Embracing the Zeitgeist: Apple vs. Microsoft

In a world regimented by the relationships we had to establish and upkeep in order to have a life, the role of branding was very clear. A brand was to project to others your personality and your character. The ensuing advertising was very straight-forward. A brand would show the type of character you wanted to portray and presto, it was selected by those who required that specific trait.

Nowadays, however, things have changed. The most important change is that people can choose. No, I am not talking about choosing between flavors or between different brands in a given category. Today, people can really choose: choose what to believe, choose who to relate to, choose what to care about. Ultimately, they can choose how to live their lives. The drivers of this change are very simple but very profound: a) access, and b) closeness.

In other words, globalization. Not just globalization as an economic trend or economic doctrine, but true globalization: being aware of what's going on in any part of the world the instant it's happening; not being limited by geography when choosing who to relate to or what to talk about; the empathy created by being first-hand witness –through the power of media- of the suffering and triumphs of people on the other side of the world, and ultimately, the understanding that we are all interrelated. It's never been easier or cheaper to move from one place to another. Not that long ago, self-expression and creativity was limited to those who had well-honed artistic skills.

Today, self-expression and creativity takes the form of pictures in Flickr, videos in YouTube or a page in Facebook. Suddenly a world is open for everyone and people are exposed to the myriad of experiences that life can be made of. And people today want to have them all. Like never before, life can be fulfilling and diverse and varied and exciting. There is no time to waste and certainly, no conventions to obey to. Molds have been broken, closets have been pried open and non-committal experimentation is possible. In this new world, what you need to be is secondary to who you want to be and what you want to do.

In order to be successful, brands need to follow suit. Consumers today are far more complex and far more fluid than never before. A brand that defines its business, its character or the consumers it serves in too narrow of a way might soon find itself displaced and out of favor among consumers that just moved on to the next thing. The typical criteria for consumer segmentation just don't work anymore. Demographics like gender or age or geography are simply irrelevant. Lifestyle? There are as many lifestyles as consumers out there.

As a marketer, what do you do? Successful brands need to engender familiarity, trust and a sense of consistency. They can't be erratic. They can't change with the wind. But at the same time, they can't be stagnant. This is the new positioning challenge marketers are facing in this brave new world.

The solution is to embrace and stand for the values that fundamentally define the era we are living in and that in one way or another touch or are embraced by most people; that is, embrace the zeitgeist. In other words, praise the journey, not the destination. What is exciting about this approach is that, as a brand, once you stand for a given value or set of values, you can embrace whatever is the expression of such values at any given time and still remain true to yourself and to what consumer have learnt to appreciate in the brand.

In very simple terms, as long as you stand for music, you can play any tune. But if you stood for swing, you'd be facing very tough times in a world dominated by hip hop and country. If as a swing brand you started flirting with hip hop or country, then you'd look inauthentic and out-right opportunistic; therefore, not credible and definitely not trustworthy.

This way of defining a brand, and the consequent implications on how a brand interacts and communicates with consumers, is what I've called Marketing to the Zeitgeist.

The most influential brand of our time is, by far, Apple (AAPL). How many brands or companies are there whose endeavors are so eagerly followed by press and consumers alike? While most companies need to resort to stunts and massive PR efforts to try to attract the attention of the press, Apple's every move is news. Journalists line up to try to break the latest idea Apple is working on. We, as consumers, are simply enthralled by the succession of amazing technologies Apple makes available to us. And even those of us who don't have that many Apple products wish we had them. As an investor, there is no doubt in my mind: Apple is a core stock that must be owned and retained for the years, if not decades, to come. But why? What is Apple's spell?

Many marketers and analysts have tried to rationalize it and decode it: innovation, design, courage, Steve Jobs. All those traits (except for Jobs, of course) are not unique to Apple. How do they pull them together, what sort of alchemy do they apply to combine them in such a successful proposition then?

In my view, I would summarize Apple's magic in two words: enlightenment and selflessness. Now, these are words that much rather seem to describe the Dalai Lama than a company, and that you will hardly find in any business or marketing text. They are kind of lofty and pretentious, aren't they?

The best way to start explaining my choice of words is by some quick comparative analysis: why aren't other Apples out there? Most companies invest a tremendous amount of resources talking to consumers, gathering insights, trying to understand what is important for them. All too often, though, those insights are unconsciously sifted through previously established paradigms. These paradigms are based on the knowledge and understanding accumulated by a company or industry through the years: what worked or what didn't in the past, previous understanding of the consumers and products, assumptions built on experience and so on. Paradigms die hard.

The world changes around us, but we have a tendency to cling to old paradigms. More often than not, new insights are either forced to fit the old paradigms or simply, discarded as outliers. Even when new insights are gathered and understood, the second sin most companies go through is to stubbornly try to, once again, force an existing solution into meeting the new insight. Most companies develop an introspective understanding of the world, of their industry and of their own capabilities, and end up believing it as the absolute Truth. That is, we tend to fall in love with ourselves and end up drinking our own Kool Aid.

For me, one of the most blatant examples of this behavior is Microsoft (MSFT). With regard to their operating system, their last true innovation was Windows XP. Everything else has pretty much been a cosmetic improvement over the same platform. Their product, their view of the world has become so ingrained in their organizational psyche, that they basically dismiss any consumer understanding that doesn't fit their own paradigm.

To illustrate this point, think of this capital sin: they launch a Home version of Windows 7. Home, OK? For you and me, basically: fairly proficient in turning the computer on, writing a few emails and surfing the Web, but not much more. One day, you are more or less happy at your computer when an error occurs and the message that you get is an unintelligible code accompanied by a "Talk to your system administrator" instruction. I don't know you, but at home we don't tend to have a system administrator lurking around in case Windows decides to misbehave. OK, so you don't know what to do and, of course, try to see if the Help function in the system can shed any light on your problem.

