Jim Lecinski | The Insomnia Cookies Case - The GOST Model Taught at Northwestern

0:00The CMO Confidential Podcast is a proud member of the I Hear Everything Podcast Network. Looking to launch or scale your podcast? I Hear Everything delivers podcast production, growth, and monetization solutions that transform your words into profit. Ready to give your brand a voice? Then visit IHearEverything.com. Welcome to CMO Confidential, the podcast that takes you inside the drama, decisions, and choices that go with being the head of marketing. Hosted by five-time CMO Mike Linton. Welcome, marketers, advertisers, and those who love them to Chief Marketing Officer Confidential. CMO Confidential is a program that takes you inside the drama, the decisions, and the politics that go with being the head of marketing at any company in what is one of the most scrutinized jobs in the executive suite.

0:55I'm Mike Linton, the former Chief Marketing Officer of Best Buy, eBay, Farmers Insurance, and Ancestry.com, here today with my guest, Dr. Jim Leszczynski. Today's topic, the insomnia cookies case, the G-O-S-T or ghost model taught at Northwestern. Now, Jim is a professor at the Kellogg School of Business at Northwestern, where he has been named professor of the year, which I guess that's a pretty big deal. Prior to teaching, he worked at Google as vice president of customer solutions for the Americas. He's also written two books, Winning the Zero Moment of Truth and the AI Marketing Canvas, Jim actually took issue with CMO Confidential's call out that many MBA programs are not keeping up with the times.

1:44He actually invited us to look at why Northwestern is ranked for marketing as the number one school. Welcome, Jim. Hi, Mike. Nice to have you with us. Nice to be with you. It's great to be with you, Jim. Thank you. We hardly ever edit these shows. And those of you listening now we'll see that we hardly ever do. Hey, Jim, before we dig into this case and the ghost, the GOST model, let's ground our listeners in what you teach and why. And you are a clinical professor. What does that even mean? Yeah. So again, thanks for having me on the show. Long-time listener, first-time caller, as they say. And right.

2:26So I'm a clinical professor of marketing. Most schools have kind of two tracks for professors. One are for academics whose focus is on research, PhDs. And then the other track is for those who focus more on the classroom experience, on the teaching. So some schools call that teaching professors or professor of the practice. We here call that clinical marketing professors. And so we bring deep industry, firsthand experience from the front lines into the classroom. So, okay, I got this. So clinical, it sounds so powerful. So I'm going to give you, and also teacher of the year, so that's a pretty big deal.

3:09You left Google to teach, right? Yeah. Tell us why you did that. Well, look, I had a terrific career, 12 plus years at Google, really enjoyed it. I started late 2005. We doubled the business collectively. We, the Royal We, every year for 12 straight years. It was a terrific run and a terrific learning experience as the marketing industry overall went from when I started maybe one or two percent of budgets in digital to now well over 50 percent. And digital has moved from sort of a sideshow to be critically at the center of the plate for all marketers. Before that, I was in the advertising agency business for a long time.

3:46And kind of what led me to this sort of third stage of my career was actually a conversation I had with Eric Schmidt, who was a chairman and CEO at the time, right when I started. And I asked him, Dr. Schmidt, like, what would be your advice for me as a noogler, as we called it, new to Google, to be successful for myself and for the company and for our, you know, CMO clients and customers. And he stopped. And I'll never forget, Mike, what he said. He looked at me and he said, Jim, teach, don't pitch, market or sell, and the results will follow for you, for us and for our clients. And so I never really had thought of myself in any way as sort of a teacher.

4:24I was as a marketer. Yes. Salesperson, technologist, advertiser. Yes. But really, that sort of reframed how I approach the conversations that, you know, we would have CMO to Google to help people understand what's happening in the space, how it's evolving, why it matters and how to take advantage of it. And so that then opened my aperture to invitations to come and do guest lectures at business schools. Did a bunch of that at University of Virginia at the Darden School of Business. Then at the executive MBA program at Notre Dame, my alma mater. And of course, I live not too far from campus here in Evanston, north of Chicago, and knew a lot of the faculty who invited me to come and do some guest lectures.

