Companies with high-income customer-base (ideally customers in the top 30% - maybe stretch to top 50%)

[LearningMachine]

 

Stephen Squeri (AXP CEO) shared at the March 7, 2020 call what Buffett told him during the pandemic last year:

Quote

As I talked to our largest shareholder, Warren Buffett, and I've talked to him during this time, the one thing he has and will continue to always point out to us is that the brand is special. And that brand needs to be cared for, the brand needs to be invested in and we will continue to do so through tough times and through the good times. And our customer base is special. 

 

 

Stephen shared again at the May 4, 2021 call:

Quote

I have ongoing conversations with Warren and I have the opportunity to meet in person with Warren on multiple occasions during the year. And I think the sage advice that Warren has given me from day one has been make sure that you take care of your customers and you take care of the brand. And if you do that, the shareholder will be taken care of as well. The most important assets that we have are our customers and our brand. And I think through this pandemic, our colleagues have done a really good job of taking care of both.

 

You can see the higher-income customer base in BRK's holdings as well:

• AAPL: roughly top half of American consumers
• AXP
• VZ: roughly top third of American consumers
• BAC: moving towards higher income customer-base relative to WFC

 

So, I think it is probably one of the factors Buffett considers.  I can think of many reasons to have higher-income customer base:

• Less price-sensitive: Because smaller percentage of income is spent on good/service provided by the company, this customer-base is less price-sensitive.  This lets the company raise prices by at least rate of inflation, and maybe even customer-base's income growth-rate.
• Opportunity to sell more: Room to sell more things to the customer-base with higher income.
• Lower churn rate: Because time is worth more to this customer base, switching cost is higher to the customer base.

 

Any other reasons I missed? 

 

What are some other companies that have higher-income customers, ideally in the top 30%?   Maybe we could stretch to top 50%.

 

Do folks agree that VZ's customer base has higher-income than AAPL's customer base?  I understand customer-base currently might have more emotional connection with AAPL over VZ, but from income perspective, do folks agree?  Any other company folks know in the U.S. that has a relationship with top 30% of the U.S. consumer population? 

 

Please also identify whether it is top X% of consumer customers or top X% of enterprise customers. 

 

Edited June 13, 2021 by LearningMachine

[Gregmal]

Few names come to mind. Peloton. Seems to be the definition of a top 10%-er brand. LULU as well. Basically cater to affluent stay at home moms and super busy high earners in urban/suburban areas. 

 

I'll also tout MSG again. Cost for a family of 4 to go to a game is probably between $800-1,000. And the best part, is due to location and corporate customer base...they can be abusive and dont need to retain customers. In fact, they've typically had a waitlist despite a generally poor reputation with respect to how they treat their fans. 

 

With the VZ vs AAPL topic, I think they're different. If everyone needs a phone plan, you'd naturally have limited options with respect to choice. Poor people and frugal folks will pick cheapest, wealthier folks will go with best service. I think its simple as that. I dont know how much retention power they truly have. But I do think its a relationship void of loyalty. I hear of people switching phone plans and providers all the time. Whereas it seems folks within the AAPL or Android ecosystem are insanely loyal and even if they want to switch, have reasonably large hurdles because of the stored data and content. I dont often watch TV, but even there, when I do....I like the Firestick way better. But then I remember all my shit is on the AAPL TV and despite hating the interface I use that more often than not. 

[mbreject]

I agree that VZ has a higher income customer base than AAPL. 

If someone doesn't have AAPL, you can chalk it up to them preferring Windows or Android. But if someone doesn't have Verizon, unless it's being provided by work, they're basically choosing to get worse service in most parts of America.

 

Your post made me realize the stickiness of BAC due to their preferred rewards program. Only AXP can beat their credit card offerings and not everyone accepts AXP.

 

COST might be another company to add to the list.

[gfp]

off-topic, but @mbreject, what makes BACs rewards program any better than say JPMs?  This is the first time I have seen BAC described as having a good credit card rewards program.  I'm not sure I have ever had a BAC credit card.

[Gamecock-YT]

75% reward bonus on BofA cash/travel rewards credit card purchases if you are in the top tier (100k+ Assets). I’d much rather have chase points, however. 
 

they also have some token items like high interest rate on savings, free ATM withdrawals, discounts on loans, and a free safe deposit box. 
 

https://www.bankofamerica.com/preferred-rewards/

[bskptkl]

As the holder of almost every credit card out there, AXP runs circles around BoA in terms of keeping me engaged and using their cards. I have the 2.625% cash back card and a couple others from BoA and hardly use them. Chase is the second best card issuer. Citi third. These top 3 brands all have transferrable points programs (as does Cap1 which won't approve me), which makes them much more flexible and valuable. All the other cards (BoA, Barclays, Wells Fargo, PenFed, Synchrony, NFCU, Banco Popular) go in the drawer.

