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Hackernoon logoElon Musk Made P&G Think Like Tesla by@cunninghamjeff

Elon Musk Made P&G Think Like Tesla

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@cunninghamjeffJeff Cunningham

Tesla focused on user experience over marketing. P&G learned while automotive companies ignored.

With the benefit of a dual personality, he now runs the most valuable automobile company inย Americaโ€ฆ

First rule of innovation, avoidย crowds.

In 2003, two engineers and an angel investor reached back to 1888 to borrow Nikola Teslaโ€™s name and copy his engine design. Everything else was invented.

Tesla Motors has been headed by Elon Musk, the companyโ€™s first angel investor, since the day he fired his co-founder and became CEO in 2007. It was his third major startup after Zip2 and Paypal. As a former graduate of Wharton and a Stanford Ph.D. candidate, he acts like an inventor and thinks like an investor. In the Musk mythology, this is an important but seldom recognized fact. (In full disclosure, after he sold the company, I followed Musk as CEO ofย Zip2).

With the benefit of a dual personality, part dreamer, part financier, he now runs the most valuable American automobile company (not including his other pursuits, SolarCity, Tesla, and SpaceX). One could argue both traits can be in conflict depending on the circumstance. When he was pushed out of Paypal, the dreamer was dominant. But when he nearly ran out of funding for Tesla on several occasions, the venture capital instinct kicked in. It is why he went searching for a more cost effective way to grow a small startup into a well known iconicย brand.

Musk knew it was pointless to try to compete with GM and Ford on the comfortable battlefield those giants know so wellโ€Šโ€”โ€Šbig budget advertising and a huge dealer network. Spokeswoman Alexis Georgeson echoed Muskโ€™s sentiments:

โ€œThe stores are our advertising. Paid advertising may be something weโ€™ll doโ€Šโ€”โ€Šyears down the road. But notย now.โ€

To traditional marketers, this was insane. Many are convinced the best time to spend big bucks on advertising is when a company is unknown because the consumer is curious. They reflexively hit the advertising button to solve all problems as thatโ€™s the way theyโ€™ve been brought up. At least until Musk came along. In fact, he was banking on exactly that mindset when he developed a โ€œno advertising, no dealer networkโ€ strategy.

Musk foresaw great resistance to change in a 100 year old industry like automotive. He knew that could give him the time he needed to expand and experiment right under their very noses. Even today, despite Teslaโ€™s overwhelming market success, VW chief Matthias Muller revealed in a recent WSJ article, legacy thinking is hardย wired:

โ€œOur own managers (still) remain skeptical of moves to downgrade the business of cars powered by fossil fuels. I donโ€™t know if you can imagine how difficult it is to change their mind-set.โ€

The brilliance of the Musk story will have many chapters. But the one that taught the world how to launch iconic brands is more significant than manyย realize.

If you want an insight into why Musk does things so contrary to accepted practice, you need to first understand how venture capital operates.

Tesla Modelย X
The success of a hi tech chief executive comes down to what youโ€™ve spent your money on and does it showย results?

Second, start thinking like a venture capitalist.

The first money a startup raisesโ€Šโ€”โ€Šcalled the angel investmentโ€Šโ€”โ€Šlasts only 12โ€“18 months. For most early stage companies, the choice of how to spend it is consequential as they have only enough money to build a product or an image, not both. When you choose image over product, Silicon Valley calls it โ€˜vaporwareโ€™.

That is why you never want to take a job as head of marketing for aย startup.

The goal of a startup chief executive is to choose the most effective way to spend money from the time the first money is raised until you run out of cash. Because the success of a hi tech chief executive, to paraphrase Cuba Gooding, comes down to โ€˜show me the resultsโ€™.

Madison Avenue advertising may be creative and it may sound glamorous, but it rarely shows tangible results in a short period of time. Smart founders know this and they simply forego promotion altogether in favor of hiring and product development. The cash constraint effect on a startup is what Samuel Johnson described when he said, โ€œWhen a man knows he is to be hangedโ€ฆit concentrates his mind wonderfully.โ€

There are two reasons why Musk had such clarity. First, he wasnโ€™t bound by past practice as a typical Detroit brand manager would beโ€Šโ€”โ€Šwith only the past as a guide to brand strategy. Musk saw he was looking at the future in which the key assets were not promotion or a dealer network, but product quality and customer enthusiasm.

