Winning in the Relationship Era: A New Model for Marketing Success 145070073X, 9781450700733

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© 2010 imc2, LLC. All rights reserved. “imc2,” “imc2 Brand Sustainability Map,” and “Relationship Era” are trademarks of imc2, LLC dba imc2. All other trademarks and service marks are the property of their respective owners.

I can still remember the day I realized marketing had changed forever. It was summer of 2004. I was reading an article about Kryptonite, a manufacturer of bicycle locks. It seems Kryptonite had found itself in uncharted territory after someone posted a video on a new site called YouTube educating the world on how to open its tubular bike locks with a simple BIC pen. At first, the company denied the claim’s validity. But as word (and ire) spread like wildfire across the Internet’s budding socialsphere, kryptonite soon realized it had to change its way of thinking. In a bold move, its leaders adopted a position of transparency and open communication. Not only did kryptonite replace 400,000 locks, but it also took steps to create a true open dialogue with customers. It didn’t take long for people to appreciate the brand’s efforts and recognize their shared values. Nor did it take long for kryptonite to earn back the respect of the community and its position of market leadership.

INTRODUCTION

I love the kryptonite story. It’s one of the first examples of a company shifting conventional thinking to meet this radically changing marketing environment. We at imc2 went through a similar shift in thinking. Over the years, we’d helped some of the biggest brands in the world enter and flourish in the digital space. But we came to realize that digital was only part of the equation. We had the opportunity to do something bigger and more meaningful. We asked ourselves an ambitious question: “Can we partner with our clients to transform the world of marketing?” The question soon became a quest, and our new approach to marketing was born—a fundamentally different way to practice marketing that’s both extraordinarily effective and intensely meaningful. What we’re championing is a bold new direction, yes, but it’s also practical, giving marketers the means to spend less and get more. More sales. More profit. More engaged, loyal customers. Even more benefits for employees, suppliers, and society. Winning in the Relationship Era outlines this new approach, giving business leaders a guide for leapfrogging competitors in a dramatically different marketing environment. Is our approach controversial? Yes. Is it a model that the next generation of successful marketers will adopt? We think so.

INTRODUCTION

After reading, we invite you to participate in the dialogue at www.relationshipera.com, and if you’re so compelled, to join us in this movement to make marketing more profitable for everyone. This is a time of extraordinary opportunity. Together, we can lead a momentous transformation in one of the biggest and most powerful industries on the planet.

Winning in the Relationship Era includes four sections: • A New Era in Marketing (p 4), our perspective on the evolution of marketing • imc2 Brand Sustainability Map (p 24), an introduction to a better tool for assessing relationships • Breakthrough Success in the Relationship Era (p 34), five principles for building sustainable brand relationships • Getting Involved (p 48), an invitation to join us

INTRODUCTION

A New Era in Marketing

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The shifts in consumer media consumption habits are reshaping the ways marketers can—and must—build relationships with consumers. Moreover, the expansion of digital into every aspect of our lives has caused fundamental changes in how people interact with brands, what they expect of brands, and the role of marketing in their lives. Even as brand leaders use new tactics to accomplish their goals, most think of the practice of marketing much as it’s been defined for decades—a way to persuade people to buy something. In short, most marketers are applying new tactics within an old model. Today, a new era in marketing is here, and we at imc2 believe that succeeding in it requires an entirely different marketing model.

The Product and Consumer Eras Before introducing this new model, we first provide some context on the evolution of marketing. Until recently, there were two eras of marketing—the Product Era and Consumer Era—and each featured a winning marketing model that distinguished the period.

A NEW ERA IN MARkETING

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In the Product Era, from the 1900s through the 1960s, the focus in business was on producing products. During this era, marketing was about simply informing people about these products. Ads were copy heavy, and the strongest performers did the best job of explaining why their product was superior. In the 1960s, marketers realized that product descriptions reached people at a logical level but failed to connect on an emotional level. As a result, the Consumer Era was born. Whereas in the Product Era, the thinking started with the marketer and its products, in the Consumer Era, marketers learned that an understanding of the consumer was paramount. Marketers worked to deeply understand consumers’ wants and needs, to reach them at a moment of utmost receptivity with a message most likely This Product Era ad details Dr. Rhodes’ Dandruff Cure and its benefits.

to influence them. Although there has been a lot of change in marketing since the Consumer Era began in the 1960s, the change has largely been within the same model. Yes, there are now better approaches for gathering consumer insights, more techniques and channels for getting messages out to consumers, and a richer set of analytics tools for assessing what is working, but they’re just more sophisticated methods for doing the same thing—persuading people to buy. With such an intense focus on creating messages that elicit a specific action, it’s no surprise that people feel persuaded and manipulated by marketers. In fact, the practice of marketing

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has become synonymous with spin and deception. SECTION 1

In the Consumer Era, marketers appeared as if they were putting consumers first. There was a lot of talk about trust and relationships, but trust in the Consumer Era was one-way. Marketers persuaded consumers to trust them only as a way to sell more products. They were using these words differently than people typically used them in their personal lives, where trust is twoway. Successful marketers will discard this shallow approach to trust as they employ a new model of marketing.

“You cannot solve a

Changing Within a Model versus Creating a New Model

problem from the same level

Although businesses constantly evolve, most change happens within a fundamental

of thinking

paradigm for an industry. Truly transformative change, though, results from powerful thinking

that created

that brings about an entirely new model.

the problem.”

