Live episode: Prof G vs Kory Marchisotto vs Rory Sutherland, a debate on brand, risk & the future of the CMO

0:28Actually, I just make sure I introduce the panel. about this brand era is dead. Do you really believe that? Yes.

0:41Look, at first off, I owe you an apology. The last time I was on stage with Rory, I thought it was an interview, and I totally dominated the conversation. And the YouTube comments are like, what a narcissist and a megalomaniac. He would let him get a word in edgewise. And I'm both of those things, but I didn't mean to be as rude. I genuinely apologize. I didn't realize it was a dialogue, not a me, me, me. Look, the primary algorithm for creating shareholder value from the end of World War II to the introduction of Google was the following. Produce a mediocre product, a mediocre car, salty snack, shoe, mediocre beer, and then wrap it in these amazing brand codes of American toughness, European elegance, hotness, youth, sex, and then use this incredibly cheap vehicle called broadcast advertising, where we could capture literally 80 % of America for five hours across three channels.

1:41And if you think about the efficiency of what it is you all do, we didn't realize how cheap advertising was when I was a kid. You could reach the majority of America for a couple million bucks. the cost of a 30 second ad on the academy awards is quintupled while its audience has been cut by a third meaning that it's lost 94 of its efficiency so you could produce a mediocre product and create 30 cents of peanut butter paste into three dollars of maternal love because choosing moms choose jiff and the most valuable companies in the world produced mediocre products but had amazing media and amazing agencies selling their mediocre food, salty snacks.

2:28And then with digital, you essentially had these unbelievable unlocks where you no longer needed to run Toyota ads and spend a lot of money on a Toyota dealership. You could tune up a car wirelessly. And rather than deferring to the brand, I use hotels. My hobbies are hotels. I work out. I walk my dogs. I have no interest in people or anything else. Those are my two things. My one hobby is hotels. I go to hotels. I don't go to cities. And I used to always stay at the Mandarin Oriental of the Four Seasons when I traveled because one, someone else was paying for it. And two, they always deliver an eight.

3:06These were really strong global brands. Now I never stay at these places because I no longer need to defer to the shorthand of a brand between my social graph and these weapons of mass diligence and now AI, I'll literally type in, this isn't an exaggeration, I'm in the midst of a midlife crisis, I am totally price insensitive, and I want to be the oldest, least wealthy, least attractive person at the hotel. And it'll tell me, oh, you're in Austin, stay at the Austin proper. Oh, you're here, you'll be one of the younger people, but stay at the Ducap. And I no longer need to defer to the brand because of these weapons of mass diligence.

3:47Now, that's not to say the brand doesn't matter, but the majority of amazing brands in the top 10, according to most brand indices, are really victories of supply chain. Amazon and Netflix are not victories. They didn't have a great ad campaign. They don't have the best media buyers. They have totally reconfigured the industry by disrupting the supply chain. So Don Draper has been drawn and quartered. Your industry, unless you're working for Google or somewhere else, I'll just finish here. I look at stuff through a shareholder lens. I started a brand agency called Profit. I'm totally into brand.

4:23I've made my living preaching about the value of brand. And I recognized that the sun had passed midday on that. And the masters of my industry were Martin Sorrell, Maurice Levy, and John Wren. Those were the masters of the universe. Those companies combined will lose, Meta and Alphabet will lose the value of all three of those firms within any hour of any trading day. They're insignificant from a shareholder standpoint. They are a pimple on the elephant. They are meaningless now. Your turn. Can I ask you a question? Sure. Is Hermes a brand that's built brand equity and value over time? Yeah, but not with these people.

5:14They did it through artisanship and artificial scarcity. They're not running great ad campaigns. They have created artificial scarcity by convincing me I need to get on some fucking list to pay them$40 ,000 for a bag. these guys are an amazing brand but they didn't do it through advertising they did it through an incredible set of movements glass and leather that convinces me that i look 59 again and more masculine if i wear a panerai but hermes which to your point is now worth three times the value of Nike didn't build it on traditional brand building. They did it on scarcity. To a certain extent, going vertical with controlled distribution, you could argue that that's brand.

