Yum or Dumb?

Yum! Brands is set to become the first-ever presenting sponsor of the Kentucky Derby. For the next five years, the official name of the Kentucky Derby will be … “The Kentucky Derby presented by Yum! Brands.” Additionally, Yum! Brands will receive logo visibility throughout the horse racetrack as well as a handful of commercials to run on NBC’s telecast this weekend.

Many of you are probably murmuring, “What the heck and who the heck is Yum! Brands?” Yum! Brands is the parent company of Taco Bell, Kentucky Fried Chicken, Pizza Hut, Long John Silvers, and a few other fast food restaurants. (Ahh, now you know.)

Besides the fact that this is the first-time the 132 year-old tradition-rich Kentucky Derby has signed up a presenting sponsor, it’s also an interesting marketing play. Yum! Brands is advertising not to increase customer awareness of its fast food restaurants. Instead, they are advertising to increase investor awareness of Yum! Brands as a smart stock investment. The company is seeking to raise its percentage of individual stockholders from 20% to 30%.

As I said … this is an interesting marketing play. But it’s also a confusing marketing play.

Investors are smart people. When you are talking about finding strong performing stocks, there are very few secrets out there. It’s pretty simple, if a publicly-traded business profits from attracting customers living on Main Street, the analysts working on Wall Street will notice. When these analysts notice strong performing stocks, it’s only a matter of time before the individual investor also notices these same stocks.

To me it’s simple … if you operate a business that consistently delivers great sales with sizeable profit margins, investors of all types will notice. Actions and not advertising will attract investors.

That’s my take. What’s your take? Is this Yum! Brands marketing play YUM or DUMB?

Comments

[Kevin Dugan]

You're spot on about actions vs. ads getting someone to invest. But perhaps Yum! is trying to increase awareness of their brand with investors so they consider them? As the parent company of several all too well known fast food chains, I'm willing to bet Yum! flies under the radar. They could position themselves as a "fast-food 401-k." Then again, fun messages probably do not get investors pumped about buying stock. Is it Yum or DUMB? Time will tell. Locking in to a five-year deal seems hasty on the part of the Derby and YUM.

[Andy Havens]

Why on earth do you think that buying stocks is any different than buying anything else? I'm constantly amazed when people -- especially savvy marketing people -- make the argument that "Marketing and advertising works for *this* stuff... but not for *that* stuff." Usually they apply this logic to "stuff" that "We're too smart too buy because of advertising" as opposed to "Stuff that they're dumb enough to buy because of advertising."

Why should the psychology of stock purchasing decisions be any different than that of car purchasing decisions? Or beer? Or shoes? Yes, they're each different, in that they are different products. But why should stocks be so different that we question advertising effectiveness on a "meta" level?

Questioning the basic principles of advertising a mass appeal product (individual stock purchases) at a mass market event (the Derby) is... odd. The success will depend on the effectiveness of the campaign, how well they get their message across, what kind of vehicles they use, etc. Same as in anything. Frankly, I think they stand a good chance for success. The goal, as stated, isn't to sell more stock per se, but to increase the percentage owned by individual/small time stock holders. To do that, you need to increase awareness among... a retail audience with some dough to spend on stocks. The Derby is a decent place to look for that, and KFC has roots in that geo. Not a bad play on the surface. Will it work? Depends on execution.

If you told me they were buying a retail space like this to try to sell the stock to investment co's, that would seem dumb, yes. But retail stock buying decisions are made the same way retail soup buying decisions are. Same old rules. You can say that it's all about the numbers... but then why isn't that true for cars, soap and beer?

We buy for many reasons. And most of those can be affected by advertising.

"Investors" is just an industry specific synonym for "customers."

[Ryan]

Andy, you are absolutely correct. Why do you think all those tech companies advertized on TV all the time during the tech boom? And they had brilliant marketing for their stock as well - the paradigm has changed, pay no attention to the fact we will never show a profit because stock price will go up anyway! In the very long run, you are correct John; but in the short-term this sort of marketing stock can work. That being the case, they picked the right event to sponsor - a traditionally blue-blood sport full of people with huge investment accounts. If they had picked NASCAR we could question their grasp of demographics.

[David Utter]

Yum! Brands is also based in Louisville, so perhaps that played a part in the sponsorship deal. It's not what you know but who you know, right?

[Matt Steele in the Hour of Chaos]

I think that Ryan is on to something. Maybe it is not YUM! that is dumb, but those who would be influenced to invest in a company based on advertising geared toward them, rather than on the basis of profit/loss.