The other reason penny pinching came naturally to him, it was his money. Several years before it was launched and before he became CEO, he was already making plans to spend every cent on building the right product. In 2006, Muskย wrote:

The master planย is:

  1. Build sportsย car
  2. Use that money to build an affordable car
  3. Use that money to build an even more affordable car
  4. While doing above, also provide zero emission electric power generation options.

Donโ€™t tellย anyone.

Photo: Autoblog
John Wanamaker: โ€œI know half of my advertising is wasted, I just donโ€™t know whichย half.โ€
Elon Musk: Bothย halves.

Third, spend more time talking to customers.

The problem every venture investor worries about is can the company scale? Another way to think about it, grow without a high โ€˜customer acquisition costโ€™? Thatโ€™s not a big deal if you run a small winery or a cafe in Sausalito and youโ€™re only interested in enough profit to pay theย rent.

But a hi tech firm with hundreds of millions in funding needs millions of users so it can pay back the capital and then some. Think of Facebook. If they paid $100 per user during their formative years, as many traditional media companies do, how could they grow to 2 billion users? They would have never made it past the C round and Mark Zuckerberg would be just another Harvardย dropout.

The need to scale with precious resources for promotion forces startups to find efficient ways to market. Google search terms and Facebook ads are examples of markets that traditional advertisers found more effective, measurable, and more targeted than a television campaign. Market strategy is about ROI, not about the glamor of making commercials on the set with Hollywood directors.

Today, no one believes the old saw attributed to Philadelphia retailer, John Wanamaker: โ€œI know half of my advertising is wasted,โ€ to which he added, โ€œI just donโ€™t know whichย half.โ€

Elon Musk found the answer. Both halves areย wasted.

Instead of advertising, Muskโ€™s digital instincts led him to build a product that compelled customers to advertise for him, research for him, and spread the word contagiously, at no charge. He built the product, opened the stores, the customers came, and they posted. And they posted. And theyย posted.

As a blogger wrote, Tesla does not spend millions of dollars in a traditional ad campaign. They let you and I discuss it, rave about it, hate on it, or rejoice in the spirit of going electric in a Tesla, be the catalyst to a viral and brilliant marketing campaign. At the end of the day, Tesla advertising isย free.

The result was that by 2015, advertising spending at Tesla was zero. At the same time GM spent over $5 billion, a sum that represented more than half their annual profit, according to Mediakix. To make the contrast even more stark, Telsaโ€™s market cap was higher than GM or Ford or any other American automobile company.

Tesla knew something was changing in the way consumers fell in love with brands these days. It wasnโ€™t about reaching them through television anymore, but something new, something the techies call โ€˜user experienceโ€™ orย UX.

Teslaโ€™s UX included putting stores in malls where people could shop for the cars as easily as if they were sunglasses. Sales people werenโ€™t commissioned reps but customer service gurus who seemed not to care how many times you came to look at the vehicle. They made test driving easy. They made buying a car easy even if you live in Arizona or Texas where cars can only be sold through a dealership. These are factors in the experience that can no longer be separated from the product, and for Tesla, they are part of the marketing value.

When the Tesla was designed, every feature and metric matched up to something the consumer loved not just wanted. That made it something customers wanted to brag about, almost as if it was designed forย them.

Jeff Bezos, no stranger to contrarian thinking, articulated the transformation in marketing strategy. He underscored the shift in advertising budgets from traditional marketing to stealth marketing, and in some cases, no marketing, when heย wrote:

Proctor and Gamble headquarters
Iโ€™m not interested in size at all. Iโ€™m interested in whether we are the preferred choice of shoppers.โ€Šโ€”โ€ŠP&G CEO A.G.ย Lafley

Fourth, once your bright idea works, get ready for everyone toย follow.

While Tesla was moving ahead of the competition without spending a dime, a Midwestern giant marketing machine was watching closely. They recognized this was a game changer that would influence everything they did goingย forward.

