“Consider the fact that the word Google is now an official entry in the Oxford English Dictionary - as a verb. Don't hold your breath waiting for that to happen to Bing.” – Peter Thiel
It is an extremely challenging feat for a brand to “verb up” or “verb down” (once verbified). Just think about the online search space. For more than a decade, we have always "Googled" something we didn't know, but we never "Binged", even though the flagship search engine by Microsoft (MSFT, Financial) was named in such a way that it could easily get verbified (e.g., “bing” a movie or “bing” a restaurant).
A brand verbs up only when its role shares a significant portion of daily memory among its customers at scale, and hence, enters pop culture. As such, verbification is arguably a testimony of a substantial moat, which fends off competitors and protects long-term profitability.
Alphabet (GOOG, Financial) (GOOGL, Financial), which generates nearly 85% of its revenue from Google advertising, earned superior free cash returns on assets over the past two decades (see below). The verb status of Google also resonates with the high American Customer Satisfaction Index (referred to as “ACSI”) score of its product in the category (79% versus 72% for both Bing and MSN, or 74% and 70% for AOL and Yahoo! (VZ, Financial)).
A few more classic examples in the tech world include “WeChat,” “Uber” and “Photoshop.” And some in our offline life include “FedEx” and “Clorox.” Checking the product portfolio owned by Clorox (CLX, Financial), we see 80% of global sales from number one or number two share brands like its namesake brand, which dominates a few home maintenance and laundry categories. The century-old business has a remarkable track record of superior returns for its long-term shareholders, leveraging its brand power. According to the chart below, the annual return on invested capital dropped below 10% in only one of the last 30 years (or below 15% only four times).
It is worth mentioning that many brands make an effort and even burn through a huge advertising budget to get verb status, but few of them can really succeed in the end. Remember the “Do you Yahoo!?” campaign or the “Let’s go Krogering!” song (if you are old enough). By looking at the ACSI score, we notice a lagging performance of Kroger (KR, Financial) versus its peers, including Trader Joe’s, Aldi, Costco (COST) and Walmart's (WMT) Sam’s Club. At Urbem, we keep reminding ourselves of the priority of building a customer-winning product over conducting a viral marketing campaign, in terms of delivering sustainable high returns.
Disclosure: The mention of any security in this article does not constitute an investment recommendation. Investors should always conduct careful analysis themselves or consult with their investment advisors before acting in the financial market. We own shares of Clorox.
Read more here:
- Customer-Winning Products: The Core Path to Long-Lasting Prosperity
- Evolution Gaming: Can the High Returns Continue?
- Domino's Pizza: A Winning Business Model in the Restaurant Industry
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