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Vespanomics: Touting Green Exhilaration & Practicality

November 28, 2008

Excerpted from Adweek, “Vespa Touts Scooters for Americans” by Eleftheria Parpis, Nov 24, 2008

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Convincing Americans to ditch their SUVs for scooters seems an impossible marketing task, but what about getting consumers to augment their gas-guzzlers with a snazzy new Vespa for short trips? That is a much more realistic goal for Vespa USA, which recently launched a Web site that positions the iconic brand as fun and functional.

The site…offers product info, reviews and tools to post and plot favorite routes and calculate fuel savings. The objective is to convince more Americans to consider scooters as alternative transportation.

So far, Americans have heard few stories about ways to cut down on carbon emissions: either downsizing vehicles or switching to electric hybrids…”If you combine the usage of a car or SUV with a motor scooter–which millions of Europeans do every day–then you can achieve the same results.”

The venue offers a “Vespa vs. Auto MPG” tool where consumers can compare the scooters’ mileage to the performance of cars. Users can then determine how many miles per gallon they would save by combining Vespa travel with trips in vehicles they already own…

While Vespa…has seen an increase in sales since gas prices began rising, the challenge is to convince consumers that Vespas offer serious riding options, not just trips around the neighborhood…the site’s Google map-based “Community Rides” tool allows scooter owners to share, rate and comment on riding routes.

“Hopefully, over time, people will…realize these are not toys and that people really do use this as a transportation vehicle”…

Edit by SAC

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The new Vespa website introduces the term “Vespanomics”, which refers to the ecological and economic benefits that Vespa provides riders with the additional promise of “total exhilaration” that comes from riding a “stylish, high performance Vespa.” In the past Vespa has emphasized the brand’s the style and lifestyle more than its practicality and efficiency.  Online and at dealerships, Vespa sells everything a rider needs to live the brand from scooter accessories, to clothing and beach towels to mini-notepads and lanyards.  Vespanomics is the tool Vespa needs to bring new users to the brand and to extend the brand lifestyle to include eco-concern.

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Full Article:
http://www.brandweek.com/bw/content_display/esearch/e3i550533f2636cdbd1a765ce9cdcca1936

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$2 gas dampens enthusiasm for hybrids … no kidding.

November 27, 2008

Excerpted from:WSJ,”Americans Drive Less, Creating a Problem”, NOVEMBER 24, 2008

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When gasoline prices shot over $4 a gallon this summer, Americans … took action on their own by driving less and switching to more fuel-efficient cars.

The good news is that gasoline consumption has fallen … vehicle miles traveled — the wonky term for how much we drive — have dropped for 11 straight months, and fell 4.4% in September, according to the Department of Transportation.
http://www.fhwa.dot.gov/ohim/tvtw/08septvt/08septvt.pdf

In short, many Americans, by choice or by default, did what the people who worry about the climate and U.S. dependence on petroleum wanted them to do. They burned about 5% less gasoline than a year ago.

By jamming the brakes on driving, rediscovering mass transit and walking past Hummers to buy compact cars like the Honda Fit, American consumers caused big trouble for powerful interests.

The oil industry and oil-producing nations have an acute problem, because the combination of conservation and the worst world-wide economic slump in decades has once again made a mockery of recent projections that oil would remain expensive and scarce forever.

The short term looks like a re-run of the late 1970s and early 1980s, when … oil prices soared, interest in electric cars, windmills, solar heating panels and other petroleum alternatives accelerated. When conservation and new oil discoveries caused oil prices to collapse, the economic justification for expensive, immature oil replacement technology collapsed as well, and it was a skip and a jump to the age of the SUV.

The federal government is conflicted, too. Yes, policy makers want us to conserve oil. But now that we have, the funds that pay for roads, bridges, rail transit and other transportation infrastructure are falling right along with gasoline tax receipts … gasoline taxes paid into the highway trust fund fell by $3 billion in the 2008 fiscal year.

One approach (for funding infrastructure) would be to raise the federal gasoline tax from its current 18.4 cents a gallon. By comparison, the tax rate in the U.K. is about $2.85 a gallon. Higher gas taxes could finance improvements to roads and mass transit, encourage further conservation or offset the costs of the various federal bailouts.

The collapse of gasoline prices since the summer — a drop of more than $2 a gallon — is an economic stimulus worth more than $200 billion a year.

* * * * *

All of this puts the people who seized on the recent gas price shocks as the moment to push green vehicle strategies in a bind.

At current gasoline prices, however, consumers who buy expensive electric or plug-in hybrid cars would find it smarter financially to buy a reasonably efficient, conventional subcompact and work from home one day a week.

If gasoline prices stay low, demand for vehicles that use sophisticated technology to consume less gasoline per mile will depend on consumers making long-term decisions that aren’t in their short-term economic interests. Otherwise, these new high-mileage cars might not sell for high enough prices to cover their higher costs.

A lot depends on whether Americans keep doing what they’re doing, regardless of what the numbers are on the gas station signs.

General Motors Corp. has insisted that its plug-in hybrid Chevy Volt, due in 2010, will survive the cost-cutting as the auto giant struggles to survive.

Full article:
http://online.wsj.com/article/SB122728664289448183.html

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How much profit does Toyota makes on a Prius?

November 26, 2008

Excerpted from Washington Post, “The Car of the Future — but at What Cost?”, Steven Mufson, November 25, 2008

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Hybrid Vehicles Are Popular, but Making Them Profitable Is a Challenge

Sen. Charles E. Schumer said last week. “We need a business model based on cars of the future, and we already know what that future is: the plug-in hybrid electric car.

“But the car company Schumer and other lawmakers envision for the future could turn out to be a money-losing operation, not part of a “sustainable U.S. auto industry.

“That’s because car manufacturers still haven’t figured out how to produce hybrid and plug-in vehicles cheaply enough to make money on them.

After a decade of relative success with its hybrid Prius, Toyota has sold about a million of the cars and is still widely believed by analysts to be losing money on each one sold.

U.S. lawmakers want the companies to produce automobiles of the future, using advanced technologies and featuring hybrid or plug-in vehicles.But there’s no guarantee that the new business model would be any more viable than the current one.

Automobile experts estimate that the battery in a plug-in vehicle could add at least $8,000 to the cost of a car, maybe considerably more.

Most Americans will be unwilling to pay the extra price, especially if gasoline prices languish around $2 a gallon.

One of the mysteries about GM’s plans to introduce the Volt in 2010 is how much it will cost to buy one.

“What’s the Volt going to cost? I would be happy to answer that if you can tell me the price of oil in 2010,” said Robert A. Kruse, GM’s executive director of global vehicle engineering for hybrids, electric vehicles and batteries.

“I can tell you to the penny what it will cost GM, but pricing is much more related to market conditions.”

“In 10 years are they [at GM] going to solve the technological problems with respect to the Volt? Sure,”

“But are they going to be able to stake their survival on it? I’d say they can’t. They have to stake their future on Malibus, the Chevy Cruze, and much more conventional technologies.”

“Do you bet on lighter, smaller, more fuel efficient but ultimately less profitable cars or do you hold back a little on technology development and look at new versions of existing cars.”

Many experts say that gas guzzlers will not fade away as long as Congress fails to impose higher taxes on gasoline to steer people toward fuel-efficient cars.

“I can easily imagine three years from now when public is focused on a new set of priorities . . . that this whole hubrid thing would go poof.”

Obama proposed a $7,500-a-vehicle tax credit for plug-in vehicles during his presidential campaign.

Roughly half of Americans don’t earn enough to take advantage of such a big tax credit.

Many others don’t have the cash to purchase an expensive vehicle then wait for a federal refund.

So,  GM and other car companies, while preparing plug-in vehicles, are more likely to live or die based on the sales of conventional cars that get better fuel efficiency through improved transmissions, reduced weight or hybrid technology.

GM says it will offer nine hybrids for sale by the middle of next year.

Reinert says that Toyota will eventually offer hybrid versions of all its car models.Auto industry experts say that the basic problem is that the U.S. industry geared up to make 18 million cars and light trucks a year and that it will be lucky to sell 11 million this year.

“There’s fluff and there’s reality,” Keller said.

 “The fluff is the Chevy Volt . . . That’s not going to save GM in the next five years. What will save GM is more small sedans and more crossovers. That’s what people are going to be buying.”Full article:

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Posted in Autos - Travel, Environment - Green, Oil & Energy | 2 Comments »

Getting Your Network To Work for You

November 26, 2008

Excerpted from WSJ “Networking? Here’s How to Stand Out” by Joann Lublin , November 4, 2008

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Fans of Bruce Mount sang his praises to BzzAgent before he applied to become vice president of engineering of the Boston word-of-mouth marketer.

In late June, the software-development manager asked nearly two dozen present and past colleagues to tout his abilities. “Even one sentence will help!” he assured them. Their testimonials ranged from a brief haiku to a multipage missive dubbing him “a freakin’ goldmine of knowledge, ingenuity and kindness.”

Mr. Mount’s creative approach “made him stand out,” recalls BzzAgent’s director of recruiting. He was the frontrunner among 166 outside prospects…

Unusual times demand unusual networking tactics. Most candidates find work through networking, surveys show. But in today’s dismal job market, many feel frustrated with standard strategies such as tapping friends for referrals…

“The bar has been raised on what it takes to make networking work,” concurs Scott Allen, a consultant about online networking. “Virtual interaction allows us to create the illusion of networking by making electronic links with people,” but online ties represent “just a starting point,” he says. “You still need some kind of relationship.”

For job hunters who use networking Web sites like Linkedin.com, Mr. Allen favors a more-sophisticated approach. When you invite someone to join you on LinkedIn, he proposes including a personalized offer of help, such as an introduction to a customer or a useful link to a relevant article.

In the real world, you can improve your networking by finding out whether key executives of potential employers will attend a trade group meeting and then scheduling encounters during the event… “Don’t expect to just show up and bump into these people,” he cautions…

There are additional ways to network more effectively at events. “Be the only person like yourself in the room”…An offbeat but memorable “elevator pitch” will also make you stand out in a crowd, says Lorraine Howell, a public-speaking trainer in Seattle…

Still frustrated? Your network may know why. Ask friends, relatives and associates to anonymously assess your strengths and weaknesses through SurveyMonkey.com…

Possible questions to pose in an anonymous poll of your network:

  • What three words come to mind when you think of my strengths? Areas where I could improve?
  • Is there one aspect of my hunt where I am making a big mistake but appear unaware? If yes, what is my mistake?
  • What jobs do you think I might be good at that I haven’t considered?
  • What type of jobs have I looked down on that might pay well?  

Edit by SAC

Full article:
http://online.wsj.com/article/SB122575114437694677.html

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Posted in Careers & Interviewing | Leave a Comment »

Stimulus rebates would be so much better … if they worked.

November 26, 2008

Excerpted from WSJ, “Permanent Tax Cuts Are the Best Stimulus”, Taylor, Nov. 25, 2008

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The major part of the first stimulus package was the $115 billion, temporary rebate payment program targeted to individuals and families that phased out as incomes rose. Most of the rebate checks were mailed or directly deposited during May, June and July.

The argument in favor of these temporary rebate payments was that they would increase consumption, stimulate aggregate demand, and thereby get the economy growing again. What were the results? The chart below reveals the answer.
The upper line shows disposable personal income through September. Disposable personal income is what households have left after paying taxes and receiving transfers from the government. The big blip is due to the rebate payments in May through July.
The lower line shows personal consumption expenditures by households. Observe that consumption shows no noticeable increase at the time of the rebate. Hence, by this simple measure, the rebate did little or nothing to stimulate consumption, overall aggregate demand, or the economy.

[Commentary]

Based on the permanent-income theory of Milton Friedman, and the life-cycle theory of Franco Modigliani, temporary increases in income will not lead to significant increases in consumption. However, if increases are longer-term, as in the case of permanent tax cut, then consumption is increased, and by a significant amount.

The mantra often heard during debates about the first stimulus was that it should be temporary, targeted and timely. I recommend alternative principles: permanent, pervasive and predictable

Full article:
http://online.wsj.com/article/SB122757149157954723.html 

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General Mills Milks its Margins to Stay Lean

November 26, 2008

Excerpted from Fortune “Cereal Cost Cutters” by Mina Kimes, November 3, 2008

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At General Mills, the maker of Cheerios, cost-cutting is a way of life:

Company execs meet weekly to discuss ways to streamline products. The company’s Holistic Margin Management system has helped them sustain higher margins than their peers…

“Was it cute that the pretzels in our Hot ‘n Spicy Chex Mix spelled H-O-T?” 

