Brands Across Borders

There is one important credential Arnold has for giving this presentation: our work. Arnold is among the world's most respected creative advertising agencies on a global scale, we work hard to be a smart and modern company. For those of you who don't know us, I thought we'd get things started this afternoon with some of our work:

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The way that we work is this: we believe that at the core of every great brand there lies a

I start by telling you this only in part to introduce Arnold, but also because the idea behind 'brand truth' is - and this is my theory for today's presentation - is also at the core of the more solid and vibrant global brands. There exists today a universal language of brands that speaks to consumers at a level transcending cultural, social, political, economic and geographic borders. First world, third

My purpose today is to address the best practice and rewards of global branding - as well as the perils of not getting it right. And I'll summarize by addressing how getting the global brand message (and the marketing and agency organization around it) right can help you attain your goal of profitable revenue growth outside of the U.S.

One of the fun parts of doing a presentation like this is you get a chance to see some interesting work and have a few laughs while you do so; you'll also see that in building brand truths, the best advertising also connects with some human truths, things deeply engrained as part of how we as human beings behave as a species. Let me show you some work, the first from Thailand and the second two from France, that are testimony to how 'truth travels'.

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Now this is a dry part of the presentation, but I think it's necessary, so stick with me. Twenty-three years ago, in the Harvard Business Review, Theodore Levitt wrote a piece called 'Globalization of the Markets'. As many of you are no doubt aware, in it Levitt argued for corporations to exploit the 'economics of simplicity' and grow by selling standardized products all over the world. At a time when the world seemed to be getting smaller - and when the modern definition of productivity (lowering cost/increasing effectiveness) was beginning to take hold, this model made a lot of sense. And soon, the Cold War was over (and with it new markets like Russia, the Eastern Bloc and China were opening); Europe was heading toward a "Union" in 1992 with a bigger consumer base than the US - and many global marketers were asking themselves 'how can you not subscribe to this theory of global simplicity and harmony?'

But there were issues: this 'least common denominator' way of thinking was resulting in generic products and dull advertising that left a hallow impression on consumers' minds. Global marketing leadership therefore rushed to a hybrid strategy: keep the global efficiencies of scale on technology, production and the organization of the company but customize product features, distribution and local market selling techniques (including, in some cases, the advertising) in order to address local needs and tastes. "Glocal" was born.

However, 'Glocal' may be exported; I'm going to show you now two McDonald's spots produced last year - the first in Brazil, the second in the U.K. - that were never intended to be run outside of their home markets - but when you see the work I think you'll understand why they were.

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In the most recent 8 - 10 years, three new and major factors have influenced how global brands are managed:

#1: The 2,000+ year war between producer and consumer, dating back to the days of the bazaar, is over: the consumer won. The internet, among other things, gives the consumer the edge to develop brands as they like, access to brands as never before possible, and the ability to build a relationship with a brand unimaginable even ten years ago.

#2: Media convergence: this is Lee Hyori. She's a Korean pop singer who, if you were in a

So these three things:

• The consumer in charge
• Media convergence
  
• Ownable innovation evaporates
  

makes one conclusion very clear and apparent: the need to establish real value behind your brand has never been greater. And the stakes placed on having a strong, solid brand that is relevant, repeatable and leverage-able across geographies are more important than ever. And to us, we believe that establishing this through identifying a mindset and a truth about your brands is at the core of the really successful global players. But this truth has to be fluid enough to work on a large, global scale.

What I want to spend some time on now are some of the most important practices for getting global branding right. There is a guy named Pankaj Ghemewat who teaches at the Harvard Business School and he wrote a piece four years ago which struck me because he said then while much had been made in recent years about "the death of distance" (because of the internet, global communication, shared popular culture, etc.) it would be incorrect to assume our shrinking world is becoming a small and homogenous place (this was the error of Levitt's idea 18 years earlier). This guy called for a 'clear-eyed evaluation' of the many dimensions of distance, and identified four that marketers need to have in mind when managing a global brand.

His four were:

• Cultural distance
• Administrative or political distance
• Geographic distance
• Economic distance

He pointed out a case in Mexico with Yum Brands - KFC/Pizza Hut/Taco Bell - I'm not going to dwell on this in great detail, but basically they shifted from a 'single best practice' approach and revised their plans to address these 'distance factors' which had not really been a part of how Yum was shaping its global expansion plans, and as a result Yum grew its total QSR share in Mexico to 38%, putting it well ahead of McDonald's in that country.

