A (3:17)

Great, great, love it. So, yeah, let's dive in and want to start with the strategic view of this, of just why cultural intelligence is so important. And the book certainly argues that cultural intelligence is an irreplaceable asset in the age of AI. So for the CMO or CEO who thinks that generative AI can just translate and localize content at scale, what's. What, what are they missing? You know, what, what are they, are they misunderstanding something? And what's the strategic risk they're not seeing?

B (3:53)

Yeah, simply put, AI doesn't get context. So I mean, I love AI, but the, even the most sophisticated AI systems, they can analyze patterns and they can predict behaviors, but they don't fully understand the cultural context that give those behaviors meaning. And people invest in values and values are based on how they interpret that and the meanings by country. So we refer to something called the algorithmic trust gap, which is the space between what AI can analyze about consumer behavior and what it can understand about building relationships across culture. Because trust is ultimately the most important relationship between a brand and its customer. And yet that's not built the same in different cultures. So I mean, I could explain all about trust and what it really means, but ultimately it's the most important aspect for creating longer term customer lifetime value.

A (5:04)

Yeah, yeah. And, and it, it seems like the, from the, from the research, American brands are often losing ground overseas. What, what's the most common strategic blind spots that you see there? And how does a more perhaps diverse leadership team, specifically, you know, more women in key roles, help in correcting some of these blind spots?

B (5:28)

Yeah, the biggest single blind spot is thinking that everything in different markets, all the values and the consumer behavior will be the same. And that's just not the case. There is a direct link between diverse leadership and superior performance. So, you know, diversity can get a bad rap in certain countries, but it's not just a moral or an ethical imperative. It is actually a business strategy proven to Drive results. So McKinsey study, this is over 10 years ago. They studied 350 public companies and the top 25% in ethnic and racial diversity and management actually delivered 35% higher financial returns than their industry average. Yeah. So what's also fascinating is why this works. So teams with diverse perspectives and this will make sense to people. First of all, they provide a wider range of cultural insights and they are more willing to point out other people's blind spots. So what happens is, if you can unlock that value of diversity in the way they can behave amongst themselves, the team actually gets smarter through discussion and clarification, and that delivers greater innovation. One of the great examples that I like because I teach at Berkeley and a lot of people are interested in tech is Airbnb. And people love Airbnb. And most everyone has stayed in Airbnb. So we really understand what it offers. And it's the story about how Airbnb pulled out of China. I think the business case of going into China about 10 years ago, when they were looking at it, 20, 14, 15, is pretty obvious at the time. There's inbound travel and there's domestic travel, and it was the domestic that was growing even faster. And so I think it was about 500 billion in domestic sales and growing over double digits a year. So Airbnb obviously wanted to go in there, but what happened? After five years of trying, and it even had Chinese investors in Sequoia China, it pulled out. It's a pretty scary story of the fact that couple things. One, trust didn't build, even by changing their name to IB Ying and localizing the name, even with local investors. And what happened was people were skeptical of home sharing. They didn't have the same kind of financial systems with a robust credit platform. So both the homeowners and the travelers didn't have a third party trusting system that the Americans were used to. And local competitors were able to overcome some of the obstacles that Airbnb didn't, because people didn't really trust whether the rooms would be clean. They didn't trust the photos. So there was just a lack of trust in the Chinese market to want to go and stay in what was called a stranger's unfamiliar home. And so after trying really hard, and actually one of the two founders flew and lived in China trying to lead it, they pulled out.

A (9:04)

Yeah. Yeah. That's an expensive experiment on many levels. Right, so. So not just financially.

B (9:11)

Right, yeah, exactly, exactly. And, you know, so a lot of people are saying, well, you know, what's the cost? What's the cost? Just. But you can see, imagine the investment that they put into this market over more than five years, trying to build their brand, localizing their name, creating all the infrastructure, translating the website, having a business operation, and finally deciding their own investment was just not becoming profitable fast enough than they pulled out.

