Myopic Madness in Business…

Myopic: Narrow-minded approach to a marketing situation where only short-range goals are considered or where the marketing focuses on only one aspect out of many possible marketing attributes. This is a short-sighted and inward looking approach to marketing that focuses on the needs of the firm instead of defining the firm and its products in terms of the customers’ needs and wants.

Such self-centered firms fail to see and adjust to the rapid changes in their markets and, despite their previous eminence, falter, fall, and disappear. This concept was discussed in an article (titled ‘Marketing Myopia,’ in July-August 1960 issue of Harvard Business Review) by Harvard Business School emeritus professor of marketing, Theodore C. Levitt, who suggests that firms get trapped in this bind because they omit to ask the vital question, “What business are we in?”

“Every second, every minute: It keeps changing to something different.”-Enlightenment, Van Morrison

In this article, Levitt proposed that companies fail to successfully maneuver market transitions because they have a myopic view of the scope of their business. With reference to the railroad industry, he noted, “The reason they defined their industry incorrectly was because they were railroad-oriented instead of transportation-oriented; they were product-oriented instead of customer-oriented.” 

Some commentators have suggested that this publication marked the beginning of the modern marketing movement. Its theme is that the vision of most organizations is too constricted by a narrow understanding of what business they are in. It exhorted CEOs to re-examine their corporate vision; and redefine their markets in terms of wider perspectives. It was successful in its impact because it was, as with all of Levitt’s work, essentially practical and pragmatic.

Organizations found that they had been missing opportunities which were plain to see once they adopted the wider view. The paper was influential. The oil companies (which represented one of his main examples in the paper) redefined their business as energy rather than just petroleum; although Royal Dutch Shell, which embarked upon an investment program in nuclear power, subsequently regretted this course of action.

One reason that short sightedness is so common is that people feel that they cannot accurately predict the future. While this is a legitimate concern, it is also possible to use a whole range of business prediction techniques currently available to estimate future circumstances as best as possible. There is a greater scope of opportunities as the industry changes. It trains managers to look beyond their current business activities and think “outside the box”.

George Steiner (1979) claims that if a buggy whip manufacturer in 1910 defined its business as the “transportation starter business”, they might have been able to make the creative leap necessary to move into the automobile business when technological change demanded it. People who focus on marketing strategy, various predictive techniques, and the customer’s lifetime value can rise above myopia to a certain extent. This can entail the use of long-term profit objectives (sometimes at the risk of sacrificing short term objectives).

In an article by Russell J. White, president of, he wrote: “Imagine, you have created something that is state of the art: The envy of the industry. You spared no expense and focused on every detail. Everyone says: It’s a can’t miss smash success! Everyone applauds your launch, customers wishing they could be the first to use your product, and you are ready to make money by the vault-load. What could go wrong?”

“Myopic Madness is what could go wrong: Your inability to see out in front of you causes you to crash into an avoidable obstacle and your project becomes the poster child for failure, in fact they make a movie about it and everyone enjoys watching your failure unfold in real time. This is the story if the Titanic. But it could be the story (up to the movie part) of many business ventures that failed to look far enough into the future.

Myopia is commonly known as near-sightedness or the inability to see clearly into the distance. American business has never been so myopic in its vision as it is today and the madness it creates is frustrating managers across the country. Myopic Madness is creating work atmospheres that are so short-term bottom line focused, managers are no longer properly training newly-hired employees, are employing bad work practices in order to boost end of the month numbers to make a report look healthier than it really is, and exploring offshore options to save money while ignoring the long term effects of all of these practices. Want to stop the Madness?”

“Leaders need to be able to see the future today and drive the organization toward that destination. Kodak ignored the future of digital photography and finally announced film would not be a profit center for their organization, all the while scrambling how to find a share of the new age of photography: Kodak without film profits? Invest the time, energy and resources looking where you are going, instead of focusing how to get one more order out by the end of the month. Success takes consistency and persistency, not herky-jerky short-term moves for all the wrong reasons.

“Consider the fad chasers. Cadillac now makes a small car that is more affordable for the masses. (So much for the elite brand, they are now just another division of GM.) Banks approve credit card applications as long as the applicant is breathing (and the write-offs are significant.) Anybody notice how much a share of Berkshire Hathaway still is? Here is the exception.

Warren Buffet defines fads, he doesn’t follow them and his success is off the charts. Your brand is something you should never sacrifice in the pursuit of short-term profits. If you make the biggest burger – then make the biggest burger and be proud. If you make an elite car, then only make an elite car! If you want to demonstrate strength as a company then don’t sacrifice your brand identity to make a few extra dollars this quarter. Your short-term vision may have you heading straight for an iceberg.”

