Motley Fool: Emotions count for consumers

The Motley Fool started as a newsletter and has become one of the most popular personal finance websites. Anyone who follows its philosophy is called a `Foolish investor'

Since we've been running our real money Rule Shaker portfolio at the Motley Fool we've been looking for Rule Breaker companies. These are companies that are throwing away the old rules that their industries used to play by and are inventing new rules. Perhaps unsurprisingly, Rule Breaking usually concerns a new technology of some sort, and we all know that hi-tech share prices are going up through the atmosphere faster than the space shuttle.

That makes separating the wheat from the chaff rather difficult, and it is why we are trying to stick firmly to our Rule Breaker criteria, which are designed to find the companies with the genuine means to be the leaders in their industry in 10 or 15 years' time.

It is also why we haven't found any Rule Breakers to buy yet. (In fact, the portfolio only contains one company at the moment - British Telecom - and that was bought according to our Rule Maker rules.)

But no matter: buying Rule Breakers is a relatively risky business and we don't mind waiting until we are convinced that we have found the sort of company we are looking for.

One of the criteria that companies sometimes fall down on is our rule that says they must have "strong consumer appeal". Just what "consumer appeal" is has been debated regularly on the Motley Fool message boards, and opinion is still pretty much split. The question we cannot firmly answer is what, exactly, defines a "consumer".

If we stick to the generally accepted idea that consumers are those people walking along the high street looking for bargains then we will be restricting the search for Rule Breakers to companies that have a retail consumer presence. And then we will be ruling out companies like Affymetrix, which we looked at last week. In fact, we'd be ruling out pretty much the whole of the biotechnology industry.

On the other hand, we could interpret the word "consumer" to mean a company's first-line customers. So, for a biotechnology or pharmaceuticals company, it is the National Health Service, the health insurance companies and the doctors to whom we would look for consumer appeal. And for a designer or fabricator of computer processors, we would look to the makers of computing devices to find it.

Does that make sense? One of our readers cautioned us recently against confusing a company's customers with its customers' customers. One company we have examined, Solectron, sub-contracts the manufacture of electronics sub-assemblies for big-name electronics companies, and its products end up in all sorts of devices. But what consumer appeal does it have?

When we think about companies in emerging industries, the very best are indeed those that have created a genuine consumer appeal, in the traditional "end user" sense.

A great example is Intel. If you sat anyone from Fool headquarters in front of half a dozen of today's best Windows PCs, there'd be no way we could tell what make of processor is in each one without checking the technical specification. But the "Intel Inside" advertising campaign works brilliantly, doesn't it? It keeps Intel's sales and profitability going and, perhaps more important, allows Intel to keep its prices and margins above the competition.

So the real reason that consumer appeal is so important is an emotional one. We need to look for a product or service to which our "consumers" are likely to build an emotional attachment of some sort.

Computer manufacturers won't build up an emotional attachment to chip makers, but they will buy their chips if they know it will make a difference to their end users and help keep their profits up.

By the same reasoning, is anyone going to be swayed to buy a TV because it has "Solectron Inside". Or will patients demand treatments from their doctors because they have "Affymetrix Inside"? It's unlikely. In that case we should toss the whole biotechnology industry into the Rule Shaker dustbin. But we don't want to do that just yet.

So what is the answer? What consumer appeal really does is to allow a company to capture the lion's share of the market and to command premium prices for its products. So it is really a means to an end rather than an end in itself. That makes us wonder if we should look deeper than "consumer appeal" and include some aspect of "market power" or "pricing power" in our future analyses.

We're not sure yet, and any opinions from readers are most welcome on the Motley Fool message boards.

n www.fool.co.uk

Start your day with The Independent, sign up for daily news emails
Voices
Lucerne’s Hotel Château Gütsch, one of the lots in our Homeless Veterans appeal charity auction
charity appeal
Life and Style
A woman walks by a pandal art installation entitled 'Mars Mission' with the figure of an astronaut during the Durga Puja festival in Calcutta, India
techHow we’ll investigate the existence of, and maybe move in with, our alien neighbours
Arts and Entertainment
Tony Hughes (James Nesbitt) after his son Olly disappeared on a family holiday in France
tv
News
people

Jo from Northern Ireland was less than impressed by Russell Brand's attempt to stage a publicity stunt

PROMOTED VIDEO
Sport
Nabil Bentaleb (centre) celebrates putting Tottenham ahead
footballTottenham 4 Newcastle 0: Spurs fans dreaming of Wembley final after dominant win
Arts and Entertainment
The Apprentice candidates Roisin Hogan, Solomon Akhtar, Mark Wright, Bianca Miller, Daniel Lassman
tvReview: But which contestants got the boot?
Arts and Entertainment
Jim Carrey and Jeff Daniels ride again in Dumb and Dumber To
filmReview: Dumb And Dumber To was a really stupid idea
Arts and Entertainment
Sir Ian McKellen tempts the Cookie Monster
tvSir Ian McKellen joins the Cookie Monster for a lesson on temptation
News
i100
Travel
Tourists bask in the sun beneath the skyscrapers of Dubai
travelBritish embassy uses social media campaign to issue travel advice for festive holiday-makers in UAE
News
ebooksNow available in paperback
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

Ashdown Group: Java Developer - North West London - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Selby Jennings: Corporate Communications & Marketing Specialist – Geneva

120,000 - 150,000 chf + bonus: Selby Jennings: A leading Swiss Private Banking...

Day In a Page

Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas
La Famille Bélier is being touted as this year's Amelie - so why are many in the deaf community outraged by it?

Deaf community outraged by La Famille Bélier

The new film tells the story of a deaf-mute farming family and is being touted as this year's Amelie
10 best high-end laptops

10 best high-end laptops

From lightweight and zippy devices to gaming beasts, we test the latest in top-spec portable computers
Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

The batsman has grown disillusioned after England’s Ashes debacle and allegations linking him to the Pietersen affair
Susie Wolff: A driving force in battle for equality behind the wheel

Susie Wolff: A driving force in battle for equality behind the wheel

The Williams driver has had plenty of doubters, but hopes she will be judged by her ability in the cockpit
Calls for a military mental health 'quality mark'

Homeless Veterans campaign

Expert calls for military mental health 'quality mark'
Racton Man: Analysis shows famous skeleton was a 6ft Bronze Age superman

Meet Racton Man

Analysis shows famous skeleton was a 6ft Bronze Age superman
Garden Bridge: St Paul’s adds to £175m project’s troubled waters

Garden Bridge

St Paul’s adds to £175m project’s troubled waters
Stuff your own Christmas mouse ornament: An evening class in taxidermy with a festive feel

Stuff your own Christmas mouse ornament

An evening class in taxidermy with a festive feel
Joint Enterprise: The legal doctrine which critics say has caused hundreds of miscarriages of justice

Joint Enterprise

The legal doctrine which critics say has caused hundreds of miscarriages of justice
Freud and Eros: Love, Lust and Longing at the Freud Museum: Objects of Desire

Freud and Eros

Love, Lust and Longing at the Freud Museum
France's Front National and the fear of a ‘gay lobby’ around Marine Le Pen

Front National fear of ‘gay lobby’

Marine Le Pen appoints Sébastien Chenu as cultural adviser