A (9:39)

Yeah. Yeah. So, you know, I think even outside of, you know, that that's a lot of physical investment in space, you know, real estate and things. I think a lot of companies are also thinking that they can do investments virtual, you know, have. Have AI help them scale. And, you know, I touched on this briefly in the. In the intro, but, you know, a lot of brands investing a lot into personalization, localization via AI, and I think there's a lot of promise there. But your book introduces this concept of the. The brand Fulcrum to help brands balance global consistency with local adaptation. Can you walk us through, you know, what. What that is and give an example of a brand that's found its fulcrum effectively versus one that's clearly off balance?

B (10:30)

Yeah. Okay. So we introduced a number of different frameworks to sort of help guide people on globalizing and localizing at the same time, or globalizing it, if you will. The first one, before I get to the brand Folkrum, is a Venn diagram about what should be global and what should be local. And it's this notion of kind of three intersecting circles of the brand's global values, local cultural values, and. And then evolving consumer trends. So that's really the first one where you're kind of managing everything together. The best brands also will employ a strategy called freedom within a frame, where they create a frame that they say this has to be globally consistent. And then within that frame, we not only want, but we actually encourage our local teams to. To invent and to innovate in ways that are really relevant to their local audience. The brand Fulcrum now is something that I personally developed when I was at Louis Vuitton in Japan. I was head of marketing, and then I became executive director of Gucci. And working with luxury brands, particularly, and legacy brands, I realized that sometimes the best brands have this potential to be super elastic by pushing two seemingly opposing trends, say, your tradition or your classics, and then innovation and trend, and that the best brands push in both directions simultaneously. And that creates one. It reaches a larger audience. It creates elasticity in the brand that drives relevance as a market as you either enter a new market or as the market itself changes.

A (12:16)

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B (14:06)

I it's always people, right? It always comes down to people. I think and particularly here it's that when we talk about cultural intelligence in the book, we break it down as to what is actually what we actually mean by it. And there are actually four key steps to building cultural intelligence. The first thing starts with your attitude. So right then and there you realize it has to start with the people, right? And so hiring the right people, getting the right leadership that can again unlock that value of diversity that I talked about earlier is really one of the most important aspects about it. Past once you get under, once you have the right attitude, then you can learn to develop your awareness. And when you become very aware, you start to understand an audience that may not be someone like you, not only by observing the data and the analysis, but actually what I like to say is listen to the market and learn to listen with your eyes. So get out in the market and a lot of consumers will communicate beyond words in America. We're so used to words being the final contract, the final word, the final email. But in many other cultures, people communicate non verbally. And so if you can develop your awareness, you both develop, you both start to understand things that you do, maybe intentionally or inadvertently. And you also understand, learn to understand what other people do. So the first part's the added about the attitude, which is why it's people. The second part is awareness. The third part is learning the skills, learning about the different cultures. And finally the last part is practicing all of that and wrapping it all together. And it's an ever ongoing process and we're always making mistakes, we're always getting better, we're learning to. It's called culture flex. By adapting to one market and then adapting to the other.

A (16:13)

Yeah, yeah, but yeah, I mean to, to your point there, you know, I definitely, there's, there's a lot of differences in communication between, you know, high context, low context. There's lots of different dimensions to, to look at that as well. But you know, I wonder, a global brand, you kind of have to distill things into something centralized that then gets localized again. But I mean it sounds like starting with a diverse and a more diverse starting point for lack of a term, even if it has to get centralized then into something that's, that's global, it seems like that would at least set it up to be better or easier or more effective to then localize again. Right? Is that.

B (17:00)

Yeah. Well, if you embed this knowledge in your teams, then they can adapt from one market to another because you'll always have your tech processes, you'll always have your platforms. Those will also always be evolving. But if you embed the learning and the insight and the awareness into your teams, the they will be able to multitask across multiple markets. Moreover, each person, whether they're in the headquarters or out in the regions, they have different roles to play. And so they have to learn to trust one another while the people in the regions are working to create trust with the consumer. And so that notion of how to build trust across culture becomes really important not only on the market side, but also on the internal corporate side.

