Under the Influence with Terry O'Reilly - S1E04 - Great Brands That Never Advertise

Episode Date: January 29, 2012

This episode looks at famous brands that built their companies without advertising. It's so rare in this world to build a multi-million, or multi-billion dollar company without relying on advertising. Hosted on Acast. See acast.com/privacy for more information.

Hi, it's Terry O'Reilly. As you may know, we've been producing a lot of bonus episodes while under the influences on hiatus. They're called the Beatleology Interviews, where I talk to people who knew the Beatles, work with them, love them, and the authors who write about them. Well, the Beatleology Interviews have become a hit, so we are spinning it out to be a standalone podcast series. You've already heard conversations with people like actors Mark Hamill, Malcolm McDowell, and Beatles confidant Astrid Kershaw. But coming up, I talk to May Pang, who dated John Lennon in the mid-70s. I talk to double fantasy guitarist Earl Slick, Apple Records creative director John Kosh. I'll be talking to Jan Hayworth,

who designed the Sgt. Pepper album cover. Very cool. And I'll talk to singer Dion, who is one of only five people still alive who were on the Sgt. Pepper cover. And two of those people were Beatles. The stories they tell are amazing. So thank you for making this series such a success. And please, do me a favor, follow the Beatleology interviews on your podcast app. You don't even have to be a huge Beatles fan, you just have to love storytelling.

Subscribe now, and don't miss a single beat. From the Under the Influence digital box set, this episode is from Season 1, 2012. You're so king in it. You're going to when you're hungry. You're in good hands with us. You're under the influence with Terry O'Reilly.

One day in 1997, a retired judge named Wayne Gould was vacationing in Japan. He wandered into a bookstore and spotted strange puzzles on the shelves. He was drawn to the puzzles because, surrounded by a sea of books written in Japanese, they stood out as independent of any language. They were Sudoku puzzles. The word Sudoku means single digits, and the puzzles were captivating 9x9 grids with 81 boxes. The objective was to fill the grid with the numbers 1 to 9,

but each number could only appear once in a row or column. Judge Gould picked up the puzzles, brought them home, became fascinated by them, and spent the next six years developing a computer program that could mass-produce Sudokus. Then Gould decided to market them in the UK and America. So, in 2004, he went to the Times newspaper in London and offered them Sudoku.

For free. But here's the genius. Gould offered the Times an endless supply of Sudokus at no cost, providing they run a tiny credit on each puzzle that listed his website. Soon, 400 newspapers around the world carried his puzzles. That resulting free publicity created a worldwide phenomenon and drove people by the millions to his website, where he sold Sudoku software and books.

One year later, Gould had generated over a million dollars in revenue. One year after that, he had sold over four million Sudoku books, and he achieved it all without spending a penny on advertising. It's no surprise that Time magazine named Wayne Gould one of the most influential people of 2006. That story got me thinking. What other famous brands have been created with no advertising. What companies established powerful brands worth millions of dollars,

yet built them by employing tactics that didn't include ads? Is it even possible? The answer is yes. And the list is fascinating. You're under the influence. It sells $3.9 billion worth of meat a year, $3.4 billion worth of produce, $1.15 billion in wine sales,

$1.8 billion worth of TVs. It is the world's largest retailer of VS1 quality diamonds. Its average website transaction is $400. It fills 33 million prescriptions per year. Its photo labs process 2 million prints a day and more than 1 billion digital prints per year. It has 60 million registered customers who pay $55 per year or more for the privilege of shopping there. Oh, and did I mention that this company

has never, ever advertised? Welcome to Costco. The store began in 1983, when founders Jeffrey Brotman and Jim Sinegal teamed up to open their first Costco warehouse club. Brotman had just come back from Paris, where he had seen the concept of hypermarkets, a combination of supermarket and general merchandise stores, and he had a hunch that same idea might work in North America. Jim Sinigal had spent 24 years working for two discount department stores called FedMart

and The Price Club. Together, they opened their first Costco in a Seattle airport hangar that was once owned by Howard Hughes. They financed the store through their own credit cards and savings. If we failed, we'd be broke, said Brotman. Which proves the entrepreneurial rule.

The more skin you have in the game, the higher your level of commitment. From the beginning, their business mission was simple. To offer the right product at the right price. Costco's no-frills, low-price mantra helped them reach the $1 billion milestone in only their third year of operation. As a matter of fact, they became the first store ever to reach $3 billion in sales in less than six years. The company currently has over 500 locations,

and they don't spend one penny on advertising. As a matter of fact, Costco's director of marketing considers advertising an addiction. It's his job to say no to advertising because, quote, once you start, you can't stop. A company the size of Costco would normally have a $100 million plus advertising budget. It was actually founder Sinigal who laid the non-advertising groundwork by harshly scrutinizing the typical expense lines on the balance sheets of other retailers and advertising was the first

to go instead Costco depends on word of mouth they take their relationships with their customers very seriously spending lots of time talking to them and in particular they create a close personal relationship with small businesses another strategy is to generate buzz with a self-published magazine called Costco Connection, which over 20 million people read every month. Costco also offers the most generous pay packages and health benefits in the industry. It's something Wall Street hates, but, in many ways, it's Costco's secret sauce. That choice doesn't fall under the operations column, by the way.

