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CASE STUDY BRONNER SLOSBERG HUMPHREY
DAVID E. BELL is with Harvard Business School.
David E. Bell Donald M. Leavitt
DONALD M. LEAVITT is with Dyographics, Inc.
j
Professor David E. Bell and Donald M. Leavitt prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
In January 1998, David Kenny had been with Bronner Slosberg Humphrey (Bronner) for exactly one year, and had been CEO for only four months. After 10 years with Bain & Company, and with an MBA from Harvard Business School,1 he was accustomed to thinking strategically, and that was what he needed to do now. Bronner provided relationship marketing services to a dozen blue-chip, market-leading clients including AT&T, American Express, FedEx, General Motors, and IBM. Bronner’s approach,developed over nearly twenty years, was summarized in the company’s mission statement: ‘‘Enable and assist clients to maximize the value of their customer base, and the return on their customer base investments, across all points of contact.’’ In the beginning the company had used direct marketing opportunistically, but Bronner came to appreciate that only if a client managed every interaction with its customers could the client give (and get) the most value from every customer.2 Thus it was important to Bronner that it select clients who would work with them on a relationship rather than transaction basis, who shared a common vision,
Published by John Wiley & Sons, Inc. and Direct Marketing Educational Foundation, Inc. CCC 1094-9968/98/030067-19 ■ JOURNAL OF INTERACTIVE MARKETING VOLUME 12 / NUMBER 3 / SUMMER 1998
1
MBA ’86
2
Our usage will be that Bronner has clients who in turn have customers.
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Copyright q 1998 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http:// www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means — electronic, mechanical, photocopying, recording, or otherwise — without the permission of Harvard Business School.
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and who had the will to make the organizational and operational changes that were required to implement the vision. As a result, Bronner restricted itself to a small number of new clients per year. This, along with private ownership, allowed them the luxury of selecting clients who represented the best fit, and ensured that each new client received the depth of attention that was required. Due to the care with which Bronner executed its programs and measured their effectiveness, Bronner could give clients precise estimates about the return on investment of their marketing dollars, allowing tradeoffs between marketing programs to be made on an objective basis. In recent years, Bronner had become convinced that managing the individual interactions between customer and client went beyond a matter of pure financial return and indeed was at the heart of the customer’s relationship with the client’s brand. Bronner’s belief was that the future of marketing lay not in traditional mass ‘‘image-based’’ communication to build a brand, but rather in building ‘‘experiencebased’’ brand relationships. Occupying eight floors of the Prudential Tower in Boston, the company had been growing at a rate of 30% per year with 1998 billings estimated at over $825 million. Yet, thought Kenny, the irony of the situation was that there were danger signals that the company might not be growing fast enough. Existing clients were demanding more and more comprehensive services from Bronner in addition to their traditional mail, Internet and teleservices channels. Kenny had already initiated a new group to handle Events and Sponsorship for clients and to measure the value of these activities in building customer relationships. Some clients thought that Bronner should become involved in their face-to-face interactions with customers. Global clients were insisting that Bronner provide services on a worldwide basis. Finally, Kenny was facing pressure from all parts of the company to permit expansion beyond the company’s few hand-picked clients. Kenny was wary of growing too fast. Finding enough of the right people, absorbing them into the company’s culture, and consolidating new
capabilities all took time. Furthermore, the company’s chairman, Michael Bronner, believed strongly that with multiple offices and/or multiple new clients, the company could dilute its strong culture and intense focus on client results. As Kenny pondered these issues, he reviewed in his mind how the company had evolved.
1980–1989: EASTERN EXCLUSIVES One summer’s day in 1980, Michael Bronner, who was then a junior at Boston University (BU), noticed people on campus selling coupon books. The coupons gave discounts at local stores and restaurants and for services such as dry cleaning. It occurred to Michael that if the stores were so eager to get the coupons into the hands of BU students they should be giving them away, not selling them. And if they were to be given away, why not be systematic about it? He approached the dean of housing with the following proposal: Bronner would produce a coupon book to be distributed to all 14,000 students via their mailboxes ‘‘compliments of BU housing.’’ Armed with a letter of exclusivity from BU, and operating under the name ‘‘Eastern Exclusives,’’ Michael invited local merchants such as Store 24 and Kenmore Pizza to pay him $500 for the privilege of offering a coupon in the ‘‘University Coupon Book.’’ Though many of his original 20 clients paid him in kind (‘‘I ate a lot of pizzas’’), Michael was in business. The response was immediate. Within hours of the coupons being delivered, the client stores were jammed. Bronner moved quickly to propose the idea to the housing departments of other local universities. A short time later he had exclusives on nearly 100,000 Boston area student mailboxes. Though he was now studying business, Bronner had until his junior year been majoring in biochemistry with a view to entering medical school. ‘‘I had always wanted to be a doctor, but one day, talking with my mother across the kitchen table [Bronner’s father died of complications from surgery when Michael was 11 months old], she asked if that was what I really wanted to do. I surprised myself by saying no.’’
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Bronner’s entrepreneurism was evident at an early age. ‘‘Starting in third grade I worked in a stamp and coin shop every day from one o’clock until dinner. Later I sold holiday cards door-todoor. Though we were not affluent by any means, I wasn’t doing it for the money: it was just something I wanted to do.’’ At age 13 he started a car washing service for clients in neighboring apartment buildings. At 14 he approached the golf pro at Doral Country Club and asked if he could set up his car wash service in the parking lot of the club. Such was the success of this endeavor, Michael was able to hire his friends and buy his first car soon after. As the success of his University Coupon Book grew, Michael decided that if it could work for university students, it could also work for office workers. The downtown skyscrapers were filled with the kind of affluent professionals Boston merchants would like to reach. Repeating his successful formula, the ‘‘City Coupon Book’’ would be delivered free to employees ‘‘compliments’’ of their employer. Sixty days later, he had 100,000 employees under exclusive distribution, and was charging (and receiving) $1,000 per ad from clients and $1 per book from employers. Michael dropped out of school in the middle of his senior year to pursue his next idea. He was aware that holders of the American Express Card used it when traveling, but not when in their home town. Why not mail upscale coupon books to cardholders, enticing them to use the card in high-end local establishments? Having pitched his idea to a local Amex representative, he flew to New York to sell it to the bigwigs. They liked the idea and gave him $50,000 for a pilot program. Now charging $3,000 per establishment, he had 36 takers. ‘‘Yet I still lost money. I plowed all the profits into making the coupon books really successful.’’ A key element of his selling proposition to Amex was that he promised to show measurable results. ‘‘Part of the deal was that each participating merchant was to return all redeemed coupons to me. That way we could track effectiveness and allow Amex to draw clear conclusions about the worth of the coupon program.’’ With the success of the
program, Bronner was soon engaged on a number of projects for Amex. At a trade show in 1983, he started chatting with a representative of AT&T who was staffing a nearby booth. AT&T was anticipating that after its separation from the Regional Bell Operating Companies in 1984, it would face severe competition from new entrants such as MCI. Since AT&T would remain regulated, MCI could offer prices 30% lower and rapidly gain share. Bronner proposed that AT&T give $1 worth of discounts from third-party companies for each dollar AT&T customers spent on long distance calls. Launching the program in 1984 as ‘‘Opportunity Calling,’’ Bronner recruited national name companies such as General Electric, American Airlines, and J.C. Penney to offer discounts on their products. For example, an AT&T customer who bought a GE dishwasher could receive a $50 rebate from AT&T (but paid for by GE) which would then be subtracted from the customer’s accumulated credits. This program not only played to Bronner’s strength in bringing companies together to create customer value, but also expanded his use of the direct mail channel, which was used to encourage AT&T customers to embrace the plan. The AT&T account continued to be an important one in the company’s early years. Two marketing directors at Bronner, Jean Alexander and Clare Robinson,3 led teams that developed a program to win back AT&T customers who defected to MCI and other long-distance entrants. ‘‘Our plan was to segment lost customers by long distance usage (the value of their business), how recently they had left AT&T and the company to which they had gone,’’ said Clare Robinson. ‘‘But it wasn’t as easy as it sounds. Some of our difficulties stemmed from AT&T’s heritage with the local Bell telephone companies. For one thing, their customer records were organized by telephone number. This meant that if a customer changed telephone numbers, 3
Clare Robinson and Jean Alexander gradually entered into a job sharing arrangement. Alexander took over Robinson’s duties when the former went on maternity leave, and later the situation was reversed. At the time of the case they were jointly in charge of the AT&T account, shared an office and, in an unusual arrangement, shared the position of partner at Bronner.
