DBJ sat down with Professor Kevin Lane Keller, who is the E. B. Osborn Professor of Marketing at the Tuck School of Business. Professor Keller has degrees from Cornell, Carnegie-Mellon, and Duke University. At Dartmouth, he teaches MBA courses on marketing management and strategic brand management and lectures in executive programs on that topic. His specific research interest is in determining how theories and concepts that relate to consumer behavior can improve marketing strategies. In addition, Professor Keller is currently conducting a number of studies that address strategies to build, measure, and manage brand equity. In this interview, Professor Keller discusses his 30 years of experience in marketing and branding for major national and international brands and reviews some of the main lessons he has learned.

Dartmouth Business Journal (DBJ): Professor Keller, you have taught at a number of top ranked universities, such as Stanford, Cal Berkeley, and UNC at Chapel Hill. With that experience, what specifically brought you to Tuck?

Kevin Lane Keller (KLK): After I received my PhD from Duke, I moved to Stanford, which was a really great place to live and teach, but when I first met Punam, my wife, who is also a Tuck Professor and an Associate Dean for Strategic Research, she was at Columbia. Since we needed to find a place with two faculty positions in marketing we initially joined the UNC business school. Later, when an opportunity came up for us both to teach at Duke, we were all set to join the business faculty. When Tuck expressed interest in hiring us, we took a trip to Dartmouth thinking that there would be no chance we would ever leave Chapel Hill, but we discovered that everything about the College, Tuck and the area was so great that we decided to come. One interesting point, with all my various MBA teaching experiences before coming to Tuck, I always used to say that my favorite students were Dartmouth students, who I found to be really smart and well-rounded. We have found the same to be true of Tuck students, which is one reason why we like being at Dartmouth so much.

DBJ: You have done consulting work in marketing for some of the world’s most successful brands. Can you pick one company and tell us what it was like to work with them and, briefly, what you did for them?

KLK: I have been lucky to work with many great brands over my career, but one of my very first clients, Disney, comes to mind. Early on, in the late 1980’s, I did consulting on a classic brand strategy project for Disney to help them better understand what the Disney brand stood for based on its characters, movies, theme parks, etc. Disney was trying to get more aggressive with their consumer products, for example, in the licensing of their brand to other companies making toys, clothing and so on. As a result, they needed to know how to leverage their brands with different clients and opportunities, and therefore what the essence of the Disney brand was.

I learned a lot from that project. One thing I learned about is the notion of “death by a thousand cuts.” Basically, Disney had to get more disciplined internally as a company about the whole concept of branding and licensing deals. The problem was that people felt that the Disney brand was so strong that even if the company did a licensing deal that wasn’t really consistent with what the Disney brand stood for, the deal would still be okay because the brand was so strong. This line of thinking could be, potentially, highly problematic for Disney’s brand. Although one inappropriate licensing deal for Disney may not have hurt the brand that much, a number of inappropriate licensing deals could really add up and hurt the brand via “death by a thousand cuts.” Therefore, internally, it was important for Disney to clearly define what their brand stood for. Once they did, they needed to give people good strategic “guard rails” to help them stick to their brand. Their nightmare was that they would wake up one morning to find out someone in the organization had struck a deal for Mickey Mouse licensed ashtrays! Strong brands such as sDisney often have to be even more vigilant and protective than less-strong brands because people can take the brand for granted and that can cause real problems.

Secondly, I learned that even when everybody says they know exactly what a brand stands for, they often actually tell you different things about what they think the brand represents. Therefore, it’s important to have complete clarity inside the company about exactly what the brand is supposed to communicate to consumers. The internal part of branding is just as important as the external part of branding. Thinking about Disney’s brand, at the time we came up with a brand mantra “fun family entertainment” which helped Disney stay on course and on track with their brand.

Thirdly, I learned that even after we crafted that mantra, over time people became very creative, such that the Disney brand ended up becoming too elastic. People started to take the brand to places Disney may not have had in mind. We then followed up with a concerted program to make sure everyone at Disney knew exactly what the mantra meant and why.

