Take a look at the various consumer goods surrounding you…
The brands you're wearing, the brands someone else is wearing, or even the device with which you're reading this article.
Do they say something about you?
"You are what you eat"
As consumers, and investors, there's certain things we are willing to pay-up for. Healthcare and education are two examples which spring to mind.
A personal favourite is the quality service and product range at RCG Corporation Limited's (ASX: RCG) The Athlete's Foot stores.
Its distribution licence over a number of brands and its quality customer service afford it some degree of competitive advantage.
But then there's those premiums we are, quite frankly, not willing to pay for.
To push the retail analogy one step further, I'll admit, I'm a stickler for only buying 'branded' clothing which appears on a discount rack. Unfortunately, my size is between medium and large, so I rarely get the bargains I'm after.
However, when they do appear, I make sure I've got the cash handy, to capitalise on my golden opportunity.
In economics we apply some fancy jargon to describe these types of decisions. That is, we say, so long as our marginal benefit exceeds the unit price, we'll be happy consumers.
Was I wrong about Coca-Cola Amatil?
A few weeks ago, I wrote an article about Coca-Cola Amatil Ltd's (ASX: CCL) investment case after the Australian and Indonesian bottler and distributor of Coca-Cola products, announced a reduction in net profit and forecasted a tough year ahead.
I opined about the risks CCA faces in nearly all areas of its businesses and highlighted three in particular:
- A price war with Schweppes
- Macroeconomics headwinds in Indonesia; and
- Rise of 'healthier' products
These risks led me to believe: "Investors shouldn't expect spectacular gains from the company in the short to medium term." It also brings to mind a very important consideration about brand power.
That is, does its licence to distribute Coca-Cola and Beam branded products give it a right to charge more than its competitors (such as Pepsi or home-brand products), and would consumers be willing to pay more for it?
Like the clothes on my discount rack, will CCA's 1.25L range of products need always to be on sale to remain competitive? If they must, then CCA may struggle in the future.
Buy, Hold or Sell?
CCA led by CEO Alison Watkins has work to do if she is to restore the company to its former glory.
However she has the power of one of the world's most prominent brands at her disposal and if you believe the Coke brand will still be as strong as ever in 10 or 20 years' time, then 2014's share price fall could be the opportunity you've been waiting for.
