Jay Gould: Flush with success as America’s toilet CEO E-mail Tweet Facebook Google Plus Linkedin Share icons by Shawn Tully @FortuneMagazine July 7, 2014, 5:07 AM EDT The marketing stalwart is successfully lending his branding expertise to the ultimate in unsexy: the American toilet. It would be hard to imagine, or invent, a marketing manager with experience running more famous brands than Jay Gould. Over the past three decades, Gould championed Wheaties for General Mills GIS , promoted Colombo frozen yogurt for Bongrain of France, fortified Minute Maid for Coca-Cola KO , and made Pepperidge Farm cookies a must-munch for kids at Campbell Soup CPB . I almost forgot to mention, he helped launch a new-age fruit juice, courtesy of Coke, that had teenage girls swooning in Japan, and he repositioned Graco GGG infant car seats and Goody hair rollers for Newell Rubbermaid NWL . Gould now strives to bring marketing magic to, of all things, a product that most view as the ultimate in unsexy, unstylish, and frequently leaky and unreliable—that white, porcelain eyesore we all have in our houses—the American toilet. “Friends said I was crazy,” says Gould, 54, who now heads American Standard Brands, the famous name in toilets, as well as a manufacturer of bathtubs, sinks, faucets, and other bathroom and kitchen products (2013 sales: $1.1 billion). “‘Why would you want to sell toilets for a living?’ they’d ask. My answer is that I spent 30 years training for this job. I get energized resurrecting a tired brand. Especially when the product’s not being sold as a brand at all, but just as something that flushes.” Since taking charge in January 2012, Gould has guided this 138-year old survivor from near-collapse to strong profitability by marketing its toilets as high-end fashion features, displayed in plush showrooms, with superior engineering that really performs—dig that powerful “swoosh” that gets the job done on first flush. It begins with eating your Wheaties Gould’s career offers a primer in the art of creating allure around products magnetic and mundane. After graduating from Harvard Business School in 1985, Gould got his start at General Mills. “Most of the HBS grads were chasing the big money on Wall Street,” he says. “I went to Minneapolis making $45,000 a year, as a brand manager for Wheaties.” He lauds the world of cereal as a highly profitable place dominated by a few big brands. “You get lots of cash to reinvest,” he says. “Choosing to work in an oligopoly is a good move if you want to lavish money on the brand.” At Wheaties, Gould scored by putting an image of football great Walter Payton on the box. “All these celebrities are dying to be on the Wheaties package because it’s such great publicity for them,” says Gould. “We paid Payton less than $100,000 a year, and he probably would have done it for free.” Gould then turned to Colombo frozen yogurt for Bongrain. He learned that adapting to the quick shifts that characterize consumer markets is not a strength of French managers. “The French tend to follow a great design, and not deviate from it,” he notes. “That works well in luxury goods, where developing a long-term image can be highly successful. But in highly dynamic markets, it’s less successful. What distinguishes leadership is knowing where to act and not act.” For Gould, the changes that his French managers saw merely as blips were really durable shifts in consumer taste that required immediate action. In 1990, Gould founded his own company to develop food and beverage brands and then sell them to big manufacturers. He had success with Real Fruit Sorbet, a kind of Ben & Jerry’s of the category that packed lots of fresh fruit into sorbet and kept strawberries soft while embedded in the icy scoop. He sold Real Fruit to Eskimo Pie Corp. But supporting small brands ultimately frustrated him. “Given the cash constraints, you can never hire the best and the brightest. I wanted to be part of something, to make a bigger impact.” Still, the experience offered new lessons, courtesy of a marketing legend who became Gould’s mentor. Sergio Zyman had left Coca-Cola after engineering one of the biggest disasters in consumer goods history, the introduction of “New Coke.” Awed by Zyman’s swashbuckling approach to brand building, Gould hired him as a consultant to his new company. “What Sergio taught me applies to the toilet business,” says Gould. “You can have a superior product, but if the branding is inferior to the competition, it will lose out to an inferior product with better branding.” Gould and Zyman were trying to persuade Burger King to carry Colombo yogurt instead of introducing its own Burger King-branded variety. Zyman organized a focus group that presented customers with three samples of frozen yogurt. All were Colombo; all that was different were the labels. One was presented as Colombo, the other two