Flip Read online

  One final example that I like: I had an opportunity to work with Google in the Silicon Valley, and was gob-smacked to hear that if a Googler buys a Prius or any other hybridengined car the company will give US$5000 towards the purchase, with some conditions around staying at the company and not selling the car the next day, of course. It is behaviour in perfect alignment with Google's mission statement: 'Don't be evil'.

  FGC + RESPONSIBLE

  Not being evil is also the order of the day, and not a moment too soon, I say. Corporate social responsibility, which includes both environmental and ethical issues, is proving to be important for both society and for the bottom line. It is not just how you treat the communities you operate in, but also how and where you source your raw materials and labour.

  One of my favourite clients is the Commonwealth Bank Foundation. Born out of unclaimed savings accounts, the foundation is dedicated to help-ing Australians, especially the younger generations, improve their financial literacy skills. They run seminars, have websites and basically invest millions of dollars in this social initiative.

  Commonwealth Bank refuses to allow any product information to be included in such activities, so it is not a hidden sales pitch. This does not mean, however, that the bank is not proud of its achievements in this area over quite a few decades, and as you would expect it uses its foundation activity to help attract the best staff and the most profitable customers.

  Some companies have built their entire brands on being responsible. The Body Shop is an excellent example. In her brilliant book Business as Unusual, flipstar Anita Roddick told the story of how she built The Body Shop on a reputation of social and environmental activism. As far back as 1986, The Body Shop formed an alliance with Greenpeace on the 'save the whales' campaign. The Body Shop actually promoted the fact that its products were banned in China because Chinese law required animal testing of cosmetics and skin care products.

  Roddick insisted that Body Shop marketing reflect a 'values-based company'. Shareholders even complained that maximum profits were not being achieved because profits were being funnelled into social projects. But this is the drawing card of the company.Marketing along these lines, the company achieved phenomenal growth, expanding at a rate of 50 per cent annually from its opening.When its stock was first floated on the Unlisted Securities Market in London in 1984 it was listed at 95 pence. Eighteen months later the stock was valued at 820 pence. After a patchy performance period in the early 2000s (not due to a failure of marketing, but due to a manufacturing outsourcing bungle and some internal turmoil) the company was valued at roughly US$1 billion, or 250 pence per share, at the end of 2005.

  In March 2006 The Body Shop's positive reputation for social and ethical responsibility was tested by its sale to cosmetics giant L'Oréal for £652 million. Because of the sale, Ethical Consumer magazine dropped The Body Shop from 11 out of 20 on their 'ethical rating' system to only 2.5 out of 20. Whoops! The sale (or sell-out, as some have called it) has been seen as a bit of a betrayal of the company's ethical and unique roots. An index that tracks thousands of consumers in the UK (the daily BrandIndex UK) saw the perception of The Body Shop slump by almost half.

  So important is no animal testing to The Body Shop's core customers that some of them actively promoted a Body Shop boycott, because L'Oréal has not banned animal testing of its products. Dame Anita Roddick has sworn to give away the £130 million she made from the sale, but this has not stopped the cry that she has 'sold out'.

  On the flip side, The Body Shop boosts L'Oréal's image among socially conscious investors and customers. And despite the backlash of hardcore Body Shop fans, L'Oréal grew sales in key Body Shop lines 9.7 per cent like-for-like in the year ending 31 December 2006, compared with 6.4 per cent for all L'Oréal brands. Twenty-five new Body Shop stores opened in 2006, bringing the total to 2290. The stores in Canada, Japan and Russia performed particularly well, with US stores lagging somewhat.

  More broadly in the cosmetics industry, the Campaign for Safe Cosmetics lobbying group says that more than 500 cosmetics and body care producers have joined its campaign, pledging to eliminate toxic ingredients from their products. Interestingly, global giants L'Oréal, Revlon, Procter & Gamble and Estée Lauder have not been quick to sign on, although L'Oréal has made substantial strides in reducing its energy and water use, waste products and direct carbon dioxide emissions through its SHE (Safety, Health and the Environment) initiative.2 It will be a while before the big cosmetics companies can make themselves green and socially responsible throughout their vast industrial operations. Until then the smaller players can effectively use their 'responsibl?' position to differentiate themselves in the market.

