Google this investment!

It’s been several weeks since my last post. At that time, I was reeling from the beating we took during that dramatic first week of October. Little I knew of what was ahead. Paraphrasing myself: Gosh, what a month!

Encouraging performance today. The market was just following the free fall trend that has marked the whole week. At one point, it felt like we would finally close below 8,000 for the first time. And why not? There hasn’t been a single piece of good news in weeks. There is not a glimpse of hope in the horizon. And yet, out of nowhere, we had a tremendous rally. No apparent reason! Except for, indeed, the fact that enough is just enough. Yes, we are in an economic recession. But most stocks are priced as if the world was going out of business. There is value out there, folks. I guess a few shrewd investors brave enough to see the sun beyond the stormy clouds had the same thought.

When I am considering a stock for investment, I want to think I am not buying a company or even a product. What I am buying is positioning. One way of defining positioning is the space that the combination of functional and emotional values of a brand occupies in the perceptual map consumers have of any specific category. That perceptual space will sooner or later translate to sales. The bigger the space, the more sales that brand or product will generate, and for a longer time.

You want to look for brands that occupy a very big and/or growing space in a large and/or growing category. Also, the bigger the space the brand occupies, the less space is available for the competitors, therefore adding longevity to that brand’s business potential.

Now, let’s talk of a very specific example: Google (GOOG). Online search is a very big category. We all live around the Internet nowadays. From finding out about the weather today, to planning our next vacation, to –yikes!- checking the financial news every 20 minutes to try to make sense of the madness we are living in these days. Now, how do we say when we suggest someone to do a search in the Internet? I haven’t heard anyone telling me to “yahoo” something. Nobody has ever mentioned that they found their long-lost third cousin while “Microsoft-living” his or her name on the net. We all “google” our information. Google occupies a huge space in the mind of the consumers when they think of finding information in the web. Google is the positioning leader in the all-important online-search category and they keep working relentlessly to make that space even bigger. In the meantime, Yahoo (YHOO) is struggling for survival and trying to re-kindle their affair with Microsoft (MSFT), while the latter is still figuring out how to convince the world that Vista is not the dud it is.

Advertisers know that. Heck! So do you! I guess that’s the reason why Google was commanding such a rich P/E, right? And then the recession comes, and with all its doom and gloom, we assume advertisers will cut their budgets, people will stop searching, and then we send Google to its lowest price in three years. To that, I want to highlight a few things:

- In a tough economic situation, advertisers indeed cut their advertising budgets. But they don’t eliminate them. You can’t afford to. You need to keep selling! If any, you re-direct your reduced budget to the most effective touchpoint you have available. If you had campaigns going in Google, Yahoo and Microsoft, you cut the last two and put all your money behind Google. That is a fact.

- Consumers stop buying. But they keep shopping. It is part of the coping mechanism. More than half of the thrill of buying something is actually shopping for it. We all make hopeful plans of what is that we would like to buy once our portfolios rise again from the underworld. And Internet searching (with its payable clicks) will continue to be the prime means to do this.

- When the going gets tough, the tough get going. This economic crisis will only consolidate Google’s leadership in the web search space. It is the only company in the space with the resources and the strength to thrive in these conditions. You will see smaller rivals (including Yahoo) retrenching and cutting back in their investments. Google will keep plowing ahead, taking advantage of the situation to consolidate its dominance.

Today, Google dipped below $300. It got all the way down to $280 at the bottom before rebounding to close at $312 (encouraging!). When you consider that Google can only consolidate and strengthen its position as the absolute leader in a category with a double-digit compound growth in the foreseeable future, I would say that is a small price to pay for such a Company. It is not about what could happen in the next few months. It’s about owning the Internet for the next decade! And that is a very, very big space.

Disclosure: I own shares of GOOG

The glass is half-full

Gosh, what a week! Just last Sunday I wrote in a comment that I just hoped we hit Dow 10,000 this last week to get over with it. Right… be careful what you wish for!

I have no quantitative basis to say that the market couldn’t go any lower. But at Dow 8,500, a level not seen in six years –and hit first 10 years ago-, I can’t help but think this is a little overdone. Don’t get me wrong: I don’t think we are close to re-ignite a bull market. The economy is limping, and the prospects are not brilliant. We still need to see the credit mess solved, and the housing and jobs markets stabilized. But at this point, I can see the glass half-full:

a) The bail-out plan hasn’t even been activated yet. It should go great lengths in helping solve the fundamental issues in the financial system.
b) There is a coordinated international effort in facing the crisis.

c) The recent 50-basis points global rate cut should have a positive effect in the economy.
d) The Fed has been pumping tons of cash in the system for several months now. This cash is been hoarded due to lack of confidence and fear. It will have to be unleashed soon. Moving this cash is the essence of the banking business.
e) Commodity prices are falling, which should reduce pressure on the cost structure of manufacturers and help support profit levels.

f) There is significant consolidation taking place in the financial sector. The dead wood is being trimmed.

