NOEL KING, HOST:

Amy Knopf lives in Indiana and owns a white 2004 Subaru Impreza. It is not a really nice car.

AMY KNOPF: It's really banged up. It's almost always dirty. Even my 3-year-old daughter sometimes seems to prefer to pretend that the other cars at her preschool are her car (laughter).

KING: But Amy really loves this car. This is the car that she drove through a snowstorm in Indianapolis to bring her newborn daughter home from the hospital.

KNOPF: I just kept looking in the rearview mirror, and my wife was sitting back there with the baby. You know, it was a really happy scene in the back seat. But, you know, I was just full of terror.

STACEY VANEK SMITH, HOST:

The funny thing about this not so nice but beloved car is that Amy ended up in kind of a bidding war over it. About five years ago, her friend Erica was selling the Subaru. Amy and her wife wanted it and so did another couple, a guy and a woman. And Amy thinks that that couple was offering about $100 more.

KING: But Amy's friend took the hit. She sold the Subaru to Amy. She just had one requirement - you cannot peel the human rights campaign sticker off of the back window. And if you don't understand exactly what I'm saying, let me let Amy explain it.

KNOPF: She sold it to us because she wanted it to go to, like, another lesbian couple (laughter).

VANEK SMITH: Erica wanted her Subaru to go to another lesbian couple, and part of the reason Amy's laughing here is that this has become kind of a stereotype, that lesbian women love Subarus. The car even has a nickname.

KNOPF: Erica always called it the Lesbaru (ph).

KING: This is not an accident. Subaru spent more than a decade carefully targeting lesbian consumers.

(SOUNDBITE OF MUSIC)

KING: Hello, and welcome to PLANET MONEY. I'm Noel King.

VANEK SMITH: And I'm Stacey Vanek Smith. Today on the show, why Subaru started targeting a group of consumers that just about every other company was ignoring and how that may have helped save the company.

(SOUNDBITE OF MUSIC)

KING: In the early '90s, Subaru was in trouble. Sales had been slumping for about seven years. Subaru was competing against giants like Toyota and Nissan, and it was losing.

VANEK SMITH: Tim Bennett worked in sales distribution for Subaru back then. And to him, the problem was pretty clear. Subaru was having an identity crisis.

KING: These were not sexy cars, Tim says. They were boxy, reliable wagons with a certain kind of feel.

TIM BENNETT: It's granola. It's 10,000 Maniacs. It's crunchy. It's hippie. It's a professor in a tweed jacket.

VANEK SMITH: Oh, come on. Who does not want a 10,000 Maniacs car?

KING: They are a great band.

VANEK SMITH: They're a great band.

KING: But - but companies want to sell to mass markets and not just hippies and professors. So Subaru hired a cool ad agency, the ones that had come up with the just do it slogan for Nike. But even they could not make Subarus hip. The ad campaign went nowhere.

VANEK SMITH: Morale at Subaru was plummeting. Raises and bonuses went out the window, and Tim says sales people started making all these really dark jokes about how if things got any worse they were just going to have to start sending new Subarus directly to the scrapyard.

BENNETT: If you're not on a winning team, you're on a losing team, and nobody wants to be on a losing team.

KING: And is that what it felt like at the time?

BENNETT: Yeah, yeah.

KING: But the company realized one type of Subaru was actually selling pretty well. These were cars with all-wheel drive, the kind of cars that are popular in places with bad weather. So Subaru said, all right, let's start there with the bright spot. Let's meet the people who are buying these cars.

VANEK SMITH: They ran some focus groups, and they identified four categories of people who were buying Subarus. The first category they called the rugged individualists - basically the outdoorsy types.

BENNETT: So those were the people - kayakers, mountain bikers, skiers. There were technical professionals. They...

KING: Technical professionals.

BENNETT: Engineers.

KING: Got you, OK.

BENNETT: You know, that sort of thing. Educators.

KING: Teachers.

BENNETT: Teachers.

KING: Professors.

BENNETT: Health care professionals...

KING: Doctors, nurses.

BENNETT: ...You know, you have to get to the ER, all kinds of weather, da da da (ph).

KING: So it's a random assortment of professions here, but within those groups, there was a common thread - women. A lot of Subaru owners were women, and in a lot of cases, they were women who identified themselves as head of household.

VANEK SMITH: Tim Mahoney was running marketing for Subaru at the time. And one day, he was watching a focus group in San Francisco behind a two-way mirror.

TIM MAHONEY: One of the guys who actually worked for our research company who happened to actually be gay, he says, yeah, all my friends that own Subarus are lesbians. And it was like one of those moments where everything came into focus and it's like, oh, wow.