  In the fast food industry, Burger King took an early lead in socially responsible positioning in March 2007. The company announced that in the near term it would source 2 per cent of its eggs from providers that do not confine chickens in cages and 10 per cent of its pork from providers that keep pigs in pens rather than in small crates. The numbers may seem small, but they will rise as more cage-free and crate-free produced eggs and pork become available, thanks to Burger King and to consumers' increasing concern about the ethical treatment of animals. I will bet dollars to Whoppers that Burger King's move will eventually be emulated by other fast food companies.

  Nike shows how customer preference is forcing companies to make their operations more environmentally friendly and socially responsible. Accusations about sweatshops and exploitation of workers in the third world impacted Nike's reputation badly. It has since made a concerted effort to be seen in a more responsible light.

  In the 1970s, Nike shoes were made primarily in Taiwan and South Korea. But as economic conditions in those countries improved and workers gained rights to organise, Nike moved operations to Indonesia, China and Vietnam, countries where wage demands were low and where laws prohibited workers banding together in unions.

  According to Global Exchange, an anti-sweatshop organisation, wages in these countries were shockingly low, in some instances not sufficient to cover an individual's basic needs. Some of Nike's contractors didn't even pay the minimum wage, petitioning governments for exemption citing 'financial hardship'. Conditions were bad too: workers complained of physical and sometimes sexual abuse or exploitation by factory officials.

  But in 2005 there was a massive turnaround. The company commissioned a 108-page independent audit of working conditions at 569 of its factories. It found that as many as 650,000 workers (mostly 19- to 25-year-old women) in China, Vietnam and even the US and Australia were at risk from excessively long working weeks, being ripped off in wages, verbal abuse and even horrific human rights abuses such as not being allowed toilet breaks and being subject to sexual exploitation.

  Kudos should be paid because Nike executives have now put it in the open and said this is a problem and they're going to try to clean up their act, and they're seeing massive benefits. Nike appointed a staff of inspectors whose job is to go from facility to facility ensuring basic working standards are met, and the company has allowed random factory inspections by the Fair Labor Association. Nike will now also deal directly with organisations that make complaints, rather than just issue denials – which means the days of public street protests are pretty much over because people with legitimate grievances have direct recourse to the company. So it's actually doing real good for their public image.

  The reality is that Nike just isn't that good on the sweatshop front. But they're getting much better. Reforming practice across a company with around 900 outsourced factories is a long and hard job.

  Nike has also been very smart in sponsorship of Lance Armstrong, highlighting his philanthropic ventures as much as his extraordinary athletic achievement. Of course, supporting Armstrong drives sales of Nike products, but tens of millions have been raised as a side benefit for cancer research. In conjunction with Lance Armstrong's foundation, Nike have sold more than 50 million yellow wrist bands to raise money for cancer researc
h. This move has started a craze with every charity or 'movement' having its own wrist band. One of the most visible is the 'make poverty history' band, which is white.

  FGC + BEAUTIFUL

  Dell, another super performer over the last decade or so, has been suffering recently as its product lines, from desktops and laptops to servers, have become increasingly commoditised. Dell's cost basis has long been the envy of other computer manufacturers.What is truly amazing is that Dell has a better cost basis even than Lenovo and other Chinese manufacturers. While it remains highly profitable, it knows it must freshen its appeal in customers' eyes. Dell's initial efforts to do so through a new emphasis on design in its XPS range have signally failed, however. Instead it is HP that is gaining in the design sweepstakes on the leader in that area, Apple.

