HBR
CASE STUDY
Sticl< to the CoreorGoforMore?
Advaark achieved
by Thomas J. Waite
phenomenal success
selling one service
very well. But now
customers are asking
for more, creating a
strategic dilemma
that could tear the
company apart
{{ ( Ut 1JJ
Spike Sanchez st~mped
• toward the stage, his anns
wavi ng the music to a stop. Wearing
black from head to toe, sporting dark
glasses, and sweating under the heat of
the lights, he was losing his patience. A
highly respected music video director,
Sanchez was starting to wonder if taking
on t his advertising gig was such a great
idea. “How many times do I have to tell
you to point the logo on the can toward
the camera during that move?”
On stage was Maygan M, a pop singer
whose star had risen in the months since
she’d agreed to do this ad. She was a
sweet-faced, 18-year-old beauty, dressed
in a sequined, midriff-baring halter top,
a skintight leopard microskirt, and platform shoes that h ad already tripped her
up twice. She sheltered her eyes from
the lights and glared at Sanchez. “Like
I can even see the stupid logo;’ she
whined. “Maybe you could fix it on a
computer or something?”
“Or maybe you should just do what I
say:• Sanchez shot back. “Th en we might
have some hope of airing this 3o-second
spot before your 15 minutes of fame are
up!” He turned abruptly, strode off the
stage, and dropped back into his director’s chair. “Let’s try it again from the
top:’ Maygan pouted at him for a moment and the n ilipped her long hair,
spun around, and we nt back to her starting position.
Sitting next to Sanchez was Ian Rafferty, cofounder and head of creative services for Advaark, a New York-based advertising agency. “Pretty tough to work
with, isn’t she?” he whispered.
“This?” Sanchez waved his band dismissively. “This is nothing! Try working
with some rock ‘n’ roll dinosaur strung
out on crank and wanting to make a
comeback!”
ln the back of the studio, Rafferty’s
partner and fellow founder George
Caldwell was deep in conversation with
john McWilliams, the CEO of GlobalBev. Both men were oblivious to the antics onstage. One of Advaark’s key clients,
GlobalBev was a multibillion-dollar
holding company for an assortment of
well-known food and beverage brands.
“We were completely blindsided by
this ‘energy drink’ craze:’ McWilliams
HBR’s cases present common managerial dilemmas and offer concrete solutions from
experts. As written, they are hypothetical, and the names used are fictitious.
FEBRUARY 2002
31
HBR CASE STUDY • Stick t o the Core – or Go for More ?
was saying to Caldwell. A relatively new
beverage category, energy drinks touted
their herbal stimulants and got an extra
jolt from loads of caffeine and sugar.
Teens and 2o-sornetltings all pounded
them back while studying, exe rcising,
and dancing and used them to get a
ldck start in the morning. They couldn’t
seem to get enough of the stuff. “But
thanks to this;• McWilliams continued
with a nod toward the stage, “I think
we’re going to get into the game in a
hurry. What a name, huh? Nirvoza! Is
that great or what?”
Caldwell was about to say something
when the music began to blare again
and Maygan resumed her lip-synching
routine. As he watched her and the
dancers prance around the stage, he
thought about the conversation he’d
had with Rafferty over the brand name.
He didn’t like it. It made him think of
anorexia- not a good vibe, even for Advaark’s cutting-edge style of advertising.
But Rafferty had persuaded him with
the results of a market test. The Nirvoza
brand had scored incredibly high with
the drink’s target audience, who liked
the fact that it suggested nirvana and
nervousness at the same time. Some
mentioned that it had echoes of t he
Seattle grunge band, Nirvana. Even
though the group’s singer had committed suicide, Rafferty wasn’t concerned.
The people who made that association,
he argued, were the very people who
would like an even edgier feel to the
brand. Caldwell was finally swayed. And
clearly the client was pleased with the
choice.
Suddenly the music stopped and
Maygan M thrust the can toward the
camera right on cue. “Achieve your own
Nirvoza!” she snarled. Everyone was
silent until Sanchez bolted upright and
stretched his arms out wide. ” Unbelievable;’ he shouted. “She did itl”Then
he smiled. “Okay, everyone. That’s a
wrap:’ There was scattered applause as
Sanchez turned and clapped Rafferty
on the back. “I’ll check out the tape before we send it over,” he said. “But I think
we nailed it.”
“Great Thanks, Spike:’ Rafferty got
up and headed toward McWilliams and
Caldwell, who were still huddled together at the back of the studio.
“You know, George:’ McWilliams was
saying, ‘Tve aJways been impressed with
Advaark’s creative work. The stuffyou’ve
done for us over the years has been absolutely great But you should’ve told
me earlier that you also help your
clients decide whether to get into new
markets:’ caldwell was just about to ask
McWilliams what he was talking about
when Rafferty joined them.
“We know we want to grow, and here we have
a client begging us to provide it with a new service.
Why on earth wouldn’t we do that?”
“So:’ Rafferty said, looking at both of
them, “Whad’ja think?”