It falls under the marketing column. If employees love where they work, if you provide them with a rewarding career, they will be your roving ambassadors. Costco has over 120,000 of them. $90 billion in sales, and it spends exactly 0% of its budget on advertising. As Jim Sinigel says, why spend millions on advertising when you can put that money into your employees

and achieve greater results? Those results, by the way, have made Costco the 7th largest retailer in the world by sales. Dennis Chip Wilson was a good swimmer in school. But when he played football at the University of Calgary, he had constant trouble maintaining his balance. Later, when he became interested in snowboarding and surfing, his balance issues were magnified. He had trouble standing on one foot or putting on a sock. He also had entrepreneurial instincts. His grandparents ran a very successful furniture store that he admired. His father was a phys-ed teacher, and his mother was an avid sewer,

and their basement was always full of sewing machines and fabrics. From those seeds sprang Chip Wilson's future. He combined that background with his athletic passion and opened a snowboarding apparel store. But all the while, his balance issue persisted. One day, someone suggested he try a yoga class. He did, loved it, and his balance improved. As well, he noted that people left yoga class on the same physical high as they would get

from surfing or from a day of snowboarding. He also noticed two other things. One, that the yoga classes were overflowing with women. And two, how there weren't any clothes made for the specifics of yoga movement. Cotton was being used for sweaty, stretchy power yoga, and it was completely inappropriate. So, with his technical clothing expertise, he opened a single store in the Vancouver neighborhood of Kitsilano. That became a yoga studio at night to pay the rent.

And he called it Lululemon. Interesting name. Years before Lululemon, he had a snowboard company called Homeless. The prefix home was French for male. He ended up selling the brand to a Japanese company for a very high price. It was a lesson in how valuable a brand is. So when he was planning Lululemon's launch, the yen was soaring, and the Japanese were on a buying spree.

North American brands had a big cachet in Japan. So Chip Wilson decided to name his yoga apparel company with Japan in mind. Because the letter L doesn't exist in Japanese, Wilson reckoned that a name

with the letter L in it would be more authentically North American to the Japanese. So he chose a name with three L's, thinking it might lead to three times as much value. Lululemon. It would be a brand that Chip Wilson would build with virtually no advertising.

His philosophy was simple. Become the expert, but never say you're the expert. I once asked Wilson what he meant by that, and he said, if you have to say what you are, then you're not. So Lululemon quietly became the expert in yoga apparel. Their clothing was designed with incredible taste, plus an authentic insight into the demands of yoga.

But more than that, Wilson created a lifestyle, one that was based on a set of ideals expressed through slogans on its shopping bags like dance, sing, floss, and travel. Friends are more important than money and sweat once a day. The store salespeople, or educators, as they are referred to at Lulu, were chosen with care. They were athletes who loved yoga. The reason Wilson does all this is to create a culture based on his core philosophy to, quote, elevate the world from mediocrity to greatness. In each new market, Lulu sends missionaries out to attend every yoga and exercise class they can find, sniffing out and befriending not just the most popular instructors, but the most influential ones.

The relationship becomes mutually beneficial. The yoga teachers get free apparel, and billboard-sized portraits of themselves hung up in their local Lululemon store, which generates students for them. In return, Lulu wins a devoted and self-propagating clientele. Wilson believes that no marketing is effective

if it doesn't make people talk about it over coffee. In other words, if the store doesn't get a personal recommendation from one customer to another, the store isn't being effective. He believes what makes Lululemon successful is that everyone in the organization works in the stores at least once a week, that there is no substitute for talking to customers 8 hours a day to know what's really going on. That also means you can fix a problem Monday morning instead of 6 months from now when research rolls in. The Lululemon lifestyle is its advertising.

Does it work? In just over 10 years, Lululemon has grown to over 120 stores with net revenues of $950 million. And we'll be right back. New year, new me. Season is here and honestly, we're already over it. Enter Felix, the healthcare company helping Canadians take a different approach to weight loss this year. Weight loss is more than just diet and exercise. It can be about tackling genetics, hormones, metabolism. Felix gets it.

