Archive for October, 2008

The runaway train and other musings …

October 31, 2008

Some things to think about ….

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“Whoever is elected Tuesday, his freedom in office will be limited. Mr. Obama is out of money and Mr. McCain is out of army, so what might be assumed to be the worst impulses of each — big spender, big scrapper — will be circumscribed by reality.”

“For Mr. Obama, whose mind tends, as intellectuals’ minds do, toward the abstract, it all seems so . . . abstract. And cold. And rather suggestive of radical departures.”

From WSJ,  Obama and the Runaway Train, Oct. 31, 2008
http://online.wsj.com/article/SB122539802263585317.html

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“Bush’s failure should not be counted as a failure of markets or capitalism. And even if it were, history shows us that the failures of capitalism are a lot more fun than the absence of capitalism.”

“You know, once upon a time, the stated purpose of taxation was to fund public needs — such as schools and roads — assist those who could not help themselves, defend our security and freedom, and yes, occasionally offer bailouts to sleazy fat cats.

Obama is the first major presidential candidate in memory to assert that taxation’s principal purpose should be redistribution.

The proposition that government should take one group’s lawfully earned profits and hand them to another group — not a collection of destitute or impaired Americans, mind you, but a still-vibrant middle class — is the foundational premise of Obama’s fiscal policy.”

From “If It Redistributes Like a Duck…”, David Harsanyi,
October 31, 2008
http://www.realclearpolitics.com/articles/2008/10/if_it_redistributes_like_a_duc.html

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“McCain wants to free up health insurance by beginning to sever its debilitating connection to employment — a ruinous accident of history (arising from World War II wage and price controls) that increases the terror of job loss, inhibits labor mobility and saddles American industry with costs that are driving it (see: Detroit) into insolvency.”

From McCain for President, Part II, Charles Krauthammer, October 31, 2008
http://www.realclearpolitics.com/articles/2008/10/neither_candidate_an_economic.html

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Is that a bullseye on the back of investors ?

October 31, 2008

Excerpted from US News & World Report, Why Democrats Will Target the Investor Class in 2009, James Pethokoukis, October 30, 2008

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There are at least two pretty effective ways to turn someone into a Republican: (1) get them married with kids and (2) get them to invest in the stock market.

That’s why (there) may well bring a concerted and all-out effort by the Obama administration and a Democratically dominated Congress to turn the generally pro-Republican Investor Class into an endangered class by, among other tactics, raising investment taxes and ending the tax preferences for 401(k)’s, IRAs, and other retirement accounts.

Here is the emerging battle plan for Operation Investor Class Rollback:

1) Hike Investment Taxes. Obama wants to raise capital gains taxes even though he has kinda, sorta admitted that it might be bad for the economy and might actually decrease tax revenue to the government. For now, he’s talking about raising the highest cap gains rate by one third to 20 percent, though earlier in the campaign, he floated pushing it as high as 28 percent, a near doubling. With the next administration facing a trillion dollar budget deficit—maybe more—there will certainly be pressure to raise taxes to higher levels than now being suggested.

2) Eliminate 401(k)’s, IRAs, and other retirement plans. Democrats in the House are now talking openly about the longtime liberal dream of repealing the tax advantages of putting money into a 401(k) plan or other tax-advantaged retirement account.  In place of 401(k) plans, they would have workers transfer their dough into government-created “guaranteed retirement accounts” with a 3 percent real return.

Not only would removing the preferential tax treatment of these vehicles raise investment taxes by $100 billion a year and affect Americans making less than $100,000, it would surely prompt many Americans, already shell-shocked by the market’s recent losses, to flee stocks. All this ignores the fact that there are trillions of dollars in American retirement accounts, and abandoning the higher-returning stock market at a probable bottom is classic financial foolishness.

3) Replace private capital with public capital. But wouldn’t a weak stock market hurt the economy by making it tougher to raise investment capital and lessen the return on risk? Surely, it would. But Obama is planning hundreds of billions of dollars of government “investment” in cutting-edge technology, particularly in the energy and healthcare sectors.  Now, the private VC industry is already pouring billions into alternative energy, but Obama thinks that’s not enough and wants Uncle Sam to get in on the action at taxpayer expense.

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Bottom line: All this makes smart political sense for Democrats. See, since the mid-1960s, stock ownership in the United States has risen from 10 percent of households to around 50 percent. And that growing Investor Class, a term coined and popularized by CNBC commentator and host Lawrence Kudlow, has helped nudge America evermore to the right.

But now if the Democrats control both the White House and Capitol Hill, look for them to move hard in the other direction, from an Ownership Society to a Government Owns It Society that would perhaps nudge America back to the left.

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Full article:
http://www.usnews.com/blogs/capital-commerce/2008/10/30/why-democrats-will-target-the-investor-class-in-2009.html?s_cid=rss:capital-commerce:why-democrats-will-target-the-investor-class-in-2009

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Pitch Tips: Keys to Wowing an Audience

October 31, 2008

Excerpted from: “Deliver a Presentation Like Steve Jobs – A framework you can use to wow your audience,” by Carmine Gallo,  Business Week. January 25, 2008 

“When Apple CEO Steve Jobs speaks, he raises the bar on presentation skills. While most presenters simply convey information, Jobs also inspires — selling the steak and the sizzle at the same time. I analyzed one of his latest presentation and extracted the 10 elements that you can combine to dazzle your own audiences.”:

1. Set the theme. Once you identify your theme, make sure you deliver it several times throughout your presentation. 

2. Demonstrate enthusiasm. Most speakers have room to add some flair to their presentations. Remember, your audience wants to be wowed, not put to sleep. Next time you’re crafting or delivering a presentation, inject your own personality into it. If you think something is “awesome,” say so. Most speakers get into presentation mode and feel as though they have to strip the talk of any fun. If you are not enthusiastic about your topic, how do you expect your audience to be? 

3. Provide an outline. “There are four things I want to talk about today. So let’s get started…” Open and close each of the sections and make clear transitions in between. Make lists and provide your audience with guideposts along the way. 

4. Make numbers meaningful. Give them perspective, e.g. “one every 15 seconds”, “enough to fill a stadium”, “more than the 3 biggest competitors combined  —  to demonstrate just how impressive they actually are. Numbers don’t mean much unless they are placed in context. Connect the dots for your listeners. 

5. Give ’em an unforgettable moment. This is the part of your presentation that everyone will be talking about. What is the one memorable moment of your presentation? Identify it ahead of time and build up to it. 

6. Create visual slides. Most speakers fill their slides with data, text, and charts.  Inspiring presenters are short on bullet points and big on graphics — simple images and short phrases.  

7. Give ’em a show. Instead of simply delivering information, give your audience a show that  .  Include video clips, demonstrations, and comments from the audience. 

8. Don’t sweat the small stuff. Despite your best preparation, something might go wrong .  Many presenters get flustered over minor glitches. Don’t sweat minor mishaps. Have fun. Few will remember a glitch unless you call attention to it. 

9. Sell the benefit.  Remember that your listeners are always asking themselves, “What’s in it for me?” Answer the question. Don’t make them guess. Clearly state the benefit of every service, feature, or product. 

10. Rehearse, rehearse, rehearse. Take nothing for granted, especially if you’re using multimedia.  Run everything through its paces. A  presentation looks effortless when it is well-rehearsed. 

Carmine Gallo is a communications coach and author of the book “Fire Them Up” . 
http://www.businessweek.com/print/smallbiz/content/jan2008/sb20080125_269732.htm

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P&G’s Innovation Culture

October 31, 2008

Excerpted from Strategy + Business, “P&G’s Innovation Culture”
by A.G. Lafley,
Autumn 2008

The heart of a company’s business model should be game-changing innovation. This is not just the invention of new products and services, but the ability to systematically convert ideas into new offerings that alter the very context of the business.

A number of game-changing innovators are operating today, including such household-name enterprises as General Electric,  Nokia, Lego , Apple, Hewlett-Packard, Honeywell, DuPont, and Procter & Gamble.

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Procter & Gamble CEO A.G. Lafley has worked hard to make innovation part of the daily routine and to establish an innovation culture.

Lafley and his team preserved the essential part of P&G’s research and development capability — world-class technologists who are masters of the core technologies critical to the household and personal-care businesses — while also bringing more P&G employees outside R&D into the innovation game.

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The critical factors . .. include keeping a laser-sharp focus on the customer; establishing a disciplined, repeatable, and scalable innovation process; creating organizational and funding mechanisms that support innovation; and demonstrating the kind of leadership necessary for profitable top-line growth as well as cost reduction.

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When I became CEO of Procter & Gamble in 2000, we were introducing new brands and products with a commercial success rate of 15 to 20 percent. In other words, for every six new product introductions, one would return our investment. This had been the prevailing ratio in our industry, consumer packaged goods, for a long time.

Today, about half of our new products succeed. That’s as high as we want the success rate to be. If we try to make it any higher, we’ll be tempted to err on the side of caution, playing it safe by focusing on innovations with little game-changing potential.

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We sold off most of P&G’s food and beverage businesses so we could concentrate on products that were driven by the kinds of innovation we knew best.

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We also focused on creating a practice of open innovation: taking advantage of the skills and interests of people throughout the company and looking for partnerships outside P&G. This was important to us for several reasons.

First, we needed to broaden our capabilities.

Second, building an open innovation culture was critical for realizing the essential growth opportunity presented by emerging markets … the days of achieving automatic growth by entering new markets are essentially over.

A third reason for focusing on open innovation had to do with fostering teams. The idea for a new product may spring from the mind of an individual, but only a collective effort can carry that idea through prototyping and launch.

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“The Consumer Is Boss”

In the early 2000s, our people were not oriented to any common strategic purpose. We had a corporate mission to meaningfully improve the everyday lives of the customers we served. If 15 seconds with a deodorant or two minutes with a disposable diaper have made a small part of your life a little bit better, then we’ve made a difference.

We expanded our mission to include the idea that “the consumer is boss.” In other words, the people who buy and use P&G products are valued not just for their money, but as a rich source of in­formation and direction. If we can develop better ways of learning from them — by listening to them, observing them in their daily lives, and even living with them — then our mission is more likely to succeed.

We began by clearly and precisely defining the target consumer for each brand, and identifying subgroups of consumers for some brands.

We focused on a few big launches and on innovation that was meaningful to consumers, including distinctive packaging, provocative marketing, and delightful in-store experiences. We also took advantage of our global scale and supply chain to reduce complexity and enable a significantly lower cost structure.

We experimented with new ways to build social connections through digital media and other forms of direct interaction. We designed Web sites to reinforce consumer connections, to better understand consumers’ needs, and to experiment with prototypes.

For example, we show people digitally created alternatives in an onscreen vir­tual world. If the consumers we’re talking to have an idea, we can redesign it immediately and ask them, “Do you like that better? How would you use it?” It allows us to iterate very quickly. In effect, we are building a social system with the purchasers (and potential purchasers) of our products, enabling them to codesign and co-engineer our innovations.

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Integrating Innovation

We keep refining our product-launch model — from idea to prototype, to development, to qualification, to commercialization.

Scalability is critical at a company the size of Procter & Gamble. If we can’t scale our processes, they don’t have much value for us. In fact, scalability is often the justification for our existence as a multinational, diversified company.

In fostering this approach and building the social system to support it, the P&G leadership has had to be very disciplined. For instance, we are now set up to see many more new ideas. Last year, the business development group reviewed more than 1,000 external ideas. This year, they’ll see 1,500. We tend to act on about 5 to 7 percent of them.

In the past. Innovation used to travel primarily from developed markets to developing markets. Today, more than 40 percent of our innovation comes from outside the United States.

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The Talent Component

P&G used to recruit for values, brains, accomplishment, and leadership.

We still look for these qualities, but we also look for agility and flexibility. We believe the “soft” skills of emotional intelligence — fundamental social skills such as self-awareness, self-fulfillment, and empathy — are needed to complement the traditional IQ skills.

Curiosity, collaboration, and connectedness are easy to talk about but difficult to develop in practice. We have tried to carefully identify and ease out people who are controlling or insecure, who don’t want to share, open up, or learn — who are not curious. And in the process, we have discovered that most of our people are naturally collaborative.

We give our most promising people time in both functional and line positions, because we think our best leaders are great operating leaders and great innovation leaders. We also move people around geographically. We bring people into our Cincinnati headquarters from around the world, and we make a point of moving our headquarters people to our global businesses. Almost all of us have worked outside our home region. Almost all of us have worked in developing or emerging markets. And almost all of us have worked across the businesses.

We have also recently brought in people from outside to enable and stimulate creative thinking. This was unprecedented for a company that has traditionally hired only entry-level people and promoted from within.

Virtually every leading practitioner of our new design capability came from the outside as a mid-career hire. They arrived from BMW, Nike, and some of the best design shops in the world.

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The result of P&G’s focus on innovation has been reliable, sustainable growth. Since the beginning of the decade, P&G sales have more than doubled, from $39 billion to more than $80 billion; the number of billion-dollar brands, those that generate $1 billion or more in sales each year, has grown from 10 to 24; the number of brands with sales between $500 million and $1 billion has more than quadrupled, from four to 18. 

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Full article:
http://www.strategy-business.com/press/article/08304?pg=all

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If nations were brands, how would they rank ?

October 31, 2008

Excerpted from Brand Channel “Rating Nation Brands: What Really Counts” by Randall Frost, October 6, 2008

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Simon Anholt, a nation branding expert who advises governments on such issues, believes it is unacceptable for governments to spend taxpayers’ and donors’ money on nation branding campaigns if the results can’t be measured, tracked, or made accountable. For that reason, he launched his Nation Brands Index (NBI) in 2005…

The NBI index considers a country’s exports, governance, culture and heritage, people, tourism, and investment and immigration…

According to Anholt, the NBI ranking is not simply a list of the 40 or 50 ‘strongest nation brands’ in the world. Rather, he says, it’s a highly detailed analysis and comparison of 40 or 50 selected countries…

Last August, East West Communications in Washington, D.C., released a competitive ranking of nation brands. Unlike the NBI index, the East West Global Index 200 looks at all 192 UN members, as well as 8 territories, based on how they are perceived in the international media.