“It’s great!” said McWilliams enthusiastically. “And l can only thank you
again for recommending that we get
into energy drinks. I have a really good
feeling about this. By the way, when
we’ve completely wrapped up this campaign, I’d love to get your thinking
about our snack lines. I can’t put my finger on it, but I think we’re missing something there. Okay?”
Rafferty shot a quick glance at Caldwell and then nodded at McWilliams.
“Sure. And in the meantime, here’s something you might want to stick in your trophy case!’ He handed him the Nirvoza
can, personally crushed by Maygan M.
Core Combatants
As McWilliams waJked out the studio
door, CaJdwell turned to Rafferty. “Was
it really you who steered G loba!Bev toward the energy drink market? I
thought it was his idea:’
Thomas f. Waite was afounder and the CEO ofthe Boston-based management consulting
firm Waite & Company. The firm was acquired in 1999. He coauthored “Marketing Breakthrough Products”(HBR November-Decemben999). He currently serves as a strategic adviser for numerous organizatiom and can be reached at thomaswaite@hotmail.com.
32
Rafferty frowned. “Actually, that’s
something I’ve been meaning to talk to
you about. lt was clear to me that that
market was on the verge of exploding
and that GlobaiBev was going to miss
out on it. It’s not like we don’t understand their business, George. So I suggested to McWilliams that we take a
closer look at it.”
“And?”
“He said to go ahead. So we did a
bunch of research on the energy drink
market and its projected growth rate
and figured out the existing competition. It all added up to a good move for
GlobalBev. I showed our findings to
john and he loved it. End of story.”
Caldwell respected Rafferty’s track
record of successes, but he wasn’t
pleased with this kind of maverick behavior. “First of all, Ian, we’re partners.
1should have been apprised of all this.
And second, did it ever occur to you that
the energy drink market might be just
a passing fad?”
“Don’t worry, George. We did our
homework. Even if the market tanks in
three years, which I don’t think it will,
GlobaJBev wiiJ still make a kiJJing with
Nirvoza. They’ve already got all the
manufacturing capabilities and distribution channels in place. This could be
huge for them.”
Caldwell was upset, but Rafferty was
a brilliant creative talent, and clients
loved him. He chose his words carefuJJy.
“Ian, I do applaud your initiative. But
when we formed t his business, we
agreed that the key to our long-term
success was staying focused on what we
do best- creating unforgettable ads. It’s
really important that we not wander
from what makes us great_”
Rafferty scarcely needed the reminder that Advaark’s strength was creative. He and Caldwell had formed the
agency seven years ago when, bored
HARVARD BUSINESS REVIEW
Stick to the Core – or Go for More? • HBR CASE STUDY
with mindless jingles and sweepstakes
promotions, they left the multinational
ad giant that had employed them both
for a decade. Their own reputations and
their accumulated Clios led t hem right
away t o some high-profile accounts.
They hired gifted writers and artists
(and more than a fe w oddballs) a nd
gave free re in to their inspired lunacy
and offbeat ideas. Rafferty was the ringmaster, a flamboyant visionary who was
never content with the status quo. But
And now, Ian was proposing a change
that could threaten all that. “But l know
we can be great atthis;• he insist ed.”We
didn’t charge for it this time, but can
you imagine what something like thjs
would be worth to clients? lf we packaged it up as a new service and sold it,
we could generate a whole new stream
of revenue:•
“That’s not the business we’re in:•
“Would you still say that if one of our
competitors began offering it?”
equally important were Caldwe ll’s sharp
focus and operational skills. Together,
the partners created an effective balance. And Advaark quickly developed a
reputation for “water cooler” ads- the
kind that got people talking.
As word got out that Advaark was
unique ly successful in getting the attention of sophisticated -even jaded consumers, the firm’s revenues soared.
Despite Advaark’s rapid growth to a
midsize firm with annua l billings of
sssomiWon and almost 400 people, the
company managed to maintain a culture in which innovation thrived. Advaark was a magnet for all kinds of creative people.
Caldwell, late for a meeting already,
nearly gave a dismissive wave of his
hand as he started to tum away. Then it
struck him how serious his partner was.
“Look. We’re still on for lunch, right?
Let’s talk about it then.”
f’EBRUARY 2002
Airing Concerns
Dodging an in-line skater, Caldwell
bounded up the steps of O-Zone, an oxygen bar with vegetarian specials that
was Rafferty’s favorite lunch spot. Rafferty was already seated, studying the
list of the day’s specials. Spotting Caldwe ll, he waved him ove r. “You’ re in
luck – the lave nder air is only a buck a
minute!”
Caldwell laughed. “Hey, does th is
place serve hot dogs?”
By the time their orde rs arrived,
though, the conversation had turned
sober. “Ian, we’re not even close to being
experts in opening up new markets. Are
you seriously proposing that we develop
and launch a completely different service offering?”
“Why not?” countered Rafferty.”Take
your blinde rs off, George. A lot is happening in our industry. rt’s consolidating- fast More and more agencies are
offering their clients one-stop shopping
for a bunch of services, not just advertising?’ He paused to dip a carrot stick
in hummus. “lt’s not even clear what
an advertising firm really is any
more. The Jines are blurring between what we do and what
other professional services
firms do:’
“But Jan, that’s why focus is
more important now t han
ever. We’re an advertising
firm, not a strategy consulting firm, remember? We’ve
succeeded by being the best
creative agency out there.”