 “Sure, it was cute, but we had 14 different pretzel shapes. By getting rid of some of them, we save $1 million a year.” A million bucks may not seem like much for the $13.7-billion-a-year company, but General Mills…makes hundreds of such cost-cutting decisions each year. And those cuts add up:

Last year General Mills  posted a 13% gain in profits…and analysts say that it has fatter margins than Kraft and ConAgra…

CEO Ken Powell attributes the gains to a General Mills-designed fat-trimming system called holistic margin management.

General Mills had worked on improving efficiency for decades, but the rise in inflation a few years ago spurred it to seek a more effective companywide productivity solution…  

Powell’s team first applied the system to struggling Hamburger Helper. At the time the company sold 50 versions of the product, with 25 pastas ranging from wagon wheels to spirals. Executives researched the costs of producing the different options as well as how much consumers liked them, then eliminated half of them. They excised unimportant spice and cheese pouches. They shrank the size of the box while keeping the serving size the same. The upshot: Hamburger Helper now costs 10% less to make.

Margin management soon grew into a structured process at General Mills…Ditching multicolored Yoplait lids…saved $2 million a year.

Factory-floor workers will point out when box sizes are inefficient for putting in trucks. And consumer researchers identify flavors that aren’t selling…

One group recently looked at the oils, flour, and sugar that its baking division uses. The team found a way to consolidate purchases of such items, giving General Mills more buying power. The changes resulted in $12 million in annual savings.

Of course, frugality is just one of many ingredients needed to be successful in consumer foods. Innovation and marketing drive sales, and General Mills’ revenues rose 14% last quarter after it heavily promoted new products such as Fiber One yogurt. But the money for such aggressive initiatives, says Powell, comes from margin management.

“First you have to protect your margins,” he says. It figures that the company that makes Wheaties would understand that sometimes the best offense is a strong defense 

Edit by SAC 
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Full article:
http://money.cnn.com/2008/10/29/magazines/fortune/kimes_generalmills.fortune/index.htm?postversion=2008110311

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Big Idea: Rallying private capital to stabilize housing prices.

November 25, 2008

Summary: Ken’s plan for handling part of the  foreclosure problem and geting housing back on track.  Guaranteed.

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A stark reality of the current mortgage crisis is that there have been — and will continue to be – an unprecedented and destabilizing number of foreclosures that need to be absorbed into the housing market.  Until they are, home prices will continue to slide and the crisis will persist..

To date, most of the government’s programmatic emphasis has focused on mitigating the financial pressures on lending institutions and investors who funded bad loans, by injecting supplementary capital (loans or preferred stock purchases), or by buying toxic securities..  Some political rhetoric has centered on preventing distressed citizens from “losing their homes”, but few substantive steps have been taken.  Why?

First, once a mortgage has been “securitized” – as most have been — there are contractual limitations on possible loan modifications.   In these instances, mortgage “servicers” have their hands tied.  They are only empowered to collect payments and foreclose on non-payers, with very little latitude between the extremes.

Second, there is the proverbial elephant in the middle of the room.  Many so-called home owners are – truth be told — really “occupants” not “owners”.  Some have no equity in the homes.  Some never did – even before housing prices crashed, submerging loan balances under water.   Many wouldn’t qualify today for restructured loans under the most liberal of terms – e.g. lowered interest rates, extended payment periods, reduced principle balances (to the current fair market value of the homes).  Whether the people legitimately qualified for their initial loans is irrelevant.  Whether their initial loan terms were predatory is also largely irrelevant. Objectively, the low bar is whether they can foot the bill for a restructured mortgage.  The emerging evidence seems to suggest that many – maybe most – can’t.

That leads to an inescapable conclusion: regardless of what remedial government bailouts are enacted – the housing market will continue to be flooded with foreclosures. 

So, a pivotal economic policy question is how to get the foreclosed properties off the market and into the hands of private owners (i.e. not onto the government’s asset rolls), and how to keep them there until they can be remarketed at an orderly pace and higher prices.

Three straightforward changes to the income tax code – throwbacks to yesteryear — could provide the necessary financial incentives to rally private capital back into the housing market to buy, hold, and rent foreclosed homes: (1) eliminate ALL of the capital gains taxes on residential property that is bought from now until, say, December 31, 2010 and held for at least 18 months, (2) allow these “qualified residential properties”, if they are rented, to be depreciated for tax purposes at an aggressively accelerated rate (say, over 5 or 10 years) to generate high non-cash tax losses, and (3) allow ALL tax losses generated by these “qualified residential rental properties” to offset owners’ taxable ordinary income with no “passive loss’ limitations, thereby reducing their federal income tax liability.

For example, assume that an investor buys a foreclosed home for $200,000 and rents it out at a price that simply breaks even on a cash flow basis.  That is, the rental price just covers interest, taxes, insurance, maintenance, etc.  Assuming a 5-year accelerated depreciation schedule, the rental would generate an annual non-cash tax loss of $40,000 that could be used to offset the investor’s ordinary income.  If the investor were in the Obama-boosted 39.6% marginal tax bracket, that ordinary income offset could save the investor almost $16,000 in federal income taxes each year that the property is held and rented.  If the home were then resold – say, in 3 years for $250,000 —  the investor would book $170,000 in capital gains (the $50,000 home price increase, plus the $120,000 in depreciation claimed against ordinary income when the property was being rented), but the investor would owe no capital gains taxes. 

Such a program potentially offers several benefits: (1) it would entice private capital to buy (and hold) foreclosures and other distressed residential property, (2) it would likely provide affordable rental housing to people (maybe the current occupants of the homes) who realistically can’t and shouldn’t shoulder the costs of home ownership , and (3) it might take some of the sting out of President-elect Obama’s proposed tax hikes.

It’s a win-win solution to part of a thorny problem.

© K.E. Homa 2008  

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Posted in Financial Services & Crises, Mortgage Crisis | 6 Comments »

Re: Energy … consumers in denial, blame government (and everybody else)

November 25, 2008

Excerpted from PR NewsWire, “Obama White House to Face Long-Held Consumer Denial and Awareness Hurdles in Realizing New Energy Solutions”, November 19,2008

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Consumers Blame Government, Assume Little Self-Responsibility

There is  long-held U.S. consumer denial about personal responsibility in driving energy demand and resulting prices; consumers have a’ “tailpipe-driven” understanding of energy use and environmental impact.

Despite government reports documenting that consumers now use more electricity than five years ago, 61 percent of consumers deny using more.

But, 62 percent of Americans indicating they have experienced home utility cost increases of 10-30 percent or more. So, “For the first time in four years, we increasingly see economic concerns driving consumer interest in conserving energy.”

“However, most Americans don’t view their own consumption behaviors or energy-use demand as having much to do with energy costs,” less than one-fourth of consumers mention U.S. consumer demand as most to blame for rising energy prices.

While more consumers are becoming knowledgeable about renewable energy, one-third erroneously think cars and trucks are the No. 1 cause of global warming, while only four percent cite the actual primary culprit of greenhouse emissions: coal-fired electric plants, today’s most prominent source to heat, cool and power buildings – largely homes.

Also of note: most consumers either blamed kids in the home for increased electricity usage.

Oil companies were thought to be the primary culprits for rising gasoline costs (27 percent) — the U.S. government was the second most common answer, at 24 percent.

“What should the government be doing?” The top answers were “should invest more in research to find alternatives” (29 percent), “should be more proactive and develop a plan” (16 percent), and “should allow drilling in the Arctic National Wildlife Refuge and / or off the U.S. coast” (13 percent).

The primary reason to participate in energy conservation activities or purchases:

1.) To save money (ranked No. 3 in 2007)

2.) To protect our environment and save natural resources (remained No. 2 from 2007)

3.) To preserve the quality of life for future generations (ranked No. 1 in 2007)

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Full article
http://www.tickertech.com/cgi/?a=news&ticker=a&w=&story=200811200811190800PR_NEWS_USPR_____CLW024 

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Chain Stores Going Green

November 25, 2008

Excerpted from New York Times, “Green Plans in Blueprints of Retailers”, by Andrew Martin, November 8, 2008

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Across the country, a race is under way among stores and fast-food restaurants to build environmentally friendly outlets, as a way to curry favor with consumers and to lower operating costs. Most chains are focusing on prototypes at the moment, but the trend could eventually change the look and function of thousands of stores.

The green building boom is partly being driven by retailers’ desire to capture the attention of consumers who have become fascinated by hybrid cars, energy-saving light bulbs and wind turbines.

But more important for the companies, it is a way to shave long-term operating costs at stores and restaurants, which consume copious amounts of energy and water for ovens and fryers, heaters and air conditioners, sinks and toilets.

* * * * *

While the “green” moniker is ill-defined and vulnerable to exaggeration, many of the chains, including McDonald’s, are seeking LEED certification from the United States Green Building Council, a nonprofit agency in Washington whose rating system is a widely accepted standard.

Marion Nestle, a professor of nutrition at New York University and a frequent critic of fast-food chains, said the green buildings were laudable but were ultimately intended to make people feel better about eating unhealthful food.

“Takes your mind off the calories, doesn’t it?” she wrote in an e-mail message. Ms. Nestle added in an interview, “I think it’s fabulous that they are doing it, and McDonald’s always has a tremendous impact. But it’s still making junk food.”

* * * * *

Retailers say building LEED-certified buildings make economic sense, particularly with energy prices becoming so unpredictable.

At Wal-Mart, for instance, all new stores have highly efficient lights, skylights and improved heating, cooling and refrigeration systems. The floors of the stores are not covered but instead are exposed concrete slabs made with recycled steel and fly ash, a waste product. The high-efficiency prototype stores are equipped with even more efficient heating and cooling systems; a store in Las Vegas, for instance, is expected to save 45 percent in energy costs over traditional stores. 

Peter DiPasqua, a Subway franchisee with 89 stores in central Florida, said he originally thought his green store in Kissimmee was largely a “feel-good thing.” But he said as construction progressed, he became more impressed with the benefits of LEED-certified construction.

The store cost about 20 percent more to build, Mr. DiPasqua said. But he said he was saving 20 percent a month on electricity even though the store, in a prime location, is selling 43 percent more than a store down the street.

Edit by DAF

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Full article:
http://www.nytimes.com/2008/11/08/business/08build.html?ref=business&pagewanted=print

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Posted in Environment - Green | Leave a Comment »

Boost your ROI by building your brand ..

November 25, 2008

Excerpted from Brand Channel “Trust as a Tangible Brand Attribute” by Mary Weisnewski, November 3, 2008

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How do you transform your company’s core values into a business asset you can see and feel?

Investing in branding is a good start.  Unfortunately, too many companies slow their efforts to a grinding halt after the rollout party to unveil the new website design and hand out pens embossed with the new logo..

.“Investing in brand development is increasingly important to build credibility and differentiate…People are making purchasing decisions based on how closely aligned their values are with an organization and how much they trust what that organization is providing. This is as true whether people are making donations to nonprofits, buying consumer products, or hiring consultants.”

Revealing your organization’s core values by developing an authentic brand platform, then consistently walking the talk of those core values, is the foundation of employee and customer trust and loyalty—both of which directly affect your bottom line.

 * * * * *

Trust is the engine that powers your brand. When a brand delivers consistently on what it says it will do there are tangible results. When the visual brand is aligned consistently with the experience it communicates an honest, reliable organization and there are tangible results. It’s all about building loyalty and long-lasting relationships…

Trust results from a reliable cache of perceptions and experiences, built over time. We think of organizations just like we do people we know. If I have heard of you I am more likely to trust you. If you do what you say you are going to do, my level of trust will increase…

You have to survey, or audit, everyone involved with your organization to find out what they really think and feel about what you’re offering, and listen to their concerns and desires…

What every company really wants, regardless of its size or market niche, is brand equity: tangible results that show a return on investment. When United Way underwent a rigorous brand evaluation in 2003, they discovered that the strong brand was 67 percent of the reason why people chose to invest in the organization.

* * * * *

Making your brand tangible leads to: ongoing affirmation of purpose, organizational alignment, differentiation, stronger relationships and connections, increased recognition; stronger recruitment, and increased ROI.

The bottom line is that a tangible brand is a win-win for your company and your customers…When a brand delivers consistently on its promise there are tangible results. This is true whether your company is just starting out or has a well-known national or international presence….People will pay more for, and choose faster, the experience and peace of mind a healthy brand promises.  

Edit by SAC 

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Full article:
http://brandchannel.com/brand_speak.asp?bs_id=205

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Posted in Mktg - Brands, Uncategorized | Leave a Comment »

Boost your ROI by building your brand ..

November 25, 2008

Excerpted from Brand Channel “Trust as a Tangible Brand Attribute” by Mary Weisnewski, November 3, 2008

* * * * *

How do you transform your company’s core values into a business asset you can see and feel?

Investing in branding is a good start.  Unfortunately, too many companies slow their efforts to a grinding halt after the rollout party to unveil the new website design and hand out pens embossed with the new logo..

