Retail Podcast 221: Martin Lindstrom | Legacy Brands Are Toast

Bob: My guest today is a Time Magazine influential 100 honoree. His books include Buyology: Truth and Lies About Why We Buy,  Brandwashed: Tricks Company Use to Manipulate Our Minds and Persuade Us to Buy  and of course, his most recent Small Data: The Tiny Clues That Uncover Huge Trends. His is the resource for hundreds of brands around the world trying to make their messages memorable. It is my pleasure to welcome Martin Lindstrom.

Martin: Well, thank you for being on your show. It's a great honor.

Bob: I understand now from the time you were 12 you were interested in Lego and even received a green brick. So, it's a big story for you, but can you tell us about that, and how small data informed your advice to Lego later on?

Martin: Well, listen, this is a crazy story. You're absolutely right. When I was 12 years of age, I loved Lego. But I was probably a pretty unusual kid. So, I decided to build my own Legoland in the backyard of my mom and dad's garden. And the only problem was that no one showed up, except my mom and my dad, which really was the lowest point of my career, I guess. So, I teamed up with a local print office whom sponsored me and they put an ad in the paper. And guess what? Two days later I had 131 visitors coming to my Legoland. There was just one problem, a visitor number 130 and visitor number 131 were the lawyers from the Lego suing me. And they said, "Well, that's our brand." And I said, "What is a brand?" I mean, I was 12 years old back then. So, they actually did something pretty unusual. Lego said, "Listen, instead of us being mean, why don't we employ you?"

So, I probably was one of the first kids ever, if not the first in the world, I got a job at Lego when I was 12 years old and was piddling between school and the Lego factory [inaudible 00:01:56]. And what was really fascinating about this was that Lego had a philosophy, the philosophy was that if we want to understand the consumer, we need to live with him. And that really was the foundation for my work with Lego later on. And basically, what this book is all about, it's the idea of how you need to understand the consumer at a much deeper level than what we do today in order to create and craft products and services. Which really means a lot for people rather than as it is today where sometimes it's relevant and most of the time, it's not.

Bob: Right. Well, and we'll get to that in just a second. I wanted to go back to one of your earlier books, one of the hallmarks of business books, "Buyology." In that book, you talked about our emotional DNA as buyers, and also in that book that we aren't always logical about our shopping choices. So, with those contrasts, how do we resolve that? How is it possible? I know you live with people forever, you go and study 7,000 families and you look at a lot of different things. We understand that a little better I guess because when I read you, it all makes perfect sense. But let's face it, there's not many experts out there to do that for a brand. So, understand that consumer, can you fill us in a bit or?

Martin: Absolutely. And it's a very good question. Remember that 85% of everything you and I do every day is irrational. That means only 15% is rational. And let me just give you an example. And be honest right now. Have you tried that you're watching TV, and you grab your remote control, you want to change the channel, and it's flat for batteries. So, you press extra hard to squeeze the last drop of battery out of that remote control?

Bob: Yes.

Martin: I think we've all tried it. And I don't need to tell you, that's deeply irrational, right? And I think what's so fascinating about us human beings that we want to wrap everything into a rational paper, somehow. Just think about the stock exchange, think about trade, think about everything, how emotions are driving us, and where there's not a lot of rational stuff. Think about just falling in love, it's the most irrational thing on planet Earth. So, what we try to do when I wrote the book "Buyology" was to scan consumers brains, and we use something called fMRI, which is probably the most sophisticated brain scanning technology available in our world today. So, we scan 2,000 respondents and one of the things we discovered from this is, that we quite often are doing counter-intuitive things. So, I'll tell you about a couple of things. One of them is, for example, that you may recall when Pepsi came up with the Pepsi Challenge back in the 70s and the 80s. The conclusion was that everyone loves Pepsi.

And sure, right. But how come Pepsi is not number one and number two today? Well, the answer was discovered in one of these studies, which showed that when respondents were put into an fMRI scanner and they had a pipe which allowed them to basically sample one of the two colas while they were in scanner, well, what was realized was that when people were blind testing substance A and substance B as we call them in the research study, well, then when people sampled A, they loved it, way above substance B. But when the scientists entered the fMRI area and revealed that substance A was Pepsi, and B was Coke, the taste preferences in the brain literally changed its mind. And consumer say, "Hey, I was wrong, I think I prefer B." And this explains the essence of not only how irrational we are but also the power of brands. The brands overwrite even our taste preference center and makes us lie to ourselves without us even being aware of it.