Have you ever tried to use Windows Help? You need a doctoral degree in Applied Electromechanical Astrophysics just to get a shot at understanding what they are talking about. If this is their "Home" version, I don't even want to imagine the nightmares the IT guys go through with the enterprise one! The issue here? The company's focus is on the product, not on the consumers that are going to use it. What prevails is the vision and understanding of the engineers creating the software. Sure, they listen to the consumers; they have extensive ethnographic and anthropological research on how the consumers use the products. But then, they develop engineering solutions to what they perceived the consumer is asking for. They force the insights into their own paradigms. After all, Applied Electromechanical Astrophysics has become part of the pop culture, hasn't it?

So Microsoft, proud of its accomplishments (and tickled by Apple's constant snipes at them), goes and spends a fortune in media with a campaign that try to convince consumers that "Windows 7 was my idea". Yeah, right. My "System Administrator" kind of disagrees. See, you can't resolve with advertising what your product doesn't deliver. Microsoft has become an introspective behemoth that ended up believing that the world truly is what they see through the lenses they've built for themselves, and that reflects in everything they do. Windows Mobile? As clunky as the parent application. Office? Still the standard, but getting harder to use.

And Apple? Suffice to say that Apple surpassed Microsoft in market capitalization. And consistent with the case I'm making here, I'd expect that difference to continue widening in the future.

As I was saying, I'd used two very unorthodox words to describe Apple's unique recipe for success: enlightenment and selflessness.

Why is Apple enlightened? An old colleague, the then global Market Research guru of the company I was with at that point, had a maxim that has stuck with me through the years. It's a very simple four-step doctrine, and yet, quite difficult to truly follow: 1) listen to your consumers; 2) listen to them again; 3) believe them; and 4) act on it. As I was explaining in the first part of this article, it is steps 3 and 4 were most companies struggle. It is where insights collide with pre-established paradigms that things go awry.

Yet, even if this doctrine is followed to the letter, there are yet another two pitfalls that must be dealt with: exactly which consumers do we need to listen to, and how literally do we take what they say. These are two pitfalls many companies also fall into. Based on outdated marketing precepts, they think in terms of "our regular brand users" or "competitive users"; or, being a little more sophisticated, the "creative class" or the "social adventurers". Then, they take what the consumers say to the letter, and build the literal meaning of the collected insights into their decision making process. All these very easy to make mistakes will, most of the times, result in initiatives that are unsuccessful and leave everyone scratching their heads: "we did all the research… what went wrong?".

Today marketers must free themselves from the constant chatter around them, climb the proverbial mountain and scour the horizon to understand where society is going as a whole. And in seeing the direction, they need to embrace it and decide to lead it. Not fight it, not trying to steer it, but just position themselves at the forefront of the future and start building it before the rest get there. That ability to hover above and beyond the noise of the market today and understand where society is heading as a whole; to believe in what you've seen; the will to truly embrace that future and have the capacity to articulate it and to build it ahead of the arrival of society to that point, that is what I call enlightenment.

That's what Apple is doing: Apple goes beyond the interests of particular groups or segments. Apple is reading and decoding society as a whole, seeing where it is going and just delivering against it. But, wow, what a delivery!

There is where the second component of their formula kicks in: selflessness. The secret of Apple is that they simply understand that what they must deliver is an experience, not just a product. It's not about features, it's not about trying to force fit my technology or to impose my view of the world onto others. Apple is masterful at understanding the experience the consumers want, and making technology work to provide it. They don't sell operating systems, chips, memories and hard drives. They don't brag about search capabilities, speed, computing power and other technical irrelevancies. No. Apple delivers beauty, the feel of your fingers gliding on the screen, simplicity, reassurance and reliability.

At Apple, the consumer is truly the center of their attention; not a prey that needs to be persuaded to buy their fares, but the capable individual they need to serve. And in that selflessness resides their power and their dominance. Interesting, isn't it? Apple dominates by seeking to serve. And those who seek to dominate end up pushed aside.

The iPad is just a superb example of that vision and and that understanding of where consumers are, where they are going and what they really want. The immediate reaction heard in the techie circles was: why would the consumers want one? It's not a laptop, not nearly as powerful; it's just a bigger iPhone that doesn't even make phone calls. And yet, consumers flocked to it.

But why? Simply, because it is the experience the consumers were longing for. Think of where laptops have been heading: smaller, lighter, netbooks. And despite these changes, you constantly hear people complaining about having to carry their clunky laptops. Think of where connectivity is going: it is a mobile world. In this small global village, consumers want… no, need to be plugged to the grid 24/7. And yet, even the mighty iPhone is rather small for most of the things consumers want to do with their connectivity.

Think of the future: what is the ideal scenario for anyone? The portability and simplicity of the phone with the comfort and power of the laptop. Some sort of cybernetic transformer that can be unfold from a small phone into a larger and spacious… what's the word? pad!... that facilitates work and fully blown entertainment anywhere. Some technologies like flexible screens will likely get us there.

But in the meantime, as we arrive there, Apple starts preparing the terrain with the iPad. Apple will take us there. Apple has become a symbol of the zeitgeist. As such, owning Apple is pretty much owning a big piece of the future.

Investing by Advertising

I strive to uncover interesting investment opportunities by looking for companies that, in my view, have been able to not only garner the right consumer insights, but have the skills and talent to translate them into great products with tremendous business potential; products that respond to the key fundamental values and needs defining the consumer today. I don't pretend to be a financial analyst: I am a Marketing professional, and my initial assessment is based on what I see companies doing in the marketplace and how those initiatives fit with the aspirations, lifestyles, emotions and trends that I know, through research and direct exposure, shape the behavior of this generation of consumers. There are lots of great resources on investing. There are hundreds of sites and thousands of authors writing everyday about stocks and the financial markets. But, interestingly enough, not that many address a very basic principle behind finding winners early enough: great products, brilliantly marketed, are the ultimate drivers of financial success. Find the great products, and you will find a great investment.

I truly believe that anyone can spot a great investment opportunity by just keeping the eyes wide open and paying attention to his/her surroundings. We are all constantly exposed to extraordinary marketing initiatives with huge potential pay-off; most of us, though, are just too preoccupied with our own activities and everyday pressures to stop for a moment and just observe. However, even if we stopped for a minute to watch what's around the corner, it would be good to count with some guidelines, some tools to help us better define what to look for, where to focus our attention. This note could play a role in generating that guidance, so I thought it would share with the readers some of the criteria I use to identify products –in the most ample sense of the term- that show great potential.