All the pieces are falling in place to finally put an end to this problem. Of course, we are not out of the woods. The measures the Government is taking are not without risk. On one hand, all this cash can have an inflationary effect when unleashed on the economy. On the other hand, funding the resources put by the Government behind trying to solve the crisis is likely to further weaken our fiscal situation. The Government doesn’t have access to unlimited resources, and there are only three ways it can finance this gigantic effort: printing money, borrowing or raising taxes. Of course, the healthier approach is to source the capital through taxation. It would have the double positive effect of addressing the crisis with organic resources and, at the same time, mopping up the excess cash injected in the economy, thus averting inflationary pressures. But higher taxes would put a drag on the economic recovery and therefore extend the recession. To partly address this issue, the Government needs to opt for the intervention mechanisms that imply no expense, but investment. The right approach therefore is to capitalize the banks through direct acquisition of equity. Some don’t like this approach because they argue this is equivalent to socialization and against the capitalist nature of our economic and political system. To those pundits I say: a) extraordinary problems require extraordinary solutions; b) the capitalist system just failed; if we are expecting the Government to solve the problem for us, we need to accept the consequences; c) the alternative is hypocritical capitalism: privatization of profits and socialization of losses. That just doesn’t fly. The fair course of action is to allow the taxpayers to partake in the profits if their action, through the Government intervention, helps the financial system to start generating wealth again.

There is simply no exit without pain. But from the two evils, I hope the Government chooses the one that at the end will result in a more solid and sustainable recovery, even if it takes longer. Therefore, this is what I’d like to see:
- I’d like to see the presidential candidates stop talking about tax cuts. We just can’t afford them.
- I’d like to see the bailout taking the shape of capital injections to the banking system as opposed to buying worthless assets. When the capital markets start working again, the Government stands to recover the resources invested this way.
- I’d like to see our political leaders proposing specific measures to reduce Government spend. There are no easy targets, but this needs to be done.
- I’d like to see leadership from the business community, also. The financial elite created this mess, and they should work together to propose and drive solutions to the crisis. Business leaders across the country should step up and help restore the broken confidence that is dragging the economy and markets down.

What does this post have to do with investing by advertising? Not much! But after this week, I just had to express my thoughts. It is usually easier to point out the negatives of a situation, but everything that has been done and will be done in the following weeks will have a positive effect that nobody seems to be acknowledging.

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.

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!

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

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.

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.

May you live in interesting times...

OK, the summer is half gone, vacations are behind me now, and the strategic plan is moving along at work. It is hard to believe I have not been able to post anything in a little more than two months. Gosh! Well, is not like the market has been an inspiration either, right? We’ve had a very rough ride this summer, and even though we had a good rally today, I don’t feel very confident about the months to come. I mean, the economic situation is not looking exactly peachy, is it?

And yet, when you look at the big picture, one thing you know for sure: besides Bear Sterns and a handful of regional banks, the good companies will still be there when this thing gets better. Because it will get better; it always does. There is light at the end of the tunnel. It may take a while, but the good companies, those that are worthwhile investments, will not only survive, but they will thrive. You see, in every economic downturn, there are always opportunities. Consumers don’t stop consuming; they just change their behavior. Their needs and attention shift a bit, but that only means that there are emerging opportunities to profit by meeting those different needs. In addition, the true leaders take the opportunity to create and strengthen competitive advantages. They emerge from these challenging times as stronger, more successful enterprises while leaving their competition in the dust. What a better opportunity than seeing your competition retrench because of the economic difficulties? For the best companies, that is just a call to jump in and occupy the space their rivals are leaving wide open in their retreat. And it is exactly in these times when we have the opportunity to spot those leaders and scoop their shares up at bargain prices. Sure, don’t bet next month’s mortgage payment on a hot stock. But this is exactly the right time to fatten the down payment for that dream house you are planning to buy in a few years.

What do we have to look for? Don’t go too far. Think of yourself to start with. What has changed in your own behavior as a consumer? You might be thinking twice about buying things than just a year ago you wouldn’t have even bothered questioning. And now you are looking with renewed interesting at certain things or places that a year ago you wouldn’t have even entertained acquiring or visiting. Well, those things and places (and of course, the companies behind them) are a good place to start your exploration.

I’ve been paying a lot of attention to what companies are doing in these hard times to lure customers; which companies are focusing on the right things in their marketing approach. As I affirmed in my post “Cracking the consumer code”, it is possible to spot great opportunities when you stop for a minute and look around with your mind set in finding good investment opportunities. I don’t mean paying attention to Jim Cramer or Barron’s. I mean attentively watching the commercials on TV, carefully reviewing your junk mail, and walking the aisles of the supermarket with your eyes wide open checking out interesting promotions or daring displays. Pay attention at how the companies are trying to talk to you: if even for a moment you stopped and listened, then there is a chance you are uncovering a hidden –or not so hidden- gem.

