Archive for January, 2009

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The economic crisis in a nutshell …

January 13, 2009

Ken’s Take: This guy has really cut through to the essence of the economic crisis. Of course, problem identification is always easier than problem solution.

Still, simply memorize the following synopsis and you’ll impress folks at cocktail parties

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This economic crisis consists of three parts:

  • Mountains of bad loans, which are weighing down banks and other financial institutions
  • Rapid retrenchment by businesses, which is causing them to cut jobs and investment
  • Trillions of dollars in excess consumer debt, which is forcing households to cut back on spending.

These three factors together are feeding on each other:

  • Because banks are lending less, it’s harder for businesses and consumers to spend.
  • Because businesses are cutting workers so quickly, loan defaults are rising and it’s harder for consumers to pay back debt, and
  • Because consumer debt has risen from 96% of disposable income in 2000 to 130% of disposable income today, Americans are completely maxed out.
  • As a result, any job cuts immediately mean more loan defaults.

Excerpted from Business Week, Why Big Tax Cuts Are Essential, January 10, 2009
http://www.businessweek.com/the_thread/economicsunbound/archives/2009/01/why_big_tax_cut.html?chan=top+news_top+news+index+-+temp_news+%2B+analysis

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Michigan wants $2 billion for batteries … makes sense

January 13, 2009

Excerpted from WSJ: “UAW, Bondholder Talks Slow GM’s Revamp”, Jan.Y 13, 2009

Michigan Gov. Granholm … is looking to offer big incentives to car-battery companies and other suppliers to that industry to locate in her state.

Ms. Granholm said that as much as $2 billion in aid to the battery industry could be included in a stimulus package from the Obama administration.

Batteries have been one of the biggest hurdles for U.S.-based electric and hybrid vehicle manufacturers. Lithium-ion car batteries are made in volume in Japan, Korea and China, and auto makers have been concerned that if battery supplies tighten, Asian car makers will dominate access to the technology.

Full article:
http://online.wsj.com/article/SB123178365916774153.html

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Ken’s Take: Batteries are the key (and most costly) component in hybrid electric cars.  Currently, virtually no car-power batteries are made in the US.  It’s strategically critical that they are.  Otherwise, we trade one foreign dependency for another.

Reminder: Virtually no lithium is mined in the US.  Most comes from South America: Argentina, Chile, and Bolivia.

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Selling power, speed, and sex … (to utilitarians)

January 13, 2009

Excerpted from Marketing Daily, “Mintel To Mad Ave: Can The Sexy Car Ads” by Karl Greenberg, December 4, 2008

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Most consumers don’t see their cars as a chariot of the gods, a freedom machine, a wheeled camel for Lawrence of Arabia, an automatic chick/hunk magnet, or portable fountain of youth. Instead, they view their vehicles simply as functional and safe for getting around…

Mintel says its survey of car owners suggests that what most people actually feel behind the wheel, regardless of the name on the sheet metal is: responsible and practical, not sexy or powerful…Mintel asked consumers: “How do you feel when you are driving?” Three of the top four feelings chosen by respondents had to do with utility and security, per the firm, with 46% saying they felt “responsible”; 40% saying “safe”; and 37% saying they felt “practical.”

The more amorphous sentiments started further down, with 39% saying “happy” was the thing they felt behind the wheel…near the bottom of the list landed “powerful,” “fast,” and “sexy.” The bottom of the list was “rich”…60% believe the main purpose of a vehicle is to get from point A to point B…

“We found that for most people, driving a car or truck does not make them feel sexy, fast or powerful…The problem is that the auto industry is built on selling power, speed and sex. Those images are dynamic, but they don’t necessarily resonate with the majority of utilitarian, safety-focused drivers.”

Mintel also found that the top information sources that people use when researching new vehicles are word-of-mouth, car dealer brochures, consumer buying guides and the Internet.

Edit by SAC

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If car ads are meant to convey the “behind the wheel feeling,” they are missing the mark according to Mintel’s new study.  Most ads feature fast, sexy cars gliding around winding roads rather than practical, responsible drivers running daily errands safely.  However it is not clear from this study whether the “feeling behind the wheel” is motivating purchase.  While a driver may seek to feel safe and responsible behind the wheel ,the same driver may want the exterior of the car to scream fast, sexy and powerful.

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Full Article:
http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=96019

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Some brands die … and some dead ones come back to life

January 13, 2009

Excerpted from Brandchannel, “Brand Darwinism: When & Why Brands Falter & Die” By Barry Silverstein, Dec 22, 2008
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Much like living organisms, brands have a lifecycle…While some brands stand the test of time, others fade away soon after they come to market. What happens when it’s time for brands to die, and why?

A primary reason for brand fragility is the very nature of the brand world. Consider this: in 2006, over 20,000 new products were introduced just in the food and beverage category…While many new products may be extensions of an existing brand, imagine the number of new brand names embedded in that statistic… Fewer than 10% of all new products and services produce enough return on a company’s investment to survive past the third year…

Despite these enormous challenges, there are timeless brands that not only survive but thrive for decades. These brands remain relevant to consumers, and they consistently capture enough market share to prosper, even in tough economic times. But what about the brands that falter?

Some companies intentionally kill off older or weaker brands as part of their brand strategy. Ice cream maker Ben & Jerry’s is a case in point…the company regularly discontinues ice cream flavors in an effort to keep their stable of brands fresh and relevant…Ben & Jerry’s may treat the brand lifecycle with irreverence, but marketing managers at other companies who are forced to kill off a brand are likely not amused. After all, they invest considerable corporate resources in the brand launch. And their budgets—or maybe even their jobs—could become vulnerable when a brand dies…

The same kinds of painful decisions will soon by made by recently bailed-out American automobile manufacturers. The Big Three currently market over 100 different car and truck models through 15 different brands in the US…The problem for G.M. and other companies that must eliminate popular, long-standing brands is complex. While consumers may intellectually understand that brands don’t last forever, they get emotionally attached to them…

Another major reason brands die is the continuous upheaval that occurs in the brand world…when business conditions change. One of the most notorious contributors to brand mortality is business mergers and acquisitions…Each time a merger or acquisition occurs, a brand with a history, a significant market presence and a loyal following may disappear…

Whether it is declining sales, poor economic conditions or corporate mergers, brands will continue to die off, and some consumers will grieve their loss.

A recent he latest branding wrinkle is the marketing opportunity dead brands represent. In 2008, for example, Kellogg reintroduced a cookie brand called Hydrox, a competitor to Oreo that was discontinued in 2003…Kellogg may have decided it was less expensive to revive an old cookie brand with name recognition than launch one anew.

Apparently, reintroducing dead brands is a legitimate business…So don’t be surprised if, when a brand dies, you see it come to life again someday.

Edit by SAC

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Full Article:
http://www.brandchannel.com/start1.asp?fa_id=455

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Breathing life into the death tax … Obama’s fires first tax increase shot

January 12, 2009

Summary:  Under the Bush tax plan, death taxes — formally known as estate taxes — are due to expire in 2010.  But, President-elect Barack Obama and congressional leaders plan to move soon to repeal the move and keep the estate tax  at current levels.

Ken’s Take: Except for family owned businesses, this move is mostly symbolic (from the standpoint of tax collection).  Few estates are subject to the tax (especially since the stock and real estate markets tanked) , and there are plenty of tax maneuvers for minimizing the taxes paid.  The impact on family businesses that are being passed along to the next generation are huge.  I don’t understand why they don’t simply get carved out of the tax grab.

But, this news has the potential to move the markets — down, of course.  It’s proof positive that Obama is still intent on cranking up taxes.  It’ll start with the uber-rich, but with trillion dollar deficits, it’ll spread like wild fire. Just watch.

Sidenote: Despite what Team Obama will claim, canceling a programmed tax reduction ai a tax increase ! 

Here are some highlights from the source article.

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Excerpted from WSJ, Obama Plans to Keep Estate Tax, Jan 12, 2009  

The Democratic stance on the estate tax contrasts with Mr. Obama’s reluctance to press forward with his campaign pledge to raise income-tax rates on top earners, which he worries could have an adverse economic impact during a recession.

