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Motley Fool Hidden Gems / HGS: CNS

URL:  https://boards.fool.com/i-dont-like-the-comment-by-the-one-analyst-who-20464845.aspx

Subject:  Re: Flu Victim Date:  3/10/2004  11:55 AM
Author:  Eldrehad Number:  270 of 766

I don't like the comment by the one analyst who claims there is somthing fishy going on here.

First, I will say that in my view it behooves every long to pay attention to what the shorts are saying, and vice versa.

That said, I don't see anything 'fishy' myself, but without some hard numbers it's very hard to say either way.

Secondly, I would disagree with the analyst who thinks it's a 'problem' that there aren't too many new product rollouts in the near future. As many people have already pointed out, with 3% penetration there's plenty of room for growth in the nasal strip market all by itself.

After trying the Vapor Shot they sent to shareholders (actually, my wife tried it) I might have guessed that this product might not do quite as well as was hoped for as my wife wasn't particularly impressed. That said, I commend the company trying to leverage its brand, and no consumer products company scores a hit with every rollout, so I am very forgiving of the occasional flop (so long as it is, indeed, occasional).

But when it comes to brand leverage, it helps to have a brand that is a household name before one tries to leverage it. At 3% market penetration for the strips, I'm not so sure CNS is there yet. I think the first steps in the brand leverage strategy for CNS would should be to further build the strip market, and I think the clear and mentholated strips are excellent rollouts that help to accomplish this goal. I also think the snore relief throat spray is a very nice addition, but again, it is simply my opinion that brand leverage efforts will be that much more successful if the company were to first turn its strips and other snore relief products into household names before embarking on rollouts that are less directly related to that core market.

One example of brand leverage done as closely to perfection as I've ever seen is Arm&Hammer baking soda. First, they became the dominant player in the baking soda market, became a household name, for the core applications of baking soda, namely baking. Once they had this dominant position, then they began to leverage the brand by marketing it for additional uses (refridgerator deodorizer anyone?). Then they began moving into more tangental uses for their brand and their product, for example, as an ingredient in toothpaste. I think CNS with their strips would be well served to follow in these footsteps.

I'm not so sure the 'athletic' market is the right angle to push at the moment - if the 'snore relief' market is the bigger one, that should be the one first penetrated. Once penetration is reached, then CNS should actively market the althletic application. This would be just like Arm&Hammer - only after the core market was sewn up did they begin to market the additional uses, like as a refridgerator deodorizer.

Some have suggested that CNS 'stick to their knitting' and concentrate on the strips - I agree with this - but 'sticking to their knitting' can be taken a step further by not only focusing on strips, but focusing on the primary application of those strips (snore relief as opposed to athletic applications).

I think Vapor Shot may have been a mistake, but again, branded consumer products companies are expected to have failures from time to time - even the 'king of the hill' of branded consumer products companies, P&G, has unsuccessful rollouts.

I don't mind the mistake - I don't like it, sure, but it's not something that really causes me much concern.

What would cause me concern as a shareholder is if the company didn't learn from mistakes, and didn't adjust accordingly. So far, I've been pretty impressed with management on the whole, but how they react in the coming months, and how they focus in the future (be it building the core strip market or yet more attempts at brand leverage with rollouts that are only tangentally related to the core market) will be the ultimate proof.

I don't agree with this analyst, but he does bring up an issue that I think all of us might be well-served to pay attention to in the future.

Regards,

Eldrehad

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