VANEK SMITH: Tim Mahoney realized he may have just discovered a fifth group who loved Subarus - lesbians.

KING: So now Subaru has to figure out two things. Number one, is this true or is it just anecdotal? Is this actually a significant consumer group for Subaru? And then if it was, how are they going to market these cars to lesbians? So Subaru got in touch with Mulryan/Nash. This was a tiny ad agency based in Manhattan that specialized in marketing to gay and lesbian consumers. John Nash was the creative director at the time.

What was the first campaign you worked on?

JOHN NASH: It was Dial-A-Mattress.

KING: Dial-A-Mattress?

NASH: One-eight hundred-M-A-T-T-R-E-S-S - they're out in Queens.

VANEK SMITH: John and his business partner, Dave Mulryan, were both openly gay, and they would go to these big companies, and they would pitch them. They would say, look, gay and lesbian consumers are a big deal. They have money, and we know how to talk to them. Hire us to design new ads for them. So with Dial-A-Mattress...

NASH: We did these billboards and beautiful photography of a guy - like, it was all very arty, a guy laying on his stomach, but you could see, you know, he had the - he wasn't wearing any clothes, but he had the sheet pulled down. Who you sleep with - yeah, here it is. Who you sleep with is your business. How you sleep is ours.

KING: Dial-A-Mattress aside, it was a tough sell. This was the early '90s. It was during the AIDS crisis, and a lot of companies would not talk directly to gay and lesbian consumers because they were afraid of alienating heterosexual consumers. In fact, John says a lot of the companies that did advertise to gays and lesbians were what he calls the sin industries, like booze and cigarettes.

VANEK SMITH: And then, out of the blue, comes this call from Subaru saying, hey, we think lesbians might be one of our most significant markets, and we need to confirm it. So John and his colleagues went out to Northampton, Mass. - Subaru's research said a lot of its cars were being sold there - and they gathered a little group of local Subaru owners together into a room with one of those two-way mirrors.

NASH: So we get up there. We're in the - we're in the observation room, which always has, like, M&Ms and crackers. It was a very dangerous place to be, especially if you are on any kind of a diet. So there's all that candy, and then the women start coming in.

VANEK SMITH: But only women.

NASH: You know, that's the amazing thing. Both groups were 100 percent female.

KING: One hundred percent - there were no men.

NASH: No, no men in either group.

KING: John watches the women from the other side of the mirror while a researcher asks them questions.

NASH: What do you use your car for? I want to move my dog from here to here. I like throwing my stuff in the back and going camping. And there was a tone and in - there was a tone to how they were answering that was different than a woman saying I like to go to T.J. Maxx and then get my hair done.

VANEK SMITH: Wow. OK. Apparently, two kinds of women in the world.

KING: I know, I know, I know, I know, and John said as a human being, he hates this kind of stereotyping.

VANEK SMITH: OK, OK.

KING: But as an ad guy, this is sort of what you do. You break people up into categories, you say broadly here's what they're like, and then you try to sell stuff to them. So this is exactly what he's doing. He's looking at these women, and he says to himself, I think they are part of a specific group.

NASH: I'm like, these are lesbians we're talking about. They're lesbians.

KING: OK, not just that but these women seem to love their Subarus.

VANEK SMITH: So John and the ad agency drive down to Cherry Hill, N.J., which is where Subaru is headquartered, to pitch the company.

KING: This was not a small deal. I think a lot of us forget this, but the early '90s were not a particularly progressive time, right? This is the era of don't ask, don't tell. In just a couple years, Bill Clinton was going to sign the Defense of Marriage Act, which would effectively say same-sex partners cannot be considered spouses. And even inside Subaru, being openly gay was not easy. Tim Bennett, the guy who saw Subaru having an identity crisis, he later worked on this campaign. Tim is gay, and he never came out at Subaru because he saw what could happen if he did.

BENNETT: There was a out gentleman who was gay in the mailroom. There were people in the office that didn't want him to deliver mail to their desk because they were afraid they were going to get AIDS. So this is the environment. I know a lot of people think they can't be. No, it's what happened.

VANEK SMITH: So here comes Mulryan/Nash into this conference room with about 20 Subaru bigwigs. John and the team start a PowerPoint presentation. Here is who we are. Here is what we were doing in Northampton. And then...

NASH: And then it was time for the bombshell basically and that was - I think that was, like, six or seven panels into this PowerPoint thing. You know, you click the button and up pops this thing, you know, the target consumer in Northampton is a lesbian woman.

VANEK SMITH: John is braced for resistance. I mean, you have to remember his agency had been going to companies for years with numbers, statistics, data, saying, look, gay and lesbian consumers are very important. You need to start marketing to them. Look at the numbers. And companies had been looking at this and saying very interesting but no thanks.

