Thought Leaders
Charles Schwab's David Pottruck on Rediscovering Marketing

Although David Pottruck joined Charles Schwab & Company in 1984 as head of marketing, with a strong emphasis on measuring results, the high growth of the 1990s made marketing rigor almost irrelevant. "We literally could not open the accounts fast enough, and we couldn't open branches fast enough," said Pottruck, now President and CEO of Schwab, at the recent CMO Summit at Wharton. "Along the way, we lost our way. The commitment to measure everything was lost. Why was it lost? Because everything was working so well. It was more fun to run ads and argue the feelings and perceptions than the facts. I believe this is something we all have to fight. When people would ask how our marketing works, we'd say, ‘It works great. Look how fast we are growing.' But the real answer was: We don't know."

Four Roles of the Marketing Department

When financial markets and e-business hit a brick wall, sending the company reeling, Pottruck and colleagues were forced to return to a more rigorous approach to marketing, and they've focused more attention on using marketing as an engine of growth. Pottruck sees four primary roles for marketing:

• Building the brand: Understanding the brand attributes that are required to stand out in a competitive field.
  
  
• Understanding the consumer: Marketing is the voice of the client and prospect within the company.
  
  
• Seeing the opportunity: Marketing can recognize the unmet needs of consumers and help the company move into this "white space."
  
  
• Seizing the opportunity: Marketing can be the place in the company where new products and services for consumers are defined.

Marketing should "understand where the competition is going and what the consumer is," he said. "It is the group that brings order to all this. The head of marketing must be a leader as well as an incredible marketing professional. This is someone who has all the skill and the feel — that intangible element that allows them to look at pages of data and find the important ones. It is a person who can look at all the work of the advertising agencies and have the strength of their conviction to tell them the work doesn't cut it."

Speaking to the CEO

As a former marketing head, Pottruck said marketing leaders need to translate their strategies into terms CEOs appreciate. "Almost all CEOs are focused on revenue growth," Pottruck said. "If you don't grow your revenues, you are sunk."

While CEOs can clearly see the benefits of paying salesmen more for what they sell, the value of marketing is often not as clear. "Sometimes we overcomplicate it," Pottruck said. "We make it way too fancy. CEOs don't have time for it. Make it simple. Here's the white space, here's where we need to go, and here's the message that can carry us forward. Emphasize the way you are going to measure everything, and see what is working and what is not. What CEOs don't like is all the ceremony around it."

Sometimes CEOs have good reason to be skeptical. "There is a lot of bad advertising out there," Pottruck said. "Just pick up the Wall Street Journal, and read the ads. A lot of it is bad. They don't have faith in the whole profession."

In an environment of rapid change and uncertainty, companies also need to create more flexible strategies. For example, during the boom times, Schwab was more likely to take long leases on property or commit to fixed media buys. Now, it looks for strategies that can be adjusted quickly as conditions change. "You need to have some out," he said. "How much of your budget is fixed or cancelable? If business goes bad, or the stock market and economy go down, you have to have some escape hatches. There are more outcomes than you could possibly imagine."

Relevance

With more market information available, companies have an unprecedented opportunity to make their offerings relevant to customers. "As a firm with all this information — demographic and behavioral — it is just inexcusable for us to be offering products and services to clients that are irrelevant to them. We know who is putting money into accounts, taking it out, and who has children. The opportunity that is so spectacular is to use all this to make relevant offers."

Relevance is where marketing and selling meet. "Somewhere in the organization, marketing and sales come together, and where they come together is around relevance," he said. "We have to be the most relevant marketing organization and sales organization in the world. I think everyone can get in touch with that. Everything else is a waste of time and money."

Trust and Ethics

In an industry battered by scandals, trust is also vital, not only to marketing but to the success of the business. Quoting Wharton Legal Studies Professor Janice Bellace, Pottruck said that companies need to do more than worry about actions that are unlawful or unethical and focus on those that are "unseemly." The test is whether you'd want your behavior on the front page of the Wall Street Journal or "How would your mother feel?"

While many corporate leaders have complained about the added burden of the Sarbanes-Oxley Act, Pottruck isn't one of them. "We've earned Sarbanes-Oxley," he said. "It isn't perfect. No government regulation ever is. It tends to start at one extreme and work toward the middle. I think it is a good thing to have active attestation and a very strong audit function."

Organizational culture and incentives need to be designed to encourage employees to do the right thing. "Some companies have created a culture where it is only about money," he said. "We are all under pressure to make money, but some companies are on the front page about one thing after another. We have lost a lot of trust. I've heard CEOs say, ‘We could defend this action.' If you have to defend it, you have already lost the battle."

David Pottruck will be one of the presenters at Leading in an Era of Uncertainty and Change, our first annual Wharton West Leadership Conference in San Francisco on March 23, 2004.

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This month's articles:

• Thought Leaders
  In tough times, Charles Schwab CEO David Pottruck says rigorous marketing is more important than ever.
  
  
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