According to East West president Thomas Cromwell, the new index tracks 38 major media sources…plus major regional publications that are translated into English and some digitized input from broadcast channels…

Perception Metrics in Ohio conducts the media analyses for East West. According to Brad Snyder of the company,…“What we’re really trying to identify is the brand value by considering the number of mentions, and the tone; we believe both are essential. How much is the country being portrayed positively? And how often is that positive image reinforced? Or is a negative image being presented, and is it hitting home?”…

Both the NBI and East West indexes rank nations by how favourably they are perceived around the world. Because the NBI measures consumer perceptions, however, and East West media perceptions, one would not expect total agreement in the two rankings. But both indexes employ scientifically sound methodologies, so one might anticipate a little more overlap than appears to be the case..

image .

If one considers the top 100 ranked (positively nuanced) countries in the East West index, the ten most frequently media-cited countries are the US, the UK, Australia, France, Japan, Russia, Germany, Italy, Spain and Canada. These countries correspond quite closely to those that have the highest rankings in the NBI index.

One interpretation of this result is that although the media sets the agenda for awareness of countries (what countries people think about), it does not influence what people think of those countries nearly as much…

Professor David Gerstner of Pace University in New York is currently developing yet another nation branding index. Says Gerstner, “Given the increasing importance, attention, and interest in place branding, more nation rankings are likely to appear in the future. The results of these studies are likely to vary. The reason is that, even though they claim to measure the same idea—how attractive or well-regarded a nation is—due to differences in methodologies they are actually measuring different things.”

Edit by SAC

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Full article:
http://www.brandchannel.com/start1.asp?fa_id=443

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What happens when you tax the Dolphins ?

October 30, 2008

Excerpted from WSJ: Taxing the Dolphins, Oct.30, 2008

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Don’t think tax rates matter to business decisions?

In July, the Rooney family’s mused about selling part of the Pittsburgh Steelers to avoid the 45% death tax rate.

H. Wayne Huizenga, the owner of the Miami Dolphins, declared earlier this week that he intends to sell up to half his ownership in the NFL franchise before next year. Why? Because as he told a Florida newspaper, Barack Obama “wants to (almost) double the capital gains tax … I’d rather give (the money) to charity.”Obama is in fact proposing to raise the capital gains tax to 20% from 15% — which would be an increase of 33%, but Mr. Huizenga is close enough for IRS work.

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We saw a similar tax effect in 1992 when Bill Clinton raised tax rates. The Wall Street crowd accelerated income, bonuses and stock sales to pay the 31% rate, not the expected higher rate. One of those who cashed out in 1992 was Robert Rubin, who would soon join the Clinton Administration.

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One economist who observed this tax avoidance was Austan Goolsbee, of the University of Chicago, who is now a top Barack Obama adviser.

In a 1999 paper, “What Happens When You Tax the Rich?,” Mr. Goolsbee wrote that “the higher marginal rates of 1993 led to a significant decline in taxable income.” Many of the superrich were able to change the timing of compensation to avoid paying the higher rates. Mr. Goolsbee concluded this “short term shift” … cost the Treasury revenue it had been anticipating.

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Full article:
http://online.wsj.com/article/SB122533091992582863.html

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Ken’s Take: It may be “noise” in the system or a reflection of the crowd I’m exposed to, but I hear more and more folks talking about taking capital gains this year, deferring tax deductions until next year, and moving money to tax-free accounts — onshore and offshore.  This behavior — in aggregate —  is going to  be a big deal.  Watch it.

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Encore – So, is the U.S. tax system regressive or progressive?

October 30, 2008

Last night, I heard a group of pundits claiming that the US tax system is regressive when payroll taxes (for Medicare and Social Security) are considered.  Huh?

This encore was originally posted on Aug.3, 2008.

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OK, I’m officially confused. Is the current U.S. tax system “regressive” – the more you make, the lower your effective rate – or is it  “progressive” – the more you make, the higher your effective rate. 

The politicos and pundits – even the smart ones – seem split on the question.  So, which is it?

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Summary

Practically everyone agrees that the U.S. federal income tax structure is progressive (i.e. high earners pay a higher tax rate).  But, the Reagan and Bush tax code changes did make it less progressive than it was in the 1960s; there are some isolated anomalies ( e.g. Warren Buffett and his secretary); and it may be less progressive than some folks want.

The estate tax (a.k.a, “death tax”) is – by definition —  progressive since only the wealthiest 1% of folks who die pay it.

  • Note: there’s a difference between “income” and “wealth” – while high income usually correlates with high wealth, income is a “flow” variable and wealth is a “stock”.

So, any dispute must arise from so-called  “payroll taxes” – the paycheck deductions that fund Social Security and Medicare. 

There is a single rate for Medicare (1.45%) that is applied to all wages; and.there is a single rate for Social Security(6.2%) that is applied to at most $102,000 in wages.  Employers match their employees’ contributions dollar-for-dollar.

  • Note: most economists argue that, in the final analysis, employees bear the full burden of their employer’s matching amounts since employers most likelycover the tax by reducing wages.

Since the same rates are applied to all taxpayers , and since Social Security’s“base earnings” are capped at  $102,000, then payroll taxes are regressive with respect to current earnings.  But – as I’ll demonstrate is future analytical posts – Medicare benefits are the same, regardless of how much a taxpayer contributes (and high earners contribute more than low earners); and Social Security benefits are “coupled” to earnings via a very progressive formula – i.e. high-earners get disproportionately less in benefits.  So, taking into account the benefits received as well as the contributions made, both programs are very progressive.

The bottom line: all of the components are progressive:  federal income taxes, estate taxes, payroll taxes.  So, it logically follows that the combined program is progressive.

In this post, I’ll set-up the issue and provide some references.  In subsequent posts, I’ll provide some numbers and analysis that support the above conclusions..

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The Details

The question: Is the current U.S. tax system “regressive” – the more you make, the lower your effective tax rate – or is it  “progressive” – the more you make, the higher your effective tax rate.

Let’s look at the pieces that make up the U.S. tax system..

There’s the estate tax (a.k.a. “death tax”).  It’s clearly progressive since only the richest 1% of folks who die pay it.  As the exclusion levels increase under the Bush plan, fewer dead people have to pay it – making it even more progressive.  When it gets eliminated entirely in 2010, it stops being progressive, but it doesn’t start being regressive.  It just stops.

The estate tax in small potatoes in the overall  tax mix.  The big behemoth is the federalincome tax.  The aggregate statistics  (i.e. looking at the broad population , and not just Warren Buffett and his secretary) are – in my opinion – incontrovertible.  Higher income folks – say the top 50% — pay a higher effective income tax rate and shoulder over 97%l of the federal income tax burden. The federal income tax is progressive.  Period..

Why then, do many really smart, well-intended people say the tax system is regressive and that high earners aren’t paying their fair share?

  • Note: though some people use the terms interchangeably, “regressive” and “fair share” are not synonymous.

First, what some of them are really saying is that the income tax code isn’t as progressive as it used to be (true, but so what?),  or that it isn’t as progressive as the tax code in other countries, say France (true, but — for sure — so what?),  or that it’s not progressive enough based on higher order socio-ethical criteria (very important, but also, quite debatable).

A more structural argument posed by many people is that so-called “payroll taxes” that fund Social Security and Medicare are regressive and tilt the balance of the tax system..

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For example, Robert Reich, Bill Clinton’s former Secretary of Labor says:

The fact that “84.6% of all federal taxes are paid by the top 25% of income earners, and over a third are paid by the top 1%, advances a specious argument.

Most Americans pay more in payroll taxes than in income taxes … payroll taxes take a much bigger portion of the paychecks of lower-income Americans than of higher-income.

Viewed as a whole, the current tax system is quite regressive.”

http://economistsview.typepad.com/economistsview/2007/10/robert-reichs-p.html

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OK, so parsing Reich’s argument, if the overall system is regressive, and if major parts of the system —  income and estate taxes are progressive – then it logically follow that payroll taxes are both substantial (especially to low-earners) and very regressive.  The culprit is payroll taxes.

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The Tax Policy Center  a joint venture of the Urban Institute and Brookings Institution and self-proclaimed non-partisan organization   – explains:

Taken as a whole, the federal tax system is progressive: on average, households with higher incomes pay a larger share of their income in federal tax than do those with lower incomes. In other words, the overall average effective tax rate-total tax paid as a percentage of income-rises as income rises.

But not all taxes within the federal system are equally progressive. The estate tax is the most progressive federal tax. The individual (and corporate) income taxes are also progressive. In contrast, payroll taxes for Social Security and Medicare are regressive, claiming a larger share of income from lower-income than from higher-income households.

For 2008 average effective payroll tax rates are estimated at 8.4 percent for the bottom fifth of income earners, and 10.4 percent for the next fifth, but only 5.7 percent for the top fifth. Households in the top 1 percent will pay an estimated average of only 1.5 percent of their income in payroll taxes.

This regressivity of payroll taxes stems from two factors. First, the Social Security portion of payroll taxes is subject to a cap: in 2008, individuals pay Social Security tax on only their first $102,000 in earnings. Second, higher-income households tend to receive more of their income from sources other than wages, such as capital gains and dividends, which are not subject to the payroll tax.”

http://www.taxpolicycenter.org/briefing-book/background/distribution/progressive-taxes.cfm

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The underlying logic of the regressive claim is simple. Take Social Security: A worker gets docked 6.2% on wages up to $102,000.  The rate drops to zero for any wages over $102,000.  So, somebody earning $50,000 has $3,100 deducted from their paycheck [6.2% times $50,000];  somebody earning $102,000 has $6,324 deducted —  a greater amount, but the same 6.2%;  somebody earning $200,000 has $6,324 deducted — the same as the worker earning $102,000, but representing a lower effective rate (3.2%).  The more that somebody earns over the $102,000 maximum, the lower the effective rate. By definition, that’s a regressive tax since the rate declines as income gets higher.  Case closed. Right?

Not so fast.

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The Urban Institute gets to the real core of the question:

The payroll tax is very regressive with respect to current income: The average tax rate falls as income rises …  (But) the regressivity of the payroll tax is mitigated to a substantial extent when Social Security and Medicare benefits are considered as well..

http://www.urban.org/publications/1001065.html

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In other words, the single payroll tax rate and the cap on taxable earnings combine to make payroll taxes appear regressive when analyzed solely based on current payroll deductions but, the benefits the taxes buy (retirement income and health insurance) are so progressive – i.e. highearners get muchlowerbenefitsperdollarthanlowearners — .that the net effect on tax payers is progressive – very progressive.

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A Congressional Joint Economic Committee states the case more directly:

The rapid growth in payroll taxes over the past 40 years has imposed a large burden on working Americans. This burden has fallen disproportionately on low-income workers. However, in the context of a comprehensive tax policy, it is misleading to focus on the short-term burden imposed by payroll taxes without accounting for the future benefits (since) the progressivity of the benefit formulae outweigh the disproportionate burden imposed by the taxes.

As a result, low-wage workers can expect to receive benefits that exceed the sum of their and their employers’ payroll tax contributions. Middle- and high-wage workers, on the other hand, can expect to pay substantially more into the system than they will receive in benefits.

Overall, middle- and high-wage workers subsidize the income and payroll tax liabilities of low-wage workers, leaving most low-wage workers with net negative tax liabilities throughout their lifetimes.

http://www.house.gov/jec/fiscal/tx-grwth/payroll/payroll.htm

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>>> Read more

AMS: Prius Prices Jacked Up … Surprised?

October 30, 2008

Encore presentation: Originally posted July 31, 2008. 

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Excerpted from the WSJ :”Patience Pays When Shopping for a Hybrid” July 30, 2008;

When gasoline prices hit $4 a gallon …  demand for smaller cars — hybrids and Priuses in particular — soared …  the wait for the popular hybrid has grown to roughly three months since May, and prices have climbed steeply, too.

The Prius’s gas mileage averages in the 45-miles-per-gallon range; that’s impressive, but the base price, following a $400 increase in May and a $500 jump that goes into effect Friday, is fairly steep …  if your main goal is to save money by buying less gasoline.

Next month, the basic Prius will start at $22,720. That’s more than … other reasonably fuel-efficient sedans, like the Toyota Camry, Honda Civic, Toyota Corolla, Nissan Altima or Ford Focus.

The (dealer) price has shot up, too … the average Prius now sells for $1,000 to $2,000 above the manufacturer’s suggested retail price.

It’s worth calculating your fuel savings to see how long it will take to make up the price difference.  [See earlier post Hybrid Cars – Tough Sell]

Toyota …  sold about 175,000 of the cars to the U.S. last year …  and expects to offer about the same number this year, largely because it can’t get enough batteries and other components to boost production.

For full article:
http://online.wsj.com/article/SB121738122995795557.html

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Thanks to MSB MBA alum Justin Bates for the heads-up

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Apple’s secret weapon … controlled distribution

October 30, 2008

Excerpted from  Influential Marketing Blog:.”The Real Secret To Apple’s Success”, Rohit Bhargava ; reported by MarketingProfs.com

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At some point just about every marketer is bound to look at something that Apple is doing and wish they could have done it for their own brands.

There is a temptation … to simplify the success of Apple to two things: innovative products and great marketing.

There is a crucial missing third element that most people never talk about  …  they control distribution.

They have their own stores, their own sales people, and their own model for selling their products that cuts out any middleman or competitors completely.

The fact that they control distribution offers many benefits:

Communicates a consistent of messaging – Apple can control their sales force and the messages that they learn to talk about. As a result, everyone tells the same story about their products.

Removes the competition at point of sale – A big issue for many of their competitors is that a customer may come into a store with one product in mind, but can often get steered toward another during the time they are in store. Often they will walk out not with the product they intended to buy, but something that was cheaper, recommended more heavily by the sales staff, or (most frustratingly) another product whose packaging simply was more appealing.

Makes upselling easier – When you walk into an Apple store, everything is Apple branded in some way (even the products manufactured by other companies). As a result, you are in the ultimate upselling situation, where you might pay $45 for a connector cable that would ordinarily cost $5 elsewhere. When you are captive in the store and already spending $499 on a big product, who really cares about another $45, right?

Pricing is controlled – It is virtually impossible to find huge discounts on Apple products (particularly new ones) … if you are setting the places people buy your products, you can also centrally control the price. Not only does this allow for more consistency, it also gives you the ability to include pricing in your marketing materials and ads because you know its the same price everywhere.