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their history was lost. If they had two numbers, they got two separate solicitations. Often we wouldn’t know that a customer had defected for some months.’’ ‘‘Over time we made great strides,’’ said Robinson. ‘‘We developed a separate database of prospect contacts, successes, and failures. By constant experimentation and refinement we became able to predict with great accuracy how successful any particular initiative would be. We were able to tell AT&T more or less exactly what kind of share gain and return on investment they could expect from any particular campaign.’’ ‘‘Let me give you a couple of examples of the kinds of things we learned,’’ said Alexander. ‘‘Early on, we assumed that our least vulnerable customers were those that had been approached by MCI but had said no. However, it turned out that the fact that this customer was being targeted by MCI meant that they would soon be approached again with a more aggressive offer. We also learned that it was much more economical to win back a customer within days or hours of a decision to switch, rather than wait until they had grown comfortable with the new service.’’ Russ Natoce, who was Director of Customer Acquisition for AT&T in 1990, recalled: ‘‘Our partnership with Bronner helped us to create, quickly, a huge marketing machine to reduce customer attrition. Bronner’s people added value to AT&T in five important ways: (1) providing a wide breadth of analytical capabilities, including the determination of how much we could and should invest in each customer, (2) developing creative and compelling offers, (3) developing a ‘‘communications diet’’ that integrated various offers through waves of direct mail and outbound telemarketing, (4) providing execution for our marketing programs, and (5) creating a closed-end direct marketing process to ensure continuous learning.’’ A second early assignment with AT&T concerned calling cards. AT&T calling card customers usually had a number equal to their home telephone number plus a personal identification number. Deregulation required AT&T to withdraw calling cards using this number system
since local phone numbers belonged to the local Bell companies. AT&T needed to encourage its customers to accept a new card with a different, usually randomly chosen number, owned exclusively by AT&T. Together, Bronner and AT&T were able to achieve a more than 70% conversion rate with communications and offers targeted at the most valuable calling card customers.
1989–1996: BRONNER SLOSBERG HUMPHREY Michael invited two seasoned executives with experience in highly visible New York agencies, and in direct marketing, to join him. Mike Slosberg had spent 24 years at Young & Rubicam, including four years as President of Wunderman, Y&R’s direct marketing agency. In 1987, at the time of Michael’s approach, Slosberg had recently left his position as Creative Director of Bozell Advertising’s Southwest Division and was President and Creative Director of Bozell’s Direct Marketing subsidiary. Yet Slosberg came to Boston. ‘‘I had never heard of Eastern Exclusives, and I had never visited their Boston office. Michael had not formalized any specific role for me in the company, but we agreed that I could help build the creative resources needed to provide consistency among all direct communications from a client. I also talked to one of his clients and that convinced me this was an opportunity worth being a part of.’’ In 1989, Bronner hired as president Steve Humphrey,4 who after 12 years at Ogilvy & Mather had been CEO of the ad agency Rosenfeld, Sirowitz and Humphrey. Humphrey thought the potential of the company stemmed in part from it being 100% devoted to direct marketing. ‘‘At other agencies, direct marketing was a division, a poor relation. At Bronner it was all they did!’’ In 1989, Michael changed the company’s name from Eastern Exclusives to Bronner Slosberg Humphrey. The company’s three principals were convinced that clients were missing a tremendous 4
Tuck MBA ’65. Steve Humphrey retired in December 1997.
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opportunity. Customers typically received a variety of communications from a company, often with an inconsistent message and of variable quality. This was because communications came from various internal divisions and functional areas of the client, each of which had partial views of the customer relationship and relatively independent goals and metrics. If Bronner could partner with clients to influence all points of contact with the customer, effectiveness could be greatly enhanced. This would also allow the construction of a more comprehensive database that tracked all of a customer’s interactions with the client. Rigorous data collection and analysis would then lead to a greater level of understanding regarding the reaction of customers (and resultant economics) to particular programs, offers, channels, and events. In 1990, Bronner began to develop a more formal approach to generating loyalty in customers. ‘‘The client may spend millions on network advertising but lose when the customer is working his way through layer upon layer of voice response options on the customer service line,’’ said Slosberg. ‘‘The executives all watch the company’s ads, but how many read correspondence from the company or call their own service number? The old direct marketing philosophy was at an aggregate level: so many people responded to this piece of promotion, so many upgraded from this service to that. We thought about it at the individual level: How do we ensure that the recipient feels better about the brand after a direct contact with them? How do we make sure they derive a benefit? And how do we optimize the value of that customer to the client?’’ Bronner switched from a practice of measuring success in terms of response rates to a process they called Behavior Optimization. This began with a ‘‘behavior gap analysis’’ that contrasted the customer’s actual behavior (e.g., Amex card used only on business trips) to the desired behavior (Amex card used for a large share of total purchases). With the client, they would determine the economic value of closing the behavior gap and make appropriate investments in channels, offers, and direct communications to change behavior.
Bronner Slosberg Humphrey invested heavily in database management and modeling, teleservices, and creative advertising capabilities. The database capability was used not only to record all customer interactions,5 but also to segment customers according to their potential value and responsiveness. By continuously experimenting with a range of programs, it was possible to refine marketing strategies to be maximally efficient in terms of the client’s return on investment per dollar spent. The teleservices capability helped clients use both proactive and reactive customer service calls to strengthen relationships, engage in a dialogue, and capture valuable information. Finally, Bronner continued to attract strong creative talent with both direct and general advertising experience. ‘‘It would be a big mistake if we ever allowed our creative talents to become routinized,’’ warned Betsy Karp, the recently named Managing Executive Creative Director.6 ‘‘As more and more companies shift their investments to direct customer communications, we need to create competitively superior communications which enhance the brand experience, offer strong value, and drive profitable customer behavior.’’ Examples of creative are shown in Exhibit 1. John Hayes, Executive Vice President-Global Advertising at American Express, described Bronner’s relationship with his company: ‘‘Service brands are not created solely in advertising. In fact, much of a brand’s equity stems from the direct consumer experiences with the brand. We partner with Bronner to help us manage consumer experiences with our brand across all products and services—Card, Travel, Financial Services, and Relationship Services— via all direct channels, including phone, Internet, and mail. They have helped us ensure that American Express knows its Cardmembers well, and the value they get from us increases with the tenure and depth of their American Express relationship.’’ 5
All proprietary customer data was maintained by the client.
6
In 1997, Slosberg became Chief Creative Officer, responsible for integrating messages across all channels. Karp and the Creative Department are responsible for direct advertising in broadcast, print, and mail.
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EXHIBIT 1
Examples of Recent Creative Work
Behavior Optimization focused primarily on marketing communications with a customer, but Bronner’s focus gradually evolved to include all sales and service interactions—a philosophy they described as Customer Base Management, summarized in Exhibit 2. This ap-
proach is illustrated by the company’s work with FedEx.
The FedEx Case Study ‘‘In 1993, FedEx was the preeminent overnight package shipper, as it had been since its found-
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EXHIBIT 1
(continued)
ing,’’ said Malcolm Speed, the relationship manager in charge of the FedEx account. ‘‘Though FedEx’s revenue had grown impressively until 1990, there had been little or no growth during 1991 and 1992. This was largely
attributable to weakness in the market combined with increasing competition from UPS, and smaller entrants like DHL and Airborne. While competition heated up, FedEx continued to mass promote service with a list rate structure.