As explored in the previous section, there have been many changes in marketing over the

Albert Einstein

past 100+ years. But how exactly do you know if it’s a new model or simply changes within an old one? To illustrate the difference, we step away from marketing to consider two examples of companies that embraced a different level of thinking to create a new model within their industry. A NEW ERA IN MARkETING

7

Apple In 2001, there was a robust marketplace of MP3 players, with dozens of reputable and experienced manufacturers actively competing to lead the industry. When Apple declared its intent to enter the market, most scoffed, dismissing Apple’s lack of skill in building high-feature, low-cost devices. But Steve Jobs decided to play a different game. He determined that the real need was

Creating a new model in digital music players Old model: Create devices with more

not cheap, complex devices but rather easy-to-access, legal digital music. So Apple invented a device that had few bells and whistles—and a hefty price tag. Apple also built a music store, where people could easily buy songs for 99 cents and transfer them to their music devices. The iPod and iTunes results are legendary. Within a year after iTunes’ launch in April of 2003, Apple owned 92.1 percent market share for hard-disk digital music

functionality and

players and 70 percent market share of all MP3 downloads. The company had a value

lower prices

4.5 times greater than in 2001.1 Apple succeeded unlike any of its rivals by making digital music accessible and enjoyable.

New model: Offer a simple system for enjoying digital music

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SECTION 1

Southwest Airlines Southwest Airlines also changed its industry. When co-founder Herb kelleher drew his business idea on a napkin in 1971, only 15 percent of the U.S. population had flown in an airplane.2 At that time, the focus was on constant innovation around providing the most luxurious experience to attract the flying elite. kelleher decided to play an entirely different game—providing people the freedom to fly. Southwest created a lower cost structure and made air travel less stuffy and

Creating a new

more fun. Its advertising focused on providing freedom, still apparent in its ads today that

model in the

feature the tagline: “DING! You are now free to move about the country.” Now, 85 percent

airline industry

of the U.S. population has flown on an airplane,3 and Southwest Airlines stands out as the Old model:

industry’s clear leader in customer satisfaction and profitability.

Cater to the Apple and Southwest Airlines achieved breakthrough success—both financially and

flying elite

otherwise. While others were evolving within their industry’s predominant model, these leaders created a new model.

New model: Give people the freedom to fly

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9

Introducing the Relationship Era While the Product Era focused on informing people about products and the Consumer Era focused on persuading consumers to buy more, imc2 welcomes a new era that we call the Relationship Era. The role of marketing in this new era is to foster sustainable relationships between brands and people. The following graphic shows the progression to the Relationship Era and the predominant marketing models in each era:

Just as new ideas from Apple and Southwest Airlines disrupted the digital music player and

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airline industries, we see a different way of thinking shaking up the marketing industry. SECTION 1

The new model of marketing—fostering sustainable relationships—represents a meaningful change in the role of marketing. In the Consumer Era, the starting point was typically the consumer. Marketers worked to understand the buyer and become what consumers wanted them to be. Problem is, what consumers want the brand to be may not be what the brand authentically is. This causes a gap between the brand’s true intentions and how the brand presents itself—a gap that can cause distrust with customers. In the Relationship Era, the starting point is the brand. The brand must know its authentic self before it can engage in sustainable relationships with people. (This is similar to other relationships in our lives. Many would say that in a healthy adult relationship, it’s essential to know yourself and what’s important to you before finding a good match.) Marketers that thrive in the Relationship Era are clear on their purpose, the reason for the brand’s existence. A clear, inspiring purpose defines what the brand or company stands for—in addition to financials—and inspires people to not just buy its product, but to join its movement. Brands that are clear on their purpose attract passionate supporters and create loyal customers. They accommodate customers’ true needs rather than try to convince them that the brand is right for them. This clarity of purpose also provides company leaders with a guiding light to make bold decisions with greater conviction.

“Social media is the connection to a new era. True relationships happen when brands and people meet individually — the conversation must be unique and personal, rather than a narrative built for the masses.” Michael Davis, chief creative officer, imc2

The winners in the Relationship Era will be those that build trust and transactions, creating sustainable relationships with people. A NEW ERA IN MARkETING

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A Model of Trust and Transactions Because trust and transactions can have different meanings, we start by defining each term. The word “transactions” refers to the amount of money a consumer spends on a particular brand relative to what might make sense for a person to spend in that category. At imc2, we define “trust” as having three progressively complex components. The level of trust in a consumer-brand relationship stems from the consumer’s perspective on the following topics: • Credibility: Does the brand deliver on its promises? • Care: Does the brand understand my needs? • Congruency: Does the brand resonate with my values? To further explore the concept of trust and transactions, we connect back to the three eras of marketing: • Product Era: The focus is solely on transactions. • Consumer Era: The focus is still on transactions, but the idea of trust enters the dialogue as a way to persuade people to transact more.

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• Relationship Era: Trust between a brand and consumer is mutual. Trust and transactions are seen as distinct, and both are important. SECTION 1

In the Consumer Era, trust was seen as a means to achieve an end, namely a consumer buying more. It’s a manipulation. One could certainly question whether “trust” is an appropriate word to use in the context of convincing people to do something. The word “trust” has simply been misused in marketing, and we now use the word to describe a concept more in keeping with the depth and importance of its true meaning. Similarly, “relationship marketing” is a term often used to describe a technique for learning as much as you can about people to more successfully sell them things. (Can you imagine a friend always asking you lots of questions so he can do a better job of selling you things?!) As with the word “trust,” we talk about “relationship” in a way that mirrors its use in common language rather than its use in current marketing vernacular. Whatever words are used, the shift from the Consumer Era to the Relationship Era is a fundamental one—beyond a shift in communication, advertising CPM models, or measurement tools. It’s an entirely new way to think about and practice marketing. Although trust is certainly a topic of conversation in marketing today, we believe no one has brought a precise, brand-level focus to relationships. Our approach covers both the intangible dimension of trust (including credibility, care, and congruency) and the tangible transactions that marketers need for both short- and long-term sustainability. A NEW ERA IN MARkETING

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Having reviewed surveys, studies, and literature such as the Edelman Trust Barometer, ENGAGEMENTdb, Interbrand’s Best Global Brands series, and Saatchi’s Lovemarks, imc2’s trust and transaction model illuminates the brand/person relationship in a new way. More importantly, the imc2 model is matched by an actionable approach to building enduring relationships that benefits both the brand AND the consumer.

