Archive for April, 2009

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Would you rather buy a car from a bankrupt automaker, or from ….

April 30, 2009

An automaker majority owned by the UAW, or …

The United Auto Workers union would eventually own 55% of the stock in a restructured Chrysler LLC under the deal reached by the union and the automaker.

Fiat SpA “eventually” will own 35%, and the U.S. government and Chrysler’s secured lenders together will end up owning 10% of the company once it is reorganized.
http://online.wsj.com/article/SB124087751929461535.html

An automaker majority owned by the Federal government, with the  UAW owning most of the rest, or …

General Motors outlined a new turnaround plan that would leave the U.S. government controlling the auto maker.

Under the plan, GM is asking for an additional $11.6 billion in government loans, on top of the $15.4 billion it has already received. It envisions giving the government at least half ownership of the company as payment for half of the loans.

At the same time, GM said it would use stock instead of cash to pay off half the $20.4 billion it owes a United Auto Workers fund to cover retiree health care. That stock would leave the union owning about 39% of GM.
http://online.wsj.com/article/SB124083476254259049.htmlhttp://online.wsj.com/article/SB124083476254259049.html

Buy a Lexus, BMW, Mercedes, or …

Hmmmm … let me think about that one for a moment

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Easy come, easy go … about that buck-a-day "Making Work Pay" program.

April 29, 2009

Obama’s signature tax cut to “95% of families” was supposed to be a $500 refundable credit (per worker) and $1,000 per household (with more than 1 worker).

Congress pared the plan to $400 per worker — a whopping buck-a-day — and stuck it in the stimulus package.

As recently as yesterday, Obama economist Austan Goolsbee was touting it as “a generous tax break for 95% of workers”.

Uh-oh.

As part of the budget blueprint that will be passed this week (on a party line vote, for sure), Congress will let Obama’s “Making Work Pay” tax credit expire at the end of next year — along with the evil Bush tax breaks for the wealthiest Americans.

Let’s see: a couple of weeks ago, a buck-a-day was a generous tax break that would stimulate the economy; now, according to some Dems, it’s a pittance that will barely be missed.  Which is it ?

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Reported on many sources, including:
http://www.foxnews.com/politics/first100days/2009/03/24/senate-democrats-let-obamas-tax-credit-expire-budget-blueprint/

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Worked then, so it should work now. Right? … Big Brands Go for “Nostalgia Marketing”

April 29, 2009

Excerpted from New York Times, “Warm and Fuzzy Makes a Comeback”, by Stuart Elliott, April 7, 2009

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As the recession continues taking its toll, marketers are trying to tap into fond memories to help sell what few products shoppers are still buying. The time-machine tactics are primarily evoking four decades — the 1950s through the 1980s.

For instance, on April 20 a beverage unit of PepsiCo will begin an eight-week campaign for “throwback” versions of two soft drinks, Pepsi-Cola and Mountain Dew. The packages and formulas, along with advertising and promotions, will evoke the ’60s and ’70s.

The hope is that warm, fuzzy feelings about the past will help make people feel better about the present and future.

“In a time of anxiety, people are seeking out brands they’re comfortable with and they can trust.”

Those taking part in the trend acknowledge a potential pitfall of nostalgic pitches: They could lead consumers to believe a brand or product is outdated and therefore not for them.

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Hard times have frequently inspired fond looks in the rear-view mirror. There was a nostalgia boom during World War II, as evidenced by movies like “Meet Me in St. Louis” and songs like “Long Ago and Far Away.”

In the ’60s, the American Tobacco Company, now part of Reynolds American, introduced a filtered version of one of its first national cigarette brands, Sweet Caporal.

In the economic turbulence of the ’70s, there was a fad for nostalgia for the ’50s. The ’60s made a comeback in the ’80s and the ’70s were revived in the ’90s.

Edit by DAF

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Full article:
http://www.nytimes.com/2009/04/07/business/media/07adco.html?ref=media&pagewanted=print

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Getting Readers to Pay for Online News: A New Business Model for a Battered Industry

April 29, 2009

Ken’s Take: Didn’t AOL live (and die) by trying to charge folks for largely undifferentiated content?  Didn’t work for them, and won’t work for these guys.

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Excerpted from New York Times, “They Pay for Cable, Music and Extra Bags. How About News?”, by Richard Perez-Pena and Tim Arango, April 8, 2009

Just a year ago, most media companies believed the formula for Internet success was to offer free content, build an audience and rake in advertising dollars. Now, with the recession battering advertising online, in print and on television, media executives are contemplating a tougher trick: making the consumer pay.

Publishers like Hearst Newspapers, The New York Times and Time Inc.are drawing up plans for possible Internet fees.

“People reading news for free on the Web, that’s got to change,” Rupert Murdoch said last week at a cable industry conference in Washington.

Only a few publishers have tried such a transition, with mixed results. The Los Angeles Times and The New York Times each tried charging for access to some content online, then dropped the requirement because it cost them audience and advertising revenue.

But from networks selling downloads of TV shows, to music companies trying to curb file-sharing, to struggling newspapers and magazines, the make-or-break question is this: How do you get consumers to pay for something they have grown used to getting free?

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Some industries have pulled it off. Coca-Cola took tap water, filtered it and called it Dasani, and makes millions of dollars a year. People who used to ask why anyone would pay for television now subscribe to cable and TiVo. Airlines charge for luggage, meals, even pillows. And some music fans who have downloaded pirated songs are also patrons of iTunes.

All of these success stories offered the consumer something extra, even if it was just convenience.