They connect you with licensed healthcare practitioners online who will create a personalized treatment plan that pairs your healthy lifestyle with a little help and a little extra support. Start your visit today at felix.ca. That's F-E-L-I-X dot C-A. If you're enjoying this episode, why not dip into our archives, available wherever you download your pods.

Go to terryoreilly.ca for a master episode list. Put a Ferrari in the dark, says North American Ferrari President Marco Mattiaci, and just by touching the car, you will recognize it as a Ferrari. Sleek and fast, there's no doubt about it, the car is an icon. Ferrari is one of the world's top brands, and it has never spent one penny on advertising. The company was born from the passion of founder Enzo Ferrari back in 1943 he was a feisty engineer at Alfa Romeo who had his own ideas of what a

car engine should be so he broke away and started his own company based on three principles the passion for speed the passion for engines and the passion for speed, the passion for engines, and the passion for racing. Ferrari won races and lost races, but every race was a fierce fight, fueled by emotion. To this day, the brand attracts people who share Enzo's fire. But it's a small group. Small, because the company cultivates exclusivity as its marketing strategy. You are selected to buy one.

Yes, you heard right. Dealers select buyers. They seek those who are passionate about Ferrari. Why? Because their customers are their marketing. Ferrari does no mainstream advertising whatsoever, no ad campaigns, no flashy billboards, no glossy pages in Vanity Fair like its competitors. Instead, it relies on word of mouth, special events, and a growing social media presence. Ferrari sells 7,000 cars a year worldwide.

The cheapest model costs $200,000. Each car is customized for the buyer, who could spend up to $40,000 on extras. These exclusive personal features lead to loyal customers. If you are selected to buy one, you must wait an average of 6 to 12 months. But that wait is part of the experience. It builds the mystique and the anticipation.

But still, it's an extraordinary decision not to advertise. Wealthy clientele have many choices, especially in the world of cars. Why not buy a Lamborghini or an Aston Martin or a Porsche wouldn't advertising keep Ferrari top of mind possibly but passion is its only marketing tool how do they measure the effectiveness of that unorthodox strategy well they sell every car they make. Anita Roddick started the body shop for one compelling reason. To simply create a livelihood for herself and her two daughters. She had no training or experience, but had three things going for her.

First, she knew success was achieved by creating a product so good that people would be willing to pay for it. Secondly, she was well-traveled. She had spent time in Tahiti, Australia, and South Africa, in farming and fishing communities with pre-industrial peoples. She was exposed to the body rituals of women from all over the world who rubbed their bodies with cocoa butter and had magnificent skin,

and who washed their hair with mud with striking results. Third, she was also influenced by the frugality her mother exercised during the war years. Why waste a container when you can refill it? Why buy more of something than you can use? Why not recycle everything you could? So, she took out a small loan and opened the first body shop in Brighton, England on March 26, 1976.

The body shop has always been recognizable by its famous green corporate color. But that wasn't brilliant strategy. As Roddick said, it was the only color she could find that would cover up the damp, moldy green walls of her first shop. Initially, she sold just a handful of natural creams and hair care products. But it proved an unexpected success, and she opened a second location within six months. By 1982, new shops opened at a rate of two per month. The store reused everything, refilled everything, and recycled all it could. In those actions, the basis for the body shop's activism was born.

Anita Roddick believed that businesses have the power to do good. Her mission statement opened with the commitment to, quote, dedicate our business to the pursuit of social and environmental change. As in all successful business stories, timing was everything. Just as Europe was going green, the body shop sponsored posters for Greenpeace. A year later, the store's first major window campaign shouted, Save the Whale. She was a vocal opponent of animal testing, and that crusade generated an enormous amount of attention from the press.

While she rejected conventional marketing, Anita Roddick's wild hair, bold public pronouncements, and her very un-business-like demeanor made her the best advertisement the body shop ever had. She used her stores to spread her philosophy and urged franchise owners and customers to join in. She campaigned for the rainforest, debt relief, voting rights, anti-sexism, and fair trade. The company's value statement was recognized by the United Nations. She was the first CEO to be tear-gassed at an anti-globalization rally.

She also didn't sell big promises nothing the body shop sells pretends to do anything other than what it says explained Roddick moisturizers moisturize fresheners freshen and cleansers cleanse end of story just one year after launching in the USA, there were 2,500 applications for a franchise. The company was then doing business in 39 countries, just 14 years after opening its first store. While there definitely has been controversy regarding the depth of Roddick's commitment to some social causes, the fact remains that the company had no traditional advertising or marketing departments.