To start this process, let's talk a little bit about Marketing itself. Much is talked nowadays about how conventional marketing is not effective anymore. Consumers have changed, media is fragmented, and the promises of glitz and glamour that used to work so well in the old days fall in deaf ears with today's consumers. All this is partially true: consumers have indeed changed, media is certainly very fragmented, and therefore, new approaches need to be devised in order to better serve your prospects and communicate with them. This, however, does not mean that marketing, in its essence, has changed. Whoever talks about conventional marketing, I would argue, never really understood what marketing is all about in the first place. Marketing has always been about satisfying consumers' unmet needs. It starts with designing the right product, in both its functional and emotional dimensions, and ends with establishing a long-term relationship with your customers. Therefore, when someone talks about conventional marketing and its ineffectiveness, they are really talking about companies that took a formulaic approach to develop and market their products, and lost track of the needs that they were supposed to meet in the first place. As the consumer needs evolve, a company needs to evolve its products and the way they communicate them. If as a marketer you don't do that, is not that you are applying conventional marketing: it's that you are not applying marketing at all. Sure, you may be investing in R&D, advertising on TV and spending in promotions. But if you lost touch with your consumers, those efforts will be in vain.

Does it mean that advertising does not work anymore? Not at all! It works, and very well… if you have the right message for the right audience. TV still works; just not the same way it used to work in, let's say, the 60's. What about the glitz and glamour? Well, some consumers might still need it (emotional need), but is not a main trend anymore, as it might have been in, let's say again, the 60's, when the consumers were fundamentally outwardly motivated. There is no such thing as conventional marketing: there are outdated values, formulaic messages and out of touch companies. No amount of money will solve for that.

This defines then the first criteria in evaluating a company by its marketing efforts: not everything that shines is gold. It is not the amount of advertising and promotion a company deploys what defines its potential. A company or product is not good just because it advertises. The product, and by definition the messaging supporting it, need to be uniquely relevant to the way consumers want to live their lives and represent the values they embrace as their own.

The second criteria is how well the company is addressing the values that drive consumer behavior today. There are some key values that characterize this generation of consumers. These values are embraced with passion and drive people in their selection of the brands that they trust, buy and endorse. Let's review some of the most relevant ones:

Inwardly Driven: Today's world is exciting for the consumers. In a society of abundance, high living standards and instant connections, consumers can go beyond the satisfaction of immediate needs. The basic problems are taken care of, and consumers increasingly focus their attention and energy in satisfying what Maslow defined as higher-level needs, or, in their terms, higher pleasures. A high pleasure is one that transcends the mere functional and/or sensorial satisfaction, and involves emotional, intellectual or spiritual fulfillment. This pursuit of transcendental satisfaction means that the consumers nowadays are inwardly driven, that is, they are focused on fulfilling their inner motivations and aspirations, and are comfortable with putting their needs first rather than meeting others' expectations. By contrast -and as a way to complete the illustration of the concept-, a consumer in a situation where the main focus is addressing primary needs –i.e. the post-war era previously mentioned- would be outwardly driven, because their satisfaction is heavily reliant on external factors –i.e. peers, economy and environment-.

Experiential Enablers: The world is full of possibilities –more than never before- and consumers want to experience them all. In a comfortable and predictable society, their quest is for new experiential opportunities that allow them to enrich their lives, make them fun, exciting and energizing. This is another critical value then: beyond products, consumers are looking for the new experiences they enable.

Authenticity: The third value to review is authenticity, also referred to as being real. Authenticity is a tricky value to grasp, and even trickier to activate. Many marketers hear "authenticity" from the mouths of their consumers, and immediately think of heritage, the original, the first. In reality, all what consumers are asking for is to just being told the truth. To just forget the hype, stop trying too hard, and tell them what a product is, what it stands for and what they can truly expect from consuming it. Consumers are just disappointed with products and companies that promise the stars, when in reality they can only deliver a flashlight. The glamour and glitz I mentioned in my previous posting do just not impress them anymore: they just do not need it. In principle, consumers are just sick and tired of being marketed to with hyped offers and false promises, as if they were fools that can't see through the smoke and mirrors and make their own choice. It makes sense, doesn't it?

Use your own experience to start separating the grain from the straw. Think of a recent TV commercial or promotion that really caught your attention. What did you think of it? What did they say in the commercial (or print ad or web banner) that you felt was speaking to you? How different did you feel the offer to be? Did you think something like "why didn't someone think of it before"? You start getting the picture. Does this feel too simple or even mundane as a way to profile potential investments? That's the beauty of it: it is simple! Beyond simple: it is intuitive. The point, though, is that, as mentioned before, most of the time we are not on the lookout for an investment opportunity. When we watch a TV commercial that speak to us, we think of the product that triggers our interest as exactly what we needed to wash the car, or to listen to music, or to feel cool and energetic; we might even act on it and go and buy it. But we rarely think of it as something other people might be interested in the same way we are, or even question (if not outright obvious) which company is launching it. That is the shift in our mindset that is required to spot interesting investment opportunities: whenever you see a marketing activity that catches your attention, think of it as a potential opportunity first. Follow the thread from there to see where it can lead you.

Domino’s Pizza: the impact of Authenticity, Involvement and Reciprocity

In one of the first postings in this blog, “Consumer Values to Look For”, I indicated that two of the key values driving consumer behavior nowadays are “Authenticity” and “Experiential Enablers”. Briefly, “Authenticity” has to do with the transparency and credibility a brand can command among its customers. Consumers are skeptical about the hype and the false promises many marketers make through their advertising, just to vastly under-deliver by the time the consumer receives the product or service. Very pertinent to the case discussed in this article, I would say that the restaurant and food industry is perhaps the most blatant offender in this field. “Experiential Enabler” refers to the depth and relevance of the experiences a brand enables its consumers to enjoy. The experience goes beyond the functionality of the product itself, and involves layers of emotional satisfaction, fulfillment and discovery.