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EXHIBIT 1
(continued)
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EXHIBIT 1
(continued)
FedEx was considering various options for maintaining the strongest value position with their customers including general rate reductions as a means of restoring growth. Bronner strongly recommended that money be invested in customer knowledge. While FedEx was awash in shipment data, it had little understanding of its customers’ behaviors and preferences at the
individual account level. Bronner used its teleservices capability to profile over 1 million of FedEx’s small shipper accounts. Information collected included whether the customer used FedEx exclusively (if not, they were referred to as a ‘‘dual’’ account), volumes and classes of services with other shippers, and what service requirements they had (for example, even
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EXHIBIT 2
Customer Base Management
smaller accounts sometimes had a regular pickup service). The database identified which customers valued on-time delivery as of major importance (law firms, for example) versus fast shipment (a parts supplier). It was also clear that there was demand for an early delivery option, same-day service, and integrated ground/air services. A major discovery was that many firms would welcome a greater use of computers in dealing with FedEx, ranging from the ability to generate shipping labels all the way to tracking packages themselves rather than needing to call FedEx. In partnership with FedEx, Bronner applied its customer base management concept to the new data. They began by conducting a pilot test which consisted of methodical variations in price and service offers made to some customers. As knowledge of customer behavior increased, Bronner was able to develop customer segments that warranted different marketing strategies based on their differing needs or their return-on-investment potential. Customer seg-
ments in the domestic market included: new, growing, stable, declining and lapsed. The test pilot stage alone, estimated to have cost less than $5 million, was believed by FedEx to have generated nearly $50 million in incremental revenues. With the success of the pilot program, FedEx moved to institutionalize the processes that had shown so much success. A cross-functional transition team consisting of people from Bronner and all sectors of FedEx laid out the steps required. A potentially limiting factor in the success of the endeavor was FedEx’s organization, which was structured around traditional national and local mass market strategies. Response to a customer problem, or speed in taking up a new product opportunity, might be hampered by the need to coordinate across internal organizations. Under the personal direction of the head of marketing, T. Michael Glenn, a new structure was set up with a customer focus: Prospects and New Accounts, Small Accounts, Key Industries, Large Accounts, Na-
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tional Accounts, Global Accounts. Segment managers were given job descriptions that required them to implement the customer base management procedure themselves. This meant not only implementing the learnings from the pilot, but continuing to experiment and learn over time. Four hundred people were put through a five-day training program, which included pre-reading, case studies, and interactive training, to get them up to speed. Now instead of one price and one service for all customers, rates and services could be adjusted, often in real time when a customer or prospect called FedEx. Billing or service problems were responded to at once by a service representative or, where appropriate, by the relevant sales representative. As a result of these changes, the perceived ‘‘value gap’’ that had been an original motivation for considering lowering price across the board was eliminated. One measure of that success was the number of dual user accounts that were shifted to exclusive use of FedEx. Prospects were attracted in greater numbers and activated more rapidly. From 1994 to 1997, FedEx enjoyed historical rates of double-digit growth, and the company credited the new approach with value added of around $125 million annually. T. Michael Glenn, now Executive Vice President at FedEx, commented ‘‘Bronner and FedEx have grown together over the past four years as we’ve gone from strategic approach to execution to continued improvements. The latest impact is strategic use of the web to serve customers, as well as to support our field reps around the world.’’ The Bronner/FedEx partnership is summarized in Exhibit 3.
also working on the L. L. Bean business, and with the assistance of Ruben Pinchanski,8 who was then working for Harvard Business School’s Publishing Division, Biro led the development of a business plan to support the idea of setting up a group—a new capability—to take advantage of the new web channel. Bronner agreed to fund the new activity as a wholly owned but separate entity—the Strategic Interactive Group (SIG)—with three partners: Biro, Pinchanski, and Cosinuke. SIG developed three internet capabilities: (1) Strategy Consulting, to assess the economic and market impact of the web on client businesses, (2) Interactive Marketing, to apply the discipline of direct marketing to the web, and (3) Development, to build web sites for clients. SIG saw itself as competing with consulting firms, advertising agencies, and software developers, but believed it, uniquely, was able to offer all the necessary capabilities to win in the interactive market place. Ruben Pinchanski described the SIG approach to web development. ‘‘We call it the 4Cs,’’ he said, smiling9: ‘‘Content, Commerce, Customization, and Community. We begin with several weeks at the client doing knowledge mining: finding out where sources of company information lie. You’d be surprised how much information is collected in different parts of a company once you start to look. The content of the site is built around these knowledge bases. Typically we arrange that a customer can make a purchase through the web site or, if the customer prefers, simply order a catalog or receive customized information, satisfying the commerce dimension. Customization is created by arranging, for example, that the site retains what the user has looked at on previous visits. Finally, a sense of community might be created by using chat rooms, for example, for outdoor enthusiasts.’’ ‘‘We helped L. L. Bean establish itself as an early success story on the web, leveraging its world-class brand and catalog system to become a leader in e-commerce,’’ said Biro. ‘‘For Kraft
Strategic Interactive Group In 1994, Kathy Biro, the relationship manager for L. L. Bean and IBM, with extensive experience from her earlier banking career in videotex and home banking, concluded that the internet was a phenomenon that could change the economics of these and other Bronner clients. Together with Rob Cosinuke,7 who was 7
Harvard MBA ’89
8
Harvard MBA ’93
9
(Recalling his Harvard marketing course)
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EXHIBIT 3
The Bronner/FedEx Partnership
Foods, SIG helped create a Web site which became the virtual embodiment of the Kraft brand and considerable corporate equity—the Kraft Interactive Kitchen was hailed as one of the best examples of Fortune 500 branding on the web. For Federal Express, SIG helped create a Webbased sales support system to reduce paper communications expense while enhancing sales productivity.’’ IBM, a major client for SIG, was also an early Web pioneer. ‘‘They realized that the internet could be a transforming force in their business, complementing the efforts of their sales force and dealers in reaching customers,’’ said Biro. For example, SIG helped IBM build customized sites for their best customers, called Gold accounts. These customers were given their own secure web sites that served to integrate IBM’s selling process with the customer’s own procurement system, and store customer specific warranty information, purchase agreements, and support contracts. ‘‘The idea,’’ said Biro, ‘‘is to simplify purchasing and improve service levels
and customer satisfaction while also freeing up the sales force to focus on complex, high-value transactions. It’s a kind of ‘virtual blue suit’ vision, whereby the web eases the burden on the sales force and extends their reach at relatively low cost.’’ Exhibit 4 illustrates how the web can play a role in all stages of the sales cycle: generating leads, qualifying prospects, and closing sales. While there was little doubt that the IBM web system was more efficient, some observers wondered if the ‘‘virtual blue suit’’ interaction would impact brand loyalty over time. ‘‘We have a good idea of how different channels stack up on a cost/loyalty basis,’’ said Cosinuke, referring to Exhibit 5, ‘‘but IBM, by its nature, has customers that are especially eager to use this channel and for whom demonstrated excellence on the web is loyalty enhancing. The web transforms a transaction into a long-term service relationship.’’ Fred Fassman, IBM’s head of Global Direct Marketing, commented, ‘‘E-business is the cornerstone of IBM’s strategy, so we must lead the market in using the Internet to
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EXHIBIT 4
Retail Channel
sell and serve our customers. Our work with SIG has helped us lead the market in practical applications of using the web to drive commerce, rather than the industry practice of putting brochures and PR online.’’ As of the end of 1997, SIG had grown to a staff of nearly 200, and was one of the largest web developers in the country. A partial listing of SIG-developed web sites is given in Exhibit 6.
