Module 1 What is Marketing?

Cases Backbone Press 2009

Module 1 Cases
Case 1:
Case 2:
Case 3:
Case 4:
Case 5:

Cyrus McCormick: Understanding the Importance of Marketing Processes and Product Innovation
Southwest Airlines: Superb Processes Invented and Implemented by Superb Process Thinkers
The Future of the We-market-they-make Business Model
The Chinese Gooseberry Story: the Inevitability of the Global Innovation-imitation Process
Excellence in the Wrong Direction

Case 1: Cyrus McCormick: Understanding the Importance of

Marketing Processes as Well as Product Innovation

The making and marketing of the mechanical reaper is one of the great triumphs of modern civilization. 1
Until the 1830s, crops were harvested by hand, using a 4,000 year old process as depicted in the detailed
drawings on the walls of Egyptian tombs. Think about it, 4,000 years and no real progress in the harvesting
process. The mechanization of farming in the United States was also a major reason why the United States
became a super-power 100 years ago, surging ahead of every other country in its economic output.
Cyrus Hall McCormick grew up on his fathers farm of 1,800 acres at Walnut Grove, in the Shenandoah
Valley of Virginia. His father Robert had spent many years trying to improve basic farm equipment and
trying to invent a horse-drawn reaper to replace the hand-held scythe. To reap is to cut or harvest a crop
such as wheat. Robert passed on his rather rickety invention that was still not sturdy enough to handle the
working conditions (the roughness of the paddocks), to his son Cyrus in the late 1820s. Cyrus improved on
it and made it sturdier but his real genius was not in his invention of the reaper but in his innovative and
entrepreneurial marketing of his invention.
The 22-year-old Cyrus was reported to have farm-tested his latest version of the reaper in 1831 and 1832
(not entirely successfully), but he did not take out a patent until 1834 when he heard that another inventor,
H.F. Mann, had developed a very similar machine and was promoting it in the state of New York.
McCormick was not able to renew his patent and extend it in the late 1840s because a number of people
disputed the primacy of his first patent. He wisely recognized that his success would not come from patent
protection and defending a patent. Time and time again innovators have made this mistake. He understood
that success would come from his mass marketing efforts, that would generate mass manufacturing, that
would reduce costs, that would lead to lower prices and more profits to be invested back in product and
market development, that would lead to even greater sales growth and so a virtuous cycle (sometimes
called a virtuous circle or spiral) is created that leads to the domination of a pioneering company that leaves
the competition in the dust. By 1850, there were some 30 reaper firms that were imitating/innovating his
1

This case is drawn from Cyrus McCormick, The Century of the Reaper, Boston, Houghton Mifflin, 1931 and
Norbet Lyons, The McCormick Reaper Legend, New York, Exposition Press, 1955.