Embracing these key values demands a complete shift in the Marketing philosophy of any organization. It implies a level of honesty and openness that at times might seem counter-intuitive, if not outright suicidal. It requires a focus on –and the will to- inviting the consumers in, and allow them to actively participate in the definition of the brand. It is a commitment to doing what is right for the consumer.

Late last year, Domino’s Pizza (DPZ) chose such a path. When Patrick Doyle took over as CEO of the flailing pizza chain, he decided to address the issues face on, and launched its now famous ‘Pizza Turnaround’ initiative. The Company publicly admitted the shortfalls in its products, and made a commitment to fix them. While it was not the first time a company admitted its mistakes and vowed to fix them, what was different in the case of Domino’s Pizza was the positive energy behind the initiative, and the clear commitment the whole organization was making to be better. This was not a PR stunt; this was not a contrite CEO apologizing in a press conference. This was a group of people, real people facing a problem, overwhelmed by it and then showing the determination to fix it. Doyle himself was approachable, energetic and credible. The guy next door. Authentic.

Fast forward to the most recent marketing initiative. Opening up a brand, as I mentioned before, is not just a campaign. It is a long-term endeavor; an organization commits to involve its consumers, make them part of the brand and … yes, you’ve got it… enable them to participate in the creation of the complete brand experience. So, Domino’s creates its “Show us your pizza” program where it explains to the consumers the fakeness that usually goes into photographing food for advertising and tells the consumers: “We resign to such manipulation. You, consumer, you do it. You take the pictures of our products”.

This is huge in its simplicity. And that is the beauty of great marketing nowadays. It doesn’t need to be complicated; it just needs to be genuine. And consumers want it. They are willing to participate; furthermore, they demand it. Their retribution is the sense of recognition and ownership they get from it. It is the satisfaction of being able to express their opinions in a personal way and see those contributions becoming a part of something bigger.

If this was good, what I found to be a brilliant culmination to a brilliant initiative is the latest TV commercial, where Domino’s not only showcase several of the great pictures they received, but Doyle himself appears again picking on a picture sent by ‘Brian’ which shows a pizza badly battered and personally apologizes to him, assuring the audience that this is not right and that they will not rest until things like that never happen again. This sort of openness, epitomized by the CEO delivering a personalized apology to a consumer –and through him, to all consumers- is disarming, and engenders a level of credibility and admiration that triggers a higher level of consumer interaction: reciprocity.

In social psychology, reciprocity refers to responding to a positive action with another positive action, and responding to a negative action with another negative one. Reciprocity is one of the foundations of the social structure, and it is edged in our psyche. The mechanism works more or less this way: if we feel we are the object of a good action, we feel we need to respond in kind in order to preserve a balance in a relationship. It is what compels us to bring a bottle of wine to a dinner party, even though the organizer has repeatedly indicated nothing is needed. Reciprocity also has a role to play in marketing: for example, when a sales person has been particularly helpful and has spent what might be perceived as an inordinate amount of time with us, we feel bound to buy something from him or her. Likewise, when we perceive that a company or brand has been open and genuine with us, going above and beyond the cynicism we’ve come to expect in economic relations, we feel compelled to reciprocate by at least trying their product. They’ve earned it. Which, in the case of Domino’s Pizza, should translate into a heightened level of trial, which in turn will result in an increased number of new regular consumers. In summary: market share gains. Growth.

Domino’s Pizza is absolutely doing the right things. It is practicing the type of marketing that resonates with consumers nowadays, and that should translate into substantial growth for this company. So, take a bite: this slice is just about to get bigger.

More on Skechers

In continuing with my investigation about Skechers (SKX) and its line of Shape-Ups shoes, I found this video clip from CNBC. I find it really exciting. Skechers is fully exploiting the potential of their radial technology. I see the current price drop as a significant opportunity to accumulate shares.



Disclosure: I own shares of SKX

Procter & Gamble: Old Spice's amazing turn-around

Procter & Gamble (PG) has done a fantastic job in revitalizing an old brand, Old Spice. The "Manly Man" campaign with its tongue-in-cheek attitude and bigger than life character has put Old Spice back in the minds of consumers. What is most commendable is the brilliant activation of the campaign via an integrated social media strategy. The following note from Entertainment Weekly's digital newsletter tells the story.

OLD SPICE, NEW TRICKS
And the MVP award for increase in body wash sales (not to mention buzz for marketing firm Wieden + Kennedy) is…the manly man himself, Old Spice guy Isaiah Mustafa. The 71-year-old brand’s current campaign, which includes hilarious TV ads and viral videos, is not only the talk of the town, it’s also being lauded as the reason behind an incredible 107% jump in sales. If you haven’t yet experienced "the man your man could smell like," check out this gem, where the shirtless wonder proposes to a woman on behalf of one of his Twitter followers.

P&G knows how to manage brands, how to do effective advertising and how lead the future embracing the zeitgeist. Needless to say, this is a company that deserves a spot in everyone's portfolio.

Skechers: Shape up your portfolio

Success in marketing requires of the right convergence of several factors: a) the existence of a real, unfulfilled consumer need; b) a product proposition that effectively addresses such need; c) the ability to not only get the consumers to know of such product proposition, but to believe it; and last, d) sheer momentum. It seems simple, but achieving this confluence of elements is actually a delicate balancing act. Therefore, when I see a company that has stricken such balance, I jump at it with my two feet.

Case in point: Skechers (SKX) and its line of Shape-Ups shoes. Let’s see why I am so excited about this opportunity:

Consumer need: Everyone wants to be in shape. Not everyone is willing to endure the sacrifices and hard work required to achieve that condition, though. We all know we have to exercise and promise ourselves to do it at some point. But in reality, most of us barely scratch a vigorous walk now and then. It is our natural tendency to cut corners and look for the most efficient (or shall I say ‘easy’?) way to achieve what we want. Want to lose weight? There is a pill for that. Need more energy? Let me grab the energy shot. Want more money? Let me watch Mad Money. So, the opportunity to make those rare low-intensity exercise sessions really count is irresistible.