Why Now The old model is failing. The traditional tools of mass marketing are clearly no longer working. Nor is using a variety of channels with the same campaign-driven persuasion techniques. With CMO tenures now averaging about two years, marketing leaders are under pressure to deliver results quickly. Many are spending exorbitant money attempting to influence consumers to buy more, with less to show for it.

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“Thinking about trust as just another mechanism for influencing transactions is like thinking about a child as just another tax deduction.” Ian Wolfman, CMO, imc2

It’s clear that digital has a profound impact on relationships between brands and people. It’s more than another channel that marketers must consider when optimizing their spend. In fact, digital channels have caused significant changes to the fundamental ways that consumers interact with brands, their expectations of brands, and ultimately the role of marketing in today’s world. In the past, marketers pushed messages to consumers, disrupting their TV shows and inserting themselves into newspapers and magazines with one-way advertising. With the advent of digital marketing in the ’90s, many marketers simply saw a new way to interrupt consumers and began searching for the best mechanisms to barge into their online experience. For many innovative marketers, though, digital marketing offered more than a way to interrupt an experience. Many began rudimentary, but evolving, dialogues between their brands and consumers. As a result, consumers began expecting more information, choice, and transparency from the brands with which they interacted. What was previously not possible in the pre-digital world was now expected by consumers—a relationship built on an active dialogue with the brand. Most marketers, however, continued creating advertising campaigns designed to reach, persuade, and elicit transactions through a mix of product and emotional appeal. They were trying to use the old model of marketing from the Consumer Era in a new era—an era that calls for a fundamentally different marketing mind-set.

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In recent years, with the rapid emergence of social media and almost ubiquitous U.S. broadband Internet adoption, relationships between consumers and brands are expanding beyond dialogue to an “always on” marketing ecosystem. People now interact with other potential customers, friends, and brands within this environment, made more pervasive and dynamic by the increasingly common use of cell phones that double as in-pocket mobile computers. And consumers are less inclined to be passive participants in brand relationships than they might have been previously, choosing instead to make proactive contributions that ultimately help shape the brand’s ecosystem. It’s no longer the marketer’s role to run campaign after campaign to persuade and drive transactions. Effective marketers now participate in and nurture a system of touch points with people, building trust with customers who are aligned with a brand’s values. Following are three specific reasons why trust is more important in this new “always on” marketing ecosystem: • People have more choices. In earlier times, consumers were typically limited to a handful of options at their local store. The prevalence of retailers, both online and offline, and the explosion of product choices mean that people can be more selective. Zappos, for example, offers more than three million options for shoes and accessories, including at least 1,100 eco-friendly shoe options.4

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• People are more vocal about their level of trust in companies and brands, and they now have the ability to be heard broadly. When Dave Carroll’s expensive guitar was damaged on a United Airlines flight, he tried to get reimbursed but failed. So, he produced a video called “United Breaks Guitars,” and posted it on YouTube, where it has been viewed more than six million times. People are talking about (or, in Dave’s case, singing about) brand preference, and others are listening. Personal recommendations are the most trusted form of advertising.5 A customer with an opinion, positive or negative, can wield tremendous influence. • People are choosing to buy from companies that they trust. A recent study revealed that 91 percent of survey respondents purchased from a trusted company while 77 percent refused to purchase from a distrusted company.6 Now more than ever, people are more focused on trust in their buying decisions. In this marketing environment—the Relationship Era—persuasion is less effective. Trust cannot be used as a tool. Instead, successful marketers are fostering trust as a fundamental, essential, and independent pillar of sustainable brand/customer relationships.

The Death of Marketing as We know It Business is abuzz with talk about marketing’s evolution. Yet for all the hyperbole, few are offering more than minor adjustments to the old marketing model, many of which amount to little more than better ways to manipulate.

A NEW ERA IN MARkETING

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Of course, marketing is changing. The change, though, is not one of tools and tactics. It’s a fundamental shift in thinking and practice. I often ask people what marketing is all about. At best I hear responses like “persuading people” or “convincing people to buy things they don’t need.” At worst, I get “manipulating” or “lying.” This is the reputation that Consumer Era marketing has given our industry. In the epic Cold War battle of capitalism versus communism, capitalism won. But it was not a complete victory. The institution of business has failed to win over hearts and minds. Marketing—and business as a whole—is roundly mistrusted, and the Consumer Era has contributed to the problem. Advertising is now a $444 billion global business built to persuade and manipulate.7 The good news? Marketing as we know it is coming to a close, and its demise is giving way to something better.

The Birth of Something Better Actually, “better” might be too general of a word. It’s the birth of something deeper, more profound, and more profitable. The Consumer Era model of marketing—persuading people to buy—was built on the idea that people must be convinced to purchase, and that failing to do so

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is a detriment to one stakeholder: the investor. SECTION 1

“I’ve seen firsthand how this new approach inspires and engages our clients and our people — the ability to change the world while improving profitability is transformational.”