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reaper but most firms were not much more than extended blacksmith/foundry works making one reaper a
week. Their only future would be to become contract suppliers to McCormicks mass marketing machine.
In fact, in the 1840s McCormick already was having his reaper made under license by a number of small
businesses in Illinois, Iowa, Michigan, Missouri, Ohio, Tennessee, and Wisconsin. Several of these
licensees (Such as Seymour and Morgan, Mann and the Fountain Brothers) became competitors by adding
their own improvements. But by then it did not matter, because they had helped grow McCormicks
business and he most certainly was not standing still. Indeed, in many cases he was happy to let them go.
From 1841 to 1845, McCormick constantly improved the design, but he raged at the damage done to his
reputation (not to mention the farmers crops) by some licensees slip-shod manufacturing. Product quality
was really important from the get go. He decided the only way to maintain and improve the quality of his
machines was to terminate existing licensee agreements and manufacture them all himself. Classic lesson.
If you cannot control the quality of your suppliers then you cannot outsource a lesson being repeatedly
learned today in global sourcing manufacturing and customer services. If you do not have the quality
systems controls, dont outsource.
First, he set up a proper manufacturing operation in Cincinnati in 1845, a business owned by a Mr. Brown
and run by his brother, Leander McCormick. In 1846, he set up a similar operation in New York. Still
unhappy with the manufacturing quality, he moved to Chicago where in 1848 he made 500 of the 778
McCormick reapers built that year. In 1849, 1,500 reapers were built in his manufacturing plant, and in
1856, 4,000. He set up one of the first plants in the world to mass produce standardized parts, ideally
positioned on the river and lake front east of Massachusetts Avenue, with barges and sailboats able to load
on one side of the plant and a railway line on the other. The lathes, grinders, and saws in his plant were
driven by one of the first large steam engines in Chicago. In 1859, his brother William wrote to him saying,
Your money has been made not out of your patents but by making and selling machines. He had the
genius to invent the modern business. The following quote from his grandson, published in 1931, seems
particularly modern:
He preached quality to the factory men until it was engraved on their hearts. In modern parlance,
he sold them quality so well they understood the necessity for it and therefore believed in it.
Each year the McCormick reaper became heavier, stronger, better: each year it gained more favor
with the farmers. My father has told me how he used to hear his father say, I dont want to make
my entire profit from a single sale, I want to make the machines so good that the farmer and his
sons will come back again and again to buy more McCormick machines.
Note the stress on customer focus, product quality and innovation, the continuous improvement effort, and
the objective of building customer satisfaction and long-term brand loyalty. If this sounds too good to be
true, it should also be recognized that it took Cyrus from 1831 to 1842 to be really satisfied with the quality
of his reaper and in that year he took the extraordinarily bold step of offering an absolute guaranty of
satisfactory performance or the return of your money. Such a guaranty was unheard of for any product, let
alone the most expensive farm implement you could buy. And he stood by his warranty. The gearing on the
1853 reapers was defective and it was replaced, free of cost to all purchasers.

McCormicks Marketing Insights

1. He understood that manufacturing and marketing process innovation was an important as product
invention, even more important. He could and did buy other patented feature improvements but only he
could build the manufacturing and marketing operation he created.
2. He recognized early on that the huge market for the reaper was in the West and not the East, so he set up
in Chicago, at a time when there were still wolves in its suburbs. This gave him a huge location advantage
over his major eastern competitors.
3. He understood not only where the market was but also the harvesting process that demanded fast
delivery and excellent after-sales service. After all, the farmers crop and livelihood were at stake. Timing
in harvesting is very important; any delay exposed the crop to catastrophic loss from weather, insects, or
birds.

Module 1 What is Marketing? Cases Backbone Press 2009

4. He understood the opportunity presented by the Civil War (a political event). The manpower shortage on
the farm encouraged the use of labor-saving technology and the huge armies greatly increased the national
demand for buying grain. McCormick supplied both sides, the South on the sly.
5. He understood the opportunity created by the new popular press to communicate with farmers who had
just become literate.
6. He understood how to use the railway, the new distribution technology, very effectively.
7. He saw how to use the local merchants as sub-agents in the sales, service, and debt collection processes.
The local merchants knew and trusted the farmers and vice versa, thus greatly reducing bad debts.
8. He understood the importance of having quality manufacturing management and hired his brother to run
the operation. As an aside, his factory burned down in 1851 and again in 1871 which in the end was
fortuitous because it allowed improvements in production processes and increases in capacity.
9. He understood the importance of having a highly respected business partner (William Ogden, the
undisputed first citizen of Chicago) as an early partner to help open the doors to cheap financing and to deal
with local regulations and politics. He also understood the importance of having Ogden as a silent or
sleeping partner who would stay out of the day-to-day running of the business and not create debilitating
internal fights over reinvestments and strategy.

