over the world.

An Uncertain Future. Managementcannot find much consolation today inthe rapidly expanding petrochemical in-dustry, another oil-using idea that didnot originate in the leading firms. Thetotal U.S. production of petrochemicalsis equivalent to about 2% (by volume)of the demand for all petroleum prod-ucts. Although the petrochemical in-dustry is now expected to grow by about10% per year, this will not offset otherdrains on the growth of crude oil con-sumption. Furthermore, while petro-chemical products are many and grow-ing, it is important to remember thatthere are nonpetroleum sources of thebasic raw material, such as coal. Besides,a lot of plastics can be produced withrelatively little oil. A 50,000-barrel-per-day oil refinery is now considered theabsolute minimum size for efficiency.

But a 5,000-barrel-per-day chemicalplant is a giant operation.

Oil has never been a continuouslystrong growth industry. It has grown byfits and starts, always miraculously savedby innovations and developments not ofits own making. The reason it has notgrown in a smooth progression is thateach time it thought it had a superiorproduct safe from the possibility of com-petitive substitutes, the product turnedout to be inferior and notoriously sub-ject to obsolescence. Until now, gasoline

ecration of the countryside with adver-tising signs, and other wasteful and vul-gar practices. Galbraith has a finger onsomething real, but he misses the stra-tegic point. Mass production does in-deed generate great pressure to "move"the product. But what usually gets em-phasized is selling, not marketing. Mar-keting, a more sophisticated and com-plex process, gets ignored.

The difference between marketingand selling is more than semantic. Sell-ing focuses on the needs of the seller,

The history of every dead and dying "growth"industry shows a self-deceiving cycle of bountifulexpansion and undetected decay.

(for motor fuel, anyhow) has escaped thisfate. But, as we shall see later, it too maybe on its last legs.

The point of all this is that there isno guarantee against product obsoles-cence. If a company's own research doesnot make a product obsolete, another'swill. Unless an industry is especiallylucky, as oil has been until now, it caneasily go down in a sea of red figures-just as the railroads have, as the buggywhip manufacturers have, as the comergrocery chains have, as most of the bigmovie companies have, and, indeed, asmany other industries have.

The best way for a firm to be luckyis to make its own luck. That requiresknowing what makes a business suc-cessful. One of the greatest enemies ofthis knowledge is mass production.

Production PressuresMass production industries are impelledby a great drive to produce all they can.The prospect of steeply declining unitcosts as output rises is more than mostcompanies can usually resist. The profitpossibilities look spectacular. All effortfocuses on production. The result is thatmarketing gets neglected.

John Kenneth Galbraith contends thatjust the opposite occurs." Output is soprodigious that all effort concentrateson trying to get rid of it. He says this ac-counts for singing commercials, the des-

marketing on the needs of the buyer.Selling is preoccupied with the seller'sneed to convert the product into cash,marketing with the idea of satisfyingthe needs of the customer by meansof the product and the whole cluster ofthings associated with creating, deliver-ing, and, finally, consuming it.

In some industries, the enticements offull mass production have been so pow-erful that top management in effect hastold the sales department, "You get ridof it; we'll worry about profits." By con-trast, a truly marketing-minded firmtries to create value-satisfying goods andservices that consumers will want to buy.What it offers for sale includes not onlythe generic product or service but alsohow it is made available to the cus-tomer, in what form, when, under whatconditions, and at what terms of trade.Most important, what it offers for saleis determined not by the seller but bythe buyer. The seller takes cues from thebuyer in such a way that the product be-comes a consequence of the marketingeffort, not vice versa.

A Lag in Detroit. This may soundlike an elementary rule of business, butthat does not keep it from being vio-lated wholesale. It is certainly more vi-olated than honored. Take the automo-bile industry.

