Scott Galloway vs Rory Sutherland - is the era of brand over?

0:06Ladies and gentlemen, welcome back to the Uncensored CMO. Now we have a returning guest in this episode, Professor Scott Galloway. I think it's fair to say Scott is perhaps the most controversial guest we've ever had on the show. Now we got Scott together with Rory Sutherland and it's the very first time they have ever been together in a room. We recorded this in front of a live audience where the two of them go head to head trying to answer some of the biggest questions in marketing. You're absolutely going to love this. Scott does not hold back whatsoever. So strap in, get ready and here we go.

0:38What a joy. Fantastic. I've been a long-time fan, and we both suffer from Scottish Dad Syndrome, which is an interesting affliction, isn't it? You're Scottish? Yeah, my father's family were all from the Highlands, effectively. Got it. I'm part Welsh, part Scottish. It's a terrible mix. So half of you wants to be in the grotto and the playboy mansion, and the other half is worrying about how much it costs to heat the thing. You know?

1:09But no, I mean, I'm really intrigued, actually. By the way, you're the only person other than Daniel Kahneman to make that point about how ill-advised careers are in kind of creative industries. In particular, Daniel Kahneman, I remember saying that the worst thing you could aspire to be was a successful actor. And there were two reasons for this. One, you were going to fail, statistically, almost certainly. but secondly when you did fail the few people who succeeded were rubbed in your face every single day so he said if you aspire to be a really successful dentist if you only make it halfway you're still quite a wealthy dentist and you don't open your magazine every day and have to read bloody two-page spreads about manhattan's most successful dentist yes yeah so i i thought that was nobody ever mentions this by the way with with sporting aspiration which obviously there's intrinsic pleasure to sport.

2:03But there's also, if you look at it, the few people who succeed are very, very salient or on television. The extraordinary cost paid by people who never made it doesn't really figure. Yeah, and another basic lesson I try and impart on my kids, when I say my kids and my students, I've taught 4 ,500 students over 22 years, and I say kids, their average age is 27, I teach graduate school, is ideally you want to be in an industry that you get better at as you get older, Not an industry you get worse at as you get older. Sports, modeling, acting, mostly acting for women, you get worse at it as you get older.

2:37And I mean, you personally get worse at it. I mean, the industry doesn't want you. Whereas the industry you're in, you get better at it as you get older. I mean, it's really difficult. You're really setting yourself up for failure because our species believes because for 98 % of our time on this planet, we haven't lived past the age of 35, we have trouble imagining how long we're going to be here. so if you're doing well in modeling or bartending okay you start to believe well I'm not going to be around that long so let's do it it's like no you're gonna be around a really long time and you got to ask yourself do I get better at this job as I get older I was a bartender in college and I was making 200 bucks a night and I thought I'd died and gone to heaven and I said I'm not going to take the job with Morgan Stanley I'm making more money as a bartender my mom said okay and then what in 10 years you're going to make it making 200 bucks a day anyway in in sports i was an athlete growing up i thought i was going to i wanted to make my living in sports and then i got to ucla and realized what real athletes were and that was a blessing of course i think the worst thing that can happen to you is to be blessed with extraordinary athletic skill because you just don't realize what's required to make a living as an athlete and how much money you have to make so quickly to support yourself the rest of your life.

3:54The only sport which pays if you're kind of in the, I guess, in the sort of top 10 ,000 of the world is probably golf, isn't it? So it's such a wealthy sport that you'll be able to find yourself a job as a pro, you know, as some sort of advisor at a golf course somewhere. But I mean, if you're number 200 in the world in tennis, you're practically living out of your car. I mean, it's extraordinarily much a winner-takes-all problem. I grew up with the most extraordinary. I lived in athlete housing at UCLA, and I grew up with the most extraordinary. Two of my three roommates went to the Olympics, and they were all calling me at 28 for jobs because they spent their whole life playing water polo or track, and then they're 26 or 28 and have a bronze medal from the Seoul Olympics, and they're looking for something to do.

4:41and that industry is just impossible or near impossible to make a living at and then because it's such a romance industry people say they want to be in the back office and the industry can just pay you nothing i mean i was so disappointed even i read today wme i don't know if you know them there i'm represented by wma so i'm gonna bite the hand that feeds me it's the best biggest talent agency and they have img they're taking it private and the top two guys are making about a quarter of of a million dollars, and as far as I can tell, I read this stuff, is financial engineering. And they pay new assistants 15 bucks an hour.