DBJ: You are known as an expert in brand management, can you explain how branding is similar and how branding differs from marketing?

KLK: Branding and marketing are actually very similar. In these two areas, I have authored the textbooks Marketing Management and Strategic Brand Management. In many ways, there is a lot of overlap in the basic concepts between branding and marketing. With brand management, it is the case that you put much more emphasis on the brand itself; however, even with branding, you still spend a lot of time talking about the strategies and tactics associated with marketing. Remember, the brand is what people have to buy and what you are selling. It’s all about creating value to customers and the company, just as with marketing. I think the concepts, in general, are highly related. Good marketing makes for good branding.

DBJ: You have research interests in different theories and concepts that relate to consumer behavior- can you describe one theory and how it relates to consumer behavior?

KLK: My undergraduate degree was in math and economics, so my training as a student was very quantitative. At Duke, while working on my PhD, I took a course in consumer psychology that really changed my career path. By taking the course, I became interested in psychology and particularly the psychology of memory. In fact, in my work, the one theory I probably have used the most is the associative network theory of memory. I think this model or theory is simple to apply but highly predictive for marketing and branding. The idea is that our memory consists of nodes of information and links that connect those nodes. When we investigate memory and recall for a particular product or brand, the question is what kinds of nodes exist, how strong the links are between nodes and how are all the different nodes and links are organized. An important implication of the theory is that memory recollection is a function of spreading activation within the memory network.

Let’s consider an example. There was a famous ad in the 1960’s for LIFE cereal that starred a little boy named Mikey. The TV commercial had three brothers and their mom wanted them to eat a certain cereal brand, but the older brothers didn’t think they would like the cereal because their mom wanted them to eat it; the idea behind this logic was that whatever your parents wanted you to eat was probably good for you, but also probably didn’t taste very good. But the little brother, Mikey, loved the cereal so that when the older brothers saw Mikey eating the cereal and enjoying it, they had to try it. For whatever reasons, people loved the commercial, but the sales for the cereal did nothing because when people went to the store, they looked on the shelf for “Mikey cereal” which obviously wasn’t there. Applying the associative network model of memory to this outcome, it’s about information retrieval versus information encoding in memory. The problem for LIFE cereal was that there were no good retrieval cues on the actual box of cereal that was being sold at the store, the brand name itself, LIFE, just didn’t work. So they put a little photo of Mikey on the front of the cereal package, framed it like a TV set and verbally added “Try the cereal that Mikey likes,” and with all these retrieval cues, the sales of the cereal reportedly doubled. So what’s available in memory isn’t necessarily accessible, you can’t necessarily retrieve information from memory unless you get the right reminders.

This led me to a lot of related research in advertising and got me interested in branding- what did the brand name stand for, how did it function as a cue, etc. As a result, I began to think more generally about branding and to work on topics such as brand extensions, brand positioning, brand architecture and so on. What consumers think and feel, and how they act towards a brand, is what drives value and how the brand is represented in memory is critical.

DBJ: You have lots of experience internationally in consulting and lecturing. How do you think marketing and branding differ in the U.S. compared to other markets?

KLK: A lot of the same principles still apply. Perhaps the biggest difference is between “developed” versus “developing” markets and the idea that in developing markets, such as India and Brazil, consumers may differ in some important ways in how they shop, what they look for in a brand, etc. As a result, there are some important marketing differences between developing and developed markets. For example, the distribution channels may be different such that in some developing markets, there are a lot more “mom-and-pop” stores making up the distribution channel. But at the same time, there are many similarities in global marketing too. In the U.S. and overseas markets, marketers still try to create differentiation for the brand and to provide value for customers. One important thing a U.S. company should be very careful to do with global marketing is to not take shortcuts to build their brand in new markets. Under some circumstances, you can speed things up, but you can’t skip steps, especially as to who you are, what you are and why the consumer should care. Some of what we do in branding and marketing in the U.S. can be exported to a new market, but some of what we do here may be too advanced for new markets.