.“Investing in brand development is increasingly important to build credibility and differentiate…People are making purchasing decisions based on how closely aligned their values are with an organization and how much they trust what that organization is providing. This is as true whether people are making donations to nonprofits, buying consumer products, or hiring consultants.”

Revealing your organization’s core values by developing an authentic brand platform, then consistently walking the talk of those core values, is the foundation of employee and customer trust and loyalty—both of which directly affect your bottom line.

 * * * * *

Trust is the engine that powers your brand. When a brand delivers consistently on what it says it will do there are tangible results. When the visual brand is aligned consistently with the experience it communicates an honest, reliable organization and there are tangible results. It’s all about building loyalty and long-lasting relationships…

Trust results from a reliable cache of perceptions and experiences, built over time. We think of organizations just like we do people we know. If I have heard of you I am more likely to trust you. If you do what you say you are going to do, my level of trust will increase…

You have to survey, or audit, everyone involved with your organization to find out what they really think and feel about what you’re offering, and listen to their concerns and desires…

What every company really wants, regardless of its size or market niche, is brand equity: tangible results that show a return on investment. When United Way underwent a rigorous brand evaluation in 2003, they discovered that the strong brand was 67 percent of the reason why people chose to invest in the organization.

* * * * *

Making your brand tangible leads to: ongoing affirmation of purpose, organizational alignment, differentiation, stronger relationships and connections, increased recognition; stronger recruitment, and increased ROI.

The bottom line is that a tangible brand is a win-win for your company and your customers…When a brand delivers consistently on its promise there are tangible results. This is true whether your company is just starting out or has a well-known national or international presence….People will pay more for, and choose faster, the experience and peace of mind a healthy brand promises.  

Edit by SAC 

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Full article:
http://brandchannel.com/brand_speak.asp?bs_id=205

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Posted in Mktg - Brands, Uncategorized | Leave a Comment »

On private planes and Congressional hypocrisy …

November 24, 2008

Ken’s Take: The Big 3 CEO’s conspicuously flying in on corporate jets was bad PR, for sure.  But, if you accept that CEO time is somewhat valuable (just reduce their bloated compensation down to a per hour rate to get the idea), do you really want htem spending work time waiting in the queue at a Southwest kiosk or being banned from making cell phone calls when in air?  I think not.  More to the point: Grandma Homa used to say “don’t throw stones if you live in a glass house.”  When Speaker Pelosi flies to Detroit to deliver the $25 billion check (or is it $50 billion), think she’ll fly commercial?  Read on for a reminder…

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Excerpted from SFgate.com, “The House speaker has had the use of a government jet”, Feb. 8, 2007

The way Speaker Nancy Pelosi will travel home to San Francisco and on official business is the latest tempest to hit the House of Representatives.

The speaker of the House has been provided a jet from the government fleet to use for official business since the Sept. 11, 2001, terrorist attacks.

Former Republican Speaker Dennis Hastert used a military 12-seat jet to carry him mainly from Washington’s Andrews Air Force Base to airports near his home district in Chicago’s suburbs.

Pelosi has been pressing the Pentagon to provide her with a bigger jet than used by Hastert so she can ferry family, other lawmakers and lobbyists across the country.

(Congressional critics said) Pelosi’s bid for a bigger plane, which he dubbed “Air Force Three,” shows “an arrogance of office that just defies common sense” and constitutes a major deviation from the previous speaker’s perks. She should settle for a smaller plane even if it means having to stop for refueling while traveling to and from California.

Full article:
http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2007/02/08/MNGN5O11UT1.DTL&type=printable

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Green Jobs: What's the Real Number? What's the Real Cost?

November 24, 2008

Excerpted from the Wall Street Journal, “Does Green Energy Add 5 Million Jobs? Potent Pitch, but Numbers Are Squishy”, by Jeffery Ball, November 7, 2008

* * * * *

Calls for a clean-energy system in the U.S. have long met with sticker shock. Now, the cost of making the transition–hundreds of billions of dollars–is being touted as a selling point.

Barack Obama and his energy advisers have been making the case that a multibillion-dollar government investment in everything from wind turbines to a “smart” electrical grid is just what’s needed to help revive the economy.

The lure is millions of government-subsidized “green jobs”, as Obama argued that spending $150 billion over the next decade to boost energy efficiency would help create five million jobs.

* * * * *

The green-jobs argument rests on the notion that big capital investments in new-energy technology today will be more than offset by savings in reduced fossil-fuel costs.

The added allure of clean-energy spending as economic stimulus is that the industry is relatively young and growing fast. It is just starting to build its basic infrastructure — wind turbines, solar panels and a more-sophisticated electric-transmission grid. Several studies estimate that $1 invested in renewable energy or energy efficiency would yield up to four times as many jobs as $1 invested in oil and gas, whose basic infrastructure has been around for years.

* * * * *

Critics say analyzing only new green jobs misses half the story.

“It’s not looking at the other side of the coin: You are spending more money for your energy,” says Anne Smith, a vice president at CRA International. The consulting firm wrote a report for the coal-mining industry in April that concluded that, under a bill to cap global-warming emissions, gains in green jobs would be “more than offset” by job losses elsewhere in the economy. That bill failed, but Obama has said he supports capping emissions.

* * * * *

The job creation number cited by Obama has its roots in several green-jobs studies. Each projected different numbers, because each made different assumptions. Robert Pollin, a professor at the University of Massachusetts, Amherst, who co-wrote another study, questions the job target touted by the Obama campaign, saying it would cost much more. Pollin’s study said that $100 billion spent over two years could produce two million green jobs.

Even Mr. Pollin’s study assessed only the number of jobs that might be added if the government spent more money on clean energy. It didn’t count jobs that might be lost elsewhere in the economy if the country shifted to costlier sources of energy.

The Apollo Alliance, a San Francisco coalition of environmental and labor groups, also released a study in September. It concluded that five million green jobs could be had with an investment of $500 billion–more than three times Mr. Obama’s number.

Edit by DAF

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Full article:
http://online.wsj.com/article/SB122601449992806743.html

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Posted in Environment - Green | Leave a Comment »

A Real Middle Class Tax Cut …

November 24, 2008

Ken’s Take: A clever move in the direction of a flat tax.  Certainly worth considering …

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Excerpted from WSJ, “Let’s Have a Real Middle-Class Tax Cut”, Gingrich, Nov. 20, 2008

Obama is right: America needs a real and meaningful middle-class tax cut. Unfortunately, his tax credits won’t stimulate the economy.

Mr. Obama’s tax plan includes creating or expanding nine or more federal income tax credits mostly focused on low- and moderate-income earners, with an estimated cost of $1.3 trillion over 10 years. These tax credits will do little or nothing to promote economic growth because they do not reduce marginal tax rates — the rate on the next dollar of income — to provide powerful, meaningful incentives for productive activities such as investment, entrepreneurship and work.

For a real middle-class tax cut, we should cut the 25% income tax rate that now applies to single workers earning $32,550 to $78,850, and married couples earning $65,100 to $131,450. We should reduce that rate down to the 15% rate paid by workers below these income levels. That would, in effect, establish a flat-rate tax of 15% for close to 90% of American workers.

This 40% cut in middle-class income tax rates would provide a powerful boost to the economy, greatly expanding incentives for savings, investment and work.

We could add to this alternative tax proposal an increase in the personal exemption from $3,500 to $7,000. The package would then cut taxes for all taxpayers, including those in the lower tax brackets.

Because of the highly beneficial effect of these middle-class rate reductions on our economy, and the freedom they would give workers to spend, save or invest their money as they choose, this proposal would likely enjoy broad public support and present a viable alternative to the liberal social purposes of President-elect Obama’s tax credits.

Full op-ed:
http://online.wsj.com/article/SB122714465532443171.html 

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Taking the hassle out of … well, everything

November 24, 2008

Excerpted from BusinessWeek, “Change Your Process to Boost Profits”, By G. Michael Maddock and Raphael Louis Vitón, October 7, 2008

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Wherever there is interaction among your brand, your people, and your customer, there is an opportunity for service innovation and increased profits.

Questions to Ask:

How do you serve up your products? What behavioral hoops do you make your customers jump through to get what they want? How much of how you are selling is due to tradition, habit, or a business model that has not been challenged?

* * * * *

I recently went to the bank to make a deposit. I had to find a parking place, find the right form, find my account number, fill out the form, stand in line, show an ID, and wait for a receipt. If I wanted my balance, the process would take even longer.

If my bank eliminated some steps with, say, SpeedPass technology,  it would save us both time. Moreover, the bank would get a chance to make me feel special, and I’d might go to the bank more often and give it more of my money to invest.

Service innovations are often disguised as product innovations. Think about the airline kiosk, where you check in yourself, and the wedding gift registry. These enabling technologies are all born of the insight that the buying process was too cumbersome. Technology made a transaction easier, but only after the experience was examined and challenged.

* * * * *

The primary arguments against service innovation usually come from high-touch, service-minded people.

They will tell you that by adding technology, or simplifying the ordering process “you are dehumanizing our business” or “that is not the way this business is done”—or something like that. Don’t listen. Push your team to create a totally new experience based on what your customers are saying or how they are behaving.

Then test the new experience. You will know soon enough if you have made life better for your customers. If you choose, you can then add a halo of people to the mix to make the service more personal. Southwest Airlines has kiosks. That does not mean it has used them to replace its incredibly well-trained and thoughtful employees.

* * * * *

Typically, when we think about innovation, it is on the product side. How can you introduce something new, or improve an existing product?

Both those things are vitally important. But if you miss (or forget about) the chance to improve the service portion of your offering, you are missing a huge opportunity.

Edit by DAF

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Full article:
http://www.businessweek.com/managing/content/oct2008/ca2008107_013799.htm?chan=careers_managing+index+page_managing+your+company

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Posted in Customer Service | Leave a Comment »

Dow = 7,500 … Where in the world is President-elect Obama?

November 21, 2008

As I predicted on the day before the election, if Obama won, the Dow would fall to 7,500.  Well, it did.

Of course, there are mega-financial pressures completely unrelated to Obama’s election. 

But, he left some undetonated campaign grenades that unsettle the market.  Will he raise taxes on businesses and investors next year?  Last word from him: yes.  Will he protect UAW jobs in Detroit with a bailout?  Last word: yes.  Who will be hisTreasury Secretary?  Last word: hold your pants on.

At minimum, Obama should name Paulson’s successor and pledge to hold tax rates where they are until they expire naturally in 2010.

If he wanted to do something bolder, he should cut capital gains tax rates to zero for stocks bought from now until the end of 2009.

Regardless, he’s got to quit playing paddycake with Hillary, come out of hiding, and give investors some reason to believe.

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Note: I stand by my other market prediction: if Franken wins and Chambliss loses — the Dow will have it’s largest 1-day decline ever — at least 1,000 points.   Hope this one goes unverifiable.

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Opinion: Boost the national debt and make the next generation pay for it!

November 21, 2008

I used to think that the escalating national debt was a serious economic problem — creating an enormous, painful burden that would  be shifted to our sons & daughters.

I’ve stopped fretting.  Why ?

Exit polls indicate that collegians craved “change” and voted overwhelmingly for Obama — at least 2 to 1. 

Obama’s ambitious agenda of government programs will cost trillions of dollars. 

Rather than raising taxes on the folks who don’t want change, why not shift the burden to those who do?

It’s called poetic justice.   

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Replace the Big 3 CEOs ? I don't think that's the answer …

November 21, 2008

Based on their poor performances at the Congressional hearings this week — including the tone deaf moves of flying in on G4s and wearing bling to the hearings — there is a groundswell calling for the heads of the Big 3 automakers. 

The logic: it’s all the CEOs fault.  Replace them with smarter, more effective CEOs and everything will be ok.

Problem with the logic: Though Waggoner has been at GM forever and CEO for a long time, Mulally came to Ford a little over 2 years ago (from Boeing) and Nardelli came to Chrysler a little over a year ago (from Home Depot, after a career at GE).

In other words: TWO OF THE THREE ARE NEW !

Perhaps that’s why some of their answers weren’t as crisp and authoritative as one would expect.

My opinion: these are very complicated businesses with many constraints (burdensome union contracts, government regulations, legacy costs).  It would be difficult for any mere mortal to jump in, grasp the business, and overcome the constraints.

Who’s on the shortlist of replacement CEOs? Pity the poor souls.  Anybody who would take the job should be eliminated from consideration on the basis of poor judgment.

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Replace the Big 3 CEOs ? I don’t think that’s the answer …

November 21, 2008

Based on their poor performances at the Congressional hearings this week — including the tone deaf moves of flying in on G4s and wearing bling to the hearings — there is a groundswell calling for the heads of the Big 3 automakers. 

The logic: it’s all the CEOs fault.  Replace them with smarter, more effective CEOs and everything will be ok.