So, this is really the essence of why a famous retailer many, many years ago said that "No, I know 50% of my marketing budget works, the problem is I don't know which 50% it is." And I think it to some extent, it still explains today why we are shooting in the blind, even though we do have all sorts of algorithms, trying to prove all sorts of things. The reality is that most of the marketing money are still wasted.

Bob: Well, you know, that's interesting, too, because in the age of the presidential elections in America and Brexit, that polling said it's X and it was Y and I know the "Washington Post" recently had a story. And they uncovered that most of the people that voted Trump didn't tell their friends or family. So that's why that was fascinating.

Martin: Absolutely is fascinating and I can obviously agree with that, because we did a research study across several states in the U.S. up to the election. And picking up what we define as small data, small data is what we define as seemingly insignificant observations you make in people's lives. So, we did this small data research study and actually did predict that Donald Trump would win the election, and I wrote an article about it in "Time Magazine" as well, just before the official election was taking place. And what we did notice was exactly that, we did notice that people were somewhat embarrassed by their choice that they it became very much a vote made in anonymous, in the dark. And was first when we really managed to penetrate people's lives and understand their very sensitive topics, I being invited out in the garage or down in the basement, where the flags and the posters were hanging, that we realized it was almost like two scripts going on here.

We had the official script where quite often we would write that it would say voting for Hillary on the lawn outside the house, and we'd go down in the basement and there would be Donald Trump posters. That just shows you how we have dual messaging going on and that's the irrational part of our behavior, right?

Bob: Well, absolutely. And I've been working with an awful lot of technology companies, and let's say everybody is saying it's all going to be AI and everybody needs big data. And you even say I think it's small data, that big data is important that it has to be balanced with small data. But ultimately, it seems like we're being sold this bill of goods that there is this one answer out here that big data will solve it all. But I would imagine for a researcher like you knowing what data is the correct data, isn't that the hardest part?

Martin: It is, it's incredibly difficult. And there's sort of two things to say to this. The biggest problem today with data, and in particular big data, is that big data is all about correlation, it's all about connecting dots. But you do need to have a hypothesis first. What's it driving at, what are you going to connect? And I think the best example took place in 2012, and I'm sure you recall this case where Google were able to predict the flu outbreak 45 days before it happened, right? And everyone thought it was amazing and they were able to inform the medical community about vaccines well in advance, it was just wonderful news. The only problem was that exactly two years later, the Center for Disease Control analyzed their numbers. And at that stage, they had the real numbers. And the numbers showed that Google were completely wrong. In fact, the numbers were twice of what they should have been.

And the reason why is because people are typing in flu because the neighbors talk about flu, and the kids are talking about it in school. And suddenly, it becomes almost a viral dimension and the engineers have really not taken that into account. So, what Google cared about, and this is really important, what Google cared about was the correlation rather than the causation. And causation is the reason why, it's the hypothesis, right? And really, the causation is what I define as small data. So, small data is where you find the hypotheses, that's where you spend time in consumer homes and identify where people are out of balance. And because that quite often leads you to a new opportunity, a new opportunity for a brand or a service. And once you have identified that, you can verify that by using big data. In our world today, because people are so obsessed with big data, they start with big data first. So, they basically build hypotheses on things which can be completely wrong and that's where we see things derailing.

Bob: It's funny you say that, because I remember talking to a VP of Frito-Lay, and she said, "We know that the person who is more likely to buy a pineapple is also to buy a toothbrush and a calling card." But what does that tell us? And I thought, this is a few years ago, but it's that same thing. Once you get the anecdotal evidence like, "Well, what do I do with that?" So, I want to switch a little bit for you. You know, people listening to the podcast are various incarnations of brick and mortar retailers and private label is growing as retailers are trying to differentiate from the competitors.

Do you think that legacy brands are still important? Are retailers cutting them off to try to fend off Amazon? Brandless has become a big thing, right? Which now becomes a brand. But what how does private label fit in? Because to me, as a marketer, I would think, well, it's a lot more work for me to just start up another brand, isn't it? Or is it just saying I'm Amazon and I could come up with a brand and they'll follow me? What are your thoughts?