KING: And now here he is pitching to a car company, which is like the definition of mainstream. And he's telling them, you got to market your cars to lesbians.

VANEK SMITH: In the middle of the pitch, John keeps sneaking these glances at the president of the company trying to figure out what he's thinking.

NASH: He just kind of nods, and he sits and he crosses his arms. And, you know, you always learn in business that when people cross their arms they're closing themselves off to you or something crazy like that. Like, that's why you always have to be careful at a cocktail party - don't cross your arms.

VANEK SMITH: Other people around the table are also looking at the president of Subaru wondering, what's he going to do? What's he going to say? But he doesn't do or say anything. He just keeps watching the pitch.

KING: So they finish the presentation and then...

NASH: He goes I don't need to invent a group to speak to. It looks like you found a group of people we can already talk to. He said, so this looks like a good thing.

KING: He didn't freak out.

NASH: No.

NASH: Not only did he not freak out, he hired them. Now, remember, this is a car company. This is what every ad agency dreams of. And now this tiny little ad firm has been hired to create ads for gay and lesbian consumers for Subaru.

VANEK SMITH: Now, of course, they had to get down to designing the actual ads, and John says this proved to be a little bit tricky. I mean, remember, they were breaking new ground here. And so John had to find ads that would fit both with the image that Subaru had been cultivating for years and years and with this new group of consumers it was trying to target.

KING: That's right. In fact, John showed me the first print ad that he did in 1995. And so what it is is there's a Subaru up at the top, right, and there's two women down at the bottom, and the headline is it loves camping, dogs and long-term commitment. Too bad it's only a car. It's good, right? It's good.

VANEK SMITH: It's good. It's good.

KING: And then down at the bottom there's a picture of two women. Well, when the ad first went to the executives, the two women were together. The executives see this and they tell John, listen, listen, separate them please. Put some copy in between them.

VANEK SMITH: Yeah, they're, like, in opposite corners of the page.

KING: That's right, looking at each other, though. Well, they're not looking at each other.

VANEK SMITH: Looking - looking over the text.

KING: Looking over the text (laughter).

VANEK SMITH: Looking over the text at each other. From this, John says, they kind of settled into a plan where they would use references that were obvious to gay and lesbian consumers but not really to anybody else.

NASH: And at the time, there was - "Xena: Warrior Princess" was a show that was airing, like, on the WB network or something. And the lesbians loved Lucy Lawless, and everybody loved Xena. So one of the license plates was going to be Xena Lover - X-E-N-A-L-V-R. One of them was P-Townie - P-townie and the...

KING: For Provincetown.

NASH: For Provincetown - and the other one was camp out.

KING: It was so subtle. The message was there, but you would have to look at the license plate on the car in the picture in the print ad to get it.

VANEK SMITH: John was in San Francisco when the ad campaign launched. He was at a bus stop, and a bus pulled up to the stop with his ad on it.

NASH: I immediately looked at everybody standing there. A bunch of old ladies look at the cars, don't do a thing. Two gay guys - and believe me, I knew they were gay, gaydar finally tuned - they both look at each other and just kind of smile like they got it.

KING: Yeah, they got it. And about two years after this campaign started, Subaru's sales started growing.

VANEK SMITH: The niche marketing was working. Remember those groups that Subaru had identified - the outdoorsy types and the nurses and the engineers - Subaru had been marketing to all of them, and its sales were going up. And then in 2000, Subaru made a bold move aimed right at lesbian consumers.

KING: Martina Navratilova - Subaru hired the retired tennis star, who was one of the most high-profile lesbians in the world at that point, to do this big ad campaign.

(SOUNDBITE OF AD)

MARTINA NAVRATILOVA: What do I know about performance? What do I know about control? What do I know about grip?

KING: Everything.

VANEK SMITH: She knows everything about...

KING: She's Martina Navratilova (laughter).

VANEK SMITH: ...Everything about grip.

KING: Pam Derderian was responsible for this campaign. She runs a marketing firm called 15 Minutes Inc. And she introduced Martina Navratilova to the people at Subaru in the '90s. And she says this was the moment when Subaru's niche marketing campaign became not so niche.

PAM DERDERIAN: She was on mainstream television commercials promoting the cars. She was in print ads promoting the cars. She was in outdoor billboard advertising promoting the cars. She was in mainstream advertising.

VANEK SMITH: Not that there wasn't some pushback. Subaru had always faced resistance from some of its dealers who had problems with its print ads. But when ads started to hit TV, the campaign got a lot more attention. This wasn't just Xena on a license plate. These were really high-profile ads. John Nash said there were angry letters, fears of a boycott.