same reason, I have always believed that we should restrict our efforts to just a few clients, only those we can handle with excellence and who share our passion for leadership and innovation. Once you have lots of clients you end up with the 80 – 20 rule: 20% of your clients yield 80% of your business. And then what happens? The minor clients get less attention. They churn. And employees assigned to those clients feel like second-class citizens.’’ Michael saw himself as a quality control resource who ensured the company executed what it promised to clients. ‘‘I stop in on people and see how they are doing. I’m viewed as a perfectionist. It’s true. But to me this business is pretty simple. We keep our minds straight on doing whatever we need to for clients. Every few weeks I meet with anyone who has been hired since the last such meeting. I invite everyone to ask questions. Last week someone asked me how it was that with nearly a thousand people there is still a small-company feel. I said that the feel of a professional services company derives in part from the number of clients it has. I define the size of our business by the number of clients we have. Not the number of employees nor the number
1997: MOVING FORWARD By 1996, Michael Bronner believed his company had helped clients achieve leadership in three related capabilities: creating and executing relationship marketing programs, managing these programs via the underlying customer management systems (e.g., database management, teleservices, organizational alignment), and using the internet. Bronner explained his rationale for focusing on a small roster of leading clients: ‘‘We have never set formal growth or profit objectives. Once you focus on internal goals, people start making decisions that aren’t in the client’s best interest and that erode the relationship. For the
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EXHIBIT 5
Cost/Loyalty
of dollars we bill. We have only a few clients, so the business remains small.’’ Michael Bronner was passionate about keeping the focus of the company on adding value for clients. Individual bonuses were based more on the results delivered for the client by the employee than on the profitability of the account to Bronner. ‘‘A side benefit is that everyone is trusted to make the right call,’’ said Michael. For example, in reflecting on her job sharing with Jean Alexander, Clare Robinson said: ‘‘One reason it has worked so well is that we almost always make the same decision when given the same information, so we don’t work at cross purposes. But the reason this is true is that the objectives of our company have always been the same: do the best for the client.’’ Bronner clients had, in fact, been doing very well. Exhibit 7 shows the stock price of Bronner’s largest clients during 1997, relative to the market. Yet Michael began to consider, as he had in the late 80s, that perhaps the time had arrived for a change in leadership. In 1996, he identi-
fied David Kenny as the person with the skills and empathy to lead the company into the next century. Kenny had developed close ties to American Express during his years at Bain and was familiar with, and an admirer of, the Bronner approach. ‘‘It seemed to me,’’ reflected Kenny, ‘‘that the company had grown beyond the stage where Michael had enough time to lend his personal magic to all clients, be there to motivate employees, and simultaneously direct new capabilities. As the company transitioned from a wholly Michael Bronner-owned company to more of a partnership, there was an increasing desire to tap the vast potential of the company.’’ Kenny realized he needed to find a way forward that combined the best aspects of the existing culture with the organizational realities of a soon-to-be billion-dollar enterprise.
Pressures for Growth Kenny decided that future growth required that ‘‘we clone Michael Bronner.’’ Replacing a system in which Michael assembled ad hoc teams to service clients, Kenny introduced a
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EXHIBIT 6
Selected Public Web Sites Designed/Developed by SIG
formal matrix system of organization in which relationship managers had complete authority to deliver for their clients, and functional managers were charged with providing worldclass capabilities (Exhibit 8). ‘‘With this structure,’’ said Kenny, ‘‘there are three basic ways to grow: adding more clients, adding more capabilities, or both. The biggest constraint on growth is talent — finding and developing leaders who can help us stay ahead of competitors in each of our core capabilities, while also finding and developing potential relationship managers who can lead and execute across capabilities.’’ Finding prospective clients was not a problem. The agency received inquiries from major corporations on a weekly basis. This could be explained, in part, by the explosive growth in the use of direct response marketing while general advertising had remained flat.10 However,
not all prospective clients were willing to make the investments or apply the focus and rigor required to manage their customer bases and build brands via direct customer experiences. What were the characteristics of a good client for Bronner? Was there indeed a long supply of them? Service and durable industries had customer data, but could the Bronner approach be extended into marketing packaged or soft goods? Many potential clients wanted only shortterm projects from one of Bronner’s services. Bronner seldom accepted projects which focused solely on direct advertising or teleservices or database management. The leaders of these capabilities each wanted to expand outside the core client list, but the agency’s focus had always been on clients who used Bronner’s integrated approach. The only exception was SIG, which report—Economic Impact: U.S. Direct Marketing Today, 1995). Of the direct response dollars, direct mail accounted for $19 billion and $37 billion respectively (Robert J. Coen, McCann-Erickson, Inc., 1997).
10
Between 1990 and 1995, direct response marketing expenditures grew from $101 billion to $134 billion while general advertising expenditures increased from $79 billion to $82 billion (DMA
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EXHIBIT 7
Client Stock Price Comparisons–Gains in Calendar Year 1997
had accepted several Internet-only assignments from clients in order to sustain leadership in the fast-growing Internet marketing arena. Kenny wondered whether he should change company policy on this matter. Adding capabilities was another route to expansion. Bronner had never developed capabilities in face-to-face customer contacts, such as personal selling, yet for some clients this was
an important element of their customer interaction. ‘‘How can we implement experience-based branding, a philosophy that says a customer’s perception of the brand is the sum of his or her interactions with the company, if we don’t have a capability in this area?’’ thought Kenny. A key issue in adding new capabilities was whether the capability would be superior, on its own, to leading competitors’. Kenny viewed the following firms to be Bronner’s principal competitors in their functional areas:
Bronner/SIG Clients 1997
Bronner Clients: American Express AT&T Enron FedEx General Motors SIG-only Clients:
j Customer Management Systems (e.g., Database Management, Analytics and Modeling, Teleservices)—Management Consulting Firms; EDS; Epsilon; Tessera Enterprises; Specialty Database Companies; Teletech j Interactive—CKS; True North; Modem Media; Poppe Tyson; Agency.com j Direct Marketing—Wunderman Cato Johnson; OgilvyOne; Rapp Collins
Gillette IBM L.L. Bean Pfizer Seagram Americas Adobe Systems, Baan, Disney, Intel, Kodak, Kraft Foods, Lever Brothers
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EXHIBIT 8
Organizational Chart
j Events and Sponsorships—Momentum; Advantage (Interpublic Group) More information is contained in Exhibit 9.
quired global execution. ‘‘Direct marketing is not as boundaryless as it might seem,’’ cautioned Rob Cosinuke, SIG’s relationship manager for IBM. He pointed to the different local attitudes about what could and could not be done by direct marketers. ‘‘Even the data you are allowed to store is regulated in some countries. A local presence may be essential.’’ Even within the U.S., Bronner had opportunities to grow via geographic expansion. Kenny and his partners at Bronner had already decided to open, in April 1998, a seventy-person office in New York, led by Harvey Kipnis, both to serve clients and attract talent that could not relocate to Boston. SIG had a small office in San Francisco; the West Coast might present a substantial opportunity to attract people and clients.
Kenny believed that the company could more than double in size simply by serving the global needs of its existing clients, without adding a single new client or new capability. However, the availability of consistent talent around the world was unclear, and there would be a significant capital investment required to build offices and capabilities around the world. More than any other client, IBM was most in need of a global presence on the part of its direct marketing agency. Though IBM had recently appointed SIG as its Global Interactive Agency, Bronner had also been excluded by IBM from certain direct mail assignments because they re-
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EXHIBIT 9
Selected Competitor Information
January 23, 1998: A Strategy Meeting The partners of Bronner11 met twice per year to set strategic priorities and assess their collective progress. The offsite meeting in January 1998
would be the first under Kenny’s leadership. The company was going to grow rapidly in 1998 and beyond, but unless he acted to direct that growth, the company he had so recently been appointed to lead might become unmanageable. Preparing for his ‘‘State of the Company’’ speech, Kenny reflected that for the first time in his career, the CEO he was advising was himself.
11
In January 1998, the partners consisted of Bronner, Slosberg, Kenny, Kipnis, John Hoholik, Reuben Hendell, Karp, Robinson, Alexander, and Speed, and for SIG, Biro, Cosinuke, and Pinchanski.