Here mass production is most famous,most honored, and has the greatest

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impact on the entire society. The indus-try has hitched its fortune to the relent-less requirements of the annual modelchange, a policy that makes customerorientation an especially urgent neces-sity. Consequently, the auto companiesannually spend millions of dollars onconsumer research. But the fact that thenew compact cars are selling so well intheir first year indicates that Detroit'svast researches have for a long time

secondary importance. That is under-scored by the fact that the retailing andservicing ends of this industry are nei-ther owned and operated nor controlledby the manufacturers. Once the car isproduced, things are pretty much in thedealer's inadequate hands. Illustrativeof Detroit's arms-length attitude is thefact that, while servicing holds enor-mous sales-stimulating, profit-buildingopportunities, only 57 of Chevrolet's

If thinking is an intellectual response to a problem,then the absence of a problem leads to the absenceof thinking.

failed to reveal what customers reallywanted. Detroit was not convinced thatpeople wanted anything different fromwhat they had been getting until it lostmillions of customers to other small-carmanufacturers.

How could this unbelievable lag be-hind consumer wants have been per-petuated for so long? Why did not re-search reveal consumer preferencesbefore consumers' buying decisionsthemselves revealed the facts? Is thatnot what consumer research is for-tofind out before the fact what is goingto happen? The answer is that Detroitnever really researched customers'wants.It only researched their preferences be-tween the kinds of things it had alreadydecided to offer them. For Detroit ismainly product oriented, not customeroriented. To the extent that the cus-tomer is recognized as having needsthat the manufacturer should try to sat-isfy, Detroit usually acts as if the job canbe done entirely by product changes.Occasionally, attention gets paid to fi-nancing, too, but that is done more inorder to sell than to enable the cus-tomer to buy.

As for taking care of other customerneeds, there is not enough being doneto write about. The areas of the greatestunsatisfied needs are ignored or, at best,get stepchild attention. These are at thepoint of sale and on the matter of auto-motive repair and maintenance. Detroitviews these problem areas as being of

7,000 dealers provide night mainte-nance service.

Motorists repeatedly express their dis-satisfaction with servicing and their ap-prehensions about buying cars underthe present selling setup. The anxietiesand problems they encounter duringthe auto buying and maintenance pro-cesses are probably more intense andwidespread today than many years ago.Yet the automobile companies do notseem to listen to or take their cues fromthe anguished consumer. If they do lis-ten, it must be through the filter of theirown preoccupation with production.The marketing effort is still viewed asa necessary consequence of the prod-uct - not vice versa, as it should be. Thatis the legacy of mass production, with itsparochial view that profit resides essen-tially in low-cost full production.

What Ford Put First The profit lureof mass production obviously has a placein the plans and strategy of businessmanagement, but it must always/o/Zowhard thinking about the customer. Thisis one of the most important lessons wecan learn from the contradictory behav-ior of Henry Ford. In a sense. Ford wasboth the most brilliant and the mostsenseless marketer in American history.He was senseless because he refused togive the customer anything but a blackcar. He was brilliant because he fash-ioned a production system designed tofit market needs. We habitually celebratehim for the wrong reason: for his pro-

duction genius. His real genius was mar-keting. We think he was able to cut hisselling price and therefore sell millionsof $500 cars because his invention ofthe assembly line had reduced the costs.Actually, he invented the assembly linebecause he had concluded that at $500he could sell millions of cars. Mass pro-duction was the result, not the cause, ofhis low prices.

Ford emphasized this point repeat-edly, but a nation of production-orientedbusiness managers refuses to hear thegreat lesson he taught. Here is his op-erating philosophy as he expressed itsuccinctly:

Our policy is to reduce the price, ex-tend the operations, and improve thearticle. You will notice that the reduc-tion of price comes first. We havenever considered any costs as fixed.Therefore we first reduce the price tothe point where we believe moresales will result. Then we go aheadand try to make the prices. We do notbother about the costs. The new priceforces the costs down. The more usualway is to take the costs and then de-termine the price; and although thatmethod may be scientific in the nar-row sense, it is not scientific in thebroad sense, because what earthly useis it to know the cost if it tells youthat you cannot manufacture at aprice at which the article can be sold?But more to the point is the fact that,although one may calculate what acost is, and of course all of our costsare carefully calculated, no one knowswhat a cost ought to be. One of theways of discovering...is to name aprice so low as to force everybody inthe place to the highest point of ef-ficiency. The low price makes every-body dig for profits. We make morediscoveries concerning manufactur-ing and selling under this forcedmethod than by any method of lei-surely investigation.-Product Provincialism. The tanta-

lizing profit possibilities of low unitproduction costs may be the most seri-ously self-deceiving attitude that can af-f I ict a company, particularly a "growth"company, where an apparently assured

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expansion of demand already tends toundermine a proper concem for the im-portance of marketing and the customer.

