A while ago I read an article by Theodore Levitt called Marketing Myopia. It’s a classic marketing article which appeared in the Harvard Business Review and is often used in business school courses. It was written over 50 years but is still as relevant today as it was the day it was written. In the article, Levitt talks about how hugely successful businesses failed because they didn’t understand what markets they were in.
Here’s a quote from it:
“The railroads did not stop growing because the need for passenger and freight transportation declined. That grew. The railroads are in trouble today not because that need was filled by others (cars, trucks, airplanes, and even telephones) but because it was not filled by the railroads themselves. They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry incorrectly was that they were railroad oriented instead of transportation oriented; they were product oriented instead of customer oriented.”
You can view a portion of the article on the Harvard Business Review site. This link will only show part of the article to non-subscribers. (Hint: you can find the full article by doing a Google search for it.)
We see examples of Marketing Myopia today. The music industry is undergoing a massive shake-up as consumers change how they consume music. In the past you’d have to buy a physical copy of the music – an album or CD – but now it’s digital. You can buy single songs from iTunes or stream music via sites like Spotify. Many people now use You Tube as their music player of choice. When more people stream your music, your royalties are lower, but are recurrent in nature.
So musicians are confronted with this change and the smart ones are learning to adapt. They realise that the CD isn’t the product – the song is. And the song can now be packaged in many different ways – an mp3 to download or stream, a video, a live performance etc.
Another great example of myopic thinking in business was Kodak. For many years Kodak believed they were in the business of printing photos. That belief almost killed their business. Consumers changed. With the popularity of digital photography the number of people printing out photos decreased. Again, we were able to consume the photos in different ways – rather than look at them in a photo album we were able to look at them on a computer screen. Now, with the cost of data getting lower and lower, we share these photos on sites like Flikr and Instagram.
I feel that the financial planning industry in Australia (and the rest of the world) also suffers from Marketing Myopia.
Over the past few years our industry has undergone a lot of change as the government here in Australia implemented the Future of Financial Advice (FOFA) reforms. An outcome of these reforms is that many financial planners worked hard to define their value proposition – what they do for the client. Coupled with this was the need to change how we charge clients – moving away from a commission-based structure to a fee model.
I’ve observed a lot over this transition period and I conclude that many planners are incredibly myopic in how they view their businesses.
Now, I realise I may put some people offside with this message – it may not be what you like to hear. But I believe it. I didn’t like it either when I first started thinking about it, but I’ve now come to a point where I accept that this is how our industry is.
Are We Giving The Customer What They Want?
“The view that an industry is a customer-satisfying process, not a goods-producing process, is vital for all businesspeople to understand. An industry begins with the customer and his or her needs, not with a patent, a raw material, or a selling skill.”
– Marketing Myopia
I used to have a uni lecturer who’d say to the class “I don’t care what you think, I only care what your target market thinks.” We were taking a marketing subject, and he was pushing the point that we all have preconceived ideas about what a business should do, but the important opinions are those of your customers. What do they want?
If we asked our clients (and potential clients) what it is that they want when it comes to finances, what would they say?
- Do they want a retirement fund?
- An investment fund?
- An insurance policy?
I don’t think they would. I think they have financial problems like not saving enough for retirement.
The answer isn’t a retirement fund – it’s more than that. It’s a total plan that starts with understanding their goals and objectives both now and in the future, putting some dollar figures around their goals, working out how much they need to be saving now to have the money available to achieve those goals, and then monitoring their progress along the way and keeping them accountable to those goals.
They want answers to problems – advice. And sometimes those answers will include products.
Michael Kitces wrote a great article along these lines in March 2012 called Is It Time to Redefine The Value Of Financial Planning To Expand Its Reach? Have a read and be challenged by what he writes.
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