Only it wasnโ€™t a competitor in Detroit. These guys were in Cincinnati.

In 2014, Proctor and Gamble announced they needed to become a more nimble company to speed up growth. The strategy they chose was to drop over half their brands. But the way to interpret that is they were dropping half their brand spending.

When they announced the shift, Chief Executive A.G. Lafley said: โ€œP&G will shed as many as 100 brands.โ€ He added, โ€œIโ€™m not interested in size at all. Iโ€™m interested in whether we are the preferred choice of shoppers.โ€

P&Gโ€™ strategy for building brands hadnโ€™t changed much since they launched Ivory Soap in 1874. The iconic marketer built brand management based on a set of beliefs that focus on product specialization and differentiation and heavy duty promotion to make the consumer aware. They were the first to discover the consumer could be targeted based on the brand values, with what adman Rosser Reeves called USP or โ€œunique selling proposition.โ€

Soap was packaged two centuries ago in dense loaves sold by the slice, much like youโ€™ll find today in upscale malls selling brands like Lush Cake Soap. That was how P&G fell upon the value of brand differentiation.

The trick that made Ivory worth knowing about was it would float. Other soaps simply sank to the bottom. Why this was important rests on a fact most may not realize, people in the 1800โ€™s took baths in rivers and streams. If your soap floats to the top while scrubbing in a stream, it is a really bigย deal.

But the only way to get the word out was advertising, first in print and later on national television. This was partially due to the countryโ€™s enormous geography and distribution. Later, due to the mass reach of television, there was still nothing as efficient.

This continued to exist until the digital era when media and information habits changed so significantly. That was when marketers first began to think the old ways werenโ€™t working so well. Then they saw Tesla skip marketing altogether.

It was time toย change.

Precision targeting, user-generated communication, amplification of earned media is both more efficient and more effective than any medium P&G worked with in theย past.

Fifth, customer experience counts more than marketing and more than technology.

A recent New Yorker column noted the book โ€œAbsolute Value,โ€ by Itamar Simonson, a marketing professor at Stanford, and Emanuel Rosen, a former software executive, made the point that the rise of branding was based on a world that was too far apart, too uninformed, and too busy to research for the bestย product.

So marketers liked to believe their advertising was like a neighborly chat over the backyard fence. You were given a few good ideas and nice images so you would remember what toย buy.

My father drove Oldsmobile cars all his life, although he never had anything very good to say about them. The switching costs were just too hard for him to even contemplate. I attribute this to his not wanting to buy a different clunker and then have to listen to Oldsmobile commercials. If you wanted to create a more Madison Avenue perfect world, dad wasย it.

No longer.

Today, a thoughtful consumer doesnโ€™t read Consumer Reports or a review in Wired Magazine. They simply turn to Yelp or Amazon for a world of brand switching encouragement or confirmation. Digital rankings have the power, and distributed via social media and the internet, the average consumer is practically a consumer goodsย genius.

P&Gโ€™s Chief Brand Officer, Marc Pritchard

Even P&Gโ€™s Chief Brand Officer, Marc S. Pritchard, is a true believer:

โ€œThe potential to create business value is significantโ€Šโ€”โ€Šwith precision targeting, automated buying, selling and distribution, user-generated communication, and amplification of earned media. It is both more efficient and more effective than any medium P&G worked with in theย past.โ€

Whether anyone outside of Silicon Valley can be adept at these fast moving technologies is another question. These are not only new, but because they are algorithmic based and AI informed. They are also intuitive, adaptive, and highly transformative. Even the best brand minds in the world donโ€™t know where it isย headed:

P&Gโ€™s Pritchard claims: โ€œWeโ€™ve all been understandably racing to master the new technologies in this ever-changing machine, but I have a little secret for you: we will never master all these technologies. As long as we try, we will forever be on our heels. I try to simplify by taking the mystery out of the new world and telling our people to look beyond the obsession of technology and turn our attention to what really mattersโ€Šโ€”โ€Šthe consumer experience.โ€

His comment on the โ€˜consumer experienceโ€™ sounds suspiciously like something Elon Musk would say. One result of the change is the death knell of anything โ€˜traditionalโ€™.