DBJ: What career advice would you give undergraduates at Dartmouth interested in business?

KLK: I believe that a liberal arts education is great preparation for business. The richness of the academic experience, the development of the cognitive and writing skills students receive at Dartmouth, combined with a MBA at some later point in time, is a fantastic career option for Dartmouth undergraduates. I think of an MBA as both a great career accelerator and a great career switcher. After being out of college for four or five years, going back for two years to get an MBA is a wonderful experience, personally enjoyable and something people find very enriching and rewarding. I see a Dartmouth liberal arts undergraduate education, combined with getting more practical experience after graduation, then going to business school, as a natural career path. For Dartmouth students interested in marketing, my advice to them is that it is really helpful to understand people and to be able to relate and empathize with them. To persuade and sell products to people, you need to know what makes them tick. As another piece of advice, data analytics is also a field where there will be great opportunities for Dartmouth undergraduates as there has been an explosion in data, so that learning how to work with and extract meaning from data are useful skills to learn, especially if combined with great business understanding and insight.

Adblock Plus, a startup that poses a serious threat to internet advertising, won a significant precedent-setting case on April 22 that confirmed its right to block ads. Two newspaper publishers sought financial relief and challenged the legal status of Adblock Plus’ business model in a German court, but the court upheld the company’s right to block online advertisements.

“The Hamburg court decision,” Adblock Plus executive Ben Williams writes, “is an important one because it sets a precedent that may help us defend what we feel is an obvious consumer right: giving people the ability to control their own screens by letting them block annoying ads and protect their privacy.”

For those who are unfamiliar with the software, ad blockers, as their name suggests, block ads online. Gone are the days of in-video YouTube ads, preference-seeking Facebook ads or pesky “click this red button” ads. Although several similar services exist on the market, Adblock Plus leads the pack as the most downloaded browser extension of its type in the world.

Even though ad-blocking software has existed for almost a decade, it was never perceived to be a legitimate threat to Internet publishers. But now, armed with ever-growing subscription rates and the recent Hamburg victory, ad blockers are tightening their chokehold on advertisers and changing how websites make money.

Simply put, ad blocking is an affront to the traditional business models of no-fee websites, such as Google and Facebook. While sites that do not charge users have traditionally made revenue by running ads, they now face an unexpected problem – what if people don’t see their ads in the first place?

As Interactive Advertising Bureau general counsel Mike Zaneis recently confirmed, “Ad blocking is beginning to have a material impact on publisher revenues.”

If online ads lose their visibility or relevance, companies will place less value in online advertising, which will likely lead to a downward spiral for the revenue streams of websites.

According to a report conducted by Adobe and PageFair, use of ad-blocking software increased 70 percent in 2014 alone. Currently, about 30 percent of the Internet-using U.S. population subscribes to ad-blocking software, and a total of 144 million users worldwide subscribe to ad blockers, a statistic that continues to grow. These numbers seem to suggest that ad blockers are gaining even further leverage against advertisers.

The software’s growing popularity has even caused Internet giants such as Google, Amazon and Microsoft to pay Adblock Plus to “whitelist,” or unblock, their ads. According to a report by the Financial Times, Adblock Plus had requested fees equal to 30 percent of the additional revenue these sites generate after their ads are whitelisted. Although it is unclear what the final terms of this agreement were, when the most influential players in the industry are paying to unblock their ads, it’s time to take notice.

Rather than paying into ad blockers’ demands, however, some companies have taken another route. They are beginning to employ more aggressive tactics to combat the rise of ad blockers.

New York-based startup Secret Media has developed software that allows websites to run video advertisements, which escape the detection of ad-blocking technology. According to its founder, Secret Media is already helping large media websites run over 10 million ads daily. Last year, jolted by the meteoric rise of ad blockers, Yahoo acquired Clarity Ray, a startup exclusively focused on developing software to circumvent ad blockers.