Problem with the logic: Though Waggoner has been at GM forever and CEO for a long time, Mulally came to Ford a little over 2 years ago (from Boeing) and Nardelli came to Chrysler a little over a year ago (from Home Depot, after a career at GE).

In other words: TWO OF THE THREE ARE NEW !

Perhaps that’s why some of their answers weren’t as crisp and authoritative as one would expect.

My opinion: these are very complicated businesses with many constraints (burdensome union contracts, government regulations, legacy costs).  It would be difficult for any mere mortal to jump in, grasp the business, and overcome the constraints.

Who’s on the shortlist of replacement CEOs? Pity the poor souls.  Anybody who would take the job should be eliminated from consideration on the basis of poor judgment.

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The perils of one man, one vote …

November 21, 2008

Excerpted from Zogby Poll, “How Obama Got Elected”, Nov. 19, 2008
* * * * *

The Survey

The sample: 512 Obama Voters 11/13/08-11/15/08
97.1% High School Graduate or higher, 55% College Graduates
12 simple Multiple Choice Questions
Margin of Error MOE +/- 4.4 points

* * * * *

Most Damning:  57.4% could NOT correctly say which party controls congress (50/50 shot just by guessing)

* * * * *

Talk about being well-informed

88.4% denied that Obama said his policies would likely bankrupt the coal industry and make energy rates skyrocket (25% chance by guessing)

82.6% denied that Barack Obama won his first election by getting opponents kicked off the ballot (25% chance by guessing)

71.8% could NOT correctly say Joe Biden quit a previous campaign because of plagiarism (25% chance by guessing)

56.1% denied that Obama started his political career at the home of two former members of the Weather Underground (25% chance by guessing).

But…..

83.6%%  identified Sarah Palin as the person on which their party spent $150,000 in clothes

86.9 % thought that Palin said that she could see Russia from her “house,” even though that was Tina Fey who said that!!

94.8%  identified Palin as the one with a pregnant teenage daughter

http://www.howobamagotelected.com/

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Zogby’s Reply to Criticism of the Survey

“We stand by the results our survey work on behalf of John Ziegler, as we stand by all of our work. We reject the notion that this was a push poll because it very simply wasn’t. It was a legitimate effort to test the knowledge of voters who cast ballots for Barack Obama in the Nov. 4 election. Push polls are a malicious effort to sway public opinion one way or the other, while message and knowledge testing is quite another effort of public opinion research that is legitimate inquiry and has value in the public square. In this case, the respondents were given a full range of responses and were not pressured or influenced to respond in one way or another. This poll was not designed to hurt anyone, which is obvious as it was conducted after the election. The client is free to draw his own conclusions about the research, as are bloggers and other members of society. But Zogby International is a neutral party in this matter. We were hired to test public opinion on a particular subject and with no ax to grind, that’s exactly what we did. We don’t have to agree or disagree with the questions, we simply ask them and provide the client with a fair and accurate set of data reflecting public opinion.” – John Zogby

http://www.zogby.com/news/ReadNews.cfm?ID=1642 

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Where America buys wine … and some recommendations

November 21, 2008

Excerpted from WSJ, “Costco Cabernets”, Nov. 15, 2008

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10% of all the money that Americans spend on wine at stores in the U.S.  is spent at warehouse club stores.

Costco has become America’s wine store.  In the U.S., Costco warehouse-club stores sold more than 75 million bottles of wine for$1.1 billion, making it the nation’s top retailer of wine.

After a slow start, Wal-Mart is trying to catch up. More than 2,000 of its stores now have beer and wine licenses and of the 594 Sam’s Club stores, 453 sell wine.  

* * * * *

Some Cabernets — carried at the clubs — recommended by the authors:

J. Lohr Winery Estates “Seven Oaks” 2006 (Paso Robles). $11.52. Good/Very Good. Best value.
Pleasant and grapey, with some acidity and blackberry fruit. Nicely dry finish, with some herbs and pepper. Well-balanced. This will be drunk merrily. We didn’t like the 2004.

Charles Krug Winery 2005 (Yountville, Napa Valley). $20.99. Very Good.
Lovely dark color, with cedar on the nose. Ripe, dark fruit, excellent tannins and some aging potential. A complete wine, with layers of flavor — Bordeaux-like structure and rich California fruit.

Simi Winery 2005 (Alexander Valley). $20.48.Very Good. 
Looks rich and even smells like ripe, chewy fruit, with blackberries, blueberries and savory spices of the kind we’d put into stuffing. Earthy, with good tannins and a little bit of bittersweet chocolate. Big, rich, friendly wine.  

Raymond Vineyard & Cellar “Reserve” 2005 (Napa Valley). $22.99. Very Good.
Lovely fruit and nicely dry. Tastes classy, with some structure and even a hint of tobacco, like a fine Bordeaux. A wine of some stature, appropriate to a fine meal.

Sterling Vineyards 2005 (Napa Valley). $20.86. Good/Very Good.
Crisp, clean and nicely acidic. Mouth-watering, with some minerals and a nice little bite at the end. Good with food because it’s not too heavy. John thought it was thin; Dottie thought it was simply restrained.

Full article:
 http://online.wsj.com/article_email/SB122669984967629523-lMyQjAxMDI4MjE2NjYxOTY5Wj.html

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"Believe"??? Battered Retailers Holding on to Hope

November 21, 2008

Excerpted from the Washington Post, “Tapping Into Shoppers’ Psyches: Battered Retailers Turning to Sentimental Sales Pitches”, by Ylan Q. Mui, November 11, 2008

* * * * *

The economic downturn is rattling U.S. shoppers as their wallets shrink and credit dries up. Retailers, who just reported their worst October in decades, fear disaster. The battle for customers — and survival — is on, and stores have little margin for error. With Wal-Mart dominating the race to rock-bottom prices, those who can’t compete must get creative.

* * * * *

“Believe,” says Macy’s.

Peter Sachse, president of Macy’s Corporate Marketing, said executives began brainstorming the idea shortly after Christmas last year: Believe in Santa, believe in goodness, believe your 401(k) will one day bounce back. Believe in Macy’s. Sachse said the theme felt even more relevant as the economy began to falter.

“It is this stable thing out there in this maelstrom that is going on around the consumer,” he said. “I think it’s going to strike a chord in America.”

* * * * *

Surely, the thinking goes, some shoppers must need relief from wallowing in their economic misery. Women’s clothing chain Talbots is hoping they’ll want to escape to private parties at its stores.

At these “hostess events,” a loyal customer throws the party, and the store shuts down to the public. The company provides hors d’oeuvres, drinks and, in some cases, even a stylist to help women update their looks. All the hostess has to do is bring her friends and their charge cards. Apparently, they are.

About 70 parties have been held so far, with 60 to 200 shoppers at each event, she said. Talbots is expected to roll them out to all its stores by the first week of December. The parties are supposed to build relationships between shoppers and employees, which the retailer hopes will translate into higher sales.

* * * * *

But it remains to be seen whether warm and fuzzy feelings translate into bottom-line growth during a year of financial crisis. Darrell Rigby, a partner at consulting firm Bain & Co., said many shoppers are on tight budgets this year and may not be swayed by their psyches.

“Economic downturns have a way of turning consumer purchasing hierarchies upside down,” he said. “Self-actualization and esteem-building don’t seem nearly as important as taking care of basic needs.”

* * * * *

It’s a lesson that Target has learned as sales have slumped at stores open at least a year, a key measure of a retailer’s health. Target became a cultural icon with its stylish, eye-catching ads and cheap-chic clothes, which make up as much as 22 percent of its revenue. But as shoppers cut back on such indulgences, Target found its message veered off-key.

So this Christmas, it is spotlighting gifts that cost less than $25, such as vintage board games and makeup brushes. It quickly matched Wal-Mart’s move last month to sell several popular toys for $10 or less. Recent TV ads feature the slogan “A new day. A new way to save” and price is more prominent at new signs in the stores.

“We are emphasizing value in all communications with our guests,” Target chief executive Gregg Steinhafel said in a recent meeting with analysts.

* * * * *

Although price cuts are welcome news for consumers, they eat away at retailers’ profit margins. To keep its budget in line, Target has also cut its payroll and employee overtime. It plans to open only 70 stores next fiscal year and fewer the following year.

According to Piper Jaffray analyst Jeffrey Klinefelter, fighting the price war will be costly to retailers but that those who do not enter the fray risk losing sales.

“We do not expect the consumer to trade up this season,” he wrote, “especially in the midst of significant economic uncertainty.”

Edit by DAF

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Full article:
http://www.washingtonpost.com/wp-dyn/content/article/2008/11/10/AR2008111002331_pf.html

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Getting Cozy With Customers …

November 21, 2008

Excerpted from HBS Discussion Leaders “How CEO’s Should Work with Customers” by John Quelch, September 22, 2008

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Customers are the source of all cash flow. Organic growth depends on developing relationships with new and existing customers. And future growth prospects are baked into stock market valuations of companies.

An increasingly high percentage of Fortune 500 CEOs have not come up the ranks through marketing or sales…actual customer expertise is typically a mile wide and an inch deep.

Marketing expertise depends on customer insights…To be customer-oriented, executives must get out and meet customers on their home turf – in their homes, on job sites, in their offices. in stores.   ..

Over time, the need for customer insights should mean a higher percentage of general managers coming up through the marketing ranks..

Edit by SAC

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Full article:
http://discussionleader.hbsp.com/quelch/2008/09/how_ceos_should_work_with_cust.html

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Posted in Customer Satisfaction - Loyalty, Management - General | Leave a Comment »

Dirty Dozen … there must be a special spot in hell for these greedy lowlifes

November 20, 2008

Excerpted from WSJ, “Before the Bust, These CEOs Took Money Off the Table”, Nov. 20, 2008

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Fifteen corporate chieftains of large home-building and financial-services firms each reaped more than $100 million in cash compensation and proceeds from stock sales during the past five years, according to a Wall Street Journal analysis.

Four of those executives, including the heads of Lehman Brothers Holdings Inc. and Bear Stearns Cos., ran companies that have filed for bankruptcy protection or seen their share prices fall more than 90% from their peak

Charles R. Schwab                                    $816,606,046
Dwight C. Schar (NVR)                              $626,322,372
Angelo R. Mozilo (Countrywide)               $470,686,861
Robert I. Toll (Toll Brothers)                     $427,768,300
Richard D. Fairbank (Capital One)            $245,344,205
Richard S. Fuld Jr. (Lehman Bros)             $184,613,049 
James E. Cayne (Bear Stearns)                  $163,240,403
Bruce Karatz (KB Home)                           $191,806,999
R. Chad Dreier (Ryland Group)                 $181,420,943
Maurice R. Greenberg (AIG)                      $132,833,450
Paul C. Saville (NVR)                                $130,460,697
Lloyd C. Blankfein (Goldman Sachs)         $130,116,843

Full details, full list:
http://online.wsj.com/public/resources/documents/st_ceos_20081111.html

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Ken’s Take: How about some speedy action in Congress to pass a windfall profits tax: say, 95% on any income over $50 million … retroactive to January 1, 2008. 

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Part 2 … Declaring war: First shots fired in tax payers’ revolt .

November 20, 2008

President-elect Obama has a mega-challenge: he has promised many additional high cost government programs, but his plan reduces the number of folks paying taxes, the slow economy is cutting incomes (hence, there’s less to tax), and if my observations are right, the surviving group of tax payers is working feverishly to pay as little in taxes as the law allows.

So, one might ask: where is the soon-to-be President Obama going to get the money he needs to fund his ambitious programs?

Option 1: Go through the budget “line by line with a scalpel” and redeploy the freed-up money.  Nice try, but every spending line in the budget has a sponsor and a constituency. And, practically every cut ultimately calls for lopping off some government workers (who may be union members or protected by Civil Service) or contractor employees.  As VP, Al Gore took a noble shot at “reengineering” the government for greater efficiency.  He eventually gave up and went after a more modest challenge: global climate change.

Option 2: Raise corporate taxes, ostensibly by just closing loopholes.  Remember every so-called loophole has a constituency and a purpose. Does this seem like a time to further threaten global competitiveness and risk spiraling the recession into a depression?

Option 3: Hit the top 5% with even bigger tax hikes.  Despite it’s inherent populous appeal, this tactic could just aggravate another cycle of aggressive tax avoidance.

Option 4: Take back the “tax relief” promised to the 95% and make everybody buy a ticket to ride – even if their “fair share” is just a small token amount.  This approach could raise some serious money since there are a lot of people in the 95%. But it wouldn’t be politically survivable.  Just ask President Bush Forty-One.

Option 5: Continue to deficit-spend like drunken sailors. After all, it was easy to approve a $700 billion bailout, complemented with $150 billion in earmarks.

Sure, the last option – more deficit spending — would pass another trillion or two in national debt on to our sons and daughters. So what? The overwhelming majority of them craved change and voted for Obama. It’s poetic justice for them get stuck with the bill.