[Marianne Richmond]

I think that yum or dumb is a great question...I agree with your statement that it is a confusing marketing play. You have a saavy company, Pepsi, who picked a dumb name for their fast food spin off. This branding error has likely inhibited individual investment...we may be willing to order dumb sounding things at the drive thru window but less likely to order them for our portfolio. Unless of course we think that it is a great investment...something that we would not find out by seeing Taco Bell logos at the Kentucky Derby even if we were going, or that we would not associate with a great investment by knowing that they are sponsoring the Kentucky Derby. Did the Kentucky Derby NEED a sponsor? Like maybe since 63% of Kentucky adults are overweight and 30% of Kentucky highschool students are overweight, we might feel better about YUM if we became aware of them because they were sponsoring a cause like obesity. Bad idea...an obesity program probably would discourage eating fast foods so we might become aware of YUM by sponsorship of a good cause but, the cause would be bad for business which is the reason we invest in stocks to begin with isn't it....Yes, if the goal is to increase individual investment, we are talking a marketing play. But seems like the marketing should first be directed at creating an attractive investment and then directed at communicating the attractiveness of the investment to individuals likely to invest. Now, if they just had drive through investment windows at the Derby where we could drive up and say, "100 share of Yum please...supersize it!" that might be a winner!
Marianne

[ozgur alaz]

i've remembered a speculators words "if ceo started do be seen on media (TV, newspaper), it is time to sell it."

[super susan]

Although it seems like a good idea as far as landing faithful customers who already like the Kentucky derby, and Kentucky leans toward bad fast food anyways...but advertising to gain stock investors does seem strange.

[Ryan]

The only commercial I saw for YUM (I only watched the race) talked about how they had the strongest brand in China - a clear play for new investors. Also, the logo included the stock ticker. I haven't seen a huge impact on stock price or trading volume today, but I think we will be able to determine the sponsorship success in a few weeks.

[Jason]

Company information is everywhere you look today. When a company does something good or bad the public knows within seconds. Investors, especially large quanity stock purchasers (who make the most difference in the movement of the stock), could care less about advertising. They want to do the research themselves. I feel they would think advertising to the investor is a bad sign. I know I would feel that the company is desperate and just trying to inflate their stock price.

Advertising to the investor may help in the very short term, but in the end it is all about a compay's numbers. Right when those numbers come out, the stock price will be effected and return to the correct levels. If Yum post good numbers, they will be safe. I almost think that Yum's stock price could go down because of their investoe advertising. It could have the opposite effect. If Yum is so desperate to raise its stock price, something is wrong.

[Andy Havens]

"Advertising to the investor may help in the very short term, but in the end it is all about a compay's numbers. Right when those numbers come out, the stock price will be effected and return to the correct levels."

All about numbers? Correct levels?

I'm confused. Do we people buy stuff and do things because they are informed, intelligent, information-focused consumers of data, or because they are emotional, "players in their own dramas" who are affected by feelings, dreams, aspirations and poignant art, music and design.

Or are we both. All the time. In some mixture.

I have yet to see a category where people solely "think about stuff." Cigarettes, for the love of pete, say on the package, "This is poison." And people still smoke 'em. Political candidates use advertising that has little-to-nothing to do with "thought," and works on an emotional level... and we vote with our guts/hearts. We buy our most expensive and important posessions based on feelings, and, frankly date and marry the most important people in our lives based on emotion.

So... why are stocks different? And why shouldn't advertising figure into the picture the same as it does for houses, cars, drugs, Presidents, dating, food, computers, insurance, etc. etc. etc.

As George Thoroughgood says to his friend who won't let him stay the night because his wife, "is funny...": "Yeah. Everybody funny. Now you funny, too."

It's advertising. Everybody funny. Now stocks funny, too.

[Jason]

Except that the stock market is controlled by big investors who have Harvard Business degrees that make their decisions based on the numbers. It is my understanding that invidual investors have little to do with the flucuation of the market. I would be very scared to invest my money with a guy who is influenced by advertisements. Mutual fund guys like to show that they are smart. If anything, they will do the exact opposite of what the advertisements are conveying. I could be wrong.

[Ryan]

Jason, you would be correct except that Yum specifically said they are trying to increase the level of individuals investing in their stock - not mutual fund guys. Plus, I think you are giving mutual fund guys too much credit since mutual funds on average underperform the market (really they are just good at selling themselves). My guess is that maybe Yum is trying to avoid too much influence by the institutional investors. That way when voting for the board of directors happens, all the little investors don't have enough clout/attention/incentive to affect the vote. For what it's worth, the stock price is at the high for the year.