Yet although Internet giants have suffered major hits from this brawl for the $140 billion online ad industry, smaller websites have taken an even sharper hit, mainly because they cannot mobilize large resources as Google or Facebook can. While large websites can easily file lawsuits, strike deals or temper the effect of ad blockers through other sources of revenue, small websites typically have a smaller pool of resources and generate revenue almost exclusively from pay-per-click ads. Without any ads to click on, these small sites can lose most, if not all, of their sources of revenue. This poses an ethical question: are smaller, mom-and-pop sites particularly vulnerable to the adverse effects of ad blockers?

Another ethical concern asks whether it is fair that “free” sites such as Pandora and YouTube do not receive compensation. These sites have been “free” because they make money from advertisements. In essence, these companies were providing a service at no cost to the user in exchange for the inconvenience of a few ads. But through ad blocking software, users are now enjoying these so-called “free” services while simultaneously cutting their revenues.

Yet, it is hard to conceive that free websites could, anytime in the near future, charge users for their services in the event that ad blockers reign supreme. According to the Adobe and PageFair report, only one in five people surveyed would be willing to pay a fee to use their favorite websites without ads.

This peculiar scenario compels Internet publishers to either directly attack ad blockers, as Yahoo has done, or cave into their demands, as Google did earlier this year, because they know a fee-for-use would likely be a disastrous business decision.

But despite ethical concerns, the explosive growth of ad blockers demonstrates what may be wrong with the current state of advertising. The incredible popularity of ad blockers may be reflective of consumer demand for less excessive ads.

A common criticism of advertising is hyper-commercialism, which articulates the belief that advertising is too excessive and invasive. While it was historically impossible to avoid most ads, such as a 48 by 14 feet billboard in the middle of a freeway, consumers today can elect to avoid online ads in their near entirety. Ad blockers might well be revolutionary because they give consumers a choice over what they see.

While it is true that ads can potentially provide useful information or create awareness of substitute products, the current state of advertising seems misaligned with consumers’ interests. All too often, Internet ads clutter and dominate the screen, seek to collect personal data or sell products through intrusive methods.

But whatever the exact distaste towards online advertising is, the recent meteoric rise of ad blockers suggests many are voicing their aversion towards current methods of advertising.  Coupled with the recent Hamburg decision, ad blockers are poised to be the biggest threat to the future of online advertising.

When you step in the doors of the PEZ Candy, Inc. headquarters in Orange, CT, it’s clear that President and CEO Joe Vittoria is, as he readily admits, a five- year-old kid at heart.

According to Vittoria, who joined the company in 2004, this effervescent liveliness – from the gargantuan PEZ-themed Orange County Chopper motorcycle suspended from the ceiling of the PEZ visitors’ center entryway, to the kaleidoscopic displays of everything from Yoda to President Millard Fillmore on the heads of dispensers – is quite a paradigm shift. “When I came here, the company was quiet,” Vittoria admitted.

Vittoria’s seven years with PEZ have seen a resurrection of sorts: of the brand, of the headquarters’ physical presence and of the company as a whole. The new PEZ, however – which ships more than 150 million dispensers per year globally – represents a significant move forward not only from the previous decade, but from the 85-year-old company’s roots in Vienna, Austria as a non- invasive way to help smokers kick their habits.

For PEZ’s first twenty-five years of existence, the company’s iconic dispensers bore a near-identical physical resemblance to cigarette lighters: they helped smokers quit smoking without abandoning the “cool” factor associated with carrying lighters. Rather than child-oriented candy capsules, the containers dispensed mints, providing an alternative to cigarettes.

But the brilliance lay in what seemed at the time to be a minor adjustment. When PEZ expanded to the United States in the 1953, it added the head to the existing body of the dispenser. Little to the nascent company’s knowledge, this slight modification transformed PEZ dispensers – and, by extension, the PEZ brand – into what they are today. “When one of our engineers designed that head, it just took off,” Vittoria said. “It became popular. It was no longer a smoker’s mint product; it became a child’s product. It became fun.”