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Glub, glub, glub … mortgages under water.

November 20, 2008

Excerpted from WSJ, “How to Help People Whose Home Values Are Underwater”, Feldstein, November 18, 2008

* * * * *

More than 12 million homeowners now have mortgage debt that exceeds the value of their homes.

That gap is typically already very large. Half of the homeowners with negative equity now owe more than 120% of the value of their homes … on average, that’s about $40,000.

If  house prices continue to fall at the current rate for the next 12 months, as experts generally expect, the median loan-to-value ratio of negative-equity homeowners will increase to more than 135%.

* * * * *

These negative-equity homeowners have an incentive to default because mortgages are generally “no recourse” loans. That means creditors can take the property if the individual defaults, but cannot take other assets or income to make up the difference between the unpaid loan balance and the lower value of the house. As a result, mortgage default rates are now rising rapidly and are expected to go much higher.

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Full article:
http://online.wsj.com/article/SB122697004441035727.html

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Purina Joins "Marley & Me" in Hollywood

November 20, 2008
Excerpted from Brandweek “Pet-Friendly Purina Pounces on ‘Marley & Me'” by T.L.Stanley, November 2, 2008
* * * * *
Before there’s a script, or A-list stars or name brand director, what’s to love about a feature film in its most nascent stages?

Answer: A big, goofy, trouble-making dog.
 
Nearly as soon as 20th Century Fox secured the movie rights to Marley & Me: Life and Love with the World’s Worst Dog, Nestlé’s Purina was ready to pounce.
 
That was long before Jennifer Aniston and Owen Wilson made deals to star in the comedy, and Oscar-winning director David Frankel was hired.
 
The pet products marketer signed on as a promotional partner for the all-family comedy…worked with Frankel for product integration, designed a national contest and agreed to hype the DVD as aggressively as the feature release. The details are noteworthy because Purina is a newbie to Hollywood tie-ins..
 
Frankel…will serve as the spokesman and top judge for Purina’s “send us your Marley moments” contest, asking consumers to submit videos of their rascally mutts. In what could be a first for the medium, the Marley DVD will contain some of those consumer-generated videos as bonus features.
 
Marley & Me fit seamlessly into the existing Purina ad campaign that focuses on the endearing qualities of man’s best friend under the tagline, “Long Live Your Dog.”
 
The contest, via longliveyourdog.com, will get its first national TV boost during the Thanksgiving airing of The National Dog Show, a Purina-sponsored event on NBC..
.
The brand will appear in key mischief-making scenes in the movie where Marley is ripping into a bag of Puppy Chow and being bribed with Dog Chow by a hapless pet sitter..
.
“We know we really need to stand out,” said Rita Drucker, Fox’s senior vp-feature film promotions. “We can’t bank solely on the awareness and popularity of the book. So we put together deals that would help convey the big broad appeal of the movie.”
The PG-rated comedy will be positioned as perhaps the one choice at the multiplex that everybody in the family can agree on, Drucker said. With the success of Beverly Hills Chihuahua and another Disney dog picture, Bolt, on deck, could there be canine overload at the box office? It’s doubtful, said Paul Dergarabedian, president of tracking firm Media by Numbers. “They’re thematically different enough that it likely won’t matter that they’re coming close together. Besides, dogs are hot right now.”
 
Edit by SAC

Full article:
httphttp://www.brandweek.com/bw/content_display/news-and-features/licensing/e3i397aa99d2932d77d4691144ef42c8dbe

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Excerpted from Brandweek “Pet-Friendly Purina Pounces on ‘Marley & Me'” by T.L.Stanley, November 2, 2008

Posted in Mktg - Promotion | Leave a Comment »

Head to Japan, Not China for New Product Launches

November 20, 2008

Excerpted from Ad Age “Want to Know Where to Launch a New Product?” by Marissa Miley, October 28, 2008 

* * * * *

The best place to introduce a new product: Japan. The worst place: China.

Those are among the findings of a new study…called “Global Takeoff of New Products: Culture, Wealth or Vanishing Differences,” which claims to be the first global analysis of its kind…

The study…looked at data for consumer household products over 50 years and across 31 developed and developing countries. To rank the countries, they created an “innovativeness metric” based on the time it takes for new products to take off in a particular country.

A product “takes off” in a country…when it has started to grow rapidly, moving from being used by a few people to being used by the mass market. The time it takes depends on a number of variables: the economic strength and cultural mores of the country, as well as the price and category of the product. Nations with the shortest time to new-product takeoff landed at the top of the list.

Japan, Norway and Sweden came in first, second and third, respectively. The U.S. came in sixth…Oddly, two of the countries normally considered fast-growing, India and China, were on the bottom…

The study can save marketers “a lot of time [and] get quick results…This ranking of countries tells you which to launch in first.” The authors recommend a “waterfall” approach to launches, staggering them from one country to the next, and they created a hazard model for the study to determine how many years it will be before products “take off” in a national market.

For the study, the co-authors analyzed two different kinds of consumer household products: “fun” products that provide entertainment, such as MP3 players and cellphones; and “work” products that improve work efficiency, such as microwaves and washing machines…”fun” products take off far more quickly than “work” products (7 yrs vs. 12 yrs), and therefore require different marketing strategies.

Fun products take off more quickly because they are “more glamorous, more visible…We don’t go house to house boasting about our vacuum cleaner, but we do for our cellphones.” In these cases, the authors suggest that marketers might benefit from using the “sprinkler” strategy, launching products in several countries at once.

Edit by SAC  

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Full article:
http://adage.com/cmostrategy/article?article_id=132082

 

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Posted in Mktg - Product & Innovation | Leave a Comment »

Declaring war: First shots fired in tax payers’ revolt.

November 19, 2008

A potentially fatal flaw in President-elect Obama’s tax plan is its implicit assumption that the dwindling group of citizens left paying income taxes won’t change their ways – except for allowing more of their earnings to be copped by the government for redistribution. 

Vice President-elect Biden has declared that such socio-economic passivity would be patriotic.  Cynical observers characterize the behavior more clinically as “bending over”.

While my observed sample is admittedly small and may not be representative of a broader population, I’m seeing the early stages of a full blown tax payers’ revolt.  Now that the ballots have been counted, some of the folks left holding the tax bag are hatching plans to vote again – this time with their pocketbooks,  Many are dusting off pre-Reagan tax planning playbooks to defer or avoid as much of Obama’s added tax burden as they legally can.

How they’re doing it 

For example, many people are doing the obvious: taking capital gains now at the current 15% rate and reinvesting in “like grade and quality” securities that they plan to hold until the capital gains rate comes back down (as it eventually will – it always does). 

Other folks are moving money to tax-free bonds and tax deferred annuities – accepting lower apparent returns just to avoid higher taxes.  

More daring investors are redeploying capital out of the U.S. – opening off-shore accounts and buying real estate in foreign locales. 

A few of the most aggressive folks are seriously pursuing citizenship in more tax-friendly nations.  One friend-of-a-friend has already moved to Mexico and changed her family’s citizenship. 

Then, there’s “income management”. Those who are close to the $250,000 threshold are managing their incomes to slip under the tax-exploding trigger. Why work 60 hours per week for the same after tax income as working, say, 40 hours?

Some corporate execs are reportedly lobbying compensation committees to get annual bonuses accelerated into the 2008 tax year. Tax-deductible expenses (e.g. December’s mortgage payment, charitable gifts) are being delayed until after the first of the year – when they’ll provide a bigger tax advantage.

* * * * *

Why they’re doing it 

Why all these shenanigans ? For some tax payers, it’s simple economics; for others, it’s personal.

Many folks in the much maligned top 5% — and many in the next lower layers who suspect that they’ll be the next targets – are feeling a bit disenfranchised at the moment. They tip their hats to Obama for compiling a formidable voting block of constituents who ride free with no income tax liability or get paid to ride – receiving refundable credit checks from the government. And, they know that when Obama’s tax plan goes into effect, the free riders will constitute a voting majority.

Some narrow-minded tax payers just don’t see the inherent fairness of wealth redistribution that Obama and Biden see. Many “top-fivers” are ready and willing to pay a little more in taxes for schools, roads, and tanks, but bristle at the notion of having their hard earned money redistributed to folks that Barack Obama considers more deserving. They say: that’s not the American way. In fact, some consider it to be bordering on taxation without representation – a traditional American no-no.

All of this presents the President-elect with a mega-challenge: he has promised many additional high cost government programs, but his plan reduces the number of folks paying taxes, the slow economy is cutting incomes (hence, there’s less to tax), and if my observations are right, the surviving group of tax payers is working feverishly to pay as little in taxes as the law allows.

So, one might ask: where is the soon-to-be President Obama going to get the money he needs to fund his ambitious programs?

* * * * *
(to be continued tomorrow)

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Posted in Government & Politics, Taxes | Leave a Comment »

Pretty soon they’ll be the Little 3 … then the Dead 3 … and we’ll be $25 or $50 billion lighter.

November 19, 2008

Excerpted from IBD, “If No Givebacks, Then No Bailout”, November 17, 2008

* * * * *

Today the total market capitalization of the Big Three has fallen to about $7 billion. Is it better for the owners of those companies to suffer a total loss or for taxpayers to lose $25 billion?

* * * * *

American carmakers in 1960 owned 90% of the U.S. auto market. This year, for the first time ever, that share slipped below 50%.

Japan’s Big Three — Honda, Nissan and Toyota — make anywhere from $900 to $1,600 in pretax profit on each car they make in North America (mostly in southeastern states, with non-union contracts). America’s Big Three, by comparison, lose anywhere from $400 to $1,500.

* * * * *

Thanks in part to managerial incompetence, but mostly due to pricey union contracts, it costs American carmakers too much to build cars here; they can’t compete. These aren’t temporary problems. They’ve been brewing for decades, as management agreed over and over to labor deals that now financially strangle the industry.

When you fold in health care, pensions, hourly pay, vacations and the rest, average total compensation for a Big Three autoworker is $73.21 an hour, according to data cited by University of Michigan economist Mark Perry.

Toyota, Honda and Nissan pay a still-generous $44.20 an hour in total compensation — a cost edge of nearly 40%. Is it any wonder that Ford, GM and Chrysler can’t compete? Or that, after paying their workers, they never have enough cash left to retool?

Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=311818292128101

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Pepsi Overhaul: Cutting Jobs & Changing Logos

November 19, 2008

Excerpted from AdAge “PepsiCo Launches Massive Overhaul” by Natalie Zmuda, October 14, 2008

* * * * *

PepsiCo said it will pour some $1.2 billion over three years into a push that will include sweeping changes to its brands, including …  a revamp of “every aspect of the brand proposition for our key [carbonated soft drink] brands. How they look, how they’re packaged, how they will be merchandised on the shelves, and how they connect with consumers.”

Included is the redesign of many of the brands’ packaging graphics, as well as a redesign of the Pepsi globe logo. The white band in the middle of the logo will now loosely form a series of smiles. A “smile” will characterize brand Pepsi, while a “grin” is used for Diet Pepsi and a “laugh” is used for Pepsi Max. Also, Mountain Dew will be rebranded as Mtn Dew…

Time for strong action
It is our belief that, especially, in this economic downturn, we should be investing in the category to get consumers to stay with and some to return to the packaged liquid refreshment beverage category and to our brands, in particular.”

PepsiCo said the $1.2 billion will come from its “Productivity for Growth” program, which involves the elimination of 3,300 positions, as well as the closing of six plants… “The majority of the savings will be invested in our businesses. A primary focus will be restoring growth to our North American beverage business. At the same time, we will increase our investment in developing markets, make selective investments to continue growing our global snacks business and accelerate our global R&D initiatives to help secure our future innovation pipeline.”

During the third quarter, PepsiCo Americas Beverages reported a 2.5% volume decline, with a 4% decline in North America, specifically. North American carbonated soft-drink volume dropped 3%, while non-carbonated beverages declined 5%. Unflavored water and Propel saw double-digit declines during the quarter…

Gatorade in for a facelift
.”We’re initiating similar upgrades for the entire Gatorade line, which will have an entirely new contemporary identity, and there will be exciting innovations for both G2 and Tiger and a renewed Propel platform.” 

Beverages are more affected than snacks in this economy, because there is a free substitute: tap water. The last 12 to 18 months mark the first time the category is seeing a decline. “We’re saying goal one is to stem that decline . … It’s a critical source of profitability,”

 “Once we have a breakthrough on a natural low-calorie sweetener that can be used in colas, we have a reason to talk about this category growing again.” 

Edit by SAC
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Full article:
http://adage.com/article?article_id=131733

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Posted in Cost Management - Productivity, Mktg - Brands | 2 Comments »

The End of Green?

