A Monster JTBD

One of the best-performing stocks of the last twenty years – a famed 100-bagger – is Monster Energy.

Why didn’t we see this?

If you want to succeed at investing, Howard Marks wrote, you have to be different and you have to be right. Embedded in that is the notion that being different is hard.

If different was without social, financial, political, emotional, or mental costs then everyone would do it.

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Monster Energy faced at least two of our common business headwinds. First is the TiVo problem. Can an innovator (like Monster) gain distribution before market leaders with distribution (Coke, Pepsi, Anheuser Busch) gain innovation?

It’s remarkable that Monster succeeded. Their competitors already made sweetened caffeinated beverages. They already managed brands and distributed millions of liters of fluid to every gas station, bodega, and grocery store across the country.

The second is category creation. If you can’t be first, notes the second Immutable Law of Marketing, create a category where you can be. Buy-now-pay-later, fast-casual, on-demand-storage, and hard seltzer are all examples.

But the ‘energy drink’ category had a market leader: Red Bull. Not only that, the market leader had existed for nearly twenty years before Monster Energy began.

So what happened?

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Sometimes the category isn’t the competition. Snickers and Milky Way don’t really compete. Honey Baked Ham, Chinese restaurants, and ordering pizza are all holiday meals but not many consumers debate between those three. It’s homemade or Honey Baked.

“Red Bull and Monster consumers are unique. Red Bull went after the extreme consumer but early on focused on on-premise service: bars and restaurants. As a result, it morphed into what I would consider a white-collar beverage. Partly because of the premium price, partly because the smaller can…Monster decided on a 16oz can – the same price for twice the volume and marketed it towards more blue-collar workers. They also focused on palatability, especially from a sweet standpoint.”

Mark Astrachan, Odd Lots podcast

That ‘Monster’ can was a focus group suggestion.

A canonical Job-to-be-done example is the McDonald’s milkshake. The five-minute clip of Clayton Christensen is worth watching and the explanation probably mimics hiring Monster. It’s sweet and caffeinated. It’s large, so it lasts. It also means something to the consumers. Here’s a Google Trends map from January 2023.

There’s something about Pennsylvania through West Virginia, Ohio, Kentucky, Tennesse, Arkansas up through Missouri, Iowa, and Wisconsin consumers. Monster Energy tapped ‘that thing’.

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Related: Bitter Brew tells the story of Anheuser-Busch’s history. For God, Country, and Coca-Cola tells the story of Coke and highlights the importance of distribution advantages as Coke employees were the rear guard of the Allied forces marching across Europe in 1945.

Why is this so cheap?

Our simple business model is a product, distribution, and marketing. 

  • Sex toys (product) sell better thanks to Amazon’s anonymity (distribution). 
  • RX BARS (product) sold better with a packaging redesign (marketing).
  • Catalogs, department stores, big box, and online (distribution) seeded DTC (products). 

Why is this so cheap?

One thing low-cost airlines got right, says Rory Sutherland, is they “magnify the things you didn’t get like a meal, pre-allocated seating, free checked luggage, and so on. And they had to do that to explain where the savings were taking place. Otherwise, you assumed it was worse trained pilots.” 

Yes! “People don’t just believe, here’s the price but you can get it for this,” agrees Marcia Kilgore, “you have to tell them how and you have to tell them why.”

According to Kilgore, beauty product is no longer differentiated. Everyone sells the same thing – and anyone can sell it. This is a problem for people like Kilgore. 

Hers is the ‘explain where‘ approach – we cut out the middleman. But with so many new entrants (thanks to easy products) it’s hard to communicate that message. 

“Instagram and Facebook have become the new landlords. We’re trying to get away from having to ‘pay retail’ and now you have to pay that same cut to Instagram.”

If the product is constant among beauty brands and the distribution channels are limited to retail and DTC what kind of levers exist in marketing? 

1/ Change the CAC/LTV. If Instagram is the new rent, then only acquire customers once. Kilgore’s company Beauty Pie uses a membership model like Amazon Prime. Founder Jeff Bezos said, “Our goal with Amazon Prime, make no mistake, is to make sure that if you are not a Prime member, you are being irresponsible.”

2/ More organic & less paid marketing. Instagram ads may be bid up but Instagram posts are still free. Beauty products have inherent characteristics that make how-to and before-and-after content successful. 

3/ Offer extras. The Beauty Pie boxes are nicely designed but not expensive. The message is “just as good but nothing extra”. The brand has good communication. They’re using alchemy.  

Marketing Mistakes: Selling Photos

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This came in an email. Below it were pictures of staff members and their reviews.

The Void virtual reality experiences are one of the most unique things I’ve ever done. The fifteen-or-so-minutes of virtual reality complete with sensations of heat, vibration, and smell are well worth the price.

Orlando has a location at Disney Springs and my oldest daughter and I have done the Star Wars experience (twice) as well as the Wreck it Ralph tour. Both are great. Both are highly recommended.

As the staff assists in removing the Oculus kit (it’s heavier than expected) they take your photo. Returning to the counter, guests can buy a print. From a numerical perspective, this is a great idea. Cameras are one-time costs and the additional time training staff and having them offer the service is zilch. This part of the business has great margins.

But it’s a mistake.

In college, I was a member of the ultimate frisbee club. It was tons of fun with great people but it was more fun to play than organize. One year I was goaded into being ‘club president’ which consisted of recruiting new players, requesting space from the university, and emailing other colleges to coordinate tournaments.

The recruiting part normally consisted of papering campus with fliers and table tents. But with limited funds and less interest, we passed on the paper and bought t-shirts instead. We created walking advertisements.

With limited funds, we focused on money’s fungibility.

That’s missing at The Void. Those photos should be free. The photos should be better. The photos should be the marketing. People can write about the experience and share word-of-mouth reviews but mediums matter.

Virtual reality could become the bowling alley of the next generation, a place to socialize, converse, and play. But places like The Void need to think long-term about marketing this, rather than think short-term about profiting.

Note: I don’t know what the rent costs, but it’s probably high given the locations. This, is something we addressed about restaurants