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Want a superior investment?

Look for a company with a superior customer value proposition

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Ashley Gardyne, Senior Portfolio Manager — International Shares

Ashley Gardyne
Senior Portfolio Manager — International Shares | Email Ashley »

23 May, 2019

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Want a superior investment? Look for a company with a superior customer value proposition

The social media, online advertising and digital payments industries are growing rapidly and continuously evolving. On my trip to the US earlier this month, I had the chance to attend the Facebook Developer Conference in Silicon Valley as well as two conferences for executives in the digital payments and online advertising industries.

While these events helped shed light on a number of trends benefiting our investments in PayPal, Mastercard, Alphabet and Facebook, a broader takeaway for me was the importance of businesses focusing on products that make their customers’ lives easier or otherwise save them time and money. Amazon has done just this with free and fast delivery, as has Netflix by making great content available at an affordable price.

Whenever we consider a new investment, we ask ourselves if the company’s product or service meets this test and has a strong customer value proposition.  Our portfolio company Mastercard is a great example of this and it helps remove friction for customers at the checkout with its payPass technology. Kiwis were early adopters of contactless payments and this trend has more recently been catching on in the US and Europe. PayWave/payPass also benefits retailers through faster checkout times and less handling of cash. Increased convenience for cardholders is accelerating the global move away from cash and therefore driving higher volumes and profits for Mastercard.

Google’s parent company, Alphabet, provides numerous examples. Who would chose to go back to a world of doing school assignments without Google? How about traversing a new city without Google Maps? Or learning how to change the oil in your car without YouTube? All of these services are free for consumers despite the enormous value they provide, which drives high daily usage and more advertising revenues for Google.

Facebook, who I met with on my recent trip, have made it easier to keep in touch with friends and family through messaging, photo sharing and video calling. Who wants to go back to expensive international voice calls when you can see your grandkids on a live video call? Again, these services are free for users and Facebook makes its money by showing us the occasional advertisement in our newsfeed. These advertising slots have also been a significant innovation, allowing countless small businesses to fight back against global companies with large TV advertising budgets. In fact, there are over 60 million businesses globally with a presence on Facebook and 6 million of these advertise on the platform to expand customer reach. Many of these businesses can also communicate and provide customer service directly via Facebook Messenger. Recent business success stories like Allbirds, Dollar Shave Club and Warby Parker have benefited from being able to reach customers directly via the internet and social media, and by allowing customers to buy online without having to go to a traditional retailer.

My point with these examples is that people and businesses will embrace innovations that simplify their life and save them time and money. We aren’t going back to paying with cash, navigating with foldup maps, or advertising in the newspaper. Smart businesses will continue to adopt the tools offered by these leading companies as they strive to keep customers happy and grow their own businesses.

More broadly, the investment lesson in all of this is to ask yourself if the company you are considering investing in provides a unique and valuable proposition for its customers. Not only that, but do they use new technology to continually improve their product and make their customers’ life easier.



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