5:06And one thing led to another. And a few deans ago, extended the offer for me to come over full time. I knew that I loved it. and it was sort of the right time professionally, academically, for my family, professionally. And so I'm now in my eighth year here at Kellogg and really loving it. Well, congratulations. I think that's a great background for this next kind of question. We at CMO Confidential, many of our guests have asserted that business schools, not all of them, but many of them are really failing to keep up with the marketplace, especially in marketing. Give us your take on that. And we'll leave Northwestern out of this for the time being.

5:52But give us your take on that, because we've had some guests say a lot of business schools are just not even close to keeping up. Yeah. Well, I think we should first say, like, keeping up with what? What are we trying to keep up with? And I think, you know, Mike, you and I could probably find some common ground and agree that marketing is this interesting combination of durable knowledge and perishable knowledge, right? I mean, there's some things that if you and I were to get in the Wayback Machine and transport ourselves back to be, you know, I don't know, a marketer at Nabisco in 1952, right?

6:23There's some things then that mattered, that mattered in 1992 and 2002 and 2032. Like what? Like a deep understanding of who your target audience is, although now we might call that ICP, ideal customer persona, right? So maybe the names have changed, but like those are durable fundamentals, you know, where to play, how to win that have always mattered. And, you know, I might take issue with some people who think like, you know, the modern, none of that matters anymore. And it's now growth hacking and all of that sort. No, all those fundamentals and disciplines very much matter. The marketing fundamentals, the customer understanding, the understanding of the marketplace, all that, that is, is you, you've got to be able to do that to play.

7:05Totally. And at the same time, some of the, I'll call it perishable tool sets and skills evolve and change over time. So if, you know, you and I were working on Nabisco in 1952, we would have really needed to understand the new media called radio or the early days of television and understand sponsorships in that context, et cetera. Okay. Well, we flash forward all the way to today. And now we're talking about whatever, you know, TikTok or live stream mobile social shopping or all of those new things. And so, you know, what we endeavor, you know, I'll just call it as marketing education, marketing educators writ large, is to find that right balance between the durable and the perishable.

7:47And I think, you know, that's hard. And sometimes we over-rotate to one or over-rotate to the other. But finding that right balance, I think, is our goal as an educator community in marketing today. I love the analogy of durable and perishable skills. Some of the perishable skills we would say are, you know, big data that are now here and maybe aren't being taught that well would be big data, CLTV, AI, all the soft skills about collaboration, leading an idea through the company. you know, being able to actually adjust on your feet as as the data comes in. And we would say many schools aren't keeping up on the perishable front and almost everybody is doing doing the durable.

8:36But the perishable is where it's harder to keep up. And and what do you say to that? Yeah, well, I would say, first of all, you know, phoning in the durable and just saying we got that. I would take issue with that, right? Like you need to, we keep learning more about the fundamentals. There's new research that comes out from academics and industry. So that's not a gimme or a layup. At the same time, you know, kind of marketing is evolving at the speed of the customer, as we like to say. And so kind of staying on top of those things really takes some effort and takes some work. And, you know, we can talk more about how we're approaching this, how I'm approaching this.

9:15But yeah, I mean, we are teaching customer data platforms. And by the way, not just CDP 1.0 or composable 2.0. We're now talking about agentic customer platforms and all of these things in class as we try to keep up and lead, in some cases, the perishable, not just the durable. Yeah, well, that perishable thing is really important. And also, I would say, yes, as the perishable has evolved, it is actually not changing the durable concept, but the durable understanding is impacted by this data and what you can do, particularly with data, but other channels. Tell me why or tell our listeners why Northwestern is different and how you are staying on the front end of the marketplace.

10:04And I will also say one of the things about marketing is it's where the customer, the company and the technology meet almost first for every company. And that ability to stay on the front is super important. How are you staying on the front? Yeah, so look, I mean, first and foremost, the faculty composition that we have is a combination of clinical faculty, as well as academic faculty. And so we tried to bring and respect both the durable and the perishable and bring that both into the classroom. So it's not just either or, you know, often sort of there's, you know, all these fights in marketing, upper funnel versus lower funnel or academics versus practitioners, right?

10:43We say yes and, right? Or as Ritson calls it, both-ism, right? Like we're very strong believers in the yes and or the both-ism in it. And then we apply that into a curriculum where, you know, there's a core marketing course that everyone who graduates and goes through our degree programs, whether that's the part-time or full-time or executive programs, needs to complete. And by the way, those courses now are infused with AI and big data, et cetera. So even if that's all you get, we want to make sure that that's as up-to-date as possible. Think of that as the foundation of the house. And then, you know, Mike, we have sort of three rooms and a roof in our house of marketing at Kellogg.

