Marketing myopia: the question Levitt asked and the answer that went wrong

Origin

Levitt was a lecturer at Harvard Business School when Marketing Myopia appeared in the July to August 1960 issue of the Review [1]. The essay opens with a sentence that still does most of its work: “Every major industry was once a growth industry” [1].

The problem he was addressing was complacency dressed as strategy. Post-war American industry had grown for fifteen years and had come to believe growth was a property of the industry rather than a result of serving a need. Levitt’s cases were the railroads, Hollywood, the dry cleaners, the electric utilities and the petroleum companies, each of which, he argued, had mistaken its product for its purpose.

The essay was a manifesto and Levitt knew it. In the retrospective commentary he wrote for the 1975 reprint, he called it “a manifesto, not a prescription” and acknowledged that it had been read as the latter [2]. That distinction is the one most readers since have lost.

What the evidence shows

This section is short because the honest answer is that there is very little.

Marketing Myopia is a theoretical argument illustrated by cases chosen to support it. The railroads did lose passengers to cars and aircraft. Whether they could have become transportation companies, with the capital structure, the regulation and the labour agreements they had, is a counterfactual the essay asserts and does not test. The same is true of each case. They are persuasive as rhetoric and unexamined as history.

What has been studied is the effect of the idea on the firms that adopted it, and the record is mixed.

Broad business definitions correlate with diversification, and diversification mostly destroyed value. The conglomerate wave of the 1960s and 1970s, in which firms defined themselves as being in “leisure” or “transportation” or “communications” and bought accordingly, was followed by a long unwinding in the 1980s and 1990s. The finance literature on diversification discounts found that diversified firms traded at a discount to the sum of their parts [3]. Marketing Myopia was not the only cause of the wave, but its logic was the one firms used to justify it.

The counter-concept has its own name. Kotler and Singh used “marketing hyperopia” for the opposite error, defining the business so broadly that the firm loses the ability to compete in any part of it [4]. That the field needed a word for the overcorrection is the clearest evidence of how the original was applied.

The challenge

Levitt’s own 1975 retrospective is the fairest critique [2]. He conceded that the essay had led some firms into “a kind of marketing mania”, that it had been used to justify expansion into businesses the firm did not understand, and that he had underweighted the importance of actually being able to make the thing well. He held to the central claim: that the customer’s need, not the firm’s product, is the durable thing. He withdrew the implication that any firm could serve any version of that need.

The second challenge is from the resource-based view of the firm, which argues that competitive advantage comes from what a firm is distinctively able to do, its capabilities, rather than from how it defines its market [5]. On that reading, the railroad that becomes a transportation company has not gained a broader purpose. It has walked away from the one thing it was good at.

The literature is split on this and should be left split. Levitt is right that a firm which cannot see past its product will be surprised by substitutes. The resource-based view is right that a firm which abandons its capabilities for a broader definition usually fails at the broader definition. Both have cases. Neither has a general law.

Where I see this go wrong

The purpose statement replaces the product. A company that makes industrial valves decides it is “in the flow control business” or “enabling the energy transition”. The valves do not get better. The statement goes in the deck. Levitt’s point was that the customer’s need should direct the product. It was never that the description should get vaguer.

The question is asked once and the answer is kept forever. “What business are we really in” is a question to ask every few years, because the honest answer moves. Firms that asked it in 1995 and wrote the answer on the wall are now defending an answer to a question nobody is asking.

Myopia is diagnosed in competitors and never at home. It is a satisfying essay to read about other people. Every strategy session I have sat in has found myopia in the market leader and none in the room.

I have built an agency across Europe and the Gulf, and the thing that kept it alive was not a broad definition of what it was for. It was a narrow one, held firmly, and revised when the evidence said so. Levitt would have called that myopic. The survival record suggests otherwise.

What to do with it

1. Ask Levitt’s question and write down the answer in one sentence that names a customer need, not a product category and not an aspiration. “We help mid-sized manufacturers avoid unplanned downtime” is an answer. “We are in the reliability business” is a slogan.
2. Then ask the resource-based question beside it. What are we distinctively able to do that serves that need? If the honest answer is nothing, the need is not yours to serve.
3. Test the definition against substitutes, not competitors. Who else could meet this need with something that does not look like your product? That is the question Levitt’s railroads did not ask.
4. Revisit every three years, on a date. Not when a crisis forces it.
5. Resist any definition that would justify a business you could not run. If the new definition makes an acquisition look strategic that would otherwise look foolish, the definition is doing the work the business case should.
6. Read the 1975 retrospective before quoting the 1960 essay. Levitt’s own second thoughts are better guidance than most of the commentary written since.

If you run the company rather than the marketing

You will be handed Marketing Myopia, or a summary of it, by someone who wants the business defined more broadly. Usually they want to buy something or launch something that the current definition does not justify.

Levitt’s question is worth asking. His 1975 answer is worth reading first, because he had watched what fifteen years of his own essay had done and he was not pleased. The firms that used it to justify moving into businesses they could not run did not become transportation companies. They became conglomerates, and then they became case studies.

The test to apply is simple. Does the broader definition describe something you are distinctively able to do, or does it describe something you would like to be? If it is the second, the essay is being used as cover.