were disguised as Dannon and Burger King. The folks thought that the identical yogurt tasted tart labeled as Dannon, just plain bad as Burger King—and like tasty ice cream as Colombo. The test helped Colombo get on the regional menus at Burger King, and convinced Gould that you could take the same product and differentiate it completely based on the packaging and presentation. It was a lesson that would later bring elan to his toilets. When Zyman returned to Coke in 1993 as chief marketing officer, he brought Gould along. “Coke was a big financial machine, but they were not great marketers,” says Gould. “Sergio wanted to change that.” Gould ran marketing at Minute Maid in Houston, which was trailing Tropicana. Tropicana trumpeted that it was squeezed from oranges, while Minute Maid made its juice from concentrate. “It was really a phony distinction, because oranges only ripen once a year, so orange juice always has to be frozen before it’s sold,” recalls Gould. Minute Maid marketers reckoned that Tropicana had won a permanent place as the premium orange juice. Instead of elevating Minute Maid to compete on quality and image, they lowered their prices. The move didn’t do much to raise sales, but it did seriously erode Minute Maid’s once-handsome margins. Gould took his inspiration from Zyman. “Sergio was very aggressive and assertive. The New Coke debacle didn’t change that a bit,” says Gould. “The biggest thing he taught me is that a lot of people are afraid to touch brands, and that brands will die if you don’t take a chance and give them energy.” Gould raised the price of a carton of Minute Maid by 15%—matching Tropicana—and spent $50 million on ads touting it as a “premium” product that tasted just as good as fresh-squeezed juice. Fortifying Minute Maid with calcium brought a health-enhancing dimension that Tropicana lacked. New flavors abounded; orange mixed with tangerine was a big hit. “We drove double-digit growth on a $2 billion brand,” says Gould, “and improved the operating income by over $100 million in 1997 alone.” Accepting limitations After three-and-half years at Minute Maid, Gould moved to Tokyo as Coke’s chief marketer in Japan, a gigantic profit-spinner for the thirst-quencher. “My contribution was making the business more locally relevant,” says Gould. At the time, the corporate brass in Atlanta wanted to impose uniform ad campaigns around the world for big products. That caused a lot of tension with managers in the field. “The executives in Japan wanted to do something local, and were meeting a lot of resistance,” says Gould. His boss—future Coke CEO Douglas Daft, who then headed the company’s Asia-Pacific division—successfully championed campaigns tailored to the local culture. Gould was in the Daft camp. He believed strongly in shaping Coke’s message for Japanese consumers, based on guidance from the Japanese. “I learned quickly that as a foreigner, you can set the strategy—in that job, appeal to the local customers. But you really have no idea which campaign will work. You need to step back and leave that to the local executives, in this case the people who really understood Japanese tastes.” On one occasion, Gould and his Japanese lieutenants reviewed three ad campaigns for the Coke brand. Gould hated precisely what the Japanese managers loved. “I trusted them to go forward with work that I didn’t like,” says Gould. “It was one of our most successful campaigns ever.” The “think local” approach extended to new products. Gould created a vitamin-fortified fruit juice called Qoo, named for a satisfied sigh that the Japanese emit when they’ve quaffed something refreshing. It quickly grew into a $1 billion brand, and by the time Gould returned to Atlanta in 2000, profits in Japan were advancing by 14% a year. As the new CEO, Daft assigned Gould to promote a new brand Coke was planning to acquire, Gatorade. But Coke lost Gatorade to archrival Pepsi. Gould worked on a deal to create a competing sports beverage under a license from Adidas. “Launching that drink required convincing 26 Coke division managers from around the world,” says Gould. “I didn’t have the political might to pull it off.” From snack food to car seats Gould’s next stop was Campbell Soup. In 2001, Gould took the top marketing job at Campbell’s Pepperidge Farm, and quickly rose to run the $1 billion division. “I wanted to get back to the core values of the founder, an amazing Connecticut housewife who baked healthier bread for her son who was allergic to regular bread,” he recalls. “We built ads around ‘optimism as a strategy for coping.’” The idea was to get mothers thinking about what they could do to make their kids happier, the mission of its founder. If Pepperidge Farm could get the kids to love milano cookies and Goldfish crackers, the kids would tell their moms, and the moms would fill their shopping carts with