Schlitz, once the leading beer brand in America, found that out the hard way when they decided to increase their profits by cutting costs. They did so by reducing brewing time and by secretly substituting cheaper ingredients in small increments, figuring their customers wouldn’t notice.
Backed by the brand’s powerful “Gusto” ad campaign, profit margins improved at first — then word got out. The brand’s loyal users, furious at being taken for patsies, deserted in droves.
Schlitz’s market share dropped like a stone, and it ended up being bought by a competitor, losing an estimated 90% of its market value in the process.
Some years later, the Coca-Cola company introduced “New Coke” as a replacement for its flagship brand. The results were disastrous for the new product, which was instantly rejected by loyal Coke fans.
But they were not disastrous for the company, which rapidly reintroduced the original product re-branded as “Coca-Cola Classic” and ended up with a significant sales gain.
Like Schlitz, Coke tampered with a well-established brand. Unlike Schlitz, the actual harm was fairly minimal, except for red faces in the executive suite. Why the difference? In a word: transparency.
Coke loudly announced what it was doing—and just as loudly retracted it—before major damage was done. Schlitz adjusted its formula in secret, thereby violating its customers’ trust with fatal consequences.
Coke’s behavior demonstrated respect for its customers by publicly taking responsibility for its actions and moving swiftly to correct its mistake. These are among the behaviors recommended by author Stephen Covey on how to build and preserve trust.
Covey, the author of the popular book “The Speed of Trust,” argues that trust can be a powerful multiplier of performance. Trust between (and within) organizations speeds up decision-making and productivity by eliminating costly and time-consuming layers of cross-checking, supervision and redundancy.
But this cuts both ways.
Trust is perhaps most evident when it is absent. Organizations that don’t trust each other write extensive contracts and establish bureaucracies to ensure compliance, slowing the pace of progress. They’re quick to end their relationships at the first sign of untrustworthy behavior, just like Schlitz’s consumers.
Covey’s precepts about trust are highly relevant to the advertising and marketing communities at the moment, particularly regarding the hot topic of agency compensation, in the form of media rebates.
At an ANA conference in March 2015, the issue was raised of agency holding companies retaining media rebates rather than passing these rebates on to their clients – a common practice in Europe, but less understood in the U.S.
The heads of the leading holding companies quickly denied these allegations. However, the ANA felt concerned enough to issue a Request for Proposals (RFP) for an “Industry-Wide Media Transparency Study” to be conducted by a third-party organization.
At the same time, the ANA and the 4As formed a joint task force to examine the issues together. After agreeing on some general principles, the process broke down over a disagreement as to how specific recommendations on contractual language should be. In January, 2016 the 4As published a set of Media Transparency Guidelines without the approval of the ANA – which denounced it as “premature.”
Clearl,y there is a deep problem of trust between the marketing and the agency communities. This was quantified in the 2016 Transparency Survey by ID Comms, a U.K- based media consulting group. The study found that a majority of global advertisers and agencies believe that “The way an agency manages rebates is the most important factor in the level of trust that advertisers have in media agencies.”
While 61% of U.S. marketers described their current level of trust as “average,” over one-quarter said it was “low.” Only 13% expressed a high level of trust. And it is likely to get worse: 17% of U.S. marketers expected trust in their media agencies to decline by “a lot,” vs. only 7% expecting it to significantly improve.
This is not a healthy state of affairs for agencies.
A generation ago, a time-banking scandal at J.Walter Thompson led to the loss of that mighty agency’s independence. This past year has seen a large number of major account switches; who knows how many of them were due, at least in part, to trust issues related to the rebate question?
Agencies need to understand that they have a trust problem that can only be resolved by greater transparency with regard to their media dealings. If they respond accordingly, they will reap the rewards of a trusting relationship with their clients – which 77% of the ID study respondents says would “tend to deliver a stronger marketing performance.”
Without an adequate response, the marketing community may see another example of how rapidly “the speed of trust” can move in the wrong direction.