  Twenty years ago, Samsung was a commodity manufacturer for other consumer electronics companies and had a discount brand image for its own products. Not content with that, the company set its sights on design excellence, and diligently entered every industrial and consumer product design contest it could. The result is that Samsung has become a recognised global design leader and a premium brand that does co-ventures in LCD panels and other areas with Sony as an equal, not a junior partner.

  The power of Samsung's design story has an impact on customers far beyond the technical capabilities of any of their products. BusinessWeek calls the lead designers at Samsung 'foot soldiers in Samsung's continuing assault on the world of the cool'. Jong-Yong Yun, Samsung's chief executive, said he wanted to make Samsung the 'Mercedes' of home electronics. Patrick Whitney, the director of the Institute of Design at Illinois Institute of Technology, said that Samsung is a 'poster child for using design to increase brand value and market share'.

  The transformation has been happening since 1993, when the then chairman visited a technology show and was frustrated that Samsung products were lost in the crowd. Since then, they have revolutionised design practices at the company. They have shifted their design labs to a place that is closer to the best design schools, and started an in-house design school (Innovation Design Lab of Samsung, or IDS) where employees can study under the best in the business. They also started collaborating with design-focused partners, a strategy we will explore in chapter 6, 'To Get Control, Give It Up', such as the US design firm IDEO (their first collaboration was on a monitor in 1994).

  Further, they have poured literally hundreds of millions of dollars into updating the look, feel and function of every product from Mp3 players to washing machines. Between 2003 and 2004 they upped their design budget from 20 per cent to 30 per cent, and more than doubled their design staff.

  This has really paid off. Since 2000, they have received over one hundred citations at the world's top design awards in the US, Asia and Europe. In 2004, they won five awards at IDEA (Industrial Design Excellence Awards). In 2005, completing more than a decade of reform, Samsung clocked up just over $10 billion in profits, making them the world's most profitable tech company. In his book Change Begins with Me, chairman Kun-Hee Lee said of their change from a me-too commodities producer into a leading design-based firm that in a world where products were fast becoming commodities, Samsung would never thrive on scale and pricing power alone. They needed a creative, competitive edge.

  A flipstar worth talking about!

  FGC + EASY

  My favourite service in the world is Pronto Valet Parking at Sydney's domestic airport. I board a lot of flights. I also have young children, so I like to come home as much as possible in between commitments. It is not uncommon for me to go to the airport and park three times in a week. I have gotten to know the boys that park my car, and I can't tell you how much easier they have made my life.

  You pull in less than a hundred metres from the terminal, leave your car running, give them your ticket, tell them roughly when you will be back and off you go. I would have missed a dozen flights last year without them, so needless to say they are fast. This service costs an extra $15 for the first twenty-four hours and $5 for every twenty-four hours after that, which considering how much time and stress it saves you would be a bargain at twice the price. So it's cheap too. I have never had a problem with my car, so I would have to say it is good too. Most of all though, it is easy. They go out of their way to make it so. The roster is perfectly designed to meet the high-demand spots. They open your boot for you when they return your car. They take all forms of payment. And they are always well mannered. My mate Avril Henry, who leads a similar lifestyle, felt so indebted to the Pronto guys that she bought them a case of beer for Christmas last year.

  Airline frequent flyer programs, airline lounges and hotel loyalty cards are all examples of ways in which a service provider can make a service easy. There is little doubt that we are feeling a lot of pressure around time. Not only that though, I would suggest we are feeling even more pressure on our mental space. We feel like we just can't take anything more in, not because we don't have the time, but because we don't have the mental energy. Increasingly affluent customers who feel increasingly stressed about their mental energy being in short supply will pay a premium for easy.

  On the topic of being a road warrior, consider the innovative new approach to servicing and selling cars from Mercedes-Benz called Airport Express.Mercedes set up both a service centre and a dealership at major city airports. One compelling reason for doing this is that these are high traffic areas where exposure is good. And the people who travel regularly are usually professionals and are likely to fit the Mercedes target market. But the real winner is that it makes it much easier for Mercedes owners who travel to have their cars serviced.