McCormicks Marketing Process Innovations

Product Quality. The product was shipped only partly assembled (an early example of a postponed
assembly process that saved freight costs and reduce manufacturing costs). The farmer had to attach the
wheels, and other parts, and also adjust the settings of the machine. Not only were excellent written
assembly instructions provided, but the parts were painted with numbers on them to help assembly and later
with simple directions on how to adjust settings (such as indicating with an arrow which way to turn a
handle or move a bolt in a slot). Cyrus recognized that quality performance and durability depended on
how well the farmer assembled the reaper, set it, and maintained it, something that many modern marketers
have never learned or forgot with their instructions. In the early years factory experts were sent out to help
the agents (in itself a sensible way of teaching the factory engineers about customer behavior). They
discovered that many farmers left their reapers out in the fields through the winter, ignoring them until the
last frantic moment before harvest. The result was that often crops were ruined by weather or pests because
of a rusted bolt or because the poorly set and maintained reaper was damaged in its next use. This led to
winterizing instructions and the sale of a lot more protective grease.
Repairs and Maintenance. McCormick developed standardized parts, such as wheels, which were used on
several of his pieces of equipment. This enabled the farmer to cannibalize his other equipment in an
emergency (provided he had also purchased other McCormick farm implements), reduce the parts
inventory of his local dealers, and greatly reduce the cost of manufacturing and parts supply.
Distribution and Selling. As noted above, in the early 1840s local agents were set up. Their contract
required that they: Maintain a sample machine, canvass the wheat districts in their territory, deliver reapers
and instruct buyers on their operation, stock spare parts, be prepared to do repair work and render field
service, make reports, collect money due on notes, and distribute advertising. They often operated through
sub-agents, country blacksmiths or general storekeepers, Cyrus set up these agents in the early days, then
in 1845 he hired his cousin J.B. McCormick to cover Kentucky, Tennessee, and Missouri, and in 1848 three
traveling agents were appointed as territorial supervisors of the local agents. The agent system worked very
well because the local sub-agents were guaranteed payment because the farmer depended on them for other
essentials.
As the railways penetrated the mid-west, McCormicks traveling agents were first off the train setting up
local agents, and because the railways were primarily built to carry cattle to Chicago, this gave McCormick
a major break. Many wagons were empty on the return trip so back-haul rates to deliver farm equipment
were low, especially at the volume deals that McCormick could negotiate with the railways. This was one
of his big cost advantages over his competition. Earlier his machines were shipped by boat and barge
throughout the canal system that flourished in Ohio, Pennsylvania, and New York from 1830-1850. One of
the reasons it took 20 years for his business to start booming was that the transportation infrastructure that
opened up the market was not yet in place.

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Advertising and Publicity Management. Cyrus McCormick was also a genuine pioneer of promotions and
advertising. For example, From January 1833 to January 1835, McCormick placed 105 notices (free PR
stories) and advertisements in the Lexington Union. But what is interesting is what was promoted:
Hillside Plows
53
Threshing Machine
36
Mechanical Reaper
7
At that time Cyrus and his father believed more in their plows and threshing machines. According to one
historian, this advertising campaign to build the reputation of the McCormick Brand was the first of its
kind in American economic history. The advertisements used testimonials, adding authenticity to the
advertising claims.
His early 1832-1834 advertising campaign was picked up and given free publicity by the Farmers Register
of Richmond, Virginia, the New York Farmer, and the Mechanics Magazine of New York. Later,
McCormick developed his own magazine, Farmers Advanced that reprinted the latest recommendations for
crop rotation, fertilizing, weed and insect control, and the use of hybrid seeds from the Agricultural
Colleges and Stations created by the U.S. Agriculture Service and the Land Grant Universities. All of this
advice to his past customers was very valuable and it cost McCormick nothing to fill its pages. He also
created features where farmers wrote in with their own recommendations and advice as to how to improve
farming processes. These columns were very popular. Liberally sprinkled throughout the magazine were
articles on new McCormick farm machinery, order forms, and advertising of other products. At one time,
the circulation of this magazine was in the hundreds of thousands.
McCormick first used display advertising in the 1840s, when he had local agents pass out illustrations
from his patent application to farmers (see the illustration above). Note the puffery used in the cues: the
horses are sleek, groomed and almost prancing, the man raking the straw is dressed in his Sunday best and
a top hat! Later advertising played on the tremendous popularity of the equipment, again using the
endorsements and behavior of others to encourage laggards to buy.
As far as promotion was concerned, in his early days McCormick had no rivals. He encouraged field
demonstrations on respected local farmers property after Church on Sunday. The women folk came by to
gossip and to see what their husbands intended to spend their limited resources on. The men watched and
talked each other into buying the new equipment. Aid organizations still use a similar technique to
encourage the diffusion of new farming techniques in developing countries. Much has been written about
social influence in the diffusion of innovations in close-knit communities; decades after McCormick
understood the theory and put it into practice. His machines did not always best his rivals, but that
mattered little. Why? Because the bravado he showed by publicly challenging his rivals signaled
confidence in the superiority of his product, and only the attendees saw his equipment bested. The
advertisements afterwards never told the full story. Sound familiar?
McCormick knew his customers and he knew how to put a campaign together. He used Agriculture Shows
to display and demonstrate his new equipment and later took his machinery to international expositions in
Europe, where his inventions won awards: the equivalent of todays J.D. Powers Quality Awards. He did
this to start up his export sales, which grew considerably from 1870 on, and also to reinforce his reputation
back home. Europe was the leader in industrial inventions through the 19 th century, so awards from
European organizations or Governments were very prestigious. In fact, an extraordinary story is told of
McCormick representatives making several trips to Russia in the 1890s to set up a manufacturing plant to
make reapers and threshers to increase the farming productivity and returns from the huge Russian wheat
harvest. Unfortunately, the Czar was not a modernist and believed in the traditional agricultural ways,
which led to mass starvation only 10 years later, and to revolt that later culminated in revolution. Who
knows what impact the early modernizing of the Russian farming economy might have had on Russias
political economy? No one can dispute that the early mechanization of American farming had a major
impact on the growth of the United States into a super power.
Pricing. McCormick was innovative in his pricing in several ways. First he sold his early reapers at a price
barely over cost. The idea was to get his product out in use rather than to make a quick killing; penetration