11:21The first room is what I'll call the inputs to being a great marketer or putting together a great marketing program. So that's customer insights, ethnographic research, market research, you know, quantitative and qualitative at the cutting edge of that. Then the second, of course, is our, you know, marketing tactics. So we have great pricing courses, great advertising courses, those kinds of things. The third room, if you will, is around industry specific. So sports marketing versus tech marketing. while they all share some things in common, healthcare marketing, right? They all have industry nuances.

11:55But then what we're really most proud of is sort of the icing on the cake or the roof on the house, which is our marketing strategy course, which has been around for many years here at Kellogg. It's sort of the capstone or keystone course that pulls all this together. Professor Tim Calkins and I are privileged to teach that in the full-time program. And that is the course where we teach about how to drive profitable incremental growth using that whole tool set that we've just been talking about, the perishable and the durable, in order to add value to the firm. All right. Let's jump into the case.

12:33Insomnia Cookies, which is a real company. Let's start with the business issues facing Insomnia Cookies, and then we're going to unwrap this case using Ghost. Yeah, so, you know, marketing professors, myself included, are always on the lookout. We have our sensors open for where our interesting case studies or business examples that, you know, we can use to help our students really learn how to build a business, a profitable, incremental, growing business. And so on my way from my house to campus every day, I drive through Campus Town. And even if you've never been here in Evanston, I'm sure all of your listeners, viewers have been in some campus town.

13:13And that's where the pizza place are. You know, pizza places are. That's where the campus gear places are. And I noticed a few years ago they opened a little cookie store called Insomnia Cookies. And in the window, in big letters, it says warm cookies delivered until 3 a.m. And, of course, you know, as a cookie aficionado, that sounded good. But as a marketing professor, I mean, a marketer, wow, to be able to put your value prop in the front window, I'm like, wow. So I started researching this thing. And it turns out that a guy named Seth Berkowitz, who was at Penn, University of Pennsylvania, around 2003, 2004, started this as sort of a, you know, dorm-based business with the concept of baking and delivering warm cookies late night to students on campus.

14:01And then after graduating, turned that into an actual business. First actual store was in Syracuse at Syracuse University, right, on campus, kind of extending that value proposition. And so this idea kind of went from campus town to campus town and started to grow and take off. But of course, you know, like any business, big, medium, small, nonprofit, for-profit, B Corp, B2B, B2C, you know, you sort of say, well, like there's a natural ceiling, sort of the S curve of growth. Like at a certain point, like that concept kind of maybe runs out of steam. And how do we now get up that next level of the S curve?

14:42And so I started doing some research into what these folks have been doing. And it turns out to be. Sorry to interrupt. Just to make sure. Right. One of the natural barriers of this is as soon as I'm in all the college towns, have I done my value prop? Is it over? Right. And oh, by the way, even if I'm in a college town, like how many cookies can you eat during the week as a college student, right? Like there's sort of a natural either financial barrier, right, or a stomach barrier or a variety barrier. So now we see barriers. And then also the pizza guys and everybody else who you may have infringed on their business.

15:17They're not going to take this lying down, of course. So now you have to deal with sort of defensive strategy. And to your point, you know, your listeners are probably saying, wait a minute. I seem to remember that both Domino's and Pizza Hut now have introduced hot cookies into their delivery as well. Right. So so you get all of the usual sort of natural growth barriers here. So I started doing some research and, you know, the longtime CMO there actually just announced his retirement. A really great marketer, a guy named Tom Carasona, took on this challenge to say, like, all right, how do we get from here to there?

15:49How do we not drive engagement or friends or fans or buzz or social currency? Right. But he takes the view that we do here at Kellogg is that marketing's job is to drive revenue, profit and share, like in that in that sort of sense. And so, you know, it turns out, Mike, that what they did matches very nicely our growth strategy here. We're sort of big fans of, you know, we call it the enhanced Ansoff strategy, which is basically you can grow on two vectors, right? You can grow based on products or you can grow based on customers. And so the first place to grow is to sell more of your same products to more of your same customers, right?