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“With newspapers and magazines, there have to be features you can’t get anywhere else, and maybe part of what you would pay for is the privilege of helping the business survive, but that is more of a difficult sell.”

By adding free features like e-mail alerts, blogs, discussion forums and video, news organizations are trying to persuade readers that they provide something more valuable than the aggregators and blogs that attract news readers online.

“You have to expect that at first, most of your customers won’t go along,” said a professor at the Kellogg School of Management at Northwestern University. “You have to train people — the academic word is ‘educate’ — to expect to pay, and unfortunately for media companies, they’ve trained people to expect the opposite.”

Edit by DAF

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Full article:
http://www.nytimes.com/2009/04/08/business/media/08pay.html?ref=media&pagewanted=print

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Posted in Internet - Soc Networking, Internet Marketing - eCommerce - | Leave a Comment »

A Milli Vanilli moment …

April 28, 2009

You’ve probably asked yourself: “What if the teleprompter goes awry?”

Here’s a recap from Politico, and a link to the video:

“President Obama’s speech at the National Academy of Sciences Monday morning hit a brief snag when Obama got ahead of his script.

Laying his plan for a President’s Council of Advisors on Science and Technology, Obama began to name the members of PCAST listed in his prepared remarks – before realizing he’d already introduced them, earlier in his speech.

“In addition to John – sorry, the – I just noticed I jumped the gun here,” Obama said, pausing for several seconds as he looked at the prompter. “Go ahead. Move it up. I had already introduced all you guys.”

The audience, which gave the president a warm reception, responded with a quiet laugh.”

Video:
http://www.politico.com/politico44/perm/0409/obama_gets_ahead_of_prompter_3813cbcb-1e4a-44c6-b1e7-26017e7b70c2.html

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When you hear the word "value", grab your wallet !

April 28, 2009

Ken’s Take: I often say in class that “value” is the most over-used and mis-used word in marketing.  Glad to see that somebody else has noticed, too.

Excerpted from Brandweek “Enough With the Value Messages Already,” By Todd Wasserman, Apr 11, 2009

Perhaps no word in the marketing lexicon has been abused as much …  as “value.” … Marketing messages of this stripe are one strategy for addressing the fact that consumers are loath to open their wallets these days. But they’re also only one alternative to cutting prices. It seems like marketers aren’t exploring others.

An alternative way to go at it, for instance … is to create a “fighter brand” like Procter & Gamble did in 1976 with its Luvs diapers, which were meant to be a hedge against store brands while Pampers held down the high end of the market.

Still another tactic—and, lately, a more common one—is what some are calling “value brands.” Paradoxically, though, value brands may be the most expensive solution to the problem, which is why you don’t see a lot of them kicked off these days. Marketers who have the wherewithal to launch a value brand in this climate would probably be rewarded. But in case not, there are still many other ways of attacking the problem.

One of the biggest proponents of value brands is Martin Bishop, director of brand strategy for Landor Associates … Bishop differentiates value brands from fighter brands this way: “Unlike defensive fighter brands, value brands respond proactively and aggressively to opportunities in the value market. Instead of defending the flagship brand, these brands take advantage of a clear value opportunity. Their purpose is not to defend the status quo, but to take advantage of a new market opportunity” …

Red Bicyclette from E&J Gallo, for instance, “built an identity that is entirely separate from that of its parent company’s brand.” The brand is cheap wine with an adventurous and fun attitude—which is a different thing, Bishop says, from just cheap wine …

If you had to pull out one thing that separates a value brand from a fighter brand then, it would be that the brand has more going for it than just price. It’s also got some attitude in there as well …

In Bishop’s view, a value brand is a much better proposition, but … in this climate it’s probably too expensive an option for most marketers. In other words, it’s something that would have been nice to have launched two or three years ago, but is off the table today …

Luckily, marketers have other weapons in their arsenal. Bishop pointed out that when Nescafé wanted to grow sales in the Philippines, the company was very conscious about cheapening its brands, so it addressed another variable—portion sizes—and came out with single-serve packets that didn’t skimp on quality …

Unfortunately, right now such solutions (just like disposable income) seem to be in short supply. Instead of experimenting with value brands, fighter brands, portion sizes and portfolios, marketers are simply hurling the word “value” at consumers and hoping it’ll mean something to them. As everyone humps the same tune, all that expensive messaging could turn out to have no value at all.

Edit by SAC

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Full Article:
http://www.brandweek.com/bw/content_display/news-and-features/direct/e3id54466e9215cc2baf2a798becbda167a

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School reform means doing what’s best for kids … unless the unions object, that is.

April 27, 2009

Ken’s Take: I haven’t bought into the line that Pres Obama surrounds himself with good people.  Consider Biden, Geithner, Napolitano for starters.  But, I was enthusiatic re: Arnie Duncan — Obama’s pick for Sec. of Education.  That is, enthusiastic until his first official action: bowing to the teacher’s union and killing the Washington DC school voucher program.  Read on …

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Arnie Duncan,  U.S. secretary of education, in a WSJ op-ed:

“When parents recognize which schools are failing to educate their children, they will demand more effective options for their kids.

The only open question is whether or not we have the collective political will to face the hard facts about American education. We must close the achievement gap by pursuing what works best for kids, regardless of ideology. In the path to a better education system, that’s the only test that really matters.”
http://online.wsj.com/article/SB124035679795740971.html

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From the Heritage Foundation Daily Wire:

Earlier this month, Duncan sent letters to 200 District of Columbia low-income families informing them that he was taking back the $7,500 in scholarship vouchers that the D.C. Opportunity Scholarship program had previously awarded them.