Under the Obama plan detailed during the campaign, the estate tax would be locked in permanently at the rate and exemption levels that took effect this year. That would exempt estates of $3.5 million — $7 million for couples — from any taxation. The value of estates above that would be taxed at 45%. If the tax were returned to Clinton-era levels, it would exclude $1 million from taxation with the rest taxed at 55%.

In making their case for the restoration, Democrats contend that such a large additional tax break … would increase the deficit … wouldn’t have any impact on the economy … and would help the the affluent who already have benefited handsomely from the Bush tax cuts.

They also reason that if they don’t act now, it will be politically harder to go ahead with their plan to resurrect the estate tax once it has disappeared.

For small-business groups ,,,the emerging Democratic plan marks a stark defeat.

At the level proposed in the Obama policy, all but the largest estates — fewer than 2% of annual deaths — would escape taxation.

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The estate tax was enacted in the early 20th century as a levy on wealth and inherited assets. It was later amended to allow a spouse to avoid the tax.

Initial efforts to repeal the estate tax — cleverly coined a “death tax” — was backed by affluent families such as the Mars candy family, the Gallo wine family and the heirs of the Campbell’s soup fortune. 

But sharp divisions in the coalition emerged between the super rich and the merely rich. Business groups have sought a measure of certainty with an estate tax that is free of graduated timelines or sunset provisions, with the largest possible tax exemption — $10 million, or $20 million per couple. The rate of taxation above that level was of little concern, since virtually every small business would be exempt from taxation.

Yet the super affluent who began the movement wanted the lowest possible rate, since even a $10 million exemption would leave the bulk of their estates subject to tax.

“The very wealthy, in their quest to reduce their exposure, made proposals that threw the small-business community overboard.” 

Full article:
http://online.wsj.com/article/SB123172020818472279.html

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Fannie moves to speed “short sales”

January 12, 2009

Background:  In the housing market, a short sale occurs when a home is resold for less than the outstanding balance on the home’s mortgage.  Either the seller has to make up the difference, or the lender has to write-off the short portion of the loan. Of course, most sellers aren’t able to make the lender whole, so either the lender bites the bullet or forecloses — hoping to sell the property at a higher price.  That’s not likely these days either.

Ken’s Take: This is a good move by Fannie — reflecting the realities of the market.  More posts this week on the mortgage market and Fed proposals re: foreclosures.

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Excerpted from AP, Fannie Mae tests ‘short sale’ program, January 9, 2009

Real estate agents nationwide have complained about how long it takes for a lender to sign off on a short sale, often derailing the deal and leading a homeowner into foreclosure.

So, Fannie Mae — the  mortgage giant — is testing a new program aimed at reducing the number of foreclosures by pre-approving sales where homeowners sell houses for less than the amount owed on them.

The company will determine an acceptable listing price for a so-called “short sale” even before a buyer has been found.

Fannie Mae wants to make the short sale as fast and easy as possible so distressed homeowners can avoid foreclosure.

Full article:
ttp://www.businessweek.com/ap/financialnews/D95JTMFG1.htm 

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Marketing 101 … for Web 2.0

January 12, 2009

Excerpted from WSJ, “The Secrets of Marketing in Web 2.0” By S. Parise, P. Guinan, and B. Weinberg, Dec 15, 2008

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For marketers, Web 2.0 offers a remarkable new opportunity to engage consumers…But most companies still don’t appear to be well versed in this area. So here’s a look at the principles we arrived at — and how marketers can use them to get the best results.

Don’t just talk at consumers — work with them throughout the marketing process. A leading greeting-card company…set up an online community — a site where it can talk to consumers and the consumers can talk to each other. The company solicits opinions on aspects of card design and on ideas for gifts and their pricing. It also asks the consumers to talk about their lifestyles and even upload photos of themselves, so that it can better understand its market…the online community is much faster and cheaper than the traditional focus groups and surveys used in the past…

Give consumers a reason to participate. Consumers have to have some incentive to share their thoughts, opinions and experiences…One lure is to make sure consumers can use the online community to network among themselves on topics of their own choosing. That way the site isn’t all about the company, it’s also about them…Other companies provide more-direct incentives: cash rewards or products…Still others offer consumers peer recognition…recognition not only encourages participation, but also has the benefit of allowing both the company and the other members of the community to identify experts on various topics…

Listen to — and join — the conversation outside your site. Consumers tend to trust one another’s opinions more than a company’s marketing pitch. And there is no shortage of opinions online. The managers we interviewed accept that this content is here to stay and are aware of its potential impact — positive or negative — on consumers’ buying decisions. So they monitor relevant online conversations among consumers and, when appropriate, look for opportunities to inject themselves into a conversation or initiate a potential collaboration…

Resist the temptation to sell, sell, sell. Many marketers have been trained to bludgeon consumers with advertising — to sell, sell, sell anytime and anywhere consumers can be found. In an online community, it pays to resist that temptation. When consumers are invited to participate in online communities, they expect marketers to listen and to consider their ideas. They don’t want to feel like they’re simply a captive audience for advertising, and if they do they’re likely to abandon the community…

Don’t control, let it go. In an online community, every company needs balance between trying to steer the conversation about its products and allowing the conversation to flow freely. In general, though, managers believe that companies are better off giving consumers the opportunity to say whatever is on their minds, positive or negative…The more that consumers talk freely, the more a company can learn about how it can improve its products and its marketing.

Find a ‘marketing technopologist.’ So who should direct a company’s forays into Web 2.0 marketing?…We coined the term marketing technopologist for a person who brings together strengths in marketing, technology and social interaction…”someone with the usual M.B.A. consultant’s background, strong interest in psychology and sociology, and good social-networking skills throughout the organization.”

Embrace experimentation. One Web 2.0 strategy does not fit all…Blogs, wikis and online communities are among the tools that companies are most commonly using for marketing, but there are other ways to reach consumers…For instance, many companies have long used instant messaging on their Web sites to allow shoppers to chat with customer-service representatives…

Edit by SAC

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While the Marketing 101 principles are sure to evolve for Web 2.0 the above mentioned principles provide a good foundation for marketers looking to take advantage ever changing world of the web.

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Full Article:
http://online.wsj.com/article/SB122884677205091919.html

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Give me a jolt of Reb-A … but please, no calories

January 12, 2009

Excerpted from Ad Age, “Coke, Pepsi Jump on Zero-Cal Sweetener Reb-A” By Natalie Zmuda, Dec 18, 2008

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A new zero-calorie sweetener could boost the beverage industry — if only it can figure out how to market products containing the ingredient.

Coca-Cola and PepsiCo are rolling out products this month that will feature proprietary versions of Rebaudioside A, known as Reb-A.

Advertising messages are almost certain to take a variety of forms, and the products themselves could lead to confusion among consumers.

While consumers are accustomed to “diet” drinks containing a single calorie or none at all — and some of these new Reb-A products are likely to fill that bill — other products will have some calories …

In addition, there are two brand benefits to consider for marketing…some of the new beverages will likely be marketed as lower calorie, while others will be promoted as all natural. “The marketing and messaging is probably not going to be uniform…There’s not one single way of marketing these new beverages.”

Marketing efforts are likely to focus on education and sampling efforts to hook consumers…”In this case, because the ingredient is the differentiation of the product, it will be important to educate consumers about the value and the benefit of the sweetener…The key is to get people to get out and try these products and see for themselves that the products have a superior taste”…

It is unlikely Reb-A will find its way into flagship brands such as Diet Coke or Diet Pepsi…

A survey found that 22% of consumers are extremely interested in trying beverages using the sweetener…42% of those surveyed said they are not interested in trying beverages with Reb-A. Those consumers cited a myriad of issues ranging from safety and health concerns to taste to a preference for sugar…

Edit by SAC

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Beverage marketers would be wise to consider the same factors for Reb-A that technology innovations must overcome to ensure product adoption. 

These factors outlined by Everret Roger in Diffusion of Innovations are:

  • Relative advantage over existing options,
  • Compatibility with existing values, simplicity in being understood,
  • Simplicity — easy to understand and to use
  • Trialability on a low risk basis, and 
  • Observability —  the degree to which the innovation is conspicuous to others. 

