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hello and welcome to measured thoughts
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today I'm delighted to be joined by
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William Lauder from the Estee luders
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companies welcome thank you I'm glad GL
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to have you with me William why don't
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you tell us how big is Estee Lauder
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today in terms of number of employees
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sales number of Brands Etc put it in
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perspective EST laer company Estee
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Lauder the brand was founded by my
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grandparents Ese and Joseph laer in
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1946 in
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1958 my father Leonard Lauder also a
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graduate of Wharton joined the company
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after a three-year stint in the Navy and
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the company was doing $800,000 in sales
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on a global basis today we're a family
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of 27 different different brands doing
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business in 130 companies in the world
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we have approximately 27,000 employees
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and we'll do somewhere around 7.8 to 28
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billion dollar in sales on a net basis
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for our next fiscal year in North
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America we've got three brands with each
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with a network of between 120 and 160 of
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their own stores Origins Mac and Aveda
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we also have a group of stores which we
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call the Cosmetics company store which
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are sold primarily in off-price malls
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taking excess merchandise that is
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created by the brands and or returned by
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the retailers which we sell they are
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both past operations which operate in
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certain places for example in our office
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building in New York as well as some
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other large buildings we used to have a
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very successful operation in the World
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Trade Center before that tragedy and
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there's perhaps about a dozen of them
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that operate in other parts of the world
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outside of North
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America the key principle behind all of
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our retail operations for any of our
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Brands is that the brands control of
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their image is so important and each
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brand retail has a different level of
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significance and importance so for
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example I've named the brands like
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Origins Mac and Ava which have a
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meaningful presence in North America
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Clinique has a couple of retail stores
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in North America SD Lauder brand has a
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couple of retail stores in North America
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um Joe Malone has a handful of stores in
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North America but Joe Malone is a
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British band brand which we acquired a
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few years ago and they have quite a
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number of stores in the UK and their
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core Authority emanates from their own
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retail presence in the UK where it had a
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really strong cult following and we're
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trying to graph that into a success in
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North America as well as other parts of
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the world let's talk about looking
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across the brands are there some
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objectives that you set across all the
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brands that are common or does each
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brand have its own unique objectives
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there are common standards that we
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expect every brand is going to perform
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to and those are pretty much Rock Solid
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we have an expression for our company
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which is bringing the best to everyone
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we touch that means that we are expected
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to deliver deliver the best service the
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best experience the best quality product
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to the consumer within the mission of
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your brand I have another expression
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which is great Brands great people
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across the board we are looking to have
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the very best brands in every single
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category in which we compete and the
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only way we're going to do it is if we
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have the very best most talented people
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leading those Brands and at every level
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of the company we're spending a great
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deal of time and effort and resources in
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making sure that we're developing the
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best talent inside of our company
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identifying them and developing their