The evidence is in. The D.C. Opportunity Scholarship program works.

A Department of Education study showed the students in the scholarship program the longest performed at reading level approximately 1.5 to 2 full school years ahead of students who applied but were not lucky enough to be admitted to the program. But instead of “pursuing what works best for kids, regardless of ideology” Duncan did the exact opposite. He moved to kill the program by sending the rescission letters mentioned above.

The Washington Post explained why:

“It’s clear, though, from how the destruction of the program is being orchestrated, that issues such as parents’ needs, student performance and program effectiveness don’t matter next to the political demands of teachers’ unions.”

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High-speed trains: Faster than a car … and just about as profitable.

April 27, 2009

Business Week says:

“By committing $13 billion to high-speed train travel, the Obama Administration is giving long-dormant projects a boost

A priority is a line that would whiz passengers 520 miles from Anaheim to San Francisco in less than three hours and upgrades of Amtrak service in New England and the Midwest to reach speeds of up to 150 mph.”

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The article also notes:

(1) U.S. government analysts concede that it’s impossible to run these hugely expensive networks profitably.

(2) Among the interested investors: Japan Railway, Bombardier, Kawasaki, and Siemens. (Notice anything “interesting” about the list?)

The article glosses over our national success running Amtrak.

That sucking sound you hear is more of money leaving your wallet (assuming that you’re in the half of Americans who pay income taxes)

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Full article: Business Week, “U.S. High-Speed Train Projects Get a Push”, April 23, 2009
http://www.businessweek.com/print/magazine/content/09_18/b4129029604145.htm

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Looks like a car, drives like a car … according to Nissan, it’s a "Mobile Device"

April 27, 2009

Excerpted from New York Times, “With the Car Industry in Trouble, Nissan Rolls Out the Mobile Device”, by Stuart Elliott, April 5, 2009

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Nissan Motors is betting an estimated $20 million that a spirited campaign can get drivers to purchase the Nissan Cube–a cute, smallish car scheduled to go on sale on May 5.

And scratch the word “car,” for the campaign to introduce the Cube in the United States refers to the vehicle as a “mobile device.”

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The phrase, borrowed from the digital domain, signals that the intended market for the Cube is younger drivers. It also signals the focus of the campaign: presenting the Cube as a part of a fun, busy life that can be customized and personalized as easily as a cellphone ring tone or a Facebook page.

To underscore all that, the campaign borrows terms from technology like “search engine,” “browse,” “storage capacity,” “add friends” and “set preferences” to describe features of the Cube. And the media mix skews decidedly toward nontraditional elements like iPhone games, wallpapers, text messaging, the Internet and MP3 downloads.

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The Cube is entering a crowded category of the depressed auto market composed of niche models meant as emotional purchases rather than rational. Such cars are intended to attract attention for unusual design rather than horsepower, bling or fuel economy.

Nissan comments, “This is a tough time to bring anything out, whether a car or a new TV. So we decided we wouldn’t think about it as a car,” he added, but rather “position it as designed to bring young people together — like every mobile device they have.”

Edit by DAF

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Full article:
http://www.nytimes.com/2009/04/06/business/media/06adco.html?ref=media&pagewanted=print

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The Law of Small Numbers … Measuring your MySpace ROI

April 27, 2009

Excerpted from Ad Age, “Study: ROI May Be Measurable in Facebook, MySpace After All” By Jack Neff, Apr 13, 2009

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Package-goods brands are still cautious about social media, figuring that the return on investment can’t be accurately measured. After all, marketing on Facebook or MySpace might generate a conversation but not necessarily a sale. Now, however, a method is emerging to relate one to the other, potentially eliminating a major impediment.

Recent research from ComScore, MySpace and Dunnhumby … suggests that even relatively small outlays on social networks by package-goods brands can result in offline sales impact and deliver positive return on investment.

Generally, the ROI tool of choice for consumer package goods — marketing-mix models that rely on econometric analysis of changes in retail scanner data — can’t pick up the impact of the relatively small five- and six-figure outlays package-goods brands make on digital media.

To overcome that, MySpace teamed with ComScore, which uses a panel of more than 1 million people in the U.S. to track internet usage, and Dunnhumby, which runs loyalty programs for supermarket retailers and has access to loyalty-card purchase data from 59 million people in the U.S. …

One of the first studies was for an unnamed personal-care brand that ran a $1 million campaign on MySpace last year, including a contest in which members submitted videos of themselves and friends for others in the network to vote on … The program also included online couponing.

By the standards marketers sometimes use to measure digital-ad effectiveness, the MySpace effort wasn’t overwhelming. Of 76.9 million people exposed to the campaign … fewer than 1%, visited an advertiser page on MySpace, though roughly half who did (358,000) visited the advertiser’s website.

But by the measure that matters most, sales, the campaign appeared to pay off nicely. It produced $1.28 million in offline sales, as measured by Dunnhumby, which compared purchases among shoppers not exposed to the campaign with purchases among those who were. That amounted to a 28% return on investment, not counting returns from repeat sales among consumers the brand won via the campaign …

Particularly by package-goods standards, that $1 million digital outlay with one site was large … While a campaign that reaches nearly 77 million people is certainly large enough to generate a read in marketing-mix models, the combination of the ComScore and Dunnhumby panels into a single-source database … holds promise for more-accurately measuring many smaller efforts …

The bigger question is whether the ROI will hold up for bigger efforts, he said, justifying budgets similar to what consumer-package-goods brands spend on TV and magazines.