5:21And the reason they do that is because they can't. And I'm going back to the notion that, not calling on people's better angels, but I'm thinking like, Jesus Christ, is that really what you want to do? You want to make a quarter of a billion bucks so you can pay your assistants 15 bucks an hour? But because that industry attracts so much human capital, they can find really talented people who will work for 15 bucks an hour. It's interesting because you've been making this point for quite a while that I think, in your words, capital has been kicking the shit out of labor for about the past 50 or 60 years.

5:51What interests me is that, for example, consumer goods companies, it would be in their interest to have a more equitable distribution of wealth. 100%. And yet, I've never heard a consumer goods company, a Unilever or a P &G, actually campaign for some form of wealth redistribution. I mean, after all, billionaires don't really buy much more shampoo than anybody else. You might be able to sell them a fancy French variant. Yeah. But it's not really that exciting. And actually, the other thing I've never heard consumer goods companies talk about is the extraordinary, effectively, the extraordinary sump on personal wealth that is the growing property market, which has benefited the old at the expense of the young to an absurd degree, really.

6:36Yeah, you're singing my hymn. Look, look what's happened in the last, since 2019, since COVID, housing prices, I don't have the data on the UK, housing prices have gone from$290 ,000 average to$410 ,000 just in the last five, six years. In addition, with interest rates going from 2.5 % to 7%, the average mortgage has gone from$1 ,100 to$2 ,300. My industry has raised tuition three times as fast as inflation. so the kind of indicators for improving your own human capital and establishing a life and moving towards mating and procreation and building a family i've become out of reach at the same time people over the age of 70 in the united states are 72 percent wealthier than they were 40 years ago people under the age of 40 are 24 less wealthy so that everything's more expensive and they make less money and what do you know 40 years ago 60 of 30 year olds used to have a kid now it's 27 percent.

7:31And they're more anxious, more depressed, more obese than any generation in history. And we like figure out what's going on. Well, no shit. Wouldn't you be if everyone around you and everyone above you and to the left and right on social media was killing it and you can't afford to move out of your parents' house and you're working your ass off and you need a second second job. Then, yeah, that feels really, really difficult. And in the United States, the incumbents, I mean, there's a few things going on. We talk about they get us fighting left and right, progressive and conservative, because what they don't really, they want a weapon of mass distraction.

8:03The real fight is between rich and non-rich. And America has essentially become an operating system where the bottom 99 % is basically a dope-a-bag to get the 1 % more money. Everything we do in the U.S. is to get the 1 % more money. I think every piece of legislation, right? My tax rate is 17%. When I was in my 20s and 30s and making hundreds of thousands of dollars, I made a lot of money. I was paying 30, 40 percent tax rate. Now that I make millions of dollars a year, my tax rate has plummeted to 17 percent. And in America, the reason they put up with that is that America's superpower is its optimism.

8:41And the majority of people believe at some point they're going to be in the 1 percent. But effectively, with Social Security, for example, old people have figured out a way to vote themselves more money. And so the$120 billion dollar increase of cost of living adjustment flies right through Congress, but the$40 billion tax credit for children gets stripped out of the infrastructure bill. So you've had this massive transfer, this unprecedented transfer of wealth from young to old and from the entrance to the incumbents. The bailouts that took place both here in the UK and the US were the greatest intergenerational theft in history.

9:17A million people dying in the US would be bad, but what would be worse is if I got less wealthy. So we flushed$7 trillion into the economy, PPP, care loans. And effectively, 85 % of that money wasn't spent. Didn't go to medicine, didn't go to rent, didn't go to food. So where did it go? It went into the market. Housing prices go like this. Markets hit new highs, right? You think, well, that's fine. No, it's not. The reason I'm here and I get to live the life I lead is because in 2008, when we had a natural economic cycle, that happens in any economy, we let the markets fail. And I was just coming into my prime income earning years, and I was able to buy Apple, Amazon, and Netflix for$8,$10, and$12 a share.

10:02Netflix is at$940 today. Where does a young person find disruption? When you bail out the baby boomer owner of a restaurant, all you're doing is robbing opportunity from a 26-year-old that wants to come in here and buy this for 30 cents on the dollar and have her shot. So bailing out the economy and incumbents is bailing out old people. Young people need disruption. Where do they find value right now? Where can they buy anything of any reasonable value? Because what we've decided is we need to keep the rich richer, right? And we're willing to use your credit card. I'm saying your people under the age of 30.