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Full article:
http://rohitbhargava.typepad.com/weblog/2008/08/the-real-secret.html

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Encore – Those %#@! Bush Tax Cuts

October 29, 2008

Note: This brief was originally posted July 23, 2008.  Yesterday, Sen. Biden said “Bush’s tax cuts didn’t help the middle class at all.”  Huh?  Sorry, Joe — there were plenty of goodies in there for everybody.  Read on …

* * * * *

Summary: We’ve all heard the  rants about the cuts in the top bracket rate, capital gains rate, dividend taxes, and estate taxes.

But, when was the last time that your heard a candidate (on either side) or a pundit (O’Reilly included) mention the new 10% bracket, larger and refundable child and earned income credits, negative income taxes, elimination of the marriage tax penalty, or expanded college benefits?

* * * * *

The income tax cuts of 2001 and 2003 are shorthanded by the press and political candidates as “Bush’s tax breaks for the wealthy — who didn’t even want them”, and are blamed for an accelerating polarization of wealth distribution (i.e. rich get richer, poor stay poor).

Warren Buffet says his secretary pays more taxes than he does (really?). McCain says he’ll stay the course. Obama says that he’ll roll back the tax cuts if he’s elected and redistribute them to the “folks who need them the most”.

All of the rhetoric got me thinking.  Somewhat embarrassed, I realized Ihat I didn’t know exactly what was in the Bush tax plan.  (Quick Test: take out a sheet of paper and jot down the tax breaks enacted as part of the Bush plan)

Prompted by curiosity (and a modicum of selfish interest) I did some digging.  Here’s what I found, along with my “take”:

The top marginal income tax rate  was cut from 39.5% to 35% (applied to Adjusted Gross Income >$350,000)
– the 36% marginal rate was cut to 33%  (TI > $161,000)
– the 31% marginal rate was cut to 28%  (TI> $77,000)
– the 28% marginal rate was cut to 25%  (TI > $32,000) 
…  a clear benefit to the top half of income earners; with the biggest benefit to the highest earners

Capital gains and dividend tax rates were reduced to 15% for high-earners, zero for low earners … more of a benefit to high-earners, but 1/3 of households own stock and more than 1/4 of returns (including many retirees) report dividend income … turned out to be a windfall for hedge funds and private equity via the “carried interest” loophole (more on that in a subsequent post)

A low-income 10% tax rate bracket was introduced … benefit to many low-earners previously in the 15% bracket

Child Care Credit and Earned Income Tax Credit were increased and made refundable … resulting in zero or negative tax due balances for millions of people (note: “refundable” means that any negative tax due is paid to the citizen — a very important policy shift)

Income limits were eliminated on personal exemptions and itemized deductions … the former helps low earners most — since it’s a higher proportion of income; the latter benefits higher earners most — since they are the ones who itemize deductions. (Note: roughly 2/3’s of tax filers take the standard deduction)

Marriage penalty was neutralized … benefits middle-earning couples most

College education benefits were liberalized, e.g. 529 plans, student loan interest deduction, tax-free employer paid tuition … benefits mid- and high-earners most (since their family members disproportionately attend college)

Estate taxes were reduced and to be phased out… only impacts wealthy folks with estates that are big enough to be subject to “death taxes”

                          

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Details re: “Bush Tax Plan” – 2001 and 2003

Officially, the first round of Bush tax cuts were codified in the “Economic Growth and Tax Relief Reconciliation Act of 2001” which was approved by the Congressional conference committee on May 25, 2001; signed into law shortly thereafter; but phased in over a several year period.  The key provisions of the law (as reported in the conference committee’s report):
 
Introduce a 10-percent rate bracket… reducing the rate from 15% to 10% for the first $6,000 of taxable income for single individuals ($7,000 for 2008 and thereafter), $10,000 of taxable income for heads of households, and $12,000 for married couples filing joint returns ($14,000 for 2008 and thereafter).

Reduce individual income tax rates  … from 28 percent, 31percent, 36 percent, and 39.6 percent are phased-down over six years to 25 percent, 28 percent, 33 percent, and 35 percent, effective after June 30, 2001.

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Phase-out of Itemized Deductions and Restrictions on Personal Exemptions … by eliminating all limitation on itemized deductions and any restrictions on personal exemptions for all taxpayers by one-third in taxable years beginning in 2006 and 2007, and by two-thirds in taxable years beginning in 2008 and 2009, and by 100% for taxable years beginning after December 31, 2009.

Increase and Expand the Child Tax Credit… Increasing the child tax credit to $1,000, phased-in over ten years. and by making the child credit — subject to certain income limitations — non-taxable and refundable (i.e. payable to the person if the net tax liability is zero),

Provide relief from the “marriage penalty” … by increasing the basic standard deduction for a married couple filing a joint return; by increasing the size of the 15-percent regular income tax rate bracket for a married couple filing a joint return to twice the size of the corresponding rate bracket for an unmarried individual filing a single return.; and by increasing limits on the Earned Income Tax Credit.

Provide Education Benefits… by increasing the annual limit on contributions to education IRAs to $2,000; by expanding the reach of 529 tuition programs; by extending the non-taxibility of employer paid tuition; and by raising income phase out levels for deductability of student loan interest.

Phase-out and Repeal of Estate and Generation-Skipping Transfer Taxes:

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In 2003, a second round of tax changes was enacted in the “JOBS AND GROWTH TAX RELIEF RECONCILIATION ACT OF 2003” which:

Accelerated the phase in of the 10% bracket, the reduction in other bracket rates, the child care tax credit, and marriage penalty relief.

Provide reductions in taxes on capital gains and dividends … reducing the 10- and 20-percent rates on capital gains on assets held more than one year to five ( zero, in 2008 ) and 15 percent, respectively. and providing that dividends received by an individual shareholder from domestic and qualified foreign corporations generally are taxed at the same rates that apply to capital gains.

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Source Reports
http://www.jct.gov/x-50-01.pdf
http://www.house.gov/jct//x-54-03.pdf

 

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This administration and Congress will be remembered like Herbert Hoover …

October 29, 2008

So says Art Laffer (of Laffer Curve fame) in the  WSJ: The Age of Prosperity Is Over , Art Laffer, Oct.27, 2008.

Here are some snippets.  Full article (link below)  is worth browsing.

* * * * *
Financial panics, if left alone, rarely cause much damage to the real economy, output, employment or production. Asset values fall sharply and wipe out those who borrowed and lent too much, thereby redistributing wealth from the foolish to the prudent.

* * * * *

When markets are free, asset values are supposed to go up and down, and competition opens up opportunities for profits and losses. Profits and stock appreciation are not rights, but rewards for insight mixed with a willingness to take risk. People who buy homes and the banks who give them mortgages are no different, in principle, than investors in the stock market, commodity speculators or shop owners. Good decisions should be rewarded and bad decisions should be punished. The market does just that with its profits and losses.

* * * * *
Taxpayers had nothing to do with either side of (toxic) mortgage transactions. If the house’s value had appreciated, believe you me the overleveraged homeowner and the overly aggressive bank would never have shared their gain with taxpayers.

* * * * *

Housing price declines and their consequences are signals to the market to stop building so many houses, pure and simple.

* * * * *
The government doesn’t create anything; it just redistributes. Whenever the government bails someone out of trouble, they always put someone into trouble, plus of course a toll for the troll. Every $100 billion in bailout requires at least $130 billion in taxes, where the $30 billion extra is the cost of getting government involved.

* * * * *
Some 14 months ago, the projected deficit for the 2008 fiscal year was about 0.6% of GDP. With the $170 billion stimulus package last March, the add-ons to housing and agriculture bills, and the slowdown in tax receipts, the deficit for 2008 actually came in at 3.2% of GDP, with the 2009 deficit projected at 3.8% of GDP.

* * * * *

The net national debt in 2001 was at a 20-year low of about 35% of GDP, and today it stands at 50% of GDP.

* * * * *
Giving more money to people when they fail and taking more money away from people when they work doesn’t increase work.

* * * * *
An improving economy carries with it the prospects of enhanced profitability as well as higher employment, higher wages, more productivity and more output.

Just look at the era beginning with President Reagan’s tax cuts, Paul Volcker’s sound money, and all the other pro-growth, supply-side policies.

Bill Clinton and Alan Greenspan added their efforts to strengthen what had begun under President Reagan. President Clinton signed into law welfare reform, so people actually have to look for a job before being eligible for welfare. He ended the “retirement test” for Social Security benefits (a huge tax cut for elderly workers), pushed the North American Free Trade Agreement through Congress against his union supporters and many of his own party members, signed the largest capital gains tax cut ever (which exempted owner-occupied homes from capital gains taxes), and finally reduced government spending as a share of GDP by an amazing three percentage points (more than the next four best presidents combined).

* * * * *

Whenever people make decisions when they are panicked, the consequences are rarely pretty.

For example, Jimmy Carter’s emergency energy plan, included wellhead price controls, excess profits taxes on oil companies, and gasoline price controls at the pump. The consequences of these actions were disastrous. Just look at the stock market from the post-Kennedy high in early 1966 to the pre-Reagan low in August of 1982. The average annual real return for U.S. assets compounded annually was -6% per year for 16 years. That, ladies and gentlemen, is a bear market.

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Full article:
http://online.wsj.com/article/SB122506830024970697.html 

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Again: Dogbert for President !

October 29, 2008

Dogbert’s tax plan … sound familiar ?

>> Current Posts

Gas is $4 per gallon … car buyers are going 'green' … coincidence ?

October 29, 2008

Excerpted from BrandWeek: “Car Buyers Motivated By ‘Green'”, Sept 23, 2008

* * * * * 

Toyota, Honda and Chevrolet are perceived by consumers as selling the most environmentally friendly and fuel-efficient models, according to a new Eco Watch study from Kelley Blue Book Marketing Research.

The top 10 “green” cars of 2008 are (in order):  Toyota Prius, Honda Civic Hybrid, Smart Fortwo, Nissan Altima Hybrid, Mini Cooper, Ford Escape Hybrid, Honda Fit, Mercedes E320 BlueTec, Toyota Highlander Hybrid and the Chevy Tahoe Hybrid.

* * * * *

60% of respondents reported they were “extremely concerned” or “very concerned” about the environment, citing water and air pollution, global warming and energy shortages as their primary issues.

58% were considering a more fuel-efficient vehicle for their next purchase. On average, they said they would be willing to spend up to $2,600 more on an environmentally friendly vehicle.

57% said they had changed their driving habits.

* * * * *

58% who have already changed the type of vehicle they are planning to buy said they would not go back to their former vehicle of choice even if gas prices were to drop to $1 a gallon.

The alternative-fuel technologies they most favored were hybrid engines, hydrogen fuel cells and natural gas vehicles.

They were most skeptical of biofuel, diesel and battery-electric vehicles.

75% said they wished there were more alternative fuel vehicles in the marketplace to choose from.

* * * * *

A lot of Chevy’s perceptions are based on the Volt, which is being heavily advertised, but  isn’t available in the market.

Hybrids, the alternative fuel technology that has receives the most attention, represent only 1.6% of new car sales

* * * * *

Full article:
http://www.brandweek.com/bw/content_display/news-and-features/automotive-travel/e3i0e4fd2428ec797838e295ef4fcbc08fe

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clip_image002

Steps towards bipartisanship … Dancin’ with the stars ?

October 28, 2008

A picture is worth a thousand words …

image
Thanks to MKH for the heads-up

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Reprise: Under Obama, Tax Payers Will be a Minority !

October 28, 2008


Note: This analysis was originally posted on July 31, 2008.  It’s the post that has gotten the most hits, and the topic is ‘hot’ this week on the talk shows.  So, here’s a flashback .
..

* * * * *

Despite the drumbeat of warnings from various sources, the prospects that a minority of voting age Americans will be paying Federal income taxes under the Obama tax plan doesn’t seem to arouse much visible public anxiety.

 

Why?

 

First, for those in the emerging majority that won’t pay any income taxes – or may even be getting government checks for tax credits due – the deal is almost too good to be true.  To them, Obama’s  plan must make perfect sense.  So, why rock the boat? 

 

Second, some people argue that low-earning people who don’t pay income taxes shoulder a regressive payroll tax burden to cover Medicare and Social Security.  Yeah, but these programs – which are most akin to insurance or forced savings plans — offer specific individual benefits that are directly linked to each wage earner’s contributions.and the benefits phase down quickly as qualifying income increases.  That is, they’re not as regressive as many people argue. 

 

Third, most of the energetic criticism of Obama’s plan has centered on its redistribution intent — taking over $130 billion of “excess” income from undeserving rich people, and giving it directly to those who earn less and need it more. 

Fourth, most folks just don’t believe that the numbers will really shift enough to create a voting majority of citizens who don’t pay income taxes. They’re wrong.  Very wrong.

 

Here are the numbers … and why they should bother you.

 

* * * * *

Today, 41% of voting age adults don’t pay Federal income taxes

Based on the most recent IRS data, slightly more than 200 million out of 225 million voting age Americans filed tax returns.  That means that 25 million adults – presumably low income ones – didn’t file returns and, of course, didn’t pay any income taxes. See notes [1] to [4] below

Of the 200 million voting age filers, approximately 68 million (33% of total filers) owed zero income taxes or qualified for refundable tax credits (i.e. paid negative income taxes). [5]

Add those 68 million to the 25 million non-filers, and non-payers already total 93 million –  41% of voting age adults.

* * * * *

Obama’s Estimates – Make that 49%
Not Paying Federal Income Taxes

Obama says (on his web site) that he will give tax credits up of $1,000 per family ($500 per individual) that will  “completely eliminate income taxes for 10 million Americans”.  And, he says that he will “eliminate income taxes for 7 million seniors making less than $50,000 per year.”  [6]

Taking Obama’s estimates at face value,  the incremental 17 million that he intends to take off the income tax rolls will push  the percentage of non-payers close to 49% of voting age Americans  — within rounding distance to a majority. [7]

* * * * *

And, Obama’s estimates are probably low,
so make the number 55% (or higher)
 

Since Obama’s basic proposal is for tax credits  ($500 per person or $1,000 per family) – not  simply deductions from Adjusted Gross Income (AGI) — they will have a multiplier impact on the amount of AGI that tax filers can report and still owe no taxes.