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DAVID E. BELL is with Harvard Business School.
David E. Bell Donald M. Leavitt
DONALD M. LEAVITT is with Dyographics, Inc.
j
Professor David E. Bell and Donald M. Leavitt prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
In January 1998, David Kenny had been with Bronner Slosberg Humphrey (Bronner) for exactly one year, and had been CEO for only four months. After 10 years with Bain & Company, and with an MBA from Harvard Business School,1 he was accustomed to thinking strategically, and that was what he needed to do now. Bronner provided relationship marketing services to a dozen blue-chip, market-leading clients including AT&T, American Express, FedEx, General Motors, and IBM. Bronner’s approach,developed over nearly twenty years, was summarized in the company’s mission statement: ‘‘Enable and assist clients to maximize the value of their customer base, and the return on their customer base investments, across all points of contact.’’ In the beginning the company had used direct marketing opportunistically, but Bronner came to appreciate that only if a client managed every interaction with its customers could the client give (and get) the most value from every customer.2 Thus it was important to Bronner that it select clients who would work with them on a relationship rather than transaction basis, who shared a common vision,
Published by John Wiley & Sons, Inc. and Direct Marketing Educational Foundation, Inc. CCC 1094-9968/98/030067-19 ■ JOURNAL OF INTERACTIVE MARKETING VOLUME 12 / NUMBER 3 / SUMMER 1998
1
MBA ’86
2
Our usage will be that Bronner has clients who in turn have customers.
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Copyright q 1998 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http:// www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means — electronic, mechanical, photocopying, recording, or otherwise — without the permission of Harvard Business School.
JOURNAL OF INTERACTIVE MARKETING
and who had the will to make the organizational and operational changes that were required to implement the vision. As a result, Bronner restricted itself to a small number of new clients per year. This, along with private ownership, allowed them the luxury of selecting clients who represented the best fit, and ensured that each new client received the depth of attention that was required. Due to the care with which Bronner executed its programs and measured their effectiveness, Bronner could give clients precise estimates about the return on investment of their marketing dollars, allowing tradeoffs between marketing programs to be made on an objective basis. In recent years, Bronner had become convinced that managing the individual interactions between customer and client went beyond a matter of pure financial return and indeed was at the heart of the customer’s relationship with the client’s brand. Bronner’s belief was that the future of marketing lay not in traditional mass ‘‘image-based’’ communication to build a brand, but rather in building ‘‘experiencebased’’ brand relationships. Occupying eight floors of the Prudential Tower in Boston, the company had been growing at a rate of 30% per year with 1998 billings estimated at over $825 million. Yet, thought Kenny, the irony of the situation was that there were danger signals that the company might not be growing fast enough. Existing clients were demanding more and more comprehensive services from Bronner in addition to their traditional mail, Internet and teleservices channels. Kenny had already initiated a new group to handle Events and Sponsorship for clients and to measure the value of these activities in building customer relationships. Some clients thought that Bronner should become involved in their face-to-face interactions with customers. Global clients were insisting that Bronner provide services on a worldwide basis. Finally, Kenny was facing pressure from all parts of the company to permit expansion beyond the company’s few hand-picked clients. Kenny was wary of growing too fast. Finding enough of the right people, absorbing them into the company’s culture, and consolidating new
capabilities all took time. Furthermore, the company’s chairman, Michael Bronner, believed strongly that with multiple offices and/or multiple new clients, the company could dilute its strong culture and intense focus on client results. As Kenny pondered these issues, he reviewed in his mind how the company had evolved.
1980–1989: EASTERN EXCLUSIVES One summer’s day in 1980, Michael Bronner, who was then a junior at Boston University (BU), noticed people on campus selling coupon books. The coupons gave discounts at local stores and restaurants and for services such as dry cleaning. It occurred to Michael that if the stores were so eager to get the coupons into the hands of BU students they should be giving them away, not selling them. And if they were to be given away, why not be systematic about it? He approached the dean of housing with the following proposal: Bronner would produce a coupon book to be distributed to all 14,000 students via their mailboxes ‘‘compliments of BU housing.’’ Armed with a letter of exclusivity from BU, and operating under the name ‘‘Eastern Exclusives,’’ Michael invited local merchants such as Store 24 and Kenmore Pizza to pay him $500 for the privilege of offering a coupon in the ‘‘University Coupon Book.’’ Though many of his original 20 clients paid him in kind (‘‘I ate a lot of pizzas’’), Michael was in business. The response was immediate. Within hours of the coupons being delivered, the client stores were jammed. Bronner moved quickly to propose the idea to the housing departments of other local universities. A short time later he had exclusives on nearly 100,000 Boston area student mailboxes. Though he was now studying business, Bronner had until his junior year been majoring in biochemistry with a view to entering medical school. ‘‘I had always wanted to be a doctor, but one day, talking with my mother across the kitchen table [Bronner’s father died of complications from surgery when Michael was 11 months old], she asked if that was what I really wanted to do. I surprised myself by saying no.’’
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Bronner’s entrepreneurism was evident at an early age. ‘‘Starting in third grade I worked in a stamp and coin shop every day from one o’clock until dinner. Later I sold holiday cards door-todoor. Though we were not affluent by any means, I wasn’t doing it for the money: it was just something I wanted to do.’’ At age 13 he started a car washing service for clients in neighboring apartment buildings. At 14 he approached the golf pro at Doral Country Club and asked if he could set up his car wash service in the parking lot of the club. Such was the success of this endeavor, Michael was able to hire his friends and buy his first car soon after. As the success of his University Coupon Book grew, Michael decided that if it could work for university students, it could also work for office workers. The downtown skyscrapers were filled with the kind of affluent professionals Boston merchants would like to reach. Repeating his successful formula, the ‘‘City Coupon Book’’ would be delivered free to employees ‘‘compliments’’ of their employer. Sixty days later, he had 100,000 employees under exclusive distribution, and was charging (and receiving) $1,000 per ad from clients and $1 per book from employers. Michael dropped out of school in the middle of his senior year to pursue his next idea. He was aware that holders of the American Express Card used it when traveling, but not when in their home town. Why not mail upscale coupon books to cardholders, enticing them to use the card in high-end local establishments? Having pitched his idea to a local Amex representative, he flew to New York to sell it to the bigwigs. They liked the idea and gave him $50,000 for a pilot program. Now charging $3,000 per establishment, he had 36 takers. ‘‘Yet I still lost money. I plowed all the profits into making the coupon books really successful.’’ A key element of his selling proposition to Amex was that he promised to show measurable results. ‘‘Part of the deal was that each participating merchant was to return all redeemed coupons to me. That way we could track effectiveness and allow Amex to draw clear conclusions about the worth of the coupon program.’’ With the success of the
program, Bronner was soon engaged on a number of projects for Amex. At a trade show in 1983, he started chatting with a representative of AT&T who was staffing a nearby booth. AT&T was anticipating that after its separation from the Regional Bell Operating Companies in 1984, it would face severe competition from new entrants such as MCI. Since AT&T would remain regulated, MCI could offer prices 30% lower and rapidly gain share. Bronner proposed that AT&T give $1 worth of discounts from third-party companies for each dollar AT&T customers spent on long distance calls. Launching the program in 1984 as ‘‘Opportunity Calling,’’ Bronner recruited national name companies such as General Electric, American Airlines, and J.C. Penney to offer discounts on their products. For example, an AT&T customer who bought a GE dishwasher could receive a $50 rebate from AT&T (but paid for by GE) which would then be subtracted from the customer’s accumulated credits. This program not only played to Bronner’s strength in bringing companies together to create customer value, but also expanded his use of the direct mail channel, which was used to encourage AT&T customers to embrace the plan. The AT&T account continued to be an important one in the company’s early years. Two marketing directors at Bronner, Jean Alexander and Clare Robinson,3 led teams that developed a program to win back AT&T customers who defected to MCI and other long-distance entrants. ‘‘Our plan was to segment lost customers by long distance usage (the value of their business), how recently they had left AT&T and the company to which they had gone,’’ said Clare Robinson. ‘‘But it wasn’t as easy as it sounds. Some of our difficulties stemmed from AT&T’s heritage with the local Bell telephone companies. For one thing, their customer records were organized by telephone number. This meant that if a customer changed telephone numbers, 3
Clare Robinson and Jean Alexander gradually entered into a job sharing arrangement. Alexander took over Robinson’s duties when the former went on maternity leave, and later the situation was reversed. At the time of the case they were jointly in charge of the AT&T account, shared an office and, in an unusual arrangement, shared the position of partner at Bronner.