Pepperidge Farm. “Before, it was all advertising to mothers,” says Gould. “We made it advertising for kids.” One campaign for Goldfish crackers created a website around “fishful” thinking. Under Gould, Goldfish rose from a $300 million to a $600 million brand in four years. Gould then made his way to household products. In 2005, Mark Ketchum, the newly appointed CEO of Newell Rubbermaid, hired Gould to bring real consumer marketing to such prosaic products as Levolor window treatments and Graco child car seats and strollers. Newell’s hallmark was efficient manufacturing. Gould saw a big opportunity to show people what the firm wasn’t highlighting, that it sold products a mother could love because of their safety. “In car seats and strollers, we wanted to be the best friends to expectant mothers, and show them we had the safest seats,” says Gould. “The key was to attract mothers pregnant with their first child. That was the audience that mattered.” His research revealed that Graco customers bought 80% of the seats and strollers before the first child was born. He launched an ad campaign with a website for soon-to-be mothers called “The Bump.” “Moms would go on that site before they told their husband they were pregnant,” says Gould. “Mommy bloggers are incredibly passionate.” The campaign was so successful that Ketchum handed Gould full operating responsibility for five major brands, representing half of Newell’s sales, including Rubbermaid food containers, Goody, Levolor and Calphalon skillets. When Ketchum announced his retirement in 2011, Gould was the leading internal candidate for the CEO job, but lost to former Unilever executive Michael Polk. More recently, the Graco brand suffered a setback. In February, at the request of the National Highway Safety Administration, it announced the recall of 3.7 million child car seats because of a problem with unlatching the harness buckles. Taking the toilet to a whole new level Gould’s experience in household products alerted him to the possibilities in toilets. Sun Capital had bought the U.S. arm of American Standard, and it needed a new CEO. “I didn’t even use their brand at home,” says Gould. “I had a Toto toilet from Japan with lots of bells and whistles, and liked Kohler fixtures, which had great marketing.” To Gould, American Standard seemed a household name without a brand. “That’s where the opportunity lay.” At the time, American Standard was bleeding cash. In the last quarter of 2011, it had lost $20 million and needed to earn $35 million in 2012 just to cover interest payments and minimal capital expenditures. It was drawing down bank loans to pay operating expenses, a sign of near-desperation. But for Gould, American Standard had two strong points—and they were promising enough for him to take the CEO job in January 2012. The first was manufacturing. “What consumer goods companies are good at, that people don’t realize, is manufacturing,” he says. “It prevents the competition from getting in. A cereal plant costs $100 million and a toilet plant costs $50 million, which are big barriers to anyone who wants to get into those businesses.” Almost all of American Standard’s manufacturing operations are in Mexico, a big competitive advantage in Gould’s view. “The best cost manufacturing base to serve the American market is Mexico,” he says. “It’s the best balance between transportation and labor costs.” Gould says it costs $2 to send a toilet from Mexico to the U.S., versus $10 a unit from China to the U.S. And Chinese labor costs are fast approaching those in Mexico. American Standard’s second edge was the unheralded engineering excellence of its products, their top-flight flushability. “They weren’t double-flushers like a lot of the other toilets,” says Gould, “and most people didn’t know it.” That’s where great marketing could prove decisive. The rub was that American Standard had one overriding goal: Driving down costs. Its ad budget was virtually zero. The biggest new product in development had potential sales of a mere $5 million a year. Operating margins were slim. For Gould, the reason was obvious: American Standard was competing on price with commoditized toilets in a race to the bottom. “You didn’t win at Minute Maid by lowering prices, and it wouldn’t work in toilets, either,” says Gould. Gould reversed course from the cost-is-everything strategy. The goal was to raise margins, and hence generate cash to invest in marketing and new products. Gould started promoting his most profitable products, premium-priced toilets, backed with marketing campaigns emphasizing their superior quality. The sales people were getting bonuses based on the dollar volume of the toilets and faucets they sold. Gould began to reward them based on a new metric—gross profits. That gave employees a powerful incentive to favor higher-priced, high-performance toilets. Then