Theodore Levitt's classic advice is more relevant than ever before
It is always amazing how many of the classic leaders and principles are lost to the ravages of time. Today's business leaders are often too quick to discount things written in the '60s by some of greats like Drucker and Levitt. Levitt published one of his best-known works, Marketing Myopia, in HBR in 1960. Levitt's article was more just a treatise on marketing. He intended it as a challenge to businesses and managers in general. A key underlying premise of Levitt's work focused on a single strategic question: What business are you in? Managers from today's retailer C-Suites would do well to post this question in their boardroom, and require everyone to read Levitt's 1960 classic.
Why this is important: Retailers in decline tend to define themselves in terms of what they sell. Leading innovators define their business "they are in" as how to best serve customers. Trends indicate that the future of retail is in "the people business".
To avoid marketing myopia – constantly ask what business you are in
Theodore Levitt served as Harvard Business Review's (HBR) eighth Chief Editor from 1985 to 1989. However, some of his best-known analyses and principles written in the 1960s are still highly relevant today. They are particularly relevant for today's retail executives who face unprecedented disruption.
Levitt argued that every major industry was once a growth industry. In a majority of cases, growth slowed or stopped not because the market became "saturated", but because management failed to redefine their business in terms of customer needs.
The classic example often cited was the railroads. They did not decline because the need for passenger and freight transportation declined – those needs have grown exponentially. Railroads stagnated because they defined their business as operating railroads, instead of being in the "transportation business". The subsequent innovators like the overnight delivery carriers have "stolen" much of the railroad's business because they evolved to meet omnichannel customers' demands for transportation beyond tracks and railroad cars.
Uber is disrupting, stealing taxi customers – What business are they in?
Some would argue that Uber and Lyft are in the business of "on demand" taxi services. While that might have been the origins of their business model, both are doing much more. Uber is already delivering packages and take-out meals in many cities. Uber is certainly in the transportation business beyond just moving people.
Bloomberg reports that "Uber Technologies Inc. plans to deliver food by drone in San Diego as part of a wide-reaching commercial test program approved by the U.S. federal government." Even more fascinating Uber's CEO, Dara Khosrowshahi comment:
"People should expect meal delivery in five to 30 minutes, depending on whether it comes from a drone or a human."
Khosrowshahi now claims that Uber is the world's largest food delivery company. Uber is also now investing in electric bicycles, as well as flying "cars". The bottom line is that Uber is no longer tied to one means of transport; they are in the mobility business. Their business is offering customers maximum mobility flexibility for scheduling transport of themselves or purchases from anyone.
What business were yesterday's retailers in?
What business were Silo and Circuit City in? Both of those US retailers were dominant in the days of the "consumer electronics" channel. Circuit City even made the list in the book "Good to Great". Circuit literally launched the television age in consumer's homes. What happened? With Amazon and omnichannel, customers no longer have to go to stores to purchase electronics.
Some twenty years ago, Sears was in the department store business. They focused on selling American customers products they needed for their homes: appliances, electronics, tools, etc. They were the dominant anchor stores at America's malls. Today, Sears is where customers walk through to get to the Apple store in the mall. Sears is now selling dominant Kenmore and Craftsman brands to other players.
The irony is that while Sears focused on products and driving customers to department stores, they had a thriving customer service business. Amazon is now investing in certain Sears locations to better serve customers and leverage services. Sears as the largest department store selling home products has become the "walking dead" of retail.
What business are today's more successful retailers in?
It is a fascinating exercise to look at today's retailers and ask the question: what business are they in? Let me take a stab at a couple. I would really like to hear your comments … it would be even more fascinating to hear from some retailers themselves.
Best Buy – Your "digital plumber"?
Best Buy has made an amazing turn around for a variety of reasons. Their new focus on employees is refreshing. However, the real bottom line is that the Geek Squad makes all that electronic gear work. The "Geeks" have been a prime force behind Best Buy's profitability, and why customers return to get help in their digital lives. Will Best Buy's new partnership with Amazon be a plus, or negative in continuing to evolve to America's digital plumber?
Ace Hardware – Ace is the place to get answers?
Ace has differentiated their offering long ago with the slogan "Ace is the place with helpful hardware people". They have invested in people who go out of their way to find the solutions you need to run your household. Will that be enough to bring customer back when they can find cheaper products online?
Walmart – Your Amazon alternative, and maybe something more?
Walmart is the classic mass merchant/hypermarket that is still the largest retailer on the planet. Their history is a legacy of stores, massive assortments and selling groceries. Recent investments in online, click and collect kiosks, apps and hip brands indicate that Walmart can be a competitive "phygital retail". Will it be enough? Will Walmart define its business as being something other than an alternative to Amazon?
What business is Amazon in? Is Amazon a distributor, a marketplace … or an ecosystem built for world domination?
Amazon is certainly a premier online retailer beloved by hundreds of millions around the world for its speed and convenience. Amazon now has over 2 million active sellers in its marketplace. Amazon now owns Whole Foods stores and is launching its own Go stores. There is little question that one of the businesses Amazon is in is retail.
However, much of Amazon's profit is from cloud services, not retail. Amazon is certainly an ecosystem built on customer centricity, but is that a business? Will Amazon ultimately become a platform and portal for all commerce?
Levitt's core question defining "business" is more important than ever before.
The days of retailers differentiating on products sold seem to be long past. There are no distinct channels. Customers are crossing all boundaries on their own. The fundamental question today may have become: "what business is retail in?"