The biggest hurdle for beverage marketers may be in Reb-A’s simplicity.  While it’s relative advantage in being all-natural is clear, consumers must understand this benefit for it to have value. 

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Full Article:
http://adage.com/print?article_id=133410

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

Go green … or your employer may tax you.

January 9, 2009

Excerpted from Business Week,”Steering Workers Into the Green Lane”, Oct 27, 2008

Employers are getting more eco-car conscious. And not just new-guard and crunchy-granola companies like Google, Ben & Jerry’s, and Timberland.

Health-care company Abbott Laboratories, which provides its sales staff with some 6,000 vehicles, is revamping its mileage-­reimbursement rules as part of a bid to make its fleet more carbon neutral.

Now, all sales reps reimburse Abbott for personal use of company cars at 17.3¢ a mile. But starting in January 2009, those choosing SUVs instead of sedans will pay 72.3¢.

The new “tax” appears to be working. With 75% of orders in for about 2,000 new vehicles, 48% of reps are requesting sedans, vs. 25% for 2008. SUV orders are at 29%, down from 44%. Hybrids? At 18%, up from 6%.

Full article:
http://images.businessweek.com/ss/08/10/1016_btw/6.htm

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Audi on the Big Screen … a (relatively) cheap way to promote

January 9, 2009

Excerpted from BusinessWeek, “Audi: Putting Its Models in Movie Roles”, by Ron Grover, November 27, 2008

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These are rough times for car companies.  So what’s a car company to do? Hit the movies, that’s what. 

The hot car in Hollywood, these days, is an Audi. In the past few years, it’s hard to go to your local multiplex without seeing that four-ring insignia staring back at you. In this spring’s blockbuster Iron Man, the carmaker had three vehicles in starring roles, including the superhot Audi R8 speedster. And when the action film Transporter 3 opens on Nov. 26, car chase fans will get to see a nearly two-hour commercial for the Audi luxury sedan A8 as it outruns police, outmaneuvers a truck by riding on two wheels, and flies through the air to land on a speeding train—all without so much as losing a hubcap.

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Product placement isn’t exactly new in Hollywood, but you have to hand it to the automaker, which has gone into overdrive to go gear-shift to gear-shift with better-known brands that for years have hogged much of the screen time. Audi has done its best to crash just about every awards party in town. They have a fleet of sleek cars at the ready to lend to stars and directors.

It’s all part of the Audi plan to target mega-events, especially as traditional media splinters and audiences dissipate. Earlier this year, the carmaker spent the requisite $2.7 million for a Godfather-spoofing Super Bowl spot, which shows a man waking up in his bed to find the sawed-off grille of a rival luxury car—and ends with the apparent perpetrator speeding off in an R8.

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Rumors have always abounded that companies pay hefty sums to get their cell phones, soft drinks, computers, and cars onto the screen. As for money changing hands, Audi steadfastly denies it pays for script time but acknowledges it will occasionally spend hefty amounts to “help promote any flick with which it’s associated.”

Edit by DAF

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Full article:
http://www.businessweek.com/technology/content/nov2008/tc20081126_092112.htm?chan=top+news_top+news+index+-+temp_companies

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Even in a recession, companies still paying big bucks for potential blockbusters.

January 9, 2009
Excerpted from WSJ, “Blockbuster or Bust” by Anita Elberse, January 4, 2009

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Amid the worst economic crisis to hit the United States in decades, publishing executives are still making what many see as outrageous gambles on new manuscripts.

With double-or-nothing daring, most large media firms make outsized investments to acquire and market a small number of titles with strong hit potential, and bank on their sales to make up for middling performance in the rest of their catalogs.

Given the constantly shifting tastes of consumers, it is extremely difficult to forecast demand for a new title. The one useful indicator is its resemblance to an existing bestseller. This similarity is an indicator that’s evident to any editor or publisher who sees the proposal … triggering competitive bidding situations.

When a publisher spends an inordinate amount on an acquisition, it will do everything in its power to make that project a market success. Most importantly, this means supporting the book with higher-than-average marketing, advertising and distribution support.  With such high stakes and money tied up in a few big projects in the pipeline, the need to score big becomes more pressing, and the process repeats itself. The result is a spiral of ever-increasing bets on the most promising concepts, creating a “blockbuster trap.”

But what would happen if a publisher decided to stop making large bids and systematically walked away from the most sought-after — and therefore expensive — new properties?

First, agents would stop sending such a publisher their most promising book proposals, the most talented editors and other creative talent would leave to work for a publisher that would let them pursue the projects they thought had the highest chances of success, and firing up the publisher’s sales reps would be a major challenge.

In most media markets, support from the biggest retailers is decisive. A significant share of books is bought on impulse, so significant shelf space and room on display tables (“pile ’em high and watch ’em fly” tactics) are particularly important. Book retailers like Borders and Barnes & Noble want to see evidence that a book is worthy of their scarce resources. They like nothing better than to know that a book publisher … is planning an extensive marketing campaign. 

Consumers prefer blockbusters. Because they are inherently social, people find value in reading the same books and watching the same movies that others do. This is true even in today’s markets where, thanks to the Internet, buyers have easy access to millions and millions of titles. Compounding this tendency is the fact that media products are what economists call “experience goods”: that is, shoppers have trouble evaluating them before having consumed or experienced them. Unable to judge a book by its cover, readers look for cues as to its suitability for them, and find it very useful to hear that “Dewey” is “a ‘Marley & Me’ for cat lovers.” In much the same way that potential publishers do, readers value resemblances to past favorites.

Edit by NRV

Full article:
http://online.wsj.com/article/SB123093737793850127.html

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By the way: Saw Marley & Me over the break — a major disappointment.  ALL of the funny scenes are in the trailer and TV commercial.  Marley was undisciplined and unlovable, Owen Wilson is a dufass (grossly miscast as a reporter), and Jennifer Aniston is showing some serious mileage.  Even a shot of Oxyglobin wouldn’t have saved Marley or the movie. Wait for it on free TV.

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Sony cuts consumers' stress by banning discounting … say, what ?

January 9, 2009

Excerpted from the New York Times, “For Sony, No Discounts Means Stress-Free Shopping”, by Saul Hansell, November 20, 2008

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Eliminating price competition among retailers for high-end cameras and TVs is a great benefit for consumers — so say Sony executives .

Sony bans retailers from discounting Sony’s Alpha digital camera line, its more expensive televisions and some other high-end products. They claim that by having the price for these products be the same at all retailers, they eliminate stress for buyers.

“Consumers don’t have to worry about whether I can get a better deal at retailer A or retailer B. Everybody gets the best deal.” Stores can now compete on other attributes, like education and support.

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A quick scan of photography blogs does not find much gratitude for all the stress that Sony has saved camera buyers. On a blog dedicated to Sony’s cameras, some posters complain about the price of cameras and accessories increasing by hundreds of dollars. The program has been controversial, even among electronics dealers

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Sony is increasing promotions in retail stores, but was not cutting the prices it planned for the holiday season. “There was value planned in the product,” said Sony execs, “That value is there. Whether consumers will take advantage of it is another question. But we don’t think that dropping the price alone will add traffic.”

Edit by DAF

Posted in Mktg - Pricing | 2 Comments »

Sony cuts consumers’ stress by banning discounting … say, what ?

January 9, 2009

Excerpted from the New York Times, “For Sony, No Discounts Means Stress-Free Shopping”, by Saul Hansell, November 20, 2008

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Eliminating price competition among retailers for high-end cameras and TVs is a great benefit for consumers — so say Sony executives .

Sony bans retailers from discounting Sony’s Alpha digital camera line, its more expensive televisions and some other high-end products. They claim that by having the price for these products be the same at all retailers, they eliminate stress for buyers.

“Consumers don’t have to worry about whether I can get a better deal at retailer A or retailer B. Everybody gets the best deal.” Stores can now compete on other attributes, like education and support.