[rkbabang]

On 6/13/2021 at 1:56 PM, LearningMachine said:

You can see the higher-income customer base in BRK's holdings as well:

• AAPL: roughly top half of American consumers
• AXP
• VZ: roughly top third of American consumers
• BAC: moving towards higher income customer-base relative to WFC

 

 

To me there is a difference between AAPL/AXP customers and VZ/BAC customers.  No one is proud/bragging/showing off to be a VZ or BAC customer.  If someone else builds a better phone network there are no loyal VZ customers who would stick with Verizon.   Verizon happens to have the best coverage right now so people use it even if they hate the company.  Here in New Hampshire there is no choice but to use Verizon in most of the state, because none of the other networks even come close in coverage.  We don't use it because we love Verizon or we are Verizon fans.  No one drives around with Verizon stickers on their car, or shows off their network connection to their friends.  Apple and AXP however has loyal fans who love the company and its products.  It reminds me of when Buffet talking about Harley Davison said something like he loves a company who's customers tattoo the company's name on their chests.  No one loves Verizon or Bank of America like that, or anywhere close.

 

[LearningMachine]

28 minutes ago, rkbabang said:

 

 

To me there is a difference between AAPL/AXP customers and VZ/BAC customers.  No one is proud/bragging/showing off to be a VZ or BAC customer.  If someone else builds a better phone network there are no loyal VZ customers who would stick with Verizon.   Verizon happens to have the best coverage right now so people use it even if they hate the company.  Here in New Hampshire there is no choice but to use Verizon in most of the state, because none of the other networks even come close in coverage.  We don't use it because we love Verizon or we are Verizon fans.  No one drives around with Verizon stickers on their car, or shows off their network connection to their friends.  Apple and AXP however has loyal fans who love the company and its products.  It reminds me of when Buffet talking about Harley Davison said something like he loves a company who's customers tattoo the company's name on their chests.  No one loves Verizon or Bank of America like that, or anywhere close.

 

I agree VZ so far doesn't have emotional connection & conspicuous consumption.  The consumer connection so far is to the quality of the network, and VZ can continue to outspend others on that quality (coverage, reliability, speed, etc.)

 

That said VZ has started to work on emotional connection with human neural nets:

• Conspicuous consumption:
  • VZ prioritized putting high-band 5G in stadiums for high-speed in-stadium experience.  Wait till your kids start asking you, why can't we have what others have at the stadium?  We should start hearing about this as stadiums open.
  • High-bandwidth will be needed for AR glasses outside.  We should start hearing about the need for bandwidth outside for AR glasses by 2022/2023.
• Leveraging psychological tendencies:
  • Envy, Reward & Punishment, Excessive Self-Regard, & Social Proof Lallapalooza: Once human neural nets experience feeling of appearing better than others with conspicuous consumption above, you will start seeing people willing to advertise they have VZ. Multiple psychological tendencies can combine to push people in that direction.
  • Influence-from-mere association: They've been very picky in associating themselves with only top brands like Disney and Apple by offering Disney+ and Apple Music, and saying NO to everyone else asking them to tag on for monthly subscription.

Would it all work with 100% certainty?  Can't say, but they are trying, and it will be a positive surprise to the stock if it does work. 

 

Edited June 15, 2021 by LearningMachine

[mbreject]

Yeah, VZ definitely doesn't have a rabid following, but they've consistently had the best coverage for a long time. I think Sprint beat them for a while 10 or 15 years ago, but since then, it's been VZ all the way. Funny thing is that I've seen multiple people who carry 2 T-Mobile phones, because 1 always doesn't work, but T-Mobile is so cheap they can't resist. I haven't tried AT&T recently, but I remember calls always dropping 15+ years ago.

 

I do like how AAPL's users are not as price sensitive as say, Android users. If they want an app, they'll buy it without really looking at the price.

 

Regarding Bank of America, I was thinking of the 2.625% cash back card (with preferred rewards.) I'm a new user, but I can't believe how fast it's all added up. Of course, it can't beat the Amex Gold, which gives 4x points on restaurants and groceries, but it's a good supplement. I think Chase has worse customer service than Amex and Citi (not sure about BAC,) but they do allow you to transfer points to domestic airline partners without charging taxes, unlike Amex.

[LearningMachine]

4 hours ago, mbreject said:

Yeah, VZ definitely doesn't have a rabid following, but they've consistently had the best coverage for a long time. I think Sprint beat them for a while 10 or 15 years ago, but since then, it's been VZ all the way. Funny thing is that I've seen multiple people who carry 2 T-Mobile phones, because 1 always doesn't work, but T-Mobile is so cheap they can't resist. I haven't tried AT&T recently, but I remember calls always dropping 15+ years ago.

 

Try calling a friend and have that friend call you at the same time.  See how many times it drops for each network.  Now, try it a million times at different coverage levels, and cell boundaries, and measure what percentage of calls are dropped.  VZ sets the highest bar for tests like these before devices and equipment can be certified for its network.  It takes a lot of effort to iron out these issues. 

 

Apple must have experienced this first-hand, and my guess is that's why they picked VZ plus likely VZ's commitment to continue to overspend others on the network, and get their network ready for AR glasses coming up.