Marketing Lessons from Hollywood

“American Gangster”

When I went to the movies and saw “American Gangster,” I not only appreciated the film as superior motion picture in terms of writing, acting and direction – I was also impressed with the way it imparted a number of significant principles of marketing. I can even see the day when this film would be shown to graduate business students.

The new movie directed by Ridley Scott and also starring Russell Crowe, chronicles the rise and fall of an enormously successful African American drug lord played by Denzel Washington. His success is not so much a function of his wielding of power and violence but his street-smart knowledge and application of business principles.

The product is heroin from Southeast Asia, and here are the principles of marketing that film depicts:

Lesson #1 – supply chain management. Denzel is not content to use the traditional supply chains such as those shown in “The French Connection” where the product produced in one Third World country and shipped to various places, like Marseilles, before entering the U.S. Such conventional supply chain management becomes costly and requires the product to be adulterated in order to provide the profits needed to support the channel. Denzel went right to the source in Southeast Asia; made his deal with the owner of the poppy fields and refining labs and created an elaborate logistics system where the product was shipped in caskets of dead American soldiers coming home from Viet Nam.

Lesson #2 – branding. In order to differentiate Denzel’s high-powered heroin from competitive products, he created a memorable brand name and a blue package. This instantly assured the dealers and customer of both the quality and source of the product.

Lesson #3 – need to protect intellectual property. When a competitor decided to use Denzel’s brand and product package color, he was warned not to and ended up with a bullet in his head. So much for the U.S. federal court system.

Lesson #4 – distribution. Denzel distributed his product through a wholesale system based on fronted businesses manned by his brothers and cousins. This provided excellent geographic coverage and guarded against leakage and shrinkage.

“Other People’s Money”

While on the subject of Hollywood, I would be remiss not to discuss the business implications of an older movie – Danny DiVito’s “Other People’s Money,” which can be seen on cable or can be rented from video stores, Netflix, etc. The business implications from this movie are more finance than marketing but there are marketing lessons to be learned nonetheless,

This comedy focuses on a financial eccentric, DiVito, who has a computer program that identifies cash-rich companies in slow-growth industries – known as Cash Cows and Dogs in the Boston Consulting Group matrix. What DeVito does is takes over these companies through tender offers to stockholders and thus purchases controlling interest. One purchased, the assets, much of which is the form of cash, are liquidated and profit results from the conversion of those assets. The unfortunate end game is the death of the company.

In the 1991 film directed by Norman Jewison, DiVito targets a old-time New England cable and wire manufacturing company run by Gregory Peck with the help of his attractive lawyer daughter, Penelope Ann Miller Peck feels a paternal responsibility to the employees and fights to keep his business. DeVito emphasizes the business is no longer viable and deserves to vanish.

The lesson to be learned here is how poor an asset is cash. Montgomery Ward’s Sewell Avery made the same discovery after World War II when his cash-rich company failed to expand and was eclipsed by Sears Roebuck. In valuing a company, there are so many other assets far more valuable than cash. What can you do with cash? Invest it in market-rate stocks, bonds or higher-risk securities? Often cash-rich companies today buy back their own stock or use the cash to grow by acquiring other companies.

Your truly successful companies use “other people’s money” to grow. Internal rates of return from successful, growing companies are often many times greater than what can be earned from investing cash. Cash-rich companies are most vulnerable to take-over. What makes a company a successful earnings generator is its ability to convert assets into extraordinary growth rates. Companies with expertise, management skills and superior technology can borrow money at X percent and generate profits of Y percent.

The movie had a happy ending. DeVito and Miller get together, and the business is transformed into the manufacturing of air bags for cars – and everyone lives happily ever after.