I like what I am seeing in areas like insurance, retail, wireless and electronics to mention just a few. I will share my observations with you in my forthcoming posts, which I assure you, will not take two months to show up!

Signs of life at Motorola?

Last week I saw a TV ad that caught my attention. The ad was for Motorola ’s (MOT) player in the smartphone category: the Q. Even better, the commercial was supporting the Q 9c, their latest product in this competitive field.

The ad caught my attention because I had not seen Motorola supporting one of its products on TV in a long time. I think the last TV commercial I remember was for the launch of their PEBL model, which failed to create any ripples in the market. Not only that: the ad was quite refreshing, light-hearted and, in my view, quite successful in creating rapport with the audience. The ad shows a dude that hits his head and gets amnesia. In an entertaining way, the ad shows how this guy relies on the Q 9c’s advanced features to function throughout the day.

In a category where most of the advertising is directed to the enterprise market, and therefore very business oriented, Motorola retakes the past glories of its “Hello Moto” campaign -a hip, sound take on Motorola that, along with the launch of the RAZR, took the company to a leading position in the cell phone market several years ago-, and uses the platform to position the Q 9c as the smartphone to help the everyday crowd manage their life. To reinforce the cool, casual character of this model, it is referred to, in the best “Hello Moto” fashion, as the Moto Q 9c. Promising!

The same night I saw the Motorola TV commercial, I also caught a Verizon ad featuring the Q 9c as well. I found that encouraging. It seems that Motorola is launching an integrated effort behind this model, and was able to enlist the carriers to support the initiative, which is critical if they're to achieve any success.

The support behind the Moto Q 9c is certainly a step in the right direction for Motorola. If the company is to ever compete again in the mobile market, smartphones is the right place to focus the effort. Smartphones are where the market is going. They are the future of wireless communication. Conventional cell phones are quickly becoming a thing of the past.

Yet, I’d need to see more from Motorola in order to consider the company an investment worth the risk. Motorola’s execution has been extremely disappointing in the last couple of years, and consequently the stock has lost two-thirds of its value in the same timeframe. The share price closed today at $9.13, basically sitting where it was five years ago. These are very good reasons to be skeptical. Motorola still needs to prove that they can pull it off. And they are facing some formidable competition in this segment: Research in Motion’s (RIMM) Blackberry, and the hottest gadget in recent history, the ultra-cool Apple (AAPL) iPhone. Very tough nuts to crack! Nonetheless, it is encouraging to see Moto trying to get its mojo back. Keep an eye on the company. This might be the beginning of the long awaited turnaround for this stock.

Disclosure: I own shares of MOT

Sweet prospects for Starbucks

Last July, Starbucks (SBUX) announced that it had signed a deal with Hershey Co. (HSY) to create a new line of premium chocolate products. This weekend I finally saw on TV the commercial launching the announced Starbucks Chocolate line.

I was pleased with what I saw. The TV ad was very appealing, and highlighted the unique marriage between two indulgent darlings, coffee and chocolate, that only the expertise of Starbucks could achieve. There was an organic, slightly distressed feel to the commercial that connoted craftsmanship and heritage, but with a modern feel. Well done!

This initiative begs the question, though: is this right for the troubled coffee company? Is this in line with Starbucks’ CEO Howard Schultz’ pledge to go back to basics and refocusing on the core business to turnaround the ailing chain?

I attribute Starbucks woes to three factors:

a) The “commoditization” of good coffee. Starbucks not only taught Americans how to drink coffee; it also taught competitors how to prepare it. Now the chain is facing competition from a myriad of different sources, from McDonalds to Dunkin Donuts and convenience stores. All good, tasty alternatives at a far better price. Not only that: those competitors are also talking the talk, proudly touting their own array of exotic variants, from the Costa Rican Tarrazu blend to the 100% Indonesian Arabica decaf brew.

b) The grinding economic situation, that puts consumers in the position to choose between a cup of Starbucks’ double-shot Latte and a gallon of gas.

c) The clear erosion in Starbucks quality, against which Schultz warned and that he is trying to address with his back-to-basics mantra.

In order for Starbucks to return to a path of profitable growth, it will have to address all these factors. I would not worry about the economic situation. Yes, it will be a hindrance for a number of quarters, but sooner or later, things will get better. Actually, rightly leveraged, it could even help, as will be discussed later. It is the other two factors that are fundamental problems that Starbucks will have to address.

Starbucks will have to not only improve its quality: they must also re-build the conviction among consumers that their quality is superior to any other coffee expert wanna-be out there, and therefore, worth the effort and price for a superior experience. Starbucks must re-assert its position as the absolute expert in coffee. A level of expertise and connoisseurship that guarantees that, when looking for the well-deserved, ultimate coffee indulgence, consumers consider Starbucks as the only possible purveyor.