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A quick scan of photography blogs does not find much gratitude for all the stress that Sony has saved camera buyers. On a blog dedicated to Sony’s cameras, some posters complain about the price of cameras and accessories increasing by hundreds of dollars. The program has been controversial, even among electronics dealers

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Sony is increasing promotions in retail stores, but was not cutting the prices it planned for the holiday season. “There was value planned in the product,” said Sony execs, “That value is there. Whether consumers will take advantage of it is another question. But we don’t think that dropping the price alone will add traffic.”

Edit by DAF

Posted in Mktg - Pricing | 2 Comments »

Disguising price increases … Is it just me, or is that package smaller than it used to be ?

January 9, 2009

Excerpted from the Minneapolis Star Tribune, “Freshly squeezed: The ever shrinking box and carton” by Chris Serres, December 2, 2008

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In the past year, thousands of small, almost imperceptible changes swept through the grocery aisles where American families shop each day.

The indented bottom of a Skippy peanut butter jar got more indented, turning an 18-ounce jar into a 16.3-ounce one. Ice cream containers shrank by one-quarter of a quart. And for breakfast, a jug of Tropicana orange juice got 7 ounces lighter while that box of Froot Loops lost more than 2 ounces.

Shoppers without a keen eye and a willingness to read the fine print on labels might have missed what has happened: Food manufacturers were downsizing packages, while keeping prices the same, as they passed on higher food costs to consumers.

According to a recent analysis by Nielsen Co., about 30 percent of all packaged goods have “lost content” over the past year. This at a time when U.S. grocery bills are rising — up 7.5 percent in October vs. the same month a year ago — at the fastest rate in 18 years.

What began as a response to rising fuel and ingredient costs has become institutionalized at many companies. At General Mills, for example, cost-cutting is so embedded that the company even has its own intimidating term for it: “Holistic Margin Management.”

It’s not always about shrinking packages, which can account for as much as 75 percent of a product’s cost. Even seemingly small changes in a package’s design can mean millions of dollars in annual savings — lessening pressure to raise prices to cover costs.

There is an entire science behind packaging reductions, enlightened by a long list of unsuccessful changes.  

For instance, food manufacturers know consumers react more to changes in height than width, so cereal boxes often get thinner before they get shorter.

Once a product changes, buyers often forget the previous size, creating a new standard.

When PepsiCo reduced the size of its Tropicana orange juice jug by 7 ounces, it touted the container’s “new ergonomic design” and easy-to-open snap cap. Yet consumer advocates argued the new features were really meant to distract from the reduced weight.

“This is the packaging equivalent of three-card monte … by changing several factors at the same time, food companies disguise the fact that you’re getting less for the same price.”

One reason food companies have gotten away with downsizing without alienating shoppers is that over the decades fewer people are preparing meals at home. So they pay less attention to measurements on packages, said John Gourville, a marketing professor at Harvard Business School.

“The reality is, people pay more attention to prices than sizes … and the food companies know it.”

“You can take an ounce out here and an ounce out there, and maybe people won’t notice,” he said. “But if you do it repeatedly, and people are only getting three servings per cereal box, then people are much more likely to say, ‘What’s going on here?’ And it gets harder and harder to do.”  

Edit by NRV

Full article:
http://www.startribune.com/business/35343634.html 

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Ken’s Take: You have to sort this marketing approach into 3 parts: (1) more effective packaging — e.g. more merchandising impact, better ergonomics (2) cost-cutting — e.g. more efficient use of volume and space, and (3) higher prices — e.g. on a per ounce basis.  Re: the latter — it is usually easier to raise “unit prices”  by resizing than by changing the price “per package” 

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It’s official: Ken is “fair minded” … yes !!!

January 8, 2009

Justin Fox is TIME’s business and economics columnist cited one of your’s truly’s tax analyses … praising my “fair mindedness” and taking former labor secretary Robert Reich to the hoop for BS’ing.

I don’t think I’ve ever been accused of being “fair minded” before.

Below is the article …  Here’s the link   ..,   Click for PDF

image

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Posted in About Ken, Props for Ken, Taxes | 2 Comments »

Price Wars on the Web

January 8, 2009

Excerpted from the New York Times, “Web Sites Wage Holiday Price Wars,” by Claire Cain Miller and Brad Stone, November 20, 2008

* * * * *

Internet retailers, trying to navigate the first truly dreary holiday shopping season ever on the Web, are engaged in price-cutting and discounting so aggressive that it threatens their profit margins and, in some cases, their very survival.

Traditional retailers faced the same problem, of course, but the price-cutting is fiercest on the Web, where customers can easily shop for the best price with a quick search on Google or on specialized shopping engines like Shopping.com. Online, the competition is only a click away. For many Web sites, the discounts and price cuts are the only way to hold on to customers as online buying unexpectedly plummets.

The research firm comScore reported that sales growth on e-commerce sites slowed to a meager 1 percent in October compared with the previous year — the lowest rate ever for online retail and well down from the industry’s typical 20 percent gains.

* * * * *

To preserve the sanctity of their brands and some level of pricing control, some Web companies are promoting discount sites separately from their main brands. Zappos.com, a shoe retailer never runs promotions on its site. Instead, it quietly moves shoes that do not sell in six months to 6pm.com, a clearance site it acquired last year, but runs separately. 

* * * * *

Free shipping is also becoming a painful imperative for all e-commerce sites. Three-quarters of online shoppers say that they would shop elsewhere if a site did not offer free shipping. E-commerce giants like Amazon.com can easily absorb shipping costs, but small online vendors struggle. 

To exacerbate matters, a major expense for online retailers seems to be rising: the cost to advertise products on the search engine Google, the source of considerable traffic and visibility for most e-commerce sites.

Over the last year and a half, prices for text ads related to women’s fashion have quadrupled, say apparel retailers. In the popular gifts category, the price to advertise alongside results for common search queries like “gift baskets” jumped 50 percent from the 2006 holidays to 2007 and is expected to climb again this year.

Edit by DAF

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Full article:
http://www.nytimes.com/2008/11/20/technology/internet/20slashing.html?ref=technology

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Posted in Internet Marketing - eCommerce -, Mktg - Internet, Mktg - Pricing | 1 Comment »

Disruptive innovation: dentists in food stores … hmmm.

January 8, 2009

Excerpted from  Business Week, ” Root Canal? Try Aisle Five”, Oct. 13, 2008

Britain  suffers from a shortage of dentists.

So, in mid-September, British supermarket giant Sainsbury’s opened a dental clinic in one of its Manchester outlets. The in-store office will operate during store hours, including evenings and weekends. Most fees ($29 for a checkup, for instance) won’t exceed those charged by Britain’s national health service.

Earlier this year, at another Manchester store, the chain installed a medical clinic that it plans to replicate at other outlets.

If the dental office’s three-month trial is successful, the company says, it will set up 50 others

Full article:
http://images.businessweek.com/ss/08/10/1002_btw/5.htm

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Markets bounce … Is that a light at the end of the tunnel ?

January 7, 2009

Though light trading volumes may be exaggerating movements and most pundits say a bear market that remains under way, there are some bright signs in the markets …  at least a short-term bounce, if not a turnaround.

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Excerpted from WSJ, “Suddenly, a Markets Turnaround”, Jan.  7, 2009

From junk bonds to currencies, mortgages, stocks and commodities, the markets that were most battered in the second half of 2008 are staging rebounds, sometimes of 10% and more from their low points.

The breather comes as the U.S. government continues to push investors toward taking more risk because the returns on risk-free assets like Treasury bonds are extremely low.

The Dow has gained 19.37% from its November low point, and the S&P 500 is up 24.22%.

Still, the fear has ebbed somewhat in the shell-shocked credit markets. Junk bonds have rebounded by over 11% from their low in December … and higher-quality corporate bonds have gained more than 4% amid an increasingly robust calendar of new offerings. Led by GE, at least $6.6 billion in new corporate bonds were offered Tuesday yielding investors well over 6%, compared with Treasury bonds, which yield between 0.1% and 3%.