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pricing is what this tactic is called today. Second, he introduced a standard price. His competitors often
haggled over price (as we still do with cars), but the problem with this is best characterized by telling a
story of two neighbors who have just finished working in their fields with their McCormick Harvesters and
are swapping stories about what a godsend their reapers are, but one comes away from the conversation
upset and bitter, no longer a word-of-mouth promoter of McCormick equipment. Why? He discovered that
he paid more for his reaper than his neighbor and his neighbor rubbed it in. That is the disadvantage of not
charging a standard price. It creates bad will in the haggling and afterwards when buyers have discovered
they paid too much. A new risky invention and brand cannot afford such bad will. McCormick created a
competitive advantage for himself by standardizing the price early on.
He also introduced term payment, an innovative idea that was considered very risky at that time. For
example, in the early 1850s his reaper cost $125. The farmer was asked to make a deposit of $35 plus the
freight from Chicago. The balance was due on December 1 after the farmer had received payment for his
harvest, with a six percent interest charge on the balance outstanding after July 1 of the next year. To get a
sense of the investment the farmer was making, at that time a horse cost about $20 to $30. In practice, the
farmer often made a deposit as low as $15 and the balance was collected by the local agent over the next 18
months. McCormicks credit losses varied from 3 to 5 percent but his margin easily covered this risk. This
extended credit required a huge amount of working capital but the firms internal earnings were such that it
was able to support not only growth in receivables (customer credit), but also a $100,000 loan McCormick
extended to Marshall Field after the 1871 Chicago fire, to start up his department store business again.
Furthermore, McCormicks early expansion, servicing of all of the Midwest and East, reduced his risk
exposure. If there was a drought or disaster in one part of the country that wiped out the farmers revenue,
he could carry the farmers debt in a way that a local farm supplier could not. Indeed, a story is told that
Cyrus McCormick visited Webster City, Iowa, where all the crops had failed, shook hands with all the
farmers who owed him money, and promised to see them through, winning their loyalty forever.
This story has a sad ending. In 1902, during the time of the great business Trusts, International Harvester
was created by combining five firms including McCormick. By the late 1940s Harvester dominated the
farm equipment business with a 60 percent share of the domestic market. However, several decades of very
bad management ran the company into the ground and in 1984 Harvester sold its farm equipment business.
Errors such as conceding far too much to unions for no improvements in productivity, getting into other
businesses such as marketing refrigerators, and paying out 90 percent of earnings in dividends to
shareholders rather than re-investing more in the company, contributed; but most importantly the modern
managers had none of the inventiveness, drive and management ability of the founder, none of his complex
process thinking and political implementation skills.
Questions
1. The marketing mix is made up of the 4Ps, product, place (distribution), promotion and price. For which
of the 4Ps did McCormick not develop innovative tactics and practices?
2. Was it product innovation or innovation in the diffusion (the marketing) of product innovation that was
at the root of McCormicks success?
3. What technology is driving most advances in food production and marketing today?