Martin: Well, I'll be very controversial in what I'm telling you right now, legacy brands are dead, global brands are dying, and there's many reasons why. We as consumers have changed our behavior enormously over the last decade. We've become much more local. And the reason why we've become local is because of multiple reasons why, but one of them is, is due to the fact that if there are 7.5 billion people on planet Earth, I will never be number one as a person. And the young generation really feels that they're never will be able to get anywhere because they are so far down the rank. So, what you do is that you retract back to a tribe, to a smaller group where you can relate to things. That means you look community and some people even decide to build a wall, or whatever it may be, it's Brexit. We want to be local because I feel safer, I'm in a community where everyone understands me and I'm not necessarily number zero, I'm sort of doing pretty okay.

So because of that, local brands now are doing incredibly well. Now, I don't need to tell you, Coca Cola the world is not a local brand and everyone knows that. And suddenly, there's two things happen. First of all, I as a consumer want to support the local community because it's part of my identity, it gives me a sense of purpose. Just remember this, there is increase of suicide rates in the UK of 25% among young teens. Now, the main reason why is because they have no sense of purpose in life, we see similar numbers in the U.S. at the moment.

Bob: Well, and the drugs also with the U.S.

Martin: Drugs in the U.S., there's a lot of really dramatic issues around this. And the lack of purpose, because also smartphones and social media is not really helping that topic means that they want to support local brands because they stand for a purpose, Coca Cola really doesn't stand for a purpose. So, this is one push which is really important to have in mind. The other push is that retailers will have an increased one on one direct dialogue with the consumer. And therefore, if they really good at building private label, which they, by the way are, well, what happens is that why should I pay a premium price for Coca Cola, or Kellogg's, or whatever it may be?

So, if you take Trader Joe's, as an example, you'll notice that around 92% of all the products they have on the shelves are private label, and they really are the benchmark in the U.S. for how to do this. But if you take a look at almost any player out there, you will notice that the trend is going the same way. We work with a supermarket chain called Lowes Foods in the U.S. and we just introduced a private label line last year and already now it's basically almost number one in every category. And the reason why is very simple. We have a purpose, we're local, we have real ingredients we do not contain...doesn't contain chemicals, it has the right label.

All of that stuff comes together and where the CPGs of the world is simply cannot deliver anymore. They're packing the products with chemicals, they don't really care about the local community. And they are using conventional marketing techniques in order to penetrate the market, which is the end caps and the aisles and all that stuff but they're not thinking in a different way. So, you will see global brands will die, the legacy brands will die. Of course, not all of them will disappear but a lot of them will.

Bob: You know, that brings me back to something I say with my clients is I think we're moving back to a time of the pilgrims actually in the U.S. Meaning, I would just have my one little restaurant and that was enough. And I just took care of my little restaurant, I don't have to try to become an Applebee's or my one little coffee house. I don't have to try to be Starbucks and people started I think in the states here with craft beer, but it's certainly moving through with a definite force and so I would certainly agree with you. But I wanted to bring you back to Coca Cola. Yesterday, I think on your Facebook page, you showed the picture of how Coke is using these product shots really tight close up almost like a movie and acting like you're taking it off. And I think you mentioned like, as soon as you saw it, it triggered your hearing.

Martin: That's right. It's actually a fascinating technique, which I don't think a lot of people are aware of. The technique it really comes back to...let me just try to explain this in a funny way. Have you ever tried that, when you have your haircut and that you kind of get this relaxed, tinkling feeling in your body when you hear that sound? Or when some people, for example, cleaning your home and you hear this very soft, gentle sound. When you hear that sound for many people it gives a special feeling. And that feeling is like it's almost like a zen-like feeling. And that concept is really what coke has popped into, what Burger King has been using for some time. A range of different players around the world are using it where they really communicate at two different channels. One channel is what we see and here in the normal world and the second channel is really appealing to those sounds which seems to be hardwired into our brain and make us react in a certain way.

And let me just add to that just so you get a sense for what we're talking about here, let me just do an experiment with you and all the listeners. Try to close your eyes right now and then think about when you were in school and you had this blackboard in front of you and you had to write something on the blackboard. You remember those days right?

Bob: Yes.