and now, his motto for rallying the troops is “We flow together.” At the time, American Standard was generating 60% of its toilet sales from the giant home improvement stores, Home Depot, Lowe’s, and Menards. Those retailers displayed their own private label offerings, frequently $99 models, right alongside American Standard’s low-priced toilets. Given the fierce competition on price, those standard toilets would never produce the margins Gould needed. So, even in the Home Depots, Gould heavily promoted his Champion-label toilets priced at between $250 and $300 and boasting 40% gross margins, three times American Standard’s norm. Gould launched American Standard’s first-ever national ad campaign, spending $8 million touting Champion. “We had the best product and the worst brand,” says Gould. “Great engineering and terrible marketing. Premium was too small a part of what we did, and I had to find a way to make it far bigger.” It frustrated him that Kohler, his biggest competitor, had just the opposite, what he considered a fair product and terrific marketing. “If they could sell toilets you had to flush twice, why couldn’t we sell loads of Champions that are great flushers?” says Gould. The flagship ad starred a pre-teen called a “spokes-kid” who proudly declares, “It can flush lot of stuff!” then empties a bucket of golf balls into a Champion. The multiple balls disappear in a roaring swirl, demonstrating the superior power of its hydraulic action. Kohler provided Fortune with the following statement in response to Gould’s claim that his products are better. “Kohler has great respect for all of our competitors,” Elizabeth Brady, SVP of Global Brand Management wrote in an email. “We pride ourselves on offering products that lead in design and technology and adhere to a single high level of quality. As the market leader in the U.S., the reality of the situation is that Kohler’s market share in the U.S. is approximately three times that of American Standard, and continuing to grow in 2014.” Augmenting the ad campaign was an initiative called “Flush for Good.” Gould dispatched researchers to impoverished Bangladesh, who developed a plastic seal that fits tightly over open-pit latrines, preventing flies from exiting and spreading disease. For every Champion sold, the company would donate a latrine pan, called SoTo for “Safe Toilet,” to a local NGO. “In the ads, we included a message about Flush for Good,” says Gould. “What I tell people in Home Depot is, ‘In addition to being good looking and flushing well, it’s making a difference in the world.’” Last year, the combined ad and Flush for Good campaign lifted Champion sales by 62%. Gould matched his retail strategy with a drive to grow American Standard sales to architects, contractors, and remodelers. Those customers generally shop for higher-priced products in wholesale showrooms. American Standard was selling its toilets in outlets that did just 20% of total wholesale bathroom sales. The sector was dominated by Kohler. The biggest distributor, Ferguson, was tilted heavily to Kohler. Gould was determined to break in. “I told the top people at Ferguson, ‘I’d like to talk to you about freedom of choice,’” says Gould. “They said, ‘Freedom is not free.’” To win space at Ferguson, Gould agreed to spend millions of dollars remodeling 250 showrooms to showcase American Standard products. Gould is introducing an entire new line of toilets and other bathroom accessories based on classic designs from the past. They’re called DXV Collections, the roman numerals standing for the company’s 15 decades in business. The toilets sell for $500 to $600 and carry rich margins. The promotional language is as baroque and dreamy as one could find in the consumer product world. One DXV entry, entitled “Modern Gatsby,” describes its wares as “maximalist,” “blending both the decadent and luxurious.” In mid-2013, Sun Capital sold Gould’s business to Lixil, a $16 billion Japanese building supplies conglomerate that had already purchased American Standard’s businesses in Asia. The price was $542 million, quadruple the firm’s value when Gould took charge. Gould says he likes working for Lixil’s CEO, GE veteran Yoshiaki Fujimori, whom he describes as “Jack Welch reincarnated.” Most of all, Gould wants to take the lead in daring new products. The coming blockbuster, he claims, is “the most revolutionary toilet in the last 20 years.” Scheduled to debut in late 2014, it’s sort of the self-cleaning oven of toilets. “It’s the best cleaning toilet ever,” raves Gould. “It cleans the bowl two times better than any toilet on the market.” An elaborate ad campaign will show the new phenom flushing alongside competing toilets—“like P&G comparing mop A and mop B,” notes Gould. He’s certain that folks will marvel at the superior power of its cascading whirlpool. Talk about feeling flush with success.