The new model—fostering sustainable relationships—comes as a refreshing and rewarding change because it benefits several stakeholders simultaneously: employees, customers, suppliers, investors, and society. In fact, many leading business thinkers now point to data showing companies that focus on multiple stakeholders deliver superior results to each one.8 Here’s how:

Employees

Marc Blumberg, president, imc2

We humans are at our best when we’re working toward something bigger than ourselves. When I look at companies with a clear, inspiring purpose, I’m not surprised to see more dedicated, motivated employees. After all, they’re not just working for a paycheck; they’re working for something they believe in. I’m proud to use my own company, imc2, as an example. We are an amazing, eclectic bunch of creatives, strategists, technologists, and account managers. But no matter how

varied our roles, we’re united by our purpose: to advance relationships. Many of us see our purpose as something bigger than just marketing. We get to create, foster, and deepen relationships every day. Not just between client and customer, but with our vendors, partners, each other, and society as a whole. Having the clarity of “why we do it” makes “what we do” all the more rewarding. A NEW ERA IN MARkETING

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Customers During the Consumer Era, marketers focused on convincing people to buy. Obviously, this tact conveys an air of superiority (e.g., brand = smart, consumer = not smart) that will inevitably turn consumers off. In the new model, marketers are inviting people to join in, participate with, and become part of the brand. Customers become active partners rather than targets to be sold to. With this always-on ecosystem between customer, brand, and peer group in constant motion, the buying comes naturally, and typically with less advertising spend.

Suppliers Making decisions that mutually benefit brand and supplier, in good times and bad, can have positive effects on a brand or company’s long-term health. One example comes to mind. I recently spoke with the CEO of a major outdoor retailer that made a sustainable decision with its key suppliers. As sales slowed in the recent downturn, the retailer needed fewer products from these suppliers and would have typically just cut back on purchasing. In this case, cutting orders would have likely put the key suppliers out of business. Instead of allowing trusted allies to go away—and risk breaking the trust of customers who rely on those products—the retailer kept buying, warehousing the extra inventory. By protecting its suppliers, the retailer advanced its relationship with the suppliers and ensured that it would be able to continue to offer these products, further cementing its competitive advantage.

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SECTION 1

Investors Business schools teach management as a zero-sum game of controlled trade-offs between stakeholders. Managers learn to focus on employees, customers, suppliers, and society only to the degree that it profits investors. That thinking is now changing, and the numbers prove it out. The book Firms of 8 TO 1 PERFORMANCE

Endearment studied companies (which it calls “Firms of Endearment”) that have a clear purpose and that focus on multiple stakeholders. During the 10-year period from 1996 to 2006, the stock of these companies outperformed the S&P 500 by an average of 8 to 1 (see chart).9 During the latest recession, the S&P 500 fell 25

“FoE” (1026%)

percent, while the “Firms of Endearment” only declined by an average of 12 percent.10 One reason these companies fare better may be that they can spend less on advertising. When a brand has engaged,

S&P 500 (122%) Stock returns for S&P 500 vs. “Firms of Endearment” from 1996 to 2006.

A NEW ERA IN MARkETING

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loyal customers who believe in its purpose, it no longer has to spend precious dollars on campaign after campaign to convince people to buy. The brand has entered into a sustainable relationship.

Society One of the greatest ideological shifts in our new model of marketing is that business no longer must choose between building profits and bettering society. In the Relationship Era, focusing on both is not just possible, but necessary. People are aligning with brands that share their same ideals or give them new movements to join. Brands that don’t follow a clear purpose that benefits society will eventually lose out to those that do. One example is Interface, makers of industrial carpet tiles. In 1994, founder and CEO Ray Anderson committed his company to making his carpets sustainably by 2020, taking “from the earth only what can be renewed by the earth.” The initiative was called Mission Zero. Since 1995, Interface has reduced greenhouse gas emissions 82 percent in absolute tonnage. Meanwhile, sales increased by two-thirds and profits doubled.11

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Interface discovered that by focusing on bettering society, it had created a superior business model. Profits are up, costs have actually gone down, product innovation and quality is at an alltime high, and Interface employees are galvanized behind the goal of absolute sustainability. By its very name, the Relationship Era suggests that marketing is no longer about simply persuading. It’s about fostering sustainable relationships—not just with customers and investors, but with employees, suppliers, and society as well. The new model is more than a road map for winning in the Relationship Era. It truly is the birth of something better.

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imc2 Brand Sustainability Map

SECTION 2

We’ve introduced the Relationship Era and a different model of marketing that considers both trust and transactions to be critical in building sustainable relationships between brands and people. To assess and measure how brands fare in this new model, we created the imc2 Brand Sustainability Map (BSM), which explores the territory of relationships between brands and people.

IMC2 BRAND SUSTAINABILITY MAP

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On the map, the X-axis reflects the level of spending (or transactions) in a relationship— specifically, the amount of money that a person spends with a given brand relative to what might make sense for them to spend in that category. “Share of requirements” is another term used to describe this measure. The Y-axis reflects the level of trust in a relationship, as measured by the three distinct components of trust—credibility, care, and congruency—that imc2 has identified. A description of the map’s four quadrants and the implications for brands follows: • Sustainable Relationships: People in sustainable brand relationships tend to spend money with the brand and think so highly of it that they serve as effusive brand advocates. Several studies demonstrate that regardless of the economic climate, brands in this quadrant typically outperform their competitors financially.12 Because of the trust in the relationships, consumers are more likely to forgive mistakes and stick with a brand even in tough times. Brands committed to sustainable relationships tend to nurture these connections and focus on continually strengthening them. • Emotional Relationships: Brands with emotional customer relationships have loyal advocates but have not typically maximized the economic value of the relationship. Brands in this quadrant may have challenges with pricing or distribution, or their product portfolio may be too narrow. Some brands in this quadrant have expanded from a specialty