Now Coca-Cola is another company that has understood the 'distance-thing', and they've forever said that "Coke is a local brand repeated many times over". In fact, when I was living in Japan and working on that business a Coke client from Australia proudly told me that some consumers in his home country considered Coke to be a local Aussie beverage that was "shipped all 'round the world". And, you know, Coke has been at the center of this global brand thing for years - because of its ubiquity, I guess - but over time the pendulum has shifted from local to centralized, then getting global campaigns that weren't relevant and vice versa. And I saw Coke's new CMO, Mary Minnick, speak at a conference in December in which she declared the following: "Global is a bit of a misnomer". Her point was for Coke, the 'new order' was that brands are no longer global - and they're no longer local - they're both. And she was very clear in stating that for the flagship red can brand, getting into the local cultures meant that that brand needs to be multi-layered: multi-targeted, multi-media relevant. Here's a terrific example of what Mary was talking about; it's from Argentina.

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Now it's no accident that Mary's point-of-view comes out of her experience of running the Coke operation in Japan (from which Coca-Cola draws approximately 20% of its global profit) or, for that matter, from her next job when she ran all the Asian operations for the company (with its incredible distances - not just geographically but economically, politically, culturally, you name it). But her POV isn't that different from other strong multi-national leaders - Jeff Immelt of GE claims the network of regional headquarters he moved into that company's rather lean, product-division structure has been key to the company's success since he assumed the CEO reigns from Neutron Jack. John Menzer, CEO of Wal-Mart, tells his people that success is about playing "3-D chess on the global, regional and local levels". And Fujio Cho, Vice Chairman of Toyota, said that his company "intends to continue moving forward with globalization by further enhancing the localization and independence of our operations in each region".

So maybe all really is one. It's a mix. Not global, not local, but both. And a big part of being able to do that - understanding the global strategy and the local agenda - is coming to a place where we also get the shared values of our consumers on a local or regional basis and then make our brands relevant to the lifestyles and preferences of the sub-groups. On a lifestyle basis, McDonald's - for instance - derives a huge part of its business from kids. And we work hard to capture the lifestyle and emotion that cement that kids connection, reinforce it and keep it current, and spread the best work around. Here's a brand new spot from Spain that does just that.

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On the product side, you know better than me that marketers have to be sensitive and tailor to local tastes; the smart ones do. This is why Nestlé, as an example, produces 200 varieties of Nescafé. It's why they make Kit Kat for Japan in flavors like lemon cheesecake. It's why Coke, in 2005, launched 1,095 new products around the world (331 being proper line extensions with significant ingredient changes; twenty being entirely new trademarks; and the rest probably being flavor extensions). And it's why one of our other clients, McDonald's, moved its country and regional heads out of Oak Brook and into their business markets.

Let's talk about McDonald's for a minute. Ray Kroc, the Milton Hershey of McDonald's, used to say he didn't know what McDonald's would sell in the future, except that the company would sell the most of whatever it was. Today, McDonald's is - among other things - the world's biggest seller of salads. But when you drill down to a regional basis, there is even more interesting innovation going on: Rice burgers - tested last year in Taiwan (it's crispy chicken or beef with cabbage and lettuce between two toasted and flavored rice patties) are being launched as we speak in Hong Kong, Singapore, the Philippines and Malaysia, and the product will be rolled out into China this fall. Pork teriyaki burgers have been on the menu in Japan for years. But this innovation is just one part of being relevant to shared values. There are values that McDonald's markets to based on mindset (children, young adults, mothers) and also by depart (breakfast/lunch/snack/dinner/late night).

I want to play three more kids spots produced for local or regional needs but now in global circulation.

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Relevancy also means being able to address all of your constituencies. In this country, something like 5% of the population has worked at a McDonald's at some point in their lives - and so getting quality people behind the counter is really important in the burger business. Here's a spot, produced with the intention of running in global markets, with that in mind.