P&G recently announced it was cutting the number of ad agencies on its roster by 50% to increase efficiencies around promotional spending. The mantra they are chanting is, โ€œWe are on a mission to become โ€œsimpler and more focused. Three years ago, we spent nearly $8bn in advertising, including more than $2bn in agency fees and the cost to produce advertising and marketing related material.โ€

Everyone is trying to get into the act of digital marketing. Not all are wholesome as Ivoryย Soap.

Sixth, nothing will be easy goingย forward.

A recent PricewaterhouseCoopers study noted, โ€œ80% of consumers look at online reviews before making major purchases and have a strong influence on the decisions peopleย make.โ€

Thatโ€™s the goodย news.

The bad news is everyone is in the act of digital marketing, and not all of them are savory, wholesome, you might say, as Ivoryย Soap.

Online is driving consumers but it is also driving them away. There are two main challenges as marketers move into digital, neither of them will be easy toย solve.

Rise of theย haters

Oscar Munoz, United Airlinesย CEO

If you are a great airline brand that flies 5,000 flights and a half million passengers per day safely and without incident, you might think youโ€™re doing a damn fine job. Not many industries can claim that kind of error rate in their operations.

But if on one of a half million flights, while following rules set by the FAA and local law enforcement, you remove a passenger and it is caught on video, youโ€™reย toast.

Everyone knows the story of Dr. Dao and Oscar Munoz, Unitedโ€™s CEO and his ham fisted response to the altercation. The media uproar and social media trolling were historic.

If youโ€™re a marketer, it isnโ€™t enough to say the airline handled things poorly, which they certainly did. Now every company with any consumer savvy knows if you serve the public, this could happen to you. Too many customers with too many attitudes and an anti-business and anti-establishment angst is waiting for any company dealing with the public to make one mistake. One day people are on line waiting to buy your product, the next day youโ€™re aย pariah.

For major consumer brands, this is a nightmare. That is why we canโ€™t afford to simply laugh at Unitedโ€™s example (Delta had the same thing happen, without the benefit of a video, the following week). The economic value of a brand is dependent on how vulnerable you are and how adept you are at managing your brand on social media. That is like saying the house you bought is only as valuable as the quality of the local fire department.

Rise of theย raters

Digital reviews arenโ€™t legal tender, they are what your enemies or fans have to say. The incentive for the enemy to say something bad is much greater than for your fans to say good things. Therein lies the problem. Then, reviews remain forever in the digital newsfeed.

Even P&Gโ€™s Ivory Soap gets reviewed:

Amazon customer reviews of Ivoryย Soap

There arenโ€™t many lousy reviews of Ivory Soap. But thatโ€™s not true of other products. In the era of Amazon, as a New York Post story noted, if the box you ship doesnโ€™t contain the right screws, your brand is reviewed and then screwed. If the waiter drops a spoon on the floor, your brand review is on theย floor.

Amazon is aware of the problem. The company has spent hundreds of millions and years devoted to fraud crackdown, fake reviews and tricksters who look for openings, sleight of hand to fool consumers into paying higher prices or buying products that arenโ€™t genuine. In a New York Post story recently, theyย wrote:

Originally, fake reviews were paid for at $5 a piece, and since the Amazon crackdown, they refer to themselves as โ€˜list optimizationโ€™ services and charge a flat fee for obtaining hundreds of reviewers to vote positively for a product, with the intention of moving them up in the scroll of a review page. Negative votes can be as powerfulโ€Šโ€”โ€Šand toxicโ€Šโ€”โ€Šfor a competitor as can a positive review. Such reviews have been shown to โ€˜tank demand for goods that previously had been well-received.โ€

Digital caveat emptor, indeed. Amazon is developing a process to detect scamming and alert themselves to the occurrence:

โ€œWe have machine-learned processes to detect inauthentic customer insights including the manipulation of helpful votes and will ban vendors, sellers and reviewers who are found to be out of compliance with our policies,โ€

Even still, there is a way around Amazonโ€™s attempt at prevention. A competitor can upvote your negativeย reviews:

โ€œI think I have a competitor who is up voting my bad reviewsโ€ a seller with the user name Ly Yu recently posted on Amazonโ€™s sellers forum on Facebook, asking others whether theyโ€™d had a similar experience. The merchant reached out to a โ€˜list optimizationโ€™ vendor who wrote โ€œoffered to โ€œclean upโ€ his problem for $350 or to provide โ€œlisting maintenanceโ€ for $1,000 aย month.โ€

What does that mean for marketers? It means they are pulling back on digital until this isย solved.