6:06But when we talk about brand, at least I used to talk about it, come up with a brand identity, core associations, hire people who wear black and are better looking than you. And if you spend enough money, we'll invite you to can and give you some stupid fucking award. That era's done.

6:27I would disagree with some of what you said and agree with some of what you said. So I worked at Hermes for 10 years, and it has been around for seven generations and growing more than most other luxury brands. And they do do advertising. It is part of the mix. But what's under that that I think is the most important thing is called storytelling. And if your brand has a compelling story that can be told in a compelling way, case in point, so many dicks, and if you haven't seen it, it's all around the palais, then it is incredibly meaningful. And for a very modern brand, which is the brand I work for now, which is Elf, we've delivered more shareholder value in the last six and a half years than any other company in our industry.

7:23Where's your supply chain? And we did it through brand investment. Where's your supply chain? I'm not sure what that has to do with the brand investment. Answer the question. Where's your supply chain? Our supply chain is predominantly in China. 75 % of our goods are run through our Shanghai distribution. You're making an amazing product for less money than your competitors. For sure. Your shareholder value is a function of supply chain. Yes. Now, to Scott's point, that got us to about$200 million, and it couldn't get us any further. And when we went from investing 6 % of net revenue into marketing and digital to 10%, our revenue started to rise.

8:06And once you start to see that marketing actually works, you do more of it. So now we're at 24 % of net sales goes into marketing and digital. And we have delivered 25 consecutive quarters of net sales growth and 25 consecutive quarters of market share gains. The only brand who can say that. I add the point that it's difficult to know whether the age of brand building is dead or not until we have more people with the courage to try again. Because there seems to be a massive lack of faith. Fundamentally, the whole industry has lost confidence in a formula that worked well. Fundamentally, I think Matt Johnson's definition, which is having a great brand means you get to play the game of capitalism on easy mode.

9:02I think that's still fundamentally true, that being famous, which takes time and patience and generally pays off non-linearly, is still insanely valuable. Someone managed to persuade you that, I think, is it a Panerai? Is it a cool watch to wear? Am I right? It's an Italian Submariner's watch. They managed to persuade you of that despite the notable lack of success by the Italian Navy in the last 200 years of world history. Okay. Somehow they managed to persuade you. This was a really, really cool thing to do. They're very good looking. They are, yes. But what worries me is that many of the examples we're giving which are good, I mean, your own case, they're either family-owned or they're founder-led.

9:50And I think if you look at the success of brand builders in those two categories, who have fundamentally different time horizons to the people who are working for publicly limited companies, I think that's doubly alarming. Because if you haven't the patience to build brands, you probably haven't got the patience to do R &D either. and consequently you've created a weird world which I think is driven by financialization where every quantum of expenditure has to be justified by a quantum of incremental revenue and large parts of incredibly valuable activity will never be justified that way and so I'm actually as a consumer I'm more worried by the death of R &D than I probably am by the death of brand advertising.

10:36But fundamentally, most businesses don't seem to have the mentality or the time horizons where they could do it even to begin with, even in cases where it undoubtedly would work. Because there's a huge difference to being famous. Nassim Taleb would call this effectively increasing your surface area exposure to positive upside optionality. And you'll know this much more than I do. But when you become famous, instead of having to find opportunities, people come to you with opportunities. And that seems to be a fundamental tipping point. Since attention is scarce, it's undoubtedly worth paying to be famous.

11:15Now, the means by which we do it will change. It probably won't be a TV spot at the news at 10 anymore. But the fundamental value of simply being well known in all kinds of ways seems to be, you know, woefully underestimated, partly because it doesn't pay back in narrow, predictable ways. That's what will worry me. But the family company thing does worry me. The extent to which family-owned companies, founder-led companies should be, in a sense, less successful, but many of them seem to have qualities of trust and customer focus which have completely disappeared. It was axiomatic that the consumer was your focus as a business owner 50 years ago.

11:58When Peter Drucker said, you know, what is it, marketing and innovation, everything else is a cost. The purpose of business is to find and keep a customer. Now, that sentence now would seem outlandish in most board meetings, I think. That's worrying. Well, I think the part we're not talking about is culture. And to your point, a lot of, and yours also, a lot of shitty work gets done and goes to market and it's pretty mediocre and people scroll by it, and that's a giant waste of money. Completely agree, and most of what I see is a giant waste of money. I don't know where the fear is happening, but companies have to ask themselves what is happening in their culture that is making the output shitty work.