For example, a childless married couple that files a joint return can currently report about $17,500 in  Adjusted Gross Income (AGI) and owe no income taxes. [8]

Under the Obama Plan,  that couple’s zero-tax AGI is bumped up to $27,500 since their new $1,000 tax credit covers the 10% tax liability on an additional $10,000 of AGI.  And, married couples filing jointly can keep adding about $10,000 to their zero-tax AGI for each qualifying dependent child that they claim. [9]

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click table to make it bigger

Based on the 2006 IRS data, approximately 25 million tax returns were filed that reported AGI less than  $27,500 (the post-Obama zero-tax AGI) and required that some income taxes be paid.  [10]

Assuming that 45% of those were for couples filing jointly, they represent  over 22 million adults.  For sure, these 22 million will  come off the tax rolls —  and they alone will be enough to create a non-taxpayer majority (51% of voting age adults),

click to make table bigger

And, there are more folks being pushed off the tax rolls.  About 4.7 million childless individuals earn less than $13,750  (the post-Obama zero-tax AGI for childless individuals), and currently pay some Federal income taxes.   This group will shift  to non-payer status.

So would several million joint filers who can take advantage of the Child Tax Credit to report more than $27,500 and not pay Federal income taxes.

And, some portion of the 7 million Seniors that Obama says will have their taxes eliminated — that is the Seniors couples earning more than $27,500 (but less than $50,000) — and Senior individuals earning more than $13,750 (but less than $50,000).

So, post-Obama, the percentage of non-taxpayers will  easily exceed 55% of voting age adults — a solid majority.  It won’t even be close.

* * * * *

The Bottom Line – Why You Should Worry

An income tax paying minority of voting age adults isn’t just a possibility. Under Obama’s plan, it’s a virtual certainty.  Based on the hard numbers, Obama’s plan will create a new majority — a powerful voting block: non-tax payers. UH-OH.

Again, for those in the emerging majority that won’t pay any income taxes – or may even be getting government checks for tax credits due – the deal is almost too good to be true.  To them, Obama’s  plan must make perfect sense.  Count on their perpetual support for the plan.

But for those in the new minority, watch out if the new majority decides that more government services are needed, or that  $131 billion in income redistribution isn’t enough to balance the scales.

The Tax Foundation — a nonpartisan tax research group – has repeatedly warned that  “While some may applaud the fact that millions of low- and middle-income families pay no income taxes, there is a threat to the fabric of our democracy when so many Americans are not only disconnected from the costs of government but are net consumers of government benefits. The conditions are ripe for social conflict if these voters begin to demand more government benefits because they know others will bear the costs.”  http://www.taxfoundation.org/research/show/1111.html

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Sources & Notes

[1] The Census Bureau reported 217.8 million people age 18 and over; as of July 1, 2003.
http://www.census.gov/Press-Release/www/releases/archives/population/001703.html 
http://www.census.gov/popest/national/files/NST-EST2007-alldata.csv

[2] The IRS reported 138.4 million personal tax returns filed in 2006.
http://www.irs.gov/pub/irs-soi/06in11si.xls

[3] The IRS reported that in 2006, approximately 45% of filed returns were by married couples filing jointly (i.e. 2 adults per return); 55% for individual filers (including ‘married filing separately’ and ‘head of household’).  http://www.irs.gov/pub/irs-soi/06in36tr.xls

[4] Calculation: 138.4 million returns times 1.45 (adults per return) equals 200.7 million adults represented on filed returns

[5]  http://www.irs.gov/pub/irs-soi/06in01fg.xls      http://ftp.irs.gov/pub/irs-soi/06inplim.pdf

[6]  http://www.barackobama.com/issues/economy/#tax-relief

[7]  Analytical note: 93 million plus 17 million equals 110 million divided by 225 million equals 49%.

[8]  Analytical note:  $17,500 less a $10,700 standard deduction, less 2 exemptions at $3,400 each, equals taxable income of zero – so no federal income taxes are due.

[9] Analytical note:  $27,500 less a $10,700 standard deduction, less 2 exemptions at $3,400 each, equals taxable income of $10,000, which at a 10% rate is a $1,000 tax liability that gets offset by the $1,000 Obama credit, reducing the tax liability to zero.

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Have it your way … from Sirius-XM

October 28, 2008

Excerpted from AP: “Sirius offers custom, a la carte packages”, 10.02.08

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Sirius XM Radio unveiled customized satellite radio programming packages and a pay-per-channel, a la carte option for customers.

The company is offering “Best of Both” packages where former XM customers will be able to get select Sirius  channels, and vice versa. The package costs $16.99 a month. Most subscribers can add the channels without buying a new radio.

XM subscribers will be able to add Sirius personalities and channels such as Howard Stern, Martha Stewart Living Radio, Sirius NFL Radio, Sirius Nascar Radio and Playboy Radio.

Sirius subscribers can add Oprah Winfrey, The Virus featuring Opie and Anthony, XM Public Radio, the PGA Tour and select NBA and NHL games.

Sirius also offers a pay-per-channel option, a first in pay subscription media.

The $6.99 per month package lets consumers pick 50 channels, but does not include live games, races or Howard Stern. Premium channels cost extra and online listening is not available. The monthly rate for the a la carte package is capped at $12.95.

The $14.99 per month a la carte plan includes 100 Sirius channels and select XM channels. Online radio listening is not included but premium channels do not cost extra.

Full article:
http://www.forbes.com/feeds/ap/2008/10/02/ap5501169.html?partner=alerts

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Ken’s POV:

Bottom line: a very confusing price plan — probably intentionally so — that bumps prices up about $4 per month.

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Wendy’s Changes its Target, Leaving the Red Wig Behind

October 28, 2008

Excerpted from the Wall Street Journal “Wendy’s Comes Up With a New Strategic Recipe” by Janet Adamy, September 29, 2009

* * * * *

Wendy’s plans to target older customers, change its value menu and improve items like its french fries as its new owner takes over.

Wendy’s new chief executive, Roland Smith, says the chain plans to market to older customers…Wendy’s has struggled to increase sales and profit since Mr. Thomas died six years ago, and that led directors to put the chain up for sale last year.

In an interview, Roland Smith, president and chief executive of the new Wendy’s/Arby’s Group Inc., said executives plan to reverse the previous’ management team’s strategy of courting 18- to 24-year-olds and will instead aim its marketing at customers ages 24 to 49. A new marketing campaign that focuses on the quality of the chain’s food “is a breath of fresh air from the red-wig campaign,” a more offbeat series of commercials that Wendy’s ran last year featuring young men wearing red wigs, Mr. Smith said.

Mr. Smith said that, like rivals McDonald’s Corp and Burger King Holdings Inc., Wendy’s plans to change its value menu, which includes three items for 99 cents, as it faces higher ingredient and labor costs. He said Wendy’s is considering higher price points for some items and looking at putting different items on the menu…

Mr. Smith acknowledged that Wendy’s hasn’t done a good-enough job of creating products to bolster sales and fend off competitors. After talking to franchisees, he decided that the chain also needs to improve the quality of existing items and emphasize a message of freshness in its marketing. In particular, he wants Wendy’s to offer better french fries, sandwich buns and bacon.

For Wendy’s, one of the keys to increasing its sales and profit will be breaking into the breakfast business…Wendy’s has been serving breakfast at some locations but has yet to hit on a successful strategy. Mr. Smith said the company needs to reformulate some of its breakfast items and improve its coffee, which is made by Procter & Gamble’s Folgers. Wendy’s also is testing espresso drinks in some stores.

Another key to improving sales will be remodeling thousands of Wendy’s restaurants…The credit crunch is likely to make that more difficult for franchisees who need to borrow money to fund the renovations. “It’s going to be tougher to get money to buy stores and rebuild stores”..

Edit by SAC

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Full article:
http://online.wsj.com/article/SB122270629158386159.html

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91 to nothing … now, that’s a rout !

October 27, 2008

Everybody knows that Barack Obama has strong support in the African American community.  Just how strong?

Well, the IBD/TIPP Oct 26 tracking poll (the most accurate in 2004), reports that among Blacks, 91% intend to vote for Obama and 9% say that they’re undecided.  Doing the arithmetic, that leaves McCain with no votes from that group.  Zero.  Zilch.  Na-da. Hmmm.

From the same poll: Obama is carrying Hispanics 55% to 29% with 16% undecided.  McCain carries whites  51% to 39% with 10% undecided.

McCain is carrying 87% of Republicans.  Obama is carrying 86% of Dems.  Independents go for Obama 43% to 38% with 19% still undecided.

Draw your own conclusions

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Source:
http://www.realclearpolitics.com/articles/docs/2008-IBD-TIPP-DAY14.htm

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Better Behavior, Better for Business

October 27, 2008

Excerpted from BusinessWeek, “Outperforming by ‘Outbehaving'”, by Dov Seidman, October 7, 2008

* * * * *

Previously in business, finding advantage meant differentiating ourselves from the rest of the herd based on the products we produced, the supply chains we used to get our products to market quicker than the competition, and the service we provided to customers. If we outproduced, outsped, and outhustled rival companies, we also outsold them and “overpowered” the marketplace. This advantage was sustainable for longer periods of time in a less connected world, one in which it took competitors longer to catch up.

Today, we live in a hyperconnected world thanks to the explosion of communications technology in the late 20th century. Since hyper-connectivity breeds hyper-transparency, everyone can instantly see what we do and how we do it. As a result, everyone has grown much more interested in how we do what we do. This is especially true of our competitors, who can quickly see, study, and reverse-engineer our best-in-class supply-chain management processes, innovative product designs, and lightning-quick customer response times.

Hyperconnectivity and hypertransparency explain why so-called competitive advantage now lasts only weeks and months when it once endured for years and decades. We’re running out of areas in which we can stand out because previous forms of competitive differentiation are quickly becoming commodities.

What can’t be copied is how the company pursues these strategies.

* * * * *

How a company approaches its decisions and how it executes them is as important as the decisions and actions themselves. It is defined by the extent to which it pursues its aspirations with authenticity, openness, consistency, and with fidelity to its values and principles.

The emergence of how—or behavior as a source of competitive differentiation is evident in the humanization business is experiencing.

On the marketing front, a growing number of companies assert that they are about much more than their products or services—that “much more” translates to people. For example, Johnson & Johnson (JNJ) asserts that “Tylenol is different because of the people who make it.” The product’s site contains video testimonials of workers responsible for the product, who make promises about the care and commitment they pour into their production and quality-assurance processes. Johnson & Johnson seeks to differentiate Tylenol from competing companies not only on the quality of its product, but more so based on the quality of its employees’ behaviors.

The entire “customer experience” movement reflects a similar desire, and it has been embraced by products and services companies alike. Business leaders have realized that customer service no longer suffices as a competitive differentiator, so they focus more time, energy, and investment in the human interaction their employees develop with customers.

Customer service is about how quickly an employee can connect with a customer. Customer experience is about the quality of that connection over time. Customer service is growing increasingly automated thanks to ATMs, interactive voice response (IVR) systems, and online self-service. Customer experience, which is designed to enhance the long-term loyalty of the most valuable customers, requires companies to outbehave their competitors.

* * * * *

Adopting behavior as a governing principle of human endeavor and business can also be difficult because our previous habits of thought and action—all the outs (outmuscle, outfox, outscheme, etc.)—are deeply engrained.

These old habits of behavior allowed us to accumulate power over people through leverage. Our hyperconnectivity has greatly reduced the leverage we can exert over other people, however. In today’s flat and hyperconnected world, power increasingly is derived through people—through relationships, authenticity, transparency, and openness.

Edit by DAF

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Full article:
http://www.businessweek.com/managing/content/oct2008/ca2008107_857241.htm?chan=top+news_top+news+index+-+temp_managing

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Online Chatter to Replace Surveys?

October 27, 2008

Excerpt from Ad Age “The End of Consumer Surveys?” September 15, 2008

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After issuing dire warnings about the future of consumer surveys, the two biggest advertisers and buyers of market research in the world — Procter & Gamble and Unilever — are linking with the Advertising Research Foundation for an industry effort to embrace online chatter and other naturally occurring feedback like never before…

“I don’t know if we are going to have a choice but to move away from survey research,” said Donna Goldfarb, VP-consumer and market insights for Unilever Americas… “We continue to torture consumers with boring and antiquated search methods,” she said. “What’s holding us back is history and norms…”

To be sure, both companies continue to do plenty of surveys tracking brand-equity metrics for hundreds of brands daily. Ms. Dedeker noted in 2006 her company alone spent $200 million on 600 research vendors…

Yet statements signal a shift in paradigms, and most likely budgets, away from surveys and toward mining insights from blogs, social networks, consumer comments to websites and more, said Joel Rubinson, chief research officer of the ARF…

Though many…have expressed doubts in the past about how well bloggers or participants in social networks represent the broader population, Mr. Rubinson said it’s clear that digital chatter can have useful statistical properties…Clearly, however, traditional survey researchers won’t go away quickly or without a fight…

Campbell, CEO of Millward Brown…noted that “…it’s highly unlikely you’re going to be able to quantify who’s seeing your advertising in any meaningful way by simply listening in on the web.” Big issues that interest almost everyone — such as presidential elections — generate statistically useful web chatter, she said, but household-product brands usually don’t“…

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While collecting blogger information is undoubtedly useful for marketers and advertisers, blog comments are likely to be skewed to extremes of opinions.  Either a consumer is posting because of his overwhelming excitement about a product or issue, or equally and possibly more likely because of his extreme distaste for a product or issue.

A recent Pew Internet research study also reveals that only 42% of internet users have read a blog or online journal and only 12% of respondents write their own. While these numbers will likely grow the sample remains too small at this point to have hopes of replacing consumer surveys. 

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Full article:
http://adage.com/article?article_id=130964

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Now, what about homeowners?

October 24, 2008

Excerpted from Business Week, The Feds’ Next Step After Rescuing Banks, Oct. 27, 2008

* * * * *
The financial system, perhaps, has been saved. Now, what about homeowners … and the surge in foreclosures.

In 2008 some 1.69 million homeowners will lose their houses — double the rate of two years ago … 3.6 million more foreclosures could pile up through 2012.

So far, attempts to slow the foreclosure epidemic at the center of the crisis have had little impact, despite “voluntary” industrywide efforts to rework troubled mortgages.

