What makes a company successful?...

... delivering products and services that are relevant and create impact among consumers.

I combine my expertise as a Marketing executive in a Fortune 500 company and my passion as an investor to find the Companies that I think have "cracked the code" with consumers. Advertising does work. When I see a new product that fits relevant consumer trends, and that is supported with a campaign that I find particularly shrewd and innovative, I know that Company is potentially a great investment.

One of the great investors of all times, Peter Lynch, recommends to "buy what you know". You watch TV, go to the supermarket and walk around everyday. Observe... look around: what you see can make you money in the stock market. Now, let's be clear: a Company is not good just because it advertises. What we have to look for is great products supported with -and enhanced by- great advertising. The principle is simple: if something is good enough to draw your interest, it will be of interest to millions of persons just like you.

It is my goal to share with the reader my findings in the world of marketing which I think will turn into great returns for investors. Profit from it!

Sunday, September 28, 2008

Hormel Foods looks appetizing

“From Your Desk Drawer to Delicious - in 90 Seconds. People on the go expect more from their meals. You want it fast, you want it tasty and you want the convenience of packaging that lets you eat without disrupting your busy schedule”

Hormel Foods (HRL) got that right! I discovered Hormel’s line of Compleats microwave meals while wandering in the supermarket a few days ago. I was very excited with the line. As reiterated in one of my last posts, “May you leave in interesting times”, you can bump into interesting investment opportunities by just paying attention to what you see while doing your personal shopping.

Compleats is a line of surprisingly, well, complete meals that do not require refrigeration and that are ready with just 90 seconds in the microwave. Clearly designed with the office dweller in mind, the excerpt of the Compleats web page I started this post with proves to be very insightful. Effectively, office workers who prefer to have launch at the office are always on the lookout for meals that are satisfying, hearty and yet convenient to carry, store and prepare. There are not that many options out there: if you want to remain in the office during lunch time, you have to either deal with frozen dinners –if there is a freezer anywhere near your cube- or some energy bars. That’s it. It is that or trying to make it through the day with a bag of Cheetos in your stomach. Now, there are some other options out there, aren’t they? What makes the Compleats proposition so compelling? I would summarize its competitive advantages as follows:

a) A fairly complete, hearty hot meal. All other non-frozen alternatives are mostly soups or very simple pasta-based meals that are not very satisfying or nutritious.

b) Extreme convenience: most of the microwavable alternative solid meals require some sort of preparation that can be messy and prone to embarrassing accidents in an office environment.

c) Easy storage: Meals with the same level of heartiness and sophistication can only be found in the frozen category, which require refrigerated storage and longer cooking times.

In researching this product, I found out that even though it is not really new, it was recently relaunched with the new name of “Compleats” and the new packaging, a simple sleeve that let the consumers understand tha revolutionary nature of the product. The introduction of the Compleats line couldn’t come at a better time. Adverse economic conditions mean that many office workers who used to go out for lunch are re-considering their options. Even the cheapest fast-food alternatives out there will make you spend $7-$10 for a lunch. A Compleats meal goes for around $3. Scratching eating out and replacing it with Compleats meals is a quick way to save more than $100 a month. Not too shabby.

In my opinion, the Compleats line will become one of Hormel Foods’ shining stars, with a great potential to beef up the Company’s bottom line. It comes at a great juncture as well. Hormel is not a particularly exciting company, but its share price shows the steady growth you’d look for in a keeper. Its margins, as with the rest of the processed food industry, have been under pressure due to the increasing costs in commodities experienced during the last couple of years. These cost pressures are subsiding, which means we could see interesting upward surprises in Hormel’s profits moving forward. At this point, Hormel is really looking like a tasty investment worth taking a bite out of.

Sunday, September 21, 2008

Now, that's Progressive!

