David Kincaid, Level5 Strategy founder and author of The Brand-Driven CEO: Embedding Brand into Business Strategy, talks to Customer First Thinking Podcaster Stephen Shaw about why the 1970s hold the key to unlocking the value of their brand.
David met with Stephen Shaw recently to talk about his beginnings in brand management, and how those early days shaped his philosophy on brand as the company’s primary growth asset.
Read Part 1 of the interview’s condensed highlights below.
Stephen: Your book, The Brand-Driven CEO: Embedding Brand Into Business Strategy, is aimed at CEOs. Why did you feel the need to write this book? I get the sense that you think CEOs have always treated the brand as a creative exercise instead of something that they should own. Is your message in the book aimed at convincing CEOs that they should take the brand more seriously, or is it that CMOs should be taken more seriously?
David: It’s a little bit of both. I wrote this book because I witnessed how the understanding of the brand as a concept has changed. I spent over 40 years in the brand management world and I can tell you that the accountability for managing the brand as an asset has changed during this time. There’s lots of confusion when it comes to understanding the brand as an asset.
As I say to most CEOs, “Your brand is probably the most misunderstood and underleveraged asset sitting on your balance sheet.” And a lot of them say something to the tune of, “What? But we just rolled out a new website.” Then I say, “That’s good, but that’s your marketing. That’s not your brand.”
My understanding of the brand is rooted in the world that I started in, which was a classic brand management-driven organization. In the 1970s and 1980s the old stalwarts like Procter and Gamble and Colgate Palmolive were brand tight. They managed their brands as assets. I was fortunate enough to be given an opportunity, despite not having a business degree, to be brought in by General Foods (Mondelez International today as a result of so many mergers and acquisitions). On my first day I was told to work on Maxwell House and I thought I’d meet their spokesman, actor Ricardo Montalbán at an ad shoot. But I quickly had that balloon popped. I was taken to a little office with a single light bulb that felt a bit like a holding cell. There, I was expected to read anything from AC Nielsen reports and volume shipment reports to warehouse withdrawals, manufacturing and inventory control reports.
My boss asked me to offer some ideas after looking at the reports on how General Foods could add half a point to the merchandising margin on roasting ground Maxwell House. I learned quickly what merchandising margin was because I was equipped with the foundational elements, or the data, by which to run the business. It wasn’t the marketing or the ads with celebrities that grew the business. It was the operations behind the scenes that grew profitability and sustained that growth in a very competitive marketplace. What I’m getting at is that, back in those days, people were trained on how to run a business. Those training grounds used to be sought after because they were breeding the next generation of CEOs.
“My understanding of the brand is rooted in the world that I started in, which was a classic brand management-driven organization. In the 1970s and 1980s the old stalwarts like Procter and Gamble and Colgate Palmolive were brand tight. They managed their brands as assets.”
Stephen: You noted buying companies.
David: And consolidating them. Companies used to be able to keep the bottom line with a healthy margin if it was a good strategic acquisition. All they did was, basically, remove a lot of duplicated costs. On the surface, the numbers indicated that “Wow, this is working,” but it doesn’t work that way in the long run. You can’t cost-cut your way to sustained profitable growth. At some point, the market has to value what companies offer. The market has to want an important brand, the asset that the company holds and belongs to. The problem arose over a long period of time where buying and consolidating in the name of cost-cutting became the most important thing. Consequently, the training grounds I mentioned, those wonderful places that taught young people what a brand really was, had been bought and consolidated. In the end, many of the investments into the brands have been removed and brand management had devolved into marketing management.
Stephen: And CEOs were largely technocrats that came out of the finance ranks.
David: They were hands-off, exactly. If someone mentioned brand to them they’d say “Go give that to my marketing people.” They view their brand as a marketing vehicle and not a precious asset, or the value of a promise consistently kept, which is the guiding principle behind Level5 Strategy and the theme of my other two books. It sounds easy but brand management includes the responsibility and accountability of managing the value of that asset. To deliver this promise to the market, the responsibility has to be held at the highest levels of the organization, the CEO.