Here is where the chocolate line comes into play and why it makes so much business sense for Starbucks at this juncture. In a tight economic situation, consumers are forced to cut back in superfluous expenditures. Splurging in big-tickets pleasures is out of the question. However, people still want to enjoy and reward themselves. Small indulgences become more important, as consumer cling to the remnants of their standard of life. You might not be able to go to the beach during this Memorial Day weekend, but surely you can afford to go to Starbucks and enjoy the sunny afternoon enjoying a well-deserved Caramel Macchiato, can’t you? I mean, it’s only five bucks versus the hundreds you just saved by staying home, right? You’ve earned it! Or for that matter, you could afford to indulge in some fine chocolates while watching that DVD, couldn’t you?

Ah, the fine things in life. Chocolate is one of them. As with any other product, consumers are nowadays expecting more from it than just the sensorial pleasure (for more on these motivations, see my post “Consumer values to look for”). The assurance that craftsmanship and sophistication bring to the experience is as important as the taste and the texture. Chocolate has joined the pantheon of products in which consumers are looking for, and demanding, a higher level of connoisseurship and artisan mastery. Just ask Godiva.

Starbucks’ introduction into the chocolate category has a double benefit for the company:

a) Starbucks expertise in the coffee business gives it instant credibility to participate in the premium chocolate category with a coffee-based offering. Not only are chocolate and coffee complementary products from the sensorial perspective: they have close affinity as product categories, in terms of their indulgent role in the consumers’ lifestyle. Chocolates is a fitting complement and a natural extension to Starbucks’ core coffee business.

b) By extending its coffee expertise into another category where mastery and premium character matters, Starbucks is just reclaiming those attributes for itself in the eyes of the consumers, which in turn should revalidate the uniqueness of the Starbucks experience and help support their core business.

This is certainly a step in the right direction, and strategically, it surely beats serving breakfast!

Disclosure: I own shares of Starbucks

Winning the online brokers’ war

One of the most competitive spaces right now must be the online brokerage business. It is to be expected: it is an industry with relatively low barriers for entry and a huge potential market. As the stock market is democratized by the power of the Internet and its abundance of quality information, the need for full-service brokers is dwindling. This is not new, and the process has been going on for years now. Yet, full-service brokers still have significant number of customers who the online brokers are constantly vying for. Likewise, new generations of would-be investors join the mass of potential customers each year as thousands of young professionals –with an independent, entrepreneurial mindset- enter the job market and need to decide how to invest their newly acquired disposable income.

Online brokers invest intensely in advertising and promotions trying to gain these available new customers, and of course, steal a few from the competition. This massive investment and ferocious competition keep their margins razor-thin. In this situation, is it wise to invest in an online broker? If so, which one –if any- is poised to win the online broker’s war?

The three frontrunners in this race are Charles Schwab (SCHW), TD Ameritrade (AMTD) and E*Trade (ETFC). Their trading platforms, fees and quality service can be considered quite similar in principle. What will determine then which would a potential customer choose? Here is where building an emotional connection with target customers becomes crucial. In a market where the tangible products or services being offered are quite homogeneous between competitors, creating a sense of rapport and shared values becomes the angle that can make the difference for a consumer.

Each of the three key brokers is trying to achieve this affinity of values in different ways. TD Ameritrade is sticking to Sam Waterston as its spokesperson and trying to leverage the independent spirit of America as their guiding value. This approach, in my view, has limited appeal among young, truly independent investors. It positions investing as a fairly stern, mature and conventional endeavor. That does not resonate well with the right-brained nature of the current generation of customers (for a great book on this, I suggest Daniel Pink's A Whole New Mind: Why Right-Brainers Will Rule the Future).

Charles Schwab hit a home-run with the launch of its “Talk to Chuck” campaign. What a dramatic repositioning for the company! The pioneer of the industry had been losing ground to other online brokers after the retirement of its name-sake founder. The new management at that point lost its sense of direction and tried to take the company to play with the big boys… exactly the opposite of what had made the company successful in the first place! When Charles Schwab returned at the helm, he realized that the company had lost touch with its customers and had created a stodgy and outdated image for itself. “Talk to Chuck” was a vibrant and energetic way of re-humanize Charles Schwab. From the emotional perspective, I think Schwab is in the best position in its history. “Talk to Chuck” is a warm, fun and irreverent campaign that makes the company approachable and dynamic. However, Schwab might be missing an opportunity: their recent commercials are still talking to sophisticated investors. Their strategy is still about switching consumers from the full-service brokers. In its commercials, Schwab’s “customers” invariably explain how the service they got from their previous broker didn’t match their own sophistication and knowledge. This communication may be irrelevant for investors that don’t feel to be as experienced and –dare I say it-… wealthy as the ones portrayed in the ads.