A (17:51)

Yeah, yeah, makes sense. So let's, let's talk a little bit about how we measure this. And so for some, you know, cultural alignment can feel a little ambiguous or like a soft metric perhaps, but its impact as, as you've already shared is, is very real. And, and you know, the, the book also cites a high degree of, of brand failures due to lack of, of cultural alignment. Advise leaders to measure the success of their cultural adaptation efforts. And what kind of leading indicators would you say demonstrate that an organization's on the right track?

B (18:33)

It depends what your challenge is. You know, different brands have different challenges in different markets because not all marketing budgets work if they're aimed at the wrong problem. So let's look at two of the most common ones. One is a reach problem. Right. I want to increase my awareness. Well, that's solved at the top of the funnel. Right. And so the teams that own that are the growth teams, the performance teams. And there's a very clear way to solve that through paid media, owned and earned or distribution. However, if your problem is really one of brand equity or conversion, it's not about awareness. That's a perception, reputation and trust factor. Those are much harder to solve. And it's not just something that's owned by one part of the company. It's really not just a marketing problem, though. It's usually brought into the organization by the marketing team. This is really everybody's job to solve, whether it's marketing, product, customer success, service and leadership at the end of the day. And this has to be then solved with very consistent experience that takes into account the cultural alignment. And so depending on what your brand challenges are, you're going to look either at changes on the awareness side for the first challenge or earliest indicators on the brand equity side. You know, that might be organic conversion and repeat customers. So it really depends on what challenge you have in which market.

A (20:18)

Yeah, yeah. And then thinking, thinking a little longer term, obviously beyond the risk mitigation part, the, you know, costly public mistakes that might be avoided. What about things like you had mentioned longtime loyalty, things like customer lifetime value, long term brand equity. How does you know, how, how might you connect the dots for a CFO who might be, you know, looking at localization as kind of a cost center?

B (20:52)

It's funny because, you know, you, we hear this all the time and I would say for a cmo, your CFO has to be your best friend. Trend.

A (20:59)

Yeah.

B (21:00)

Right. And you have to realize that this aspect of your, the cultural intelligence of the brand, it will show up in the PL through higher retention, better margins, lower acquisition costs over time. So it's really important to not expect it to be, you know, either just a cost center, but a multiplier of your customer lifetime value. Right. This is where it comes back to trust. Because building trust actually reduces the churn and the price sensitivity over time. So loyal customers will not want to brand switch if, you know, there's a recession or they're lost a job or something like that. Loyal customers are loyal, you know, so they really are an insurance for downturns in. In the market. So, you know, to the cfo, it's basically, you gotta tell them that you either invest upfront in understanding the culture or you're gonna pay repeatedly to fix misunderstandings over time.

A (22:16)

Yeah, yeah. And so then looking at. Certainly there's a lot of. Even at the board level, there's a lot of pressure to implement and adopt AI into all things. We both mentioned the AI certainly can enable marketing to scale to levels that it previously just wasn't possible, even with large marketing teams. How do you see the relationship between AI and cultural intelligence evolving? You know, beyond. I know there's talk of AI replacing jobs and all that stuff, but, you know, is it, you know, instead of thinking of it as a replacement for human insight, you know, is there a way that marketing leaders can use AI to enhance cultural intelligence and make better and more culturally informed decisions?

B (23:09)