Product proposition: “So, you are telling me I can burn more calories, improve my posture and tone my muscles just by walking in your shoes? I want in!” Skechers’ Shape-ups’ proposition is simple and has ample appeal. The key is that they have developed and positioned it for the regular people. Reebok (a Adidas AG brand) has a similar line, called EasyTone. What is the difference? Reebok targeted its shoes to the image-conscious female athlete; people who already exercise. By definition, the segment is smaller and has a lot more ‘conceptual’ competition: most of these women are mostly looking for something else in their shoes: performance, balance, avoiding injuries and so on. So, when the infrequent occasion to purchase a pair of athletic shoes finally arrives, what benefit will drive the decision? In the case of Skechers Shape-Ups, the segment is practically uncontested. For walking, most people basically use whichever pair of shoes is comfortable. But there are no special technical requirements. So Shape-Ups is the first line that offers true benefits –reason to buy- to the casual exerciser. In addition, Skechers has been careful to offer a full range of shoes for every occasion: from the cool-looking sneaker-style shoe, to the casual shoe for work. Last, the Shape-Ups shoes are not cheap: ongoing retail price is above $100 a pair, but Skechers have made sure that the quality of the shoes is commensurate to the price. Ultimately, the perception of high quality in combination with a unique functional promise is the final rational driver that consumers need to see this purchase more as an investment than an expense, therefore providing the perfect justification for an otherwise questionable outlay of cash.

Awareness and Credibility: Skechers is marketing the Shape-Ups line intensely, with particular emphasis on the Internet. Judging by the number of Shape-Ups banners and promotions I’ve seen in different websites, I’d venture to say that nowadays Skechers can easily be one of the top Internet advertisers. And it does not stop there: almost any shoe store has prominent Shape-Ups displays. The unique shape of the product and the profuse technical information offered in their website and in their marketing materials make the proposition easy to understand and very credible.

Momentum: Shape-Ups is building tremendous momentum. At the stores I visited researching this product, the clerks reported brisk sales. Most importantly, consumers are raving about the comfort of the shoes in their reviews in sites like Zappos.com and Shoes.com. This viral momentum is infectious; consumers are encouraged by the positive remarks of their peers, and the momentum gains strength. My impression is that we are just at the beginning of the post-launch inflexion point in the life-cycle curve, so we should see accelerated growth for the years to come.

Based on all these considerations, I pulled the trigger and made an investment in Skechers on July 15th. Around that date I started writing this note. On July 28th, Skechers reported a stellar quarter and as a result, the share price jumped approx. 7%. While I regret I didn’t have this note ready before that date, my estimation is that this is just the beginning of a nice upward trend for Skechers. So, it’s not too late. This is a stock that can shape up your portfolio.

Disclosure: I own shares of SKX

A case for Sprint

My case is simple. I submit that Sprint (S) doesn’t deserve the poor reputation it has among most consumers anymore. And I expect that sooner rather than later consumers will realize that Sprint is a very smart choice. My case is based on Sprint's sound marketing and on my own experience. It’s based on alluring benefits that are difficult to resist and shortfalls that are easy to fix.

Let's begin. So, what is great about Sprint?:

• Unbeatable pricing and comprehensive plans
• Coverage that, in practical terms, is more than enough for the vast majority of people.
• A very willing customer service people, who really try to go above and beyond the call of duty to address your problems, and who seem to be empowered to solve them.
• What seems to be a solvent technical infrastructure.

What needs to be fixed?

• Their array of phones is not ideal. Palm Pre was not the killer phone everyone expected it to be. The cool factor is not completely there yet. But I am encouraged by their relationship with HTC and the series of attractive phones this company is launching.
• Administrative structure and systems that are not integrated, and likely completely outdated, that smother the good intentions of the Customer Service people, making it more difficult than necessary for them to resolve problems. The different departments in charge of sales and customer service don’t seem to be coordinated, and worst, their systems seem to be archaic, not allowing anyone to get the full picture of what’s going on with an order or an account. Consumers are simply not willing to endure frustration, and hence the bad rap about Sprint.

How do I know? I am a happy Sprint customer. Delighted? Not quite, but happy indeed. I was very amused in one occasion when during a meeting at a mainstream hotel in Hilton Head, SC, none of my iPhone-slinging colleagues had coverage, while I, the mobile-challenged Sprint customer, could make phone calls galore and connect to the internet without a hitch.

So, what’s the issue with Sprint? Let me very briefly summarize my own story to illustrate it:

• Sprint’s package blew away those of Verizon and AT&T. For less money than what AT&T was charging for the iPhone voice and basic data service (all other services, like text, would mean additional charges), plus two family voice lines, I got three lines with triple the shared minutes and unlimited everything –internet, texting, GPS, TV- from Sprint. That’s a dramatic value advantage for Sprint.
• So I placed my order over the internet, on the special website Sprint prepared for my company, with all the corresponding discounts. In addition, the website was featuring two additional promotions: an extra discount on the phones to be applied as two invoice credits, and a referral discount. At the moment of placing my order, I requested the porting of my old cell numbers. I am satisfied.
• One or two days later, I found that my order was cancelled and replaced by another. Phone call to Sprint: what happened? -“Not to worry, everything nominal”. Good.
• Got the phones. Porting had not taken place. Another phone call: what happened? - ” It usually takes a couple of days”. Frustrated, but, OK, let’s be patient.
• A couple of days. Phone call: what’s up with porting. - “Don’t know why it didn’t go through. Call the Porting Depmt.” And I called: -“Don’t have the request here, but let’s get it done”. Done in a matter of minutes. Somewhat upset by the slip, but since the resolution was quick and easy, I’m OK.
• First bill. No promotional discount. Call again: where’s my discount? -“what discount?”. The one in your website for my company.- “We don’t see it”. I am seeing it, in front of me. Just go to your own website.- “We have no access to our website. We need to check promotions one by one in this book” Hey, someone must have placed this promotion in your website! -“Corporate sales” Well, talk to them! “We can’t; you have to call.”. Called Corporate Sales. Same story. So, they take my word and credit the respective amount.
• Next month. Second bill. No second installment of the famous promotional discount. Repeat process.
• Referral promotion? Never showed up.