Digital is “incredibly efficient, because the cost per thousand is low … But it’s just not moving a lot of volume yet. And, of course, what you always grapple with is if they suddenly went [from $1 million] to $10 million in digital, would the return stay where it is? … I think the answer is no.” But it’s also a question he said no CPG brand appears to have tried to answer yet.

Edit by SAC

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Full Article:
http://adage.com/digital/article?article_id=135940

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Feds Hire BCG to Advise Detroit … so, what’s new ?

April 25, 2009

Ken’s Take: For years,  Detroit has been a huge cash cow for consultants.  Some things don’t change, I guess.

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The government will pay the Boston Consulting Group as much as $7 million to advise General Motors and Chrysler as they work to pare costs and overhaul operations, according to a federal award notice. G.M., which received $13.4 billion in federal money, is trying to avoid a potential June 1 bankruptcy. Chrysler, which received $4 billion, has an April 30 deadline to pare debt and complete an alliance with Fiat.

“A very significant portion” of Boston Consulting’s work will be to analyze G.M.’s restructuring plan and Chrysler’s proposed alliance with Fiat, according to the notice posted on a government procurement site.

Edit by DAF

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Excerpted from New York Times, “U.S. Hires Boston Consulting to Advise Carmakers”, from Bloomberg News, April 11, 2009
http://www.nytimes.com/2009/04/11/business/11bizbriefs-USHIRESBOSTO_BRF.html?ref=business&pagewanted=print

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The folks who don’t pay income taxes think they pay their fair share … huh ?

April 24, 2009

52% of U.S. voters now believe they pay more than their fair share of taxes.  The split:  61% of Republicans, 48% of Democrats and 48% of independents.
http://www.rasmussenreports.com/public_content/business/taxes/most_voters_say_they_pay_more_than_their_share_of_taxes_political_class_disagrees

Ken’s Translation: The half of the population that actually pays income taxes thinks that it pays too much; the half that pays no income taxes thinks that it pays about the right amount.  Surprise, surprise, surprise.

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51% of Americans have a favorable view of the “tea parties” held nationwide last week; 33%  view the events unfavorably; 15% hadn’t even heard about the tea parties (since they get their news exclusively from the NY Times)..  

The tea parties were viewed favorably by 83% of Republicans, 49% of unaffiliated Americans, and 28% of Democrats.
http://www.rasmussenreports.com/public_content/politics/general_politics2/51_view_tea_parties_favorably_political_class_strongly_disagrees

Ken’s Take: So, when and where will the folks who favor high taxes and out-of-control spending hold their rallies ?

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What are Your Friends Worth? … New Research Puts a Price Tag on Your Network

April 24, 2009

Excerpted from BusinessWeek, “Putting a Price on Social Connections”, by Stephen Baker, April 8, 2009

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Workers who have strong communication ties with their managers tend to bring in more money than those who steer clear of the boss, according to a new analysis of social networks in the workplace by IBM and Massachusetts Institute of Technology.

The research even assigns a dollar value to e-mail interaction with an employee’s managers. Among the group studied, several thousand consultants at IBM, those with strong links to a manager produced an average of $588 of revenue per month over the norm.

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The results represent an early attempt to understand the value of the broadening variety of personal connections afforded by the Web. Users of social media rack up LinkedIn contacts, Facebook friends, and Twitter followers by the hundreds, if not thousands. But figuring out how big a difference all those contacts make in a person’s life, financial or otherwise, is a far murkier matter.

That’s why leading tech companies are hiring economists, anthropologists, and other social scientists to map and classify new types of friendships—and put a value on them.

For example, researchers found that the average e-mail contact was worth $948 in revenue. Using mathematical formulas to analyze the e-mail traffic, address books, and buddy lists of 2,600 IBM consultants over the course of a year, they compared the communication patterns with performance, as measured by billable hours.

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In another study, an IBM team analyzes company methods to introduce employees to colleagues they haven’t yet met. The idea is to create new connections within the global workforce and to encourage employees to share knowledge.

One key is to alert people to potential friends and allies at the company. Much the way companies like Netflix and Amazon study past Web-surfing patterns to recommend books and movies, Geyer and his team are digging for signs of shared interests and behaviors among their colleagues.

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Research into the networked behavior of employees promises insights about teamwork, innovation, and the transmission of knowledge and ideas within a given company.

The research is at an early stage. But as the economy struggles, more companies are sure to study the company we keep—and even attempt to calculate how much each friendship is worth.

Edit by DAF

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Full article:
http://www.businessweek.com/technology/content/apr2009/tc2009047_031301.htm?chan=top+news_top+news+index+-+temp_dialogue+with+readers

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Marketers Step Up Promotions … What Does it Cost the Brand?

April 24, 2009

Excerpted from AdAge, “Deal or No Deal? Cheap Prices Can Maim Your Brand” By Jack Neff, April 06, 2009

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Google searches for the term “coupons” last month for the first time surpassed those for “Britney Spears.”

That simple fact drives home what a lot of package-goods marketers already know: What consumers want now is promotion.

But as the industry increasingly gives in to that wish … the question becomes how much marketers can discount without doing permanent damage to their brands …

For sure, the recession  is creating a huge consumer appetite for deals … Package-goods companies seem to be complying. After relative restraint on trade spending in 2008, marketers appear to have stepped on the gas in February. The percentage of volume sold on promotion was up 5.6 percentage points to 38.4%  …

Much as consumers and retailers may want deals, conventional wisdom is they pose a threat to brand health. Numerous studies have shown price promotion erodes brand equity by permanently making consumers more price-sensitive.

Mmarketers will resist cutting prices permanently as long as possible in favor of stepped-up promotion, because temporary deals erode margins less than permanent price cuts.