Even though the company cemented its identity long before he arrived, Vittoria said he was not content with Pez’s direction when he took his position. “The brand had gone to sleep,” Vittoria pronounced. “When I joined, it was, ‘OK, you got the great brand you wanted, Joe, but, gee, it’s not so shiny.’ So all we did was buff it up.”

***

Starting with the milk route he carried from age five under the watch of his next-door neighbor, Vittoria said he “always found a way to make a buck.” In high school, in addition to his classes, he worked simultaneously as a skate guard, an attendant in a shoe store and as an employee in what eventually became his own car- cleaning business.

After graduating high school, Vittoria attended Iona College in New Rochelle, NY. According to Vittoria, though, he obtained the majority of his education outside the classroom, particularly in watching those around him – in “seeing the people that did well.”

Upon graduation, Vittoria landed a job at IBM as a as a staff accountant. While the $11,000 salary was more than the young Vittoria had ever dreamed of, he was bored. “I was twenty-five layers down in a massive corporation,” he said. “To me, that was like, ‘I’m lost.’”

Always itinerant, ambitious and hard to satisfy, Vittoria moved on: first to International Minerals and Chemicals in Manhattan, then to Almet Aluminum, and finally to Henckels Cutlery. Each time he switched companies, he moved up a notch on the ladder of corporate hierarchy. But his story stayed much the same.

“I was what I considered a ‘jumper’,” he said. “But I knew I got bored quickly. Three years, I had to do something else.”
Years later, Vittoria was recruited by PricewaterhouseCoopers, which had audited several of his previous companies, to join their team as a consultant.

“I think that’s the lucky thing I’ve had more than most,” Vittoria admitted. “I’ve worked with some individuals who were accomplished, who were entrepreneurial, who had built things and created them. And I was able to spend a lot of time with them. And, in a conversation with any one of them, I think you learn something every single day.”

Finally, while at PricewaterhouseCoopers, Vittoria got a call from PEZ, which he had unsuccessfully approached about buying while with Henckels two decades earlier.

“They asked me, ‘Well, Mr. Vittoria, we’re not going to sell our company – but would you be interested in operating it for us?’”

***

PEZ is all about branding. “It’s one of those brands that you just remember,” Vittoria explained. “If 85 percent, 90 percent of the population in the States doesn’t know PEZ, I’d be shocked.”

Though the brand existed when he arrived, however, it was far from where Vittoria wanted it to be. “We were portrayed as a low-end novelty that you only find in dollar stores,” Vittoria lamented.

Fortunately, branding and marketing were in Vittoria’s line of expertise. Though he was trained – both academically and in his first few jobs – in finance and accounting, he developed an affinity for manufacturing and marketing over the course of his career, making PEZ’s branding dilemma an especially intriguing puzzle for him when he became CEO. “I came in and said, ‘How do we take this brand, shine it up, clean up the business, make sure we’re ready for growth?’” Vittoria explained.

Vittoria saw Pez’s branding efforts as inextricably intertwined with developing new products that both sold well and evoked a sense of nostalgia for the customer. “If you think about PEZ, you typically think about your childhood,” he said. “And the brand is strong enough that people typically say, ‘Oh, I remember when.’”

Next on Vittoria’s list was identifying the most receptive demographic for the Pez product. The bulk of PEZ’s customer base had always been children. The logical way to get at these children, then, was through their parents. And the way to convince the parent of PEZ’s worth brought Vittoria back to the core of PEZ’s brand identity: the sense of nostalgia.

“The parent had the memory,” Vittoria said. “Parents were still, to this day, buying PEZ dispensers to give to their kids for Christmas, Halloween, Easter.”

While embracing the collector community certainly helped PEZ rediscover its identity, a reorientation of sales strategies has also boosted business. Today, licensing accounts for sixty percent of PEZ’s revenues, whereas seasonal sales used to account for seventy percent, according to Vittoria.