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Perhaps ironically, shared values is something that has unleashed a torrent of line extensions as

The need to be more locally relevant also means there's a need to break through - by getting into your consumers' lifestyle. Steve Heyer, the CEO of Starwood, has been trying to instill this lifestyle element into his hotel brands, and he's been doing pretty good job of it. They try to make it very clear what each of the Starwood brands aims to be - and then to make certain that the brand resonates with its consumer, Starwood is striking deals with media companies, telecoms, apparel lines and other businesses to help each of its nine hotel brands be distinctive. And Heyer is doing it through a different type of convergence.

Westin is about renewal. Sheraton is for guests who want to belong. And W is a 'flirty escape' for hip insiders. So, W is doing a partnership with Victoria Secrets to give guests a discount on merchandise and the opportunity to access on-site fashion shows. Time Warner will use W rooms for Entertainment Weekly interviews and photo shoots, with video clips then streamed on AOL. We recently talked to Panasonic about getting some of its plasma flat screens installed in all the W rooms as well.

Of course, the greatest lifestyle marketer is Nike. They are, in my opinion, the "undisputed champions of relevancy". Their formula is pretty simple: leverage current 'in-the-news' athletes - think of those athletes as brands - to make their product more relevant and breakthrough. One of my favorite Nike examples is this U.K. spot for tennis, which has run in other markets including the U.S. (you may have seen it on the Open last year).

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Finally, one of the biggest opportunities facing global brands today is trying to create an equity that can hold a core 'truth', but can re-tell and - in a sense - reinvent its story to change as consumer ideology crumbles and gets reinvented. In a sense the brands that do this well, over time, become

One brand that I'm keeping my eye on, because it's starting to get its act together, is Adidas. In my opinion, the work is still a little close to Nike, but there is something happening with Adidas that I believe may be the beginnings of 'out-relevance-ing' the master. Let me show you.

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And it's hard work for a leader to keep staying relevant; in this country Levi's, Cadillac and recently Budweiser are brands that have slid into deep funks because the consumer changed and they didn't.

I want to close on this thought: Lou Gerstner defined four types of people in his book Who Says Elephants Can't Dance? and those types could be applied to the way marketers manage global brands today.

The four types were these:

• Those who make things happen
• Those to whom things happen
• Those who watch things happen
• Those who don't even know things are happening

Gerstner added he often wished he was in the last group, because wouldn't life just be simpler, wouldn't you sleep better - but in the global branding game, any of the last three spells trouble. The successful brands will be run by the hungry guys who get out there and make things happen - and of course it's not simple or easy, but tenacity has a way of making everything possible. I can't pass up this opportunity to tell you three simple truths that I found to be 'best practice' for managing and driving a global brand:

1. Listen, continuously, through every means possible. Your success will be in direct correlation to how well you listen.

2. Create owners. The days of a headquarters dictating the programs are over; it's also really dumb business in the global arena. In my old job, on brands like Neutrogena, we gave the important markets ownership - not just in what was happening regionally, but globally as well. They became co-authors and co-directors of those brands.

3. When you find something that works, spread it around. Don't let others tell you why it won't work in their market, challenge them to find a way to adjust and redefine the positioning or program to make it relevant to their consumers.

4. Finally, as the client, set the rules of the game. Don't avoid confrontation internally or procrastinate, pushing the problems on to the agencies when you hit a log jam between global/regional/local strategy and execution. You'd be surprised how many leading global marketers try to use this back-door approach, and you'd be even more surprised at how deeply this can hurt the strength and value of a brand.

At the end of Gerstner's book, he talked about the characteristics of the next generation of leaders in business. But we believe this definition could apply - verbatim - to the next generation of leading global brands. The next generation of global brands will be:

• Much more able to deal with relentless, continuous change.
• Global in outlook and practice.
• Much more able to strike a balance between the instinct for cultural preservation and the promise of regional or global cooperation.
• Much more able to embrace the fact that the world's model will be openness and integration, not isolation.

I've been showing you some work from the Cannes festival - 'because I Cannes' - but in thinking about these four principles I was reminded of a spot from Honda in the U.K. that won the Grand Prix last year. It's fun, and I think you'll sense some of the principles lurking in the background of the thinking behind this spot. Let's have a look:

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Thank you again for your time, and for including us in this session.

Ned Russell, Arnold Worldwide

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