Promotion can play a positive role for brands in a recession … Promotion that wins a place on retailers’ circulars becomes more important when more consumers are planning purchases at home, as they are now … Realistically, that usually comes at the expense of a temporary price reduction.

Circulars are used about 45% of the time to create shopping lists … “If I’m a marketer, I want to make sure I’m in context of where the list is being made, because right now about 11% of the shopping list is by brand name, and when it is, there’s an 85% chance [the shopper] is going to buy it.”

Edit by SAC

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Full Article:
http://adage.com/article?article_id=135800

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Posted in Mktg - Brands, Mktg - Pricing, Mktg - Promotion | Leave a Comment »

Nobody is watching Fox News any more !

April 23, 2009

Just kidding, of course.  Below are Nielsen Ratings for the past month.  Interesting numbers (I think).

Primetime Average Viewers
FOXNEWS     3,390,000
MSNBC         1,210,000
CNN             1,070,000
CNN HDLN      909,000

image

Note:

(1) The WWE, Spnngebob, and repeats of NCIS and Law & Order beat all of the above

(2) Chris “Tingly Leg” Matthews and Lou “The World Isn’t Flat” Dobbs don’t even make the list

For demo detail:
http://tvbythenumbers.com/2009/04/17/cable-news-ratings-for-thursday-april-16/16968

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Old Airlines Struggle To Close the Cost Gap

April 23, 2009

Excerpted from WSJ, “Costs of Old Age Trip Up Airlines” By Scott McCartney, Apr 7, 2009

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Bankruptcies, restructurings, pay cuts and radical changes in airplane fleets and schedules were supposed to lower costs at older airlines so they could afford to match the cheap fares offered by upstart low-cost carriers. It hasn’t turned out that way. The “cost gap” between so-called legacy airlines that have been around for decades and younger low-fare carriers has remained …

[L]ow-cost carriers have been able to reduce their costs even more as their rivals tried to catch up. They maintained an advantage over bigger airlines in productivity, allowing them to fly seats at lower cost than rivals … For consumers, the aggressive cost-cutting at airlines has produced a prolonged period of very low fares. By slashing costs and improving efficiency, airlines have positioned themselves to better weather the recession … Layering on fees for everything from checking bags to redeeming frequent-flier tickets has helped, too.

That could change because of the persistent cost gap … For the past several years, strong business travel and demand for premium tickets on international routes gave higher-cost airlines enough revenue to overcome the cost gap. But the recession has drained high-dollar business travel, leaving higher-cost airlines to compete more directly with discounters for cheap-fare passengers …

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Airlines measure unit costs and revenue by spreading it over seat miles — each seat flown one mile … last year, when fuel prices were still high, revenue generated by American, Delta, Continental, Northwest, United and US Airways averaged 12.46 cents per seat mile … while costs were 14.68 cents per seat mile on average. On each seat mile, those airlines were losing money.

The average for AirTran Holdings Inc., JetBlue Airways Corp. and Southwest Airlines Co. showed how the low-cost airlines fared better. Average revenue per seat mile was 10.92 cents, just above average costs of 10.87 cents per seat mile.

Average costs of the legacy airlines last year were 35% higher than average unit costs of the low-cost carriers … Some of the cost gap is unavoidable. Big international operations bring with them higher costs (but also higher revenue). Big hub operations are labor- and equipment-intensive and not nearly as efficient … Low-cost airlines typically avoid connecting scads of customers through big hubs and often empty and refill airplanes on the ground much faster.

The payoff for higher-cost airlines is supposed to be higher revenue. Lots of international flights attract high-dollar corporate fliers, for example, and extensive networks create more opportunity to connect more passengers. That has worked well for airlines when the economy is strong and business travelers are paying top-dollar for tickets.

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David Barger, chief executive of JetBlue Airways, says high oil prices last year overwhelmed airlines and made all carriers high-cost carriers … The key to keep costs low, he says, is growth — another area where the low-cost carriers have an edge. Airlines that grow add new airplanes that don’t yet have lots of maintenance costs or reliability issues … Conversely, airlines that are shrinking have a harder time reducing unit costs …

Low-cost carriers have been steadily capturing a bigger percentage of domestic air travel, carrying 26% of domestic passengers in 2003 and 31% by 2007 … Legacy airlines dropped from 56% of passengers in 2003 to 48% in 2007.

Edit by SAC

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Full Article:
http://online.wsj.com/article/SB123905461687894541.html

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Diageo Pushes Pricey Pods For Chilled Beer Displays

April 23, 2009

Excerpted from WSJ, “Diageo Serves Up New Campaign Aimed at Shoppers” By Aaron O. Patrick, Apr 7, 2009

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With people going out less often amid the recession and drinking more at home, Diageo is adding a twist to its marketing.

The company, whose brands include Johnnie Walker scotch and Guinness beer, is developing in-store displays to encourage shoppers to buy more of its products in supermarkets and liquor stores. Central to its approach is a plan to roll out big refrigeration units so stores can sell their beer chilled.

The idea is to create a partially enclosed, refrigerated beer zone within a supermarket aisle, using a design Diageo calls “the pod.” The refrigeration units, which will cost retailers roughly €10,000 ($13,000) each, are intended to hold all kinds of beer, not just Diageo’s brands, in an attempt to boost beer sales overall.

No retailer has yet bought the pod … But Diageo says it is working with Spar, a European food chain, to install a smaller version this spring.