The reason: No one has figured out how to untie the Gordian knot created by the mass securitization of mortgage loans. Hundreds of investors may own an interest in the trust that holds any given mortgage. If a loan is reworked, some of those investors would lose more than others. In many cases, mortgage servicers are prohibited from modifying a pool of loans without the consent of two-thirds of the investors; often, the servicers also earn more in foreclosure than in reworking a loan.

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Full article:
http://www.businessweek.com/magazine/content/08_43/b4105000306170.htm

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Ken’s Take: There are roughly 75 million “homes” in the U.S. — approximately 1/3 are owned free and clear of any mortgages — so, 1.69 million means that a little over 2% of homes went into foreclosure in 2008 — double the historical rate of 1% — is that a big number or a little number ?

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The most avid sports fans live here …

October 24, 2008

Excerpted from MarketingPower-PR Newswire Oct.1 2008

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Columbus, OH is the number one sports town in the U.S., according to a recent analysis by sports fan research firm Scarborough Sports Marketing.

The analysis aggregated the avid fans* of the 29 sports measured by Scarborough, including the major leagues, motor sports, college sports, minor leagues, the Olympics.  

Two-thirds (66%) of adults in Columbus are avid sports fans*. Boston, Buffalo and Pittsburgh round-out the top markets for avid sports fans. Nationally, 56% of all adults are avid sports fans.

“Each of the leading sports towns typically has one or two major teams that carry the market. In Columbus, it is college football. The Ohio State Buckeyes football team commands a more concentrated fan base than any other NCAA team . Additionally, the NHL Blue Jackets and the MLS Crew call Columbus home, and the city is surrounded by other major markets with established histories in professional sports — including Cincinnati and Cleveland.

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  Market Area, % Fans Rated “Avid” 

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Full article: http://sanantonio.bizjournals.com/sanantonio/prnewswire/press_releases/national/Pennsylvania/2008/10/01/NY36293

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Pssst – Newest Word-of-Mouth Sites

October 24, 2008

Excerpted from Brandweek “General Mills, Kraft Launch Word of Mouth Networks” by Elaine Wong, October 5, 2008

* * * * *

Recognizing that a consumer’s two cents are well worth their dollars, General Mills and Kraft have both launched new word-of-mouth networks. 

For General Mills, it is “Pssst . . . ,” an online network that gives members the scoop on the latest product news and offerings. The site, pssst.generalmills.com, currently has 100,000 members after a quiet launch last month…Pssst uses an initial survey to help gauge product preferences. Once registered, users can voice their opinions via blog posts, share online coupon offers and recipes, and test new sample kits via the mail…

Kraft, meanwhile, kicked off Kraftfirsttaste.com last week, which lets consumers share the newest coupon and sampling offers, but also includes features such as a member spotlight, product reviews, discussion boards and a photo-sharing tool.

Neither Kraft nor General Mills pays  members to join. Nevertheless, there is still incentive to participate, both companies say. “Consumers today regularly look to each other for recommendations and reviews on everything from books to food to cars, so we wanted to have a platform that enabled and encouraged this type of interaction and engagement,” said Gwen Gray, who heads consumer relationship marketing at Kraft, Northfield, Ill.

These two companies are following the footsteps of Procter & Gamble. P&G launched Tremor, which recruits teen word-of-mouth marketers, in 2001. It followed up with Vocalpoint for moms four years later…Unlike the General Mills and Kraft networks, Tremor and Vocalpoint are separate business units that operate under P&G…

Although these food companies are replicating the P&G model, they are going about it carefully. The registration process for Pssst contains a mandatory “full disclosure” statement that requires the individual to reveal his or her status as a Pssst marketer, a move to ward off potential litigation.

For instance, in 2005, Commercial Alert, a consumer advocacy group, filed a complaint against Tremor with the Federal Trade Commission. At issue was the fact that P&G’s Tremor did not require teens to disclose their marketing status. “Disclosure of that relationship is the difference between honest and creepy,” said Andy Sernovitz, author of Word-of-Mouth Marketing. The General Mills clause is an obvious response to the Tremor-FTC suit, he added.

Sernovitz expects to see more packaged goods companies getting into the space: “We’ll see more and more companies realize that word-of-mouth is not an accident. It’s something you do as a core part of the marketing mix.”

Edit by SAC

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Another recent article by Brandweek, “Is Talk Cheap, How Cheap?” discusses attempts made to quantify the costs of generating buzz.  The normal cost per word-of-mouth conversation is currently estimated to be about 50 cents.   This figure is generated by BzzAgent, a word-of-mouth marketing firm,  who arrives at the figure by dividing the number of tracked conversations related to a product by its sales.   While it is remains unclear how to best quantify the ROI for word-of-mouth marketing, it is clear that marketers such as Kraft, General Mills and P&G recognize that there is value in generating buzz. 

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Full article:
http://www.brandweek.com/bw/content_display/news-and-features/packaged-goods/e3i2db03fb29d573ec52722456845f5c274?imw=Y

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Companies Bring Agencies Inside

October 24, 2008

Excerpt from Promo Magazine “Companies Establish In-House Ad-Agencies” September 15, 2008

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When the Association of National Advertisers asked its members whether they had established in-house ad agencies, 42% said yes.

Cost efficiencies and achieving quicker turnaround times were cited as the reasons…

The various types of role cited were: Creative development, Origination, Creative adaptation, Repurposing of work originally developed by an external agency, Production. In addition, 35% of the marketers with in-house facilities also require the agencies to do some media planning, while 24% are charged with media buying responsibilities, the survey found. 

Despite the general favorable view of the in-house agencies there were some downsides. Some 61% of respondents felt the in-house agencies lacked a depth of strategic thinking. About 50% said that it was challenging to obtain fresh thinking when working with internal teams.

“This study suggests that more and more companies are finding advantages to bringing some capabilities in-house and charging these groups with duties across the board,” Bob Liodice, president and CEO of the ANA, said in a statement… 

Edit by SAC

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Full article:
http://promomagazine.com/agencies/news/companies_establishing_ inhouse_ad_agency_0915/

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Rising healthcare costs … blame Grandma !

October 23, 2008

Excerpted from McKinsey Quarterly: “Health care costs: A market-based view”, Sept. 2008

* * * * *

In 2007, healthcare expenditures in the US wereover $2 trillion … roughly $7,000 per capita.

Based on 2005 data — which is likely to hold in 2007 — seniors over-consume healthcare — by a lot.

The over 75 crowd accounts for about 4 times the average healthcare spending … and about 6 times  an average  young adult (10-44)

image

Source: US Centers for Mecicare & Medicaid Services

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Full article:
http://www.mckinseyquarterly.com/Health_care_costs_A_market-based_view_2201_abstract

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Maximizing (transient) shareholder value

October 23, 2008

Excerpted from Business Week: “Put Investors In Their Place”, Clayton M. Christensen and Scott D. Anthony, May  28, 2007

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Why pander to people who now hold shares, on average, less than 10 months?

* * * *

The credo that management’s primary obligation is to maximize shareholder value is shaky to begin with, distorts managers’ sense of responsibility, and …  has been rendered obsolete by developments in the capital markets.

How did managers develop this risky fixation? The entreaty to maximize investor value … came from economists. Calculus is a primary analytical tool of microeconomics. At some point, some now-defunct economist seems to have said: “Let us assume that managers’ responsibility is to maximize shareholder value.” Through endless repetition, nearly everyone came to assume that managers are responsible for maximizing shareholder value.

Through the 1960s … the average shareholding period was more than five years. Managers seeking to maximize the long-term strength and growth of their companies could reward these patient shareholders.

But today shares are held, on average, less than 10 months. Should managers really regard such investors, whose investment horizons are so short … as stakeholders whose value they ought to maximize?

* * * * *

Perhaps it is time for companies to adjust the paradigm of management responsibility: “You are investors and speculators, not shareholders, and you temporarily find yourselves holding the securities of our company. You are responsible for maximizing the returns on your investments. Our responsibility is to maximize the long-term value of this company. We will therefore act in the interest of those whose interests coincide with our long-term prospects, namely employees, customers, the communities in which our employees live, and the minority of investors who plan to hold our securities for several years.”

* * * * *

[It’s time to] curb a shareholder value paradigm that has run amok. Well-intentioned, smart managers are systematically destroying companies by failing to take actions they know are right in the long term. Instead of slavishly serving an antiquated and increasingly irrelevant [maximization] function, managers should find ways to reward investors and stakeholders who want innovation, not plunder.

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Full article;
http://www.businessweek.com/magazine/content/07_22/b4036100.htm?chan=search

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Tampa Bay Rays Takes a Play from P&G’s Book

October 23, 2008

Excerpted from AdAge “Tampa Bay Rays get P&G Style Makeover” by Jeremy Mullman, October 6, 2008

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Under the guidance of a former Procter & Gamble brand manager, the Tampa Bay Rays have gone through the sort of transformation typical of deodorant sticks and shaving razors. First off, the team got a new name — Devil is gone — and a fresh logo and color scheme, swapping green for blue. A list of “consumer touchpoints” was found via focus-group research and monitored to make sure the ballpark experience is fun for fans.

And a P&G staple — product improvement — was even applied as the team morphed from one of the league’s most hapless teams into perhaps its best young squad. The emergence of fresh stars such as pitcher Scott Kazmir and third baseman Evan Longoria helped the team beat out such annual powerhouses as the Boston Red Sox and New York Yankees to win a division title and playoff berth only a year after finishing dead last. There’s evidence the strategy might be starting to show a glimmer of success. The Rays won their first playoff game last Thursday, and their first two home games are sold out.

But there’s still a long way to go. Sales did climb about 30%, but that put the Rays at only 26th in attendance among the league’s 30 teams — a weak performance, considering they boasted the league’s second-best record…

Mr. Raymond — who worked on fabric softeners and panty liners at P&G — and the team’s other top executives have nevertheless engaged in a Procter-style treatment of their brand, complete with a mantra of five “brand pillars” and 30 carefully monitored consumer touch points that help the team monitor consumer satisfaction. “It’s a lot like what P&G does with brand-equity models,” he said. “We know when our cleaning scores dip or when our security wasn’t helpful enough”…

The team also has taken steps to improve its fan experience by strategizing against the armies of Northeast transplants in the area who flock to the stadium to cheer against the home team whenever the Yankees or Red Sox come to town.

It designated a group of its most hard-core fans to meet with the team’s coaches or players before games to initiate new cheers; gave away cowbells to fans, who bring them back and ring them in droves when opposing players are on the verge of striking out; and even used YouTube-style consumer-generated fan videos on the stadium’s JumboTron.

The result has been a formidable home-field advantage — when the fans actually show up, that is. “Our record is 20-2 in games where we have 30,000 or more fans,” said Mr. Raymond, raising the obvious question of how good the Rays’ record would be if they could draw crowds like that for the other 59 home games.

Edit by SAC

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Full article:
http://adage.com/article?article_id=131499

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The 6 drivers of brand credibility …

October 23, 2008

According to Pete Blackshaw of Nielsen, a brand’s credible reputation is driven by 6 factors:

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Source: Pete Blackshaw http://www.tell3000.com/

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General Mills Gets A Cereal Boost from Marketing

October 23, 2008

Excerpt from the Ad Age “Cereal Business Gives Boost to General Mills” by Emily Bryson York September 17, 2008  

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General Mills reported better-than-expected first-quarter earnings this morning. The company cited particularly strong growth in its cereal business, and said increased marketing investment helped keep its brands top-of-mind… “People are eating more meals at home, and cereal is a quick and healthy option,” Big G President Jeff Harmening said during the call…

The company continued to credit increased consumer marketing spending with much of this success. Ad spending was up 17% in its first fiscal quarter…on top of an 11% increase during the same period last year…

Competitors Kraft and Kellogg have dutifully hiked spending as well, but there has been wide speculation as to when the food industry will begin to show signs of share loss to private labels, or lower ad spending…

Instead of fighting what was expected to be a shift by consumers to lower-priced private-label brands, General Mills CEO Ken Powell said his company is benefiting from consumers seemingly eating out less often and taking more meals at home. (The move away from restaurants appears to have had a positive effect on grocery in general. Kroger reported a 3% increase in second-quarter profit yesterday, citing particular growth in its private-label business.) He said cereal is in a good spot for the current economy, because each serving only costs about 50¢, including milk. 

Edit by SAC

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While General Mills earnings may have been better-than-expected, net income dropped 3.6% in the first quarter as it was hit hard by rising commodity prices.  According to a Wall Street Journal article, the cost sugar, oil and other commodities is expected to continue to rise through the rest of the year.  General Mills and other companies were hit particularly hard when efforts to protect against price surges ended up backfiring, particularly with the price of corn and soybeans.  For more information: http://online.wsj.com/article/SB122165181380247655.html

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Full article:
http://adage.com/article?article_id=131057

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For the record: 5 factors to watch as the campaigns close …

October 22, 2008

A couple of numbers have caught my eye in the past couple of days.  They’re not getting much play, but could be “sleepers” for the next couple of weeks.

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Catholics

According to IBD/TIPP (the most accurate poll in the 2004 election), Catholics are currently favoring Obama over McCain 47% to 43%
http://ibdeditorials.com/Polls.aspx?id=309299583450546

Ken’s Take: Watch this shift as Catholic bishops remind church goers that the sanctity of life is a fundamental tenet of the Church.  The abortion debate has been back-burnered, watch it heat up

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Wealth Distribution

According to Gallup, Americans overwhelmingly — by 84% to 13% — prefer that the government focus on improving overall economic conditions and the jobs situation in the United States as opposed to taking steps to distribute wealth more evenly among Americans.
http://www.rasmussenreports.com/public_content/politics/election_20082/2008_presidential_election/democrats_favor_spreading_wealth_around_gop_disagrees

Ken’s take: Obama’s gaffe to Joe the Plumber seems to have traction — and not just among high-earners.  The candidates’ economic pitches are disbelieved mumbo-jumbo to most folks, so images like Joe communicate with impact.

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Middle Class

According to Rasmussen, among middle-income Americans, those earning $40,000 to $100,000 annually, 58% say that McCain (or his defacto surrogate Joe the Plumber) best understands their situation. Just 35% say Obama does.
http://www.rasmussenreports.com/public_content/politics/election_20082/2008_presidential_election/democrats_favor_spreading_wealth_around_gop_disagrees

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Ken’s Take: This is a corollary of the wealth distribution factor.  While those to whom wealth is being distributed like the idea, folks at the top and in the middle don’t.  My guess: those in the middle either don’t believe they’ll get any of the loot or still aspire to be in the top bracket.