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their history was lost. If they had two numbers, they got two separate solicitations. Often we wouldn’t know that a customer had defected for some months.’’ ‘‘Over time we made great strides,’’ said Robinson. ‘‘We developed a separate database of prospect contacts, successes, and failures. By constant experimentation and refinement we became able to predict with great accuracy how successful any particular initiative would be. We were able to tell AT&T more or less exactly what kind of share gain and return on investment they could expect from any particular campaign.’’ ‘‘Let me give you a couple of examples of the kinds of things we learned,’’ said Alexander. ‘‘Early on, we assumed that our least vulnerable customers were those that had been approached by MCI but had said no. However, it turned out that the fact that this customer was being targeted by MCI meant that they would soon be approached again with a more aggressive offer. We also learned that it was much more economical to win back a customer within days or hours of a decision to switch, rather than wait until they had grown comfortable with the new service.’’ Russ Natoce, who was Director of Customer Acquisition for AT&T in 1990, recalled: ‘‘Our partnership with Bronner helped us to create, quickly, a huge marketing machine to reduce customer attrition. Bronner’s people added value to AT&T in five important ways: (1) providing a wide breadth of analytical capabilities, including the determination of how much we could and should invest in each customer, (2) developing creative and compelling offers, (3) developing a ‘‘communications diet’’ that integrated various offers through waves of direct mail and outbound telemarketing, (4) providing execution for our marketing programs, and (5) creating a closed-end direct marketing process to ensure continuous learning.’’ A second early assignment with AT&T concerned calling cards. AT&T calling card customers usually had a number equal to their home telephone number plus a personal identification number. Deregulation required AT&T to withdraw calling cards using this number system
since local phone numbers belonged to the local Bell companies. AT&T needed to encourage its customers to accept a new card with a different, usually randomly chosen number, owned exclusively by AT&T. Together, Bronner and AT&T were able to achieve a more than 70% conversion rate with communications and offers targeted at the most valuable calling card customers.
1989–1996: BRONNER SLOSBERG HUMPHREY Michael invited two seasoned executives with experience in highly visible New York agencies, and in direct marketing, to join him. Mike Slosberg had spent 24 years at Young & Rubicam, including four years as President of Wunderman, Y&R’s direct marketing agency. In 1987, at the time of Michael’s approach, Slosberg had recently left his position as Creative Director of Bozell Advertising’s Southwest Division and was President and Creative Director of Bozell’s Direct Marketing subsidiary. Yet Slosberg came to Boston. ‘‘I had never heard of Eastern Exclusives, and I had never visited their Boston office. Michael had not formalized any specific role for me in the company, but we agreed that I could help build the creative resources needed to provide consistency among all direct communications from a client. I also talked to one of his clients and that convinced me this was an opportunity worth being a part of.’’ In 1989, Bronner hired as president Steve Humphrey,4 who after 12 years at Ogilvy & Mather had been CEO of the ad agency Rosenfeld, Sirowitz and Humphrey. Humphrey thought the potential of the company stemmed in part from it being 100% devoted to direct marketing. ‘‘At other agencies, direct marketing was a division, a poor relation. At Bronner it was all they did!’’ In 1989, Michael changed the company’s name from Eastern Exclusives to Bronner Slosberg Humphrey. The company’s three principals were convinced that clients were missing a tremendous 4
Tuck MBA ’65. Steve Humphrey retired in December 1997.
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opportunity. Customers typically received a variety of communications from a company, often with an inconsistent message and of variable quality. This was because communications came from various internal divisions and functional areas of the client, each of which had partial views of the customer relationship and relatively independent goals and metrics. If Bronner could partner with clients to influence all points of contact with the customer, effectiveness could be greatly enhanced. This would also allow the construction of a more comprehensive database that tracked all of a customer’s interactions with the client. Rigorous data collection and analysis would then lead to a greater level of understanding regarding the reaction of customers (and resultant economics) to particular programs, offers, channels, and events. In 1990, Bronner began to develop a more formal approach to generating loyalty in customers. ‘‘The client may spend millions on network advertising but lose when the customer is working his way through layer upon layer of voice response options on the customer service line,’’ said Slosberg. ‘‘The executives all watch the company’s ads, but how many read correspondence from the company or call their own service number? The old direct marketing philosophy was at an aggregate level: so many people responded to this piece of promotion, so many upgraded from this service to that. We thought about it at the individual level: How do we ensure that the recipient feels better about the brand after a direct contact with them? How do we make sure they derive a benefit? And how do we optimize the value of that customer to the client?’’ Bronner switched from a practice of measuring success in terms of response rates to a process they called Behavior Optimization. This began with a ‘‘behavior gap analysis’’ that contrasted the customer’s actual behavior (e.g., Amex card used only on business trips) to the desired behavior (Amex card used for a large share of total purchases). With the client, they would determine the economic value of closing the behavior gap and make appropriate investments in channels, offers, and direct communications to change behavior.
Bronner Slosberg Humphrey invested heavily in database management and modeling, teleservices, and creative advertising capabilities. The database capability was used not only to record all customer interactions,5 but also to segment customers according to their potential value and responsiveness. By continuously experimenting with a range of programs, it was possible to refine marketing strategies to be maximally efficient in terms of the client’s return on investment per dollar spent. The teleservices capability helped clients use both proactive and reactive customer service calls to strengthen relationships, engage in a dialogue, and capture valuable information. Finally, Bronner continued to attract strong creative talent with both direct and general advertising experience. ‘‘It would be a big mistake if we ever allowed our creative talents to become routinized,’’ warned Betsy Karp, the recently named Managing Executive Creative Director.6 ‘‘As more and more companies shift their investments to direct customer communications, we need to create competitively superior communications which enhance the brand experience, offer strong value, and drive profitable customer behavior.’’ Examples of creative are shown in Exhibit 1. John Hayes, Executive Vice President-Global Advertising at American Express, described Bronner’s relationship with his company: ‘‘Service brands are not created solely in advertising. In fact, much of a brand’s equity stems from the direct consumer experiences with the brand. We partner with Bronner to help us manage consumer experiences with our brand across all products and services—Card, Travel, Financial Services, and Relationship Services— via all direct channels, including phone, Internet, and mail. They have helped us ensure that American Express knows its Cardmembers well, and the value they get from us increases with the tenure and depth of their American Express relationship.’’ 5
All proprietary customer data was maintained by the client.
6
In 1997, Slosberg became Chief Creative Officer, responsible for integrating messages across all channels. Karp and the Creative Department are responsible for direct advertising in broadcast, print, and mail.
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EXHIBIT 1
Examples of Recent Creative Work
Behavior Optimization focused primarily on marketing communications with a customer, but Bronner’s focus gradually evolved to include all sales and service interactions—a philosophy they described as Customer Base Management, summarized in Exhibit 2. This ap-
proach is illustrated by the company’s work with FedEx.
The FedEx Case Study ‘‘In 1993, FedEx was the preeminent overnight package shipper, as it had been since its found-
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EXHIBIT 1
(continued)
ing,’’ said Malcolm Speed, the relationship manager in charge of the FedEx account. ‘‘Though FedEx’s revenue had grown impressively until 1990, there had been little or no growth during 1991 and 1992. This was largely
attributable to weakness in the market combined with increasing competition from UPS, and smaller entrants like DHL and Airborne. While competition heated up, FedEx continued to mass promote service with a list rate structure.