The effort is part of a strategy by Chief Executive Paul Walsh to make Diageo, the world’s biggest alcoholic-beverage company by revenue, better at working with supermarket chains, an increasingly important outlets for alcohol sales …

Diageo is installing computer screens in liquor stores to help people plan parties. Customers type in the cocktails they want to serve and the number of guests they are expecting, and the computer prints out a list of ingredients and quantities, including ice. The machines, which the company says are in 500 liquor stores in 38 U.S. states, can also send cocktail recipes via email …

Analysts say Diageo’s retail push seems to be working. Sales of its Smirnoff vodka grew 2.2% in the U.S. in January, twice the rate of the spirits market as a whole … while sales of most big spirits brands fell … In Europe, Diageo’s Irish unit has emerged as a leader in the supermarket strategy. In the past few years it has given away 600 display stands that hold spirits, mixers and condiments …

Spirits account for most of London-based Diageo’s profit, but beer is especially important to it in Ireland, where it brews Guinness as well as such brands as Budweiser and Carlsberg. Diageo Ireland learned that 78% of those who buy beer in Ireland drink it within three hours, says Henry Dummer, the company’s head of customer marketing in Ireland. Many Irish supermarkets don’t sell chilled beer, missing out on sales, he says.

Now, Spar has agreed to install Diageo-designed beer refrigerators in all 50 of its Irish Eurospar stores over the next two years, says Declan Ralph, Spar Ireland’s retail-development director … Diageo is in talks with other retailers about the pod.

Edit by SAC

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Full Article:
http://online.wsj.com/article/SB123906172693095137.html

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Piling on … more quips on Obama's $100 million cost-cutting directive.

April 22, 2009

Extracted from IBD, “Fiscal Nanosurgery”, April 21, 2009

When President Obama directed his Cabinet to cut $100 million out of the budget … he talked about earning the public’s trust on spending. Apparently, he thinks people put a low value on trust.

Perhaps the president is counting on taxpayers not being able to tell the difference between millions, billions and trillions. They all seem like such big numbers.

So to get a real sense of just how little is being asked of his Cabinet, consider:

• If Obama were your dietician, you’d only have to give up an apple a year to abide by his diet plan.

• If he wanted you to cut your gasoline consumption, you’d have to drive just one-third of a mile less in a year.

• And if he wanted you to waste less water, you’d only have to reduce the time you spend in the shower on one day of the year by 30 seconds.

http://www.ibdeditorials.com/IBDArticles.aspx?id=325206654263630

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Piling on … more quips on Obama’s $100 million cost-cutting directive.

April 22, 2009

Extracted from IBD, “Fiscal Nanosurgery”, April 21, 2009

When President Obama directed his Cabinet to cut $100 million out of the budget … he talked about earning the public’s trust on spending. Apparently, he thinks people put a low value on trust.

Perhaps the president is counting on taxpayers not being able to tell the difference between millions, billions and trillions. They all seem like such big numbers.

So to get a real sense of just how little is being asked of his Cabinet, consider:

• If Obama were your dietician, you’d only have to give up an apple a year to abide by his diet plan.

• If he wanted you to cut your gasoline consumption, you’d have to drive just one-third of a mile less in a year.

• And if he wanted you to waste less water, you’d only have to reduce the time you spend in the shower on one day of the year by 30 seconds.

http://www.ibdeditorials.com/IBDArticles.aspx?id=325206654263630

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A car company that knows how to create value …. hint: not based in Detroit

April 22, 2009

Ken’s Take: In marketing, there’s a concept know as “product augmentation” —  adding features and services to a “core product” in order to deliver more differentiating benefits to target customers.  Hyundai seems to have hit the target with its assurance program.

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Excerpted from Brandchannel, “Marketing Strategies that Build Value” by Barry Silverstein, April 6, 2009

Value building is not a new concept. In good times and bad, smart brand marketers have always recognized the need to build value and differentiate—to make their brands a little better than competitors by adding a new feature, creating a special promotion or forging a unique alliance with another brand.

What’s different today is the targeted relevance of value building. Faced with a protracted global economic recession, established brands are searching for ways to add maximum value without cheapening their image or undermining profits. Some brands are out-smarting and out-performing their competitors because of value-building strategies.

One breakthrough example of value building is occurring in, of all places, the automotive industry. While most car manufacturers and dealers are slashing prices and offering deep discounts, one car maker is leveraging the impact of the economy on consumers by offering something simple yet powerful and timely: peace of mind.

In early 2009, the Korean auto company Hyundai introduced a program called Hyundai Assurance in the US market. It made a bold promise: “Finance or lease any new Hyundai, and if in the next year you lose your income, we’ll let you return it.” Hyundai recently enhanced the offer, renamed Hyundai Assurance Plus: “If you lose your income, we’ll make your payments for 3 months while you get back on your feet, and if that’s not enough time to work things out, you can return the car with no impact on your credit.”

Hyundai built additional value into Hyundai Assurance by broadly defining the ways in which loss of income might occur. Hyundai included the following “life-changing events” in its promise: involuntary unemployment, physical disability, loss of driver’s license due to medical impairment, international employment transfer, self-employed personal bankruptcy and accidental death. Obviously the company thought carefully about the current economic environment and consumers’ potential misfortunes.

Ironically, when Hyundai cars first entered the marketplace, they were not well regarded; in fact, Hyundai was perceived as a lower-quality brand in its early days. But following in the footsteps of the Japanese automakers, Hyundai kept making its cars better and better. Ten years ago, Hyundai stunned the industry by introducing the best automobile warranty in the US—a “safety net” that gave customers the confidence they needed to purchase a vehicle from Hyundai. Hyundai Assurance is essentially a thoughtful extension of that original value-building strategy.