12:47We don't let shitty work out of the door. It is not how we operate. Instead, we create the cultural conditions necessary for innovation to thrive. So agency partners, for example, all the teams are lined up to work on the alpha count, even if we're not their business, because we have a lot of yes energy. We don't say, no, that's not going to deliver the ROI. We don't shoot down really good ideas because we don't have the metrics to prove it yet. So I think you've got to establish the cultural conditions inside an organization where people feel comfortable experimenting, trying things out, giving it a shot, see what happens, and do real creative work.

13:35Most of what you see coming out of our brand, no other brand could do it because they don't have the balls to sell it to their C-suite. But guess what? Do great work, shoot a three-point shot, show that it works, and you'll get more money to do more of it.

13:55Adam Morgan over there and I did a talk last year called The Extraordinary Costa Dull. I just wonder whether is the issue, alluding to your point, that advertising is just no good anymore, that actually we need to make better advertising? Scott? Look, I'm not here with a message of hope.

14:17Advertising is a tax that the poor and the digitally illiterate have to pay. How do you know your life isn't going very well? You're watching a lot of advertising. There's a regulator in Paris that makes sure you can't see any advertising from a green space because it's a modern, wealthy society. Go to a poor, shitty country and ads are everywhere. The most successful people are only watching media that doesn't have one thing. Advertising. Victorian Britain was a pretty successful country and it was coated in advertisements. You couldn't move. When was that? I don't know. It was in the 1880s. I'm simply saying I don't think they're axiomatic.

14:57I mean, David Ogilvie was opposed to billboards, but, I mean, we'll park that argument. You could argue that they don't pay back to the consumer in the way that other forms of paid content do. But what worries me a bit is I think that it's very difficult for marketing, never mind advertising, never mind brand building, it's very difficult for marketing to function unless it wins the argument that effectively marketing is fat-tailed, like innovation and research and development, by which I mean 10 % of what you do delivers about 80 % of the value. And it's probabilistic, not deterministic. And the interesting thing to me is that nearly every time you read of an extraordinary marketing breakthrough or a product breakthrough, actually they're often both, it was generally opposed by most of the sane people in the organization.

15:48I was just listening recently. The pumpkin spice latte, which I think makes Starbucks half a billion dollars a year. That's pretty contemporary. That came something like in the bottom third of the research in terms of appealing kind of drinks. And someone took a bold step because they just believed in it. Now, what does worry me is that nearly every case you get, Dove was true in Ogilvy, of a real breakthrough brand campaign, someone broke the rules. Client side, they broke the rules. agency side they broke out of the process now why we haven't empirically taken from this the fact that maybe our rules and our processes are completely wrong if you have to deviate from them to produce something brilliant but once you understand it's fat-tailed what you realize is a bunch of consultants and a bunch of tech people don't want client businesses to believe in the power of brand building because it's in their interest to sell marketing as a form of open cast mining when in reality it's a form of treasure hunting okay what you're looking for is the 10 percent of freak things the pumpkin spice latte which makes an absolutely monumental difference and it's very similar to pharmaceutical development it's very similar to filmmaking in that your 10 percent of successes basically justify the rest of your existence but we're now being put into this open cast mining thing how much ore did you mine today how efficiently are you processing it which is fundamentally the wrong mindset and the wrong paradigm if you want to do great marketing it's treasure hunting you're better digging in the right place with a trowel than you are digging up a whole field with an excavator and yet fundamentally deterministic minded left brain people want the world to be proportionate i worked on american express for about 10 years only when you're 40 do you realize that in that 10 years three things you did basically contributed about 80 % of the value.

17:45And I think it will always be like that. I think it's always a process of discovery. And instead of fighting that fight, we've kind of bowed down to the temple of attribution and accountability when we should have been saying, you can't use that infantile maths to measure and judge and direct an uncertain process. Does that seem fair? I think it's very fair. And again, it comes back to when you do the work, you have to establish up front, what master am I serving? So if you have to go back and prove every dollar you spend is going to bring a dollar back on this moment in this time, you're going to lose.

