More than selling stuff
The newest iPad's cool features — like a high-resolution display screen and blazing wireless speed — help explain why Apple (AAPL.O) devotees will camp out at stores ahead of its release.
But let's face it. They'll also be lining up for another reason.
Apple products have achieved cult status with consumers — a rare quality, and a profitable one for investors who can tell cults from mere passing fads. There's room in the marketplace for only a few at a time, and in this column I'll look at several — including Starbucks (SBUX.O), Sirius XM Radio (SIRI.O) and yoga apparel vendor Lululemon Athletica (LLL.TO).
As a start, it helps to know why folks join cults in the first place.
Above all, people are hard-wired to need to be part of something much larger than themselves. "We all feel kind of puny," explains Philip Muskin, a psychiatrist at New York-Presbyterian Hospital who also teaches clinical psychiatry at Columbia University Medical Center. Fitting into a group gives us a greater sense of power, he explains. "It comes from insecurity of not having communities in our lives," agrees Sherry Turkle, an MIT professor, psychologist and the author of Alone Together: Why We Expect More from Technology and Less from Each Other. "People are longing for something to belong to."
And at the extremes, people join cults to make up for some nagging shortcoming — like poverty or some sense of humiliation, says William Taft Stuart, an anthropology professor at the University of Maryland.
In the classic sense, "cults" are followers gathered behind charismatic and possibly dangerous leaders. But consumers can develop cult-like attachment to products when they help satisfy similar needs.
Cult products convey membership in a cool group. They signal status. And they're hard to quit.
One great example is the way annoying early adopters in your office get a discernible thrill from checking their iPhone 4S smartphones every time they walk into a meeting. They'll soon be carrying iPad 3s. "It's like the bird who weighs one ounce but puffs himself up to look like he weighs a pound," says Muskin.
How can this help your investments? Well, consider a recent University of Southern California Marshall School of Business study (.pdf file) that found cult-like brand attachments can be so powerful that people feel "separation anxiety" when cut off. They will make big sacrifices to avoid this. This can give the company you own the perfect customer: someone who will buy every product, every time — and probably fight to be first in line.
"The holy grail of investing is when you can buy companies where there's a high repeat customer," says Michael Scanlon, a tech analyst with the John Hancock Balanced Fund (SVBAX).
In fact, cult customers are willing to pay extra for a prized product. They also act as brand ambassadors, providing free word-of-mouth advertising. While a following like this doesn't guarantee a company will succeed and its stock rise, it certainly helps.
Following are several consumer companies that have achieved cult status.
* All dollar amounts in USD.
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