In January 2009, after the introduction of Hyundai Assurance, Hyundai’s sales were up more than 14 percent over January 2008. “Hyundai had the largest sales increase of any automaker, and it was one of only three with any increase at all,” reported CNNMoney.com. 

In March 2009, Hyundai started offering low-rate loans on three car brands, in addition to cash-back incentives. Dave Zuchowski, vice president of sales for Hyundai Motor America, told Automotive News, “We’re looking for [Hyundai] Assurance to drive traffic and then the new rebates to help close the deals” (“Hyundai Piles On Incentives,” March 9, 2009).

Another way brands can practice value building is to promote exclusivity and offer consumers something of unique value for a limited time. The recent introduction of the 70th Anniversary Platinum Edition of the Disney movie Pinocchio typifies the category.

The Pinocchio release is just the latest in a series of Disney Platinum Editions—part of a larger value-building strategy by Disney to release original movies from the “Disney vault” for limited time periods, thus increasing their perceived value. 

Disney is already one of the world’s most recognized brands, so why do they need to issue Platinum Editions? Because Platinum Editions reinforce the image of the brand. Once the limited-release time period is over, the Platinum Edition movies are no longer available through traditional retail channels—they become “out of print” collector’s editions—and the Disney brand maintains its aura of exclusivity.

A third path to value building is more conventional but just as effective: using add-ons that enhance the value of a brand and reinforce the brand purchase decision. Apple’s iPhone stands out in this area. While it was a legitimate breakthrough brand in its own right, the iPhone was high priced and, by some standards, a risky and unproven technology. Apple rapidly overcame those early objections by opening up the iPhone to developers. The result was an iPhone “App Store” with thousands of applications for the iPhone, some of them free. In March 2008, more than 100,000 developers had downloaded the iPhone Software Development Kit in a period of just four days. By the end of 2008, Apple had recorded over 100 million application downloads.

Still, Apple succeeded in demonstrating that it was once again a pioneering technology brand, and that the iPhone was an added-value platform—one that could provide a mind-numbing quantity of applications unlike any other communications device on the market. 

These brand marketers know that value building is an important means of keeping their brands fit—and creating strong bonds with customers who are seeking the best value…especially in these economic times.

Edit by NRV
Full article: http://www.brandchannel.com/start1.asp?fa_id=472

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Coke Makes An Innocent Investment

April 22, 2009

Excerpted from WSJ, “Coke Teams Up with Socially Focused Smoothie” By Aaron Patrick and Valerie Bauerlein, Apr 8, 2009

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Coca-Cola’s investment in British smoothie maker Innocent not only connects the beverage giant to a fast-growing product but also to a company known for good social and environmental behavior.

Coke said this week it will take a minority stake in London-based Innocent, which has quickly become one of Britain’s top brands by marketing its healthy ingredients and social commitment. By giving 10% of its profits to charity and using recycled bottles, Innocent was one of the first consumer brands launched in Britain to develop a big following through ethical marketing.

The investment … speaks to Coke’s continued interest in expanding beyond soft drinks and in owning small stakes in innovative companies … Founded 10 years ago, [Innocent] now has 82% of the U.K. smoothie market …

Innocent cuts a quirky public figure. Some of its trucks are covered in fake grass and daisies. Those trucks are mounted on hydraulics that make them appear to dance, with drop-down windows for giving away samples … The deal’s structure should allow Innocent to keep its funky attitude rather than risk being assimilated into a vast corporate culture whose focus remains carbonated soft drinks. Coca-Cola won’t have any management control over Innocent, but Innocent will share its expertise with the Atlanta-based beverage company …

The Coca-Cola money will be used to expand Innocent’s operations in Europe, where only 25% of European supermarkets sell smoothies … The money will be used to pay for distribution, stocking fees, sales staff and advertising …

While Innocent has run TV- and newspaper-ad campaigns, it has also specialized in less-traditional advertising. One of its ad agencies, Albion, created a board game for schools promoting the health benefits of fruit and vegetables. Some 200,000 people turned up to a Innocent musical concert in London named Fruitstock in 2006 …

Innocent’s charitable giving is also interactive. Volunteers knitted more than 506,000 little hats for smoothie bottles last year, which were then sold, raising £250,000 in proceeds to provide meals, blankets and other help for older people during the winter.

To be sure, Coke has been sporting its good deeds, expanding its recycling plants, reducing water consumption and using environmentally friendly coolants in vending machines and coolers … But the 123-year-old company has been known to kill ads that were deemed too edgy and is vastly bigger and more buttoned-up than a closely held newcomer such as Innocent.

Coke appears to be embracing the model of taking a stake rather than buying outright, after previously struggling to integrate niche nonsoda companies … Coke has had more success with its 2001 purchase of Odwalla Inc., a maker of premium refrigerated fruit and vegetable juices whose product line is closest to Innocent’s line.

Innocent’s success helped drive all smoothie sales in the U.K. From 2003 to 2007, smoothie sales in the U.K. rose more than fivefold to £241 million …

Edit by SAC

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Full Article:
http://online.wsj.com/article/SB123913675734598167.html

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"Puny","Trivial", "Insulting" … Remember when $100 million was a lot of money?

April 21, 2009

President Obama announced plans to cut $100 million from the federal budget, and department heads will have to make the cuts within 90 days. For example, Homeland Security is going to start buying office supplies in bulk instead one at a time.  That’s some out of the box thinking for you …

While the initiative was treated by most media as a big deal.  A few observers — left & right — have tried to put the $100 million in perspective. Here are a couple of my favorites:

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From Tom Bemis at Marketwatch:

“To get a handle on how insultingly trivial the announcement is, one need only compare the targeted cuts to the administration’s spending plan for 2010.
With cuts in federal spending by $100 million, the government will save roughly 1/36,000 of the $3.6 trillion it expects to spend next year.