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EXHIBIT 1
(continued)
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EXHIBIT 1
(continued)
FedEx was considering various options for maintaining the strongest value position with their customers including general rate reductions as a means of restoring growth. Bronner strongly recommended that money be invested in customer knowledge. While FedEx was awash in shipment data, it had little understanding of its customers’ behaviors and preferences at the
individual account level. Bronner used its teleservices capability to profile over 1 million of FedEx’s small shipper accounts. Information collected included whether the customer used FedEx exclusively (if not, they were referred to as a ‘‘dual’’ account), volumes and classes of services with other shippers, and what service requirements they had (for example, even
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EXHIBIT 2
Customer Base Management
smaller accounts sometimes had a regular pickup service). The database identified which customers valued on-time delivery as of major importance (law firms, for example) versus fast shipment (a parts supplier). It was also clear that there was demand for an early delivery option, same-day service, and integrated ground/air services. A major discovery was that many firms would welcome a greater use of computers in dealing with FedEx, ranging from the ability to generate shipping labels all the way to tracking packages themselves rather than needing to call FedEx. In partnership with FedEx, Bronner applied its customer base management concept to the new data. They began by conducting a pilot test which consisted of methodical variations in price and service offers made to some customers. As knowledge of customer behavior increased, Bronner was able to develop customer segments that warranted different marketing strategies based on their differing needs or their return-on-investment potential. Customer seg-
ments in the domestic market included: new, growing, stable, declining and lapsed. The test pilot stage alone, estimated to have cost less than $5 million, was believed by FedEx to have generated nearly $50 million in incremental revenues. With the success of the pilot program, FedEx moved to institutionalize the processes that had shown so much success. A cross-functional transition team consisting of people from Bronner and all sectors of FedEx laid out the steps required. A potentially limiting factor in the success of the endeavor was FedEx’s organization, which was structured around traditional national and local mass market strategies. Response to a customer problem, or speed in taking up a new product opportunity, might be hampered by the need to coordinate across internal organizations. Under the personal direction of the head of marketing, T. Michael Glenn, a new structure was set up with a customer focus: Prospects and New Accounts, Small Accounts, Key Industries, Large Accounts, Na-
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tional Accounts, Global Accounts. Segment managers were given job descriptions that required them to implement the customer base management procedure themselves. This meant not only implementing the learnings from the pilot, but continuing to experiment and learn over time. Four hundred people were put through a five-day training program, which included pre-reading, case studies, and interactive training, to get them up to speed. Now instead of one price and one service for all customers, rates and services could be adjusted, often in real time when a customer or prospect called FedEx. Billing or service problems were responded to at once by a service representative or, where appropriate, by the relevant sales representative. As a result of these changes, the perceived ‘‘value gap’’ that had been an original motivation for considering lowering price across the board was eliminated. One measure of that success was the number of dual user accounts that were shifted to exclusive use of FedEx. Prospects were attracted in greater numbers and activated more rapidly. From 1994 to 1997, FedEx enjoyed historical rates of double-digit growth, and the company credited the new approach with value added of around $125 million annually. T. Michael Glenn, now Executive Vice President at FedEx, commented ‘‘Bronner and FedEx have grown together over the past four years as we’ve gone from strategic approach to execution to continued improvements. The latest impact is strategic use of the web to serve customers, as well as to support our field reps around the world.’’ The Bronner/FedEx partnership is summarized in Exhibit 3.
also working on the L. L. Bean business, and with the assistance of Ruben Pinchanski,8 who was then working for Harvard Business School’s Publishing Division, Biro led the development of a business plan to support the idea of setting up a group—a new capability—to take advantage of the new web channel. Bronner agreed to fund the new activity as a wholly owned but separate entity—the Strategic Interactive Group (SIG)—with three partners: Biro, Pinchanski, and Cosinuke. SIG developed three internet capabilities: (1) Strategy Consulting, to assess the economic and market impact of the web on client businesses, (2) Interactive Marketing, to apply the discipline of direct marketing to the web, and (3) Development, to build web sites for clients. SIG saw itself as competing with consulting firms, advertising agencies, and software developers, but believed it, uniquely, was able to offer all the necessary capabilities to win in the interactive market place. Ruben Pinchanski described the SIG approach to web development. ‘‘We call it the 4Cs,’’ he said, smiling9: ‘‘Content, Commerce, Customization, and Community. We begin with several weeks at the client doing knowledge mining: finding out where sources of company information lie. You’d be surprised how much information is collected in different parts of a company once you start to look. The content of the site is built around these knowledge bases. Typically we arrange that a customer can make a purchase through the web site or, if the customer prefers, simply order a catalog or receive customized information, satisfying the commerce dimension. Customization is created by arranging, for example, that the site retains what the user has looked at on previous visits. Finally, a sense of community might be created by using chat rooms, for example, for outdoor enthusiasts.’’ ‘‘We helped L. L. Bean establish itself as an early success story on the web, leveraging its world-class brand and catalog system to become a leader in e-commerce,’’ said Biro. ‘‘For Kraft
Strategic Interactive Group In 1994, Kathy Biro, the relationship manager for L. L. Bean and IBM, with extensive experience from her earlier banking career in videotex and home banking, concluded that the internet was a phenomenon that could change the economics of these and other Bronner clients. Together with Rob Cosinuke,7 who was 7
Harvard MBA ’89
8
Harvard MBA ’93
9
(Recalling his Harvard marketing course)
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EXHIBIT 3
The Bronner/FedEx Partnership
Foods, SIG helped create a Web site which became the virtual embodiment of the Kraft brand and considerable corporate equity—the Kraft Interactive Kitchen was hailed as one of the best examples of Fortune 500 branding on the web. For Federal Express, SIG helped create a Webbased sales support system to reduce paper communications expense while enhancing sales productivity.’’ IBM, a major client for SIG, was also an early Web pioneer. ‘‘They realized that the internet could be a transforming force in their business, complementing the efforts of their sales force and dealers in reaching customers,’’ said Biro. For example, SIG helped IBM build customized sites for their best customers, called Gold accounts. These customers were given their own secure web sites that served to integrate IBM’s selling process with the customer’s own procurement system, and store customer specific warranty information, purchase agreements, and support contracts. ‘‘The idea,’’ said Biro, ‘‘is to simplify purchasing and improve service levels
and customer satisfaction while also freeing up the sales force to focus on complex, high-value transactions. It’s a kind of ‘virtual blue suit’ vision, whereby the web eases the burden on the sales force and extends their reach at relatively low cost.’’ Exhibit 4 illustrates how the web can play a role in all stages of the sales cycle: generating leads, qualifying prospects, and closing sales. While there was little doubt that the IBM web system was more efficient, some observers wondered if the ‘‘virtual blue suit’’ interaction would impact brand loyalty over time. ‘‘We have a good idea of how different channels stack up on a cost/loyalty basis,’’ said Cosinuke, referring to Exhibit 5, ‘‘but IBM, by its nature, has customers that are especially eager to use this channel and for whom demonstrated excellence on the web is loyalty enhancing. The web transforms a transaction into a long-term service relationship.’’ Fred Fassman, IBM’s head of Global Direct Marketing, commented, ‘‘E-business is the cornerstone of IBM’s strategy, so we must lead the market in using the Internet to
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EXHIBIT 4
Retail Channel
sell and serve our customers. Our work with SIG has helped us lead the market in practical applications of using the web to drive commerce, rather than the industry practice of putting brochures and PR online.’’ As of the end of 1997, SIG had grown to a staff of nearly 200, and was one of the largest web developers in the country. A partial listing of SIG-developed web sites is given in Exhibit 6.