Finally, there is E*Trade. This company was roaring in all its cylinders until it got badly hit by the sub-prime meltdown. Its competitors didn’t wait to take advantage of E*Trade woes, and in just a matter of weeks, they stole thousands of consumers and billions of dollars from the company. Even in the midst of the crisis, E*Trade did not lose sight of the importance of communicating with its customers and the reassuring power of advertising. Despite its hemorrhage of liquidity and its internal shakeout, the company upheld its plans to advertise in the Super Bowl. E*Trade famous “Trading Baby” TV ad was enough to assuage the consumers’ jitters and is credited with stopping the bleeding. In terms of understanding consumer values and position itself as the right complement to their lifestyle, E*Trade does the best job of all three. Their approach is plain, simple and straight-forward. They focus on the simplicity, power and excitement of trading, and are able to let the consumer know that they understand the emotions they are going through in navigating the stock market world: from the father making his first online trade surrounded by his family, to the dude that trades while fragging his friend in "Gears Of War” (very insightful!). These are real people, and E*Trade is there with them. Not above, not ahead, but at their side.

Online brokerage will continue to be an intensely competitive industry in the foreseeable future, and the fierce fight to gain customers will continue demanding huge investments that will keep its profitability in check. Nevertheless, I think E*Trade presents a very compelling risk-reward proposition right now. The stock price is still depressed after the credit crunch scare, even though it showed some strength last week, closing at $4.31. While I think their financial situation is still fragile, management is doing the right things to refocus the business and gain new customers. All reports indicate they keep opening new accounts at a vigorous pace. I am not surprised. I think E*Trade has a strong brand equity and they know how to leverage it among the segment of consumers that represent the highest potential for gains. I think the bottom for E*Trade is in the past, and for the patient investor, this could be a rewarding investment. Something to consider for your portfolio; who knows, soon you may even get to rent your own clown.

Disclosure: I own shares of E*Trade Financial Corp.

Green works… just ask Clorox

In my last post “When does Green shine as an investment opportunity?”, I discussed the requirements a product or brand that wants to leverage the current Green trend needs to meet in order to have a significant opportunity to succeed.

One company that is doing it right is The Clorox Co. (CLX). A few months ago, Clorox launched a full line of natural cleaning products named GreenWorks. The positioning and messaging around GreenWorks is spot on. Let’s evaluate it based on the model discussed in my last post.

Integrity: The sound design of this product line starts with the smart selection of its name. It precisely describes the line’s main promise: products that are ecologically friendly, and most importantly, that are effective. The name for itself directly disarms one of the main prejudices in the mind of potential users: natural products are unlikely to be effective enough. It addresses that preconception head on: green does work –or more specifically, this line was able to make it work!-. In their website, they reinforce that point indicating: "You wanted a natural cleaner that worked. And we listened". In its communications messaging and tone, Clorox makes a point of explaining, in detail, how these products work. They provide abundant, factual information about how the GreenWorks line was designed from the ground up with 99% natural ingredients that minimize its impact to the environment. They disclose its ingredients, and how they interact to achieve the level of cleaning power consumers expect. Finally, the tone of the communication is soothing, reassuring, clean and confident. There is not hype at all. They acknowledge the consumers’ concern with their health and the environment and explain how their products meet that interest.

Performance: Clorox makes sure that the issue of effectiveness is directly addressed in all its communications around GreenWorks. The promise is clear: GreenWorks are as effective as conventional cleaners. Based on my own experience, they deliver. In trying both the general and the glass cleaners, we found that they worked up to standard.

Affordability: GreenWorks are sold at a small premium to conventional cleaners, according to their website. In my experience, the price gap was not significant and therefore, not a deterrent for adoption.

GreenWorks meet all the criteria to become a relevant green product with potential to achieve widespread adoption. And that, in my view, is a great promise of profits to come. The final ingredient to qualify this initiative as a potential blockbuster is support. Clorox is very conscious of the opportunity at hand, and has launched GreenWorks with a vigorous advertising campaign that includes TV, web and, most importantly, a very robust distribution and adequate shelf space and visibility at retail.

Clorox share price closed this week at $55.70, close to its 52-week low. This might represent a great entry point to start building a position. I think the GreenWorks line will show to be a significant success for Clorox, and naturally, the greenbacks should follow.

When does Green shine as an investment opportunity?

In my previous post “Can we invest in Green?”, I discussed the drivers behind the acceleration of the Green movement, and its value as an investment opportunity. However, I warned that we have to be cautious, really understanding the underlying value of what any particular company is doing to leverage this trend. Paraphrasing the old adage, I indicated that not everything that is Green shines.