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SECTION 2

subsegment of their industry, but have not yet succeeded in reaching a broader market that would increase their transaction levels. These brands have built a foundation of trust that could more easily propel them to the Sustainable Relationship quadrant. • Reluctant Relationships: In the lower-right quadrant are brands that have relationships with high transactions but low trust. People keep buying either because they lack choice or simply out of habit or inertia rather than deeply held affinity for the brand. These types of relationships have two major downsides for marketers: - Risk: These brands are particularly susceptible to competition, as people may quickly abandon a buying relationship if they find a better alternative and have enough motivation to make a change. - Expense: Brands with reluctant relationships often spend precious funds to keep untrusting customers buying their products. They may advertise heavily, discount, or continually invent new products that add little customer value but enable them to maintain mindshare. • Limited Relationships: Brands with relationships in the lower-left quadrant may be entering a market or may be struggling to gain traction. Clearly, limited relationships between brands and people are not sustainable.

IMC2 BRAND SUSTAINABILITY MAP

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Placing Brands on the imc2 Brand Sustainability Map In our work on understanding brand sustainability, we have conducted more than 250,000 brand relationship surveys and, from the data we gathered, placed actual brand relationships onto the imc2 Brand Sustainability Map. To date, we have focused our research on the two to three market share leaders in a variety of industries and also gathered data on a handful of companies that we believe would plot to particularly extreme points on the map, all with the “The robust statistical methodology behind brand sustainability mapping allows us to reliably quantify ‘softer’ dimensions such as trust.” Dr. Urvashi Pitre, SVP, relationship analytics and insights, imc2

intent of fine-tuning the approach and demonstrating the model’s value. Results from our initial research are included on the following pages to provide context and examples of how brands are currently faring in the Relationship Era. Some brands are already clearly winning, while others have significant work to do to succeed in this new era.

Our next step is to conduct research on a broader set of market share leaders in each industry. The latest research results are available at www.relationshipera.com, and details of the imc2 Brand Sustainability Map research methodology are available at

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www.relationshipera.com/about/bsm-info. SECTION 2

Sample of brands in the automobile industry In the automobile industry, we looked at the top three leaders in U.S. market share—Toyota, Ford, and Chevrolet. Toyota stands out from the others with a higher level of trust and a spot in the Sustainable Relationship quadrant. Infused with a culture of constant innovation, Toyota has outperformed its American competitors for years. While Ford and GM were investing in gas-guzzling SUVs, Toyota launched cars such as the Prius

IMC2 BRAND SUSTAINABILITY MAP

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that better met consumer preferences. When consumers had money to spend on cars as a result of the “Cash for Clunkers” program in the summer of 2009, it’s no surprise that Toyotas were big sellers.

Sample of brands in the quick-service restaurant (QSR) and mass merchandising industries Following are two additional industries we examined to further demonstrate the BSM methodology. For quick-service restaurants (QSR), we examined the dominant market share leader, McDonald’s. We also included SUBWAY, a distant third in revenue (after McDonald’s and Burger king), because its strategic approach is so different from the other market share leaders. In mass merchandising, we evaluated the three largest players—Walmart, Target, and Costco. The map on the following page displays the superior position that McDonald’s has in market share, but SUBWAY demonstrates a higher level of trust among consumers. Perhaps because of its focus on health, which shows up in its menu choices and advertising, consumers think of SUBWAY as caring more about people and holding more congruent values than McDonald’s. For mass merchandisers, Walmart has the highest transactions. Perhaps given its notoriously antagonistic relationships with suppliers and employees and negative impact on local

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business, the level of trust among consumers is low. Costco and Target have lower levels of transactions, but they have higher trust compared to Walmart and thus map into the Sustainable Relationship quadrant. Costco provides higher pay and better benefits to employees than other mass merchandisers and offers its customers a more educated and more consistent workforce, and Target has distinguished itself by providing customers with affordable, well-designed products.

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Sample of brands in the wireless carrier and banking industries — plus a grocer We also examined the following companies to show a greater breadth of detail of our BSM research: • Three largest wireless carriers—Verizon Wireless, AT&T, and Sprint • Three largest commercial banks—Bank of America, Citigroup, and JPMorgan Chase • Whole Foods Market, a grocery chain that is far from the largest in its category The wireless carriers, shown on the map on the following page, are all low on trust and in the Reluctant Relationship quadrant. Customer service typically involves an automated labyrinth of punching in numbers and waiting, and service contracts—laden with fine print, hidden fees, and penalties for termination—leave consumers feeling more imprisoned than trusted by carriers. Commercial banks currently have the lowest level of trust To join the dialogue about these brands

among all of the categories that we reviewed. The Wall

and to see where other leading brands

Street bailout and the exorbitant compensation of executives

appear on the imc2 Brand Sustainability

at bailed-out companies leave U.S. consumers with a clear

Map, visit www.relationshipera.com.

sense that these firms are looking out for their own profit rather than mutually beneficial customer relationships.

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We also include Whole Foods Market to counterbalance the six brands with reluctant relationships with one that maps to the Emotional Relationship quadrant. The company’s valuescentric approach is felt by people who rate the company highly on trust. Whole Foods Market, previously a specialty grocer that now competes in the general grocery category, is smaller than competitors such as Walmart, kroger, and Safeway and now faces the challenge of growing its transactions among the general population in order to move into the Sustainable Relationship quadrant.

