How Theodore Levitt defined Marketing 60 years ago and predicted the Energy Market of Today at the same time

There are some universal laws that you shouldn’t even bother with debating. One of those laws is that in order to succeed in the marketplace, you need to focus on customers. But Marketing is a relatively young subject so you might need to debate how and why companies should focus on marketing. Marketing, advertising and other connected disciplines have been studied and taught for centuries and been put to practice even longer. But the defining moment for marketing as a defined concept is often dated to 1960 when The Harvard Business Review published the article Marketing Myopia by Theodore Levitt.

In the article, Levitt states that for companies to ensure continued growth, they must define the industry they are in broadly. He urged companies to define themselves from the eyes of the consumer. People are rarely looking to buy a specific product but a solution to a specific problem.

As an example, Levitt named a few industries that had lost out to innovation – industries that forgot what people were looking for when buying their goods and services. The railroads thought they were in the railroad business rather than the transportation business. Another example he named was when Hollywood lost out to television. And it seems that Hollywood let history repeat itself in the case of Netflix. Not only are customers looking at other means of entertainment but there has been a considerable brain-drain from the big screen to the new possibilities of new services. No industry is safe from the creative destruction of capitalism.

In the 1991 movie, Other People’s Money – Danny DeVito plays the part of Larry the Liquidator – an investor that specialises in taking over companies that have become obsolete (often due to lack of innovation) and are more valuable as scrap than they are on the market. The speech in the video below echoes some of Levitt’s points and the example of the buggy-whip industry might be borrowed from Levitt’s paper.

Other People’s Money

But Levitt goes further than talking about industries that have gone under due to the lack of defining themselves broadly and ignoring innovation that can fulfil consumers’ needs better than incumbent solutions. He names industries that are in real danger of becoming obsolete in the future. And two of them have a lot to do with the energy sector. First, he mentioned the utilities. He mentioned how they disrupted lighting, manufacturing and are continuing, at the time, to disrupting the home

The prosperity of electric utilities continues to wax extravagant as the home is converted into a museum of electric gadgetry.

Theodore Levitt, Marketing Myopia

But he sees the danger signs ahead for utilities.

But a second look is not quite so comforting. A score of non-utility companies are well advanced toward developing a powerful chemical fuel cell which could sit in some hidden closet of every home silently ticking off electric power. The electric lines that vulgarize so many neighborhoods will be eliminated. So will the endless demolition of streets and service interruptions during storms. Also on the horizon is solar energy, again pioneered by non-utility companies.

Theodore Levitt, Marketing Myopia

His prediction took half a century to ring true due to slow development at the technological side but this is the challenge that many incumbents have been facing. This has been a challenge both in regulated markets and de-regulated markets. What is their role when the customer can go off the grid?

Who says that the utilities have no competition? They may be natural monopolies now, but tomorrow they may be natural deaths. To avoid this prospect, they too will have to develop fuel cells, solar energy, and other power sources. To survive, they themselves will have to plot the obsolescence of what now produces their livelihood.

Theodore Levitt, Marketing Myopia
Marko Kruithof, Stedin – CHARGE2016

At CHARGE 2016, the subject of the need for branding for Distribution (DSO) and Transmission (TSO) system operators was discussed. Marko Kruithof from Stedin talked about how the brand, which is responsible for one of the largest distribution networks in The Netherlands, has focused on the customer in the changing energy markets. Their goal is to have the customers become their fans, if the customer will go off the grid, they will continue to do business with Stedin.

More changes to energy

For anyone interested in the energy sector in the wider sense, the article offers more predictions into the future of the energy space. Levitt notes that oil companies should start to consider widening their horizons considerably. Some points are more relevant for the discussion on both utilities and oil companies today. But it is interesting to read about the technological advances that he thought would disrupt the energy sector. Such as the development of fuel cells and more interesting the development of batteries that will charge during the off-peak hours of the night to power electric cars during the day. As we know – this was something that did not become reality until almost half a century later but it shows how much his thinking applies to the energy sector today. One prediction from a Detroit auto executive did have a deadline though, that solar powered cars might become common by 1980.

Many of the larger oil companies and utilities in the world today don’t have the same myopic view of their industries that Levitt talks about – the article has left a massive footprint and is one of the first things marketing students read. Oil and gas companies have been moving into the utility space and are investing in alternative energy sources.

One might, of course, ask: Why should the oil companies do anything different? Would not chemical fuel cells, batteries, or solar energy kill the present product lines? The answer is that they would indeed, and that is precisely the reason for the oil firms’ having to develop these power units before their competitors do, so they will not be companies without an industry

Theodore Levitt, Marketing Myopia

Don’t be afraid to kill off the golden goose if you have a superior product. If Apple would have focused on milking the iPod, they wouldn’t have released the iPhone and they would never have made the iPad. By knowing what the consumer wants, even before the consumer knows what he wants, brands can create markets that didn’t exist before.

The Dangers of R&D

At the time the article was first published, there was a lot of emphasis on Research & Development. In Levitt’s mind, the problem was not that companies ignored R&D but put too much attention to it. R&D was run by engineers and other people with high technical skills who were too deep into technology to look at what consumers wanted. In other words, much time and resources was spent on research that had nothing to do with the consumer that was eventually supposed to benefit from it. The belief was that creating a superior product would be an end in itself, the superior product would always outsell the inferior one.

Today, Research and Development has gone through a rebranding. R&D has received a more cool, slick and current name – Innovation – geeks have been dragged out and their culture has become mainstream. But an innovation that does not benefit anyone is a bit like a tree falling in the forest if no one is around – there can be countless philosophical debates if it happened or not. The rule still applies – both in energy and other industries, brands need to focus on customers and understanding their needs and then they can start finding innovations that meet their needs.

In conclusion

The article lays out some fundamental principles for marketing. Even though some of the predictions in the article took decades to materialise, it is uncanny to see Levitt lay out the exact problems that utilities have been faced with in the past ten years. But the lesson that he put forth for companies in any sector has been proven both in academia and out in the market – companies that focus on the customer and are obsessed with the customer succeed. And marketing is not something that should be put away in a silo in the marketing department.

[…] the entire corporation must be viewed as a customer-creating and customer-satisfying organism. Management must think of itself not as producing products but as providing customer-creating value satisfactions. It must push this idea (and everything it means and requires) into every nook and cranny of the organization.

Theodore Levitt, Marketing Myopia