AA: Charles Schwab once had a clearly defined image: No. 1 discount broker. Schwab today offers low-cost online trading, research and advice, mortgages, even high-end financial management. What's the strategy?
Pottruck: The marketing challenge we have faced is carving out this image location for Schwab that builds on our heritage but doesn't position us in the middle as neither as cheap as [discount brokers] or as knowledgeable or insightful as traditional firms.
We have struggled with that. When we look at our advertising, we see our image ratings on "market wisdom, has relationships, give advice" have all moved in the direction we hoped. But the perception of value has been coming down. We literally have not advertised a price-driven message since 1998. It's time for us to become much more aggressive around price-driven messages. It doesn't mean we need to be the cheapest in the market, but we have to show people that at Schwab you get price and more.
AA: In 2003 Schwab slashed spending on advertising and market development to about 3% of revenue, a dramatic decline from the 5% to 6% spending level you stuck with from 1996 to 2002. Why did you do that?
Pottruck: We made that cut because we had a very tough start to 2003. When we were sitting facing the prospect of war in Iraq, our clients stopped trading stocks. We spent the year trying to get back to a respectable level of profitability.
I would look back on that and say our advertising cut in 2003 was one of the worst business decisions I ever made. I should have allowed our profitability and our margins to drift down and keep our ad spend up. I could have suspended the ad spend during the period of the conflict, but when the [first phase of the] conflict was over, we should have reinstituted a higher level of advertising about June or so of last year. We should have gotten our ad spend back sooner, and we have suffered as a result.
AA: Your first-quarter spending for advertising and market development was up 29%, and Schwab has said it expects full-year 2004 spending to be up around 50%. That would put spending at about 4% of revenue-still significantly below what the company had been spending for many years.
Pottruck: Right. Every dollar has to be squeezed to feel like $1.25 or $1.50. We've gone from 55 different advertising agencies to under 10. Becky Saeger [exec VP-brand management and marketing communications] and her team are going to make our 4% advertising spend feel like 6% by the effectiveness of our messages, the effectiveness of our buying, the effectiveness of our agency relationships. It's not about just the creativity and the wonder of it all. It's about the engineering and the hard work. It is about making every dollar work harder than our competitors do.
AA: Four percent spend would put your budget this year at about $200 million or so, vs. the peak of $332 million back in 2000. It sounds like 4% is a good number going forward for Schwab?
Pottruck: It's a pretty good number, but I would love to see it even bigger. My goal is to get that number even higher.
AA: How does Schwab view the effectiveness of media alternatives?
Pottruck: Media buying is a strategic activity of the company. Let's say we spend $200 million on media. We'll use that as a simple number for the sake of discussion. I have no doubt that the media decisions we make can make the $200 million feel like $240 million or like $160 million. That's an $80 million differential. That to me is a CEO-type issue. Eighty million dollars is at my level of authority in the company-no one else has the right just to go off and spend or waste or invest $80 million. So I am intimately interested in how well we do our media planning, our media selection and our media buying.
Aggressively working to buy is important. Every discussion I hope is about, "What else can we get? What [print] placement do we get? What premium did we get? What deal did we get?" I want my folks hammering on everybody to make sure we're getting a little bit better deal than if we just come in and pay the rate card.
AA: Let's look at your own media habits. What are your favorite magazines, newspapers, TV programs?
Pottruck: I love magazines. I have my interests, like golf and skiing, and so I love those. I can't get enough of business magazines because I love learning. My favorite business magazine is Fortune. That is what I try always to read. Then I read my favorite newspaper, The Wall Street Journal, and, on weekends, The New York Times.
I have become a huge, huge fan of TiVo. I TiVo everything. I never watch live TV, never. If there is a football game on that I want to watch, I don't watch the first half and then I start watching and I sort of end at the end. I catch up. I fast forward through the commercials, including my own. That is a big issue we have to all be thinking about, which is why Becky and her team are doing some testing on new marketing campaigns employing TiVo (AA, June 14).
AA: Rivals such as TD Waterhouse position themselves against Schwab in their ads. Will Schwab consider comparative ads?
POTTRUCK: We never name names or never have. We might change that. Naming names is a dangerous thing to do and needs to be approached thoughtfully. The discount brokers we compete with have always named Schwab in their advertising. We are the standard.
We have to think about whether we want to compare to others. We may. But we don't want to be the advertising vehicle for our competitors. We like to talk about what we do and why you want to come to us and what we can do for you that makes a difference. That strategy has worked well for us for the 20 years I've been at Schwab.
About David Pottruck
David (Dave) Pottruck, 55, joined the company in 1984 as exec VP-marketing and advertising and became Charles Schwab Corp.'s CEO in 2003.