IMC2 BRAND SUSTAINABILITY MAP

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Breakthrough Success in the Relationship Era

SECTION 3

We’ve introduced the Relationship Era, a new era in marketing where the most successful marketers build sustainable relationships—ones that have high levels of both trust and transactions. We also shared the imc2 Brand Sustainability Map as a way to understand the levels of trust and transactions in customer relationships—and explored the implications for brands. Finally, we revealed proprietary research that places brand relationships onto the imc2 Brand Sustainability Map.

One question (of many!) left to explore, “How do brands win in the Relationship Era?” Because this is a time of change, we believe it will lead to a dramatic reorientation of the competitive environment in many industries, and some brands will win big. What speciically will be behind the breakthrough success of the triumphant brands in the Relationship Era? This is imc2’s passion. Following are five principles for breakthrough success in the Relationship Era, based on ideas that we’re exploring with our clients. With each principle, we include examples of companies and brands that embody each principle and map to the Sustainable Relationship quadrant of imc2’s Brand Sustainability Map (see next page). BREAkTHROUGH SUCCESS IN THE RELATIONSHIP ERA

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Principle #1: Clarify Purpose The apex of trust-building involves a connection at the core. To support brands in creating the deepest possible relationships, we facilitate the process of uncovering purpose. Purpose answers the question, “Why are we here?” Brands that have clarity and alignment on their purpose have more engaged team members. They’re more energized by their work and make decisions more efficiently and with greater conviction. These brands also have happier customers, consistently beat their competitors, are more apt to positively impact society, and have more prosperous shareholders.

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Pampers is one example of a brand achieving greater results as an outcome of purpose discovery. According to Procter & Gamble’s longtime Global CMO, Jim Stengel, the Pampers team thought of the brand in terms of the functional benefits that it provides—keeping babies dry. After a deeper evaluation of its purpose, the team broadened its role and defined its purpose as helping mothers around the world with their babies’ physical, social, and emotional development. This clarity led the brand team to fund clinical trials regarding the connection between sleep and the development of babies, which in turn helped Pampers expand and improve its product portfolio. Given its commitment to helping mothers around the world, Pampers started a program to support the immunization of children in developing countries. Orienting the business around a meaningful purpose, Pampers inspired deeper engagement with its employees. Within a few years, brand sales doubled, and Pampers became Procter & Gamble’s first $8 billion brand.13 Mr. Stengel points to the clarity of purpose as the key to attaining these remarkable results. Pampers discovered a way to benefit society and its customers, inspire employees, and build a stronger bottom line for investors. This “multiple stakeholder” orientation is typical of brands and companies that build sustainable relationships. Former Johnson & Johnson chairman Robert Wood created the company’s credo in 1943, emphasizing a commitment to the needs and well-being of consumers (doctors, nurses, patients, and parents), employees, stockholders, and society. This credo is much more than a poster that hangs on the walls of the headquarters

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building; Johnson & Johnson believes it is the secret to its success. Company leaders credit the credo for helping them make smart decisions in the wake of Tylenol’s cyanide tampering and quickly restoring confidence and sales in the leading over-the-counter analgesic. Johnson & Johnson is one of only a few 100-year-old American companies, and it has been able to stand strong during difficult times and achieve long-term financial success. It thrives today in large part because it has proven to be a brand that can be trusted, and it has built that trust by remaining true to its core ideology. In good times and bad, a clear purpose helps leaders make difficult decisions that can ultimately lead to breakthrough business results.

“Healthcare brands have a real opportunity to distinguish themselves by building authentic relationships with people. Perhaps our greatest value is helping healthcare brands clarify their purpose and authentically translate it into meaningful action.” Hensley Evans, president, imc2 health & wellness

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Principle #2: Commit to Sustainable Relationships In the Consumer Era, building trust was seen as a mechanism to sell more. That type of trust is fairly easy for company leaders to support. However, building trust as a goal separate from influencing transactions—a key philosophy associated with the Relationship Era—truly requires organizational commitment. Business leaders typically have significant obstacles to overcome: • Corporate culture (fueled by capital structure) that solely prizes short-term financial performance and views dialogue about nonfinancial objectives as “fluffy” or extraneous • Organization structure and career paths where mid-level managers quickly rotate, leading to a focus on big, immediate results rather than thoughtful action with both short-term and long-range benefits • Marketing partners who talk about new approaches but have a vested interest in protecting the legacy talent and infrastructure they have built • Confusion, as the words associated with innovation within the Consumer Era (i.e., trust, relationships, measurement, targeting, insights) can be the same as those used to talk about the move to the Relationship Era

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The brands that excel in the Relationship Era are those that skillfully align leaders and organizational systems to support sustainable relationships. Their commitment to sustainable relationships leads them to take principle-driven, unique actions that often produce superior results. When Google went public in 2004, it released an IPO letter titled An Owner’s Manual for Google’s Shareholders that made clear its intent to focus on long-term opportunities, not short-term quarterly numbers. It stated, “We believe strongly that in the long term, we will be better served—as shareholders and in all other ways—by a company that does good things for the world even if we forgo some short-term gains.”14 Google made it clear that it had a bigger vision, one that—it believed—would return better profits and have a positive impact on the world around it. Google was up-front with potential investors to ensure that their expectations aligned with the company’s philosophy. Even with its cautious warnings about possible sacrifices in short-term results, Google has had immense financial success—since going public in 2004 and facing a tough market environment. In 2007-2008, Google’s stock increased in value by 475 percent compared with the S&P 500, which increased just five percent during the same time.15 Additionally, its strong reputation as a responsible, trustworthy brand allows it to shun the typical campaign-driven advertising model

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that calls for brands to spend millions of dollars on simply acquiring and maintaining customers. Instead, Google spends that money on things like developing new and better products for its users and contributing to a stronger bottom line. Google clearly demonstrates that companies and brands don’t just luck into sustainable relationships. It takes an organizational commitment from the top down to achieve a truly different way of doing business.