The usual result of this narrow pre-occupation with so-called concrete mat-ters is that instead of growing, the in-dustry declines. It usually means thatthe product fails to adapt to the con-stantly changing patterns of consumerneeds and tastes, to new and modifiedmarketing institutions and practices,or to product developments in compet-ing or complementary industries. Theindustry has its eyes so firmly on its ownspecific product that it does not see howit is being made obsolete.

The classic example of this is thebuggy whip industry. No amount ofproduct improvement could stave off itsdeath sentence. But had the industry de-fined itself as being in the transporta-tion business rather than in the buggywhip business, it might have survived.It would have done what survival al-ways entails - that is, change. Even if ithad only defined its business as provid-ing a 5timulant or catalyst to an energysource, it might have survived by be-coming a manufacturer of, say, fan beltsor air cleaners.

What may someday be a still moreclassic example is, again, the oil indus-try. Having let others steal marvelousopportunities from it (including naturalgas, as already mentioned; missile fuels;and jet engine lubricants), one would ex-pect it to have taken steps never to letthat happen again. But this is not thecase. We are now seeing extraordinarynew developments in fuel systems spe-cifically designed to power automobiles.Not only are these developments con-centrated in firms outside the petro-leum industry, but petroleum is almostsystematically ignoring them, securelycontent in its wedded bliss to oil. It is thestory of the kerosene lamp versus theincandescent lamp ali over again. Oil istrying to improve hydrocarbon fuelsrather than develop any fuels best suitedto the needs of their users, whether ornot made in different ways and with dif-ferent raw materials from oil.

Here are some things tbat nonpetro-leum companies are working on:

• More than a dozen such firms nowhave advanced working models of en-ergy systems which, when perfected,will replace the internal combustion en-gine and eliminate the demand for gaso-line. The superior merit of each of thesesystems is their elimination of frequent,time-consuming, and irritating refuel-ing stops. Most of these systems are fuelcells designed to create electrical energydirectly from chemicals without com-bustion. Most of them use chemicalsthat are not derived from oil-generally,hydrogen and oxygen.

• Several other companies have ad-vanced models of electric storage bat-teries designed to power automobiles.One of these is an aircraft producer tbatis working jointly with several electricutility companies. The latter hope to useoff-peak generating capacity to supplyovernight plug-in battery regeneration.Another company, also using the bat-tery approach, is a medium-sized elec-tronics finn with extensive small-batteryexperience that it developed in connec-tion with its work on hearing aids. It iscollaborating with an automobile man-ufacturer. Recent improvements arisingfrom the need for high-powered mini-ature power storage plants in rocketshave put us within reach of a relativelysmall battery capable of withstandinggreat overloads or surges of power. Ger-manium diode applications and batter-ies using sintered plate and nickel cad-mium techniques promise to make arevolution in our energy sources.

• Solar energy conversion systems arealso getting increasing attention. Oneusually cautious Detroit auto executiverecently ventured that solar-poweredcars might be common by 1980.

As for the oil companies, they aremore or less "watching developments,"as one research director put it to me.A few are doing a bit of research on fuelcells, but this research is almost alwaysconfined to developing cells powered byhydrocarbon chemicals. None of them isenthusiastically researching fuel cells,batteries, or solar power plants. None oftbem is spending a fraction as much onresearch in these profoundly importantareas as it is on tbe usual run-of-tbe-mill

things like reducing combustion cham-ber deposits in gasoline engines. Onemajor integrated petroleum companyrecently took a tentative look at tbe fuelcell and concluded that although "thecompanies actively working on it indi-cate a belief in ultimate success...thetiming and magnitude of its impact aretoo remote to warrant recognition inour forecasts."