Module 1 What is Marketing? Cases Backbone Press 2009

Case 2: Southwest Airlines: Superb Processes Invented and

Implemented by Superb Process Thinkers
In early 2008 Southwest Airlines paid a huge fine for subverting the legally required safety inspection
processes of its fleet of 737 Boeing Aircraft. The Government major safety inspector was given free flight
training and Southwest did not complete required safety inspections on time. It was a public relations
disaster for Southwest but it was also a terrific shock to the Company culture because Southwest has prided
itself on its people and its processes for good reason.
Southwest Airlines was founded in Texas by Herb Kelleher in 1971. Continental used its influence to stop
Southwest from being able to use what is now the Dallas-Fort Worth International Airport which forced
Kelleher to use Love Field, the secondary airport in the area. Ironically, this helped Southwest because it
built most of its business around the use of secondary airports around the country (such as Midway in
Chicago, Oakland in the Bay Area). These airports welcomed the business and were much more
cooperative than the major airports. The fees these airports charged were lower, there was less congestion,
fewer delays and many Southwest customers found it just as easy if not easier to use the secondary airfield.
Southwest focused on shorter point-to-point routes that enabled planes and crews to make more flights a
day. The aircraft used was the 737 and because the airline flew only one type of aircraft it became very
skilled at training crews on flying the 737 and on maintaining the 737. Maintenance crews had to know
only one aircraft and execute the same inspection and maintenance processes many times more often than
maintenance crews employed by other airlines who had to maintain many different types of aircraft. Spare
parts inventory carrying costs were minimized. Because of their collective singular experience Southwest
had the best 737 pilots and best 737 maintenance crews in the world. But this is only one aspect of the
clever process thinking at Southwest.
Here are some others:
Southwest specialized in the turn around process at airport gates by requiring all Southwest
employees at the gate, including pilots, the crew and customer service reps to help clean and
service the aircraft. This involved everyone coming up with better process suggestions and
training new people in this activity (cross-training). The result was that Southwest used half the
people competition used to turn around a plane in half the time competition took. The plane was
loaded using unassigned seating and this also speeded up loading.
Southwest did not have to provide as much in-flight food because its flights were shorter and it
compensated for such a reduced service by launching and featuring high quality snacks such as
Mrs. Fields fresh-baked chocolate cookies on its flights and encouraging pilots and crew to use
humor in their announcements and their customer service. As corny as some of the improvised
humor might have been it made the airline seem much friendlier than other airlines with their stiff
protocol. It also helped reassure nervous flyers.
Southwests hiring process emphasized personality and niceness rather than previous airline
experience. In fact, Southwest preferred not to hire employees away from other airlines because
the other airlines had so badly managed employee and union relations that it bred a distrust of
management and a generally cynical and negative attitude toward work that was the antithesis of
the Southwest culture. Southwest also hired marketing professional to run their People Department
(not called by its usual stuffy name Human Resources). These marketing executives came with a
customer orientation that they infused into their hiring and training processes. Most HR
departments have an employee first attitude. Southwests HR department has a customer
customer first attitude. Southwests People department was also not managed by the book. It was
tried for a while but then the 300 page book was thrown away. Too many by the book standard
operating procedures and protocols stifled improvisation, process thinking and the lending a
culture.
The Southwest culture of helping out and caring for each other was not mandated by management
but was created by its people on the job who often recommend family and friends as hires. These
new employees then had both personal and professional reasons for fitting in and working hard.

Module 1 What is Marketing? Cases Backbone Press 2009

Southwests reward and retention process was also unique. Southwest starts wages low but then
increases them with years of service, much more than other airlines. This made the Unions very
happy. But it also led to very low turn-over and a huge amount of wisdom and experience in
handling problems and crises. People got to know each other and became friends and extended
family, and this resulted in a lot more informal employee celebration parties and personal support
during the inevitable crises at home.
Southwest also pioneered the sensible control-system process of providing service line-employees
information about company and department cost control and performance efficiency. No hiding of
performance information for political and promotion purposes in Southwest. No being able to take
credit for other peoples performance Southwest is too transparent.
Southwests early booking system was direct by phone and then on the Internet. By bypassing the
booking agents it not only reduced its booking costs but it also had more control over the customer
service interface and, hence, customer service quality.
Southwest improved its learning processes by selecting high potential younger executives to meet
with the senior executive team. This led to the direct transfer of good ideas to senior management
and senior management were able to help their future replacements understand the big picture
issues that face senior management.
No distant, imperial leadership at Southwest. In the early days Kelleher would personally deliver
doughnuts to maintenance crews very early in the morning and he made a habit of using zany
humor and playing the fool at functions and in Southwest advertising. Kelleher used a lead from
the front, hands on style that became the management cultural norm.

