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Start With Why?

The article spent a lot of time talking about something that seems to be universally true and that Simon Sinek described in his book “Start With Why”. The article also suggested that core values and genuine purpose are something that can be learned (otherwise, why bother writing the article). I don’t think that is the case but let’s first “start with why”.

WHY - is the reason for the companies’ being HOW - are the values and principles that guide the actions and decisions WHAT - is everything a company produces

Most companies in the limited and reluctant relationship quadrants only know the What about their doing. Not so the companies in the sustainable relationship quadrant. I claim that the reason why companies are in that quadrant is that they start with the Why. 

Let’s take the example from the article: Patagonia. If Patagonia was just another company that markets and sells outdoor clothing, their communication may sound like this: 

We sell great outdoor clothing (What) We design high-quality, comfortable products and use recycled materials (How) Do you want to buy one of our jackets?*

However, here is how Patagonia actually communicates: 

We’re in business to save our home planet (Why) We strive to reduce the adverse social and environmental impacts of our products by making sure they are produced under safe, fair, legal and humane working conditions throughout the supply chain. (How) We just happen to make great jackets. Do you want to buy one? (What)*

Most companies, however, will not be able to communicate like this - no matter if its the “end of the consumer era” or not. This leaves the question of why some companies are able to communicate like this, i.e. are able to create sustainable relationships with their customers, and some are not. 

I clearly don’t have a conclusive answer to this. However, "sustainable relationship” companies are special and I strongly believe that special companies can only be built by special people. This is true for a lot of the examples mentioned in the article or that come to mind: Patagonia, Apple, Southwest, Amazon, Costco, Market Basket, Starbucks, Bayern Munich...you name it. Having a special person build the company is something that can’t be copied and that’s why not every company can be Apple and that’s why Apple has such a strong competitive advantage. (Want to know how to best destroy that competitive advantage? Hire outsiders as the CEO, especially if they were previous consultants).

*based on Simon Sinek’s Apple example from his TED talk

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Patagonia: The Wall Street Uniform

“Popularity of the Brand Among Non-Target Consumers.” 

One of the inherent challenges in being an aspirational brand is the appropriation of the brand by non-target customers - literally, that’s why they are called aspirational brands. Typically, one would think of this problem as one where the non-target customer is “socioeconomically more disadvantaged” than the core customer. This may eventually alienate the target-customer and firms should, therefore, take steps to protect their brands (for example, see this HBR article https://hbr.org/2018/05/8-ways-brands-can-fight-counterfeits-in-china). But what should brands do if its non-target customers are finance bros and Silicon Valley yuppies?

They take it away from them. That’s exactly what Patagonia did a few weeks ago when the firm restricted co-branding access of companies that Patagonia finds are “ecologically damaging”. So what happened? 

Financial institutions (and a lot of other firms...and universities) love to put their brand on Patagonia apparel and give it away. Apparently, a lot of people love wearing Patagonia vests so much that it caught on and the vest became a staple on Wall Street and Silicon Valley - even HBO's "Silicon Valley" has caught on. One may think that Patagonia would be totally psyched about that but it turns out that Patagonia doesn’t want to be the “finance bro”-brand. Last year, Patagonia updated its mission statement to “We’re in business to save our home planet”. Oil, mining, drilling, dam construction companies do not fit this mission statement and neither do religious groups, political-affiliated organizations, and the aforementioned financial institutions. That’s why Patagonia cut them out of their co-branding division.

We have often talked about how branding is much more than just “marketing” and how branding should impact all parts of the business. Patagonia is a good example of how branding already starts with the mission statement and how everything the firms does should be aligned to one north star - even if it is “just” about the companies that can put their logo on your shirt. 

On a different note, I also think that the move to cut out financial institutions was great marketing in itself. On the one hand, the existing customers (essentially all big finance firms) will still be allowed to order new vests and so Patagonia doesn’t actually cut them out for real real. On the other hand, a lot of the vests worn on Wall Street are actually not co-branded at all and won’t be affected by this measure. Thus, Patagonia was able to publicize that they are a mission-driven company without losing much of the sales (my assumption). 

My biggest takeaway from this is that we will still see Patagonia apparel around MIT Sloan. 

