What Business are you really in?
What business are you really in? You may have noticed that I've been absent from our blogs (and the business) for a little while now. I've recently had a short sojourn in hospital for some running repairs (a bit like a grease and oil change with a quick rebore thrown in), and will be back in the business fulltime from late January. While it can be frustrating to be away from your business for a while, it actually provides a great opportunity for some "in depth" reflection about all aspects of your business.
Many companies define themselves almost completely through the products or services they offer. This is a common approach, especially if the very reason for the business existing has been a new product or service. However, taking a product based approach can seriously narrow your focus, particularly with regard to understanding your chosen market and your customers' needs.
When I studied marketing way back when, I recall an article titled Marketing Myopia by Theodore Levitt, a Harvard Business School professor (here's the PDF to download: marketingmyopia.pdf 229.08KB). Levitt wrote that companies that took a product approach suffered from marketing myopia. To avoid marketing myopia Levitt said businesses should answer the question "What business are you really in?" from the perspective of what customers want, and ensure that they take their customers' opinions and input into consideration when formulating their marketing strategy. Surprisingly, although this article was written so long ago (1960) it is still relevant today.
One of the industries Levitt highlighted in his article as myopic was the retail petrol industry. Retail petrol stations historically took a product based approach, defining themselves simply as being in the business of selling petrol. However, as profit margins started to reduce over the years, they have had to ask what business they were really in. Although they still use the sale of petrol to attract customers into their stations, today it is the sale of convenience and food items that helps them to stay profitable. This change has been critical to the survival of petrol stations.
Locally, I've recently had some discussions along the same lines with the owner of a retail music store. As some of you who've read my blogs will know, I have a weakness for all manner of music, and regularly shop at a small independent store In Sydney. However, like many small businesses in Australia (and around the world), they have had a difficult year. Independent music stores generally have had mixed fortunes in recent years; many have disappeared, but many have flourished, and those that have flourished have been those that respond to the changing retail music environment.
One of the key questions is what business are they in? It turns out that the business they are in is not actually just selling music. If you just want to buy music, locally there are the bulk retailers such as JB HiFi that sell at rock bottom prices, often below the cost an independent can buy at; or online, sources such as Amazon, CD Baby etc that also sell at prices often below normal retail prices. These sources all provide a huge catalogue of music at prices that independents just can't match (although they seldom stray beyond the musical mainstream).
But if you ask the question about what business are you really in, then the landscape changes dramatically. In this case, the business they are in is actually music discovery.
Customers want to know about new music, they want to talk to store staff who know what they are talking about, understand a customer's tastes and can recommend new tracks, albums, genres etc. When you look at those requirements, it's clear that neither the bulk retailers nor online sources can provide the same service, so instead of competing with very large companies with huge purchasing power, it's suddenly competing a much smaller group of similar sized businesses.
In this case, changing the focus of the business is relatively simple and low cost, in other businesses and industries it's not always so simple. However, simple or not, it's a question you can't afford to ignore.
All businesses need to continually re-evaluate what business they are in. To be successful you have to determine what your customers need and want and then act on that information.
So how about you? What business are you really in? I'll leave you with a quote I quite like. Charles Revlon, then owner of Revlon International Corp., once said, "In the factory we make cosmetics. In the department stores we sell hope."
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