What Warren Buffet Teaches us about Investing in Good Marketing

Warren Buffet is an incredible story of going from having nothing to being one of the richest people alive.  There are many Buffet investing tips, but only one that I am aware of that has him investing in good marketing, known as a consumer monopoly.

Monopolies are generally thought of as a bad thing, unless of course, you own one.  If you own one, they are very profitable.  For the most part, monopolies are illegal, so Buffet looks for two types of legal monopolies.  One is the toll bridge and the other is the consumer monopoly.  The toll bridge concept is typically a utility or some other company where completion isn’t an issue and the company can freely change its price without any adverse effects (well, adverse effects to the company).

The consumer monopoly, on the other hand, is a branding monopoly created by great use of the marketing P’s.  Buffet uses the example of somebody who wants to buy a Hershey bar. She is told the store is out, but there is another cheaper chocolate bar. The customer passes and goes on to the next store. There is no suitable substitute, so the Hershey bar is positioned as a monopoly in the consumer’s mind.

Buffet’s classic consumer monopoly investing example is Coke.   It’s hard to imagine a store shelf that doesn’t have Coca-Cola.  It’s a relatively simple business model too.  Due to the business simplicity and the consumer monopoly, when Warren Buffet first invested in Coca-Cola, he said that a ham sandwich could run it.  Interestingly, when Coca-Cola got bored with its sugar water cash cow and branched out, the ham sandwiches had trouble keeping the profits up and the investment suffered, but over the long term, Buffet was very, very, very right (despite all the haters that put him down while they eat their mac and cheese). In short, he invested in a great marketing consumer monopoly.

So when thinking about investing, think about the consumer monopolies you know.  Are you a tech geek?  Well, what brand could you never imagine Best Buy could stop carrying?  What would make customers revolt if it disappeared?  You can do the “consumer monopoly” test for just about anything that you are familiar with in your personal interests.  In fact, in all your distinctiveness, you are uniquely qualified to identify a consumer monopoly that few others can.  Who knows… you may be able to turn your shopping addiction into a ticket to becoming the next Warren Buffet.