November 19, 2008

Excerpted from the New York Times, “Bailout (and Buildup)”, by Thomas L. Friedman, October 22, 2008 

* * * * *
Last week, U.S. retail gasoline prices fell below $3 a gallon — to an average of $2.91 — the lowest level in almost a year. Why does this news leave me with mixed feelings?

Because in the middle of this wrenching economic crisis, it would be a real source of relief for many Americans to get a break at the pump. Today’s declining gasoline prices act like a tax cut for consumers and can save $15 to $20 a tank-full for an S.U.V.-driving family, compared with when gasoline was $4.11 a gallon in July.

Yet, it is impossible for me to ignore the fact that when gasoline hit $4.11 a gallon we changed — a lot. Americans drove less, polluted less, exercised more, rode more public transportation and, most importantly, overwhelmed Detroit with demands for smaller, more fuel-efficient, hybrid and electric cars. The clean energy and efficiency industries saw record growth — one of our few remaining engines of real quality job creation.

But with little credit available today for new energy start-ups, and lower oil prices making it harder for existing renewables like wind and solar to scale, and a weak economy making it nearly impossible for Congress to pass a carbon tax or gasoline tax that would make clean energy more competitive, what will become of our budding clean-tech revolution?

“Is the economic crisis going to be the end of green?” asks David Rothkopf, energy consultant and author of “Superclass.” “Or, could green be the way to end the economic crisis?”

* * * * *

It has to be the latter. We can’t afford a financial bailout that also isn’t a green buildup — a buildup of a new clean energy industry that strengthens America and helps the planet.

First, Washington could impose a national renewable energy standard that would require every utility in the country to produce 20 percent of its power from clean, non-CO2-emitting, energy sources — wind, solar, hydro, nuclear, biomass — by 2025. About half the states already have these in place, but they are all different. It would create a huge domestic pull for renewable energy if we had a uniform national mandate.

Second, Washington could impose a national requirement that every state move its utilities to a system of “decoupling-plus”–shifting them from getting paid for how much electricity or gas they get you to consume to getting paid for how much electricity or gas they get you to save. Several states have already moved down this path.

Third would be to modify the tax code so that any company that invests in new domestic manufacturing capacity for clean energy technology — or procures any clean energy system or energy savings device that is made by an American manufacturer — can write down the entire cost of the investment via a tax credit and/or accelerated depreciation in the first year.

Finally, if Congress passes another stimulus package, it can’t just be another round of $600 checks to go buy flat-screen TVs made in China. It has to also include targeted investments in scientific research, mass transit, domestic clean-tech manufacturing and energy efficiency that will make us a more productive and innovative society, one with more skills, more competitiveness, more productivity and better infrastructure to lead the next great industrial revolution: E.T. — energy technology.

Edit by DAF

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Full article:
http://www.nytimes.com/2008/10/22/opinion/22friedman.html?ref=opinion

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Posted in Environment - Green | Leave a Comment »

Bold Stroke: Get investors to buy buy & rent distressed residential property … here's how & why

November 18, 2008

Some history
In the old days, investors would snatch foreclosed properties at bargain basement prices, rent them out for a couple of years, and bag the profits — paying taxes at capital gains rates.  Housing prices were increasing at a slow steady rate, but that was good enough.  Why? Ordinary income tax rates were high relative to capital gains rates, and gains on the sale of rental property were capital gains.  Investors could deduct depreciation when they owned and rented the property — creating a tax loss that could be applied to ordinary income. In effect, the investors were arbitraging the ordinary income tax rate against the capital gains rates,

Fast forward
Today, there are plenty of cheap properties on the market (think foreclosures).  Why aren’t investors snatching them up?  Well, in part because they fear the housing market hasn’t bottomed out, and in part because the tax laws aren’t as favorable as they used to be.

What happened?  Well, the “paper losses” from depreciation lost some value when rules were established to limit so-called “passive losses”. Then, ordinary income tax rates were slashed, narrowing the gap between ordinary income and capital gains rates.  The incentives to buy and rent property diminished.  Now, Obama plans to raise capital gains rates MORE than ordinary income rates — further diminishing the tax advantages of buying and renting.

The opportunity
Imagine a flood of private capital swooping in to buy distressed residential properties at current market values.  The benefits: takes properties off the market (for awhile) and potentially bids prices up (a little).  After the market stabilizes, the properties “naturally” flow back onto the market at an orderly pace.

How to do it

(1) Allow very accelerated depreciation on rental properties — say, 10 years — to increase the “paper” tax losses

(2) Eliminate passive loss limitations on residential rental property — allowing unlimited rental property losses to be applied to ordinary income (and carried forward, if necessary)

(3) Cut the capital gains tax rate to ZERO on residential property purchased after, say, November 15, 2008 — re-establishing the incentives for investors to buy, rent, and sell

* * * * *

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Are those Warren Buffett’s fingerprints ?

November 18, 2008

Excerpted from Portfolio.com, “The End of Wall Street”, Lewis, Nov. 14, 2008

* * * * *
“As an investor, Eisman was allowed on the quarterly conference calls held by Moody’s . The C.E.O. even invited Eisman and his team to his office for a visit in June 2007. By then, Eisman was so certain that the world had been turned upside down that he just assumed this guy must know it too. “But we’re sitting there,” Daniel recalls, “and he says to us, like he actually means it, ‘I truly believe that our rating [of sub-prome mortgage backed securities] will prove accurate.’ And Steve shoots up in his chair and asks, ‘What did you just say?’ as if the guy had just uttered the most preposterous statement in the history of finance. He repeated it. And Eisman just laughed at him.”

“With all due respect, sir,” Daniel told the C.E.O. deferentially as they left the meeting, “you’re delusional.”
This wasn’t Fitch or even S&P.

This was Moody’s, the aristocrats of the rating business, 20 percent owned by Warren Buffett.”

* * * * *

Ken’s Take: How come Mr. Buffett gets a pass on this mortgage mess?  Until this article, I hadn’t seen his ownership stake in Moody’s — which rated the toxic assets AAA — mentioned anywhere.

* * * * *

For an “inside baseball” narrative of the sub-prime mortgage backed security mess — the best I’ve seen —
read the full article :
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom

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Serious Problems at Sirius XM

November 18, 2008

Excerpted from BusinessWeek, “Sirius XM Radio Faces Sky-High Debt”, by Olga Kharif, October 22, 2008, AND Knowledge@Wharton, “Tuning in a Post-Merger Strategy: Sirius XM Must Cut Costs and Build Its Case”, published September 3, 2008

* * * * *

Sirius, which completed a merger with XM in July, is facing a serious cash squeeze. It has more than $1 billion in debt coming due next year, and it doesn’t have the money, at least not yet.

Despite the merger and a combined 18.6 million subscribers, Sirius XM has seen its stock tumble from 3.94 last December to 31¢ as of Oct. 22. Beyond the funding squeeze, the company faces a tough economy in which consumers may cut back on its service, which costs $7 to $17 per month. Barclays Capital estimates that Sirius needs to raise $750 million to $800 million to cover its debt repayments, programming costs, and capital spending for next year.

The company is struggling with a problem of its own making. Sirius signed top talent—including Stern, Martha Stewart, and Oprah Winfrey—to draw in subscribers. But programming costs have triggered heavy losses. Sirius pays $60 million annually to broadcast Major League Baseball games, plus an estimated $80 million yearly to Stern and his team. Goldman Sachs predicts Sirius will lose $564 million next year as revenues climb 12%, to $2.7 billion.

* * * * *

In many respects, Sirius XM is a paradox, say experts at Wharton. On one hand, Sirius and XM argued that the merger should be approved because the combined company would be a small player in a big audio entertainment market. But the same argument that won FCC approval for Sirius XM also illustrates what a tough battle the company faces.

In other words, Wall Street believes that Sirius XM has shaky prospects even though it’s a monopoly. Sirius XM is in a “make or break” moment where it has to deliver on merger synergies, cut costs and attract new customers while keeping current ones.

* * * * *

Yet Wharton marketing professor Eric Bradlow says that the market for satellite radio may not be as large as CEO Mel Karmazin hopes. Bradlow argues that the company is still too dependent on automobile sales for subscribers in an economy where consumers are buying fewer cars and cutting back on discretionary spending. And the competition for audio entertainment is fierce.

* * * * *

Wharton marketing professor Peter Fader says the company needs a marketing makeover, advocating a potential name change and a marketing message that defines Sirius XM as a music service, plus an interactive content and entertainment provider. He says Sirius XM should also distance itself from being so closely affiliated with automakers.

“Sirius XM is too dependent on the car. The company is implicitly telling people that this is the only place you can use it. The company should explicitly disassociate itself from its car strategy. Come up with a proposition that can compete with the iPod,” says Fader. “I’m calling for a marketing makeover. Dump both names (Sirius XM) because both are tightly linked to satellite radio. The company should be saying, ‘Here’s a music and entertainment service that’s available on every platform every place. And it’s commercial free.'”

* * * * *

Wharton experts agree that Sirius XM may have to be reinvented to effectively compete with the iPod and other music services, but they note that there’s a market to be addressed. For instance, Fader says that the iPod lacks the surprise factor that radio can provide. Meanwhile, Internet radio services offer interactive features, but for the most part aren’t portable.

“I do believe a middle ground (between the iPod and radio) exists. A device could store MP3s, get updates with new songs by satellite and Wi-Fi for listening when you’re not connected,” suggests Fader. “No one cares about the technology behind the service. It’s all about the consumer experience.”

* * * * *

In a research note Aug. 14, Citi analyst Tony Wible wrote that, “Reports of a new Internet streaming application that would allow Sirius XM users to get content on their iPhones and other portable devices are now emerging and highlight that (the company’s) value lies in its content and not its hardware or infrastructure,” says Wible, adding that a Sirius XM collaboration with Apple could allow the satellite radio company to cut costs while adding subscribers. For its part, Sirius XM could generate demand for music sales on Apple’s iTunes.

* * * * *

Analysts say that, ideally, satellite radio will ultimately become just another channel on an integrated multimedia device.

Before then, however, Sirius XM will have its hands full squeezing inefficiencies out of its business.

Edit by DAF

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Full articles:
http://www.businessweek.com/magazine/content/08_44/b4106000485006.htm & http://knowledge.wharton.upenn.edu/article.cfm?articleid=2042 

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Posted in Satellite Radio & TV | 1 Comment »

Not Lovin’ It – McDonald’s Quality Push Hits Packaging

November 18, 2008

Excerpted from Ad Age “McDonald’s Gives Packaging a Flashy Update” by Emily Bryson Yor, October 29, 2008

* * * * *

McDonald’s is scrapping its package design across 118 countries and 56 languages in …. the “biggest packaging initiative in the history of the brand.” The new look puts more emphasis on product and less on the brand’s iconic “I’m lovin’ it” tagline…McDonald’s is “putting the focus on food.” Each new package focuses on the item enclosed, with pictures of the sandwich or nuggets and a rallying cry, such as “There is only one” for Big Mac; “Full steam ahead” for the Filet-O-Fish; or “Share me nots” for chicken nuggets…
Nutrition information, pictures of ingredients and “I’m lovin’ it” are printed on the sides — de-emphasizing the tagline, which earlier was featured prominently at the top of each package. To subtly indicate freshness and quality ingredients, the new food bags have pictures of potatoes, lettuce, wheat, eggs and even farm machinery…a move from “100% I’m lovin’ it lifestyle,” to something that also assured consumers of product quality in a “young tonality”…
The redesign “is pretty inventive for the category,” said Ron Romanik…”I haven’t seen anything like it in the fast-food category, for sure. It’s almost Nike-ish.” Mr. Romanik estimated that McDonald’s may have paid as much as eight figures for the redesign. But the cost of implementation, he said, “would be almost impossible to calculate.”

The real cost would have to take into account that McDonald’s is “probably changing suppliers, printers, who they’re using for sourcing for their packaging,” he said. “One thing companies don’t like to do is switch suppliers. They try to get designers to design within the capabilities they already have so they don’t want to give anything on those margins.”

Ms. Dillon described the graphic-heavy look as an investment. “It will increase the perceptions about the quality of our food,” she said.

Edit by SAC  

* * * * *

The packaging change appears to be a part of a larger effort that McDonald’s has undergone to connect its food with high-quality ingredients. As part of these efforts McDonald’s has hired “Moms’ Quality Correspondents”.  These are real life moms that are given high-level access to McDonald’s facilities.  The moms keep journals of their experiences and the questions they ask of McDonald’s and then communicate with other mom’s online. 

McDonald’s also has put up billboards emphasizing product quality and devoted a separate website (http://cep.mcdonalds.com/qualityfood/index.jsp) for consumers to go inside a McDonald’s kitchen and meet McDonald’s suppliers.  After getting sucked into the website and watching both an Egg McMuffin and Big Mac being made I am no more likely to eat at McDonalds, but was left with a better understanding of how these products are made.

