Marketers need to look for new opportunities in the voids separating existing products and put hard data ahead of gut feelings, according to David Pottruck, chief executive officer of Charles Schwab Corp., who spoke earlier this month at Wharton’s second annual CMO Summit.


Pottruck led the San Francisco discount brokerage during the Internet boom and stock market euphoria of the late 1990s, and the company’s subsequent downturn in 2001. “It has been a humbling couple of years,” he told his audience of chief marketing officers and others, “a time in which all of us who are CEOs have had to reflect on what we do and how we do it.”


Pottruck, who joined Schwab as head of marketing in 1984, initially relied heavily on metrics. But during Schwab’s boom years, the company drifted away from that more disciplined approach to business growth. “We could not open offices fast enough. We could not spend money fast enough,” Pottruck noted. In 2000, the company increased its workforce by more than 30%, adding 6,200 employees.


The next year, as markets slumped, Schwab’s business fell off by 50% and the company began a painful series of layoffs that cost 9,000 workers their jobs by the end of 2002. “The last couple of years have been harder than anything I could ever have imagined,” said Pottruck. “Our company in some ways took more of a hit than most others because we were moving so far and so fast, up. The reversal – coming down – was an enormous turnaround.”


Voice of the Customer

Schwab’s marketers have now returned to basics, Pottruck said, adding that he recently replaced his entire marketing team with new people more oriented to metrics. “Along the way, we lost our way, [including our] commitment to metrics.”


When a company is doing well, he added, marketers find it more fun to focus on advertising and feelings than test data. “I believe this is something that all of us have to fight. We have reversed this in our company because we’ve had to.”


Pottruck, who is the co-author with Terry Pearce of Clicks and Mortar: Passion-Driven Growth in an Internet Driven World, described the role of marketers at Schwab as one of building the brand and articulating what it stands for. “It’s not enough to have top-of-mind. We have that.”


Marketers must also be the voice of the customer and seek out opportunities for services that are not being offered by the company or competitors. “Our job as marketers is to develop the things that don’t exist,” he said. “I don’t want to go head-to-head with the competition. I want to go around them.” Finally, the marketing department should serve as a central point in designing new products and providing leadership for the entire company.


Because he came up through the company from marketing, it is a challenge for Pottruck to step back from that department when necessary. One reason is he does not want to signal a lack of confidence in his team. The bigger worry, however, “is that I will stay stuck in my own frame of reference. I bring 20 years of perspective, but I also bring 20 years of my perspective. I have to make sure I’m a really good listener.”


According to Pottruck, most CEOs are fixated on revenue growth and many have more faith in selling than marketing. In the case of financial services companies, that attitude can result in reduced marketing and advertising budgets and increased commissions to brokers.


Some of that attitude is the fault of marketers themselves, he noted. “Let’s face it. There’s a lot of bad advertising out there. The CEO looks at these ads and says, ‘I don’t understand the consumer proposition. I don’t understand what the unique message is. It’s stupid. I’d rather take the money and give it to the salesmen.’” In addition, marketers too often aggravate the situation with overly complicated proposals. “You make it too fancy,” he told the audience. “CEOs don’t have time for that.”


The hard times at Schwab have taught Pottruck that companies need to build plans with “escape hatches.” He said the firm’s 2001 budget was designed with a back-up plan, but it was not enough to compensate for a drop of 50% in Schwab’s business. “It’s not like you can have a contingency plan for every possible outcome. But you need to make sure you have some outs, some flexibility.”


In Schwab’s hey-day, the company negotiated expensive 15-year-leases that Pottruck now wishes had five-year terms. “That was a painful mistake for us.” Media budgets are another area where companies can build in flexibility. Managers should consider how much of their media spending should be locked into fixed contracts, he suggested.


Embedded Video Clips

The Internet remains an important part of Schwab’s strategies for the future.


Pottruck described the Internet as the kind of mega-trend that comes around only once or twice in a career. Schwab rushed in to embrace the technology, he said, because it was easy for customers to use and it cut costs. “The Internet is undoubtedly one of the most spectacular technologies we have ever come across.”


It is not a panacea for companies with a bad business proposition, said Pottruck, but the Internet still holds more promise than many people now believe. “Along the way the Internet got tarnished. People spoke of it as dead. That’s simply not true.” The Internet, he noted, continues to improve distribution, internal communications, and the management of supply and inventory at Schwab and other companies.


One Internet-based marketing tool that intrigues Pottruck is e-mail embedded with video clips. Today, marketers use the “hot” emotional medium of television to catch consumers’ attention. They then pair that message with traditional print advertising or mailings to explain the details of a product and close the sale. E-mail with embedded video would do both at once, at less cost, although Pottruck said the technology is still not ready.


He is also excited about the idea of using video connections linked to call centers where customers can interact with not only a voice, but a face as well. “I’m in the business of building trust. I think when you see someone, something special happens.”


From Greed to Fear

The current push by many financial service firms to bundle customer services within one firm is a promising strategy, says Pottruck. While investors don’t feel pressured to consolidate their holdings at one company, they would do so if financial services marketers made it attractive.


To encourage consolidation, marketers need to mine data and develop products that are relevant to consumers. Financial services firms, he said, have a treasure of data about their customers. Beyond demographics, they know who is making money and who is taking money out of the market. As a firm with eight million accounts that have all this information, “it is just inexcusable for us to be offering products and services that are completely irrelevant to the situation.”


Pottruck said the pure-play Internet brokerages such as E*Trade and Ameritrade remain competitors, but their business with active traders is too small to support Schwab. “The big opportunity for us is to go after investors who are ready to move beyond self-directed investing. The market we are attacking is the traditional brokerage firms or banks where we think there’s an opportunity to provide guidance at a different price point with a different kind of objectivity.”


Investing is not really that hard, he noted, if consumers follow simple formulas of asset allocation and diversification. “Brokers who get paid too much money for doing what they do have made it appear hard.”


Pottruck pointed to the great irony of investing: People are more interested in buying stock when the price is high, not low. Financial service firms need to do a better job of educating savers about the need to continue investing through all market cycles, he said.


The current investigation into after-hours mutual fund trading is a potential obstacle to building trust with investors. “In financial services where you are selling trust, this becomes a huge thing,” Pottruck notes, adding that certain companies seem to have bred a culture that revolves solely around making money. Lately, the same companies have been appearing all too regularly on the front page of the Walt Street Journal in connection to scandals.


He is concerned now because some of the companies named in the mutual fund investigation are firms with a good record of ethical behavior. He cited Alliance Capital. “It makes the hair on the back of my neck go up, and I worry about my own organization. There’s a lot of money in our industry for doing things that are not so kosher. We have got to stop that. We have got to be more proactive in our audit function. I think we’ve lost a lot of trust.”


Investors’ greed has come out of the markets and been replaced by fear, says Pottruck, predicting that the pendulum will swing back toward a middle ground. “The challenge is to determine not where we have been, but where we are going and get in front of that.” He predicts the public will return to an attitude about investing that prevailed in the early 1990s, not the mania of the mid- to late-1990s and not the pessimism of the 1930s.


Individual investors have grown overly distrustful of the stock market. “People’s attitude to the stock market is so totally different today than a few years ago. It was truly seen as a no-lose proposition,” said Pottruck. “Now the pendulum has swung too far the other way.”