Amidst jittery financial markets and government bailouts, the average Joe is still facing tough economic times and looking for ways to save money. In continuing with the discussion initiated in my post “May you live in interesting times”, we are looking for the companies that are building on the opportunities presented by the economic crisis to attract savings-conscious customers.
In the competitive and very profitable auto insurance arena, one insurance company stands out : Progressive Corp. (PGR). I am quite impressed with Progressive’s marketing strategy:

a) In a time when most of its competitors have retrenched in their marketing efforts, Progressive has boldly followed the opposite trend: it has aggressively stepped up its advertising activity to a point where, right now, is perhaps the most visible insurance company out there. This is a very positive move. In hard times, most companies tend to cut back in marketing spend, which is an easy target because it is mostly variable by nature. Yet, although sometimes unavoidable, it is the wrong thing to do. When the going gets tough, the tough get going. It actually is in tough times when a company needs to redouble its efforts to gain new consumers and retain the ones they already have, because it is exactly in these type of conditions that consumers re-assess their own expenditure and start looking around for better options. For most consumers, insurance is low-hanging fruit, and one of the first expenses to be questioned.

b) Intensifying advertising presence is just half of the effort. In order to be effective, a good campaign needs to be in place. And it is here where I think Progressive shines. Progressive’s new advertising campaign is warm, colloquial and does a great job humanizing what is otherwise perceived as the dreadful process of shopping for insurance. It makes the concept of shopping car insurance look simple and friendly for consumers by equating it with the retail shopping experience they are very familiar with. By doing that, Progressive effectively addresses and neutralizes the anxiety that shopping for a highly technical financial product creates among consumers. The different spots address each of the issues related to the shopping process. They reassure consumers that it is OK to shop around, that they can customize their protection as they need it, that Progressive is a one-stop solution for all their vehicle insurance needs, and finally, that they can save money.

c) Shopping for car insurance can be particularly stressful because, as a technical product, it is usually time-consuming and confusing. A lot of data needs to be provided to each company you consider, and at the end, it is always hard to understand what the different companies are quoting for. Therefore, comparisons are complicated. In addition, consumers never have the time to go over the dozens of potential alternatives, so the process is always laden with cognitive dissonance that leads to the very uncomfortable feeling that they ultimately might not have made the right choice. Also know as buyer’s remorse, this emotion is so uncomfortable that, unconsciously, most consumers would rather put off making a change than enduring the anxiety. This is the third successful element in Progressive’s strategy: providing quotes for not only their own policy, but that of their competitors too. Although this might seem risky –a competitor’s quote might actually be lower than Progressive’s- , it is actually a brilliant move. Progressive’s best chance to get a new customer is by triggering the shopping process. And in order to do that, it needs to make it look simple and reduce the anxiety it creates in the consumer. In addition, by providing this service Progressive ensures that their website will be the first stop the consumer will make when he/she starts shopping. Having the first shot at the client further increases the chances of gaining his/her business.

Progressive’s insightful and bold marketing approach should ultimately pay off in terms of new customers and a more robust policy portfolio. The stock price has been beaten down along with the rest of the financial sector, and sat at $17.55 last Friday. But the company is doing what is required to emerge stronger from these difficult times. Taking advantage of the opportunity provided by the crisis; now, that’s progressive!

Wednesday, September 17, 2008

Bank on this opportunity

This has been a scary week indeed! It is in situations like this one that investors like you and me freeze and really don’t know what to do. Most of your investments are in deep red and you wonder whether to sell and cut your losses or just weather the storm and hope for better times. Anyway, how much lower can it go? Most likely, you asked yourself that same question a few months ago –heck, a few weeks ago!- and as it seems, they could go much, much lower.

Jim Cramer likes to repeat this phrase that makes much sense in these times: nobody ever made a penny by panicking. And what we are seeing this week is just that: sheer panic. A very justifiable panic perhaps, but panic nonetheless. What I love about these times is that the market throws the babies with the bathwater. And I am seeing stocks that have reached prices that make no sense. Let’s be clear, though: I am not saying that we’ve reached a bottom and that even those stocks could not go lower. Even though I’d really love to be wrong, I think there is still pain ahead of us. I wouldn’t be surprised anymore if we revisited a Dow 10,000. But then, we have to look around: oil prices falling, commodity prices falling, an election coming soon, and finally some consolidation in the financial sector. Weren’t the high oil and commodities prices what were driving potential inflation and a squeeze in margins across the economy in the first place?

The US economy fundamentals might not be strong at this point, but one thing is true: ours is a very resilient economy. Eventually, the economy will improve. And as I stated in my post “May you live in interesting times”, the true leaders will come out of these dark times stronger and more powerful.