Everyone is jumping into the Green trend. Not everyone is doing it right though. Adopting ecologically friendly initiatives cannot be just a marketing plot. This is what is called “green-washing” and consumers see right through it. A company needs to be sincere in its approach. It is a fundamental component of the authenticity consumers are looking for in their dealings with a company (please see my article “Consumer values to look for” for a more detailed analysis on the topic of “authenticity”).

For a Green initiative to be successful -and therefore interesting as an investment opportunity-, we need to look for three key components: a) integrity; b) performance; and c) affordability. Let’s discuss these requirements:

Integrity: There are different levels of features a company can incorporate in a product in order to make it more eco-friendly. Some measures can be limited and represent just a small step in the right direction: for example, a change in packaging, using a little less plastic or incorporating recycled cardboard. Others can represent a radical and thorough re-design of a product or type of products, ensuring that everything in it significantly reduces its impact to the environment. All these steps are good: they all represent progress in the right direction. What is not right, though, is making just a small change and then try to hype it as major breakthrough in ecological responsibility. As indicated, consumers see right through these hypes and judge them as insincere attempts to prey on their genuine concerns. If as a company all you are doing is including 30% recycled post-consumer content in your cardboard boxes, just say it that way, and devote a little corner in you packaging to let consumers know; they will notice it and appreciate it. But don’t suddenly launch a full campaign touting that small change as the new “eco-friendly pack” for your product and thump your chest about how concerned you are about the environment and how seriously you are taking your ecological responsibility. Nah… that does not cut it. It's not authentic. On the other side of the spectrum, the more comprehensive is the change or the innovation, the more evidence consumers can see of a thought-through, purposefully designed product that comprehensively addresses their environmental concerns, then the stronger will be the manufacturer’s grounds to genuinely support the innovation in force and the higher the potential for consumers to pay attention and ultimately adopt the product. This thoroughness in the offer is what we need to look for in considering a potential investment opportunity.

Performance: There is one absolute truth with respect to Green. Consumers are willing to adopt products that are ecologically sound as long as those products perform as well or even better than conventional products. Period. As much as consumers want to do the right thing, they are not willing to wear soiled clothes, or eat tasteless food, or sacrifice aesthetics for the sake of the environment. The brands and products that promise to be environmentally friendly must also provide convincing arguments to make consumers believe they will perform well, and finally, they have to deliver on that promise.

Affordability: Consumers are willing to pay a little more for a more responsible product. But not a whole lot more. The closer the price of the eco-friendly product is to what the consumers are used to pay for that type of product, the higher it is the likelihood that consumers will switch to it. This is no surprise, though. Ultimately, we are playing with the good old value equation. Consumers are willing to pay more for products that have a greater value for them, that is, the ones that solve for a wider range of needs. What is the value of feeling good for fulfilling your responsibility with the planet? Hard to tell, but not that high in the big scheme of things. Yet, at a competitive price, it is a very relevant differentiator, and may tip the market share balance dramatically in favor of the eco-friendly contender. Therefore, look for competitive pricing when gauging a potential investment. The real volume and profit potential will be there.

Good! Now we know what to look for. I have some ideas of my own that I will be sharing in future posts. Do you have some ideas that can enrich this discussion? Your comments are always welcome. Invest well and prosper!

Can we invest in Green?

The Green movement is expanding like a wildfire across America and the world, and many companies are scrambling to jump into the bandwagon. I find it fascinating: the “greens”, (or “tree-huggers” or “environmentalists”) have been out there for decades, warning us about the catastrophic damage our way of life was causing to the planet. Most people would see them as a small group of naïve idealists (or radicals, in some cases) that made some good points, but that for the most part, grossly exaggerated the severity of the situation. As such, they were mocked and not taken very seriously. Now, they are not alone. Now, more and more people are becoming conscious about the environment and actively doing something about it. Green is quickly becoming mainstream.

What has changed? What made everyone suddenly pay attention? Most importantly perhaps, is this for real? Or is it just another fad like the carbs craze that will just fade away when consumers find another cause to embrace?

Believe it or not, the carbs craze and the green movement are related. They are expressions of the same set of values that are shaping society today. Paul Ray, in his book “The Cultural Creatives: How 50 Million People Are Changing the World”, coined the concept that has now been adopted to explain this set of values: LOHAS or Lifestyles of Health and Sustainability. LOHAS is described as “…a market segment focused on health and fitness, the environment, personal development, sustainable living, and social justice.” (http://www.lohas.com/). It sounds like a pretty hefty segment, doesn’t it? How is health and fitness related to social justice?? I addressed that in my post entitled “Consumer values to look for”: it all boils down to the pursuit of transcendental satisfaction. Inwardly driven consumers who look for holistic well-being: mind, body and soul. Consumers today demand more than the satisfaction of mere functional needs. A cup of coffee is not just a cup of coffee anymore: it must be an indulging, deeply satisfying sensorial experience that also makes them feel good because is healthy (cue in organic), allows them to help fellow human beings (enter Fair Trade) and fosters a pleasant, safe and clean environment they can enjoy (mix in sustainable and ecologically sound). Yeap, all that in a cup of coffee… or a shirt… or a car.

