Are you investing in trends and future market leaders?

“In investment, only some paths lead to Rome.

Investing in consumer products requires a distinction between trendy trends and sustainable market leaders. Some companies succeed through affordability and mass market appeal, while others thrive with exclusiveness and pricing power. The key questions for investors are not just which products dominate; why. Is the company's success rooted in functional utility, emotional appeal, or a combination of both?

By categorizing products into merchandise, luxury or hybrid models, investors can identify durable competitive advantages. Is it a time when your product product is worthy of achieving mass adoption? How do businesses maintain their value? Can the product business develop pricing capabilities? Are luxury brands as resilient as they look? Answer these questions can guide you in smarter investment decisions.

The Road to Value: Products and Luxury

Consumer products usually solve two different sets of needs.

• Features: Address practical concerns such as cost, convenience, and efficiency. Here, success depends on mass adoption and economies of scale.
• Emotional: It addresses status, identity, and exclusiveness that transcends the basic features of the product. These business command premium pricing with powerful branding and controlled rarity.

However, some companies blur the lines and create hybrid strategies that integrate affordable prices with ambitious branding. The ultimate goal of every path is to create and protect value and maintain its relevance.

A framework for analyzing commercialized products

Commodity businesses thrive by addressing practical needs and expand through utilities. This is reflected in the S-curve of the product business, moving through three important phases.

• Slow build: Products are niche due to high costs or lack of infrastructure.
• Accelerating growth: A turning point that is often driven It promotes cost declines or technological leap, mass adoption.
• Mature: As competition intensifies, growth slows down, forcing businesses to innovate or integrate.

Investor takeout: Each phase has its own evaluation impact. In the early stages, excitement can be fueled by a high multiple, but maturity is greatly mitigated once the brand's durability is tested.

Functional Success: Exponential Rise in Clean Energy

Solar Energy: In 1977, solar cells cost $77 per watt. By 2024, that figure had plummeted to $0.11 per watt, enabling mass adoption. Companies like First Solar and Enphase Energy have taken advantage of this shift to provide investors with significant long-term returns.

Similarly, in electric vehicles (EVs), Tesla started out as a high-end roadster. It quickly recognized a wider opportunity with more affordable models. As battery prices fell, Tesla expanded its Model 3 and Model Y, and now pioneered the industry with candidates like BYD.
This pivot from a niche to a large market highlights how cost reductions can effectively reduce costs, which can turn former premium products into wide ranges of products.

Investor takeout: Be aware of the inflection points of the product industry cost. If affordability exceeds a significant threshold, adoption, or rating spike.

Fade in irrelevant

Orkut dominated early social media in markets such as Brazil and India, but stagnation spelled downfall. With limited updates, insufficient mobile user interface and minimal corporate support, Facebook can iterate faster and provide a better user experience. By missing out on the mass adoption S-curve, Orkut eventually disappeared irrelevant.

Investor takeout: Consistent innovation is paramount in a rapidly evolving industry. Even early leads can disappear without continuous product development or strategic investment.

A framework for analyzing ambitious brands

Hermes Birkin Bag, McAran Scotch and Bugatti cars show how heritage, craftsmanship and exclusiveness create a formidable brand of moat. These products are more than just products. They are experiences that have been linked to a renowned heritage or handcrafted production method that resonates with wealthy consumers seeking position. By limiting production, each brand amplifies its appeal. From Birkin Waitlists to single malt mature or limited hypercars, rarity becomes part of the value proposition.

Three pillars promote luxurious success:

• Ambitious branding: powerful storytelling, craftsmanship, heritage.
• Exclusiveness and rarity: Limited production guarantees high perceptual value.
• Ownership experience: Brands go beyond products.

Investor takeout: In luxury, the support for distribution control and exclusivity is important. Maintaining the close brand narrative and rarity is essential to maintaining pricing power. Investors often pay premiums to companies that use brand loyalty to maintain a high margin. But even legendary names put dilution at risk when they recklessly expand.

Paradoxical view: Are luxury brands more vulnerable than we think?

Pierre Cardin gained fame for its avant-garde designs in the 1960s, but pursued an aggressive licensing model with a vast range of products. Although initially lustrous, this approach erodes the label's exclusiveness. Over time, Pierre Cardin's name became synonymous with discount-level offerings. This shows how a rich aura melts in excess of exposure.

It's Gucci You encounter a similar problem? It may be focusing on trend-driven, accessible products, especially as consumer preferences shift towards timeless, modest luxury.

Investor takeout: Exclusiveness depends on the guardianship of a strategic brand. Investors need to be vigilant about luxury brands that are actively expanding to maximize short-term profits, as they can undermine long-term brand equity.

Hybrid approach: Bridge between function and status.

Several brands have combined product features with premium positioning to transform everyday products into lifestyle statements. Voss Water, for example, has raised plain bottled water into a symbol of luxury through its sophisticated design, selective distribution, and narratives that emphasize Nordic purity. Dyson has rethinked household appliances such as vacuum cleaners and fans, turning them into premium products through innovative engineering and design.

Similarly, Stanley, originally known for its sturdy outdoor gear, has evolved into a lifestyle brand with Quencher tumblers. Tumbler has gained the viral popularity on social media thanks to its sophisticated design, vibrant colors and robust features. These brands cater to practical needs while providing a sense of refinement.

Investor takeout: Hybrid brands bring basic products to lifestyle essentials through engaging storytelling and powerful consumer relationships. However, as they scale, these brands often face valuation volatility due to their execution risk. Investors must assess growth strategies and market positioning to ensure that expansion efforts do not compromise on brand core value proposals.

Why brand equity is important

According to Kantar, strong brands balance three mental connections (knowledge, emotion, experience) to stand out meaningfully, maintain the difference and stay the best. This consistency correlates with tangible financial compensation. Kantar's brand portfolio has significantly surpassed its major equity benchmarks since 2006.

Investor takeout: Strong brand equity is more than a buzzword. Companies with strong brand equity have historically surpassed market indexes and have shown superior economic benefits over time.

sauce: Kantar Brandz 2024 Report.

Note: Cumulative index/portfolio returns.

Evaluation of branded and commoditized businesses

A clear methodology is required to evaluate branded companies and commoditized businesses.

Branded companies achieve long-term leadership through customer loyalty. Their premium pricing comes from strong brand equity, unique assets and focused marketing, all driving higher margins. Investors should monitor ongoing reinvestment of customer retention, marketing effectiveness, and brand equity.

In general, it is recommended to support sector leaders as market control enhances profitability and resilience.

Commoditized companies compete primarily for cost-effective and disciplined capital allocation. Key indicators include working capital management and operational leverage. These companies are price candidates affected by the product cycle. They tend to trade at low multiples due to revenue volatility, but cost leadership can often act as a moat.

Investor takeout: Timing is important for these businesses. Investing in lowest-cost producers during peak valuation periods, and ROIC Troughs position investors to expand margins as the cycle changes.

Important Point: Understand why Behind the success

Identifying the next large consumer product is more than just finding eye-catching brand campaigns and impressive revenue figures. You need to understand the deep drivers behind product success, such as cost-effectiveness, exclusivity, emotional storytelling

For investors, the real question is not just which products will flourish, but whether they can maintain control. Investors need to track their pricing capabilities, innovation cycles and strategic positioning.

Source/Disclosure

• Part of this article refers to insights from the Kantar Brandz 2024 report.
• Other sources: Reuters, Bloomberg, International Energy Agency (IEA)
• This article reflects the author's opinions and is not recommended.