In the financial sector, I am particularly excited about one strong, clever player: Bank of America (BAC). Exactly as described in the referred post, Bank of America has been pondering the opportunities generated by this crisis and, when the time came, moved to acquire the right companies to strategically complement and strengthen its business. First it was the acquisition of Countrywide, the largest retail mortgage lender in the country. And now, it acquires nothing less than Merrill Lynch (MER), the most recognized name in the world in brokerage services and wealth management. The latter was, in my view, a brilliant move. Before this acquisition, Bank of America had little real opportunities to grow in the US: it was already too big in this market. And yet, it didn’t have a strong international presence to look for growth overseas. In addition, it really was a non-player in the profitable wealth management and brokerage services field. These two weaknesses are instantly turned into strengths with the acquisition of Merrill Lynch.

For sure, many have criticized this acquisition as reckless and untimely. Is this acquisition risk-free? Of course not! It is a very risky undertaking! But it is this sort of bold, aggressive moves that differentiate leaders from followers. It is by taking decisive action with sound strategic vision that leadership is exerted and enhanced. Merrill Lynch is a prime franchise with global reach, and provides Bank of America with immediate access to a huge portfolio of wealthy customers and new businesses around the world at an opportunity price. It would have taken decades for Bank of America to build that infrastructure by itself.

I believe Bank of America will come out of this crisis as a financial powerhouse. Although bruised, the institution has been able to weather the crisis with relative success so far, and has taken advantage of the turmoil to gain strong footholds in areas in which it was not participating, thus creating new opportunities for growth. For the patient investor, Bank of America might really be the bank of opportunity.
Disclosure: I own shares of BAC

Sunday, September 14, 2008

Wal-Mart: more than just low prices?

In the current economic situation, it was to be expected for Wal-Mart (WMT) to thrive. It has always offered the lowest prices in groceries and other basic goods. Yet, in the good times, many consumers would refuse to shop at Wal-Mart for issues ranging from convenience all the way to, very simply, status. In the face of rising prices and economic uncertainty, those issues are mostly gone for a good chunk of the population. Consumers will do whatever is necessary to stretch their paychecks. Consequently, Wal-Mart has been able to report sales growth quarter after quarter for over a year now. With it, we’ve also seen its stock price increase nicely, from the low 40’s back in October 2007 to $63 last week.

Now, this growth has not happened just out of pure inertia. Wal-Mart has been very conscious of the opportunity the economic downturn represented for the company. As a result, it very purposefully refocused its marketing efforts to attract a wider range of middle- and upper-middle-class embattled consumers by positioning itself as the best alternative to preserve the lifestyle they are clinging to.

Wal-Mart’s campaign “Save money. Live better” is an excellent effort in that direction. In the past, Wal-Mart's communication focus had always been around its low prices, under their “Always low prices. Always” creative platform. Their target audience was comprised fundamentally by cost-conscious, low-income consumers. Even though this was the promise that made it a retail giant, during the years of economic surge this approach was actually affecting Wal-Mart negatively. As consumers’ disposable income rose, Wal-Mart saw more and more consumers turning to retailers that offered not only good prices, but most importantly, emotional value: higher quality, better design and a more pleasant shopping experience. Target is the best representation of that trend. Wal-Mart was unable to reinvent itself in order to leverage that trend and stem the outflow of consumers. Even if it wanted to do it, its strongly cemented position as the value player meant it lacked the credibility to reposition itself. That just changed. As indicated, the economic downturn and the recalibration it has generated in the consumers’ priorities has provided Wal-Mart with the opportunity to re-build its image among an audience willing to listen, and the company is taking it.

Wal-Mart’s communications are not anymore just about price rollbacks. Instead, the “Save money. Live better” TV commercials are high-quality depictions of situations and events that consumers relate to high quality of life. Moreover, the campaign does a great job at going deeper and touching emotional chords in the consumers. It really appeals to the emotional drive of making the most of your money in order to take care of your loved ones. In that sense, the campaign is very insightful and goes beyond the rationality of low pricing. It is about providing what is necessary for those you care about to enjoy a better life. Very well done!

I am encouraged by this brilliant re-direction in Wal-Mart’s communications. I think they really found the right approach to re-define their business in a way that will make an ample segment of middle-class consumers to reconsider Wal-Mart.

