Customers and Bottled Water: It’s the Coverup Not the Crime

Advertising Age presents Martin Lindstrom, at Coca Cola’s home in Atlanta, in his video:

Watering Down the Coke Brand?

Admitting the Source of Bottled Water

ATLANTA (BRANDFlash) — It’s surprising how just three letters — "PWS" — can generate such angst throughout an industry as large and savvy as the North American beverage business. But the issue of publicly admitting that bottled water comes from a "Public Water Source" is a huge one for marketers such as Coke. The concern, of course, is that if the consumers know those expensive bottles of water come from the same public reservoirs as tap water they’ll cease buying them. But, in fact, similar experiences in other categories show that consumers will not easily abandon products that have become as much of a habit as bottled water.

Lindstrom talks about Coke’s effort to introduce Dasani in the UK as a pure, pristine water. It’s a message that didn’t go over well when the truth came out (PWS), then took a second hit from a bottling contaminant scandal.

Lindstrom’s tone is bemused. And rightfully so.  As businessmen and politicians are continually rediscovering—it’s the cover-up that hurts you, not the crime. Think Nixon. Jeff Skilling. Larry Craig. OJ.  Monicagate.  Rigas. Mark Foley.  Corvair. Ted Haggard. Dan Rather.  Bhopal.  It’s endless.

And yet—as Lindstrom accurately reports, “The [marketers’] concern… is that if the consumers know those expensive bottles of water come from the same public reservoirs as tap water they’ll cease buying them.”

I know! I’ve got an idea! Let’s just shade the truth a bit.  Not a flat out lie, of course.  Just repositioning.  Images, not words.  Suggestions, hints, juxtapositions, transference, intonations.  Nothing illegal.  No lies, of course.  After all, what do you take us for?

It is shockingly hard for most of us to just tell the truth.  Maybe marketers have just a little harder time than the rest of us?  Maybe their paranoia is just more publicly visible. 

What’s peculiar is—as Lindstrom points out—the truth really isn’t so bad.  Consumers can be quite comfortable buying PWS water. It mainly depends on—whether they’ve been told the truth about it.  The whole truth.  And nothing else.

If we doubt the truth of any part of a message—not just lies, but omissions, shifts, allusions, and particularly motives—then everything begins to unravel. What a tangled web we weave…

Once we doubt someone’s motives, it’s like dominoes—one statement after another gets challenged.  We become cynics.  And we end up not trusting the speaker.

A good case  can be made for Public Water Supply water; it’s not so hard to make.   And it beats the heck out of an implied fake that ends up being discovered for what it is.

A lie by any other name will smell the same.  Like contaminated water.


Quarterly Earnings and the Addiction to Lying: Can Mattel Show the Way Out?

If you lie, the best time to ‘fess up is immediately. “Immediately” is the only time that “oops” can constitute a full apology.

The longer you wait, the more “oops” looks like a dot in the rear-view mirror. Soon, to make amends, you have to confess. And probably explain. And the longer you wait, the more you have to express remorse, do penance (or pretend that you are) and other forms of disaster recovery.

No wonder CEOs have a hard time with quarterly earnings: the more quarterly earnings increases they show, the harder it is for them to show a quarterly loss; the more they’ll lie to keep the string going.

That’s the conclusion of a very clever study in the spring 2007 issue of the Journal of Accounting, Auditing and Finance. Its authors are James N. Myers and Linda A. Myers, and reported by Mark Hulbert, in the September 22 NY Timess, How Many Quarters In A Row Can Quarterly Earnings Grow? (Hulbert is a rarity—an analytical finance type who speaks completely in common English).

The profs analyzed the heck out of tons of data to answer the question: “absent manipulation, how many companies over a 42-year period would have been expected to put together a 20-consecutive quarter string of increased earnings?”

The professors calculated that no more than 46 companies during that 42-year period should have had earnings-per-share growth for 20 consecutive quarters. But 587 companies actually reported such strings of growth, so the professors conclude that their findings constitute “prima facie evidence of earnings management.”

