E-motions: Vol. No. 1, Issue No. 10, September 26, 2005

Brought to you by California News Tech (OTC BB: CNTE)

Manipulating Perceptions of Demand Can Make the Market

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1. Emotions in Focus: The Value of Public Perception

     Companies in the United States, and abroad, spend billions of dollars a year on advertising. Yet, when investors evaluate stocks, they often overlook the actual contents of these ads. More specifically, investors do often pay attention to more quantitative aspects of marketing, such as its cost, its reach and the revenue it produces. It is the more qualitative and subjective aspects of marketing, in particular, that can go ignored. Looking at the more qualitative aspects of marketing, such as branding, advertising slogans and viral messages, however, may actually help investors more in forecasting how successful a given marketing campaign will be in the future. While the importance of fundamentals cannot be denied, it still can be very valuable to look into the content of those billions of dollars’ worth of ads. Specifically, looking at quantitative marketing data can give investors a picture of how many consumers a company has reached to date. Meanwhile, looking qualitatively at the message behind a marketing campaign can go a step further and anticipate how effectively a message will reach and convince its audience.

     One powerful class of marketing techniques includes convincing consumers that there is a higher level of demand for a given product, or service, and thus actually stimulating subsequent real demand. These sorts of marketing campaigns can make a given company more popular, and can even lend the appearance of greater credibility.

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2. The Big Movers and Why

     Last week, for instance, a number of companies went up significantly after releasing positive earnings statements related to the successes of their qualitative marketing campaigns. Nike, Inc. (NYSE: NKE) went up 8.69% on Monday after releasing a positive earnings statement at 7:19 AM Eastern. Nike, Inc. has maintained a high degree of popularity for a long time, but previously, its earnings had been relatively stable, given that Nike has largely saturated the Western market for athletic shoes, clothing and equipment. Recently, however, Nike, Inc. has expanded aggressively into the relatively un-tapped Latin American market by re-positioning itself as a provider of top quality soccer shoes and equipment. After simply labeling itself as a premium supplier of accessories for Latin America’s most popular sport, Nike was able to increase its sales there by 23% last quarter alone.

     Also last Monday, Omnova Solutions, Inc. (NYSE: OMN) went up 5.87% when it released earnings at 4:44 PM Eastern. Here also, a company was able to increase demand with marketing, but in this case Omnova was countering bad buzz. Omnova Solutions produces polymers and other chemicals for paints, siding, and additional building materials. Based in the South, many of the company’s production plants were in the path of Hurricane Katrina, and experienced significant damage, that was not only costly, but also delayed production. While Omnova Solutions had bad news, and its earnings report was mixed, the company put the best spin possible on the turn of events, and was able to turn the corner. The earnings report explicitly stated that Omnova would be able to recoup its losses by taking advantage of its prime location in the South and its line of building materials, and profit from the rebuilding efforts taking place in Louisiana and Florida.

     Finally, last Tuesday, another company reaped the rewards of using marketing efforts to increase its perceived popularity, thereby stimulating demand for its products. CKE Restaurants (NYSE: CKR) went up 5.88% at 4:06PM Eastern. CKE Restaurants own franchises including Carl’s Junior and Hardee’s. In particular, CKE cited that much of its increased net profits came from its scandalous Carl’s Junior ads feature celebutante Paris Hilton seductively washing a Bentley in a skimpy swim suit while eating a Carl’s Junior burger. Carl’s Junior had been trying to promote the same healthier salad options and higher-quality sandwiches that larger fast food chains were offering, and this media attention-grabbing ad helped them compete. Even though much of the press surrounding the Paris Hilton was negative, it still raised public brand awareness of Carl’s Junior.

3. How to Use the News

     While a powerful marketing campaign cannot always fix all of a company’s problems, it does often offer a big potential boost. In general, marketing campaigns can, through advertisements, press releases and public statements, convey the sense that there is an increased demand for a company’s products. There are a number of instances in which it can be particularly useful to create this impression of increased demand. These include when a company has a very similar product to powerful competitors and needs to distinguish itself. Likewise, if a company has already saturated its traditional market, it may be necessary to use a new message to convince new consumers that a product is popular with and desirable to their demographic as well. The impression of demand strategy is also effective at counteracting negative impressions about the health of a company. For instance, when a stock has experienced some negative buzz-related factor, such as current events, or gossip about company management, creating the impression that there is some new need for its products can revive it.

     When looking to invest on such effective marketing strategies, look out for companies with exceptional public relations and advertising teams compared their competitors in the sector. Use tools like MediaSentiment Trend™ to follow how stocks react to different kinds of events over time. When a company experiences negative media sentiment, it should be able to recover quickly, or at least be able to craft a timely and effective public response. Also, reading over news items from the MediaSentiment Trend™ archive, investors should be able to get a strong sense of how a company positions itself in the eyes of consumers and how it differentiates itself from its competitors.

4. Last Week in Media Sentiment

     Last week's correlations between MediaSentiment.com's thumbs up / thumbs down recommendations for Heads Up™ rated companies and subsequent stock highs and lows show a strong relationship. The correlation between ratings for MediaSentiment.com selected stocks and their highs and lows the next day is 86%. The correlation between ratings for MediaSentiment.com selected stocks and their closing prices the next day is also 86%, as is the correlation between Heads Up™ recommendations and next day stock volume over the three month average. In all of these cases, the correlations explain a majority of the variation in prices and volume. Therefore, this week, MediaSentiment™ gave an edge up to 86% to smart investors who used Heads Up™ recommendations to trade on stock price and volume!

     All figures reflect all MediaSentiment Heads Up™ recommendations for the week of September 19, 2005 through September 23, 2005, rating companies on the day of their quarterly earnings releases correlated with their stock highs, lows, closing prices and daily volumes for the subsequent day.

5. Links you can use

No Apologies for Sexy Paris Hilton Ad
U.S. Stocks Up Just Slightly as Hurricane Builds
Nike Picks Up the Pace

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