Nevertheless, the communications platform is just half of the job. Indeed, Wal-Mart is doing a great job in leveraging the opportunity provided by the environment to drive new consumers to the stores. Wal-Mart has been able to appeal to a larger group of consumers and has gotten them to shop in their stores; they will continue doing so while the economic situation is still adverse. But in order to generate organic, sustainable growth, Wal-Mart must also be able to retain them when the situation improves. And here is where I remain skeptical. The Wal-Mart shopping experience is still sup-par, if not outright dreadful. Messy stores, out-of-stocks, apathetic, nowhere-to-be-seen and unhelpful associates, low-quality merchandise and unacceptable long lines at the few registers that are open at any given time still plague the experience at Wal-Mart. At Wal-Mart, you don’t enjoy the experience: you endure it. If this is not corrected, my view is that we’ve seen everything the stock has to offer in terms of returns. The new consumers Wal-Mart has been able to generate will flee once the economic pressure subsides.

Wal-Mart has a brilliant opportunity to re-invigorate its franchise. In terms of communications, they’ve done the right things. If they start addressing the issues in their consumer experience model, this power-house may once again become a prime core stock to hold in your long-term portfolio.

Wednesday, September 3, 2008

Follow this Instinct

Wireless must be the one of the most dynamic markets you could find. It is unique because success really depends on perfectly combining the strengths of the participants in two different yet intimately related industries: the carriers and the cell phone makers. Their destinies are irremediably intertwined. Consumers drool over having the latest almighty gadget that allows them to not only make phone calls -talking is so yesterday!-, but most importantly, remain plugged into the world through text messaging, picture taking, Internet access, TV on the go and all sort of cool functions. This is the realm of the so called smartphones. They really are command centers for the life on the move. Yet, the gadget is only half of the story. In order to be able to actually enjoy all those neat functions, consumers also have to select a carrier that provides all the services needed to get their cool devices going. They soon find out that having a sophisticated command center does not come cheap. The cooler the gadget, the more functions it has, the more services are needed from a wireless carrier in order to take full advantage of it. And of course, the carriers are all too happy to sell them to you. The tab adds up: minutes for talking (boring!), internet packages that charge by Kb, a quarter per picture sent over the network, GPS service, etc. Consumers have little choice but to pay. Reluctantly, perhaps, but then, what is the point of having the greatest smartphone is you are not getting the services it is designed to provide? Surely enough, this rich profit potential pushes wireless carriers to go to great lengths to ensure that they gain exclusive access to the hottest and more sophisticated smartphones the electronics industry can provide, because when consumers fall in love with a phone, they will take their accounts to whichever wireless company offers it in exclusivity… or will they?

The feeble economic situation is making consumers reconsider their priorities. And as much as they love their gadgets, many are starting to question their wireless bill. It doesn’t help that it is actually hard to figure out how much you are going to pay for the month. In general, wireless carriers are particularly good at creating complicated packages that are difficult to understand. As a consumer, you have two choices: either you pay small fortunes for unlimited packages –individually by service- or you assume the risk of paying a small fortune anyway because you exceeded the 25 pictures quota of the plan you chose thinking it would be enough.

Until now.

One of the most exciting introductions in the wireless industry since the advent of the iPhone is the launch of Samsung’s (SSNLF) Instinct phone by no other than Sprint (S). The Instinct is an exciting smartphone, clearly designed as an iPhone killer. The dedicated Instinct website features some brilliant, poignant videos that make direct comparisons between several of Instinct’s advanced functions and the equivalent ones from iPhone. In each of the features, the technical superiority of Instinct is demonstrated in a very convincing way. The creative platform for the launch campaign is also a major success. Samsung and Sprint launched the Instinct with a strong multi-media advertising campaign mimicking the introduction of a major motion picture. It borrows from the excitement, the drama and the bigger-than-life stature that a major movie launch generates, and the production quality of the communications is top of the line. OK, we have the gadget. But, in my view, what completes this brilliant introduction is the service package Sprint offers with it. Dubbed “Simply Everything”, the plan is exactly that: every single service you need to fully enjoy your Instinct, unlimited, for just $99.99 per month. No more counting text messages, no more controlling minutes. Just one very affordable, easy to understand monthly price, and you are able to enjoy the advanced functions of the Instinct without guilt or uncertainty.

This is a very encouraging initiative for Sprint. It is the right combination of a great gadget with a great plan, introduced at a time when consumers are the most receptive to propositions that will allow them to preserve their lifestyle while still reducing their spend. From a marketing perspective, it is a very sound move, and at the right time. The company has lost half of its value over the last year, and it just looked like they were unable to get anything right. The grandiose launch of Instinct in combination with an aggressive and attractive plan like “Simply Everything” is in my view a strong signal that the company is finally getting in control of their business once again. With Sprint’s share price slightly above $8, this is an Instinct you might want to follow.