OK, but is this for real? There are a number of factors that tell me the underlying values behind this trend are not a short-term fad, but a new set of core principles and beliefs that are taking hold and truly dictating the way we run our lives. These principles are becoming the frame of reference in the decisions of what we buy. Some of the expressions may be temporary (like the carbs madness), but the values are here to stay. Some of those determining factors I referred to are:

Inward-driven mindset: As covered in depth in my post “Consumer values to look for”

Connected globalization: Globalization is not just an economic phenomenon, but a social and cultural one. We just can’t escape the world anymore. Technology and instant communications make us witnesses of the limitations and struggles of people around the world to survive and prosper. We can’t ignore it any more than we would ignore our next-door neighbor going through hard times. A good book on this topic is Tom Friedman's The World Is Flat 3.0: A Brief History of the Twenty-first Century

Scarcity: We are finally realizing that natural resources are truly limited, and that the competition for them is increasing. This is affecting us all through increased cost of living and eroded quality of life.

Global warming: “- So, you were not kidding! It is for real, then??!!” Thank you, Mr. Gore.

Accessibility: I would dare to bet this is perhaps the most important factor in the change of attitude. People are doing something because now they can. Information, availability and cost make taking the right decisions easier and affordable.

Now that we’ve discussed the Green trend with some detail, let’s try to answer the pivotal question of this post: can we invest in Green? The answer is a categorical yes… but we have to be cautious: not everything that is green shines. In future postings, I will be covering companies that I think are doing a great job in understanding and embracing this new set of core values in their product portfolio and communications, and because of that, will capitalize on this trend and generate significant value for their shareholders.

For authentic growth, turn to SAM

If I mentioned Boston Beer Company (SAM), most probably you wouldn’t recognize the name. But if I say Samuel Adams, chances are it ranks among your favorite beers. Founded in 1984 by Jim Koch, Boston Beer Company positioned its Sam Adams beer as a meticulously crafted brew for connoisseurs. The rest is history. Sam Adams has been gaining awareness and popularity throughout the years, by consistently staying true to its essence as a handcrafted beer, developed by beer-lovers for beer-lovers.

The key to Sam Adams success has been its allegiance to the fundamental consumer values discussed in my previous post "Consumer values to look for", which are masterfully integrated in both the way they develop their product mix and the way they talk to the consumers.

The current advertising campaign is a superb example of the insightful integration of these values. With Samuel Adams, it’s all about the beer. No flashy commercials, no fancy –and incredible- lifestyle cues, no talking animals. It’s all about real artisans describing with pride the fruits of their passion. It’s all about a detailed explanation of ingredients of the highest quality that are carefully blended to brew a superior beer. This is exactly what the consumers mean by authenticity.

The other important component in Sam Adams story is the promise of exciting experiential discovery. Forget about the regular and the light versions of the mainstream beers –with the occasional odd and short-lived spin-off-. What about trying a White Ale? Or a Cranberry Lambic? In total, 18 different styles that promise beer-lovers a rich, exciting and almost unlimited source of exotic and enjoyable new experiences.

With Sam Adams, is not about mindless beer drinking. It’s about personal, indulgent enjoyment. It’s about savoring the brew and discovering subtle undertones of earthy flavor or the burst of spice and hops. It’s about a higher pleasure.

Sam Adams is an extraordinary example of how a brand can live and represent what consumers value today. This understanding of their customers, and the Company’s determination to remain true to their demands, has turned into handsome returns for Boston Beer Co.’s investors. SAM stock has tripled its value in the last five years, achieving an all-time high above $55 in October 2007. The recent stock market malaise has knocked its price down to around $45. This might be a great entry point to start building a position in Boston Brewing Co. The company has a huge potential for growth, and I am convinced the current advertising campaign will surely generate a very high interest among beer drinkers to experiment with the brand; it is just the type of story they crave and love. A quality product and a company that knows what is doing will do the rest.

Consumer values to look for

In my last post "Cracking the consumer code", we discussed how crucial it was to look for companies that, through their products, are meeting the needs and values of today’s consumers. 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. In continuing with the discussion on what to look for when evaluating investment opportunities, in this posting we will 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 mentioned in my previous posting- 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?

In my next posting, I will be bringing to your attention a company that is very successfully leveraging these three values to define and support their flagship brand.