The Fed has cut interest rates nearly to zero, and by June, the Fed plans to buy $500 billion, or nearly one-tenth of the entire $5 trillion market for good-quality bonds backed by mortgages that conform to standards set by Fannie Mae and Freddie Mac.  The hope is that by midyear the plan will have brought down mortgage rates and sparked enough refinancing that the housing market may bottom, which would give banks more leeway to lend money into the economy. Consumers have already been applying in droves to refinance their mortgages as the average 30-year fixed rate conforming mortgage hovers just over 5%.

The Fed’s buying, which would average out to about $4 billion a day, has already sent spreads in the mortgage market almost back to what traders call “normal.” Before the credit crisis took hold, the yield of an average agency-backed mortgage bond was 1.5 to 1.6 percentage points over comparable Treasury bonds.

After hitting 2.8 percentage points in late November, that spread finished Tuesday at 1.7 percentage points.

Still, many investors and market participants  are concerned about what happens when the Fed help  dries up.

“The government can make mortgages cost 3%, but they can’t improve anyone’s credit score”

Though major indexes’ gains from their November lows so far fit the traditional definition of a bull market, up 20%, few participants are interpreting them that way. Many say the market’s recent.

image

Full article:
http://online.wsj.com/article/SB123128801585159197.html?mod=testMod 

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As downloading slows, Apple raises iTunes prices … but only on popular tracks … Huh?

January 7, 2009

Excerpted from WSJ, “Apple’s iTunes to Change Pricing Strategy”, Jan. 6, 2009

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Apple unveiled significant pricing and copyright changes to iTunes.

The changes include a new three-tiered pricing plan: songs will cost 69 cents, 99 cents or $1.29 …  the “vast majority” of the songs will cost 69 cents, though the most sought-after songs — which generate most of the sales on the service — will likely cost $1.29 as both Apple and the major record labels try to boost revenue growth. The wholesale prices charged by the record labels are likely to change to reflect the new price points. The new wholesale prices couldn’t be immediately learned., instead of the 99-cents fixed price Apple has used almost exclusively.

Apple’s moves appear to be a response in part to shifts in the digital-music market. Digital-music retailers in the U.S. sold more than one billion songs in 2008. Apple surpassed Wal-Mart as the world’s largest music retailer. But, growth in paid downloads slowed significantly in 2008, rising 27%, compared with a 45% increase a year earlier.  Amazon.com sells many songs at a cheaper price than iTunes and without copy protection, giving users more freedom to do what they like with the songs they have purchased.

Apple also said it is dropping digital rights management, or copy protection, from eight million songs in its catalog effective immediately. Digital cognoscenti long have railed against DRM, saying it hobbles buyers’ ability to use music the way they want.  Apple’s DRM has made it complicated for consumers to use … and made it difficult or impossible to play songs purchased from the iTunes Store on devices other than the iPod or iPhone.

Users can pay 30 cents a song to upgrade previously-purchased songs in their iTunes library to a DRM-free version.

Full article:
http://online.wsj.com/article/SB123126062001057765.html?mod=testMod 

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KEH Take:

(1) For MSB MBAs who took AMS: an example of the “Long Tail” and  customized pricing in action — low prices on low volume products — edging up to what the market will bear on popular ones.

(2) I can’t prove it, but it’s my sense the free downloading (i.e. “piracy”) is on the rise again. If true, Apple’s move to $1.29 on popular songs may backfire. Downloaders may be comparing to “free” again — not to Wal-Mart’s or Amazon’s prices

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Hey, Mr. Retailer: Don't even think about discounting that hot product !

January 7, 2009

Manufacturers Set Price Minimums That Retailers Must Follow or Risk Getting Cut Off

Excerpted from  WSJ, “Why Some Toys Don’t Get Discounted”, Dec. 24, 2008 

At a time when retailers are slashing prices to attract last-minute Christmas shoppers, many stores aren’t marking down certain popular gift items at all.

That’s because of little-known manufacturer agreements that require retailers to refrain from discounting, especially in any advertising. If retailers don’t comply, manufacturers sometimes stop subsidizing ads or cut off supplies altogether.

The companies say that they enforce MAPs (minimum advertised prices)To maintain the company’s “integrity and high standards of manufacturing, we must maintain the price integrity of our products,” the letter said.

This season’s products affected by pricing agreements include The latest James Bond game and Guitar Hero World Tour Band Kit from Activision.

Minimum-price agreements between manufacturers and retailers were once deemed automatically anticompetitive and thus illegal under a 1911 Supreme Court ruling. Pricing agreements related to advertising — which critics say are used to discourage any discounting at all — also have run into legal trouble in the past when federal officials found they resulted in higher prices for consumers.

But in a controversial decision last year, the Supreme Court opened the door for manufacturers to set minimum prices as a means to enhance a brand’s image and for retailers to make enough profit on their merchandise to provide better customer service. The 5-4 ruling reversed a 96-year-old precedent and said cases should now be considered on a case-by-case basis, weighing the impact of pricing policies against free-market principles. In the wake of the decision, many manufacturers have instituted pricing minimums for advertising or sales.

Opponents of the ruling, including eBay Inc. and Costco Wholesale Corp., are hoping the decision will be reversed … arguing  that minimum-pricing agreements violate the Sherman Act, the law that prohibits price fixing and bid rigging.

“However you want to dress up these policies with fancy legal language, these policies are obviously in the interest of business and not the consumer.”

Many traditional retailers favor minimum-pricing agreements because they help put a stop to what the stores view as unfair competition from online sellers, which can charge less because they have lower overhead costs.

* * * * *

Markups are the difference in percentage between the wholesale price a retailer pays to a manufacturer and the retail price charged to consumers.

Retail markups generally have been around 50% “for the last 10 to 15 years, but recently they’ve fallen to about 42%.”  Catalog companies “like their markups at about 50%” because of their added expense of printing, postage and shipping.

Markup percentages among toy mass merchants are generally in the high 30s to low 40s.”Minimum-pricing policies level the playing field” by keeping every retailer’s markups the same.

* * * * *
Sony Computer sets minimum-advertised prices for nearly two dozen products, including $499 for the PlayStation 3 with 80 gigabytes of memory and $49 for a wireless keypad, a PS3 accessory.

A survey stores — online and offline —  that sell Sony videogame products found that nearly all of them were advertising and charging the minimum prices.

Full article:
http://online.wsj.com/article/SB123007559680631543.html

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Disruptive innovation: "netbooks" take on PCs … and win.

January 7, 2009

Excerpted from Business Week, “Netbook Sales May Be Cutting Demand For Laptop PCs”, November 26, 2008

Manufacturers and their suppliers are worried that soaring interest in netbooks is cannibalizing PC and laptop sales

Some consumers are opting for a pint-size $300 device known as a netbook instead of a traditional laptop, which normally costs at least twice as much.

This year millions are expected to buy netbooks, a relatively new family of cheap, light PCs that can handle Web surfing, e-mail, and other basic tasks.  Netbooks are one of the few bright spots in the tech industry. But their success may come at a cost: In some cases, pinched buyers are choosing netbooks instead of more expensive laptops—a potential problem for manufacturers because netbooks are typically less profitable than their bigger cousins.

PC makers originally thought a netbook would serve as a person’s third computer, complementing PCs in the home and office. But  10% to 20% of netbook buyers would have bought more expensive laptops or desktops if netbooks weren’t available.

Sales of netbooks exploded this year to an estimated 11 million, up from 182,000 last year. Analysts expect their popularity to rise as more computer makers introduce products and drop prices. 

“[Netbooks are] the classic disruption: A cheaper, less capable competitor comes into the market and takes over.”

Netbooks typically cost $300 to $500, but prices may slide … to as little as $100.

Netbooks are already putting pressure on PC prices. IDC estimates the average selling price for a portable computer will drop 8% this year, to $1,018, and an additional 12% next year, partly because of netbooks.

Full article:
http://www.businessweek.com/magazine/content/08_49/b4111064905299.htm?chan=magazine+channel_what%27s+next

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Darwin at work: “I don't have health insurance, but my dogs do.”