In all this process, Customer Service people were great. But you could hear their own frustration at their inability to help because their systems wouldn’t allow them. Most new customers would have dumped the company after this mess. In other circumstances, I would have too. But I stuck with them because I felt there was a lot to gain. I was right.

While we had a rocky beginning, ever since Sprint and I are getting along just fine. And when I compare my mobile bill with those of my colleagues, I can’t help it but to smile.

I truly believe Sprint has put together a very compelling proposition for their customers. It’s just a matter of time for more and more consumers to take notice. And now that AT&T has nixed their unlimited data plan, Sprint competitive advantage seems to be even more relevant. If only they had the iPhone!

When companies provide a superior product to their competition, growth will follow. Sprint looks like a sound investment right now. But c’mon, Sprint, fix your internal processes and systems already!!!!

I rest my case.

Apple vs. Microsoft: embracing the Zeitgeist - Part 2

The ‘digital ink’ was not yet dry in my previous post “Apple vs. Microsoft: embracing the Zeitgeist - Part 1” , when Apple (AAPL) surpassed Microsoft (MSFT) in market capitalization. And consistent with the case I’m making in these articles, I'd expect that difference to widen in the future.

In my previous post, I used two very unorthodox words to describe Apple’s unique recipe for success: enlightenment and selflessness.

Why is Apple enlightened? An old colleague, the then global Market Research guru of the company I was with at that point, had a maxim that has stuck with me through the years. It’s a very simple four-step doctrine, and yet, quite difficult to truly follow: 1) listen to your consumers; 2) listen to them again; 3) believe them; and 4) act on it. As I was explaining in the first part of this article, it is steps 3 and 4 were most companies struggle. It is where insights collide with pre-established paradigms that things go awry. Yet, even if this doctrine is followed to the letter, there are yet another two pitfalls that must be dealt with: exactly which consumers do we need to listen to, and how literally do we take what they say. These are two pitfalls many companies also fall into. Based on outdated marketing precepts, they think in terms of “our regular brand users” or “competitive users”; or, being a little more sophisticated, the “creative class” or the “social adventurers”. Then, they take what the consumers say to the letter, and build the literal meaning of the collected insights into their decision making process. All these very easy to make mistakes will, most of the times, result in initiatives that are unsuccessful and leave everyone scratching their heads: “we did all the research… what went wrong?”. As I explained in my article “The spirit of the times” , today marketers must free themselves from the constant chatter around them, climb the proverbial mountain and scour the horizon to understand where society is going as a whole. And in seeing the direction, they need to embrace it and decide to lead it. Not fight it, not trying to steer it, but just position themselves at the forefront of the future and start building it before the rest get there. That ability to hover above and beyond the noise of the market today and understand where society is heading as a whole; to believe in what you’ve seen; the will to truly embrace that future and have the capacity to articulate it and to build it ahead of the arrival of society to that point, that is what I call enlightenment. That’s what Apple is doing: Apple goes beyond the interests of particular groups or segments. Apple is reading and decoding society as a whole, seeing where it is going and just delivering against it. But, wow, what a delivery! There is where the second component of their formula kicks in: selflessness. The secret of Apple is that they simply understand that what they must deliver is an experience, not just a product. It’s not about features, it’s not about trying to force fit my technology or to impose my view of the world onto others. Apple is masterful at understanding the experience the consumers want, and making technology work to provide it. They don’t sell operating systems, chips, memories and hard drives. They don’t brag about search capabilities, speed, computing power and other technical irrelevancies. No. Apple delivers beauty, the feel of your fingers gliding on the screen, simplicity, reassurance and reliability. At Apple, the consumer is truly the center of their attention; not a prey that needs to be persuaded to buy their fares, but the capable individual they need to serve. And in that selflessness resides their power and their dominance. Interesting, isn’t it? Apple dominates by seeking to serve. And those who seek to dominate, end up pushed aside.

The iPad is just a superb example of that vision and understanding of where consumers are, where they are going and what they really want. The immediate reaction heard in the techie circles was: why would the consumers want one? It’s not a laptop, not nearly as powerful; it’s just a bigger iPhone that doesn’t even make phone calls. And yet, consumers flocked to it. But why? Simply, because it is the experience the consumers were longing for. Think of where laptops have been heading: smaller, lighter, netbooks. And despite these changes, you constantly hear people complaining about having to carry their clunky laptops. Think of where connectivity is going: it is a mobile world. In this small global village, consumers want… no, need to be plugged to the grid 24/7. And yet, even the mighty iPhone is rather small for most of the things consumers want to do with their connectivity. Think of the future: what is the ideal scenario for anyone? The portability and simplicity of the phone with the comfort and power of the laptop. Some sort of cybernetic transformer that can be unfold from a small phone into a larger and spacious… what’s the word? pad!... that facilitates work and fully blown entertainment anywhere. Some technologies like flexible screens will likely get us there. But in the meantime, as we arrive there, Apple starts preparing the terrain with the iPad. Apple will take us there. Apple has become a symbol of the zeitgeist. As such, owning Apple is pretty much owning a big piece of the future.

Disclosure: I own shares of AAPL

Apple vs. Microsoft: embracing the Zeitgeist - Part 1

In my last post, "The Spirit of the Times", I discussed how, in order to be successful today, a brand needs to embrace the zeitgeist or the spirit of the times. Today I will start illustrating this idea with a series of very investable examples.

The most influential brand of our time is, by far, Apple (AAPL). How many brands or companies are there whose endeavors are so eagerly followed by press and consumers alike? While most companies need to resort to stunts and massive PR efforts to try to attract the attention of the press, Apple’s every move is news. Journalists line up to try to break the latest idea Apple is working on. We, as consumers, are simply enthralled by the succession of amazing technologies Apple makes available to us. And even those of us who don’t have that many Apple products wished we had them. As an investor, there is no doubt in my mind: Apple is a core stock that must be owned and retained for the years, if not decades, to come. But why? What is Apple’s spell?

Many marketers and analysts have tried to rationalize it and decode it: innovation, design, courage, Steve Jobs. All those traits (except for Jobs, of course) are not unique to Apple. How do they pull them together, what sort of alchemy do they apply to combine them in such a successful proposition then?