Southwest Airlines is a candidate for being the best service company in the world. The Department of
Transportation for many years in a row has awarded Southwest the triple-crown: best at on-time
performance, least bags lost, and fewest customer complaints to the transportation department. On top of
this dominance in quality Southwest has been the lowest cost operator, measured in terms of cost per mile
flown, for decades and has been ranked one of the top companies to work for in America, again not just
once but many times. Best quality service, lowest cost, and it has been profitable throughout two decades
while much older airlines have gone bankrupt, some several times! It is one thing to increase shareholder
value by more than 200 times over 30 years in an industry where everyone is making money hand over fist.
It is quite another to so enrich owners in an industry where almost everyone else is fighting desperately for
survival and has lost billions of its owners capital.
Questions
1. What is Southwests core competitive capability? Is it people, culture or processes?
2. Is there one particular process or practice that made Southwest Airlines successful?
3. Why do other airlines find it so hard to imitate Southwest Airlines?

Module 1 What is Marketing? Cases Backbone Press 2009

Case 3: The Chinese Gooseberry Story: the Inevitability of the Global

Innovation-imitation Process
Innovative plant breeders in New Zealand in the 1950s bred a new large furry fruit out of what was
commonly known as the Chinese Gooseberry, a small furry berry fruit that is native to the Yangtze River
valley of northern China and Zhejiang Province on the coast of Eastern China. But for marketing purposes
this name was not very appropriate so a new name for the fruit was created, the Kiwi fruit (Kiwi is the
name of a flightless furry bird native to New Zealand and is also the affectionate nickname given to New
Zealanders).
The combination of resourceful Californian imitators with money, and greedy, get rich quick, New Zealand
growers led to the selling of Kiwi fruit vines to North and South American growers, who now supply a
large percentage of the world market for the delicious and healthy fruit. But isnt this the story of trade
from time immemorial? The genetic modification of local plants often by foreigners that are then taken and
further modified and developed elsewhere. Another example is tea taken from China and grown in India
and other suitable climates. Another example is the tomato, developed in the U.S. but originating in Central
America, again as a small berry fruit like todays cherry tomatoes. It is unstoppable, just as the copying and
improvement of all innovations from all sorts of extraordinarily distant places is unstoppable.
The answer is not to try to stop it but to manage it through licensing, patenting or other ways. Another
answer is to get on with the next good idea. And so New Zealanders have become wine-makers, making
some of the finest white wines in the world. Good ideas can be copied; the ability to come up with good
ideas is a lot harder to copy.
Questions
1. As world trade has grown many new fruits, vegetables and cooking processes have been introduced into
new markets. What food from what country has had the greatest impact on the North American diet over
the last 50 years?
2. Is the transfer of new technology, of new genetic strains of crops, vegetable, fruits and trees around the
world inevitable, even when the technology is protected by patents or trade secrets?
3. If the transfer of new technology is inevitable, is it best to try to slow it down, or speed it up by
transferring the technology you invent to competitors through partnerships and royalty payments?