January 7, 2009

 Excerpted from Progressive Grocer, “NONFOODS: Financing Fido” by Joseph Tarnowski, December 23, 2008

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While today’s economy may be going to the dogs, consumers’ canine friends certainly aren’t feeling it, as shoppers are making sacrifices in their own product choices so their pets can live in the manner to which they’ve become accustomed, according to a recent study by the American Kennel Club.

“In general, people are more dedicated to their dogs than ever before … No doubt dogs bring comfort and stress relief to many people during this difficult time.”

According to the study:

  • 48 percent are purchasing fewer toys, treats, and other nonessential dog supplies
  • 34 percent have begun buying food in bulk.

But …

  • 65 percent of those surveyed said they would switch to eating ramen noodles before switching to a lower-quality dog food.
  • 59 percent said they would color their hair at home so that their pet wouldn’t have to miss an appointment with the groomer.
Some dog owners have even opted to purchase health plans for their dogs over themselves. One survey respondent admitted, “My Cavaliers have health insurance; however, I do not.”

Dedicated pet owners also appear to be consistent in their desire to provide their pets with adequate health care. PetPartners says that sales rates are holding up and owners are renewing their policies in consistently high numbers—an indication that pet owners view pet insurance as a way to manage their pets’ health care costs.

Edit by NRV

Full article:
http://www.progressivegrocer.com/progressivegrocer/content_display/in-print/current-issue/e3if75f39c71ceea0820d23d3d7186a7dbe?pn=2 

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Darwin at work: “I don’t have health insurance, but my dogs do.”

January 7, 2009

 Excerpted from Progressive Grocer, “NONFOODS: Financing Fido” by Joseph Tarnowski, December 23, 2008

* * * * *

While today’s economy may be going to the dogs, consumers’ canine friends certainly aren’t feeling it, as shoppers are making sacrifices in their own product choices so their pets can live in the manner to which they’ve become accustomed, according to a recent study by the American Kennel Club.

“In general, people are more dedicated to their dogs than ever before … No doubt dogs bring comfort and stress relief to many people during this difficult time.”

According to the study:

  • 48 percent are purchasing fewer toys, treats, and other nonessential dog supplies
  • 34 percent have begun buying food in bulk.

But …

  • 65 percent of those surveyed said they would switch to eating ramen noodles before switching to a lower-quality dog food.
  • 59 percent said they would color their hair at home so that their pet wouldn’t have to miss an appointment with the groomer.
Some dog owners have even opted to purchase health plans for their dogs over themselves. One survey respondent admitted, “My Cavaliers have health insurance; however, I do not.”

Dedicated pet owners also appear to be consistent in their desire to provide their pets with adequate health care. PetPartners says that sales rates are holding up and owners are renewing their policies in consistently high numbers—an indication that pet owners view pet insurance as a way to manage their pets’ health care costs.

Edit by NRV

Full article:
http://www.progressivegrocer.com/progressivegrocer/content_display/in-print/current-issue/e3if75f39c71ceea0820d23d3d7186a7dbe?pn=2 

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It was only a matter of time: Raising taxes because people are driving too little …

January 6, 2009

Excerpted from AP, “Motorists’ habits spur call for tax increases”,  January 2, 2009

Motorists are driving less and buying less gasoline, which means fuel taxes aren’t raising enough money to keep pace with the cost of road, bridge and transit programs.

The dilemma for Congress is that highway and transit programs are dependent for revenue on fuel taxes that are not sustainable. Many Americans are driving less and switching to more fuel-efficient cars and trucks, and a shift to new fuels and technologies like plug-in hybrid electric cars will further erode gasoline sales.

A federal commission created by Congress to find a way to make up the growing revenue shortfall in the program that funds highway repairs and construction is talking about increasing federal gas and diesel taxes.

To close the gap of over $100 billion per year, the commission recommends a roughly 50 percent increase in gasoline and diesel fuel taxes (currently 18.4 cents per gallon and 24.4 cents per gallon, respectively) is being urged by the commission until the government devises another way for motorists to pay for using public roads.

The commission will urge Congress to raise the gas tax by 10 cents a gallon (from 18.4 cents to 28.4 cents) and the diesel tax by about 12 cents to 15 cents a gallon (from 24.4 cents  to 39.4 cents). 

The commission will also recommend that states raise their fuel taxes and make greater use of toll roads and fees for rush-hour driving.

The commission also recommends moving to a new system that taxes motorists according to how much they use roads. While details have not been worked out, such a system would mean equipping every car and truck with a device that uses global positioning satellites and transponders to record how many miles the vehicle has been driven, and perhaps the type of roads and time of day.

[Ken’s Note: Are these the same folks who thought the Patriot Act infringed on privacy ?]

Projected shortfalls in revenue led the National Surface Transportation Policy and Revenue Study Commission, in a report issued in January 2008, to call for an increase of as much as 40 cents a gallon in the gas tax, phased in over five years.

Full article:
http://biz.yahoo.com/ap/090102/gas_tax.html?printer=1

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The UAW … you gotta love these guys

January 6, 2009

Excerpted from IBD, “The UAW’s Money-Squandering Corruptocracy”, Malkin, December 31, 2008

While carmakers soak up $17 billion in taxpayer bailout funds and demand more for their ailing industry, United Auto Workers bosses have wasted tens of millions of their workers’ dues on gold-plated resorts and rotten investments.  While membership in the union has plummeted, the UAW retains assets worth $1.2 billion.

The UAW owns and operates Black Lake Golf Course — a “championship caliber” course opened in 2000 that’s part of a larger “family education center” and retreat nestled in 1,000 acres of property in Onaway, Mich. The resort includes “a beautiful gym with two full-sized basketball courts, an Olympic-size indoor pool, exercise and weight room, table-tennis and pool tables, a sauna, beaches, walking and bike trails, softball and soccer fields and a boat launch ramp.” The Detroit Free Press reported earlier this year that the golf course (valued at $6 million) and education center (valued at $27 million) have together lost $23 million over the past five years. 

The UAW  bid $9.75 million to purchase the gated La Mancha Resort Village in Palm Springs. The 100-room walled resort with spas, poolside massages and a “croquet lawn lit for night use” was on the verge of bankruptcy with $5.2 million in debt. Fortunately (for members), that deal didn’t go through.

The union poured $14.7 million into Pro Air, a start-up airline that, well, didn’t get off the ground. Plagued by safety problems, the feds shuttered the company less than a year later.

In 1996, union heavies invested $5 million in United Broadcasting Network, a liberal radio network precursor to Air America.  They shelled out for a $2 million, state-of-the-art studio in Detroit and incurred years of losses of a reported $75,000 a month before closing the network down in 2003.

And while the UAW and carmakers cry poor, they’ve operated massive joint funds for years that have paid for lavish items such as multi-million-dollar NASCAR racer sponsorships and Las Vegas junkets. 

At least the groveling Big Three CEOs gave up their corporate jets. Where’s the public flogging for the greed-infested UAW fat cats reaching into our pockets to keep them afloat?

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Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=284004627416260

UAW’s annual report:
http://www.unionreports.gov 

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GM: 3 brands have targets on their backs …

January 6, 2009

Excerpted from BusinessWeek;, “Brand New Day”, November 28, 2008
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General Motors is looking at killing off three brands—Pontiac, Saab and Hummer.

Everyone knows that GM is over-branded. The problem has long been that the company does not want to have to pay dealers to fold the brands it does not need as it did with Oldsmobile in 2001. State franchise laws prevent a car company from simply ending a brand. Closing down Oldsmobile cost the company around $2 billion.

Saab is not thought to have any hot buyers. According to past conversations with GM execs, Saab Cars has never turned an annual profit for GM. It has, at times, made money in Europe. But those gains have always been off-set by losses in the U.S.

Saab is one of two Swedish car companies with limited interest from both consumers and investors. Ford, too, tried to sell Volvo earlier this year, and found no takers willing to pay Ford’s asking price.

Both Saab and Volvo are premium brands that have long had followings of people who place safety above all other vehicle characteristics. Saab has also attracted some performance-oriented buyers as the company has long offered turbo chargers in some of its models.

