Ignore Smaller Ones at Your Peril

What is the common thread that we see in today’s environment? Weather it is business environment, economic environment, media environment, global socio-economic-political environment, all that we see/hear/read about is big news, large impact, and huge stimulus. Everything thing that happens or is happening some how manifests itself in “pseudo big”. In our quest for looking at every issue as being “big”, we fail to observe or do not see the smaller ones. The smaller ones (aspects, news, issues, situations, etc.) go unnoticed or are ignored with the tag of being insignificant. Similarly, in the world of investing and big capital gains, the dividends are deemed to be small cousins and hence comfortably ignored. In one of my recent post, I showed how there are 205 corporations that are raising dividends but it does not get coverage because few big corporations occupy the limited media space.

Today, I am discussing some of the smaller ones that have made huge impacts. These are real stories which now occupy a cult status in the annals of industrial product/packaging designs.

Company is Colgate Palmolive (CL): This is a about product design which goes back few decades (not sure about the time frame, but may be in 1970s). How many of you remember the toothpaste tubes that had a small opening of about two millimeters for squeezing out the paste? Any idea how and why that two millimeter opening increased to about eight millimeter in today’s tubes? The company was hard pressed to increase its sales and revenue. It initiated an open competition to suggest anything that could facilitate or increase their sales. One person came up with a suggestion to just increase the size of the tube’s opening. It was considered to be a dumb and irrational idea. However, it was implemented on a trial basis. And as they say, rest is history. The whole rationale behind increasing the diameter was to increase volume consumption. The inherent characteristics of smaller diameter opening restricted the volumetric consumption of the toothpaste. With increase in size, the consumption increased, reducing replacement cycle, and thereby increasing sales. A small insignificant looking change, albeit with a huge impact.

Company is Unilever PLC (UL): This is another example of intelligent package design and marketing. The timeframe is mid 1990s. Unilever made an ambitious entry and push into the Indian market. It faced unexpected challenge with consumer mindset. It had great products (soaps, shampoos, washing detergents, etc.) with unsurpassed quality. However, being a global branded company and with global mindset, its products were considered pricey. It could not make inroads into the markets where the majority lived. This is where a small change occurred. Company changed in product packaging strategy. It introduced small one-time-use packages at affordable prices, instead of plastic bottles which were at higher cost. Access to global branded product at such a tiny price became a huge hit among the masses. And guess what, the small one-time-use packages were in fact more expensive than the bottle on volumetric basis. The sales, revenue, and profitability started showing results. Again, a small insignificant looking change, albeit with a huge impact.

Company is Apple (AAPL): A lot has been said about its product design and technological supremacy. One of the key features in Apple’s products is the simplicity of its user interface. Whether it is a computer mouse, or ipod, or iphone, all of these products have achieved cult status due to their simple and intuitive user interface. A computer mouse was one of the simplest piece of hardware (yes, even when it was first introduced). The one thumb tracking feature of ipod has no technological advancements, it was just a plain simple usability. The latest gadget from its stable, the iphone, does not have any latest advanced technology. As a matter of fact, the hardware technology is one or two generation behind the latest one. However, a simple user interface with intuitive navigation makes it a hot seller. Again, a small and simple looking insignificant features, albeit with huge impact.

Similarly, I am guessing that dividends in 70s and 80s, may have been viewed as a small insignificant sum of money. Anyone who invested with discipline and continued reinvestment, twenty years down the line, will know that their impact on total returns has been significantly large. The best example is BRK’s portfolio with $1.6 billion as dividend cash flow.

Now you know why some investing enthusiasts are nuts about small dividends!

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