Yeah. Well, I think the important thing is to realize they're both important and the way to frame it is to use AI to enhance human or cultural intelligence. Because ultimately, insight doesn't live in the data, it lives in the interpretation. There are many times you can get information, and the way people interpret what that says will change everything, both for the consumer and then also for the company in terms of what they're going to do about it. So I think for the board, it's really important. I think everyone knows they have to always invest in tech, but you have to also invest in teams and in their education of how to use AI in the support of human or cultural intelligence. You know, I think if one of the things is to look at some of the companies that are very successful at this around the world in different industries. I was in cosmetics as CMO of Shiseido, and I was brought over there to help the company internationalize and learn how to compete. And I would often say Boston and Beijing, right? Two completely different markets, both of which would look Instagram first, whereas Japan is still a market where 90% of households can be reached through television. So that is something that you have to understand the cultures and change how you work. So if you look at l', Oreal, for instance, it understands and respects the differences in culture and that it embeds that in its local teams. And so it has local teams all around the world. And that's an example from cosmetics. I mean, you can look at, you know, Unilever and General Electric. And a lot of these global companies that have divisions all over the world and they will invest in their employees to live in different parts of the world so that they can understand it and bring those insights back to either headquarters or a region so that, that builds the trust and the flexibility between the teams to do what the local teams really need.

A (25:33)

Yeah, yeah, well, and just given the continued rapid pace of change here and certainly not only global, global expansion, but just everything from, you know, agentic commerce to all of the things that are happening and certainly will happen over the years to come, you know, what would your advice be to, to a marketing exec to, you know, to best future proof their, their brand's global strategy over the next several years?

B (26:06)

Well, I think being humble is probably one of the most important aspects of a marketer being both realizing there are things you don't know and things that are misleading and always be looking to challenge yourself on what is it that I'm not understanding. And in order to get past that, you need to really build a trust centered strategy for global growth that again interprets AI and all the new technologies with cultural intelligence. So that really starts by building a trust landscape. Always stay close to your consumer as I talked about. Get out in the marketplace, look at them, read them, watch them and learn to again interpret them. That's why you need cultural intelligence. So that cross cultural ability becomes very important and create a cultural feedback loop. Trust is talked a lot about, but what is it? At the end of the day? I think trust is built out of three things. It's a platform of shared values, so you have to be able to know what they are between you and someone else. It's an open and transparent communication so that you can speak and get open, honest feedback. And the third part is a history of promise and connect. So you have to be able to have a feedback loop. And then of course we know if we don't measure it, we don't know what it is. So you need to measure that trust across contexts so you can develop different metrics that can capture trust, that take into account different forms of expression where some are more explicit and some are more implicit. But it all comes down to really investing, I think in a strategy of trust in your people and in your target customer.

A (28:08)

Yeah, yeah, love that. Well, Katherine, thanks so much for joining today. Just a couple questions before we wrap up here. First one, if we were having this interview one year from now, what is one thing that we would definitely be talking about?

B (28:23)

I think the fact that we are continuously learning and that we are always being surprised so we're always having to stay agile.

A (28:32)

Yeah. Love it. And last question for you. What do you do to stay agile in your role and how do you find a way to do it consistently?

B (28:43)

I really appreciate when my students or my clients challenge me and they help me see my own blind spots. And as we discover those blind spots in ourselves, we grow and we gain new perspectives, new insights and that stretches us so that we can take on bigger, larger challenges. Nice.

A (29:06)

I love that.

B (29:06)

So thanks for having me Greg. It's been a really great program. I really appreciate all your questions and I hope other people may be interested in getting a copy of our book Brand Global Adapt Local.

A (29:19)

Nice. Love it. Well, again I'd like to thank Catherine Melchior Ray, professor at UC Berkeley Haas School of Business and co author of the book Brand Adapt how to Build Brand Value Across Cultures. You can learn more about Kathryn and get a copy of the book by following the links in the show notes. This episode is brought to you by Tech Systems. They're leaders in full stack, tech services, talent solutions and helping companies put it all in action. You can learn more@techsystems.com that's teksystems.com and thanks again for listening to the Agile Brand podcast. If you liked the episode, hit subscribe and drop a rating so others can find the show too. And if you're interested in consulting, advisory work, or if you need a speaker for your next event, feel free to reach out. Just visit GregKillstrom.com that's G R E G K I H L S t r o m.com the Agile brand is produced by Missing Link, a Latina owned, strategy driven, creatively fueled production co op. From ideation to creation, they craft human connections through intelligent, engaging and informative content. Until next time, stay curious and stay agile.