One might, of course, ask. Why shouldtbe oil companies do anything differ-ent? Would not chemical fuel cells, bat-teries, or solar energy kill the presentproduct lines? The answer is tbat tbeywould indeed, and that is precisely thereason for the oil firms' having to de-velop these power units before theircompetitors do, so they will not be com-panies without an industry.

Management might be more likelyto do what is needed for its own pres-ervation if it thought of itself as beingin the energy business. But even thatwill not be enough if it persists in im-prisoning itself in the narrow grip of itstight product orientation. It has to thinkof itself as taking care of customerneeds, not finding, refining, or even sell-ing oil. Once it genuinely thinks of its

The marketing effortis still viewed as anecessary consequenceof the product-not viceversa, as it shouid be.business as taking care of people's trans-portation needs, nothing can stop it fromcreating its own extravagantly profitablegrowth.

Creative Destruction. Since wordsare cheap and deeds are dear, it may beappropriate to indicate what this kindofthinking involves and leads to. Let usstart at the beginning: the customer. Itcan be shown that motorists stronglydislike the bother, delay, and experienceof buying gasoline. People actually donot buy gasoline. They cannot see it,taste it, feel it, appreciate it, or reallytest it. What they buy is the right to con-tinue driving tbeir cars. The gas station

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is like a tax collector to whom peopleare compelled to pay a periodic toll asthe price of using their cars. This makesthe gas station a basically unpopularinstitution. It can never be made popu-lar or pleasant, only less unpopular, lessunpleasant.

Reducing its unpopularity completelymeans eliminating it. Nobody likes a taxcollector.noteven a pleasantly cheerfulone. Nobody likes to interrupt a trip tobuy a phantom product, not even from ahandsome Adonis or a seductive Venus.

this day and age for a company or indus-try to let its sense of purpose becomedominated by the economies of full pro-duction and to develop a dangerouslylopsided product orientation. In short, ifmanagement lets itself drift, it invari-ably drifts in the direction ofthinkingof itself as producing goods and ser-vices, not customer satisfactions. Whileit probably will not descend to thedepths of telling its salespeople, "Youget rid of it; we'll worry about profits,"it can, without knowing it, be practicing

It is not surprising that, having created asuccessful company by making a superior product,management continues to be oriented toward theproduct rather than the people who consume it.

Hence, companies that are working onexotic fuel substitutes that will elimi-nate the need for frequent refueling areheading directly into the outstretchedarms of the irritated motorist. They areriding a wave of inevitability, not be-cause they are creating something thatis technologically superior or more so-phisticated but because they are satisfy-ing a powerful customer need. They arealso eliminating noxious odors and airpollution.

Once the petroleum companies rec-ognize the customer-satisfying logic ofwhat another power system can do, theywill see that they have no more choiceabout working on an efficient, long-lasting fuel (or some way of deliveringpresent fuels without bothering themotorist) than the big food chains hada choice about going into the super-market business or the vacuum tubecompanies had a choice about makingsemiconductors. For their own good, theoil firms will have to destroy their ownhighly profitable assets. No amount ofwishful thinking can save them from thenecessity of engaging in this form of"creative destruction."

I phrase the need as strongly as thisbecause I think management must makequite an effort to break itself loose fromconventional ways. It is all too easy in

precisely that formula for witheringdecay. The historic fate of one growthindustry after another has been its sui-cidal product provincialism.

Dangers of R&DAnother big danger to a firm's contin-ued growth arises when top manage-ment is wholly transfixed by the profitpossibilities of technical research anddevelopment. To illustrate, I shall turnfirst to a new industry-electronics-andthen return once more to the oil com-panies. By comparing a fresh examplewith a familiar one, I hope to emphasizethe prevalence and insidiousness of ahazardous way of thinking.