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Iraq

According to a 2008 national survey of independents by TargetPoint Consulting 66% of independent voters believe that the U.S. has an obligation to establish security in Iraq before withdrawing.
http://online.wsj.com/article/SB122445963016248615.html

Ken’s Take: I’m betting this gets some sway in the last days of the campaign.

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Mud Slinging

Ken’s Take:

(1) Nothing will stick re: Ayers, but ACORN will elevate as an issue and Rev. Wright will do a reprise to center stage.

(2) The attacks on Joe the Plumber and Cindy McCain (NY Times) will create some backlash.  It will bebarely noticeable until election day.

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J&J Fights Big With Small Brands

October 22, 2008

Excerpted from AdAge “Small Brands Could be J&J’s Next Big Thing ” by Jack Neff, October 6, 2008

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Selling big, heavily extended brands at large retailers has been a cornerstone of success for the personal-care marketers for most of the decade. But as that business model shows signs of fraying, $61 billion Johnson & Johnson increasingly is trying something a lot more entrepreneurial.

In the past year, J&J has quietly ramped up a major assault on direct-response skin-care powerhouse Proactiv with the SkinID brand. The Neutrogena subbrand offers customized acne-fighting and other skin-care products and is sold online…

Clearly, J&J has benefited from the big-brand, big-retailer model up to now. Information Resources Inc. data reported by Deutsche Bank shows the company gaining share in key categories such as acne products, facial moisturizers and cleansers in recent quarters. With global sales estimated by people familiar with the company at $2 billion to $2.5 billion, Neutrogena is neck and neck with other global megabrands, such as Procter & Gamble Co.’s Olay and Unilever’s Dove.

Yet both of those rival brands have slowed within the past year and begun losing share, at least in tracked U.S. channels. And even the biggest brand behemoth in mass, L’Oréal…has begun losing share in cosmetics and hair colorants in the past year…to smaller P&G brands Cover Girl and Clairol…

Should the same fate befall Neutrogena, at least J&J has skin in another game. J&J launched SkinID by “Neutrogena Dermatologics” on a limited basis in April, then ramped up spending behind infomercials featuring former “American Idol” contestant Katharine McPhee starting in May…

As with Proactiv, the products are customized assortments available only by phone or online, but Neutrogena ads bill SkinID products as “twice as effective as Proactiv.” The tack appears to be working, with traffic to skinid.com running at around half the level of traffic to proactive.com after only a few months of all-out effort by J&J…

“We’re revolutionizing skin care through questions to our consumers,” said Cal Schmidt, VP-sales and marketing for J&J unit McNeil Nutritionals, referring to the early stages of SkinID in a talk at an Advertising Research Foundation forum in April. “We are offering our customers specific products tailored to them… And then you have this ongoing dialogue.”

Not to mention ongoing sales. What likely makes the proposition most attractive to Neutrogena is automatic replenishment, which keeps consumers buying and prevents the switching common at a retail shelf…

Edit by SAC

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The SkinID brand isn’t J&J’s first attempt at skin-care products for specific skin types.  The company has had success with another smaller brand, Ambi, since it acquired the brand in 2004.  The Ambi brand includes skin-clearing and skin-tone evening products to specifically meet the needs of African, Asian and Latin woman.  As with SkinID.com, the product website, ambi.com also provides skin care advice for consumers and helps them find the product to best meet their skin-care needs.

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Full article:
http://adage.com/article?article_id=131485

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Drink Your Vote – Campaign Cola

October 22, 2008

Excerpt from the Saginaw News “Drink to Your Presidential Pick with Campaign Cola” by Cole Waterman September 18, 2008  

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Jones Soda Co. has found a way to bottle the enthusiasm fizzing around this year’s historic presidential election.

The Seattle-based company is selling “Campaign Cola,” bottles featuring faces of presidential candidates. Republican John McCain’s “Pure McCain Cola” faces off against Democrat Barack Obama’s “Yes We Can Cola.”

“There are only three areas in the nation it will be sold in, and so far, Obama has outsold McCain, seven to one…On Jones’s promotional Web site, http://www.campaigncola.com, two additional varieties are available — Democrat Hillary Clinton’s “Capitol Hillary Cola” and Republican Ron Paul’s “Ron Paul Revolution Cola.”The site tallies each purchase as a vote, giving minors a way to cast their ballots…

 Edit by SAC

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Full article:
http://www.mlive.com/saginawnews/business/index.ssf/2008/09/drink_to_your_presidential_pic.html
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If You Can’t Beat ‘Em…

October 22, 2008

Excerpted from BusinessWeek, “Can MySpace Save the Major Music Labels?”, by Catherine Holahan, September 12, 2008

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The major music labels have made a sharp reversal that may improve their prospects. For years they fought Internet companies for fear that their music would be stolen. Now they’re racing to capitalize on the new opportunities on the Web. “The labels were very reticent to embrace change at a time when it could have actually worked to their advantage,” says eMarketer’s Paul Verna. “Now there’s a sense that they have no choice.”

* * * * *

Meet the record label, version 2.0. After nearly a decade of plunging music sales, the labels are trying to overhaul their traditional business. Instead of just selling recorded music, they want to use music to sell a range of related extras, from online advertising to mobile phones packed with tunes. The new business model puts the Internet at the heart of the industry in an attempt to transform artist Web sites from promotional vehicles into money-making enterprises.

The biggest bet on this new model is MySpace Music. The joint venture between News Corp.’s (NWS) social networking site and the three largest record labels—Universal Music Group, Sony BMG Music Entertainment, and Warner Music—is set to launch in the next few days.

* * * * *

This is the label’s most ambitious push yet to develop online advertising and e-commerce revenues. The labels will have equity stakes in the new venture. They’ll also get a cut of the revenue from ads on artists’ pages, as well as those from music downloads, ring tones, merchandise sales, and concert tickets.

The record industry has been hammered in recent years by online piracy and a dearth of mega-hits, with sales sliding steadily since their peak of $14.6 billion in 1999. Last year was the industry’s worst yet in terms of revenue losses. The total value of digital and traditional sales dropped 12% in 2007, to $10.4 billion, compared with a 4.4% slide the year before.

* * * * *

The idea behind MySpace Music is that it can help generate revenue for artists every day, not just around an album’s release. The venture gives the labels access to MySpace’s global audience of 118 million users and its ad sales team of more than 250 people. It also provides the labels with a prominent venue to pull in audiences and advertisers with new types of non-music content, including music news, behind-the-scenes videos, and artist interviews such as the one with T.I.

Major advertisers are signing up. Industry sources say MySpace Music has signed multimillion-dollar ad deals with McDonald’s (MCD), Toyota Motor (TM), and other major brands for its launch. MySpace is designed to do more than bring in ad revenue, though. It also gives the industry a new channel through which to sell songs, ringtones, T-shirts, and tickets.

* * * * *

MySpace Music may prove to be a model for future ventures on the Net. If the concept works, it could help the labels turn other online hangouts, like the leading social networking site, Facebook, into forums for music sales and related revenues. It could also help demonstrate that the labels will see tangible benefits from new contracts under which they share in advertising, e-commerce, and merchandise sales. “If they do all that, then maybe they can stem the tide of these rapidly falling CD sales and start to see the pie get a little bigger,” says Verna, “But it is definitely a big if.”

Edit by DAF

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Full article:
http://www.businessweek.com/print/technology/content/sep2008/tc20080912_717914.htm

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* * * * *

Mr. Toad’s Wild Ride … a.k.a. the stock market

October 21, 2008

Excerpted from Business Week, Oct. 27, 2008

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By all measures, market volatility has heightened recently. Tthe spread between daily S&P 500 highs and lows is averaging over 50 points, vs. about 25 points in the first eight months of 2008.  The VIX — an index of S&P volatility — has almost tripled in the past couple of weeks. 

* * * * *

Ken’s Take:  Jacked from financial advisor Dave Ramsey (who probably jacked it from somebody else) –“Hold on tight — you usually don’t get hurt on a roller coaster unless you jump off”

image

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Source:
http://images.businessweek.com/ss/08/10/1016_numbers/2.htm

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Raise your hand if you like Joe the Plumber ?

October 21, 2008

Excerpted from Rasmussen Reports, Oct. 19, 2008

* * * * *

61% of voters have been following news stories of Joe the Plumber somewhat or very closely.

Among those following the story,  58% have a favorable opinion of Joe — 37% unfavorable.

71% of Republicans have a favorable opinion of Joe — 64% of Democrats have an unfavorable view.

Among middle income voters (earning $40,000 a year to $100,000) 52% have a favorable opinion of Joe — 33% unfavorable 

39% of those who earn less than $40,000 a year have a favorable opinion of Joe —  44%  unfavorable.

35% of higher income have a favorable opinion of Joe — 52% unfavorable.

57% of entrepreneurs have a favorable opinion Joe.

* * * * *

Given a choice between the two presidential candidates and Joe, 44% say Obama is the one who best understands the economic realities they face. Twenty-nine percent (29%) named McCain and 19% Joe the Plumber.

Among middle-income Americans, those earning $40,000 to $100,000 annually, 58% say that either McCain or Joe the Plumber best understands their situation. Just 35% say Obama does.

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Full article:
http://www.rasmussenreports.com/public_content/politics/election_20082/2008_presidential_election/democrats_favor_spreading_wealth_around_gop_disagrees

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Bailout: One of the largest tax bills in recent years

October 21, 2008

Excerpted from WSJ: “The Bailout Includes Lots of Treats”,  Tom Herman, Oct. 12, 2008

 
The historic bailout package (includes) relief for millions of taxpayers. The new law “makes almost 300 changes” to the Internal Revenue Code.

Part of the new law prevents many people from being ensnared this year by the alternative minimum tax. Other provisions extend popular tax breaks that expired at the end of last year or were scheduled to disappear after the end of this year.

* * * * *

AMT Quick Fix

If Congress had done nothing, about 26 million people would have been affected this year by the alternative minimum tax, or AMT, up from four million last year, The new law, which includes raising the AMT income-exemption levels for 2008, essentially slaps a patch on the AMT problem.

The AMT is a parallel system to the regular tax system but operates under significantly different rules and can be mind-numbingly complex. For example, under the AMT, you can’t deduct state and local taxes. That’s why among the most common victims of the AMT are people who live in high-tax areas, such as California and New York City, and who make between about $100,000 and $500,000.

Under the new law, the AMT income-exemption level for 2008 rises to $69,950 for married couples who file jointly and $46,200 for most singles.

image
http://tax.cchgroup.com/Legislation/2008-Emergency-Economic-Stabilization-Act.pdf

* * * * *

Some Restored Deductions

The new law also restores deductions for state and local taxes, higher-education tuition and teachers’ school supplies.

Sales-tax deduction: If you itemize your deductions, you can choose to deduct state and local sales taxes, instead of state and local income taxes. You can’t deduct both, however. The sales-tax deduction is especially popular in Florida, Texas, Washington and other states that have no state income tax.

Charitable deductions from IRAs: Congress also revived a popular provision allowing people age 70½ or older to transfer as much as $100,000 a year directly from an IRA to charity without owing income taxes on the money. This transfer is counted toward the taxpayer’s required minimum distribution for the year. Many donors care deeply about this provision.

Non-Itemizers Property Taxes: Lawmakers also extended a provision that helps many people who don’t itemize. It allows them to claim an additional standard deduction for real-estate taxes of as much as $1,000 for joint filers, or $500 for most singles.

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Full article:
http://online.wsj.com/article/SB122377122797726287.html?mod=sunday_journal_primary_hs

Comprehensive analysis:
http://tax.cchgroup.com/Legislation/2008-Emergency-Economic-Stabilization-Act.pdf

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The Wealthy Shifts on Luxury, Optimism, & Politics

October 21, 2008

Excerpted from AdAge “Study:Luxe Loses Luster for Wealthy” by Lucia Moses, October 2, 2008

* * * * *

Fears about personal finances are bubbling over to America’s richest, says a new survey by American Express Publishing and researcher Harrison Group, whose findings bode ill for the already-softening luxury advertising category.

The survey, conducted Sept. 19-23 among 614 consumers with an annual household income of $100,000-plus—the top 10% of America’s families—asked how the market turmoil was affecting respondents’ spending plans…The vast majority of respondents—83%—said they were waiting for items to go on sale before buying.

Luxury is losing favor with this group; the percentage of people who said a little luxury was important in tough times declined to 50% from 61% in June. “What makes the survey a source of concern is that this top 10% represents over 50% of all retail spending,” Jim Taylor, vice chairman of Harrison Group, said in a statement. “It is affluent consumers who have kept the consumer economy afloat and whose purchasing is critical to the coming holiday season.”

Attitudes among the affluent have worsened throughout the year, with 48% of the country’s richest families saying they were worried about running out of money, up from 35% in April. Sixty percent said they believed the economy was in a recession that would last more than a year, up from 55% in June.

Optimism also is on the downswing. Fifty-five percent of respondents indicated they were optimistic about their future, down from 93% in 2005…

The survey also found that the Republican Party is losing its hold on the wealthy. The percentage of the affluent calling themselves Republicans stood at 34% in September, down from 46% in 2006, the survey showed. An equal percentage said they were independent, up from 19% two years ago…findings suggest that the affluent still favor Republican candidate John McCain for president but that there are enough undecided wealthy voters to tip the scales in favor of Democratic hopeful Barack Obama.

Edit by SAC

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Full article:
http://www.brandweek.com/bw/content_display/news-and-features/retail-restaurants/e3id41521fe85d4537f1ae883da0ed6db34?imw=Y

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Guess: Who Favors Spreading Wealth Around ?

October 20, 2008

Excerpted from Rasmussen Reports, Oct.19, 2008

* * * * *

Barack Obama told Joe the Plumber, “When you spread the wealth around, it’s good for everybody.”

* * * * *

44% of voters agree with Obama’s statement — 42% disagree.

69% of Democrats think their candidate is right, but 78% of Republicans disagree.

* * * * * 

A majority of those who earn less than $40,000 a year agree with Obama about spreading the wealth around, while most of those who earn more than that disagree.

Ken’s Note: Approximately 40% of adults pay no income tax or get a refundable credit check; the top 50% of tax filers pay over 97% of all income taxes.  Could it be that those who pay taxes are less inclined towards spreading ?