Martin: Now, then imagine you have your long nails and you now going to scratch them down that blackboard? Do you feel uncomfortable?

Bob: My face is already scrunched up.

Martin: Exactly. Now, the reason why that is happening is because we are hard-wired to basically fear that sound. You see, when we were monkeys some hundred thousand years ago, we would scream when there was a danger. And the frequency of that scream is exactly the same frequency as when you scratch your nails down the blackboard. And that gives you a sense of how our reptile brain has really not changed, that certain elements would stay the same. And that's the same with that technique with Coca Cola and a lot of other players are using right now. They're plugging into the hard-wired behavior of what we really want to do, even though we don't know we want to do it, if that makes sense.

Bob: Absolutely it does. And I'm going to go back to "Buyology" because one thing that I wanted to get your opinion on is you said there are 10 common pillars underlying almost every religion, sense of belonging, clear vision, power over enemies, sensory appeal, storytelling grandeur, evangelism, symbols, mystery and rituals. Are there clues there for retailers who are struggling? Because to me when I see that, I think, okay, so there's no [inaudible 00:19:40] at many larger legacy brands. I don't feel like I belong when I walk in there, the news is all about they're losing to their enemies. What are your thoughts on that?

Martin: Well, I think you're absolutely right. I think the retailers which are doing very well right now I have to plug into three aspects. It is the sensory appeal, so appealing to the senses. Quite often when I walk into a supermarket, let's say today, it smells of rotten smell at the entrance because they have the ice machine there and they haven't cleaned the pipes. I walk through the produce, it may smell a little bit there, the butcher's department really doesn't smell a lot. You really don't have a sensory experience.

Now, this is really important to understand that the reason why I want to go into a retail store is because I want to be stimulated with ideas, with the senses, whatever it may be. If I'm not, why should I? Why should not just buy stuff online then? So, the key differentiating factor is to create experience in your store design. The second dimension coming out of religion is really for me sense of belonging. And it's all about community, local communities.

And I think the reason why a lot of supermarkets are doing very well right now and a lot of stores are doing well, it's because they tap into the local community, and create that sense of belonging. And suddenly, those stores are more than just a store, it almost become like a replacement of a community center, perhaps even the church or the sports club. So, that's the second thing, sorry.

Bob: Well, I was going to say that exactly it. You look at how church memberships are declining all over the world. We have to find it somewhere, right? Isn't that a human thing? We want to have those same needs met, right?

Martin: Absolutely. And I think the issue here is, and I pushed a lot for that, that we need to understand that our community has changed. And because of social media, we don't meet people anymore, we don't touch people anymore, we don't interact with our surroundings, we don't have neighbors anymore, we don't know who they are. So, that creates impact to the small data theory, it creates an out of balance, and the out of balance means we need to be compensated somewhere else. And I think that's the reason why a lot of young people feel they don't have a sense of purpose in their life. It's the reason why more and more people are going to concerts, they're going to theaters, even to the cinema right now. It's a reason why people clinch on to "Game of Thrones" or to "Star Wars" because these are occasions where we suddenly can have a sense of belonging.

So, I think the retailers need to understand that that is their point of differentiation of opportunity, but also I do think a lot of retailers really don't get it. And then the last thing I would say out of the many things you can point out here on the list is probably purpose. And we need to have a purpose and the purpose is not just to earn money anymore. The purpose is also to help for the greater good, to help the community to grow, help global warming, whatever it may be, right?

Bob: Absolutely. And I want to go back to your talking about experiential retail. So many people know, I was in the retail [inaudible 00:22:58] food supply. But in one of those amazing stores, beautiful, well done, well executed, a lot of details are right there. But a lot of people are saying, "Oh, we're going to put a kiosk here and we're going to have VR and AI and people are going to strap Oculus on their heads." And I'm like, "Really? Is that experiential retail?" Because to me, I want to feel something when I walk in, I want to say that's me when I look at that display, I want to meet somebody with an open heart and they're just curious why I showed up today. And then it all just becomes fun. But it seems to me that if I'm still walking into a store, wouldn't you agree like it's yours, it's probably your sale to lose that I don't have to go to a store anymore, right?

