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!

Tuesday, January 18, 2011

The need for 'more': Cisco Systems vs. Netgear

The technology sector is one that I think can benefit immensely from taking a real consumer approach to their marketing and thus reap the rewards of leveraging the need for ‘more’. I am going to use the Home Wireless Networking sector as an illustration of this point, but the situation is replicated in several other segments dealing directly or indirectly with consumers.

There are two key players vying for the consumer favor in the Home Wireless Networking category: Cisco Systems (CSCO) and Netgear (NTGR). The potential in this market is still largely untapped. Why? In an April 2010 article entitled “Tools That Make it Easy to Network Home PCs”, US News reported that :

“… About 20 percent, or 1 in 5, sets of wireless networking gear is returned to stores as buyers buckle beneath the vagaries of networking.

There has been progress. It was nearly twice as hard to set up a wireless network just a few years ago, when return rates were closer to 40 percent. But even today's numbers largely represent tech-savvy consumers; many average PC users still don't even try. Ten years after they hit the consumer market, wireless networks have made it into only 30 percent of American households, report market researchers at ABI Research.”

What’s the issue? Many of us can attest that setting up a router is not that hard. Yes, we might be the tech-savvy consumers the article refers to; but I’d sustain that the real obstacle lies in the intimidating number of incomprehensible technical terms manufacturers use to describe their products and their functionalities. Both Linksys and Netgear proudly announce their products meeting the IEEE 802.11 N standard, which is superior to the B and G ones, but not to worry, because they are backward compatible… huh? So now you can have the RangeMax Dualband model XYZ-1234… HUH?

In addition, if you try to shop their line of products, the technicality of the offerings makes it really hard for the layman to understand what he is getting, if he is over-shooting against his needs, and moreover, if he is getting himself into a mess that will end up frying his hard drive, blowing up his monitor and ultimately, getting the US into WW3. And as mentioned above, a consumer faced with such enormous challenges would simply avoid making a decision.

To Cisco’s credit, in 2009 it launched a line of routers denominated Cisco Valet Wireless Hotspot, focused exactly on simplicity. It was definitely the right step in the right direction. However, its support barely went beyond the launch phase and I think it failed to create a significant stir up in the category.
OK, now we know what the issues are. How are they to be addressed? And moreover, how can one of these companies not only get consumers to look at routers with different eyes, but moreover, activate and leverage the need for ‘more’? Based on what have been discussed so far, the winner will do the following:
  • It will create a new category, with a consumer-friendly moniker, like ‘wireless Internet hubs’ or ‘wireless centrals’. Anything but ‘routers’ which is an archaic definition from the times of the corporate networked PCs.
  • It will define it in terms of easy to understand, relevant dimensions. In my view, they will be a) speed: how fast my data will travel, b) range: how far away I’ll receive my signal and c) power: how many devices can I hook up simultaneously.
  • It will create easy codes for each of these dimensions that consumers can understand, follow… and desire.
  • Its communications will be: a) mainstream: stop advertising in techie magazines and geeky websites, b) reassuring: not focused on the gadget, but on its simple installation and the lifestyle benefits; c) consistent: follow the pattern of their consumer electronics cousins.

The definition of these relevant dimensions, and the corresponding easy to understand codes to qualifying them is what will signal consumers of the need (or desire) to upgrade. The consistent communication will keep consumers interested in and aware of the evolution of the category. If and when we see this happening, we’ll have a winner.

This is a very useful framework to scout for companies that represent an interesting opportunity for investing, and/or to assess the real potential of a new product launch or marketing initiative. Keep it in you toolbox.

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