Question: Could you explain a little more about the mind of the consumer and the nature of the product? And explain how you actually apply these concepts to find the companies with the best potential?
Buffett: When you get into consumer products, you’re really interested in thinking about what is in the mind of how many people throughout the world think about a product now, and what is likely to be in their mind 5 or 10 or 20 years from now. Now virtually every person around the globe (maybe 75% of people) have some function in their mind about Coca-Cola.
The name Coca-Cola means something to them. You know, RC Cola doesn’t mean something to virtually anyone in the world. Well, it does to the guy who owns RC, but everybody has something in their mind about Coca-Cola, and overwhelmingly it’s favorable. It’s associated with pleasant experiences. Now part of that is that by this time, [Coca-Cola is found] where you are happy, it is at Disneyworld, it’s at ballparks, every place you’re likely to have a smile on your face, including the Berkshire Hathaway meeting I might add. (laughter) And that position in the mind is pretty firmly established, and it’s established in close to 200 countries around the world. A year from now, it will be established in more minds and will have a slightly different overall position. In 10 years, the position will change just a little bit more. It’s share of mind, not share of market that counts.
Disney, same way–Disney means something to billions of people. If you’re a parent with a couple of young children, and you’ve got 50 videos that you can buy, you’re not going to sit down and preview an hour and a half of each video before deciding which one to stick in front of your kids. And you’ve got something in mind about Disney that you don’t have about ABC Video Company, or you don’t even have about 20th Century, and you don’t have about Paramount. That name to billions of people has a meaning, and that meaning is overwhelmingly favorable, reinforced by the other activities of the company. Just think what someone would pay to buy that share of mind. You can’t do it. You can’t do it by a billion dollar advertising budget, or a 3 billion dollar advertising budget, or by hiring a twenty thousand supersalesmen. So you’ve got that.
Now the question is what does that stand for 5 or 10 or 20 years from now. You know there’ll be more people, you know there’ll be more people familiar with Disney, and you know that there will always be parents who are interested in having something for their kids to do and that kids will love the same sort of things. That’s what you’re trying to think about with a consumer products company.
That’s what Charlie and I were thinking about when we bought See’s Candy. Who’s face lights up on Valentine’s Day when you hand them a box of candy from some nondescript company and you say, “Here, honey, I took the low bid?” You have many millions of people who got handed a box of [See’s] candy and it wasn’t that much thereafter that they got kissed for the first time. So the memories are good, the associations are good. A position in the mind is what counts in a consumer product. But it’s a total process … a very good product may need tons of infrastructure. I had a case of Cherry Coke waiting for me at the Great Wall of China. You’ve got to have the product there when people want it.
In World War II, General Eisenhower said to Mr. Woodruff that he wanted a Coca-Cola within arm’s length of every American servicemen in the world, and they built a lot of bottling plants to take care of that. That sort of positioning can be incredible. It seems to work especially well for American products. People want certain American products worldwide … our music, our movies, our soft drinks, our fast food. I can’t imagine a French firm, or a German firm, or a Japanese firm selling 48% of the world’s soft drinks. It’s part of American culture and the world hungers for it. Kodak, for example, somehow does not have the same place in the world’s mind now that it did 20 years ago … Fuji pushed their way to more parity with Kodak. You don’t want to ever let them do that. That’s why you can see a Coca-Cola or a Disney doing things that you think, well this doesn’t make a whole lot of sense, that if they didn’t spend this $10 million, wouldn’t they still sell just as much Coca-Cola. You don’t know which dollar is doing it, but you do know that virtually everybody in the world has heard of your product and has a favorable impression of it …. With See’s Candy, we’re no better than the last customer who’s been served their candy, but as long as we do the job on that, people can’t catch us. We can charge a little more for it because people are not interested in taking the low bidder. Private labels stalled out in the soft drink business, because people want the Real Thing.
[Munger: I think the See’s candy example has an interesting teaching lesson for all of us. It was the first time we really stepped up for brand quality and it was a hard jump for us … If they had demanded an extra $100,000 for the See’s Candy company, we wouldn’t have bought ’em, and that was after Warren was trained by the best one of the greatest professors of his era … We just didn’t have minds well-enough trained to make an easy decision right. But we did buy it, and as it succeeded we kept learning. I think that shows that the name of the game is continuing to learn, and that brings along the delicate problem that people sometimes talk about “two ageing executives,” but I don’t know what the hell that means as an adjective, because I don’t know anybody who is going in the other direction. (laughter)]
WB: If we hadn’t have bought See’s, we wouldn’t have bought Coca-Cola in 1988, so you have give See’s a significant part of the credit for the $11 billion plus profit we’ve got in Coca-Cola at the present time.
Source: BRK Annual Meeting, May 1997