In my view, I would summarize Apple’s magic in two words: enlightenment and selflessness. Now, these are words that much rather seem to describe the Dalai Lama than a company, and that you will hardly find in any business or marketing text. They are kind of lofty and pretentious, aren't they? So, am I being petulant here?

The best way to start explaining my choice of words is by some quick comparative analysis: why aren’t other Apples out there? Most companies invest a tremendous amount of resources talking to consumers, gathering insights, trying to understand what is important for them. All too often, though, those insights are unconsciously sifted through previously established paradigms. These paradigms are based on the knowledge and understanding accumulated by a company or industry through the years: what worked or what didn’t in the past, previous understanding of the consumers and products, assumptions built on experience and so on. Paradigms die hard. The world changes around us, but we have a tendency to cling to old paradigms. More often than not, new insights are either forced to fit the old paradigms or simply, discarded as outliers. Even when new insights are gathered and understood, the second sin most companies go through is to stubbornly try to, once again, force an existing solution into meeting the new insight. Most companies develop an introspective understanding of the world, of their industry and of their own capabilities, and end up believing it as the absolute Truth. That is, we tend to fall in love with ourselves and end up drinking our own Kool Aid.

For me, one of the most blatant examples of this behavior is Microsoft (MSFT). With regard to their operating system, their last true innovation was Windows XP. Everything else has pretty much been a cosmetic improvement over the same platform. Their product, their view of the world has become so ingrained in their organizational psyche, that they basically dismiss any consumer understanding that doesn't fit their own paradigm. To illustrate this point, think of this capital sin: they launch a Home version of Windows 7. Home, OK? For you and me, basically. Fairly profficient in turning the computer on, writing a few emails and surfing the Web, but not much more. One day, you are more or less happy at your computer when an error occurs and the message that you get is an unintelligible code accompanied by a “Talk to your system administrator” instruction. I don’t know you, but at home we don’t tend to have a system administrator lurking around in case Windows decides to misbehave. OK, so you don't know what to do and, of course, try to see if the Help function in the system can shed any light on your problem. Have you ever tried to use Windows Help? You need a doctoral degree in Applied Electromechanical Astrophysics just to get a shot at understanding what they are talking about. If this is their “Home” version, I don’t even want to imagine the nightmares the IT guys go through with the Enterprise one! The issue here? The company's focus is on the product, not on the consumers that are going to use it. What prevails is the vision and understanding of the engineers creating the software. Sure, they listen to the consumers; they have extensive ethnographic and anthropological research on how the consumers use the products. But then, they develop engineering solutions to what they perceived the consumer is asking for. They force the insights into their own paradigms. After all, Applied Electromechanical Astrophysics has become part of the pop culture, hasn't it?

So Microsoft, proud of its accomplishments (and tickled by Apple's constant snipes at them), goes and spends a fortune in media with a campaign that try to convince consumers that “Windows 7 was my idea”. Yeah, right. My “System Administrator” kind of disagrees. See, you can’t resolve with advertising what your product doesn’t deliver. Microsoft has become an introspective behemoth that ended up believing that the world truly is what they see through the lenses they’ve built for themselves, and that reflects in everything they do. Windows Mobile? As clunky as the parent application. Office? Still the standard, but getting harder to use.

OK, so what about Apple? Yeah, about that… I’ll continue in my next post.

The spirit of the times

In a world regimented by the relationships we had to establish and upkeep in order to have a life, the role of branding was very clear. A brand was to project to others your personality and your character. The ensuing advertising was very straight-forward. A brand would show the type of character you wanted to portray and presto, it was selected by those who required that specific trait.

Nowadays, however, things have changed. The most important change is that people can choose. No, I am not talking about choosing between flavors or between different brands in a given category. Today, people can really choose: choose what to believe, choose who to relate to, choose what to care about. Ultimately, they can choose how to live their lives. The drivers of this change are very simple but very profound: a) access, and b) closeness. In other words, globalization. Not just globalization as an economic trend or economic doctrine, but true globalization: being aware of what’s going on in any part of the world the instant it’s happening; not being limited by geography when choosing who to relate to or what to talk about; the empathy created by being first-hand witness –through the power of media- of the suffering and triumphs of people on the other side of the world, and ultimately, the understanding that we are all interrelated. It’s never been easier or cheaper to move from one place to another. Not that long ago, self-expression and creativity was limited to those who had well-honed artistic skills. Today, self-expression and creativity takes the form of pictures in Flickr, videos in YouTube or a page in Facebook. Suddenly a world is open for everyone and people are exposed to the myriad of experiences that life can be made of. And people today want to have them all. Like never before, life can be fulfilling and diverse and varied and exciting. There is no time to waste and certainly, no conventions to obey to. Molds have been broken, closets have been pried open and non-committal experimentation is possible. In this new world, what you need to be is secondary to who you want to be and what you want to do.

In order to be successful, brands need to follow suit. Consumers today are far more complex and far more fluid than never before. A brand that defines its business, its character or the consumers it serves in too narrow of a way might soon find itself displaced and out of favor among consumers that just moved on to the next thing. The typical criteria for consumer segmentation just don’t work anymore. Demographics like gender or age or geography are simply irrelevant. Lifestyle? There are as many lifestyles as consumers out there.

As a marketer, what do you do? Successful brands need to engender familiarity, trust and a sense of consistency. They can’t be erratic. They can’t change with the wind. But at the same time, they can’t be stagnant. This is the new positioning challenge marketers are facing in this brave new world.

The solution is to embrace and stand for the values that fundamentally define the era we are living in and that in one way or another, touch or are embraced by most people. In other words, praise the journey, not the destination. What is exciting about this approach is that, as a brand, once you stand for a given value or set of values, you can embrace whatever is the expression of such values at any given time and still remain true to yourself and to what consumer have learnt to appreciate in the brand. In very simple terms, as long as you stand for music, you can play any tune. But if you stood for swing, you’d be facing very tough times in a world dominated by hip hop and country. If as a swing brand you started flirting with hip hop or country, then you’d look inauthentic and out-right opportunistic; therefore, not credible and definitely not trustworthy.