Cracking the consumer code

In "Investing by Advertising", it is my purpose to share with the reader my analysis on 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: there are plenty of sites and blogs that deal with balance sheets and revenue forecasts. I am a Marketing professional, and my evaluation is solely 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. That’s what I think makes this blog different. There are lots of great resources on Marketing. There are hundreds of sites and thousands of authors writing everyday about stocks and the financial markets. But so far, I have not been able to find a resource that links the two together. It is filling this gap what I intent this blog to be an initial stimulus for. To think of this blog as anything else but a starting point in merging these two fascinating fields would be very pretentious, and I certainly encourage the readers to participate in expanding this effort through comments and other contributions.

There are more brilliant examples of great companies and ingenious marketing initiatives than the time available to write about them. Nevertheless, 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 blog could play a role in generating that guidance, so I thought it would be a good fit to also use it to 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 (more about this in a future posting). There is not 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 one of 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. As indicated in the introductory statement to this blog, 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. 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 first 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.

I will continue discussing these criteria in other postings, interspersed with the specific product and company evaluations that are the main purpose of this blog. I hope you find these views useful; as indicated before, your contributions and comments can only increase their value.

For an interesting analysis on the topic, read Sergio Zyman's The End of Marketing as We Know It. Check the "Books to Invest By" section of this blog.

“Monkey wants my burger!” So do I…

I think we are looking at a tasty opportunity here. A few months ago, I started to see on TV some clever –and quite appetizing!- commercials from what for me was a little known restaurant chain: Red Robin Gourmet Burgers (RRGB). These commercials caught my attention. I had seen Red Robin restaurants here and there when travelling around the country, but I had never had any interest in visiting one of them. I didn’t know what they were about, so I assumed they were just another one of those fast-food joints that dot our malls and commercial areas. Likely, nothing special. Suddenly, I see this fun and irreverent TV spot that describes a rather interesting gastronomic offer: the Banzai Burger. A burger with, among other things, teriyaki sauce and grilled pineapple. Well, there’s a thought! And this burger was offered by a restaurant that claimed to specialize in a concept that I found rather captivating: gourmet burgers. See, if you are like most Americans, it’s likely you’ve been embarked for a good part of your life in an inspiring and not quite yet fulfilled search: the quest for the perfect burger. I know I am! And what I know is that I usually go from disappointment to disappointment in that quest. Burgers are mainly the monopoly of the dull fast food chains, which seem to make a very deliberate and concerted effort to ensure that the burgers they serve you are as underwhelming as possible and as distant from the mouthwatering ones they show in their advertising as they can. Most casual restaurants also include burgers in their menus, but apparently consider them the undeserving underlings of their gastronomical line-ups: “Burgers? Please!! Just toss in a mundane beef patty with some lettuce and tomato in a bun, plenty of greasy fries and call it a day”. Have you noticed that, even though at some of restaurants they even ask you how you want your meat cooked, you invariably get it in just one way: burned, dry and tasteless. In this context, here it comes this restaurant chain, Red Robin, that seems to understand that there can be creativity behind the way to prepare a burger, and that also understands that there are people –lots of people- who are willing to pay a premium for a great burger experience. In my case, the advertising worked and, intrigued, I decided to pay them a visit. Now, as I have indicated before, good advertising is not the only condition to profile a potential great investment. The company has to deliver on its promise. And this is exactly the reason why I decided to write a posting about Red Robin. During my visit, they delivered in spades. The Red Robin restaurant created a great impression from the moment we stepped in: the place just emanated this fun, positive and optimistic energy. The decoration was quite lively, but not loud. The place was just fun, modern and clean. Even though the place was packed –good signal!-, we were promptly taken to our table. Our waitress, Samantha, was young, outgoing and very well trained. When she knew this was our first time at Red Robin, she took us through the menu with excitement and conviction, and offered to bring an order of their famous steak fries for us to try, which she later did along with a side of Ranch sauce that, according to her, most people enjoyed with the potatoes (they were great indeed!). The menu was a burger-lover’s dream: alluring burger creations that make taking a decision an unduly tough process. Even the drinks were intriguing and different. After we ordered, and during our meal, Samantha was always attentive, making sure that our experience was great. I can go on and on, but let me just summarize it this way: I was genuinely impressed with Red Robin. The whole experience was just great. But what I found more striking was not the quality of the food –which was superb-. It was the people. The Red Robin people were really charged up. Their service was caring and genuinely warm. And that is gold. For me, the attitude and disposition of the employees in a Company is one of the best indicators of its future and potential, for at the end it is people who can create and build success. It is the cook making sure that the burgers are well done and tasty; it is the server taking care of the customers so they feel comfortable and welcomed; it is the managers, keeping the environment fun and exciting. That is what I witnessed at Red Robin.
Red Robin has a lot of room to grow: currently they have around 380 restaurants in the US and Canada, far from saturation. This shrewd advertising campaign is going to dramatically raise the awareness and interest in Red Robin among the huge segment of casual diners in the US, and those who visit will not be disappointed by the great experience offered by the restaurants. This is, in my view, the start of a great investment story. Get in before the monkey takes your burger!