10:38I'm in the club doing ketamine and champagne. And the closest a young person gets is they get to throw their credit card in and I run it up and I give my nation the illusion of prosperity with two trillion dollars in deficits we need to start calling deficits deficits their tax increases on the young you might argue too that you mentioned air travel which is when your parents emigrated it was a sea voyage and it cost a fortune to some extent the extraordinary quality improvement in the quality of consumption has probably blinded the young to the extent to which they are now poorer than they once were.

11:13It also creates a kind of angst in me as someone working in advertising and marketing in that I feel that all the valuable contributions that free market capitalism, or whatever we want to call it, have made to the quality of life in terms of innovation and indeed reduction in price, have effectively been mopped up by asset price increases, enjoyed disproportionately by the old. So effectively, if you're a typical person now, the other bizarre thing in a sense is that income inequality isn't that huge in the UK. There are people who earn 10 times median wage. There are people who earn 20 times median wage.

11:53There aren't that many of them. And there's a mechanism called income tax, which redresses that fairly effectively. But there's no corresponding measure for wealth, whereas wealth inequality is inordinately more extreme. I mean, you can actually have Bill Gates walking into a football stadium and the average person becomes a millionaire, okay? There's nobody earning a salary that has that effect. Yeah. Well, the transfer of wealth has gone from super earners. So the people who get screwed the most in our tax code are the super earners. So what - It's your friend at Morgan Stanley, actually. Yeah.

12:27So most of you are probably considered super earners. If you make between$100 ,000 and$1 million a year, you're a super earner. You may not feel rich, but you're already in the top 10%. If you're making more than$400 ,000 or$500 ,000, you're in the top 1%. You may not feel that way because the quality of life is so expensive here. But here's the thing. When people say we need to raise taxes on the rich, you think, what? If you're making that kind of money through current income, you're probably paying 40 % or 50 % tax rates. But once you become a super owner, once you make the jump to light speed, and that is - It's got an escape velocity, if you like.

13:03Yeah. 100%. I make all of my money starting and selling businesses and buying assets and selling them stocks. And my effective tax rate is 17%. It has been for the last 17 years. I'm very open about my wealth and my tax rates because I made the jump to light speed. So the people who get screwed the most, the bottom half pay almost no federal income tax. They pay a lot in consumption and usage tax, but they don't pay a lot in federal income tax. It's the workhorse. Mom's a baller. She's a lawyer at an amazing law firm. Dad is a chiropractor and makes a really good living. They have to live in a city center.

13:38They make six, 700 ,000 pounds a year. They're killing it. They're paying 50 % tax rate. But if dad rolls up, uses other people's money to roll up six, 12, 18 chiropractic clinics and can take a lower salary, and then his shop, his business gets acquired by a private equity firm. In the U.S., the first$10 million, the last two businesses I sold, the first$10 million in proceeds were tax-free. What? I'm testifying in front of Congress, in front of the Small Business Committee, and I did a pre-call, and I said, that's ridiculous. And they said, well, we want our most productive citizens like you to start businesses.

14:14I'm like, no entrepreneur knows tax rates when they start a business. That's not where we start businesses. But again, it's another transfer of wealth from the poor and the young to the rich and the older. We even have a National Health Service which does that very effectively. Because the young derive almost no value from the NHS, yet interestingly support it passionately. Insurance. In the U.S. we have insurance. Insurance is a transfer of wealth from the young to the old. You know who doesn't need insurance? Young people. They don't get sick. Occasionally they have a baby, but they really don't get sick.

14:48It's people our age that are taxed on the health care system. This freaks people out in the US. I canceled my health insurance seven years ago. My health insurance, I'm a narcissist, I want the gold. You self-insure effectively. I self-insure. I don't have homeowner's insurance, I don't have fire insurance, I don't have flood insurance, I don't have health insurance. 45 cents on the dollar in insurance goes to profits and administration, meaning for every dollar you give to an insurance company, you're getting 55 cents back, because humans will do anything to avoid pain. So we will take a small series of guaranteed losses to avoid a huge loss.

15:21Now, I have saved in seven years$350 ,000 in insurance premiums just on my health insurance. That will buy a lot of health care. But I can do it because I'm wealthy and I could absorb a real unfortunate health incident. The middle class and the lower class can't take that risk. So it's yet another transfer of wealth from the poor and the middle class. And that's one thing I think that the U.K. gets right. I know you guys, you know, I see a lot of calls about the NHS. Forty percent of American households have some sort of dental or medical debt, right? Can you imagine how humiliating that is? You have medical or dental debt.