Marketing Shortchanged. In the caseof electronics, the greatest danger thatfaces the glamorous new companies inthis field is not that they do not payenough attention to research and de-velopment but that they pay too muchattention to it. And the fact that thefastest-growing electronics firms owetheir eminence to their heavy emphasison technical research is completely be-side the point. They have vaulted to af-fluence on a sudden crest of unusuallystrong general receptiveness to newtechnical ideas. Also, their success hasbeen shaped in the virtually guaranteedmarket of military subsidies and by mil-

itary orders that in many cases actuallypreceded the existence of facilities tomake the products. Their expansion has,in other words, been almost totally de-void of marketing effort.

Thus, they are growing up under con-ditions that come dangerously close tocreating the illusion that a superiorproduct will sell itself. It is not surpris-ing that, having created a successfulcompany by making a superior product,management continues to be orientedtoward the product rather than the peo-ple who consume it. It develops the phi-losophy that continued growth is a mat-ter of continued product innovationand improvement.

A number of other factors tend tostrengthen and sustain this belief:

1. Because electronic products arehighly complex and sophisticated, man-agements become top-heavy with en-gineers and scientists. This creates aselective bias in favor of research andproduction at the expense of market-ing. The organization tends to view itselfas making things rather than as satis-fying customer needs. Marketing getstreated as a residual activity,"somethingelse" that must be done once the vitaliob of product creation and productionis completed.

2. To this bias in favor of product re-search, development, and productionis added the bias in favor of dealingwith controllable variables. Engineersand scientists are at home in the worldof concrete things like machines, testtubes, production lines, and even bal-ance sheets. The abstractions to whichthey feel kindly are those that are test-able or manipulatable in the laboratoryor, if not testable, then functional, suchas Euclid's axioms. In short, the man-agements of the new glamour-growthcompanies tend to favor business activ-ities that lend themselves to carefulstudy, experimentation, and control -the hard, practical realities of the lab,the shop, and the books.

What gets shortchanged are the re-alities of the market. Consumers areunpredictable, varied, fickle, stupid,shortsighted, stubborn, and generallybothersome. This is not what the engi-

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neer managers say, but deep down intheir consciousness, it is what they be-lieve. And this accounts for their con-centration on what they know and whatthey can control - namely, product re-search, engineering, and production.The emphasis on production becomesparticularly attractive when the prod-uct can be made at declining unit costs.There is no more inviting way of mak-ing money than by running the plantfull blast

The top-heavy science-engineering-production orientation of so many elec-tronics companies works reasonablywell today because they are pushinginto new frontiers in which the armedservices have pioneered virtually assuredmarkets. The companies are in the felic-itous position of having to fill, not find,markets, of not having to discover whatthe customer needs and wants but ofhaving the customer voluntarily comeforward with specific new product de-mands. If a team of consultants had beenassigned specifically to design a business

situation calculated to prevent the emer-gence and development of a customer-oriented marketing viewpoint, it couldnot have produced anything better thanthe conditions just described.

Stepchild Treatment. The oil indus-try is a stunning example of how sci-ence, technology, and mass productioncan divert an entire group of companiesfrom their main task. To the extent theconsumer is studied at ail (which is notmuch), the focus is forever on gettinginformation that is designed to helpthe oil companies improve what theyare now doing. They try to discovermore convincing advertising themes,more effective sales promotional drives,what the market shares of the variouscompanies are, what people like or dis-like about service station dealers andoil companies, and so forth. Nobodyseems as interested in probing deeplyinto the basic human needs that the in-dustry might be trying to satisfy as inprobing into the basic properties ofthe raw material that the companies

work with in trying to deliver customersatisfactions.

Basic questions about customers andmarkets seldom get asked. The latter oc-cupy a stepchild status. They are recog-nized as existing, as having to be takencare of, but not worth very much realthought or dedicated attention. No oilcompany gets as excited about the cus-tomers in its own backyard as about theoil in the Sahara Desert. Nothing illus-trates better the neglect of marketingthan its treatment in the industry press.