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skills and abilities so they can be
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fabulous so help me to try and
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understand the role of marketing at Este
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lader it's got a to it's got to play a
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dominant role so what do you see the
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role of marketing within the company
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well the marketing def marketing
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responsibilities and roles as we Define
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it in our company is the central Nexus
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of the decision-making of any brand at
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any given time the Marketing Executives
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are responsible for developing the
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concepts for new product and branding
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and positioning work working closely
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with their product development partners
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and their creative Partners in creating
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new great brand ideas working very
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closely with the sales organizations in
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making this message relevant to the
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consumer to the trade understanding what
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makes it successful and maintaining the
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mission essentially when I look back at
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the history and the success of our comp
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adding one brand and the collective of
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our company it's having that intuition
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and Imagination to know what consumers
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want and give it to them almost before
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she knew she wanted it and that's a
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messaging and a marketing position is
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that creating that demand or is it
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recognizing what that demand is I had to
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stop you in that almost before she knew
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that she wanted it it's that you
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understand what it is that she wants or
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are you creating what it is that she
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wants I think it's
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both she may want it but she may not may
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not have been able to articulate it in
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such a way that someone says okay yes I
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know what you want I'll give it to you
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as much as to say can I imagine what she
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want wants where she wants to go or
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create something new where she says aha
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that's what I want I love it let me go
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there you it's sort of a chicken and egg
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thing you can't say she didn't know she
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wanted it well she knew she wanted it
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she just couldn't articulate it in away
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but when she saw it she knew she'd like
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it you said something about the role of
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marketing within the company if I
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brought the CFO in here and asked him or
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her I don't even know if it's a him or
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her would I get the same answer from the
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CFO I would imagine you would get the
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same answer from the CFO that marketing
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and the decision- making around the
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marketing organization is Central to the
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success of our company I believe that's
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a core principle that everybody has the
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vast majority of our leadership in our
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company has grown up in the sales and
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marketing organization and if you've
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grown up in the sales side of the
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organization you've got a very intimate
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working knowledge of the marketing
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organization if you've grown up on the
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marketing side of the organization you
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have a very intimate knowledge of the
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sales side and a good business leader
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has a CO understanding of the total
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business but with a strength and
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expertise in one area which they can
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bring and complement their skill sets
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with experts in other areas then with
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this understanding of marketing at the
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SD luders
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company um let me understand the
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budgeting side so I went from the CFO
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talking about the CFO to thinking about
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putting together the budget each brand
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has a budget how does the each brand
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come up with their budget well you know
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it's interesting you say that because
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we're in the very last throws of putting
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together our budgets for the next fiscal
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year and the process often times is
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sausage making at its ugliest but it
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starts with we give the brands Targets