* * * * *
Full article:
http://adage.com/article?article_id=132111

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Must Read: The End of Wall Street

November 17, 2008

Excerpted from Portfolio.com, “The End of Wall Street”, Lewis, Nov. 14, 2008

The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in Liar’s Poker, returns to his old haunt to figure out what went wrong.

Fallen bull statue in Wall Street

To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. The essential function of Wall Street is to allocate capital—to decide who should get it and who should not. Believe me when I tell you that I hadn’t the first clue.

I stumbled into a job at Salomon Brothers in 1985 and stumbled out much richer three years later,The whole thing still strikes me as preposterous—which is one of the reasons the money was so easy to walk away from. I figured the situation was unsustainable. Sooner rather than later, someone was going to identify me, along with a lot of people more or less like me, as a fraud. Sooner rather than later, there would come a Great Reckoning when Wall Street would wake up and hundreds if not thousands of young people like me, who had no business making huge bets with other people’s money, would be expelled from finance.

In the two decades since then, I had been waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility.

At some point, I gave up waiting for the end. There was no scandal or reversal, I assumed, that could sink the system.

* * * * *

Meridith Whitney was an obscure analyst of financial firms for Oppenheimer Securities who, on October 31, 2007, ceased to be obscure. On that day, she predicted that Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust.  Meredith Whitney caused the market in financial stocks to crash.  Her message was clear. If you want to know what these Wall Street firms are really worth, take a hard look at the crappy assets they bought with huge sums of ­borrowed money, and imagine what they’d fetch in a fire sale. The vast assemblages of highly paid people inside the firms were essentially worth nothing.

Now, obviously, Meredith Whitney didn’t sink Wall Street. She just expressed most clearly and loudly a view that was, in retrospect, far more seditious to the financial order than, say, Eliot Spitzer’s campaign against Wall Street corruption. If mere scandal could have destroyed the big Wall Street investment banks, they’d have vanished long ago. This woman wasn’t saying that Wall Street bankers were corrupt. She was saying they were stupid. These people whose job it was to allocate capital apparently didn’t even know how to manage their own.

* * * * *

Hooked ?

For an “inside baseball” narrative of the sub-prime mortgage backed security mess — the best I’ve seen —
read the full article :
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom

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Bold Stroke: Cut capital gains rate on stock … to ZERO … here’s how & why

November 17, 2008

McCain was onto something when he proposed cutting the capital gains rate to 7.5% for the next year or two.  But, he left the idea half-baked and, as usual, didn’t communicate it very well

Here’s my bold stroke:

How:
Cut the capital gains rate to ZERO on stocks (not derivatives or other funky financial products) that are purchased after, say, November 15, 2008 and held for 12 months or until January 1, 2010 — whichever is longer.

Why:
The market seems to be a buying opportunity now, but investors are reluctant to jump in.  Why? Because of fear that (1) the market hasn’t bottomed — lending is stalled, TARP is a mess, earnings are deteriorating (2) Obama hasn’t backed off on his plan to increase capital gains rates.

The 2nd fear is the easiest to fix.  Eliminating the capital gains taxes on “new” stock purchases would tilt the risk-reward equation a bit.  Maybe enough to draw some capital off the sidelines and into the market — boosting stock prices, or at least providing some low-end support.

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Posted in Financial Crisis, Financial Services & Crises, Stock Market | 1 Comment »

One man’s stimulus is another man’s redistribution … think about it.

November 17, 2008

Excerpted from WSJ, “Why Spending Stimulus Plans Fail”, Riedl, Nov. 14, 2008

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Government stimulus bills are based on the idea that feeding new money into the economy will increase demand, and thus production.  They always fail.  There’s a simple reason why. What Congress gives to some it takes away from others.

Where does government get this money? Congress doesn’t have its own stash. Every dollar it injects into the economy must first be taxed or borrowed out of the economy. No new spending power is created. It’s merely redistributed from one group of people to another.

Advocates of stimulus respond that redistributing money from “savers” to “spenders” will lead to additional spending.

That assumes that savers store spare cash in their mattresses, thereby removing it from the economy. In reality, nearly all Americans either invest their savings (where it finances business investment) or deposit it in banks (which lend it to others to spend). The money gets spent whether it is initially consumed or saved.

Governments don’t create new purchasing power out of thin air. If Congress funds new spending with taxes, it is redistributing existing income. If the money is borrowed from American investors, those investors will have that much less to invest or to spend in the private economy.

Yet Congress will repeatedly borrow money from one group of people and then give it to another group of people and tell us we’re all wealthier for it.

It’s time for lawmakers to stop futilely trying to wave the magic wand of short-term “stimulus” spending, which threatens to push the deficit above $1 trillion. Focusing on productivity will build a stronger economy over the long run and leave America better prepared to handle future economic downturns.

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Full op-ed:
http://online.wsj.com/article/SB122663413095027641.html

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Ken’s Take: It often frustrates me that people don’t understand that corporations and the government are simply stewards of other people’s money.  When you tax a corporation, you’re simply taxing investors or customers (via higher prices); when the government spends, it’s spending tax payers money — there is no “government money”.

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Netflix and TiVo Expand Their Niche

November 17, 2008

Excerpted from the Associated Press, “Netflix, TiVo Team Up After 4-Year Courtship”, by Michael Liedtke, & BusinessWeek “TiVo Does Netflix”, by Cliff Edwards, October 30, 2008 

* * * * *

Netflix . and TiVo . are finally joining forces to deliver more movies and old TV episodes to their mutual subscribers, consummating a relationship that was supposed to come together four years ago.

Under the partnership , the latest generation of TiVo’s digital video recorders will be able to beam selections from 12,000 movies and TV shows offered through Netflix’s streaming service, which must be piped over high-speed Internet connections. 

TiVo ended July with 3.6 million subscribers and Netflix ended with 8.7 million subscribers. The streaming service is available at no extra charge to any Netflix subscriber paying at least $8.99 per month for DVD rentals — a prerequisite that most customers meet.

* * * * *

Both companies have been moving aggressively to add more value to their services.

Netflix now has struck deals with Microsoft, Sony, Samsung, LG and Roku to deliver movies and TV shows through televisions, set-top boxes and game consoles.

TiVo, which charges a monthly or lifetime service fee, has expanded from its partnership with Amazon’s Unbox video service. In recent months, it has added CinemaNow and Jaman movie downloads and the Rhapsody movie subscription service.

Netflix is a bigger deal to TiVo because people who own the standalone box won’t have to shell out any additional cash. It might one day become an industry-changing deal if Hollywood opens the floodgates on the amount of content they license to Netflix and offers more current movies for streaming.

Most anyone who owns a TiVo will tell you how much they love it … but the service remains a niche product. Potential customers have balked at both paying for the box and monthly service. Each announcement of additional functionality helps overcome that reticence and offers another proof-point that TiVo has a lot of life left in it still.

* * * * *

In addition, the growing selection of streaming devices could help boost Netflix’s profits by causing subscribers to request fewer DVDs. Each DVD rental makes a round trip through the postal service that costs Netflix 84 cents, so fewer requests will lower expenses.

Netflix still has to pay movie and TV studios licensing fees for the streaming rights, but that doesn’t cost as much as mailing DVDs.

“Netflix has really stumbled upon something that’s pretty clever  …  the customer gets the instant gratification of watching a movie over the Internet, studios get more licensing fees and Netflix saves money.”

Edit by DAF

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Full articles:
http://www.businessweek.com/ap/financialnews/D944J9SG2.htm & http://www.businessweek.com/the_thread/techbeat/archives/2008/10/tivo_does_netfl.html?chan=top+news_top+news+index+-+temp_technology

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Posted in AMS Concepts-Frameworks-Examples, Digital Media | Leave a Comment »

AT&T’s iPhone – The cost to acquire customers … lots of them

November 17, 2008

Excerpted from the New York Times, “Even AT&T Is Startled by Cost of iPhone Partnership”, by Laura M. Holson, October 22, 2008

* * * * *

AT&T’s successful relationship with Apple comes at a price: $900 million.

That is the amount of money AT&T paid to Apple for the 2.4 million iPhones the phone company sold in the third quarter. It is a number that surprised even AT&T, which did not anticipate such huge demand for the smartphone.

The company said that it expected to make up the difference in iPhone-related revenue over the two-year contracts of the iPhone buyers. Users of smartphones, like the iPhone, are heavy users of the Internet and text messaging, which are more profitable for AT&T than voice calls. Those customers also tend to spend more than customers who use their telephones just to make calls.

“We are winning share at the high end,” Ralph de la Vega, the executive overseeing AT&T’s wireless operations, said in a conference call with analysts. Same-store traffic to AT&T retail centers has increased 15 percent, largely because of interest in Apple’s phone, he said. With the iPhone, he said, “there is a significant halo effect.”

Investors, though, might be forgiven if they missed any halo after watching AT&T’s shares drop Wednesday by $1.95, or 7.6 percent, to close at $23.78. Analysts said the iPhone’s negative impact on earnings caught them and investors off guard.

There is also uncertainty — if sales of the iPhone continue at this pace — about how much more AT&T will have to pay Apple next quarter.

But Roger Entner, a senior vice president at IAG Research, which studies market trends, said iPhone sales made now would pay off in the long term because they provide AT&T with more predictable earnings.

“That is a short-sighted view,” Mr. Entner said of concerns about iPhone sales. “It is a nice problem to have.”

Edit by DAF

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Full article:
http://www.nytimes.com/2008/10/23/technology/companies/23phone.html?ref=business

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Posted in Mktg - Customer Acquisition | Leave a Comment »

The "Barack Effect" on the stock market … and a remedy

November 14, 2008

Reminder: I made my election predictions on November 3, 2008. OK, McCain didn’t eek out a win. But, I also predicted:

“If Obama wins, and the Dems fail to reach a 60 in the Senate, the Dow will close Wednesday below 9,000 — will hit 7,500 before the end of the year — will fight back to around 10,000 — and will hover around 10,000 for a long, long time.”

I didn’t foresee the election day rally, so the steep day-after drop didn’t quite push the market below 9,000.  But, in the week since, it has gone down 14%.

Note: My prediction stands that if the Dems win Georgia, Alaska, and Minnesota to get to 60 Senate seats, the market will drop 1,000 points faster than you can click your fingers.

Keep reading …

* * * * *

Excerpted from WSJ, “A Barack Market”, November 13, 2008 

The voters may be full of hope about the looming Obama Presidency, but so far investors aren’t. No President-elect in the postwar era has been greeted with a more audible hiss from Wall Street. The Dow has lost 1,342 points, or about 14%, since the election

Much of this is due to hedge fund deleveraging, as well as dreadful corporate earnings reports and pessimism that the recession will be deeper than many had hoped. But there’s little doubt that uncertainty, and some fear, over Barack Obama’s economic agenda is also contributing to the downdraft.

The substance of what Mr. Obama has promised for the economy is bearish for stocks. The threat of higher tax rates, especially on capital gains and dividends, now may be getting priced into the market. Add that to investor doubts about Democratic policies on unions, health care and trade — and no wonder stocks are falling. Lower stock prices in turn reduce household net worth, thus slamming consumer confidence and contributing to what appears to be a consumer spending strike.

If Mr. Obama wants to reassure markets, he could announce that he won’t be raising taxes for the foreseeable future. This no-tax-hike declaration is a “stimulus” that would cost the U.S. Treasury nothing.

In the current market, there won’t be many capital gains and few companies will have surplus earnings to pay out in dividends. A higher tax rate on zero gains yields zero revenue, so what’s the point of raising rates?

What markets want to see from Mr. Obama is a sense that the seriousness of this downturn is causing him to rethink the worst of his antigrowth policies.

Full editorial:
http://online.wsj.com/article/SB122653625916922633.html

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Ken’s Take:

The editorial  advises the President-elect to reassure markets by announcing that he won’t be raising taxes for the foreseeable future.

I suggest a bolder stroke with more upside potential: reduce the capital gains rate to ZERO  for stocks bought between, say,  November 15, 2008 and December 31, 2010 that are held at least 12 months or until January 1, 2010 — whichever is longer.

This move would radically tilt the risk-return balance by eliminating the looming capital gains rate risk, and by increasing the after-tax rates of return for investors who step-up now when we need them. It would do more than reassure the markets.  It would pull cash in from the sidelines. Perhaps, a lot of cash.

And maybe, if the impact is grand enough, the program would be extended beyond 2010.  Imagine that.

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Posted in Stock Market, Taxes | Leave a Comment »

Mortgages: the fine print … that our crack Congressmen didn’t read

November 14, 2008

Excerpted from Wash. Post, “Foreclosure Relief Is Getting Lost In Fine Print of Loans”, November 13, 2008

* * * * *

More than a year into the foreclosure crisis, whether a distressed homeowner is eligible for a more affordable mortgage can often come down to the fine print.