Instead, it chose to market itself by attaching its image to important social issues. The body shop went public in 1990 and was later sold to L'Oreal for the price of $1.4 billion. In case nobody's told you, weight loss goes beyond the old just eat less and move more narrative,

and that's where Felix comes in. Felix is redefining weight loss for Canadians with a smarter, more personalized approach to help you crush your health goals this year. Losing weight is about more than diet and exercise. It can also be about our genetics, hormones, metabolism. Felix connects you with online licensed healthcare practitioners who understand that everybody is different and can pair your healthy lifestyle with the right support to reach your goals. Start your visit today at felix.ca. That's F-E-L-I-X dot C-A. Back in high school, Ben Cohen and Jerry Greenfield were having a tough time in gym class.

They weren't exactly jocks. What they were really good at was eating food. So, 12 years later, after Ben had been fired from a series of jobs and Jerry failed to get into medical school for the second time, they decided to try a $5, 10-day correspondence course. The topic? How to make ice cream. Armed with that knowledge,

they opened their first scoop shop in an abandoned gas station in Burlington, Vermont, and called it Ben & Jerry's. The little shop became very popular very quickly. It offered the finest all-natural ice cream made from fresh Vermont milk and cream. But in the early days, Ben & Jerry weren't very good at bookkeeping. After two months,

they hung a sign on the door that said, We're closed to figure out whether we're making any money. They weren't. But they were learning. In 1980, they rented an old sewing warehouse and began packaging their ice cream in pints. And one year later, the first Ben & Jerry's franchise opened in Shelburne, Vermont. Soon, they were expanding across the United States.

Their humor was a huge part of their success. It was evident in the names of their flavors, like Chubby Hubby, Cherry Garcia, and Chunky Monkey. Remarkably, Ben and Jerry built their famous company without any advertising. As Jerry explained, most companies hire advertising firms to try and come up with an image they think will sell their products. We decided in the beginning to be real and honest about who we are. We relate to the average customer because Ben and I are average people.

That insistence on being themselves and not treating their customers like numbers paid off in unprecedented word-of-mouth advertising. Their marketing was unusual and personal. In 1986, they launched their Cowmobile, a modified mobile home used to distribute free cones of ice cream in a unique cross-country marketing promotion, driven and served, of course, by Ben and Jerry themselves. When they wanted to sell stock in their company, for example, they decided they would only sell to Vermont residents.

The banks told them it wouldn't work, that they couldn't raise enough money. But Ben and Jerry ignored the banks. They sent out 1,500 prospectus. And you can guess what happened, can't you? 1,800 people responded. The stock was oversold. They had to return money. One in every 100 Vermont families invested.

More than anything, it was a show of love from the people of Vermont because Ben & Jerry's success was based on more than just ice cream. They gave back to their community. It began with free weekly movies they would project onto the wall of their first location. The milk they sourced came from Vermont farms. They created a foundation that distributes 7.5% of their pre-tax profits to over 140 philanthropic social, environmental, and political causes, including the Children's Defense Fund.

They simply took a stand on issues. It's a fascinating lesson. Most companies want to be seen as bold and unusual, but then choose safe, broad messages. Ben and Jerry weren't afraid to be who they are, knowing half the people would love them and half would hate them. They learned that fear leads to vanilla marketing. But as Advertising Age said,

maybe marketers should be more like Ben and Jerry and instead release their inner Chunky Monkey. It has been said that advertising is a tax companies pay for having inferior customer service. That's a very thought-provoking statement. But you can't argue that the best, most persuasive advertising will always be word of mouth from your customers. All the companies we've discussed here today subscribed to that philosophy. Each company had powerful cultures based on top quality products and a passion for bucking trends. Most of the companies discussed today also have a deep commitment to giving back to their communities

and were not afraid to take a stand on complicated flashpoint issues. You'll notice that another shared value was the overriding passion for staying connected to their customers. Each company never forgot that their customers were living, breathing potential evangelists for the company. I always say that the surge in research companies in the last 25 years is because corporations have lost touch with their customers

and need to hire an outside company to tell them what their customers think. Not so with these companies. Costco, Lululemon, The Body Shop and Ben & Jerry's were all built on a clearly articulated burning mission at their cores. A mission that came directly from the founders that connected profoundly with the public. A few of these companies have started to advertise lately, but I have a hunch why that is.

The founders are gone. That burning core has gone cold. I think Jerry Greenfield summed it up best when he said that most people want a relationship with the products they are buying. When you find a company that you actually feel good about, that's rare. It's this connection that turns consumers into loyal customers. And in Ferrari's case, hand-picked customers. Because in the end, your values become your advertising in a world that's under the influence. I'm Terry O'Reilly.

Hello, this is Daniel Nestor calling. Hey, I just got back from Wimbledon, and I'd like to file a complaint about Terry O'Reilly's radio program, Under the Influence. I just wanted to tell Mr. O'Reilly that Andy Roddick did not start the body shop. As a matter of fact, I don't even think he uses moisturizer. You should really do your homework over there.