A few weeks back, Fool co-founder David Gardner discussed the six signs of a Rule Breaking company. Recently, our analysts have been examining each of these signs in greater depth. After the series runs its course, you should be able to identify Rule Breakers for yourself. Today, we'll look at sign No. 5: Strong consumer appeal.
If you were about to go on a caffeine run a decade ago, you would simply say to your coworkers, "Coffee?" Nowadays, the standard morning call in offices around the country is, "Starbucks?"
Even more recently, people were content to listen to -- gasp! -- one cassette at a time with their wrap-around headphones. Today, ear buds are easily identifiable accessories for millions of music-lovers, connecting them to their must-have iPods.
Customer recognition and loyalty quite often serve as a precursor to astronomical growth in a company's success and share price. Successful Rule Breaking companies that can nurture strong consumer appeal seemingly come out of nowhere to become ingrained in the consumer psyche. You're exposed to examples every day.
Starbucks (NASDAQ:SBUX) reignited the world's love affair with the ordinary coffee bean, compelling folks to pay much more than pocket change for a cup of joe. On your daily commute, it's impossible to miss the masses clutching cups with the instantly recognizable mermaid logo. Apple (NASDAQ:AAPL) made a new empire out of its iPod. There's a good chance that all those people sipping their Starbucks are quietly rocking out to their personal play lists.
Such recognizable strong consumer appeal is one of the signs of the spirit of the Rule Breaker.
Fast forward to the future
TiVo (NASDAQ:TIVO) may be one of those companies that hasn't had great returns for shareholders because it lacked a wide enough moat around its technology (see Charly Travers' article on Rule Breaker sign No. 2, sustainable advantage, another important trait for a company). But there's no denying it has proved a great example of the "strong consumer appeal" element of Rule Breaker investing.
A few years ago, TiVo was hardly a household name. How far little TiVo has come in such a short time! Not only do its users stalwartly insist that its products are superior to copycats, the TiVo box and service was recently voted amongst the nation's most influential inventions for a year-long exhibit at the U.S. Patent and Trademark Office Museum, sharing such influential (not to mention essential) company as the toothbrush, the seatbelt, the computer, and my personal favorite (not!), the alarm clock.
Within a few short years, whether or not to get a TiVo box and time shift your own television became conversation for cocktail parties and lunch hours (and runs to Starbucks). Popular TV shows such as HBO's Sex and the City wrote the device into the script. Meanwhile, though, it's arguable TiVo built its brand too well -- it became such a household word that people started to use the word "TiVo" to describe any generic DVR box. And that was not such a good thing. Sometimes there's such a thing as too much success, and we would prefer to find companies that dig a wider moat around themselves, technology wise.
Screen dreams and bear necessities
There are lots of companies that are featured on the Rule Breakers Universe watch list that may or may not be true Rule Breakers, but certainly exhibit consumer appeal. For example, who hasn't heard of IMAX (NASDAQ:IMAX) theaters? IMAX is well known for its state-of-the-art visual approach to the old-school movie theater, not to mention, in some venues, awesome movie-watching spectacles like 3-D.
It's arguable that IMAX's visual experience, which the company describes as "immersive," might be just the secret weapon that could convince movie fans -- recently behaving in a manner that could be considered downright jaded -- that a trip to the movie theater is a real event again. After all, the IMAX experience is not an experience that can be readily duplicated in the living room, even one equipped with a large-screen or plasma TV, and IMAX continues to expand its technology into more venues as time goes by.
Another company that may not be quite up to snuff as a Rule Breaker yet, but that has strong consumer appeal that singles it out, is Build-A-Bear Workshop (NYSE:BBW). The mall-based retailer is differentiating itself while quickly building not only a bear, but a well-known brand that resonates with consumers.
Generations of stuffed-animal shoppers are used to grabbing one of dozens of mass-produced teddy bears off the store shelves. But in a twist to that conventional shopping approach, Build-A-Bear offers parents a way to not only entertain their kids for a few hours, but also give them creative license. Children leave with a teddy bear they chose and made themselves, and with a birth certificate for their new friend.
It's a new spin on an old idea, and as easy to find as a local mall -- and that's certainly appealing.
Universal appeal
Many Rule Breaker stocks fulfill the "strong consumer appeal" element, and there are plenty of companies that can arguably be placed in the Rule Breaker Universe on that basis alone. Of course, only a select few actually make the grade to be newsletter picks, such as another company that quickly built up sparkling name recognition with Web-savvy shoppers, Blue Nile (NASDAQ:NILE). Or how about Overstock.com (NASDAQ:OSTK), which quickly made itself known for delivering the low-priced outlet experience to the home computer.
The Rule Breakers team is always watching for the next new thing, searching out companies that exhibit strong consumer appeal while differentiating themselves from stodgy tradition and its slow-growth approach. To be part of this process and to receive the latest Rule Breakers picks every month, try our 30-day free trial and join the hunt for the next new thing.
For related Foolishness:
- Rick Munarriz reveals sign No. 1 in Be First, Be Great.
- Charly Travers examines sign No. 2 in Thwarting the Big Bad Wolf.
- Tim Beyers checks out sign No. 3 in Invest in Bottle Rockets.
- John Reeves walks us through sign No. 4 in Spotting the Next Jeff Bezos.
Blue Nile and Overstock.com are Motley Fool Rule Breakers picks. TiVo is a Motley Fool Stock Advisor recommendation.
Alyce Lomax owns shares of Starbucks, but of none of the other companies mentioned. The Fool has a disclosure policy.