Meanwhile, certain collectors’ sets have of course been smashing hits. Sky- high initial sales of the Lord of the Rings collector’s set, for example, led PEZ to expand its initial production plans of 250,000 sets to 500,000.

In the spirit of creating a more vibrant company atmosphere, Vittoria also took it upon himself to revamp the Pez headquarters from the ground up, turning the existing structure into 55,000-square foot behemoth of a warehouse – twice the size of what it had previously been. PEZ’s improvements in manufacturing efficiency now allow it to produce an astounding 360 twelve-piece rolls of candy per minute.

Rekindling and maintaining distributor relationships were equally important, Vittoria said. PEZ has been a licensee with Disney since 1952. Creating and developing a relationship with Wal-Mart proved vital for the company, too.

Since Vittoria joined PEZ, though, the new product designs have been half the story. Star Wars, Major League Baseball and NCAA football helmets, and Captain Jack Sparrow, to name a few, have joined the more traditional Disney characters on Pez’s shelves.

“To describe what PEZ is today, I think it’s almost back where it should be,” Vittoria posits. “So now we’re looking at new ideas again. We’ve changed flavors. That’s nice. But the dispenser’s still the driver.”

***

Given PEZ’s entrenchment in pop culture, managing public relations is of paramount importance.

PR for PEZ comes in all forms – good and bad.

“We’ve been on RadioShack commercials,” Vittoria said. “We’ve been on Seinfeld. The Food Network came up here and did shows about PEZ.”

Vittoria’s goal with PEZ has always been to stay as apolitical as possible, although, according to Vittoria, there is often nothing the company can do to stop its products from becoming politicized.

“We don’t do political characters on purpose,” Vittoria warned. Even so, Vittoria says he has seen magnets featuring George Bush with a PEZ dispenser head.

PEZ is so intentional about staying true to its mission – to reflect positive emotions in its dispensers – that it turned down Warren Buffet when Berkshire Hathaway asked PEZ to make a figurine of its iconic chairman and CEO.

“He doesn’t have the edge,” Vittoria explained. “Meanwhile, I did the Geico lizard. Why? Because it’s more fun.”

Certainly Vittoria has improved upon some of PEZ’s specific strategies, whether in marketing, product development or elsewhere. But he cites PEZ’s trueness to its original goals as perhaps the most direct contributor to its long-term success.

“All we’re doing to this day, all kidding aside is making that product, that head,” he said. “The candy dispenser? Others have developed it. But that that head, that dispenser, that license, that character, that face – that’s what drives it.”

***

How exactly has Pez gone about doubling in size during Vittoria’s seven years?

“I’ve got to tell you: we’ve gotten lucky, and it’s all about the brand,” Vittoria said.

Though bits and pieces of its operations have changed, PEZ remains much the same as it was in the middle of the twentieth century. Its Connecticut home houses the North America operations and produces the candy, while its European headquarters produces roughly fifty percent of the dispensers, and its affiliates in China produce the other fifty percent.

Vittoria prides himself on his success in embracing the PEZ collector community – marking a distinct difference from PEZ’s past. “When I got here, if the collectors were coming around, they were pushed off the property,” he said. “If they were taking pictures, the police were called.”

Vittoria downplays his personal impact on PEZ’s success. The common thread throughout his experiences, however, seems to be willingness to engage in the communities around him – to develop his “EQ” in addition to his IQ.

Vittoria promotes this strategy for anyone. “The more you get involved in stuff, whether it’s in school or outside school, you pick up on subtleties on how people act, move, discuss – on how things work,” he said. “If you’re a classically trained student, that’s fabulous. But don’t be afraid to learn from touching and doing and feeling, not just reading.”

So Vittoria thinks he has some idea of what has led to his success. But what’s his job from here forward?

He smiles. It’s simple.

“To expand the tradition: to keep it going and to build some more history.”