* * * * *

Entrepreneurs are strongly opposed.

A slight plurality of government employees agree.

63% of voters under 30 agree with Obama’s statement — 33% disagree. A plurality of those over 30 take the opposite view.

* * * * *

A plurality of voters (48%) believes that McCain or Joe the Plumber better understand their situation better than Obama does.

* * * * *

Full article:
http://www.rasmussenreports.com/public_content/politics/election_20082/2008_presidential_election/democrats_favor_spreading_wealth_around_gop_disagrees

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Attn: Senator Obama … Re: Your Tax Plan’s Marginal Rates

October 20, 2008

I’m now completely convinced that neither Sen. Obama nor anybody else understands what’s in his tax plan — the mathematics — and the implications.

For example, he told Joe the Plumber that his taxes would only go up 3% in order to “spread the wealth”.

Let’s start with the marginal tax rate for folks making more than $250,000.

Obama says that it will go back to what it was under Bill Clinton. OK, in 1999, the top bracket started at $283,150 (for both individuals and marrieds filing jointly) — the rate was 39.6%.

For 2008, the top bracket starts at $357,700 (for both individuals and marrieds filing jointly) — and the marginal tax rate is 35%. Note that it’s 35% — most politicos are running around saying it’s 36% — not true.

So, the top bracket marginal rate increase under Obama’s plan is 4.6 percentage points (from 35% to 39.6%) which is a 13% increase in the marginal rate (4.6% / 35% = 13%).

In 2008, the 2nd highest bracket starts at $200,301 for marrieds — with a marginal rate of 33%. For those folks, the increase is 6.6 percentage points (from 33% to 39.6%) which is a 20% increase in the marginal tax rate.

There’s a big difference between 3% and 13%, and a bigger difference between 3% and 20%. Shouldn’t somebody mention this to both Joe and Barack ?

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Taxes – If 39.5% sounds high …

October 20, 2008

Did you know that once upon a time, the high bracket marginal federal income tax rate was a whooping 90%. 

Add in some state & local taxes, and uber-earners were shelling every piece of marginal income to the government.

My surprises:

(1) the 90% rates hung in for almost 30 years.

(2) it was JFK, not Reagan that made the first cuts

image

Chart extracted from an IBD editorial:
http://www.ibdeditorials.com/IBDArticles.aspx?id=303088374745338

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'Play Ball' ? Obama – treading on the American pastime – says 'not so fast' …

October 17, 2008

Excerpted from THR.com “Fox to Change World Series Start Time for Obama”, Paul J. Gough, Oct 15, 2008

* * * * *

To accommodate a half-hour Obama political advertisement on Fox on Oct. 29, Major League Baseball has agreed to move the start time of World Series Game 6 by about 15 minutes. That would move the start of the game from 8:20 p.m. ET or so to 8:35 p.m.

“Fox will accommodate Senator Obama’s desire … If requested, the network would be willing to make similar time available to Senator McCain’s campaign.”

The blessing from MLB clears the way for Fox to air the promo and collect upward of $1 million in ad revenue for the half hour, more than what either CBS or NBC was charging.

* * * * *

Full article:
http://www.hollywoodreporter.com/hr/content_display/television/news/e3ifa25645bfd6bcf91b52ef4f665b661f5 

Thanks to SMH for spotting the story

* * * * *
Ken’s Take:

(1) If I were McCain, I’d take Fox up on the offer and buy 30 minutes or so before game 7 … good buzz even if the series doesn’t go the full 7 games

(2) When at B&D, we’d buy “end of reel” time during the World Series.  It’s kinda like flying standby. Networks sell extra commercial spots (cheap) just in case a game has many pitching changes or goes into extra innings.  One year, we hit lotto — game 7 went extra innings and we got several exposures.  Mc Cain should do that, too.

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‘Play Ball’ ? Obama – treading on the American pastime – says ‘not so fast’ …

October 17, 2008

Excerpted from THR.com “Fox to Change World Series Start Time for Obama”, Paul J. Gough, Oct 15, 2008

* * * * *

To accommodate a half-hour Obama political advertisement on Fox on Oct. 29, Major League Baseball has agreed to move the start time of World Series Game 6 by about 15 minutes. That would move the start of the game from 8:20 p.m. ET or so to 8:35 p.m.

“Fox will accommodate Senator Obama’s desire … If requested, the network would be willing to make similar time available to Senator McCain’s campaign.”

The blessing from MLB clears the way for Fox to air the promo and collect upward of $1 million in ad revenue for the half hour, more than what either CBS or NBC was charging.

* * * * *

Full article:
http://www.hollywoodreporter.com/hr/content_display/television/news/e3ifa25645bfd6bcf91b52ef4f665b661f5 

Thanks to SMH for spotting the story

* * * * *
Ken’s Take:

(1) If I were McCain, I’d take Fox up on the offer and buy 30 minutes or so before game 7 … good buzz even if the series doesn’t go the full 7 games

(2) When at B&D, we’d buy “end of reel” time during the World Series.  It’s kinda like flying standby. Networks sell extra commercial spots (cheap) just in case a game has many pitching changes or goes into extra innings.  One year, we hit lotto — game 7 went extra innings and we got several exposures.  Mc Cain should do that, too.

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A PreMortem for The McCain Campaign

October 17, 2008

Ken’s Note: Howard Wolfson is a Hillary diehard who leans very left. This caught my eye because of (1) the notion of a “pre-mortem” analysis (2) I think his analysis is on target.  I only hope that reports of McCain’s presidential bid’s dying are premature …

* * * *

Excerpted from RCP: “A PreMortem for The McCain Campaign”, Howard Wolfson,  11.10.2008

* * * * *

The economic crisis dealt the McCain campaign a fatal body blow. None the less, the choices that Senator McCain has made during this race will impact the margin of his defeat and the fortunes of other Republicans on the ballot. Today it’s worth considering what Senator McCain could have done differently. 

1) Avoid Faustian Bargains.
John McCain enjoyed a national reputation as a moderate maverick who was willing to challenge the voices of intolerance within his own party and work across the partisan divide. After 9/11 Senator McCain changed course dramatically and yoked his fortunes with President Bush’s. This strategy clearly helped Senator McCain capture his party’s nomination — but it left him poorly positioned to compete in a general election in the current political environment.

2) A Second Act for Sarah Palin.
Sarah Palin’s introduction to the American public was a strong one. She helped to rally the Republican base and drew interest from blue collar voters and some women who might not have otherwise given John McCain a second look. Since then her performance has been poor.

3) A Different VP Choice Entirely.
The choice of a VP speaks volumes to the American public about the candidate making it. What if he had chosen Gov. Tom Ridge, a pro-choice former Governor or former Senator Joe Lieberman instead? Would the choice of Mitt Romney have helped credential Senator McCain on the economy?

4) Distance from George W. Bush.
He allowed Senator Obama and Democrats to define his prospective first term as President Bush’s third. The last thing the American public wants is four more years of the last eight. Senator McCain never made a compelling case that he would do anything differently.

5) Attempt to Define Senator Obama Earlier.
Senator McCain’s efforts to hang Bill Ayers around Senator Obama’s shoulders are totally irrelevent to the current mood of the country and only serve to reinforce how out of touch he is with the real concerns of the American people. They are also much too late to do any good.

6) A Coherent Response to the Economic Crisis.
Senator McCain’s response to the economic crisis — first lauding the economy, then suspending his campaign to pass a bill that failed on its first try, threatening to skip the first debate — was lurching, incoherent, and tone deaf. 

* * * * *

Full article:
http://blogs.tnr.com/tnr/blogs/the_flack/archive/2008/10/11/a-premortem-for-mccain.aspx 

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Consumers Lose as Packaging Shrinks

October 17, 2008

Excerpt from the New York Times “Ate a Whole Pint? Check Again” September 13, 2008

* * * * * 

REMEMBER the supersize phenomenon, when fast-food restaurants offered huge portions of soda and fries?

Some packaged foods that have shrunk in size include a jar of Skippy peanut butter, from 16.3 ounces down to 15 ounces, and a bag of Doritos chips, from 13 ounces to 12.5 ounces. The reverse is now happening in America’s supermarkets and big-box retailers. In industry lingo, it’s called short-sizing.

Aiming to offset increased ingredient and transportation costs, some of the nation’s food manufacturers are reducing the size of packages…Some companies possibly cut back on the quantity of product in a package in the hope that consumers wouldn’t notice or care. Judging by rants on various blogs, though, many consumers have noticed, and they do care.

Others have acknowledged that they have downsized products, but that has not stopped consumers from venting outrage…

Ice cream once was sold in half-gallon containers, but many companies shifted several years ago to 1.75 quarts. Now, with milk and egg prices soaring, many ice cream makers are selling 1.5-quart containers — without lowering the price…

Cereal boxes are becoming smaller, too, including those for Cheerios from General Mills and Apple Jacks and Froot Loops from Kellogg’s.

Frito-Lay has cut the size of Doritos, while jars of Hellmann’s mayonnaise and Skippy peanut butter have also shrunk recently…package sizes have also been reduced for…Hershey’s Special Dark chocolate bar, Iams cat food, Tropicana orange juice, Dial soap and Nabisco Chips Ahoy cookies…

Edit by SAC

* * * * *

Full article:
http://www.nytimes.com/2008/09/14/business/14feed.html?_r=1&scp=1&sq=%22Ate%20a%20Whole%20Pint?%22&st=cse&oref=slogin

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Tough Ads for Tough Times, Marketers Use More Comparison Ads

October 17, 2008

Excerpted from The Wall Street Journal “And in This Corner…Marketers Take Some Jabs” by Suzanne Vranica, October 2, 2008

* * * * *

As the economy gets ugly, marketers are getting nasty too.

From soup companies to pizza chains, marketers are stepping up their so-called attack ads, calling out rivals by name, comparing products and poking fun at competitors.

An example: This week, Domino’s Pizza is giving away oven-baked sandwiches to the first 1,000 customers named Jared — a reference to Jared Fogle, the well-known pitchman for Subway Restaurants…

Just how acrimonious is it getting out there? The National Advertising Division of the Council of Better Business Bureaus, which acts as the ad police, is fielding many more complaints from marketers who believe they are the victim of misleading comparison ads…in August alone, the NAD had 15 advertisers challenge competitive ads that rivals had begun using — compared with six challenges in August 2007. September also saw complaints jump about 50% from last year…

“In a downturn, people are being more and more careful on how they are spending their money, and more than usual you have to make sure you are breaking through and giving them a reason to buy you,” says Patrick Doyle, president of Domino’s USA.

Several weeks ago, Campbell Soup kicked off a big ad effort, created by BBDO, that took on rival General Mills’ Progresso. One print ad shows a can of Progresso with the caption, “Made With MSG,” while a headline above an adjacent picture of a can of Campbell’s Select Harvest reads: “Made With TLC.” The two brands have taken shots at each other in the past, but this is the most aggressive Campbell Soup has gotten…

Meanwhile, Burger King has deployed a steady string of ad attacks against its archrival McDonald’s and other competitors this year. One billboard ad featured a Whopper sandwich not fitting into a Big Mac box with a headline that reads: “SILLY WHOPPER, THAT’S A BIG MAC BOX”…

Comparison ads have been around since the 1970s, when the major television networks lifted a ban on the practice after the FTC publicly began to encourage it. Since then, they have been used to sell everything from antacids to paper towels. The technique is most closely associated with the cola wars between Coke and Pepsi…

With the current financial crisis looking like it is far from over, consumers can expect plenty more attack ads…

Attack ads, when they get too intense, can confuse consumers…The key is some subtlety in the delivery, marketers say. It is “inappropriate to get overly aggressive,” says Colin Watts, vice president and general manager of Campbell’s U.S. Soups…Despite the risks, many marketers say they have scored points with hard-edged ads.

…Campbell Soup’s taste-test commercial was the fifth-most-liked television ad that ran from Aug. 18 to Sept. 14, according to IAG, a Nielsen Co.-owned market-research firm that uses an online panel to measure ad performance.

Edit by SAC

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Full article:
http://online.wsj.com/article/SB122289868915095901.html

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Debate: Missed opportunities, no kill shots …

October 16, 2008

Among the things that I harp on with students is that each slide in their pitches should be explicitly “conclusive” or “prescriptive”. 

That is, tell the audience the answer, don’t make them figure it out on their own.  Otherwise, they might draw the wrong conclusion or no conclusion at all.

I wish McCain had taken one of my courses.  Last night, Obama artfully dodged and weaved. He gave McCain opportunities, but McCain never went in for the kill. For example,

* * * * *

On the subject of tax cuts to 95% of Americans, here’s what I was hoping McCain would say:

“Senator, since 40% of workers don’t pay any income taxes (thanks largely to the Bush tax plan) how can you give them tax cuts?  You’re not giving tax cuts, you’re rebuilding the welfare system that Pres. Ciinton dismantled.  What don’t you just call it what it is — welfare?” , or

“Senator, the core of you tax plan is to tax businesses — large and small — and give $500 credits to 95% of workers.  That works out to be about $1.37 per day. Higher taxes on businesses will raise prices (which is bad for all) — and will cut jobs. Do you really think that workers are willing to bet their jobs for a little over a buck a day?”

* * * * *

On the subject of Obama’s sleazy associations:

“Senator, you attended Rev. Wright’s church for 20 years and didn’t hear his anti-American rants — the Rev. Wright of today isn’t the man you knew; you worked with and for Bill Ayres — a self-admitted terrorist — who isn’t the man you knew; you funneled government money to Tony Rezko — a convicted felon — but not the man you knew; your campaign gave almost $1 million to ACORN — an organization that has been tied to voter fraud in the last 2 presidential elections and is being investigated in 11 states as we speak — but that’s not the organization you knew.  Senator, if these despicable characters can fool you for so long, why should we have confidence that you won’t be fooled by people like Mahmoud Ahmadinejad?”

* * * * *

Instead, McCain let it to the audience to draw their own conclusions.  My bet: they concluded “so what?”

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Green bubble bursting ?

October 16, 2008

Excerpted from LA Times: “The green bubble bursts”, Nordhaus and Shellenberger, September 30, 2008

* * * * *
Amid the energy crisis, Democrats are losing the high ground on the environment to a GOP that is pushing oil drilling.