[Note: As previously posted, green buyers typically sort performance and safety down the list of buying criteria]

Volvo is on track to sell about 82,000 vehicles this year. Sales through October were down 28%. Saab is on track to sell about 20,000 vehicles this year. Sales were down 32% through October.

Edit by DAF

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Full article:
http://www.businessweek.com/the_thread/brandnewday/

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4 million existing homes on the market … so what?

January 5, 2009

There’s a lot of hand-wringing going on over the fact that there are about double the number of existing homes on the market now versus historical averages.  And, there 4 million number is probably low since some people would like to sell but aren’t listing their homes because of the bad market.

But, put the number in perspective.  The 4 million homes represent only about 3% of total households and about 5% of owner-occupied households. That means that for 95% of home owners, the number is largely irrelevant.  They’re paying their mortgages and taxes, and they aren’t planning on selling to move.  Sure, house prices are down, but — unless they have  home equity loans  — the only short-term impact is simply “on paper”.  These folks will be fine until the housing market rebounds … and it eventually will !

My suggested remedy to the problem: (1) set a zero capital gains tax rate on houses bought in 2009 and 2010 as long as they’re held at least 2 years, and (2) allow landlord-investor’s who buy residential homes in 2009 and 2010 to accelerate depreciation and offset ordinary income with all rental losses.  The 2 million “overhang” in houses would be cleared in weeks, and folks who can’t afford to buy houses would have more rental choices,

[Buyers' strike]

Source: WSJ, 01-02-09
http://online.wsj.com/article/SB123084433166547199.html

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Nine driving forces to watch in 2009

January 5, 2009

The best list I’ve seen so far.  I especially like #4 … and I agree with the logic.

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Excerpted from IBD, “Nine Possibilities Heading Into 2009”,  December 31, 2008

1. A Less Safe Homeland ?

Will Obama take the heat from the left of his own party and boldly use his constitutional authority as president to go the extra mile in protecting the country, as  Bush did, or will he dilute the indispensable tools that have helped keep us safe since the 9/11 attacks ? 

We’ll see. Promising to get Osama bin Laden sounds great in a campaign; governing requires more than catchphrases.

2. Stimulus Pushes Deficit To $1 Tril

Late in 2008, talk centered around a deal involving up to $800 billion in new spending, focused mainly on infrastructure and so-called Green Jobs. Tax cuts of $150 billion or more will focus on the middle class. Under Obama, those who no longer pay any taxes will surge from 44 million currently to more than 50 million, as those in the top 5% of incomes shoulder a greater share of the tax burden.

Obama’ s stimulus, along with the nearly $2 trillion in outlays for 2008’s financial and auto bailout, will push the deficit to more than $1 trillion — 7% of GDP, the biggest deficit since 1946.

Republican efforts to cut capital gains taxes — a proven way to strong economic and job growth — will fail.

Businesses may start feeling left out, and the GOP will try to make it a wedge issue in congressional elections of 2010.  

3. China Falls Into Recession

After decades of stunning 10% GDP growth, China’s economy stumbled late in 2008. It will continue to slow in 2009 — and possibly beyond. The main trigger for their slump: Soaring energy prices during early 2008, and a steep decline in U.S. demand for China’s goods.

If China grows by 5% or less over the next year or so, it won’t create enough jobs and will face serious social pressures that could break into open violence.

Despite its rapid growth, China still only ranks No. 81 on the U.N.’s human development index, a gauge that combines health, education and income. Things are far worse for the more than half of China’s 1.3 billion people who live in rural areas.

4. Recovery In The U.S.?

The U.S. economy will pull out of its recession as a massive home inventory overhang is worked off, oil prices stay low, trillions of dollars in stimulus and bailout funds are put to work and Fed interest-rate cuts kick in.

Banks and finance companies will start lending again, and rising demand will push companies to hire.

World demand for oil will fall, as it did in 2008.  And since each 10-cent drop in gas prices is equal to a $12 billion tax cut, the U.S. will get a “silent” tax cut of about $295 billion.

The bear market in stocks — which are one of the economy’s best leading indicators — should be drawing to a close. This bear is now in its 15th month, and most don’t last more than 15 or 16. Nine to 10 is more like it.

5. Energy Fever, Climate Change Cool Off

The cooling trend that began in 1998 will continue as solar activity remains dormant. Last year was the coolest year in a decade.

As the evidence grows, more scientists will join the list of climate “deniers,” as protests arise in Europe and the U.S. over expensive alternate-energy schemes that slow global economic recovery.

But as long as crude remains below $70 a barrel — the make-or-break level for many energy projects and alternative energy — Congress will continue to drag its feet on drilling for more oil and gas in the U.S.

6. Big Labor Fights For Relevance

Organized labor made a big deal about its $400 million in campaign spending to win the election for Democrats in 2008.

But as 2009 rolls in, all that cash is starting to look less like power projection and more like a last-gasp bid to go for broke.

The big problem is that in a weak economy, the union agenda is incompatible with economic growth. Businesses can’t grow and create jobs in an atmosphere where workers are forced into unions and free trade is restricted. Given the choice of a recovering economy or a satisfied union base, Obama is likely to tilt toward saving the economy, if only for the sake of his own political viability.

Unions want to show they still matter after watching their share of the U.S. work force shrink from 31.4% in 1960 to less than 12% today.

Two fronts will emerge: “card-check” — a change to the National Labor Relations Act that would eliminate secret ballots to make organizing new unions easier — and free-trade pacts.  

7. Obama Seeks Health Care Reform

Even health care experts sympathetic to Obama’s goals argue the president-elect understates his plan’s costs. Obama’s plan of near universal coverage means “a $100 billion infusion of new health care spending.”

ObamaCare’s massive new spending will be a tough political sell, especially with taxpayers already footing the bill for bailouts of banks and the auto sector, and millions of Americans losing their jobs.

Obama will insist that a big government health care reform is imperative for economic recovery, imposing the kind of socialized medicine found in France, Britain and Canada, where waiting lists and substandard quality are the norm.

8. India Gets Assertive

India’s citizens have gained a lot from their opening to the world in 1991 and they aren’t about to give it up. But threats remain from the global economic downturn and terror attacks out of Pakistan.

Fiscal stimulus is on the plate, and possibly more defense spending. The government may tighten its alliance with the U.S. to modernize its military.

As a large market, India will forge closer trade ties with markets like the U.S., Japan, and EU.

9. Israel Gets Rid Of Iran’s Nuclear Threat

Will Israel use its altercation with the Iranian-backed Hamas as a stepping stone toward a strike on Iran’s nuclear facilities?

The signs are that an Obama Administration, committed to “tough diplomacy,” will be less likely to let Israel take matters into its own hands and strike Tehran.

Lack of U.S. support would make such airstrikes more difficult, and leave Israel even more vulnerable politically on the world stage.

Still, Israel might be tempted to go for broke, taking out Iran’s burgeoning nuclear threat rather than letting Tel Aviv go up in a mushroom cloud.

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Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=283999323921715 

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Now, it's the phone, not the carrier calling the shots …

January 5, 2009

Excerpted from Business Week, “How Apple’s iPhone Reshaped the Industry”, December 11, 2008

Today, apps are where the action is, and consumers are reaping the benefits

A few years ago, if someone asked what sort of cell phone you had, your response would probably be to name a network, like Sprint or Cingular. Wireless carriers so completely controlled the business, especially in the U.S., that many manufacturers weren’t even allowed to put their brand names on handsets. Now this relationship is changing in ways that will reduce the power of carriers and, with luck, increase consumers’ choices.

The relationship started to shift when people began using phones for more than voice calls and text messages. As browsers and e-mail systems became important, it mattered more whether you had a Palm Treo or a BlackBerry than whether your phone ran on the Verizon Wireless or AT&T network. Then along came Apple’s iPhone to rewrite the rules completely.

The conventional wisdom holds that AT&T scored a coup when it signed on as the exclusive U.S. iPhone carrier. The company reported that it activated 2.4 million of the new 3G iPhones in the third quarter, that 40% of those customers came to AT&T from rival operators, and that their average monthly bill was 1.6 times that of other subscribers.