same reason, I have always believed that we should restrict our efforts to just a few clients, only those we can handle with excellence and who share our passion for leadership and innovation. Once you have lots of clients you end up with the 80 – 20 rule: 20% of your clients yield 80% of your business. And then what happens? The minor clients get less attention. They churn. And employees assigned to those clients feel like second-class citizens.’’ Michael saw himself as a quality control resource who ensured the company executed what it promised to clients. ‘‘I stop in on people and see how they are doing. I’m viewed as a perfectionist. It’s true. But to me this business is pretty simple. We keep our minds straight on doing whatever we need to for clients. Every few weeks I meet with anyone who has been hired since the last such meeting. I invite everyone to ask questions. Last week someone asked me how it was that with nearly a thousand people there is still a small-company feel. I said that the feel of a professional services company derives in part from the number of clients it has. I define the size of our business by the number of clients we have. Not the number of employees nor the number
1997: MOVING FORWARD By 1996, Michael Bronner believed his company had helped clients achieve leadership in three related capabilities: creating and executing relationship marketing programs, managing these programs via the underlying customer management systems (e.g., database management, teleservices, organizational alignment), and using the internet. Bronner explained his rationale for focusing on a small roster of leading clients: ‘‘We have never set formal growth or profit objectives. Once you focus on internal goals, people start making decisions that aren’t in the client’s best interest and that erode the relationship. For the
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EXHIBIT 5
Cost/Loyalty
of dollars we bill. We have only a few clients, so the business remains small.’’ Michael Bronner was passionate about keeping the focus of the company on adding value for clients. Individual bonuses were based more on the results delivered for the client by the employee than on the profitability of the account to Bronner. ‘‘A side benefit is that everyone is trusted to make the right call,’’ said Michael. For example, in reflecting on her job sharing with Jean Alexander, Clare Robinson said: ‘‘One reason it has worked so well is that we almost always make the same decision when given the same information, so we don’t work at cross purposes. But the reason this is true is that the objectives of our company have always been the same: do the best for the client.’’ Bronner clients had, in fact, been doing very well. Exhibit 7 shows the stock price of Bronner’s largest clients during 1997, relative to the market. Yet Michael began to consider, as he had in the late 80s, that perhaps the time had arrived for a change in leadership. In 1996, he identi-
fied David Kenny as the person with the skills and empathy to lead the company into the next century. Kenny had developed close ties to American Express during his years at Bain and was familiar with, and an admirer of, the Bronner approach. ‘‘It seemed to me,’’ reflected Kenny, ‘‘that the company had grown beyond the stage where Michael had enough time to lend his personal magic to all clients, be there to motivate employees, and simultaneously direct new capabilities. As the company transitioned from a wholly Michael Bronner-owned company to more of a partnership, there was an increasing desire to tap the vast potential of the company.’’ Kenny realized he needed to find a way forward that combined the best aspects of the existing culture with the organizational realities of a soon-to-be billion-dollar enterprise.
Pressures for Growth Kenny decided that future growth required that ‘‘we clone Michael Bronner.’’ Replacing a system in which Michael assembled ad hoc teams to service clients, Kenny introduced a
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EXHIBIT 6
Selected Public Web Sites Designed/Developed by SIG
formal matrix system of organization in which relationship managers had complete authority to deliver for their clients, and functional managers were charged with providing worldclass capabilities (Exhibit 8). ‘‘With this structure,’’ said Kenny, ‘‘there are three basic ways to grow: adding more clients, adding more capabilities, or both. The biggest constraint on growth is talent — finding and developing leaders who can help us stay ahead of competitors in each of our core capabilities, while also finding and developing potential relationship managers who can lead and execute across capabilities.’’ Finding prospective clients was not a problem. The agency received inquiries from major corporations on a weekly basis. This could be explained, in part, by the explosive growth in the use of direct response marketing while general advertising had remained flat.10 However,
not all prospective clients were willing to make the investments or apply the focus and rigor required to manage their customer bases and build brands via direct customer experiences. What were the characteristics of a good client for Bronner? Was there indeed a long supply of them? Service and durable industries had customer data, but could the Bronner approach be extended into marketing packaged or soft goods? Many potential clients wanted only shortterm projects from one of Bronner’s services. Bronner seldom accepted projects which focused solely on direct advertising or teleservices or database management. The leaders of these capabilities each wanted to expand outside the core client list, but the agency’s focus had always been on clients who used Bronner’s integrated approach. The only exception was SIG, which report—Economic Impact: U.S. Direct Marketing Today, 1995). Of the direct response dollars, direct mail accounted for $19 billion and $37 billion respectively (Robert J. Coen, McCann-Erickson, Inc., 1997).
10
Between 1990 and 1995, direct response marketing expenditures grew from $101 billion to $134 billion while general advertising expenditures increased from $79 billion to $82 billion (DMA
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EXHIBIT 7
Client Stock Price Comparisons–Gains in Calendar Year 1997
had accepted several Internet-only assignments from clients in order to sustain leadership in the fast-growing Internet marketing arena. Kenny wondered whether he should change company policy on this matter. Adding capabilities was another route to expansion. Bronner had never developed capabilities in face-to-face customer contacts, such as personal selling, yet for some clients this was
an important element of their customer interaction. ‘‘How can we implement experience-based branding, a philosophy that says a customer’s perception of the brand is the sum of his or her interactions with the company, if we don’t have a capability in this area?’’ thought Kenny. A key issue in adding new capabilities was whether the capability would be superior, on its own, to leading competitors’. Kenny viewed the following firms to be Bronner’s principal competitors in their functional areas:
Bronner/SIG Clients 1997
Bronner Clients: American Express AT&T Enron FedEx General Motors SIG-only Clients:
j Customer Management Systems (e.g., Database Management, Analytics and Modeling, Teleservices)—Management Consulting Firms; EDS; Epsilon; Tessera Enterprises; Specialty Database Companies; Teletech j Interactive—CKS; True North; Modem Media; Poppe Tyson; Agency.com j Direct Marketing—Wunderman Cato Johnson; OgilvyOne; Rapp Collins
Gillette IBM L.L. Bean Pfizer Seagram Americas Adobe Systems, Baan, Disney, Intel, Kodak, Kraft Foods, Lever Brothers
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EXHIBIT 8
Organizational Chart
j Events and Sponsorships—Momentum; Advantage (Interpublic Group) More information is contained in Exhibit 9.
quired global execution. ‘‘Direct marketing is not as boundaryless as it might seem,’’ cautioned Rob Cosinuke, SIG’s relationship manager for IBM. He pointed to the different local attitudes about what could and could not be done by direct marketers. ‘‘Even the data you are allowed to store is regulated in some countries. A local presence may be essential.’’ Even within the U.S., Bronner had opportunities to grow via geographic expansion. Kenny and his partners at Bronner had already decided to open, in April 1998, a seventy-person office in New York, led by Harvey Kipnis, both to serve clients and attract talent that could not relocate to Boston. SIG had a small office in San Francisco; the West Coast might present a substantial opportunity to attract people and clients.
Kenny believed that the company could more than double in size simply by serving the global needs of its existing clients, without adding a single new client or new capability. However, the availability of consistent talent around the world was unclear, and there would be a significant capital investment required to build offices and capabilities around the world. More than any other client, IBM was most in need of a global presence on the part of its direct marketing agency. Though IBM had recently appointed SIG as its Global Interactive Agency, Bronner had also been excluded by IBM from certain direct mail assignments because they re-
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EXHIBIT 9
Selected Competitor Information
January 23, 1998: A Strategy Meeting The partners of Bronner11 met twice per year to set strategic priorities and assess their collective progress. The offsite meeting in January 1998
would be the first under Kenny’s leadership. The company was going to grow rapidly in 1998 and beyond, but unless he acted to direct that growth, the company he had so recently been appointed to lead might become unmanageable. Preparing for his ‘‘State of the Company’’ speech, Kenny reflected that for the first time in his career, the CEO he was advising was himself.
11
In January 1998, the partners consisted of Bronner, Slosberg, Kenny, Kipnis, John Hoholik, Reuben Hendell, Karp, Robinson, Alexander, and Speed, and for SIG, Biro, Cosinuke, and Pinchanski.
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