* * * * *

As the election enters its endgame, Democrats and their environmental allies face a political challenge they could hardly have imagined just a few months ago. America’s growing dependence on fossil fuels, once viewed as a Democratic trump card held alongside the Iraq war and the deflating economy, has become a lodestone instead.

Republicans stole the energy issue from Democrats by proposing expanded drilling — particularly lifting bans on offshore oil drilling — to bring down gasoline prices.

Whereas Barack Obama told Americans to properly inflate their tires, Republicans at their convention gleefully chanted “Drill, baby, drill!” Obama’s point on conservation and efficiency was lost on an electorate eager for a solution to what they perceive as a supply crisis.

* * * * *

Democrats and greens ended up in this predicament because they believed their own press clippings — or, perhaps more accurately, Al Gore’s. After the release of the documentary film and book “An Inconvenient Truth,” greens convinced themselves that U.S. public opinion on climate change had shifted dramatically, despite having no empirical evidence that was the case.

Global warming remains a low-priority issue, hovering near the bottom of the Pew Center for People and the Press’ top 20 priorities.

By contrast, public concern about gasoline and energy prices has shifted dramatically. While liberals and environmentalists were congratulating themselves on the triumph of climate science over fossil-fuel-funded ignorance, planning inauguration parties and writing legislation for the next Democratic president and Congress, gas prices became the second-highest concern after the economy, according to Gallup.

* * * * *

This summer, elite opinion ran headlong into American popular opinion. The train wreck happened in the Senate and went by the name of the Climate Security Act. That bill to cap U.S. greenhouse gas emissions would have, by all accounts (even the authors’), increased gasoline and energy prices. Despite clear evidence that energy-price anxiety was rising, Democrats brought the bill to the Senate floor in June when gas prices were well over $4 a gallon in most of the country. Republicans were all too happy to join that fight.

Republicans have been bludgeoning Democrats with it ever since.  Former House Speaker Newt Gingrich quickly announced a book, “Drill Here, Drill Now, Pay Less,” a movie and a petition drive.

Seeing the writing on the wall, Obama reversed his opposition to drilling in August, and congressional Democrats quickly followed suit.

But the damage has largely been done. In following greens, Democrats allowed McCain and Republicans to cast them as the party out of touch with the pocketbook concerns of middle-class Americans and captive to special interests that prioritize remote wilderness over economic prosperity.

* * * * *

In a tacit acknowledgment of their defeat, some green leaders, such as the Sierra Club’s Carl Pope, have endorsed the Democrats’ pro-drilling strategy. But few of them seem to realize the political implications.

With an economic recession likely, and energy prices sure to remain high for years to come thanks to expanding demand in China and other developing countries, any strategy predicated centrally on making fossil fuels more expensive is doomed to failure.

A better approach is to make clean energy cheap through technology innovation funded directly by the federal government. In contrast to raising energy prices, investing somewhere between $30 billion and $50 billion annually in technology R&D, infrastructure and transmission lines to bring power from windy and sunny places to cities is overwhelmingly popular with voters. Instead of embracing this big investment, greens and Democrats push instead for tiny tax credits for renewable energy — nothing approaching the national commitment that’s needed.

* * * * *

Environmental groups, perpetually certain that a new ecological age is about to dawn in America, have serially overestimated their strength and misread public opinion. Democrats must break once and for all from green orthodoxy that focuses primarily on making dirty energy more expensive and instead embrace a strategy to make clean energy cheap.

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Full article:
http://www.latimes.com/news/opinion/la-oe-shellenberger30-2008sep30,0,5840948.story

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Reducing Carbon Footprint Confusion for CPG’s

October 16, 2008

Excerpted from The Wall Street Journal “Six Products, Six Carbon Footprints” by Jeffrey Ball, October 6, 2008

* * * * *

A new concept is entering the consumer lexicon: the carbon footprint.

First came organic. Then came fair trade. Now makers of everything from milk to jackets to cars are starting to tally up the carbon footprints of their products. That’s the amount of carbon dioxide and other greenhouse gases that get coughed into the air when the goods are made, shipped and stored, and then used by consumers…

So far, these efforts raise as many questions as they answer. Different companies are counting their products’ carbon footprints differently, making it all but impossible for shoppers to compare goods. And even if consumers come to understand the numbers, they might not like what they find out.

For instance, many products’ global-warming impact depends less on how they’re made than on how they’re used. That means the easiest way to cut carbon emissions may be to buy less of a product or use it in a way that’s less convenient.

So, what are the carbon footprints of some of the common products we use? How are they calculated? And what surprises do they hold? What follows is a look at six everyday items — cars, shoes, laundry detergent, clothing, milk and beer — and the numbers that go with them.

…The U.S. emits the equivalent of about 118 pounds of carbon dioxide per resident every day, a figure that includes emissions from industry. Annually, that’s nearly 20 metric tons per American — about five times the number per citizen of the world at large, according to the International Energy Agency.

* * * * *

CARS

The simplest statistic in the carbon-footprinting game may be this: For every mile it travels, the average car in the U.S. emits about one pound of carbon dioxide. Given typical driving distances and fuel-economy numbers, that translates into about five tons of carbon dioxide per car per year.

…an American-made midsize sedan emits the equivalent of about 63 tons of carbon dioxide. That number includes all emissions, from the making of the car’s raw materials, such as steel and plastic, through the shredding of the car once it’s junked.

The vast majority of those emissions — 86% — came from the car’s fuel use, the study found. Just 4% of emissions came from making and assembling the car. That means consumers can lower their footprint by buying a car with better fuel economy.  Sometimes, the differences between models can be substantial….

* * * * *

SHOES

You may think you’re at one with nature going for a walk in the woods in your sturdy hiking boots. But those boots pack a lot of carbon. The big reason: the leather.

Timberland Co., a Stratham, N.H., shoe company with an outdoorsy image, has assessed the carbon footprint of about 40 of the shoe models it currently sells. The results range from about 22 pounds to 220 pounds per pair. Each of the shoes that has been carbon-footprinted comes with a label assessing its greenhouse-gas score on a scale of zero, which is best, to 10, which is worst.

Flip-flops tend to have footprints of 22 pounds to 44 pounds…Shoes typically range from 66 pounds to 132 pounds. Hiking boots typically pack between 154 and 198 pounds, Mr. Girard says.

…transportation typically accounts for less than 5% of the carbon footprint. By far the biggest contributor is the shoe’s raw material…The average dairy cow produces, every year, an amount of greenhouse gas equivalent to four tons of carbon dioxide, according to U.S. government figures. Most of that comes not from carbon dioxide, in fact, but from a more-potent greenhouse gas: methane…

Timberland officials concede shortcomings with their method…the calculations fail to recognize that some shoes require more electricity to assemble in the factory than do others. And Timberland’s calculations omit the carbon impact of the leather and other materials that fall to the cutting-room floor.

“No question, it’s crude in some ways,” Mr. Girard says. “But it’s a step more information than our designers were making a decision on before.”

* * * * *
LAUNDRY DETERGENT

The recipe for a low-carbon load of laundry: Use liquid detergent instead of powder, wash your clothes in cool water and hang them out to dry…

The carbon footprint of a load of laundry done with Tesco detergent varies from 1.3 pounds to 1.9 pounds, depending on what form of detergent is used…According to P&G, the average American family does about 300 loads of laundry per year, or about six loads per week. That suggests a per-family carbon footprint from doing laundry of about 480 pounds per year, or about 10 pounds per week. And that doesn’t include running the dryer.

Solid capsules of detergent have the highest carbon footprint, according to Tesco. Powder has a slightly lower footprint; liquid has a lower one still; and concentrated liquid has the lowest of all. That’s because making solid detergent uses more energy than making the liquid variety.

But consumers who care about their carbon emissions should do more than switch detergent forms, the labels advise. Doing the wash in cooler water — 86 degrees Fahrenheit instead of 104 degrees — will shave the carbon footprint of each load by 0.3 pounds. That’s as much of a reduction as you get from switching to liquid from powder.

The biggest way to cut the environmental impact of cleaning clothes, however, is to stop using a clothes dryer. Drying laundry outside on a line, Tesco says, will cut the carbon footprint of every load by a whopping 4.4 pounds…

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JACKETS

Patagonia Inc.’s Talus jacket looks like a naturalist’s dream. In fact, its carbon footprint is 66 pounds. That, Patagonia notes on its Web site, is 48 times the weight of the jacket itself.

Over the past year, the Ventura, Calif., outdoor-equipment maker has computed and posted on its Web site the carbon footprints of 15 of its products. Because most of Patagonia’s products are made in Asia or Latin America and sold in the U.S., the company expected that a big chunk of the carbon footprints came from transportation. It was wrong.

The fabric for the Talus is made in China, the zippers come from Japan, and the jacket is sewn in Vietnam. Yet all that transportation adds up to less than 1% of the product’s total carbon footprint, Patagonia says. The majority of the footprint — 71%, or about 47 pounds — comes in producing the polyester, which originates with oil…

“Consumers are starting to put environmental values into their purchasing decisions, but it doesn’t always translate into their being willing to pay a higher price,” Patagonia’s Ms. Dumain says…Patagonia lays out this conundrum on its Web site, saying it “reflects the complexities involved” in balancing concern for the environment with the need for performance.

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MILK

A recent study by National Dairy Holdings found that the carbon footprint of a gallon of its milk in a plastic jug is either 6.19 pounds or 7.59 pounds. The difference rests in what kind of cases the jugs are placed in during transport from the milk-processing plant to the distribution center. Plastic cases, because they take more energy to produce, yield more carbon-dioxide emissions than do cardboard ones.

But National Dairy Holdings’ study doesn’t count all the emissions created by a gallon of milk. It includes those from the cows themselves (more than half of the total), from the processing of the milk and from the transport of the milk to a distribution center. It doesn’t count the emissions earlier in the process: growing the cows’ feed. Nor does it count the emissions later in the process: transporting the milk from the distribution center to the store and refrigerating it there…

National Dairy Holdings measured only its piece in the supply chain, explains Howard Depoy, the dairy’s director…That’s “the CO2 that we can control and manage,” Mr. Depoy says…the single biggest chunk of emissions from milk production comes from all that action in the cow’s gut…

The dairy industry doesn’t plan to put carbon-footprint labels on milk cartons, says Rick Naczi, an executive vice president for Dairy Management. “It’s something that would be very, very difficult to make understandable to consumers,” he says.

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BEER

When New Belgium Brewing Co. set out last year to compute the carbon footprint of a six-pack of its Fat Tire Amber Ale, it figured it would find transportation was the biggest problem…The microbrewer, based in Fort Collins, Colo., has been expanding into more states, necessitating more trucking of its beer.

When the numbers came in this summer, they showed that a six-pack’s carbon footprint was about seven pounds. The real surprise was where the bulk of that number came from: the refrigeration of the beer at stores. Transportation came in fourth, behind manufacturing the glass bottles and producing the barley and malt….

Now, New Belgium is considering switching to bottles with more recycled glass, because making them consumes less fuel. It’s also considering buying barley and malt produced organically, rather than with chemical fertilizers, which are big emitters.

Refrigeration poses a tougher problem. Stores selling Fat Tire aren’t owned by New Belgium, so even if the brewer wanted them to stop refrigerating the beer, they might not do so…

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Wendy’s Changes its Target, Leaving the Red Wig Behind

October 16, 2008

Excerpted from the Wall Street Journal “Wendy’s Comes Up With a New Strategic Recipe” by Janet Adamy, September 29, 2009

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Wendy’s plans to target older customers, change its value menu and improve items like its french fries as its new owner takes over.

Wendy’s new chief executive, Roland Smith, says the chain plans to market to older customers…Wendy’s has struggled to increase sales and profit since Mr. Thomas died six years ago, and that led directors to put the chain up for sale last year.

In an interview, Roland Smith, president and chief executive of the new Wendy’s/Arby’s Group Inc., said executives plan to reverse the previous’ management team’s strategy of courting 18- to 24-year-olds and will instead aim its marketing at customers ages 24 to 49. A new marketing campaign that focuses on the quality of the chain’s food “is a breath of fresh air from the red-wig campaign,” a more offbeat series of commercials that Wendy’s ran last year featuring young men wearing red wigs, Mr. Smith said.

Mr. Smith said that, like rivals McDonald’s Corp and Burger King Holdings Inc., Wendy’s plans to change its value menu, which includes three items for 99 cents, as it faces higher ingredient and labor costs. He said Wendy’s is considering higher price points for some items and looking at putting different items on the menu…

Mr. Smith acknowledged that Wendy’s hasn’t done a good-enough job of creating products to bolster sales and fend off competitors. After talking to franchisees, he decided that the chain also needs to improve the quality of existing items and emphasize a message of freshness in its marketing. In particular, he wants Wendy’s to offer better french fries, sandwich buns and bacon.

For Wendy’s, one of the keys to increasing its sales and profit will be breaking into the breakfast business…Wendy’s has been serving breakfast at some locations but has yet to hit on a successful strategy. Mr. Smith said the company needs to reformulate some of its breakfast items and improve its coffee, which is made by Procter & Gamble’s Folgers. Wendy’s also is testing espresso drinks in some stores.

Another key to improving sales will be remodeling thousands of Wendy’s restaurants…The credit crunch is likely to make that more difficult for franchisees who need to borrow money to fund the renovations. “It’s going to be tougher to get money to buy stores and rebuild stores”…

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Buzz Words: “Brand Accretion”

October 16, 2008

Excerpted from BusinessWeek “The Case for Brand Accretion”, by Steve McKee, September 12, 2008

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Brand accretion. With respect to branding, accretion is the simple principle that the more you invest—and the more consistently you invest—the better your long-term returns will be.

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In a branding context, accretion means that none of your marketing efforts exist in a vacuum. Sure, you want them to have an impact today, but they also add to, and are interpreted within, the context of your past and future efforts.

Think of branding as a process, not a static point in time; if your message is steady and consistent, you can build significant brand equity. If, however, you continually change your approach, carelessly cut your budget, or seek only short-term benefits, you’ll be compromising your own long-term interests.

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James Gregory’s marketing firm, CoreBrand, has conducted years of research about the long-term effects of marketing investments. He says it’s rare for even a one-year surge in advertising spending to generate measurable results in image development; it’s usually at least three years before you see real change. That’s a long time if you’re starting from zero, but if your efforts are continuous, the power of accretion will continually work on your behalf.

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