That fine print in contracts that govern mortgages bundled into investment pools dominated a House Financial Services Committee hearing yesterday as lawmakers questioned lenders.

Millions of loans are held in these pools, called securitizations. They are governed by contracts that dictate what changes can be made to the loans. Lawmakers and industry officials debated yesterday the degree to which those agreements are making it difficult to modify a homeowner’s loan and thus hampering foreclosure prevention efforts.

The rules vary depending on the investment group. Some “may prevent [loan servicers] from doing modifications [to loans].  Under some contracts loan modifications are expressly disallowed.

Lenders have had the most success modifying mortgages they own but run into trouble when they administer the loans held in pools for others, known as servicing. Securitized mortgages are the great majority of those in foreclosure or threatened foreclosure. 

“Macroeconomic forces bearing down on an already troubled housing market are simply too strong for private sector loan modification initiatives alone to counteract the nationwide increase in mortgage defaults and foreclosures.”

* * * * * *

HUD’s loan modification program — Hope for Homeowners — was expected to help 400,000 borrowers get new loans. But lenders have balked at a requirement to lower the principal owed on the loan to qualify for a refinancing deal under the program.

So far the program has helped only 42 homeowners, and HUD now expects only 20,000 applications over the next year.

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Ken’s Take: Didn’t anybody in the Congress realize this before voting to approve the $700 billion bailout?  Most folks perform more due diligence when they buy a car.

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Full article:
http://www.washingtonpost.com/wp-dyn/content/article/2008/11/12/AR2008111202845.html

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Pepsi's New Logo – The Real Cost

November 14, 2008

Excerpted from Ad Age “What Went Into the Updated Pepsi Logo ” by Natalie Zmuda, October 27, 2008

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How long does it take to remake an icon? Try five months.
That’s the amount of time Pepsi took to revamp its famous logo…Pepsi would not discuss what it’s paying for the revamp, but experts estimate the cost for a top firm to work five months at north of $1 million. But that’s just the beginning.
The real cost, said an expert, is in removing the old logo everywhere it appears and putting new material up. For Coke or Pepsi, when you add up all the trucks, vending machines, stadium signage, point-of-sale materials and more around the world, it could easily tally several hundred million dollars, the expert said.

The new logo is a white band in the middle of Pepsi’s circle that loosely forms a series of smiles: A smile will characterize brand Pepsi, while a grin is used for Diet Pepsi and a laugh is used for Pepsi Max. The new logo is Pepsi’s 11th…Five logos have been introduced in the past 21 years, with the last update in 2002…

Consumers won’t see a new campaign for a while…the launch isn’t expected until 2009… 

 

So far, branding experts are in both camps. “It’s tilting the brand presentation from a classic expression of uniqueness and quality into something more humorous, almost flippant,” said Tony Spaeth, an identity consultant. “…it is less durable, less permanent and classic. It comes across as more of a campaign idea than an enduring brand expression.”

“This seems to be a really good solution. It feels like the same Pepsi we know and love, but it’s more adventurous, more youthful, with a bit more personality to it,” said Chris Campbell, executive creative director at Interbrand. “In theory, what they’re doing sounds like a really clever solution to link together a family of brands.”

 Edit by SAC 

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Full article:
http://adage.com/article?article_id=132016

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Citi mulls replacing Chairman … what's wrong with this picture?

November 13, 2008

Excerpted from WSJ, “Citi Directors Mull Replacing Chairman”, Nov. 13, 2008

* * * * *

“The board of Citigroup  is growing increasingly dissatisfied with the financial giant’s performance, and some directors are considering replacing Sir Win Bischoff as chairman, according to people familiar with the matter.

One leading candidate is Richard Parsons, Time Warner’s chairman and a member of Citigroup’s board.

Mr. Parsons ran a New York thrift in the early 1990s and is one of the few Citigroup directors with experience in financial services.

He also is part of President-elect Barack Obama’s transition economic-advisory board.

While Mr. Parsons is a leading candidate for the chairmanship, no choice has yet been made. One potential wild card is whether Mr. Obama will ask Mr. Parsons to take a prominent role in his cabinet.”

Full article:
http://online.wsj.com/article/SB122652480535921911.html?mod=testMod

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Time Warner financial performance.  (Note: NI down 33% from 2006 to 2007; 2008 is worse !)

 image

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Time Warner stock is the blue line; S&P 500 is the red line

image

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Ken’s Take: Both Citi and Barack seem to have quite an eye for talent. Isn’t it time to stop rewarding under-performance (and abject failure?)

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The government should save General Motors … why?

November 13, 2008

Excerpted from IBD, “Pulling Plug On GM Would Help Both Auto Industry And Michigan”,  John Tamny,  November 11, 2008

* * * * *

Ludwig Von Mises once wrote that the entrepreneur who fails to use his capital to the “best possible satisfaction of consumers” is “relegated to a place in which his ineptitude no longer hurts people’s well-being.”

General Motors … is the living embodiment of managerial ineptitude, and to ensure that it no longer fails its customers while harming the well-being of Americans more broadly, it’s essential to let the firm die.

GM’s continued existence under weak management has served as a capital repellant such that capital and jobs will continue to flee the state if GM is saved with the money of others.

* * * * *

Businesses rarely fail due to a lack of money. Instead, poorly run businesses find it hard to raise money in the capital markets. Government money allows the architects of bad decisions to continue making mistakes that cause a company to be capital-deficient to begin with. Capital is correctly searching for better opportunities.

Paradoxical as it sounds, GM’s bankruptcy would be a boost for Michigan’s economy and the U.S. auto sector generally.

Far from vanishing, many of GM’s assets would be quickly purchased by competent foreign automakers eager to expand their capacity in what is the world’s largest auto market. The list of well-run car companies, from Toyota to Nissan to Porsche, is long.

So while the cries of certain Armageddon would be ear splitting in the event of a GM failure, the U.S. auto sector would actually emerge much healthier thanks to a change in ownership that would be the certain result of GM going under.

* * * * *

In the end, the state of Michigan and the U.S. automobile sector are struggling not due to back luck, but precisely because they cling to a company that investors no longer value.

So rather than waste precious capital in the naive hope of propping up that which investors don’t value, it’s essential to let GM fail.

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Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=311297941730996

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Forging Ahead at Ford Motors … what a difference a week or two makes

November 13, 2008

Excerpted from New York Times, “Ford Says It Can Make It Without a Merger”, by Bill Vlasic, October 30, 2008

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Ken’s Take: Everything is fine in October.  Then, in the first week of November, Ford’s CEO shows up in Washington with a big tin cup.  Huh ?

* * * * *

With United States vehicle sales down nearly 13 percent this year, most car companies have been cutting production rather than increasing it.

But with 1,200 hourly workers cheering them on, top executives of the Ford Motor Company said Thursday that they would call back 1,000 laid-off workers to help build more trucks.

While its Detroit rivals General Motors and Chrysler wrestle over terms of a possible merger and seek help from Washington to survive the steepest downturn in the industry in decades, Ford says it can survive, and thrive, on its own.

Ford is gearing up for a new-product blitz that will replace 40 percent of its production with fresh models by next year. And the company — sandwiched between the bigger G.M. and the smaller Chrysler in Detroit’s traditional Big Three — hopes to take advantage of the potential merger of its rivals and the distractions that come with it.

“I don’t know what they’re going to be spending their time on if they’re merging,” said James Farley, Ford’s vice president for sales and communications. “But I know we’re spending our time on launching products.”

* * * * *

Ford is counting on a wave of product introductions to increase its revenue during the market downturn.

In addition to the F-150, Ford is bringing out new versions of its Taurus and Mustang passenger cars next year and accelerating development of a series of new smaller, more fuel-efficient vehicles.

Analysts say they believe Ford has some opportunity to take market share from G.M. and Chrysler if the two companies merge and go through a prolonged restructuring.

“Ford could definitely make some hay while all the turmoil is going on at G.M. and Chrysler and they try to put those two companies together,” said Joseph Phillippi, principal in the consulting firm AutoTrends in Short Hills, N.J.

Ford is moving faster than its rivals to replace its big, gas-guzzling S.U.V.’s with small cars. But any hope Ford has for a revival depends largely on strong sales of its new F-150 pickup.

Through the first nine months of the year, the F-series was still the top-selling vehicle in America. The new version, Ford executives said, is aimed directly at buyers who need trucks for work and other practical purposes, rather than because of their macho image.

Edit by DAF

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Full article:
http://www.nytimes.com/2008/10/31/business/31ford.html?ref=business

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The Election … some numbers

November 13, 2008

Excerpted from  TheHill.com , Dick Morris, November 11, 2008

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Turnout did not increase substantially. Despite predictions  of a vastly greater voter turnout, it didn’t happen. Turnout rose by about 5 million (4%) between 2004 (122 million) and 2008 (127 million).  In contrast, turnout increase almost 20% between 2000 and 2004.

As expected, Obama generated a big increase in African-American voter turnout. Exit polls estimate that blacks constituted 13 percent of the turnout in 2008, compared with 11 percent in 2004 and 10 percent in 2000.

But voters under 30 years of age were still the same 11 percent of the vote that they were in 2004. The surge of young voters failed to happen.

Full article:
http://www.vote.com/mmp_printerfriendly.php?id=1210

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Quick: Close your eyes and picture somebody in the top 5%

November 12, 2008

From the Tax Foundation:

“Throughout this year, rhetoric regarding cutting taxes for the “middle class” and raising taxes on “the wealthy” reached an unprecedented level as the economy took a turn for the worse, and the candidates focused more intently on the economic debate.

But, what remains unanswered is who are “the wealthy” and who comprises “the middle class”?

Currently, the top 5% of taxpayers already pay 60% of the income taxes in this country.  And the top 10% pays 70% of taxes. 

But, who makes up the top 5% and top 10%?

• They are largely dual-income married couples;

• They live in high-cost metropolitan areas and have average living standards;

• They are older workers, at or nearing their peak earning years;

• They are college educated; and

• They have business income.

They are the picture of most any suburban family.”

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Full report:
http://www.taxfoundation.org/files/dba37618d9c2d2df02f24766ac4cc39d.pdf

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Ken’s Take: I bet most folks picture Dick Fuld, Warren Buffett, or some sleazy-looking hedge funder …

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Long Tail ? No way. Give me Blockbusters.

November 12, 2008

Excerpted from HBS Online, “Long-Tail Economics? Give Me Blockbusters!”, John Quelch
September 10, 2008

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The importance of blockbusters has been challenged recently by Chris Anderson’s long tail theory that you can make money in many creative industries by selling specialized products to niche markets identified via the Internet.

For example, the new CEO of GlaxoSmithKline, the pharmaceuticals giant …  worries that a company is at risk if sales depend too much on one or two megabrands that could run into lawsuits from generic competitors or regulatory challenges.

On the other hand, the president of Warner Bros. (think Batman) aims “to take advantage of what has become a very global market by focusing on bigger films that require a bigger commitment.”

The pharmaceutical and entertainment industries are similar. R&D costs in both are high. Results are unpredictable. Drug research initiatives often result in dead ends but occasionally lead in an unexpected direction to a blockbuster result. Some big budget movies are flops, others are sleepers, still others meet expectations.

Of course, any company needs a portfolio of development projects, some with predictable sales results, others more risky. The former pay for the company’s daily bread and butter and fund R&D on future blockbusters.

More risky than pursuing blockbusters is not to pursue them, to condemn your enterprise to a lifetime of slave labor harvesting the long tail of micro-opportunities rather than imagining, pursuing, and marketing the global solution to an important, widely shared problem.

* * * * *

What then makes a blockbuster? Here are the Five S’s, the five defining characteristics of blockbusters.

Sheer size. A blockbuster has a transformational impact on a company and an industry, often opening up new markets worldwide. Blockbusters break sales records and exceed expectations. Around 100 pharmaceutical brands exceed $1 billion in annual sales. Procter & Gamble has 23 such brands.

Speed. It’s not just the sales volume; it’s the speed of the sales trajectory. Remember that the original blockbuster was a bomb that could destroy an entire city block. Blockbuster brands address pressing consumer needs so well that they often enjoy vertical sales liftoff.

Scarcity. A blockbuster brand is often in such high demand that stock-outs and shortages occur in the market. Remember the consumer lines to buy the new iPhone?

Sustainability. A blockbuster brand is not a one hit wonder. It is a gift that keeps on giving. Look at the seven Harry Potter books and five companion movies. Adding DVD and merchandise sales, theme parks, etc., Advertising Age valued the Potter economy at $15 billion.

Sizzle. A blockbuster does not just address an important need. It does so in an exciting and accessible way. Pfizer’s Lipitor was not the first cholesterol reducer but superior marketing and sales made Lipitor number one.

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Full article:
http://hbswk.hbs.edu/cgi-bin/print?id=6014

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