Martin: Absolutely, you're spot on. And we've done numerous tests, having screens in the stores, having all sorts of technology in the store. And I can tell you time after time it completely fails, it is two worlds clashing. And the reason why is because I'll tell you two really quick insights here which is fascinating. One is when you walk into a store, you expect to be interacting with things in a physical way. When you watch a screen, you go into a passive mood and it's a very different mindset.

So, people do not see value in touching things in the supermarket. And by the way, when they touch the screen they also feel there's a lot of bacteria on it, and therefore they hold themselves back from doing it. But the second thing is that is being pushed mainly from the [inaudible 00:24:34] to the CPGs of the world, which believe that you can do scalable models. Instead of having person doing a food demo where you need labor, why don't we just scale it having a screen playing?

So, they push it and I cannot count the number of times where the CPGs for our clients have been pushing these screens out, believing that this is the [inaudible 00:24:59] answers and after three weeks, it completely fails. The screen doesn't work anymore, people never look at it, and all that stuff. So, you have two forces here, you have the old fashioned industry which believes that an old fashioned method works in an experiential environment it doesn't. And on the other hand, you have a consumer in different moods, they have different mindsets, and they just don't want to get back to the screen because they're transforming into the non-physical digital environment.

Bob: So, if you're a brick and mortar retailer, if you're magically, I don't know, do I want to give you such an awful assignment? You're magically JC Penney, so where do you start? The customer has been so abused, right? Like, we hate you because you used coupons, now you're Millennial Moms. Not many older people...is it come down? I personally would say marketing is the last thing I would start with, but I mentioned your thoughts.

Martin: Well, I think it very simple what to do, I'm not saying it's simple to integrate or implement but certainly the approach is simple. Number one, understand who your customers are. And I think they need to spend a tremendous amount of time with who is their customer base. And again, live with them, shop with them, eat with them to understand how do they look like, and what are their dreams and hopes and desires in their life, I don't think they get that. And if they get it the right way, they will also know what to sell in the store and what not to sell, or if this audience at all is interested in this store concept in the future.

Once they've done that, the second most important thing is really to create a culture. I don't think JC Penney have a culture anymore. I think they are...those people have been abused so much through so many years that they don't like, they dislike working in there. We know today and this is a fact that 80% of store success is due to what we define as the software. The software is not what you put on a computer, the software is people. The hardware is the bells and whistles and the entrance and the design of the store and that's only 20%, 80% is due to people. If I get into a place and people smile, and they're engaged, and they're not like robotic, and you can see they love being there, you want to be part of that community. You want to be part of that culture and JC Penney do not have a culture anymore. And once you get that right, people will buy almost anything because they want to be part of that culture which people don't have any more in their lives. So, I think that would be the two very simple steps and then they'll, of course, be 200 other steps to follow. But if you get that right, then I think you're on the right track.

Bob: I would agree. I think that's the challenge that particularly when I go into a store, and the employees' hard drives have gone into sleep mode, they're in felon pose, or their hands behind their back and they're waiting. It's like, you're not really here, you've left the building, so you're not adding anything. And someone said stand at the front of the department and take questions but that's not really it. I was in Portland and the young woman came up to me as I walked in her store, she goes, "You ever seen a stupid chicken as this?" And she had some stuffed, chicken. And I was like, "No, I certainly haven't." She goes, "Well, feel free to look around, we have much better items than this." And I laughed and I thought, "There it was, thank you." And people were buying and they were happy. How has the way you thought about retail changed in the past year?

Martin: I think retail is going to be 100% experiential and you will see at least in supermarket, the CPG products, the Cokes of the world would disappear. And you will have restaurants, you will have bars, you will have nightclubs inside supermarkets, this is already happening right now. You will see that the retail stores, in general, would become showrooms, where you explore and where you innovate and where you've been inspired. And it may be that you don't buy anything in that store but you were being inspired and then you go home and buy that product when you come home. So, they're going to be these type of display rooms. And most importantly, you'll see that physical retail would be all about community. And these three factors would basically transform the U.S. and the high street we know today.

I think we will see in 10 years from now that the malls will struggle big way but I think we'll see the mom and pop stores will thrive in a big way because they remind us about what we had in the past but have forgotten since

Bob: And they're authentic, and that's what you've been today with me. I appreciate your time today, Martin. Thank you again.

Martin: You're welcome. It was a pleasure.