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in certain key metrics and we give them
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targets based on how we would roll up
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the performance of the total company
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look at our commitment over a three to
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five year cycle and say we need to be
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here as a company here are the
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performance metrics of each of the
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brands that we've seen historically and
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we go back to the brand and say this is
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the Target we have for you for sales
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growth this is the target we have for
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you for cost of goods Improvement this
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is the target we have for you in
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operating expenses I'm going to write
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these down sales
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growth uh now sales growth is a function
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if you will we have a key core metric
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we've committed to delivering to our
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shareholders improve performance and
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return on invested capital and EPS
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growth those are the two key core
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Financial metrics which we promise to
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deliver to our shareholders from that we
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build operating budgets that look to
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sales growth on the top line operating
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expense
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improvements and cost of goods
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improvements those are the three key
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metrics that will
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drive operating
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income the brand managers have certain
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leeway in certain areas they do not have
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leeway in quality control they must
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deliver the highest quality product
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period end of story and none of us
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unfortunately have much say in taxes we
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try to manage our tax tax exposures as
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best we can but the fact of the matter
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is is that's not a brand management
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decision that's a corporate decision and
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how we work out our corporate exposures
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to taxes around the world we also do not
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demand from our brand managers to be
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victims of or beneficiaries of uh swings
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in currency they manage their businesses
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on a current constant currency basis and
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we as a company will manage currency
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globally to the best interest of the
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company how do you set those sales goals
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history and ambition and reality and the
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negotiation Is that real is history
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ambition and reality is somewhere in
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between and is that fairly uniform
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across brands or does each brand have
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its own particular each brand has its
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own particular sales goals based on its
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historical Trend if you have a grow
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brand growing at 20% and they come in
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and say I'm going to grow five next year
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we tell them to go away and come back
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with a realistic Trend if you have a br
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growing at 5% and they come in and say
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I'm going to deliver
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20 we want to know why and we want to
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know what the investment is behind it
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and what is the certainty of delivering
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the top line for the certainty of the
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spend let's say you have a brand and
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their goal for next year is to grow by
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10% take me through the steps of how
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does that translate into a
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budget brand has a 10% sales growth goal
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we would look to them to have at a 20
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basis point Improvement in cost of goods
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we would look to them to grow their
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operating expense at 6% no more than 6%
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so that there would be an increase in
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their margin so both driven by cost of
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goods and operating expense and if the
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net math of that is is if they're
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growing their sales at 10% and their
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operating expense at 6% we've got a
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4% Improvement in operating income that
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budgeting process is a negotiation in
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both the Top Line how much you're going
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to grow it and the bottom line how much
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you have to spend to fuel the growth
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when you realize I I look at it across
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all of our Brands there's only four
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lines in our pnl where the brand spends
