The Laws of Marketing

I am a fan of the Coffee Can Portfolio, an “Active Passive” approach to investing. The idea is simple: You try to buy a basket of the best stocks you can and let them sit for years. You incur no costs with such a portfolio, and it is simple to manage.

You can track my stock baskets here on my Scorecard.

I recently came across a book called “The 22 Immutable Laws of Marketing”, by Al Ries and Jack Trout. Although it was written in the early 90s, I find that several of the topics covered resonate even today. I have only read the first few chapters so far but it feels like this book was written just for me. It’s an awesome read, so I thought I’d share some of the book’s insights and takeaways.

To start, the book suggests that there are some “fundamental laws of marketing” and it is these laws that govern success and failure in the marketplace. Most importantly, in order for a company to be successful, their products, programs and services must be in tune with these laws. 

Let’s take a closer look at the first two laws of marketing:

• Law #1: The Law of Leadership

• Law #2: The Law of the Category

Law #1: The Law of Leadership

Many people believe that the most important thing about marketing is convincing prospects that you have a better product or service. 

Not true! 

Let me ask you this: 

• When you hear the word cola, what brand comes to mind first? I bet it’s Coca Cola. 

• What about search engines? I bet it’s Google. 

• What about hand sanitizers? Purell isn’t it?

This law applies to all products and categories.

Also interesting is that if you don’t know the first brand in a category, you can usually make a good guess by substituting first with leading. 

What is the name of the first college in America? Let’s say you don’t know the answer. Try answering the following question instead: What’s the leading college in America? Most people would probably say Harvard, which was also the first!

No two products are the same, yet the first one to market is often liked more. I say this half jokingly...and at the risk of annoying my younger sister, but i’d guess the first child tends to be the favorite…at least I’d like to believe so :)

People tend to prefer what they’ve got or what they’re already used to. This is why being first matters. This is also why we often hear that “in order to be successful, an idea has to be 10x better than what already exists.” Switching brand affinity is hard.

The book had an interesting line: “If you’re introducing the first brand in a new category, you should always try and select a name that can work generically”. Why? Well, one reason the first brand tends to maintain its leadership for long periods of time is that the name often becomes generic. Most people use brand names when they become generic. This certainly happened with Web Search. I recall distinctly this being a hot discussion topic when I worked at Bing. Actually, when I first interned there, it was called MSN Search, and was later rebranded to Windows Live Search, before ultimately becoming Bing. “Just Windows Live Search it” didn’t quite have the same verb-ability as “Google It”.  

Marketing is a Battle of Perceptions, not Products 

So what does this tell us? 

It is Better to be First Than it is to be Better

If marketing is a battle of perceptions, being first really matters.

Heineken was the first imported beer to make a name for itself in America, For at least 4 decades, it remained number one. There were over 400 imported beer brands in America. Surely one of these tasted better than Heineken? Did it really matter?

Similarly, Bitcoin was the first cryptocurrency. And the Law of Leadership is one reason I invested in Bitcoin back in February 2020. Here’s an excerpt from my thesis.

Law #2: The Law of The Category

Unfortunately, there can only be one first. So, if you’re not first, are you doomed? Not necessarily. There are other laws of marketing as well

Let me give you an example. 

What’s the name of the third person to fly the Atlantic Ocean solo? Well, if you don’t know who the second person was, it’s unlikely you’d guess the third. Well, actually, you likely do know the answer to this question. The answer is Amelia Earhart! 

She isn’t known as the 3rd person to fly solo across the Atlantic Ocean. Instead, she is known as the first woman to do so.

Similarly, Charles Schwab didn’t open a better brokerage. He opened the first discount brokerage. Dell wasn’t the first personal computer company. Rather it was the first “Build your computer on-demand” company.

Although, I do believe that people are more interested in “what’s new” vs “what’s better”, I don’t believe it’s enough simply to try and create a new category. Going back to my Bing example, when Bing launched, it called itself “A Decision Engine”, not merely a “Search Engine”. Clearly that wasn’t enough to catch up to Google’s dominance. I do believe it matters that the product is also better. Tesla (TSLA) is a great example. They didn’t just build a car company, they created an Electric Car company. AND their products were superior than the alternatives.

For long time readers, the notion of creating your own category should ring a bell. I’ve written before about Investing in Mavericks, a venture capital-like approach to the stock market. Recall I wrote: “in business, every industry does things a certain way. And these “industry conventions” are determined by the leaders of that industry. For innovative companies to prosper, they must change the game entirely and create new ways of doing things.” This is along the same line of reasoning as above. In many ways, Mavericks really are trying to benefit from the 2nd Law of Marketing. They are trying to create their own categories. The best most successful ones succeed at doing so.

Wrapping Up

Law is a strong word. I’ve never considered the above concepts to be “laws.” Nonetheless, the first two laws of marketing certainly resonate with how I think about the world. I agree leadership matters. Leaders tend to remain leaders for long periods of time. 

According to the book, these marketing laws govern success and failure in the marketplace. Of course this isn’t black and white. Judging a company’s brand and marketing is subjective. But keeping in mind whether a company’s products, programs and services are in tune with these laws may be an interesting addition to one’s investment thinking. 

I am looking forward to reading the rest of the book. 

Let me know whether you’d like me to write more about these marketing laws as I continue through the book. 

Update:

• Read about more Marketing Laws Here

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