18:27So I agree with you about the treasure hunting, which is why you have to have a discovery budget. You have to be able to go out there and expose your brand to a large amount of stimuli and see what signals come back. And that's how you figure out how and where to place your bets. Some brands react exceptionally well to outdoor advertising. There it is. I just said it. Some brands react exceptionally well to the creator economy, and others can't get their brand to move no matter how many people that they pay to speak on their behalf. And I think it's the responsibility of all the brand and marketing teams to understand what story am I telling, how do I tell it in a compelling and captivating way, and what is the medium that I need to use to reach people in a way that's going to get them to want to talk about my brand to somebody else.

19:23We keep saying this word advertising, and the more I listen, the more I don't know what that actually means. If we're talking about getting your brand in front of people so that they talk about it, 100 ,000 % advertising is alive and kicking. Otherwise, look at the millions of brands that never scale. Great brand, fantastic product. Ever heard of it? No, because you never told anybody about it. So I think we're getting lost in the word advertising versus doing the work to understand your brand intimately, why it connects with people through a variety of stimuli, and then place your bets, ensuring that where you're putting that is going to bring you the outcome you're looking for.

20:15Very well said. The second question I was going to ask is about our approach to risk. We did a CMO survey recently called Confessions of CMO, and the inability to take a risk, he says, kind of quote-unquote, came across as probably the biggest issue they were dealing with, the pressure to play it safe. As an entrepreneur, Scott, you started lots of business, been very successful. What can you teach CMOs about how they approach risk and how they sell what they're doing into an organization?

20:48So I think a lot about risk. I'm at that age where all I can think about is not dying and how do I extend my life. And so I take care of myself physically. And one of my primary means of trying to stay mentally fit, I try and write a book every 18 months. And it's really difficult for me. But it keeps me sort of mentally fit. And I'm going to write a book on risk because I think it's a word that is overused but incredibly important. And so I'll look at it at different dimensions. I've been living in London the last three years, and I'm moving back to the U.S. in a year. It's time for good Americans to move home.

21:28It needs help. Anyway, and a lot of times people ask me, what's the major difference between Europe and the U.S.? So in the last seven years, within a nine-mile radius of SFO International Airport, there's been more shareholder value created than all of Europe since World War II. Why is that? Very similar universities, actually quite similar cultures. You don't look, smell, and feel a lot different, the Europeans out there, than the Americans. And I think it comes down to one word, and it comes down to risk. And what I tell people when I'm in London is it all comes down to this. Why are we so much more successful economically than you?

22:15You're the ones that decided to stay. my mom and dad left Glasgow and London at the ages of 19 and 21 also a very selfish thing to do their parents weren't doing well I'm going to reframe this briefly by saying we handed you a whole fucking continent on a plate gave you the institutions laws, democratic structures there we go, about 20 billion square miles, all fucking yours. And we're left at a pokey little island and then you're claiming the credit. Sorry. Hey. Don't forget the language. Yeah. Good point. They use English language without paying a penny in fucking rights. I mean, if you'd invented the English language, you'd be the meta of the...

23:09Anyway, never mind. Yeah, and you'd still be speaking German if it weren't for us. And by the way, we're happy to take your laws and your culture. Thanks very much. Look, now I feel defensive.

23:29America has$5 million for every startup. I've had nine companies. People talk about the two that have worked. three kind of didn't work and four math met up four were abject failures i quite frankly if i was an entrepreneur in europe i don't know if you would have tolerated me i don't know if i would have been able to start over and raise i've raised over a billion dollars for my startups and i never had two wins in a row i've lost a shit ton of other people's money and I tried to be a good person it made sense and other American investors were willing to take a chance on me again and I gotta be honest I'm not sure it would have worked for me here I think in China I'd be in prison look at the shit I'm saying about Trump what do you think what it literally what do you think would happen in China so I think risk is a big fulcrum in terms of understanding the economic success of America relative to Europe.