Principle #3: Connect with Authenticity The brands that win in the Relationship Era are committed to connecting with authenticity. In our lives, one could argue that we are either building or diminishing trust with every interaction we have with another person. When we do things like follow through on a commitment, try to understand others’ perspectives, or authentically express our values, we’re demonstrating credibility, care, and congruency—the three factors that build trust. When we fail to deliver, think just about ourselves, or fail to demonstrate our expected values, trust decreases.

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Just as in our personal lives, every interaction between a brand and a person either increases or decreases trust. The brands that win in the Relationship Era consistently connect with authenticity, building trust in each interaction. Trust was one-way in the Consumer Era, with brands working to elicit trust from consumers. In the Relationship Era, trust becomes mutual, with brands both earning trust from people and offering to trust its employees and customers to do the right thing. In a time where most believe that mass merchandisers care about controlling costs rather than building trust, Costco stands out as a notable exception. While other companies maximize returns through stringent return policies and low employee wages, Costco has been successful by doing just the opposite. Costco’s CEO, Joe Sinegal, ensures Costco relentlessly focuses on caring for its employees, primarily through considerably higher wages and above-average benefits, allowing the company to attract a higher-caliber workforce than others. The result is much lower-thanaverage turnover, leading to lower overall costs and higher profits for the company. Costco is equally focused on creating authentic trust with its customers—a commitment that shows up, for example, in its generous, no-hassle return policy and the limit it puts on markups for all of

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the products it sells. SECTION 3

While some Wall Street analysts would prefer that Costco reduce employee wages, pare back benefits, and implement a less generous return policy to maximize shareholder return, Costco has consistently produced astounding results for shareholders. In fact, over the last six years, Costco’s stock has produced a return 30 times greater than Walmart’s.16 As evidenced by Costco’s stellar performance, a key to success in the Relationship Era is ensuring that trust is two-way between people and brands. Brands build trust not by seeking it but instead by demonstrating it.

Principle #4: Treat Customers as Partners In the Consumer Era, there was a sense of superiority—a notion that marketers are smarter than the rest of us. Therefore, they have the right to benevolently (or, in some cases, maybe malevolently) convince consumers to take whatever action they want them to. It’s even evident in the language of marketing. For example, marketers often talk about target audiences. A target is something that is shot, and an audience passively listens. Neither of these concepts have a role in the Relationship Era. At imc2, we are working to change the language marketers use and, more importantly,

“Today’s consumers are more than pocketbooks — they are brains and sinew and soul. Smart brands will find a way to trust these partners for the benefit of both.” Dr. Mark McKinney, SVP, engagement marketing, imc2

to evolve the mind-set associated with connecting brands and people.

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In the Relationship Era, brands consider customers to be partners—smart people who are capable of making good choices. They care and communicate, not to manipulate but to deepen understanding. When Harley-Davidson was nearly bankrupt in the early 1980s, 13 executives bought the company and set out to bring the iconic brand back to life. Management created H.O.G. (Harley Owners Group) with the idea of turning owners into brand advocates. These H.O.G.s played an important role in restoring the company’s previous level of quality by opening lines of communication between frustrated dealers and Harley owners. Was it successful? Today, the H.O.G. boasts over a million members with more than 1,100 chapters worldwide, making it the largest factory-sponsored organization of its kind.17 Rallies and touring programs connect H.O.G. members, and the Fly & Ride program invites members to fly to locations around the world and pick up a Harley to tour the countryside. Harley owners are some of the strongest

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The tattooed arm of an avid Harley-Davidson brand advocate. SECTION 3

brand advocates you’ll find. In fact, tens of thousands of people have tattooed themselves with the Harley-Davidson logo, and Harley fans have uploaded more than 55,000 YouTube videos. To Harley-Davidson, customers are not merely people who buy their product—they are passionate brand partners.

Principle #5: Engage Many marketers and agencies talk about an integrated approach to marketing, using a variety of tools to reach consumers. In the Relationship Era, that idea of tapping into multiple communication vehicles holds, but the orientation of these tools is subtly—and meaningfully—different. Marketers who win in the Relationship Era employ a variety of vehicles, including social, mobile, direct, and mass marketing, all working together to create interaction that improves relationships. In other words, they aren’t seeking opportunities to tout product benefits; they’re seeking opportunities to engage. In 2003, Toyota, one of the most trusted carmakers in America, was losing its appeal to younger drivers, so it created the Scion brand of entry-level cars to appeal to 18- to 24-year-old drivers.

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Toyota knew traditional marketing wouldn’t work with this age group, so it took a different approach in using a variety of tools to engage them. Toyota created posters and ads at movie theaters to drive consumers to its websites so they could learn more about the Scion. The brand sponsored the VBS.TV show Thumbs Up! and Gaia Online, and launched a viral-marketing website (www.scion.com/broadband) to promote the artists and events that it sponsors. Scion also used shows like Slick’s Picks to go around the country interviewing artists, stores, and events and putting short videos on the site. To demonstrate the individuality of the car owners and the cars themselves, Scion also created a campaign that featured more than 300 Scion owners’ vehicles.18 Dealerships made it clear that this was not the typical car-buying experience. For each model it sold, Toyota offered only one trim option and one price to keep the buying process extremely simple and hassle free. Toyota then offered buyers a variety of popular after-market parts to give them plenty of options to personalize their Scion. In fact, a special personalization site, www.scionxpressionism.com, allowed users to modify and design their own Scion with graphics, decals, and accessories.

