Ferrari. Hermès…. Apple?
“Let’s go invent tomorrow rather than worrying about what happened yesterday.” — Steve Jobs
Scott Galloway is a Professor of Marketing at NYU Stern School of Business where he teaches Brand Strategy and Digital Marketing to second-year MBA students and is the author of the Digital IQ Index (r), a global ranking of prestige brands’ digital competence. In 2012, Professor Galloway was named “One of the World’s 50 Best Business School Professors” (Poets & Quants). Professor Galloway is also the founder of several firms. He hosts a weekly installment of “Winners & Losers in a Digital Age” on the NYU Stern YouTube channel. In a recent video, Professor Galloway discussed Ferrari, Apple, Ulta, Microsoft and more.
He starts the video comparing Ferrari, with a 29.5 percent profit margin to Apple’s margin of 31.6 percent and Hermes profit margin of 36.5 percent and asks how a tech company could make it on this esteemed list? The answer, says Professor Galloway, is Mr. Jobs was in fact a genius. His genius didn’t involve products as much as it involved marketing. And Jobs realized something very important about the world of luxury; Specifically, it was a great business. Professor Galloway says rather than being the best house in a shitty neighborhood, Jobs decided to become the best house in the best neighborhood. Their tech products are sold in shiny glass temples under flattering lights where customers can be seen and admired. Product launches are supported by supermodels. Apple is a luxury brand and not a tech product, Professor Galloway says as a result the company has literally achieved the impossible — what no other firm has done: They are the low-cost producer yet the premium price product. Apple has the margins of Ferrari with the production volume of Toyota, and is generating more profit every quarter than Amazon has in their entire history.
Next he discusses Ulta, the fastest growing retail stock. The beauty retailers secret, according to Professor Galloway, is ‘omni-channel’ people who shop both online and offline. They spend two-and-a-half times more than those who use just one channel. He says the beauty retailer grew online sales by 63 percent in the fourth quarter and draw customers to physical stores with services including facials and samples. Ulta plans to open a hundred more locations this year as women spend more on beauty products than clothing now. He notes Ulta has the broadest brand assortment across price categories and a loyalty program that accounts for more than 90 percent of sales while letting the retailer collect massive amounts of data on its customers. Ulta has leveraged user data to personalize the online customer experience and they’ve also taken advantage of an asset most people think is a liability, consumers go to stores not for the product, but for the people. Specifically, the expertise.
Galloway ends with Microsoft, noting they still power 90 percent of desktop computers. He says when Microsoft launched Windows 10 about two years ago, they predicted the operating system would be installed on a billion devices within two to three years, yet they’ve only reached 500 million and daily installations are beginning to decline. He notes if the Microsoft phone hadn’t failed, Microsoft would likely be the most powerful company on earth, though, he adds, Microsoft’s diversified revenue likely makes them the least vulnerable of all the big tech companies. You can view his full comments here.