Avoid the Biggest Mistake in Market Intelligence

The late Ted Levitt, professor at Harvard Business School, used to tell this apocryphal story:  The CEO of a tool manufacturer gathers his executives into a meeting and says, “People, I have bad news.  I’ve discovered our customers don’t want quarter-inch drill bits — they want quarter-inch holes.”

What we sell vs. what they buy

In my view, that would count that as good news — since the executive has figured out that there is an important distinction between what our customer buys and what we make.  Your company makes and sells a product or service; your customer buys value – a benefit as he defines it.  They may be the same thing — your product may completely (or at least sufficiently) satisfy the customer’s need.  But when they diverge, you’re in trouble if you don’t realize it and adjust quickly.  Some companies never catch up when such a value shift occurs.

To play out Levitt’s example:  You make and sell a ¼” drill. What your customer needs and buys is ¼” hole.  Hypothetically there are other ways to get that ¼” hole:

  • hire a handyman who has a drill;
  • buy a pre-drilled piece of lumber; or
  • buy something that can be assembled with clamps instead of holes, thereby doing away with the need for holes altogether.

The point is that, on a value basis, these are also your competition (in addition, of course, to the other drill makers.)  You should keep them on your radar, and maybe even borrow from what they do to compete with yourself — and thereby pre-empt them from doing so.

A current example:  the PC industry

Companies and whole industries make this mistake over and over.  A textbook example is currently playing out in the personal computer industry.  Personal computers as we know them became common business tools in the 1980s.  The growth figures roared along, and with them star companies like Dell and Hewlett-Packard.  Both of these companies now seem to have lost their bearings, and could now be seen as fallen angels — largely due to the shifts in technology that went on around them.

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