This way of defining your brand, and the consequent implications on how your brand communicates and interacts with consumers, is what I’ve called Marketing to the Zeitgeist.
Some examples, and the impact on investment decisions, will be covered in future postings.

Marketing to the Zeitgeist

Two years ago, I wrote a couple of posts in this blog where I discussed the new principles of Marketing that the readers should look for in order to spot products and companies with potential to become lucrative investments. These articles where "Cracking the consumer code" and "Consumer values to look for". The practices and values these posts refer to remain as valid today as they were two years ago. However, there's more to the story. It's not only the way to do marketing what is changing, but fundamentally, the very nature of branding itself and what brands today need to represent for the consumers. I even submit that venerable and seemingly sound concepts like 'target consumer' are, at best, outdated if not outright archaic.

As I continued studying today's consumers' values and the brands that have done the best job in becoming uniquely relevant to them, I coined a concept that I think captures and explains the distinctive marketing approach that separates the brands that are destined to endure the test of time, versus those that will likely fizzle as quickly and soundly as they once grew. I call the concept Marketing to the Zeitgeist. The following diagram explains it in a historical context. It's meant to represent how marketing and branding thinking has evolved through time, and how the required new thinking for today is that, in order to thrive and survive, brands need to embrace and stand for elements of the zeitgeist, or 'the spirit of the times'. I will elaborate on this in my next post.

Is Best Buy cracking?

Best Buy (BBY), in general, puzzles me. I haven't had a decent shopping experience at Best Buy in several years now. I guess it's just because they have a decent array of items that people default to this chain. Stores often look in disarray: empty shelves, displays half-done, and a most frustrating shortage of staff. Sales people are nowhere to be seen -well, sometimes: in clusters, having a conversation-, and when you happen to bump into one of them, their apathy and lack of will to help is astounding. Best Buy has lost a small fortune from the times I've been to the store willing to buy something and simply left because nobody was really interested in earning my business.

I am not suggesting to invest against the grain and rush to sell Best Buy at this point. The company enjoys an inertia that will play in its favor for the years to come. But they are becoming vulnerable. All that is needed is for a new entrant -or a current competitior- to step in and do what is necessary to provide a truly satisfying shopping experience for Best Buy to follow in the steps of the now gone Circuit City. Remain on the lookout: the next winner will look more or less like this:

a) Profuse use of digital stations to allow customers to get as much information as they need about the products they are seeing in the shelves. Today, Best Buy's -and other retailers'- model is flawed: they over-rely on the sales people to answer questions consumers might have, and yet, they don't have nearly enough of them to do that. This is critical when you are -as Best Buy is- in the business of selling highly priced, technically sophisticated items. The result is frustrated consumers. These retailers should leverage both the type of technology and the shopping behavior the Internet has trained consumers on. Call it a hybrid shopping experience.

b) On-demand sales asssociates: once a consumer does want to talk to a sales associate. he should be able to ask for one through the digital display he's been using. Don't make the consumer walk half the store looking for a sales person. Likewise, don't waste sales people time roaming areas with no consumers in sight.

c) Intensive use of interactive displays. While this is a relatively common practice today, interactivity is still an afterthought, haphazardly squeezed between spaces primarily devoted to static-display shelves. Reverse the thinking: sales space should be primarily devoted to interactivity. It's all about the experience.

d) Another learning from the Internet: allow your customers to see what their fellow shoppers have done. Have real time statistics about the products: how many have been purchased, how many have been returned, product reviews made by customers, etc. These companies need to remember that they are in the business of reassurance. Customer want to make the best decision: allow them to feel good about what they are buying.

If and when you see a retailer that is applying this model, that will be your cue: sell Best Buy and buy this hypothetical (for now) newcomer.

Home Depot: making "we can help" real

Several months ago, I stopped by the Home Depot (HD) to buy a few supplies for one of those DIY projects I embark upon once in a while. I have to say that, up to that point, I had a preference for Lowe's (LOW), which I found to be somewhat more pleasant to shop at. That day, something had changed at Home Depot. It wasn't the layout, it wasn't the product array. That day, I was greeted at the door and asked if I needed any help. On my way to the aisle where the product I was looking for was located, every single employee I encountered courteously asked me if they could be of any assistance, if everything was alright and let me know that they were available if I had any question. Not only that, but suddenly, I could find an associate almost immediately anywhere in the store. I felt good. I felt acknowledged and sincerely appreciated. I was so impressed, that I stopped one of the associates and told him that, whatever they had changed, it was working and offered my congratulations. Enough to say, Home Depot is my first choice ever since that day. I also bought shares of the company. That level of service is still there. Home Depot realized that for a consumer, the shopping experience goes beyond finding the right product at a good price. A remarkable shopping experience includes making the consumer feel good and reassured. Home Depot has understood what many companies fail to see: that a marketing proposition -"You can do it. We can help" in their case- is more than an empty slogan. It is a promise that needs to guide everything they do. Deliver on it, and your customers will reward you. Home Depot's share price is a proof of that. This renewed focus on service and delivering a supeb shopping experience will continue to fuel their growth.

They can do it. Help yourself investing in Home Depot!

Disclosure: I own shares of Home Depot

It's all about the experience!

This is one of the best summations I've seen of the characteristics of a successful brand in the new society. Look for these attributes to find promising investment ideas!

What Is An Experience Brand Jack Morton

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Coming back!

It's been more than a year now since my last post. Surely, this is not the way to keep a blog alive and interesting! During this year, I've opened this blog more times than can be counted, wanting to start writing again and sharing my views on what was going on with the market and the companies I saw thriving in a very tough environment. And time and time again, I closed it. Typical stuff: didn't have the time, need to collect more data, etc., etc. I enjoyed writing my little notes, but, gosh, they took some time. So I just decided I am going to change the format. Short, sweet posts, with ideas I may ellaborate upon over several posts, rather than trying to reach conclusions in just one, thoroughly explained article. It might demand a little more patience from whoever bumps into these thoughts, but ultimately, it might be worth it. And as many times in the past year, I need to leave now... but , hey, now I have a new post!