Once again, P&G is leading the charge. The adage, โ€œif you canโ€™t beat themโ€ now ends in โ€œleave them.โ€ The company just announced they will reduce digital ad spending by $140m until concerns are resolved in the area of โ€œfalse metrics, viewability, andย fraud.โ€

Those arenโ€™t encouraging words. The online space may become the primary builder of brands, but it also building fear that is driving away marketers.

Walmart shoppingย aisle
Some consumers dislike brands that preach American values and donโ€™t trust global companies to behave responsibly.

Seventh, consumers are choosing sides in the โ€˜game ofย brandsโ€™.

The impact of social media on consumers has turned ordinary shoppers into highly idiosyncratic and independent thinkers. This has transformed targeted buyer demographics into cult like gatherings that fit into a larger frameworks that are brand independent, brand agnostic, brand loyal, or brand repulsed. Now, itโ€™s not even about your brand, but whether someone likes the idea of a brand atย all.

According to John Quelch, Charles Edward Wilson Professor of Business Administration at Harvard Business School, writing in the Harvard Business Review, the consumer segmentsย are:

Brand Believers

The second-largest segment, at 23%, consisted of consumers who are less discerning about, but more ardent in their admiration of, transnational companies. They see global brands as quality products and readily buy into the myths they author. They arenโ€™t nearly as concerned with those companiesโ€™ social responsibilities as are the global citizens.

Brand Deniers

Thirteen percent of consumers are skeptical that transnational companies deliver higher quality goods. They dislike brands that preach American values and donโ€™t trust global companies to behave responsibly. Their brand preferences indicate that they try to avoid doing business with transnational firms. The antiglobalsโ€™ numbers are relatively high in the UK and China and relatively low in Egypt and Southย Africa.

Brand Agnostics

Such consumers donโ€™t base purchase decisions on a brandโ€™s global attributes. Instead, they evaluate a global product by the same criteria they use to judge local brands and donโ€™t regard its global nature as meriting special consideration. While global agnostics typically number around 8% of the population, thereโ€™s a higher percentage of them in the United States and South Africa and a relatively low percentage in Japan, Indonesia, China, andย Turkey.

Brandlessness

There is even a market for non-brands, more than generics which are closer to knock offs, but brands that eschew branding altogether in an attempt to distinguish themselves. Sort of like someone wearing a non-designer label to a black tie affair to show sympathy with the downtrodden.

A new company, Brandless, is leading the charge here. They see their mission as bringing great products, sustainable, transparent, community driven values for $3 per product. Whether the product can fight Amazon/Whole Foods and other categories remains to be seen. But it is an entry into an arena that is tired of brandedย goods.

โ€œWe will never master these technologies, we will be forever on ourย heels.โ€

Where does this leave the rest ofย us?

Marketing has changed fundamentally andย forever.

While big budget, Super Bowl type advertising will always be a factor, the consumer has abandoned the playing field. They have just stopped caring about ads in the same way they seem to have stopped caring about network news, and old reruns. Journalism is already in decline, this could push it over the cliff. Will Facebook and Twitter step in to fill the gap? They are trying to with numerous quality and anti-trolling projects to their credit. But the media landscape will change because viewership by the consumer is the venture capitalist of entertainment andย news.

For someone like Teslaโ€™s Musk, that is a good thing. He knows how to manipulate new media. For the rest of us watching at home, as P&Gโ€™s Pritchard said, โ€œwe will never master these technologies, we will be forever on our heels.โ€ At least we can take some comfort that the best branding minds in the world feel as confused as weย do.

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