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towards the
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consumer cost of goods and the quality
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of the product and the
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packaging advertising promotion and
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selling expense selling expense being
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how we represent our brand to the
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consumer at
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retail so you as a brand manager have a
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given cost of General administrative
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expenses all the salaries and occupancy
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expenses associated with it but where
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you have real input and you can have
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real levers to manage your business and
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those those four lines you only have
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certain leeway within cost of goods
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because you've got a historical business
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built up with certain product with
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certain cost of goods how can you
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improve that how can you add new product
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programming with beneficial cost of
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goods that moves the number
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meaningfully advertising how much and
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where are you advertising what's that
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Medium what's the voice that's built
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Market by market by market one of my
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favorite examples is commuting media
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commuting media is those media where you
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communicate to those consumers who are
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commuting to work well in the United
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States commuting media is predominantly
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radio and in certain markets it might be
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billboard and in a handful of markets
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where mass transit is a factor it might
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be some form of mass transit Community
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uh me messaging when we go to Japan
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where 95% of the population that
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commutes takes public transportation
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commuting media is 100% mass transit
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radio is not relevant and I use those
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just as examples to say the definition
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of commuting media changes Market by
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market in the world if you go to Korea
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where you have something like an 80%
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online penetration Factor commun
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communicating with the consumer through
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online messages which is highly targeted
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can be far more effective than in
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markets where you have a 20% penetration
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online right so how the brand builds
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their spend and an average advertising
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and Communications message is is Market
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by market and also brand specific brand
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specific Market specific how do you
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evaluate whether or not this spending
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ended up being
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productive the ultimate Crucible is the
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success of the brand in the marketplace
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and I'll give you an example when I
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travel to certain markets in the world
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one of their pitches to us is is they
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show us their market
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share total market and then they look at
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their share of voice and they we they we
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try to look at the Benchmark of share of
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voice versus market share one of the
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consistent messages I get back from our
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our Our Brands around the world is is
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that our share of voice is lower than
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our market share meaning you're more
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productive meaning thank you very much
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they're looking to argue that they want
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more money and share of voice I'm
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looking to say congratulations look at
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how much more efficient you are than
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your competition because you're spending
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less to get more in this one
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area and they look at it saying okay
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fine but why is that
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that's because we as a company tend to
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spend much more money at the consumer at
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retail the consumer who's already in the
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store we'll spend more than our
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competition they may spend more at the
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voice in getting her there but we spend
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more when she's there and we think we
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convert that better because of the value
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of the exposure to the consumer who's
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come in is that because of your selling
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expense it's predominantly selling
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expense and if you will the the
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promotional expense is somewhere in