“I’m sorry, George. r think
we’re in dange r of resting on
our laurels. If we on ly focus
on what we’ve done in t he past,
we could blow our future. We need
to change with the times:•
Caldwell didn’t agree. He reminded
Rafferty of the last time they’d conside red branching out into a new business – interactive advertising. That was
the same kind of proposition, to Caldwell’s mind: a chance to chase clients’
needs into an arena where the fim1 h ad
no skills advantage. After a heated debate, he had nixed the idea. And history,
he believed, had proved him right. The
Internet bubble had burst, and companies had abandoned their interactive
agencies in droves. Advaark m ight have
forgone some easy revenue, but it held
on to its reputation-and its clients.
Rafferty let out a sigh. “Okay, okay,
enough about the past. Let’s talk about
the future. We know we want to grow,
and here we have a client begging us to
provide it with a new service. Why on
33
HBR CASE STUDY • Stick to the Core – or Go for More?
earth wouldn’t we do that?” Advaark
knew its clients’ brands deeply, he
pointed out, and had earned their trust.
There was no reason to believe the service he was describing couldn’t be sold
to just about any of them. The revenue
potential was obvious and particularly
attractive because doing more business
with existing clients would reduce the
overall cost of sales. At the same time,
the new offering might even attract
whole new clients.
“And what if we sc rew up?” asked
Caldwell. “What do you think will ha}r
pen to our long-term client relationships then?” He proceeded to rattle off
any number of reasons the venture
might well fail: the lack of a standard
methodology or training program, the
risk of alienating the strategy consuJtants that reguJarly referred clients, the
greater penaJties associated with failure
on any given project And one challenge
was particularly troubling to him. Advaark would need to recruit different
kinds of talent, probably fo lks who
didn’t come cheap, and attracting and
keeping them would Likely require a different compensation scheme.
“So? We can do that;• Ian argued. “All
we’d need to do is price the service accordingly to cover that and maintain
our margins. Hell, we may even see improve ments in them?’
“Slow down a minute, Ian. How’s that
going to go over with the rest of our
people? Suddenly, they’re second-class
citizens? There’s no question it would
create a real cuJtural rift!’
“You’re not giving our people enough
credit for being grown-u ps. I’m telling
you, if we don’t create this kind of service, we risk becoming a second-class
firm. You know t he key to our future
success is to grow our business by getting more share of the customer!’
“No, Ian;• Caldwell snapped back.
“The key to our future success is to continue to do world-class work!”
A few nearby diners glanced ove r, possibly resenting the negativity b eing introduced into the air around t hem. Rafferty stared at Caldwell, t he.n averted his
eyes. He looked out the window and
sighed. “All right, George. How about
36
this? Let me do what J’d do for a client.
I’ll research this a little further. It sounds
Hke you need more data!’
Caldwell looked at Rafferty. It was a
reasonable request. “Okay, Ian;• he said,
reaching for the check and pulling out
his wallet. “Th.ke a shot at it And I pro mise J’ll keep an open mind about it?’ Although he doubted Rafferty would be
able to convince him, he wanted to make
sure that his partner felt he was given an
adequate hearing.
Data and Doubts
A week later, Rafferty presented his
findings to CaJdwell. They indicated
that the market for marke ting strategy
services in the United States alone was
con servatively estimated at $1.3 billion
and projected to grow at an annual rate
of at least 16’16 over the next five years.
In addWon, the companies currently
serving this market were highly diverse,
ranging from business strategy consulting firms t o market research houses and a couple of advertising agencies
had even ent ered the aren a. This, Rafferty argued, was not only a huge O}r
portunity for Advaark but was also a
warning to get moving before more
agencies stepped up to the plate.
In deference to Caldwell’s concerns
about risk, he recommended that Advaark move slowly into the market by
developing a service squarely aimed at
the consumer products industry. Over
half of the firm’s clients were in that sector, and Advaark could take what it h ad
learned from the GlobalBev experience
and build o n it. H e concluded by presenting a time line for developing the
service and outlining the capital investment that would be needed.
Caldwell had to admit he was impressed. Rafferty had put together a
solid business case, and he appreciated
the recommendation that t hey begin by
focusing on only one industry segment.
Still, the idea oflaunching a service they
knew nothing about simply because one
client had asked for it seemed risky. He
asked Ian if he could have some time to
think about it. Rafferty brig htened a bit
and handed over a copy of his study for
Caldwell to read in detail.
As he headed to his fitness club that
evening, caldwell concluded that Rafferty had built the strongest possible
case, but it still wasn’t enough to convince him. Advaark was successful because of its laserlike focus on being the
best creative agency. Wandering into
the business strategy arena couJd be a
disaster.
He pumped quickly on a cross-training
machine, momentarily distracted by the
pounding music and TV screens. When
his time was up, he to weled off and
headed for the juice bar, nearly bum}r
ing into Nancy Gilbert, an ex-
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