  But it is not like they just service the car. They wash it, do the dry cleaning you left on the back seat and run any other errands they can. Oh and they drop you at the terminal and pick you up. Clients also get a goodies bag to take on their flight, with chocolate, bottled water, muesli bars and loose-leaf English breakfast tea. They have introduced flower delivery and gift-buying services, which Belinda Yabsley, my good friend and former manager of the Sydney Airport Express, describes as 'things we have time to do but customers don't'.

  Clearly it's working. Within twelve weeks of opening, the Melbourne operation welcomed its 500th service customer, and sales were running at twice the projected levels. But Mercedes-Benz Australia spokesman Toni Andreevski says it's not solely about revenue at each Airport Express location. It's about marketing. Says Andreevski, 'It's a way for us to add value to the brand by giving customers a tangible benefit. It's a different form of advertising. We could have spent half a million dollars on a billboard, but instead we're giving people the Mercedes experience, rather than a photo of it.' I would suggest that in time it will also prove to be very profitable. It is too good not to be.

  Of course it is not just Mercedes that do this sort of thing. As discussed in chapter 2, 'Fast, Good, Cheap – Pick 3', Lexus was the first luxury car brand to offer a heightened level of service. Before that, luxury car makers told the following story to their customers: 'You're lucky we sell you our expensive cars, and we and our dealers will bleed you dry at frequent regular service intervals and even more frequent irregular repair visits.' Lexus was the first brand to make everything easy for the luxury car buyer, changing the game for every other manufacturer, as flipstar Toyota has done in every segment of the car business. Toyota has not yet set up a Lexus version of Airport Express, but if they decide to do so, they would be a good bet to change the game there too.

  As things stand, Lexus will pick up your car for service at your home or work. They leave a replacement for you to use, and when they picked up my wife's car recently they happened to leave the new model, prompting her to express interest in upgrading. They too return the car clean, with Lindt chocolates on the front seat. However, Lexus go a step further. As part of their brand story (something we will talk a lot more about in a few pages) they align themselves with 'high societ?' establishments, but do so in an unusual way. In Sydney, for
example, you get free parking at the Opera House. It is not like Lexus owners can't afford parking, it's just easy.

  FGC + MEANINGFUL

  A trend growing in momentum is the desire for a deeper meaning in life. Gordon Gekko's 'Greed is good' has given way to a desire for a sense of purpose. It is not that we don't like money and conspicuous consumption, it is just that a satisfied need no longer motivates. Once we are doing well financially and our survival needs are met, we start to look for more. Psychologists call this the hierarchy of needs, and the pinnacle is self-actualisation.Westerners are self-actualising all over the place. Yoga, new age, self-help. You name it, if it promises enlightenment people will buy it.

  Let's have a look at some examples.

  Yoga

  In 2006, Americans spent almost $3 billion a year on yoga classes, equipment, clothing and videos. Roughly 16.5 million people were practising yoga at home or in classes – up a massive 43 per cent from 2002.

  The readership of Yoga Journal in Australia has doubled in the past four years to over 350,000. That's a phenomenal readership level for a journal – it rivals some newspapers! In Australia in 2003, more people participated in yoga classes than played Aussie Rules at any level (311,000 versus 308,000).

  Self-help/life coaching

  Self-help literature fills bookshelves these days. Some of it can be enormously helpful, some of it is nothing more than (poorly) repackaged pop psychology designed to turn a tidy dollar for the author. It's now big enough that The New York Times gives 'advice publications' its own category in its bestseller list.

  Anecdotally, from just the big sellers, it's clear that this is a hugely popular industry. In 2006, Australian Rhonda Byrne's self-help book The Secret, helped into prominence by Oprah Winfrey devoting two shows to it, had a run on sales in the US of about 3.75 million copies (displacing Harry Potter as the bestseller of that year). It also sold over 400,000 audio books. Stephen R. Covey's The Seven Habits of Highly Successful People has sold more than 15 million copies in thirty-eight languages.