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Toyota’s unique approach to engaging its consumers led to incredible results. Scion became the most successful new car brand launch in North America, selling 170,000 cars in less than four years.19 Not only did Scion begin new relationships with a younger group of interested buyers, it also lowered the average age of Toyota’s buyers overall. Engaging with consumers in meaningful ways—not just advertising to them—allows a brand to understand its customers and yields deeper connections and stronger relationships.

Consumers visit www.scionxpressionism.com to design their own car with graphics, decals, and accessories.

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Getting Involved

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We started with a question…in essence, we asked, “Is there a better path for marketing?” We provided a perspective on the new era in marketing, introduced a way to measure and plot brands based on the sustainability of their customer relationships, and presented five specific principles on how to win in the Relationship Era.

We introduced what we believe is a better path—one that provides brands a superior method for outperforming competitors and leading their industries. This approach, built on concepts like trust, authenticity, and relationships, offers rich beneits for employees, customers, suppliers, investors, and society. Because this is a superior approach for establishing a competitive advantage, companies will eventually adopt these principles—and those that do so most quickly will likely be the ones that catapult into positions of industry leadership. While we have certainly shared a lot, we hope this discussion invites as many questions as it answers. By design, this document is intended to provoke thought, invite dialogue, and encourage questions. Think of this as the start of a conversation or, we hope, the launch of a movement. Visit www.relationshipera.com to participate in the dialogue.

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A few questions for you to consider: • What do you notice as common characteristics of the brands that flourish over time? • How has the practice of marketing changed? What will be most important to successful marketing in the future? • How would you define trust, in the context of a relationship between a brand and a person? What makes for a sustainable brand relationship? • Given the changes to the practice of marketing, what specifically should brands focus on? What will the winning brands do? • What about the concepts presented here—including a new era in marketing, the imc2 Brand Sustainability Map, and Winning in the Relationship Era—resonates most with you? What doesn’t?

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We will continue to foster dialogue on Winning in the Relationship Era. Several things you can look for in the future: • Additional research using the imc2 Brand Sustainability Map. We’ll both broaden the list of industries and brands that we study and report on, and we’ll track the progress of benchmark brands, looking for changes over time. • Customized maps that provide actionable insights tied to a specific brand and industry for interested clients. We can create custom transaction measures, tailor trust surveys for specific stakeholder groups, and explore companies, brands, and industries in considerably greater depth. • Additional studying, testing, and reporting on ideas for achieving breakthrough success in the Relationship Era. • Communication about the lessons we’ve learned, but more importantly, we’ll invite feedback and encourage the industry, marketers, and the public to share their thoughts, questions, and ideas.

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About imc2 imc2 is a brand engagement agency. We are the connection creators, relationship artists, and transaction builders of the Relationship Era—a new period in marketing’s evolution. Our purpose is to advance relationships, and our approach to marketing creates brand engagement— experiences between brands and people—that positively affects relationships. We call it ME+YOU, and for clients committed to a different way of marketing, it delivers results. From our launch in 1995 as a small Web design start-up, we’ve grown to become a trusted marketing partner and adviser to some of the most well-known brands and companies in the world, including The Coca-Cola Company, Pizza Hut, Pfizer, Samsung, Unisys, and GlaxoSmithkline. imc2 understands the monumental shifts in marketing (and the resulting opportunities), partly because we helped create them. With offices in Dallas, New York City, and Philadelphia, we’re building on that legacy in a new marketing era—helping brands thrive at a time when ME+YOU is the way forward.

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For More Information Websites: www.relationshipera.com or www.imc2.com Phone: 214.224.1000 Email: [email protected]

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Sinek, Simon. Start with Why: How Great Leaders Inspire Everyone to Take Action. New York: Portfolio, 2009.

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krol, Carol. “Ad spending to stabilize in 2010, online to lead the way.” DMNews. 8 Dec. 2009. 20 Dec. 2009 .

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Sisodia, Rajendra S., David B. Wolfe, and Jagdish N. Sheth. Firms of Endearment: How World-Class Companies Profit from Passion and Purpose. Upper Saddle River: Wharton School Publishing, 2007.

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Sisodia, Rajendra S., David B. Wolfe, and Jagdish N. Sheth. Firms of Endearment: How World-Class Companies Profit from Passion and Purpose. Upper Saddle River: Wharton School Publishing, 2007.

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Sisodia, Rajendra S., David B. Wolfe, and Jagdish N. Sheth. Firms of Endearment: How World-Class Companies Profit from Passion and Purpose. Upper Saddle River: Wharton School Publishing, 2007.

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Anderson, Ray. “Ray Anderson on the business logic of sustainability.” Online Video. TED Conference. 2009. 28 Dec. 2009 .

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Sisodia, Rajendra S., David B. Wolfe, and Jagdish N. Sheth. Firms of Endearment: How World-Class Companies Profit from Passion and Purpose. Upper Saddle River: Wharton School Publishing, 2007.

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Lafley, A.G. 2008 Annual Report: Designed to Innovate – Procter & Gamble. 21 Nov. 2009 .

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Schmidt, Eric. AMENDMENT NO. 9 TO FORM S-1 REGISTRATION STATEMENT. 28 Dec. 2009 .

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GOOG: Historical Prices for Google, Inc. 28 Dec. 2009 .

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COST: Historical Prices for Costco Wholesale Corporation. 28 Dec. 2009 .

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Harley-Davidson – Wikipedia. 28 Dec. 2009 .

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Scion – Wikipedia. 28 Dec. 2009 .

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Gilbreath, Bob. The Next Evolution of Marketing: Connect with Your Customers by Marketing with Meaning. McGraw-Hill, 2009.

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