B Corporations are companies that meet certain standards of social and environmental accountability, and 1% for the Planet is an organization that encourages people and businesses to donate 1% of sales toward environmental causes.

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The Happiest Place On Earth

Singapore Airlines was so successful and good at what it was doing (providing the best customer service of any airline) that it became trapped in having to provide superior service - sometimes even beyond what can be reasonably expected. This made me think about Disney World. How can a place that claims to be the happiest place on earth constantly deliver on that promise? Let’s use behavioral science to figure that out. 

Principle 1: Finish Strong This one is easy. Every night at 8:30 pm (and other times), Disney World turns into a massive firework and light show. Disney really does go out with a bang and I have to admit, even as someone who isn’t the biggest fan of Disney World, the firework show is pretty dope. 

Principle 2: Get the Bad Experiences Out of the Way Early In a sense, getting to Orlando may be the worst experience about Disney World. Just imagine a family of 4 with small kids driving to Orlando for 5 hrs - horrifying. Even for a small child, getting to Disney World must feel like an eternity and the pain of waiting likely already starts days (weeks?) before the actual trip. Disney is very clear about their messaging in that once you enter the park, you can leave real life behind: “Walt Disney World: Where Dreams Come True”. Everything that comes after driving through the gate (even the drive back) must be a piece of cake.

Principle 3: Segment the Pleasure, Combine the Pain This one is not that easy. The worst thing about Disney World is the constant standing in line. I’ve waited in line for an hour just to get on a boring 15-minute ride. In a sense, Disney World is also segmenting the pleasure that way and going back to Principle 1, standing in line (pain) always ends with the ride (pleasure).

Principle 4: Build Commitment Through Choice At its core, an amusement park is just an indefinite sequence of choices. The customer decides when to come, where to go, what to do, and when to leave. Disney especially seems to be using this principle deliberately. For one, Disney is not just one park but an array of 4 Theme Parks, 2 Water Parks, and 3 Other Destinations (e.g. Disney Springs). Second, the opening hours are kind of insane. The Magic Kingdom Park is open from 8:00 am through 12:00 am and guests of the Walt Disney World Resort hotels can even stay until 2:00 am. Third, guests can leave and come back whenever they feel like it. I personally feel like this is the most important aspect - I can imagine a host of reasons why a family would want to leave for a few hours and come back later. 

Principle 5: Give People Rituals, and Stick to Them This is the very principle Disney World is built around. For starters, as a guest you know that Mickey & friends will be at the park - they are always at the park and ready for pictures. Second, park visitors know that customer support at Disney World is exceptional and special. Very similar to SIA, Disney’s employees have to go through a rigorous training procedure. Even the cleaning personnel at Disney is magical. Another ritual is that “there is always something new” at Disney World. In research for this tumblr post, I’ve read multiple online board posts where people explained that they keep going back to the park because they know there will be something new to explore. Disney is also very deliberate in their messaging and how the parks fit into their overall product portfolio (see below). These are just four examples of how rituals are used to Disney World’s advantage and I’m sure there are plenty more. 

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To brand and what to brand

First, in honor of the season start of GoT, my MBA motto (mostly aspirational):

Now,

Concha y Toro needs to answer two basic questions in their branding effort:  1) what segment (i.e. basic, premium, ultra) to target and  2) what to brand (i.e. Concha y Toro, Casillero del Diablo, Made in Chile, etc.)?

To answer the first question, let’s take a look at where (i.e which segment) the money is made in the global wine industry. The market share of the basic, premium/super-premium (”premium”), ultra-premium/icon (”ultra”) are 50%, 44%, and 6%, respectively. Based on Concha y Toro pre-tax profitability of 10% and a product mix that slightly favors the basic segment over the premium and ultra-premium segment (60% vs. 40%), let’s assume that the margins by segment are roughly 5%,10%, and 25% for the basic, premium, and ultra segments, respectively. Thus, the profits generated in each of the segments in a hypothetical $100 wine market are $2.5 in basic (=$100 x 50% x 5%), $4.84 in premium, and $1.5 in the ultra segment. Clearly, Concha y Toro should focus on the premium segment with wines based in the $10 to $25 range. 