The centennial issue of the AmericanPetroleum institute Quarterly, publishedin 1959 to celebrate the discovery of oilin Titusville, Pennsylvania, contained 21feature articles proclaiming the indus-try's greatness. Only one of these talkedabout its achievements in marketing,and that was only a pictorial record ofhow service station architecture haschanged. The issue also contained a spe-cial section on "New Horizons," whichwas devoted to showingthe magnificentrole oil would play in America's future.

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BEST OF HBR • Marketing Myopia

Every reference was ebulliently optimis-tic, never implying once that oil mighthave some hard competition. Even thereference to atomic energy was a cheer-ful catalog of how oil would help makeatomic energy a success. There was nota single apprehension that the oil indus-try's affluence might be threatened or asuggestion that one"new horizon" mightinclude new and better ways of servingoil's present customers.

But the most revealing example ofthe stepchild treatment that marketinggets is still another special series of shortarticles on "The Revolutionary Poten-tial of Electronics." Under that heading,this list of articles appeared in the tableof contents:• "In the Search for Oil"• "In Production Operations"• "In Refinery Processes"• "In Pipeline Operations"

Significantly, every one of the indus-try's major functional areas is listed,except marketing. Why? Either it is be-lieved that electronics holds no revo-lutionary potential for petroleum mar-keting (which is palpably wrong), orthe editors forgot to discuss marketing(which is more likely and illustrates itsstepchild status).

The order in which the four functionalareas are listed also betrays the alien-ation of the oil industry from the con-sumer. The industry is implicitly definedas beginning with the search for oil andending with its distribution from therefinery. But the truth is, it seems to me,that the industry begins with the needsof the customer for its products. Fromthat primal position its definition movessteadily back stream to areas of pro-gressively lesser importance until it fi-nally comes to rest at the search for oil.

The Beginning and End. The viewthat an industry is a customer-satisfyingprocess, not a goods-producing process,is vital for all businesspeople to under-stand. An industry begins with the cus-tomer and his or her needs, not with apatent, a raw material, or a selling skill.Given the customer's needs, the indus-try develops backwards, first concerningitself with the physical delivery of cus-tomer satisfactions. Then it moves back

further to creating the things by whichthese satisfactions are in part achieved.How these materials are created is a mat-ter of indifference to the customer, hencethe particular form of manufacturing,processing, or what have you cannot beconsidered as a vital aspect of the indus-try. Finally, the industry moves back stillfurther tofinding the raw materials nec-essary for making its products.

The irony of some industries orientedtoward technical research and develop-ment is that the scientists who occupythe high executive positions are totallyunscientific wheu it comes to definingtheir companies' overall needs and pur-poses. They violate the first two rulesof the scientific method: being awareof and defining their companies' prob-lems and then developing testable hy-potheses about solving them. They arescientific only about the convenientthings, such as laboratory and productexperiments.

The customer (and the satisfaction ofhis or her deepest needs) is not consid-ered to be "the problem"- not becausethere is any certain belief that no suchproblem exists but because an organi-zational lifetime has conditioned man-agement to look in the opposite direc-tion. Marketing is a stepchild.

I do not mean that selling is ignored.Far from it. But selling, again, is not mar-keting. As already pointed out, sellingconcerns itself with the tricks and tech-niques of getting people to exchangetheir cash for your product, it is notconcerned with the values that the ex-change is ai! about. And it does not, asmarketing invariably does, view the en-tire business process as consisting of atightly integrated effort to discover, cre-ate, arouse, and satisfy customer needs.The customer is somebody "out there"who, with proper cunning, can be sepa-rated from his or her loose change.

Actually, not even selling gets much at-tention in some technologically mindedfirms. Because there is a virtually guar-anteed market for the abundant fiowof their new products, they do not ac-tually know what a real market is. It isas if they lived in a planned economy,moving their products routinely from

factory to retail outlet. Their successfulconcentration on products tends to con-vince them of the soundness of what theyhave been doing, and they fail to see thegathering clouds over the market.