24:38And then just on a ground level, a lot of young people will say, and this is a humble brag minus a humble part, I admire you, I want to be more provocative at work, and I want to take risks, and I want to speak truth to power. And I always say, be careful. I'm economically secure. I can offend people. the reality is it's easy to talk a big game about risk but typically I've served on a lot of public company boards and typically the CEO is a man or a woman who's not necessarily the most talented or the smartest but the one that has pissed the fewest people off they are incredibly non-offensive people they might be tone deaf but they haven't made a lot of enemies so everybody assessing risk is really difficult, what I would suggest is you need a kitchen cabinet of people who you can outline the situation and the fulcrums of power and the relationships and say is this a good risk for me or is this a smart risk to take but I do think that the primary difference between our cultures and the American invasion Americans have landed on French beaches twice.

26:00This is an invasion. And the difference is they basically ask questions first and then forgiveness later. And by the way, there's a huge downside to that. We have a toxic coarseness or coarsening of our discourse. We have radicalization of our young men because these companies, their attitude is I'm going to ask for forgiveness, not permission. It's a great economic model. It has, unfortunately, really terrible externalities. We're the most prosperous nation in the world, and we have some of the highest rates of teen anxiety and obesity in the world. Like, that doesn't make any sense. So a lot of our prosperity hasn't translated into progress because of this insatiable appetite and acceptance of risks, sometimes unnecessary, reckless risks?

26:59My answer to almost everything is it depends. If you're working in a conservative organization whose annual goal is to deliver 1 % to 2 % growth, don't take any risks. The risk is actually not what the organization is looking for. And if you have a high risk tolerance, you're probably in the wrong company and you should go to a company that allows for higher levels of risk. So if you think about it as a boat's going to take off from here for sure and go around the world, a low risk company is going to say, I'm going to make one stop in 365 days. A company like mine is going to say, we're going to make 365 stops in those 365 days.

27:44We're going to go look around. We're going to be curious. We're going to make some discoveries, and we're going to probably stumble across a couple of business ideas along the way, and we're going to outpace all of our competition because we got 365 times smarter by the end of the year. So the key in all of this is what are we trying to accomplish? Low output, low risk path. High growth companies, they're compelled to take high risk because you're not going to deliver high growth without taking some big risky bets. And you need a culture that has a high risk tolerance in order to do that. The only other thing to think of here is that the handmaiden of risk is reward.

28:30And it occurs to me that marketing as a discipline and agencies within it seem to get the blame for anything that fails. In other words, all the costs land at their door. But when they have a spectacular success, it simply appears on the next year's balance sheet as revenue. Now, I've never seen a company report where it attributes any part of its success to marketing. Now, I know because I've done it once or twice, and actually you probably only will do it a couple of times in your life, that you can have an idea that costs£25 ,000 to implement and it makes them£10 million a year in incremental high margin revenue every year thereafter.

29:11That happened. Now, what was weird is we got paid for that£25 ,000. No share of the upside. Had it failed, we would have been blamed for the downside. What's fascinating to me is that when I think they go and present, that company goes to present to its shareholders at no point will they ever say we had a good marketing idea and it made us an extra 10 million pounds a year they'll attribute it to some harvard business school bullshit like supply chain efficiency or you know a back office back office savings on consolidation you know okay and there is just an approved list short list of reasons to be successful ordained by harvard business school of which cost cutting or consolidation or some other bullshit are high on the list, at no point is it acceptable to say we did some great marketing and look at the millions of pounds.

30:05What was even weirder about that company is they paid us£25 ,000, we made them£10 million a year, last 12 years, okay, they never came back. I thought just the odds would make them say, let's see if we can do that again. Okay, an idea from Ogilvy, which made a very large packaged goods company easily in excess of a billion dollars. We worked out how much money we made from that idea,$350 ,000 Australian dollars. So we don't seem to have a symmetry of risk and reward in marketing in that you'll get blamed for waste, you'll get blamed for failed experiments. All of those things are accounted for as costs.

30:46but when marketing basically hits the ball out of the park there's no concomitant upside reward or even indulgence and that seems to me fundamentally a narrative problem but it's there. Fair? Yeah, okay. From experience the problem is by the time the marketing's worked the CMO's been fired. Yeah, we'll move on. But it does bring me swiftly on to my third question which is the much, you know, talks about demise of the CMO. So maybe we'll start with you, Scott. What advice have you got to the CMO? I changed your title. I got a ton of shit for saying CMO was like second lieutenant in Vietnam and your life expectancy was 18 months.