Module 1 What is Marketing? Cases Backbone Press 2009

Case 4: The Future of the We-market-they-make Business Model

According to The Economist: Japan and the West invent stuff and market it; emerging Asia makes stuff,
customizes it and services it. (November 10, 2007, p. 16) For example, in the clothing, textile and
footwear industries the best Italian brands have shifted production offshore in order to concentrate on
design and marketing where the Chinese can be matched or beaten. 2 Nike has been doing this for two
decades. But not everyone believes in this business model:
There is a romantic notion in North American business that its future lies in design and innovation, while
India and China will be the home of less skilled, lower-paying operations churning out the products and
services the U.S. comes up with. 3 There is increasing evidence that the design and research and
development capabilities of Chinese and Indian companies are rapidly increasing, helped by American
companies. For example, between 2002 and 2007 six of the biggest IT firms, including Accenture, IBM and
HP, increased the number of employees they have in India from 10,000 to 150,000. Tens of thousands of
these jobs are in research and development.
There is another obvious concern. Much of the growth in markets and demand over the next 20 years is
going to be in emerging markets where hundreds of millions of new consumers will have ever increasing
discretionary income. They will not be buying designer shoes, BMWs and Apple iPhones; they will be first
buying low priced cars, appliances, cell phones etc.
Questions
1. Will American companies be able to design for and market to these consumers better than local designers
and marketers? Will they understand and be able to serve these customers better? What do you think is
going to happen?
2. Do you think Japan and the West will keep their lead in inventing and marketing stuff or do you think
the emerging economies will catch up? If so what should American companies do about it? How will they
grow their businesses?
3. How are you going to fit into this new business world? Do you think U.S. managers are going to have
to be a lot better and work a lot harder than they have in the past 30 years?

2
3

The Economist, Material Fitness, February 25, 2006, p. 73.

Roger L. Martin, What Innovation Advantage BusinessWeek, January 16, 2006, 102

Module 1 What is Marketing? Cases Backbone Press 2009

Case 5: Excellence in the Wrong Direction

While all innovation is good, some are a lot more frivolous than others. Take the technology of clock
making in the 1700s. English traders commissioned the making of extraordinary clocks for feather headed
Chinese Emperors and senior court officials who were otherwise not interested in English manufactures. If
you ever visit the Forbidden City in Beijing you will see these creative marvels covered in gem-encrusted
metallic birds beating their wings and tweeting the time (they actually do not run them any longer they
are too precious). A great and most wonderful collection of knick-knack clocks.
But these toys for takers were technological innovation excellence, in the wrong direction. How do we
know this?4 How dare we be so judgmental? Because at the same time the really world transforming
innovation in clock-making was being undertaken by the Englishman John Harrison who invented the first
ships Chronometer, a robust very modern looking large watch that was so accurate that it could be used to
measure a ships East-West position at sea. This innovation was for makers, the global traders of the
world as it greatly reduced the risk of ending up on the rocks and also greatly reduced sailing time.
Innovations that reduce the cost of global trading, and open up new sources of cheap supply and new
markets for goods and services are good, are a blessing from God. Innovations in the same product
category that are toys indulging the childish whims and fancy of the rich and powerful are far less
impressive.
Do we face the same issues today? Well, maybe. Take wireless communication technology. Watching TV or
playing complex video games on phones, is a much touted new innovation yet doubtful value. (Dont we
watch enough TV/play enough video game as it is for goodness sake how much of our discretionary
waking time is spent on these activities today?) Is it another Emperors innovation, a toy for takers to idle
away their time; and yet otherwise very hard nosed and rational wireless telephone companies have spent,
and have lost, tens of billions paying for broadband wireless spectrum rights to be able to stream masses of
information (i.e. video) down into wireless telephones. Foolishness on an immense scale?
Whatever those executives were paid was way too much because it cost shareholders billions of dollars in
their investment value and it set back the firms and their employment growth for years. Now compare this
with using wireless phone technology to identify cargo container manifests and with the use of Global
Positioning Satellites (GPS) to track exactly where a cargo container is and what is happening to it ... of
application and value all around the world and in a huge number of product markets. This is an innovation
for makers, for global traders. You may say who cares? Well humanity cares and, at the end of your life,
looking back on how you spent your life, you may too.
Questions
1. Is the Bridge to no-where, putting a man on the moon that has no purpose, building a space station that
has no purpose, sending a man to Mars examples of Emperors clocks? Are they demonstrations of a failure
of the free market system to allocate resources efficiently?

The story of Harrisons 30 year battle against a competing navigation process/technology developed by astronomers,
their sneaky use of big government to stymie innovation and progress, and his concurrent battle to improve his design
from a large clanky brass clock to a miniaturized silver masterpiece is a classic romantic story of inventor endurance,
brilliantly told by Dava Sobel, Longitude, New York, Walker 1995. For the more general but equally fascinating story
of the development of clock and watch technology and how it changed the world, see Landes, David, Revolution in
Time, Cambridge, MA: Harvard University Press, 1983.

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