Is this the best method to find Multi-Baggers?

Product placements as a research strategy

Hi Everyone,

Oftentimes, potential multi-baggers (stocks that multiply their value) are right in front of our eyes, but we don't pay attention to them. How can we find those stocks in an unconventional way? As you know, this newsletter is here to give readers new perspectives on investing and open their minds to different points of view. If you follow the herd, you usually get the herd’s results. This starts with the stock research and ends with the selling decision. The research approach of most investors is limited to market reports, forum posts, and stock screeners, whereby the most apparent source gets ignored: Motion Picture.

Let me explain.

As firms are struggling to differentiate themselves from the clutter of traditional media, marketers have intensified their quest to determine what still works. Product placement, the inclusion of brands in media programming, has proven itself a reliable option for grabbing consumer attention and raising brand awareness. It’s a marketing technique typically used in films, TV shows, or other productions where a company's product or service is inserted briefly into the plot or script to promote the brand. The brand gets marketing through the film forever, and the movie gets some of the costs covered. So next time you see a brand in a movie or TV show, know that the advertiser has paid for that privilege, and it is not appearing in the film or TV show “by chance.”

“There is no advertising, marketing or consumer-driven media tactic that can match the durability, consistency or growth trajectory of product placement.”

Patrick Quinn, CEO PQ Media

The payoff for the brand can even be higher, in case the movie becomes a classic/blockbuster. When a company knows an upcoming film will appeal to a high number of people, it's only natural that they want to get those viewers on board in a creative way without feeling like it's too promotional. Product placements are the subtle art of advertising. Let’s take a look at a few examples:

Apple AAPL 0.00%↑: Apple mastered the art of subtle product placement and brand communication. While many companies want their products just to be seen, Apple attaches great importance to how they are seen. Do you think the villains are using Apple products? Who remembers the movie Legally Blonde (2001)? You can see an Apple Mac Computer in the film, especially in the lecture scene. The logo is very noticeable and Apple is associating itself again with thinkers of different types. This ties in with the theme of this story and draws a parallel with their own technology.

Or let’s take for example The Girl with the Dragon Tatoo: A journalist's decades-old missing person case is solved with the help of a young computer hacker. Apple's product placement in this movie also associates itself with creativity, intellect, and innovation. Furthermore, Apple is subtly trying to create an association in the viewers’ minds between their product and the characters.

Now imagine the free marketing a product placement receives in case a movie becomes a classic. One scene that instantly comes to mind is from Back to the Future when Marty MacFly picks up a pair of self-lacing Nike NKE 0.00%↑ shoes:

The critical part of this entire setting is that those futuristic shoes carry Nike’s brand on them. For example, if the product type you want to feature in your science fiction movie is clothing, you would want the clothing to look as though it belongs there. But asking the movie producers to have Marty McFly wear regular Nike shoes in a movie like this would have felt unnatural. That is why Nike’s decision to go with futuristic Nike shoes was a smart move. And noticing such little things gives you an edge as an investor. You can derive that their branding team is thinking out of the box and knows how to position their brand. Such information is valuable but not seen in any market commentary, or quarterly reports. And the impact on the brand value only becomes apparent with a time lag. Even years later Nike was able to capitalize on this scene with the creation of a limited version.

“While direct marketing is still the primary method of shaping the public perception of a brand, entertainment marketing is becoming more and more important.”

The three types of Product Placement you should know

Screen Placement: Screen placement is used to give a product close-up time on camera, without mentioning the company or brand name. Starbucks for example SBUX 0.00%↑ has mastered this art.

Script Placement: Script placement literally puts a product in the script, where a character in the film will mention the product by name. For example when the protagonist orders a Coke KO 0.00%↑ or Pepsi PEP 0.00%↑.

Plot Placement: As media buyers get better and better at tracking the impact of product placements, it is becoming clear that having a product appear in the background of a scene can actually have big benefits, but becoming a central plot element may be worth ten times the cost of running a commercial in that same program. Examples of this are Aston Martin in James Bond and Manolo Blahnik in Sex and the City.

Does product placement lead to higher sales?

In short: Yes. But you need to be aware that its impact is higher with consumer goods. Few people are going to buy a new car after they see it in a movie, but trying out a candy bar that their favorite actor snacks? Sure, why not? Food is one of the most popular product placements in movies; especially blockbuster films. However, Reese’s Pieces in E.T. might be one of the most iconic examples. Within two weeks of the movie's release, The Hershey Company HSY 0.00%↑ saw a double-digit spike in sales of its Reese's Pieces.

Why are product placements so effective? When was the last time you watched an ad and didn't skip it? The last time you ignored your phone during a TV commercial break and listened to a message from the advertiser? Exactly, we rarely pay attention to ads. But product placement is a “hidden” ad that you can't miss because it's intrinsic to the movie or TV show you're watching. That's why we pay attention to what we are shown. At the same time, our subconscious trust for a specific brand may increase, simply because our favorite character "loves" that brand. This way, we get influenced to purchase from these brands and they grow in popularity.

Final thoughts

The attentive investor can spot stocks before Wall Street notices them. While Wall Street is focused on numbers, savvy investors pay attention to intangible assets like brand value to find out what happens before the numbers. And brand appearances in movies/series/music videos can give you subtle hints as to what’s going on behind the scenes.

In order to fully understand how people are forming their perception of a brand, investors must also have a clear view of its portrayal in entertainment. Without this, they are only seeing half the picture. Quarterly reports are a great source to value a company, but I prefer to be a few steps ahead of the crowd to see the full picture. When a brand suddenly appears in different movies/series it might be a sign that a long-lasting marketing campaign just started which can lead to an increase in sales, followed by a rising share price. Pay attention to such small things, because those can lead you to potential Multi-Baggers.

Pro Tip: Not all brands that appear in movies are from publicly traded stocks. Therefore you should check the ownership structure (Google is your friend). You might find an asset manager like Blackrock BLK 0.00%↑ or Blackstone BX 0.00%↑ behind them.

For those who want a shortcut, use this product placement database. It contains an updated collection of product placements across movies, series, and music videos.

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I hope you learned something today, until the next issue. 👋