NASH: It's anxiety-inducing only because you don't want to lose one of your favorite clients over something that's completely out of your control. If the business marched away, it was going to be because someone wrote a letter in crayon saying, you know, how dare you sell cars to these dirty gay people.

KING: Subaru didn't march away. They kept up the campaign. And a year after they hired Martina Navratilova, they had their best sales year to date. And then in 2004, there was this big opportunity for product placement. There was this show on SHOWTIME called "The L Word," and Pam Derderian helped create a storyline on "The L Word" where a lesbian tennis player got an endorsement deal with Subaru.

(SOUNDBITE OF TV SHOW, "THE L WORD")

ARI COHEN: (As Conrad Voynow) So guess who's having an event tonight and wants you to come.

LAUREN LEE SMITH: (As Lara Perkins) Subaru?

COHEN: (As Conrad Voynow) (Laughter) Yeah. So Subaru's hosting the dinner, some kind of charity event to support the arts in the public schools. It'll be teeming with the who's who. How hot is that?

KING: Pam Derderian says all of this was a really big deal. All of this was a watershed. I kept using the term niche marketing. And she kept shutting me down and saying Subaru went so far beyond niche marketing.

DERDERIAN: We're a more comfortable society. I mean, who would ever think that an ABC program - "Modern Family" - two weeks ago would have a 9 or 8-year-old transgendered character on? This is not niche any longer. This is just being out and proud and owning who you are and living in a diverse, inclusive society.

KING: By about 2006, Subaru had grown into a very steady success. It wasn't Toyota. It wasn't Ford, but its numbers were going up. And when the recession hit, Subaru was the only car company in the U.S. not to lose market share.

VANEK SMITH: But in spite of the success, Subaru seems to have kind of changed direction. I mean, if you look at their ads now, there's no Martina Navratilova, no Xena. Instead, most of the ads feature heterosexual kind of outdoorsy couples on their way to a hike and things like that. And at a moment when our society has become so much more inclusive, it's strange. Like, why did Subaru back off?

KING: Yeah, I was really curious about this, so I called Subaru, and I asked a spokesman, and he said it's true. We don't directly target gay and lesbian consumers anymore. Our ad campaigns these days focus on our customers' hobbies and interests.

VANEK SMITH: Like mountain biking and kayaking.

KING: Right. Pam Derderian has a theory about this. She says since the '90s when this started, so many more people are just living out and what was niche is now just much more mainstream. So niche marketing is kind of passe.

VANEK SMITH: Right, like, niche marketing became a victim of its own success, and of course that raises the question, do ad campaigns actually influence the culture or do they just reflect the culture?

KING: Yeah. I kept asking myself that question, and the answer is I honestly don't know. I put that question to Amy, the woman from the beginning of the show who owns a Subaru and loves the Subaru. And she said, honestly, she does not know either. But then she told me this story. Amy went to college in small-town Kentucky in a place that was not especially friendly to gay people. She did not have an easy time. And then after school, she moved to Washington, D.C., and one day, she's in Dupont Circle, and she sees this Subaru ad.

KNOPF: And I remember seeing this ad on a bus stop that said, it's not a choice. It's the way we're born. And it made me smile.

KING: It made her smile because it was talking to her. It's not a choice. It's the way we're born. She knew exactly what that ad was saying, and not everyone would have known exactly what that ad was saying. It was an inside joke, and Amy was finally on the inside.

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VANEK SMITH: We always love to hear what you think of the show. Send us an email - planetmoney@npr.org - or find us on Facebook or Twitter.

KING: We have a lot of people to thank on this one. We got the idea for this story from Alex Mayyasi. Alex is the editor at Priceonomics. He wrote a great story about this. You can find it at priceonomics.com. Also thanks to David Mulryan, Mary Treisbach, Rebecca Lindland, Paul Pooks (ph) and special thanks to Allison Cain (ph). Our episode today was produced by Sally Helm. Sally is a former PLANET MONEY intern, and we are looking for our next intern. Go to npr.org/money to learn more.

VANEK SMITH: Also Wells Fargo has been in the news a lot this week. The CEO resigned. Our episode last week was all about Wells Fargo. You should go check it out. It's called "The Wells Fargo Hustle."

KING: Great episode. Last up, if you have ever found yourself wondering, what pocast should I listen to? We have got a new show for you. It's called The Big Listen. It's NPR's newest podcast. Lauren Ober is the host. She's going to introduce you to podcasts you might never have heard of. So when you want to find something new, find The Big Listen on the NPR One app and npr.org/podcasts.

VANEK SMITH: I'm Stacey Vanek Smith.

KING: And I'm Noel King. Thanks for listening.

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