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 19, 2010

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.

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