But the impact on AT&T’s bottom line is another story. Mostly because of the fat subsidy it pays Apple for each iPhone, AT&T’s third-quarter earnings of $3.2 billion were $900 million less than they would otherwise have been.

More importantly, the carrier has probably lost forever its ownership of the customer, through a process economists call “disintermediation.”

Before the iPhone, relatively few owners of any phones—smart or dumb—downloaded applications. The carriers had a nice business selling ringtones and the odd game. But with iTunes and the App Store, Apple became the exclusive supplier of applications as well as music and videos. The content suppliers got about two-thirds of the revenue, Apple kept about a third, and the carriers were frozen out.

A key test of the new relationship between handset makers and smartphone software publishers, carriers, and customers will arrive when turn-by-turn driving instructions come to the iPhone. Apple seems to have created the phone with navigation in mind. Rumors are flying that Apple plans a navigation offering that leaves carriers in the cold.

This shift in power is a bad thing for wireless carriers, whose nightmares of being turned into commodity sellers of bandwidth are coming true. But it may be a win for everyone else.

Full article:
http://www.businessweek.com/print/magazine/content/08_51/b4113078121012.htm 

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Posted in Mktg - Brands, Mktg - Strategy, Telecom | 1 Comment »

Now, it’s the phone, not the carrier calling the shots …

January 5, 2009

Excerpted from Business Week, “How Apple’s iPhone Reshaped the Industry”, December 11, 2008

Today, apps are where the action is, and consumers are reaping the benefits

A few years ago, if someone asked what sort of cell phone you had, your response would probably be to name a network, like Sprint or Cingular. Wireless carriers so completely controlled the business, especially in the U.S., that many manufacturers weren’t even allowed to put their brand names on handsets. Now this relationship is changing in ways that will reduce the power of carriers and, with luck, increase consumers’ choices.

The relationship started to shift when people began using phones for more than voice calls and text messages. As browsers and e-mail systems became important, it mattered more whether you had a Palm Treo or a BlackBerry than whether your phone ran on the Verizon Wireless or AT&T network. Then along came Apple’s iPhone to rewrite the rules completely.

The conventional wisdom holds that AT&T scored a coup when it signed on as the exclusive U.S. iPhone carrier. The company reported that it activated 2.4 million of the new 3G iPhones in the third quarter, that 40% of those customers came to AT&T from rival operators, and that their average monthly bill was 1.6 times that of other subscribers.

But the impact on AT&T’s bottom line is another story. Mostly because of the fat subsidy it pays Apple for each iPhone, AT&T’s third-quarter earnings of $3.2 billion were $900 million less than they would otherwise have been.

More importantly, the carrier has probably lost forever its ownership of the customer, through a process economists call “disintermediation.”

Before the iPhone, relatively few owners of any phones—smart or dumb—downloaded applications. The carriers had a nice business selling ringtones and the odd game. But with iTunes and the App Store, Apple became the exclusive supplier of applications as well as music and videos. The content suppliers got about two-thirds of the revenue, Apple kept about a third, and the carriers were frozen out.

A key test of the new relationship between handset makers and smartphone software publishers, carriers, and customers will arrive when turn-by-turn driving instructions come to the iPhone. Apple seems to have created the phone with navigation in mind. Rumors are flying that Apple plans a navigation offering that leaves carriers in the cold.

This shift in power is a bad thing for wireless carriers, whose nightmares of being turned into commodity sellers of bandwidth are coming true. But it may be a win for everyone else.

Full article:
http://www.businessweek.com/print/magazine/content/08_51/b4113078121012.htm 

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More subscribers, continuing losses … sat radio still alive (but not well)

January 5, 2009

Excerpted from Marketing Daily, “Flying High: Sirius-XM Revs up 14%” by Eric Sass

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In an ironic twist, Sirius-XM saw revenues and subscribers jump compared to last year…But there is some doubt that the good times will continue, as one of the satcaster’s major sources of new subscriptions–factory installations in vehicles–appears to be headed for a ditch in 2009…

First, the good news: Sirius-XM will finish 2008 with over 19 million subscribers, which is up 10% …and revenues of around $2.4 billion–up 14%.

Satellite radio is a niche medium, and may be somewhat immune to the sharp downward trend in the economy at large…the average satellite radio customer is relatively well-heeled, with an average household income of almost $80,000 versus a national average of about $45,000, so satellite subscribers may have more of a cushion for discretionary expenditures…

In 2008, the company added 500,000 new subscriptions through vehicle sales, despite the “dramatic” slowdown in the automobile industry, accounting for about 30% of all new subscriptions. At Sirius, the proportion was even higher during its last pre-merger quarter, with 87% of new subs coming from new vehicle sales…

The company is counting on continuing vehicle sales to bring in an equivalent proportion in 2009, in part by installing radios in a higher proportion of vehicles than before…Beneath the positive outlook, the satcaster has moved aggressively to limit costs since its merger…the merged company cut 22% of its total workforce…

Edit by SAC

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Despite an increase in revenues Sirius is still expected to post a loss of around $200 million this year.  While it will see temporary gains from merger efficiencies Sirius’ future success depends more on its ability to retain new subscribers and find channels outside of automobile sales to attract new subscriptions.

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Driving in the rain? Here’s a safety tip …

January 2, 2009

This email has been making the rounds:  

A woman had an accident and totaled her car.   It was raining, though not excessively, when her car suddenly began to hydro-plane and literally flew through the air.  She was not seriously injured but very stunned at the sudden occurrence!

The highway patrolman on the scene told her something that every driver should know: NEVER USE YOUR CRUISE CONTROL IN THE RAIN OR SNOW — OR ON WET OR SLIPPERY PAVEMENT. 

The lady thought she was being cautious by setting the cruise control and maintaining a safe consistent speed in the rain. Not so.

According to the highway patrolman: if the cruise control is on when your car begins to hydro-plane and your tires lose contact with the pavement,
your car will accelerate to a higher rate of speed making you lose control.
 
NOTE: Some vehicles (like the Toyota Sienna Limited XLE) will not allow you to set the cruise control when the windshield wipers are on.

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Ken’s Take: This may be an urban myth, but I doubt it — makes too much sense.

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Posted in Autos - Travel | 2 Comments »

Starbucks’ (un)happy Baristas unionizing … uh-oh !

January 2, 2009

Excerpted from Business Week, “Starbucks’ Union Blues”, December 31, 2008

Starbucks’ legal wrangles with a union that wants to organize its baristas is tarnishing the coffee chain’s reputation for social responsibility

Starbucks, once the undisputed leader in premium-price caffeine fixes, has long cultivated a corporate image for social responsibility, environmental awareness, and sensitivity to workers’ rights. Now that carefully crafted reputation is under assault, thanks to a messy legal dispute with a group called the Starbucks Workers Union (SWU).

The NLRB found that Starbucks had illegally fired three New York City baristas as it tried to squelch the union organizing effort …. the company broke the law by giving negative job evaluations to other union supporters and prohibiting employees from discussing union issues at work.

The judge ordered that the three baristas be reinstated and receive back wages. The judge also called on Starbucks to end discriminatory treatment of other pro-union workers.

The timing isn’t ideal for Starbucks, which faces lower demand from the recession, an overall loss of panache for the brand, and a sliding stock price.

The company’s shares more than halved in value in 2008, while Dunkin Donuts and McDonald’s continued to grab market share among coffee drinkers.

Starbucks has been the target of numerous National Labor Relations Board complaints over unlawful violations of workers’ rights.

The SWU is especially keen on tarnishing Starbucks’ image as a “socially responsible” company. Union reps say that Starbucks has a systematic problem with low wages, irregular working hours, and a lack of reliable health care. Starbucks maintains that it pays competitive wages and is among the first large employers to offer health insurance to part-time employees, who make up 100% of its workforce.

Starbuck’s carefully cultivated reputation for social responsibility, may be vulnerable. “The image of the brand that it is wonderful being green, promoting free trade, and helping people, and not being an oppressor of labor.”

Full article:
http://www.businessweek.com/magazine/content/09_02/b4115026911242.htm?chan=top+news_top+news+index+-+temp_news+%2B+analysis

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