“It sounds easy but brand management includes the responsibility and accountability of managing the value of that asset. To deliver this promise to the market, the responsibility has to be held at the highest levels of the organization, the CEO.”
Stephen: Your description of brand management in the early years makes me think that you’re arguing for a back-to-basics model or back-to-basics thinking in some respects. In those early years, was the CEO more savvy? Or was it that in the packaged goods world CEOs often rose up from the ranks of marketing and understood the value of a brand? Are businesses suffering from a kind of myopia?
David: I’m not trying to paint everything with one brush, and all CEOs with one brush. I’m certainly not saying, “Let’s go back to the way it was in the 1970s.” With the market, capabilities and the data that exist today, companies are playing in a different arena. We’re still playing a sport but, boy, have the rules changed, let alone the sports equipment. You have to take into account the changes that have occurred since the early era. When you think about the tech boom, CEOs were more savvy in developing new capabilities, technologies and applying new ways of gaining, sharing and using information towards better communication.
The new breed of CEOs bring a wonderful entrepreneurial drive that fuels innovation. Most of the savvy CEOs are technically strong, but less strong when it comes to building their brand. So, they acknowledge their blind spot by saying, “I know that my brand is important and I know that I need to create a brand in the market which is why I’m going to bring in someone who can help me do that.”
As for the role of the CMO, it devolved into marketing capabilities during the consolidation years, unfortunately. It didn’t evolve into a role responsible for making decisions based on insight, harnessing opportunities and understanding where the market is headed. That’s why CMOs today can’t take advantage of unmet market needs. They’ve been designated to designing the latest website.
I sit on a couple of industry councils and I think that the marketing industry acknowledges that marketing went from being a value driver to being a cost center. It’s a variable cost so if the company is having a bad year, the leadership can cut it. Brand marketing is not just about putting ads to raise awareness, it’s about communicating the company’s promise to the market and engaging the market in a compelling way. Do you think that Apple fans stand at 4 a.m. in the pouring rain outside of Apple stores so that they can be the first ones to have it? No – the brand and its reputation have created an emotional need that goes beyond rational and functional needs.
“Brand marketing is not just about putting ads to raise awareness, it’s about communicating the company’s promise to the market and engaging the market in a compelling way.”
Stephen: Just to go back again to that earlier era when you were arguing for the demarcation line between brand management and marketing. Who did you report to in General Food in the old days? Who was your direct report line?
David: It still gets my blood going when I remember it. I reported to what they called then a category manager, an individual responsible for an entire portfolio of products whether they were coffee or cereals. And that category manager reported to the senior vice president of marketing and sales who reported to the CEO. I was maybe three steps away from the CEO who would spend time walking the floors to talk to brand managers to gain understanding of their work – anything from health and wealth of the business and new packaging design to competition and market shifts.
Stephen: At what point did that structure and hierarchy change? When did someone flip the switch for the CMO take ownership of the brand? Was that a 1980s phenomenon, a 1990s phenomenon or was it more recent?
David: It was driven by the tech bubble, so in the early 2000s. But leading up to it, the market experienced a rapid acceleration of the market value and market capitalization on many companies that didn’t even exist. A number of them had not proven anything which is why they were so speculative. They hadn’t even gone to the market yet and they were trading at unreal multiples because the market thought of what they were going to be able to deliver and wanted in on it.
This had a ripple effect across industries, including the conservative, slower-moving sectors. The bar rate went up for everyone. Suddenly, the quarterly analyst calls became hugely important to the CEO and CFO because they had to explain their growth, or lack thereof. This started the trend of growth through acquisition. Since the companies bought growth, it made it possible for the CEOs to say, “Look, I’m keeping pace with the market.” And they could accomplish that in a much shorter period of time than it would take to launch a brand, cede it and allow its equity to develop over time while building loyalty within the market.