15:55Can't send your kid to college because you're paying off your loans for that time you went into the hospital with some sort of incident. So I believe almost everything we do in America, I don't know enough about your system, is nothing but a thinly veiled transfer of wealth from the young to the old and from the poor to the rich. I think it just continues to happen. The U.S. has become an operating system for transferring rights and capital to the top 1%. So we'll move back to that question you raised that the most successful companies don't advertise very much, although Amazon actually advertise a lot.

16:29They're actually a fairly major. Do you know what percentage of the revenues they advertise? No, that would be revenues. It would be relatively small because their revenues are immense. Isn't that the true test? Probably. You're probably right. I mean, they're a significant advertiser, but they are, as you say, absolutely massive. The only point I would make is I don't think Nike's failure has anything to do with a failure in marketing. It was basically a deranged CEO under the influence of McKinsey and a kind of weird cult of efficiency, who, as far as I can see, conceived the idea that the future for Nike was to sell shoes direct, which seemed to suggest that at no point in his life had he observed how people actually buy shoes in reality, in real life.

17:10So, I mean, one of the things I'd argue is that the shareholder value movement is actually deeply damaging to the long-term health of brands because it generally militates against the kind of longer-term investments. The first thing you'll cut will be a marketing budget. For example, it obsesses over cost-cutting rather than investment in customer service, for example. Well, the thing I would offer is that the biggest companies and your biggest clients are obsessed with shareholder value. And the best ones, the Unilevers and the Nikes of the world, recognize that unless they continue to make those marketing expenditures, they're going to pay a price.

17:45And so will their shareholders. So the good companies, even in recessions, say, no, we might take down our marketing budget, but they continue to invest. Because they recognize that they have to maintain that brand equity. I would argue, in the case we're probably going to get too tactile over Nike, I would argue that, and I agree with you, an overly distracting focus on direct-to-consumer by a guy who ran eBay and was a consultant and not focusing enough on their distribution channels, which tend to be fantastic sources of creative ideation and product development. Often independent shoe stores.

18:21The little guys. Which are also selling to people because the shoe purchase is now an impulse buy to a large extent, isn't it? Yeah. And their product, I think most people would say that their ads are still pretty good, but their product, their merchandising is stale. I think it would how you would diagnose because I just think the products from Adidas or On Running are just superior. I'm not sure their advertising is better. I mean, On embracing influencers, Federer and Zendaya, that was sort of genius. It'll be interesting to look at what the forensics are. I mean, one of the examples you gave of the kind of death of brands was that you now choose a hotel in London through TripAdvisor rather than relying on a familiar brand.

19:03Yeah, I think a brand is a weapon, is a shorthand. And that is I've been molesting the earth for 30 years. I spent 180 days a year on the road. And I always until about 10, 15 years ago, I always stayed either. I told my assistant and my client, I either stay at the Four Seasons or the Mandarin Oriental. And the reason why is because someone else is paying. And two, they're always an eight. They're always an eight. They have great brands. But now, in an era of TripAdvisor, my social graph, and I don't need to defer to the weapon, to the shorthand of a brand. I have these weapons of mass diligence called Instagram.

19:46So when I used to come to London, I started staying at the Ferndale Hotels. And then I started saying at Chiltern because I would type in, where do hot young people stay? Right? And it was Chiltern Firehouse. I have different priorities. When I'm in Berlin, what? I go to AI. Bear in mind, by the way, the Chiltern Firehouse was the most hyped hotel launch of any launch of any kind of hospitality venue. So the guy came from the Chateau Marmont in L.A. Andre. It was actually a massive PR coup, which explains how they can afford to operate a hotel in a slightly ridiculous part of London. I'm being slightly controversial.

20:20I mean, it's a weird place to stay, Scott. I mean, I just got to tell. I just got to tell. The Marlebone Road wouldn't be everybody's first. Anyway, but I'll park there. This is the hottest room in London. Yeah. Crazy face control. You can't get in. They're not going to let a guy like me in. I get in somehow with some friends. The door woman comes up to me and says, are you Scott Gowell? She's like, can I have lunch with you? I'm doing a podcast. I have lunch with her. And she goes, at the end of lunch, she goes, here's my private WhatsApp whenever you need to come in. I'm like, oh my God. I'm like Charlie from Charlie and the Chocolate Factory getting the gold ticket.