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between
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it's not all branding and imaging what
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advertising is it's not all selling
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expense which goes on in the store it's
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somewhere in between and it's more of a
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call to action to get that consumer into
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the store and convert the sale when
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she's there okay so we've covered sort
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of your your budgeting process and how
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you evaluate that what measures do you
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typically look at uh Beyond of course
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you just went through sales cost of
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goods sold you're looking at the margins
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I'm trying to think about sort of
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interim measures that you might have for
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example do you measure brand and Brand's
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Equity there's no real way to measure
00:14:07
brand equity in the way that Robert
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Parker says this is a 95 point wine the
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brand Equity is this it's like trying to
00:14:15
grab Mercury but the core of it is is
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this brand desirable is this brand
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strong and are consumers coming back for
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the brand so we would look at a program
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and say what kind of imagery are we
00:14:28
building from this is this stimulating
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attention and interest to the brand and
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there are me so many different ways of
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doing it and one of the things I think I
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mentioned before
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is the conventions the conventional
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conventions of looking at traditional
00:14:42
media and their their ability to drive
00:14:44
consumers have so dramatically changed
00:14:48
that the old metrics need to need to
00:14:50
change along with them and I don't think
00:14:52
our metrics of measurement have changed
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as fact quickly as the consumer Has
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Changed For example when what we found
00:14:59
for our own Brands is that the brands
00:15:01
that have not used conventional
00:15:04
advertising print radio
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television have been growing faster than
00:15:09
the brands that were dependent on the
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more traditional
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forms that doesn't mean that the page
00:15:15
rate from the magazines hasn't gone up
00:15:18
that doesn't mean that the ad rate for
00:15:20
the network television hasn't gone up or
00:15:23
maybe it has that maybe not a good
00:15:24
example but the fact of the matter is is
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that the brands that had grown up on
00:15:29
more traditional forms have not had the
00:15:31
same growth as the brands that used
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Alternative forms but you've got 27
00:15:36
Brands really great strong Brands uh do
00:15:39
you know whether or not the brands are
00:15:41
getting stronger or weaker as a brand or
00:15:43
are you looking just at the sales of the
00:15:45
brand well the sales of the brand in one
00:15:48
way shape or form are one of the key
00:15:51
blood pressures of the brand you could
00:15:54
to really take the key vital signs you
00:15:56
have to look at sales why do you have to
00:15:58
look look at sales the consumer is
00:16:00
voting every single day with her wallet
00:16:03
right and if she's voting for The Brand
00:16:06
more this year than last year then we
00:16:09
would presume that she we are successful
00:16:13
if she's voting less then we presume
00:16:16
that we're missing on some Metric so
00:16:18
what about spending that has an impact
00:16:21
on a short-term basis versus spending
00:16:23
that doesn't immediately result in sales
00:16:25
but has a longer term uh value that's so
00:16:28
fabulous question and um let me refer
00:16:31
you to some work that we did with the
00:16:32
Clinique brand um in one of the most
00:16:35
competitive markets in the world which
00:16:37
is Japan for in our industry in Japan
00:16:41
it's probably the single most
00:16:42
competitive market for any number of
00:16:44
reasons because it's an extraordinarily
00:16:46
sophisticated consumer it's a relatively
00:16:48
compact homogeneous Market from both a
00:16:52
distribution standpoint and a cultural
00:16:54
and psychographic standpoint so the
00:16:56
result is is that the program in and
00:16:58
measuring measurements you can put into
00:17:00
this brand with a limited number of
00:17:01
doors and the very high productivity you
00:17:04
see the results fairly quickly positive
00:17:07
or negative with an extraordinarily
00:17:09
sophisticated and demanding consumer the
00:17:12
Clinique brand was the first and most
00:17:15
successful imported non-japanese brand
00:17:17
for many many years and the brand went
00:17:20
into a period of years of flatness if
00:17:22
not decline in share that came from a
00:17:24
number of different factors number one
00:17:26
of which was there was a lot more
00:17:27
competition of imported Brands coming in
00:17:30
and it had the most share to lose
00:17:31
because it had a dominant share but just
00:17:34
as importantly there was some key work
00:17:36
that we needed to do in understanding
00:17:38
the messaging of the brand that was no
00:17:40
longer as relevant so we took a very
00:17:42
deep dive for this brand in Japan and we
00:17:44
found was we found was in understanding
00:17:47
the equity of the brand was that over
00:17:50
time the principles that had built the
00:17:52
brand had come to be perceived as cold
00:17:55
and not connecting with the consumer in
00:17:57
the same way so we started doing work to
00:18:00
understand how we can change that and
00:18:02
what we did was we started investing
00:18:04
four years ago in a more humanizing
00:18:08
messaging element for the brand at all
00:18:10
different factors the national
00:18:12
advertising image to your point that's a
00:18:15
long-term brand Equity investment the
00:18:18
inore investment in the experience the
00:18:20
consumer got at store so you're real to
00:18:22
tolerant of you know we're investing
00:18:25
right now we're probably not going to
00:18:27
meet some of those financial objectives
00:18:29
shortterm but we're building something
00:18:31
that longterm is going to help us brands
00:18:33
are not made overnight and brands are
00:18:36
not killed overnight except for
00:18:37
Extraordinary problems so therefore we
00:18:40
have to have a level of patience of
00:18:42
investment and to your one of your
00:18:44
questions you asked is about resource
00:18:46
allocation there's that traditional BCG
00:18:48
model if you have the dogs the star the
00:18:50
cow and whatnot we invest according not
00:18:53
according to some strict model but we