At times, managers face short-term incentives that lead them to engage in “myopic marketing management”, in order to artificially inflate current-term earnings (and thereby increase current stock price), they cut marketing expenditures. How prevalent is this phenomenon of myopic marketing management? What are the long-term performance implications of myopic marketing management?

In the article “Myopic Marketing Management: The Phenomenon and Its Long-term Impact on Firm Value” by Natalie Mizik and Robert Jacobson they investigate these questions in the context of seasoned equity offerings (SEOs), i.e., when a firm issues additional equity to collect additional capital. Since the amount of capital collected by the firm depends on the stock price on the day of issue, managers have an incentive to engage in earnings inflation at the time of an SEO. This incentive stems from the fact that investors rely on current-term accounting performance measures to form their expectations of the future-term performance and, as such, to value equity.”

“Using empirical modeling and data from Thomson Financial Securities, COMPUSTAT, and the University of Chicago’s Center for Research in Security Prices (CRSP) databases, Mizik & Jacobson found the following: “A significant number of firms are engaging in myopic marketing management and are inflating their earnings by cutting marketing spending: at the time of an SEO, 65.0% of firms fall below their expected levels of marketing spending and 58.5% fall above their expected levels of earnings. 

Financial markets appear unable to distinguish firms that are practicing myopic marketing management at the time of an SEO from those that are not: myopic firms are overvalued at the time of an SEO, but in years subsequent to the SEO year, as the consequences of cutting marketing spending are realized in inferior financial performance, they have large negative abnormal stock returns.”

“While myopic marketing management has some short-term benefits in terms of higher current-term earnings and stock price, it has a detrimental long-term impact on firm value. Myopic firms have long-term stock returns significantly lower than other firms.  Myopic marketing management might have negative consequences not only for the firms undertaking myopic strategies, but also for the firms not doing so: non-myopic firms may be undervalued at the time of an SEO issuing and, as such, might not be able to collect a fair price for their new equity.  These results are likely to generalize to other contexts.

Firms practicing myopic management forego strategies with superior future profits for those that generate immediate returns. In general, managers have incentives to behave myopically when (1) their performance evaluation depends on a current-term outcome measure or on the stock market reaction and (2) they can engage in an inter-temporal shifting of expenditures that cannot be fully discerned by the evaluator.

The authors argue that myopic marketing management impairs marketing function, harms intangible marketing assets, and ultimately destroys shareholder value, and they suggest ways to change the attitudes and behaviors of managers and the financial market.”

In the article Marketing and Firm Value: Metrics, Methods, Findings, and Future Directions by Shuba Srinivasan and Dominique M. Hanssens they wrote: “Traditionally, marketing has focused its attention on customer or product-market results, such as customer counts, sales, and market share. The link to financial outcomes and stock price is rarely considered. Increasingly, however, marketing profession is being challenged to assess, communicate the value created by its actions on shareholder value. These demands create a need to translate marketing resource allocations and their performance consequences into financial and firm value effects.”

“In recent years, researchers in marketing have begun to examine the demand creation aspect of firm valuation. Although demand creation is but one aspect of management strategy, it is arguably the most important and the most challenging. If marketing’s contributions were readily visible in quarterly changes in sales and earnings, the task would be simple because investors are known to react quickly and fully to earnings surprises.

However, much of good marketing is building intangible assets of the firm—in particular, brand equity, customer loyalty, and market-sensing capability. Progress in these areas is not readily visible from quarterly earnings, not only because different nonfinancial “intermediate” performance metrics are used (e.g., customer satisfaction measures) but also because the financial outcomes can be substantially delayed. As with research and development (R&D), marketing is requesting the investor community to adopt an investment perspective on its spending.”

This article integrates the existing knowledge on the impact of marketing on firm value. Specifically, the authors examine the methods for determining the impact of marketing on investor valuation and summarize the existing findings in this area. The authors first frame the important research questions on marketing and firm value and review the key investor response metrics and relevant analytical models as they are related to marketing. Then, they summarize the empirical findings to date on how marketing creates shareholder value, including the impact of brand equity, customer equity, customer satisfaction, R&D and product quality, and specific marketing-mix actions on firm value.”

“Overall, the studies point to the link between marketing actions and investor response. In particular, the evidence supports the notion that investors are long-term oriented. In general, they favor marketing developments that improve the firm’s long-term outlook and discourage myopic marketing actions, though exceptions exist.

Thus, corporate executives are advised to generate better information about their intangibles (e.g., investments in brand building, product and service innovations, R&D) and the long-term benefits that flow from them and then to disclose that information to the capital markets to give investors a sharper picture of the company’s performance outlook.”