20:50I am there twice a week for the last year. I love to drink. I love to be around people hotter and cooler than me, which is pretty much everyone. I am so dialed in. Friends in town. Oh, does anyone know anyone at Chilton? Uh-huh. Right? Amazing. Burn down. That was literally the universe saying something is out of whack when this guy has access. But back to the hotel. I will now go on AI and say, what has the best gym in Berlin? Oh, it's the Sohals. What is the coolest old luxury place to take my wife? In France, Hotel du Cap. I don't need to defer to the brand anymore. I can find using these weapons.

21:27Hotel du Cap is a pretty amazing brand, actually, I might add. But it's a singular brand, and I would bet the majority of people in the U.S. have never heard of the Hotel du Cap. I hadn't heard of it. Would you do the same if you're staying somewhere for one night? Because I would argue that— I was just a South by Southwest. I type into AI, and I put this on stage. I'm a guy in the midst of a raging midlife crisis. that wants to be around people cooler than him, and I am totally price insensitive. I value cool over service. I'm going to be embarrassed. See if we're all going to be dead soon. I value cool over service.

22:03I am totally price insensitive. Austin proper. Get a corner suite. I do this everywhere I go. I'm headed to Miami. I'm going to be there four days. I want to host. I want to do a place where I can do podcasts. I want the coolest place with the coolest people. Faina Hotel or Edition. Those aren't big brands. They aren't. I mean, the reality is technology has basically obviated the need for shorthand. And a lot of that capital is being reinvested back into the actual product or some sort of celebrity. I've got to imagine the Four Seasons is going to be sold out in Thailand for about the next five years.

22:40So it's different ways of raising awareness. but I think hotels are a really interesting example of product as a new innovation. And this goes back, I want to try and answer the questions, is the Arab brand over? Should we talk about that? Yeah, perfect. I think from 1945 to the introduction of Google, the way you created shareholder value was you took a mediocre car, shoe, salty snack, consumer product, and you wrapped it in these amazing brand codes of youth, American masculinity, European elegance, maternal love, and use this incredibly cheap mechanism for imbuing this mediocre product with great brand codes called Broadcast Media.

23:17And you could sell a shitty peanut butter that costs 20 cents for$2 or fairly uninspiring, not that interesting shit to put on your face for$7 that costs$0.20 or a crappy beer that costs$0.09. You could sell it for$1.99 or$2.99 or$3.99. And then Google came along. and all of a sudden I no longer needed to buy No Relco to shave my head and I found out there's this company in East Germany that used to make propellers from Messerschmitts that makes the best clipper in the world for bald guys. I would have never found that without Google. You can now, and quite frankly, mediocre products with great brands no longer work.

23:57I mean, to a certain extent, if self-expresses it benefited, they do amazing things, but it's much more difficult now to maintain that unearned margin with mediocre products with great branding. It just isn't, it's just much harder. So these weapons of mass diligence, it sounds sort of passe, but kind of product is the new bomb again. And your brand is a function of innovation. I don't need to run ads with Sam Shepard saying, like a rock, I'm just gonna have a car that gets tuned up over the airwaves. That was Tesla. Now their brand has really gone down, in my view, in the last two years. I'm not gonna have dealerships in a bad part of town.

24:35I'm going to put him in the mall and I'm going to have this guy who gets me billions of dollars in free marketing every year because he's so outrageous and so good on Twitter. So I just think the era of quote unquote traditional branding is in fact over. I think the sun has passed midday. I think I say Don Draper has been drawn and quartered. The idea of an emotional brand campaign. It used to be. I remember in the 80s and 90s. I ran a brand strategy firm called Profit. A great ad campaign could literally change the trajectory of the company. My first consulting engagement was I was asked to sit in the board meetings of Levi Strauss and Company.

25:15They'd spend half the meeting talking about their ads. And an ad campaign could literally change the trajectory of the entire firm that year. And what was interesting is most of their best ads came out of Europe. Yeah. BBH, I think was the name of the agency. You used to do this breakthrough work. And you would see a 30 or 40 percent lift in a product they were charging 80 pounds for that cost seven pounds to produce. Oh, my God. Ka-ching. What ad campaign has changed the trajectory of Levi Strauss and Company in the last 20 or 30 years? It's just not what's going to move the needle. I'm not saying you don't need to do it.