Why IBM faltered?
Business and Marketing
IBM in 1976 occupied 80% market share in the mainframe computer segment of the commercial computer business, which was a $20 billion industry. Its offerings spanned the complete range of commercial and scientific applications from large to small. In its entire history, IBM never had more than two senior executives who had not come up through the marketing ladder and only one was a scientist. This symbol of twentieth-century science and technology had succeeded largely because of its marketing prowess. In 1993, IBM stunned the world by reporting quarterly losses of $8bn, caused by increased competition and a changing market.
Marketing
Marketing is about understanding customers better than themselves. The great quest of marketing is to understand the behavior of humans in response to the stimuli which they are subjected to.
More formally, marketing is the process of creating the desired response by offering values to the market.
A common misunderstanding is that marketing exists for companies to sell what they make. Rather, marketing is what guides companies to decide what to make. Marketing is fundamentally what a business is all about — building long term relationships of exchanging value, everything else is there to support.
Marketing Myopia
Marketing myopia was a concept proposed in 1975 by Theodore Levitt, then a lecturer in business administration at the Harvard Business School. Myopia is a common vision condition in which you can see objects near to you clearly, but objects farther away are blurry. Similarly, marketing myopia happens when firms are fixated on the more proximate element of their business (generally the product) and lose sight of the farther more important elements (generally the customer).
Levitt argues that railroad companies in 1975 were in trouble because they were too centered on their product that they failed to realize that they were in the transportation business. This made them vulnerable to inroads into their business from cars, trucks, airplanes, etc. They were product-oriented at the senior management level rather than being customer-oriented.
Companies get too focused on their successful products because of an ever-expanding market, lure of mass production, and an unwavering belief in technology. All this leads to ignorance of important business functions such as market research and customer service. Basic questions about the customer seldom get asked. Rather than looking at themselves as producing products, businesses should think of themselves as producers of customer satisfaction.
Marketing myopia is a perfect explanation of the current state of major automobile manufacturers. They were too fixated on the internal combustion engine as a product that they lost sight of changing market dynamics towards electric propulsion. Tesla is now worth nearly $300 billion compared to Ford’s $26 billion, General Motors’ $38 billion, and Fiat-Chrysler’s $16 billion. In a single day’s trading, Tesla is often able to add or subtract the entire market values of its competitors from its own capitalization.
Business — organizations have increasingly recognized the value of placing a broad definition on their products, one that emphasizes the basic customer needs being served. A modern soap company recognizes that its basic product is cleaning, not soap; a cosmetics company sees its basic product as beauty or hope, not lipsticks and makeup; a publishing company sees its basic product as information, not books. — P.Kotler
Marketing models
Marketing models date from the 1960s. They were developed out of a need to replace instinctive decision making with a more scientific approach. Good examples being, BRANDAID and PIMS based models from the 1970s.
This is where marketing meets OR/MS (Operations research/management science). OR/MS is an interdisciplinary field that uses analytical methods to improve an organization’s ability to enact rational decisions.
Despite the presence of numerous marketing models available in theory, not many are commonly used by management. This is mainly because these models do not take a systems view of the organization, provide inputs but do not reduce the effort in making a strategic choice, and such models are often not user-friendly.
An example of one of the earliest models in marketing is the bass diffusion model of 1969. The Bass diffusion model attempted to give an estimate of the sales peak and timing of the peak based on historical sales data. The model implied an exponential growth to a peak followed by an exponential decay parameterized by a coefficient of innovation (driving early adopters) and a coefficient of imitation. Consumer durables sales data of the time were found to be in good agreement with the model.
What is often lacking is not creativity in the idea-creating sense but innovation in the action-producing sense, i.e. putting ideas to work. — Theodore Levitt
Branding
Nations, medals, religions, universities are all essentially brands. They are ideas we share and stories we tell but have no physical manifestation, yet are valued enormously. Perhaps are the only things which can be termed invaluable. If there ever was anything like magic, this is it.
Branding is the realm of intangibles. However, in contrast to other intangibles like patents, it differs in one important aspect. Branding is that element of the corporate machinery that creates perceived value rather than real value. It intends to profitably harvest human psychology. Branding also helps in building trust which reduces many transaction costs for customers like checking for quality and reliability of service.
Classical conditioning was an idea propounded by Ivan Pavlov in the early 1900s. It implies that response to a certain stimulus can be transferred to an initially unresponsive stimulus by repeatedly pairing the two stimuli. The implication being if one is subjected to the terms ‘Macbook Air’ and ‘Feather’ repeatedly, one would tend to unconsciously relate Macbook Air with properties of a feather.
What is the most resilient parasite? Bacteria? A virus? An intestinal worm? An idea. Resilient… highly contagious. Once an idea has taken hold of the brain it’s almost impossible to eradicate. — Inception
Back to IBM
In 1985 IBM was the most profitable company in the world. IBM had become a leading producer of PCs in the 1980s. Although companies like Apple had experimented with a personal computer in the 1970s, it was the brand IBM which gave the product mainstream credibility. However, the bulk of IBM’s profits came from mainframe systems for corporate customers and IBM never thought of PC playing a significant role in office applications. The success of the company caused it to become myopic. IBM shifted focus from the customer to the product. This was because the company thought of mainframes to have become an industry standard. This further led them to misjudge the diffusion cycle of the PC. Soon prices of mainframe computers dropped and the company found itself unable to compete in the low-cost PC market. During the early 90s, Tens of thousands of jobs were cut worldwide and the company moved into business services. In 2004, IBM sold its PC business to Lenovo for $1.75bn.
References:
Lilien, G.L. (1994) ‘Marketing Models: Past, Present and Future’
Theodore Levitt (1960) ‘Marketing Myopia’
Kevin Lane Keller, Donald R. Lehmann, (2006) ‘Brands and Branding: Research Findings and Future Priorities’