Additionally: companies that had increased the same percentage over five years but in less linear fashion showed six percentage points less in stock appreciation.

Finally, the longer the string of positive earnings reports, the sharper the plunge in stock price on announcement of a losing quarter. As the professor says:

Together, these various findings paint a picture of extraordinary pressure on corporate management to sustain strings of consecutive earnings increases for as long as possible.

When I was in b-school, we talked about volatility of earnings—basically, a straight line is better than jagged. But we also talked about “quality of earnings,” which suggested that cooking the books (I don’t mean illegal, just, you know, cooking) was worse than not.

I don’t recall realizing there was a tension between those two goals, but it’s clear to me in retrospect that the more powerful of the two in the market was the appearance of low volatility.

In other words, cooking the books is rewarded by Wall Street; and the more you cook them, the more you’d better keep on cookin’.

Is that yet more proof for the cynics? It certainly sounds that way.

Then again, just because everyone’s lying doesn’t mean truth-telling doesn’t work; it could just mean no one’s willing to really try it.

Which brings us to Mattel, whose CEO apologized to China on Friday, September 21, saying China had gotten a bum rap for manufacturing flaws, when design was at fault.

Mattel’s stock price gapped up Friday about 4%, and stayed up on the day. A vote for quality of earnings? One day proves nothing, but as Rick Newman at US News and World Report says,

Mattel messed up, but now the company is bringing a welcome degree of transparency to an issue that seems complex and murky to most of us. So hurry up and pay attention, before the politicians and fearmongers muddle it up.

Was Mattel’s apology genuine, or forced by the Chinese?  I suspect the markets couldn’t care less.

 Could transparency actually be worth financial returns? Now there’s a thought.

Transparency, News Media and the NBA

What do news media and the NBA have in common?

If you guessed a trust problem, go to the head of the class.

So it’s interesting to see two pieces within a day of each other, suggesting the same solution to the respective industries’ woes.

Henry Abbott, in What the NBA Needs: Transparency offers a radical suggestion:

the crisis is if all those people who love watching the NBA find themselves in the position of not trusting the referees. That’s an indictment of the game itself…

The NBA keeps telling us how many ways they assess their referees. They insinuate that if we knew what they know, we’d trust those referees, too. Maybe that’s true. But telling us so isn’t going to convince anyone.

NBA, you’re going to have to show us.

… Let us go online after every single game and see video of every single call, all neatly sliced and diced by player, by time of game, by type of call, by referee, and by a bunch of other things I haven’t thought of yet.

Henry makes an important point about transparency—it’s hard to be partly transparent, because being partly transparent immediately suggests you’re hiding something. Call that a negative feedback loop. Don’t tell us—show us.

Alicia Shepard at the Chicago Tribune writes For News Media, Transparency Is a Matter of Trust, saying:

Poll after poll, year after year, the message is the same: Journalists are ranked down with used-car salesmen and snake-oil peddlers when it comes to credibility.

Is it because reporters lie? Is it because reporters make so many mistakes? Or because reporters are biased?

No. It’s because the public does not understand what journalists do or how the news gets put together, whether it’s for TV, print, radio or the Internet.

… The news industry should work harder at exhibiting the same transparency about how it operates that it demands from public corporations and all levels of government.

…. "Transparency is essential because it’s inextricably tied to credibility," said Susan Moeller, director of the International Center for Media and the Public Agenda. "Transparency doesn’t ensure accuracy. But it does ensure that when a news outlet makes a mistake … its audience can be assured that the news outlet is going to admit to it and correct it and will have policies in place for following it up."

Several other industries look at the same diagnosis—“the public does not understand us”—and conclude they have a PR problem, solvable by “getting the word out.”

NBA fans and media hounds know that won’t cut it. Transparency is not great spin—it’s a spin-free zone.

In our personal lives, the solution to mistrust is to “come clean,” “let it all hang out,” “just put it out there,” “tell the whole truth.” Be transparent.

At an industry level, the same dynamics are at play.