16:27Like a market penetration. And you say, right. But, you know, Mike, we've both been in meetings where marketing teams say, oh, you know, there's no more growth in the core. We've tapped it out. Oh, exactly. People like they especially if you've had two years of no growth, they take it as a truth versus you just haven't thought it through hard enough. So, yes. Right. And, you know, again, referencing my earlier professional experience, like we doubled the core at Google every year for 12 straight years. So like this flattening is a natural phenomenon. Like I don't buy that. So, okay, what do we do to grow the core, right?

17:03Well, you know, first thing they do is they say, let's introduce some LTOs, you know, the lingo for limited time offers. So now we introduce some reason for our, you know, what they call insomniacs, our current users to come back more often. We're recording this here around Valentine's Day. So if you go to their site now, of course, red velvet flavored cookies for Valentine's Day, heart shaped cookies for Valentine's. I mean, this is the famous pumpkin spice latte, et cetera, right? Yes, which is now sold like seven months of the year, but it's a good thing. But it's introducing product variation, but still in your same category, still cookies.

17:38We're not talking about pizzas or chicken wings or non-category things in order to drive frequency among our current users. So they've done that highly effectively over the past couple of years. And I'll reveal the results of their growth here in a minute. But that's strategy number one is like grow and build the core. And so what we teach at Kellogg is sort of the 70-20-10 strategy, right? 70 % of your ergs, effort, budget, focus, growth has to be from the core. Then the next thing they do is they say, okay, well, is there some new target audience, new usage or new application that will give us adjacent growth.

18:18And so in this case, they said, wait a minute, there's a whole population of people who have either a dietary restriction or a lifestyle choice, vegans, right? Who said, you know, like I've chosen or maybe, you know, dietary allergies, et cetera, food sensitivities. I'm allergic to gluten. I'm allergic to, yeah. Milk, eggs, all these kinds of things. And it turns out there's actually a significant portion of the population, especially on campus college towns. So we say, all right, well, maybe we can introduce a version, a variety of our core cookie for vegans and open ourselves up to a whole new audience segment.

18:54They did that quite successfully, launching vegan insomnia cookies. So there's our second growth vector, still in the same category. And now the third growth vector is to say, what are near in adjacencies in a new category, not gold mines or hotels or, you know, these kinds of crazy gold mine. Well, you know, we laugh, but the AMC. I totally get where you're going. I think this is super important, which is the adjacency has to really be adjacent. Yeah. I didn't mean to interrupt you. So keep going. No, no, not at all. So the adjacency here, of course, naturally was ice cream, right? Ice cream sandwiches, ice cream sandwich cookies, cookies and ice cream match together, not to mention from a product standpoint, we can now take yesterday's unsold cookies and crumble them up in the ice cream, right?

19:46So, you know, sort of like what Cold Stone used to do on a bespoke basis, they now serve ready to eat basis. So now we've sort of grown the core as our 70, we've grown an adjacent target audience with product variation with the 20, and then we've got the adjacent category as the 10. So now we've got sort of our setup of 70-20-10, and we can move that into a marketing growth plan, which you alluded to. We all learned in our days with P &G, goals, objectives, strategies, tactics, right? So the goal, right, is a qualitative multi-year, Starbucks says, to be the world's favorite third place, right?

20:26That's always the goal, right? So here, right? It's to be, you know, college students, late night, go-to for snacking. That's always the goal. And then, you know, the objective is a revenue, profit, or share goal this fiscal or this calendar year. Quantitative, measurable. How do we get there, right? Our strategies are those three growth vectors that we just laid out. So notice it's not to get more buzz. It's not to be hipper. It's not to be part of social currency. It's not growth hacking. It's those three, 70, 20, 10. And then the tactics that follow, of course, are the famous four Ps, the product, the price, promotion, the place, all those tactical kind of levers that, you know, so often are the mark calm that people confuse with big M marketing.

21:15But mark calm is, of course, as we know, Mike, a subset of that. And then what are the KPIs against each? So it's really a nice case that illustrates how we teach marketing and how we think about marketing here at Kellogg. And of course, the punchline of this is over, I mean, private. So we have to estimate their actual results because they're not publicly disclosed. But by all indications, estimates are that they have tripled revenue with this growth plan over the past three years from$100 million to$300 million. So I think this is really a really good story. But I also want to point out, when you did the model, you didn't talk at all about a bunch of brand metrics that get thrown around that aren't really outcomes.