Less than 75 years ago, American rail-roads enjoyed a fierce loyalty among as-tute Wall Streeters. European monarchsinvested in them heavily. Eternal wealthwas thought to be the benediction foranybody who could scrape together afew thousand dollars to put into railstocks. No other form of transportationcould compete with the railroads inspeed, fiexibility, durability, economy,and growth potentials.

As Jacques Barzuu put it,"By the tumof the century it was an institution, animage of man, a tradition, a code ofhonor, a source of poetry, a nursery ofboyhood desires, a subiimest of toys,and the most solemn machine - nextto the funeral hearse - that marks theepochs in man's life.'"'

Even after the advent of automobiles,trucks, and airplanes, the railroad ty-coons remained imperturbably self-confident. If you had told them 60 yearsago that in 30 years they would be fiaton their backs, broke, and pleading forgovernment subsidies, they would havethought you totally demented. Such afuture was simply not considered pos-sible. It was not even a discussable sub-ject, or an askable question, or a matterthat any sane person would considerworth speculating about. Yet a lot of "in-sane" notions now have matter-of-factacceptance - for example, the idea of100-ton tubes of metal moving smoothlythrough the air 20,000 feet above theearth, loaded with lOO sane and solidcitizens casually drinking martinis -and they have dealt cruel blows to therailroads.

What specifically must other com-panies do to avoid this fate? What doescustomer orientation involve? Thesequestions have in part been answeredby the preceding examples and analy-sis. It would take another article to showin detail what is required for specific in-dustries. In any case, it shouid be obvi-ous that building an effective customer-

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oriented company involves far more thangood intentions or promotional tricks;it involves profound matters of bumanorganization and leadership. For thepresent, let me merely suggest what ap-pear to be some general requirements.

The Visceral Feel of Greatness. Ob-viously, the company has to do what sur-vival demands. It has to adapt to the re-quirements of the market, and it has todo it sooner rather than later. But meresurvival is a so-so aspiration. Anybodycan survive in some way or other, eventhe skid row bum. The trick is to survivegallantly, to feel the surging impulse ofcommercial mastery: not just to experi-ence the sweet smell of success but tohave the visceral feel of entrepreneurialgreatness.

No organization can achieve great-ness without a vigorous leader who isdriven onward by a pulsating will tosucceed. A leader has to have a visionof grandeur, a vision that can produceeager followers in vast numbers. In busi-ness, the followers are the customers.

In order to produce these customers,the entire corporation must be viewedas a customer-creating and customer-satisfying organism. Management mustthink of itself not as producing productsbut as providing customer-creating valuesatisfactions. It must push this idea (andeverything it means and requires) Intoevery nook and cranny of the organiza-tion. It has to do this continuously andwith the kind of fiair that excites andstimulates the people in it. Otherwise,the company will be merely a series ofpigeonholed parts, with no consolidat-ing sense of purpose or direction.

In short, the organization must learnto think of itself not as producing goodsor services but as buying customers, asdoing the things that will make peoplewant to do business with it. And thechief executive has the inescapable re-sponsibility for creating this environ-ment, this viewpoint, this attitude, thisaspiration. The chief executive must setthe company's style, its direction, andits goals. This means knowing precisely

where he or she wants to go and makingsure the whole organization is enthusi-astically aware of where that is. This isa first requisite of leadership, for unless aleader knows where he is going, any roadwill take him there.

Ifany road is okay, the chief executivemight as well pack his attachd case andgo fishing. If an organization does notknow or care where it is going, it doesnot need to advertise that fact with aceremonial figurehead. Everybody willnotice it soon enough. ^

1. Jacques Barzun, "Trains and the Mind of Man,"Holiday, February 1960,2. For more details, see M.M. Zimmerman, TheSuper Market: A Revolution in Distribution (McGraw-Hill, 1955).

3. Ibid., pp. 45-47-4. John Kenneth Galbraith, The Affluent Society(Houghton Mifflin,i9s8).5. Henry Ford, My Life and IVor/r (Doubleday, 1923).6. Barzun,"Trainsandthe Mind of Man."

Reprint R0407L; HBR OnPoint 7243To order, see page 191-

"My goal is for our company to be a square on the Monopoly board."

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