As for the second question, the case was very direct about fragile brand loyalty of wine producers in the wine market: “Although U.S.consumers were thought to possess the highest brand awareness and loyalty, even their brand loyalty did not seem especially strong”. Common sense also suggests that brand loyalty is very low. At least I personally have never bought a bottle of wine because it came from a particular winery and I have yet to hear word-of-mouth about the new Casillero del Diablo wine that just came out. Because there are so many wines and because beyond a certain quality threshold, all wines taste the same (see reading), consumers do not get any additional utility (self-image, the pleasure of sharing a great product, etc.) from buying more expensive wine. Thus, Concha y Toro should not put money into branding any of their sub-brands, Trio, for example.

This doesn’t mean, however, that Concha y Toro should not think about branding at all. The case illustrates clearly how the new wine producers were able to move the wine quality perception from regions, e.g. Bordeaux, to the grape, e.g. Merlot. Thus, branding does matter but it has to be on a wine property that customers can easily recognize. A lot of wine shops are not organized by grape but by country of origin. Concha y Toro is one of the largest wine exporters in the world and by far the largest from Chile. Hence, the title wine “Made in Chile” is almost synonymous to wine made by Concha y Toro but in contrast to that, Chilean wine can be easily identified in the store. Therefore, my recommendation would be for Concha y Toro to put their marketing effort into promoting wine made in Chile to uplift all Chilean wines (the top-down approach). 

On a related note, my wife selects wine “by the label on the bottle”. I believe that Concha y Toro could do a lot in that space to differentiate itself and stand-out on the shelf. Exhibit 16 illustrated how boring and standard Concha y Toro’s wine bottles are - to me they all look like bottom shelf wine. They should invest in designer labels or bottle sleeves (see below). Another area of focus could be soft-touch labels or textured glass (see below). I guess, that also is top-down branding.

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Borinken

The beer you drink says something about how you are. BPR* is for hipsters. Dos Equis is for interesting people. Guinness is for real men. Lime-A-Rita is for women. Heineken is for boring people with too much money. 

Heinekens biggest problem is its own success and the fact that it is the premium mainstream beer. As the market leader in this segment, Heineken needs to consider “everyone” in their advertising. The result is a brand that is very high quality, polished, nice, but blandly unexciting. Unsurprisingly, one of Heineken’s brand ambassadors is Nico Rosberg, a former race car driver and the impersonation of the perfect son-in-law (pictured below). 

The issue with this is that Heineken is demanding a premium price for a product that has perfect substitutes. Why buy a product that doesn’t say anything exciting about me or produces an emotional response if I can also buy a beer of similar quality and taste that does evoke positive feelings such as Corona? There isn’t a real reason. Consumers pay extra for Heineken because it is a brand recognized as good and perceived as a premium beer that they can safely bring to a friend’s place. 

I view Heineken buyers as boring people who don’t know anything about beer but who care about perception. If they did know a thing about beer, they would have purchased a different brand (e.g. Peroni) and potentially saved money in the process. In the long-run, this cannot be a sustainable brand perception.

*Pabst Blue Ribbon

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Can you imagine your Mac with an Intel Inside sticker?

No. Why? Because the stickers are terrible. After you have purchased a new laptop, you already know if there is Intel inside or not and you don’t need to be consistently reminded of it. The stickers cannot be removed easily and even after the glue residue is scraped off, there still remains a slightly off-colored rectangle. As a matter of fact, there are roughly a million search results for the query “how to remove the intel sticker” and Youtube videos on sticker removal instructions were watched thousands of times. Lastly, the stickers come already applied on the laptop and do not leave the customer with a choice.

So why do so many laptop OEMs put the sticker on their products? Because Intel pays them to do so and this - to me - is ridiculously smart. Essentially, Intel managed to turn a boring B2B product that no customer should ever care about into a recognizable brand. From my point of view, Intel was only able to do that because HP, IBM/Lenovo, and Dell didn’t believe that this inch of laptop that they were selling to Intel was a part of their brand. 

But it is...and that also explains why Apple could only laugh at the thought of putting the sticker on the Mac. The lack of brand integrity could also be a reason why HP and the others are doing very poorly these days while Apple has been killing it over the past decade. Oh and the fact that Apple set the standard for smartphones and tablets could also be the reason why Intel has a much harder time recreating the Intel Inside success with portable devices.