Asking a company director “what business are you in?” usually produces a swift and predictable answer. We all tend to define our business by what we do – so the broker will tell you she is in “the insurance business” and a retailer may tell you he is in “the fashion business”.
The obvious answer is not always the right one, however, and getting the answer correct is fundamental to business strategy.
Take motor cycle manufacturer Harley Davidson, for example. At first sight, the company is pretty clearly in the ‘transport business’ or maybe the ‘motor cycle business’. The company itself has apparently recognised that this is too simplistic, however, and has (according to a speaker at a conference I attended some time ago) redefined its purpose. It now believes it is in the ‘big boys’ toys’ business. [more]
The rationale for this decision comes from a study of its customers. They are almost exclusively male, 45-plus and with well-above-average incomes. They do not buy Harley Davidson motor cycles to commute to work (well, not unless they want to show off their new toy). They buy a Harley Davidson not as a mode of transport but as a lifestyle accessory.
So, who are Harley Davidson’s competitors? Curiously (or perhaps logically once you begin to understand the market) the competitors are not other motor cycle makers. The competitors are the organisations which compete for the ‘lifestyle accessory expenditure’.
Research in the UK apparently demonstrated that Harley Davidson’s largest competitors are manufacturers of conservatories. If the money did not go on a new Harley Davidson it was most likely to go on a glazed extension to the family home. In the USA, the major competitors are swimming pool installers.
Armed with this knowledge of its market and its consumers, Harley Davidson is in a much better position to part customers from their cash.
Charles Revson of beauty products form Revlon once remarked “In the factory we produce cosmetics, in the drug store we sell hope.”
Rolex and Swatch produce fashion accessories which happen (mostly) to tell the time.
Only when you truly understand what your customers are really buying – and why – can you hope to systematically locate more of them and to charge them more for your products. Only when you do that do you have a truly sustainable business (but be careful that today’s smart market positioning does not become tomorrow’s straitjacket).
This is as true in the business-to-business sector as it is for companies selling to consumers.
For example, there is no such thing as a market for drills. There may be a large and thriving market for holes – but as soon as someone comes up with a better tool than a drill for making holes, you can kiss the drills business goodbye.
If you want a good example of this phenomenon, look at the typewriter market. “What typewriter market?” I hear you ask. Exactly. Less than two decades ago, there was not an office without a typewriter. Three decades or so ago, making electric typewriters was a booming business with exponential growth.
Smart typewriter makers saw their customers were not buying typewriters but ways to create and store information. They moved into the computer business.
Not-so-smart typewriter makers carried on seeking to build better typewriters. Brands which one dominated the office equipment business are with us no longer.
So the question “what business are you in?” deserves more than the swift and obvious answer. It is the very essence of marketing which should start with defining the customer need and then working out how to meet it – at a profit.