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Laddering

Scott Galloway@profgalloway

Published on April 12, 2019

From the end of WWII until the introduction of Google, the gangster algorithm for shareholder value was simple — create a mediocre, mass-produced product and infuse it with intangible associations. You then reinforce those associations through cheap broadcast media, which occupied the average American for five hours a day. The Brand Era grabbed the baton from an out-of-breath manufacturing sector. Firms like McKinsey, Goldman Sachs, and Omnicom built the workforce and infrastructure for a booming services economy. The Brand Era created gurus, marketing departments, and CMOs, and kept black town cars lined around the headquarters of Viacom and Condé Nast.

The introduction of Google spiked PSA levels among the brand industrial complex. Technology fueled by cheap capital is the cancer metastasizing across the brand corpus. There is a strong argument that “they” had it coming. Remember classifieds, Sharper Image, and cabs in SF? Investors, hoping to get in on the ground floor of the next Google, have hurled Benjamins (times 100 million) at a marginally better product until it became (or not) exponentially better than traditional products.

The new uber-algorithm of our age is a 100x better product, enabled by technology and fueled by cheap capital. Elizabeth Holmes may or may not be found guilty of fraud. The more interesting question is what would have happened if Theranos had secured another $1 billion in capital. Vision is Latin for “fake it till you make it.” The lines that distinguish vision from fraud? Lying, and not closing your series D.

Brand = Irrational

Brand, on the other hand, is Latin for “irrational margin.” Buying a Porsche or a Birkin bag makes no sense, or at least the prices we pay are certifiably loco. But the intangibles surrounding the steel and leather objects make us feel younger and more attractive, which leads to irrational decisions that are driven by the third brain — not the ones in your head or your gut. The third brain, the genitals, is void of common sense. Brands have no time or patience for people who are rational.

Apple is the last of the Jedi, the original gangster brand. Unlike other hardware firms of the 80s and 90s (Dell, HP, Microsoft), Apple jumped from the tech sector into the luxury sector and justified its irrational margins through the old-fashioned, and dying, art of brand management. For decades the Cupertino firm foisted underpowered, overpriced products on us so we could believe we, like Muhammad Ali and John Lennon, were part of a cohort that thought different. No, we iPhone owners don’t ruminate uniquely; we spend $1,250 on a product that costs $450 (over 60% margins) so we can convey to others we are members of the global affluent creative class, who can afford luxury products that signal worth to potential mates.

Positive / Negative Light

One of the powerful tools of brand management is laddering. Note: the previous sentence is a lie; I invented the term, or am using it in a different sense than its original definition, and am hoping it becomes taxonomized into the schematic of brand building. (Further note: I’m not entirely sure what “taxonomize” or “schematic” mean.)

Laddering is an attempt to de-position a competitor by highlighting one of your strengths, which just happens to be your competitor’s weakness. You cast yourself in a positive light, while at the same time casting a negative light on them. Remember when, in the wake of Cambridge Analytica, Tim Cook announced that “Privacy is a human right“? It’s the same as if Kara Swisher, my Pivot cohost, were to say, “I’m the host with good hair.” (Lethal.) Laddering is effective, as it’s a twofer — people are organically reminded how much your adversary sucks, and by contrast how wonderful you are. We have an easier time believing people are bad vs. good — a survival mechanism.

Apple’s key attribute isn’t privacy but the dimension that NYU Professor of Strategy Sonia Marciano would say has the greatest “variance.” Android phones submit data to Google 10x more frequently than iPhones communicate with Apple. Apple has walked the walk here, refusing to help the FBI unlock the iPhone of a terrorist. The wrong thing to do, in my view, but disciplined brand management.

Traditional marketers believed that the cause and effect of branding were broadcast advertising and a price that outpaced the quality of the product. Amazon, Facebook, and Google are the antitheses of that model. Big-tech brands, sans Apple, instead are utility-like monopolies that are either free (Facebook, Google) or offered below cost (Amazon, Uber). As the sun passes midday on the Brand Era and we enter mid-morning of the Monopoly Era, Apple will pass the baton of the most valuable firm in the world.

Google and Facebook are products that established monopoly power through genius code sitting on top of media, a business ripe for disruption. Amazon is another monopoly that made the jump to lightspeed with near-zero cost of capital. In sum, cheap capital is kicking the crap out of brand management. As a result, a handful of monopolies are enjoying, well … monopoly power and rewards.

Mayor Pete

Pete Buttigieg is ascending faster than any democratic candidate, and we’re about to see ageism and sexism kick in across the democratic field as Sanders, Biden, Warren, and Harris begin ceding share to Mayor Pete and Beto O’Rourke. Presidents are removed from office after one term only when the public is presented with a stark difference to the incumbent. O’Rourke and Mayor Pete’s youth and charisma are the peanut butter and chocolate of a viable challenger brand. Mayor Pete, after laddering the rest of the field, may realize that the cocaine on top of the Reese’s Peanut Butter Cup is his military service, a winning variance from the 18 announced candidates (aside from Tulsi Gabbard) and lacking in the current president. Mayor Pete would be well served to begin every other sentence with “While serving in Afghanistan ….”

Laddering can also save a management team from themselves by identifying if they’re vulnerable in their communications efforts. This week, in a rare misstep, Amazon highlighted their nascent brand management chops and stuck their chin out: “Today I challenge our top retail competitors (you know who you are!) to match our employee benefits and our $15 minimum wage. Do it! Better yet, go to $16 and throw the gauntlet back at us,” Bezos wrote.

Walmart, sensing their opportunity to clap back, responded:

Amazon’s core advantage — the lowest cost of capital in the history of business, with minimal to no taxes paid for schools, fire departments, and the Navy — is likely the Valyrian steel of our age. Most firms, if given the opportunity to reinvest 100 cents on the dollar for two decades, could be pretty damn innovative. Amazon’s advantage is similar to the one tobacco firms leveraged to create hundreds of billions in shareholder value — addiction. It’s not something to brag about. The Seattle firm would be wise to heed the advice Albert Brooks offered William Hurt in the 1988 movie Broadcast News. Mr. Hurt’s character asks, “What do you do when your real life exceeds your dreams?”

Mr. Brooks’s answer: “Keep it to yourself.”

Life is so rich,

Comments

11 Comments

  1. Karthik says:

    I am a new reader of your newsletter, and I didn’t understand the part about Amazon having the lowest cost of capital in history. Could you please explain that a bit? Thank you.

  2. Peter Horvath says:

    I always regret delaying reading this newsletter. Sharp, smart, witty. Screw Pete and Beto. Scott for President!

  3. Bill says:

    Love love love your fresh take on such a variety of topics!

  4. Scott says:

    Mayor Pete soon to be President Pete!

  5. Alex says:

    One of the only reasons left to check my email – your newsletter. Always entertaining and informative. Thankyou 🙂

  6. John Azevedo says:

    You say that presidents are removed from office only when voters are presented with a stark difference. Then you push Mayor Pete while saying he is a DC insider. One reason that many voters rejected Clinton is because she is a corrupt insider. Sanders is the least corrupt of all the choices, therefore a stark difference and hopefully the next president.

    • Alistair A Sloan says:

      He did not say Mayor Pete is a DC Insider. He a State (Indiana) progressive in the above example. That’s the point.

  7. Charles says:

    Yikes!

  8. Michael says:

    I laughed, I cried, I forwarded your message to my friends. Many thanks!

  9. Paul Zoellner says:

    a terrifically rich column

  10. Steven says:

    This is one of Prof Galloway’s better articles!

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