21:59They feed outcomes like traffic, awareness, other stuff. Those are outcomes of the work. They're not like things you actually do. Is that the way to look at this? Yes, and that's how we teach it here. Like those are not board level. Those are not CFO level metrics, right? And we talk about activity based metrics versus business outcome metrics. You might think of these as means and ends. Like, sure, we'd all like more traffic to our site. And sure, we'd all like lower CPCs. But you don't take traffic to the bank, right? You don't reward your shareholders with lower CPCs, right? That's cost per click for everybody.

22:39Cost per click, right? Or cost per acquisition or whatever these kind of intermediate targets are. And so the one that we teach is marketing ROI, right? Which is the incremental profit, not the total sales and not the total profit, but the incremental profit that results from the activities that you are doing relative to the costs of those activities. And so, of course, Insomnia would sell cookies every day if the marketing team went and took a month off. You can't take credit for that, we'll call that organic run rate sales. It's the incremental lift minus the cost of that lift. And that's ultimately kind of what we instill in our students here.

23:19So, you know, again, we're talking about a lot of these modern marketing tactics, the perishable stuff, but built on not only marketing durables and fundamentals, but business fundamentals. I think that's a great example and very consistent to, you know, what I learned at Procter and some other places, but a lot of times you get CEOs or boards or other people that are, they're in a really big hurry to grow the business. And I'm thinking of the Peloton case we did with, with Democartia of Maryland, where they thought they had a right to do rowers and treadmills when it looks to me like the marketplace didn't really want to give them that right and they didn't have it and they rushed into this space because they were trying to meet a stock price objective how do you teach folks to actually stay true to the model and have the argument in the company when the company is the one pushing you to go against the model and do a gold mine yeah so look i mean we're not going to be able to have sort of a qualitative i think you feel argument over this in the boardroom.

24:34We need to bring data. My old boss, Eric Schmidt, used to say, and God we trust, all the rest of us need to bring data. And so the data that we bring into the boardroom says, all right, look, if we stay true to the core, what kind of growth is available in the core? And most businesses, you know this, Mike, the core is so big that even a single digit growth rate on the size of the core actually results in a huge dollar amount. versus if you go into an adjacent business, now you need two, three, 400 % growth to get the same dollars back out. I mean, I face this at Google, right? Like a few percent growth in search is greater than a double digit, triple digit growth in YouTube.

25:17And we have all these cautionary tales, I mean, in the tech space, I mean, just we don't have to look any further than Facebook or Meta, right? When we rotate out of the core business of social media to now over-rotate to the metaverse or Bitcoin that they tried or phones or other things. Like you saw what happened was the core eroded and arguably a whole bunch of that went over to TikTok, right? While they were distracted with sort of the 20 and the 10. So this is like the conversation that we have as we build some financial models that say, all right, what would have to be true in the core in order to get us to the board or street level growth expectations versus what would have to be true in these adjacencies or dalliances or fishing expeditions?

26:05And then we come back and say, is 2 % in the core actually possible? How could we do that? Right. And in that discussion is also the implication that you take your core for granted when you make that kind of big move. And my experience has been sometimes, but very rarely can you get away with taking your core for granted because it is such a big profitable thing. Competitors will swoop in on your mistake. Is that what you see as well? That's right. And that's why, you know, being able to play defensive strategy to not just grow, but protect your core as well because, look, success begets attacks.

26:50Success begets copycats, right? I mean, you know, one reality show works on TV, and now there's 100 reality shows. 100 reality shows, yes. One cookie store works, and now there's lots of cookie stores. So, yeah, absolutely. You need to be able to protect that and not take your, you know, we used to at Proctor call it like base and incremental. You can't take your base for granted in the out years. So I think this is really important. What if you are doing this all right, and every year you are missing on the 20 and the 10, and you're growing your core, but the 20 and 10 aren't working for you?

27:26What do you do? Is that you're making bad choices or you don't understand the market? How do you think about that? Yeah, so now you're not future-proofing your business because today's 10 at some point, right, will become material in the three - or five-year horizon. And this is hard. And sort of predicting consumer tastes, predicting the 10, where can we be successful? Because now your time horizon in the 20 and the 10 is not just only this year. You might be doing some pilots and some tests this year. But right now we need that to be successful at scale in the three - or five-year horizon. And companies are historically not good at this.