00:18:54
will tend to invest both in brands that
00:18:57
are grow growing and you have to invest
00:18:59
in the growth of the brand and perhaps
00:19:00
not demand the same profit level and the
00:19:03
brands that are very highly profitable
00:19:04
not growing as much we will demand a
00:19:06
certain level of performance so we can
00:19:08
Harvest some of their success and excess
00:19:11
return to invest in new brands the fact
00:19:14
of the matter is is that I would
00:19:17
attribute over 80% of the sales of our
00:19:19
company today to Brands we've created
00:19:21
ourselves almost all of those we were
00:19:24
making bets and making Investments long
00:19:27
before they pay paid off some of them
00:19:29
unfortunately I'm still waiting for the
00:19:30
payoff but we've gotten tremendous
00:19:33
return on our investment because of the
00:19:35
Investments we've made in our brand and
00:19:36
The Branding we've created and the
00:19:38
positioning we've created and one of the
00:19:39
key strategic objectives for our company
00:19:41
is to continue to have brands that the
00:19:43
consumers want and that the retailers
00:19:45
want and we almost in the balance of
00:19:47
power we always have to have more of
00:19:50
what the consumer wants so that the
00:19:52
retailer always wants to be our partner
00:19:55
and doesn't feel like we're Tapped Out
00:19:57
intellectually one last measure I'm
00:19:59
going to ask you about do you measure
00:20:00
the value of a customer what I'm
00:20:03
referring to is the lifetime value of a
00:20:05
customer if you get a person to become a
00:20:07
c customer of Clinique you know what
00:20:09
kind of Revenue are you going to be
00:20:10
generating from that customer over their
00:20:12
entire lifetime you're talking about one
00:20:15
of the single biggest opportunities we
00:20:17
have in the future which is intimate
00:20:18
more intimate knowledge of the consumer
00:20:21
now this issue crashes against the
00:20:23
principle of the ownership of that
00:20:25
consumer and we have been in a
00:20:27
historical arm wrestling match with our
00:20:29
key retailers is to who owns that
00:20:32
consumer does the retailer own that
00:20:34
consumer do we own that consumer do we
00:20:36
share her share that knowledge and how
00:20:38
do we do it how much does the retailer
00:20:41
know about her and her buying patterns
00:20:43
in our category how much are they
00:20:46
willing to share with us so we can come
00:20:47
to understand it more I'd say where we
00:20:50
were 10 years ago the retailer said
00:20:53
that's my customer all you can you can't
00:20:55
know anything about her today we are a
00:20:57
much much closer partnership with our
00:20:59
retailers we're both learning more about
00:21:02
our consumer how she shops where she
00:21:04
shops why she shops and how we can get
00:21:07
learn more about her as they're coming
00:21:09
to realize
00:21:11
that assets delivered to the best
00:21:13
customers return multiples more than
00:21:17
assets aimed at the consumer who's a
00:21:19
lapsed consumer the research we've done
00:21:23
shows that there's a six to1 difference
00:21:24
in
00:21:25
investment assets invested at a consumer
00:21:28
will return you six times that that same
00:21:31
money devoted to a laps not a laps user
00:21:33
someone who's never been your customer
00:21:35
often times we've been guilty brand by
00:21:38
brand in focusing our efforts at
00:21:40
recruitment new consumer and haven't
00:21:43
devoted enough to retainment and of that
00:21:48
consumer who's already there and as we
00:21:49
shift our resources and knowledge to
00:21:51
that more existing consumer I think
00:21:53
we'll get a better more effective use of
00:21:55
our but the form in which we communicate
00:21:57
with that
00:21:58
loyal consumer is a very different form
00:22:00
than we might find in Broad General
00:22:02
advertising this goes back to that media
00:22:05
change the the way the consumer shops
00:22:07
the brand and understands Brands today
00:22:09
is so different that the traditional
00:22:11
forms what's one of the real areas where
00:22:13
I'm so concerned about the relevance of
00:22:15
traditional media versus New Media the
00:22:18
last area that I'm going to ask you
00:22:19
about is about your relationship as C
00:22:22
CEO with the different brand managers
00:22:24
how do you interface with them is it at
00:22:25
arms length or do you partner with them
00:22:28
since you have the CEO and CMO under one
00:22:31
office I try to focus most of my effort
00:22:34
on with the brand
00:22:36
managers somewhat on a personal level
00:22:38
somewhat on a brand level when I say a
00:22:40
personal level at the end of the day I
00:22:43
would say I how do I allocate my time I
00:22:46
spend a third of my time on strategic
00:22:49
implications for the company a third of
00:22:51
my time on people and a third of my time
00:22:54
on everything else everything else being
00:22:57
What's happen happening today what came
00:22:59
across the transom last week what do I
00:23:00
see as a big issue that's coming forward
00:23:03
and with a brand manager for example I
00:23:05
spent a lot of my time with the brand
00:23:07
leadership on key appointments whether
00:23:09
it's the key appointment of a new brand
00:23:11
leader when an opportunity comes up key
00:23:14
appointments in their marketing area the
00:23:15
product development area or the sales
00:23:17
area I let them make decision making on
00:23:19
everything else and working with them on
00:23:21
the key challenges they have in front of
00:23:24
them where can I add value and my value
00:23:28
add is different brand by brand both
00:23:31
based on the relationship I have with
00:23:32
the brand manager as well as my own
00:23:35
personal passion and expertise for
00:23:36
certain brand for example no surprise I
00:23:40
take a great deal of passion about the
00:23:41
leadership and the origins brand since
00:23:42
this is a brand that I was intimately
00:23:44
involved in its formation and that's
00:23:46
very different say than the passion my
00:23:49
father Leonard laer has for the SD
00:23:51
Lauder brand which he's been intimately
00:23:53
involved with since the start and that's
00:23:55
just an example the other examples would
00:23:56
be what are the challenges we have going
00:23:59
forward for a brand and the brand
00:24:01
leadership I don't get involved in the
00:24:03
choice of shades of lipstick I leave
00:24:05
that up to those who are far more expert
00:24:07
than me I talk to the brands about the
00:24:09
key metrics that drive their business
00:24:11
what's the brand Equity how are you
00:24:12
enhancing the brand Equity one of the
00:24:14
analogies I use is that brand Equity
00:24:17
brand imagery is like a road certain
00:24:20
roads are country lanes two lanes and
00:24:22
it's very clear to know when you're on
00:24:24
the road in your brand or whether
00:24:26
something you're doing is off mess
00:24:28
but certain other brilliant are eight
00:24:29
Lane highways it's very hard to know
00:24:31
when you're on or off the road because
00:24:33
there's such latitude and leeway so a
00:24:35
lot of the time I spend with the brand
00:24:36
managers is clearly identifying what the
00:24:39
key metrics are in the brand equity and
00:24:41
how they continue to need to push it the
00:24:43
open and honest Communications you have
00:24:45
with your brand managers the the
00:24:47
latitude you give them and the guidance
00:24:49
you provide are all essential traits
00:24:50
that you have and are necessary for a
00:24:53
great leader to build a wildly
00:24:54
successful company thank you that's all
00:24:58
the time that we have here today at
00:24:59
measured thoughts but I would like to
00:25:01
thank William for joining us and sharing
00:25:04
his insights about the Esters company
00:25:07
it's been a great job today so thank you
00:25:09
very much appreciate it I appreciate
00:25:10
taking the
00:25:21
time
