In the Great Recession, businesses across the United States and the rest of the world suffered. "It was like a bell had been rung," Warren Buffett (Trades, Portfolio) told shareholders of Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) at the 2009 annual meeting.
However, while most of the conglomerate's businesses registered a decline in sales during the crisis, there was one operation which reported growth, and that was GEICO. Indeed, speaking at the 2009 Berkshire annual meeting, Buffett declared:
"Probably people around the world, but I certainly know in terms of our businesses, it was like a bell had been rung. And one manifestation of it was kind of interesting.
Whereas it hurt very much our jewelry business, our carpet business, it hurt NetJets. It hurt all the businesses. Hurt American Express, for example. You know, the average ticket went down almost 10%.
I mean, it just was like that, that people's behavior changed. But one of the things it did, was it also caused the phones to start ringing even more at GEICO.
And we didn't change our advertising, particularly. Our price advantage, relative to other companies, didn't change that much. But all of a sudden, just — it was remarkable. Thousands and thousands and thousands of more people came to our website or phoned us every week.
So, it — all of a sudden, saving $100 or $150 or whatever it might be, became important. Not only the people who were watching our ads that day but just with the people that it was lurking in the back of their minds. They went to geico.com."
GEICO's strengths
I think there are a couple of lessons investors can learn from this experience, including the importance of marketing. GEICO, as always, prioritized marketing and cost. The company offers customers the lowest price, and makes sure they know it.
The reputation often precedes the business, so the company does not need to spend extra money trying to grab customers when the going gets tough. By continually pushing its brand, the company has been able to achieve, to borrow a phrase from Charlie Munger (Trades, Portfolio), "a share of mind." In much the same way Coca-Cola (KO, Financial) or American Express (AXP, Financial) have a share of mind when it comes to beverages and payments, respectively, GEICO a the share of mind when it comes to auto insurance.
The company also has a strong reputation for customer service. Customers know they're going to get a good offer at a low cost, and that they will have a top-notch customer service experience.
Focus on marketing
GEICO has been able to build the position it has in the market today by relentlessly focusing on marketing and improving the customer experience. There are only a handful of businesses that pursue the same sort of marketing and growth strategy.
Some great examples include Guinness, which is a strong global brand that doesn't need to advertise as much but still does so at major sporting events and on television.
Then there's Apple (AAPL, Financial) and Amazon.com (AMZN, Financial). These companies are relentlessly focused on marketing, building customer share of mind and improving customer service.
Unfortunately, there are not many companies that offer this investment proposition. That's why when you find one, it makes sense to buy and hold on.
Disclosure: The author owns shares in Berkshire Hathaway.
Read more here:
- Warren Buffett and Seth Klarman: Ignore Book Value Cost
- Howard Marks: Look for Select Bargains, but Beware of Further Declines
- Howard Marks: Finding Yield in a Negative Rate Environment
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