Put another way, if the budget were a yardstick, the administration would be proposing to shorten it by about half the width of a human hair.
http://www.marketwatch.com/news/story/Obama-makes-puny-effort-budget/story.aspx?guid={AF7E28F0-CEBA-426D-AC0A-448537C5A627}&dist=hplatest

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From Paul Krugman of the NY Times:

” Let’s say the administration finds $100 million in efficiencies every working day for the rest of the Obama administration’s first term. That’s still around $80 billion, or around 2% of one year’s federal spending.

OK, politics is theater. But you could argue that the president shouldn’t feed the bogus claim that we can close fiscal gaps by eliminating a bit of waste.
http://krugman.blogs.nytimes.com/

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From economics guru Greg Minkow’s blog:

Just to be clear: $100 million represents .003 percent of $3.5 trillion.

To put those numbers in perspective, imagine that the head of a household …  called everyone in the family together to deal with a $34,000 budget shortfall. How much would he or she announce that spending had be cut?

By $3 over the course of the year–approximately the cost of one latte at Starbucks.

The other $33,997?  We can put that on the family credit card and worry about it next year.
http://gregmankiw.blogspot.com/

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Thanks to Tags for the heads-up

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Retrofitting Gas Guzzlers with Batteries … hmmm, interesting idea, Mr. Grove

April 21, 2009

Ken’s Take: The conventional plan has been to make small hybrids — that few outside metroplexes are interested in, and which stand no chance of generating profits for auto companies.  I like that this plan tries to transforn SUVs and pick-ups into socially responsible rides..

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Excerpted from the McKinsey Quarterly, “An Electric Plan for Energy Resilience”, by Andy Grove and Robert Burgelman, December 2008

Every president since Richard Nixon has vowed to reduce the United States’ dependence on foreign oil. None has succeeded. Imports—and thus America’s vulnerability to disruptions—have increased to where now they supply two-thirds of consumption.

Our aim should not be total independence from foreign sources of petroleum. That is neither practical nor necessary in a world of interdependent economies. Instead, the objective should be developing a sufficient degree of resilience against disruptions in imports. Think of resilience as the ability to absorb a significant disruption, bigger than what could be managed by drawing down the strategic oil reserve.

The best alternative to oil? Electricity. The means? Convert petroleum-driven miles to electric ones.

* * * * *

What would it take to build enough plug-in electric vehicles (PEVs) to make a significant dent in oil consumption?

Revamping the fleet of automobiles already on the road through production of new automobiles would take far too long for comfort. If ten automobile manufacturers each introduced a new PEV now and increased its production as fast as Toyota did with its highly successful Prius, the vehicles would still account for less than 5 percent of the 250 million vehicles on US roads a decade from now.

We believe the United States should consider accelerating this movement by creating an industry of after-market retrofitters.

* * * * *

We estimate the price tag of such a pilot project to be around $10 billion, owing to the present high cost of batteries, which are around $10,000 each.

Assuming an average gas price of $3 per gallon, the payback period to the owner of a retrofitted vehicle is at least ten years, not a strong economic incentive.

But the benefits of this program—testing and validating a key approach to energy resilience—accrue to the well-being of the United States at large. As the general population is the predominant beneficiary, economic assistance flowing from everyone to vehicle owners, in the form of tax incentives, is justified.

* * * * *

There are different approaches to retrofitting vehicles. We favor GM’s Volt design, in which the car is directly driven by an electric motor. To simplify the retrofitting task, we would limit the scope of the program to six to ten U.S. models, selected on the basis of two criteria: low fuel efficiency and large numbers of vehicles on the road. Most of these vehicles would be SUVs, pick-ups, and vans.

Further, we propose targeting fleets of automobiles owned by corporations or government entities. That way, many retrofits could be performed at just a few locations.

Given the current difficult economic conditions, auto dealers and garage operators may well be attracted by this potential new source of revenue and be eager to participate, helping the program in its early stages.

* * * * *

The biggest problem, however, is the availability of batteries. The most suitable battery technology, which offers both a sufficient range and enough power to provide the acceleration required by today’s drivers, is the lithium-ion battery system. Making the batteries required for one million vehicles would mean doubling current manufacturing output.

There is another issue we need to consider. While there are many sources of the batteries’ raw materials—such as lithium and cobalt—battery manufacturing is almost exclusively based in China, Japan, and Korea. To avoid battery manufacturing becoming the next source of dependency, we have to build domestic technical and manufacturing capability.

Another important goal is to improve the cost and quality of battery technology.

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We are approaching the inevitable decline of oil availability which gives the United States the opportunity to move into a more desirable strategic position. Today, we compete with countries whose richer natural resources give them a strategic advantage. If we shift transportation towards electric miles, we gain an opportunity to employ our own resources: newly energized governmental leadership, a tradition of high-volume manufacturing, and a culture of technological innovation.

These capabilities and skills have served the United States well in the past, and the drive toward electric miles may help revitalize them. That result is every bit as important as the electric miles themselves.

Edit by DAF

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Full article:
http://www.mckinseyquarterly.com/Energy_Resources_Materials/Environment/An_electric_plan_for_energy_resilience_2276

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Tropicana’s Tale of Rebranding Gone Wrong

April 21, 2009

Excerpted from Ad Age, “Tropicana Line’s Sales Plunge 20% Post-Rebranding” By Natalie Zmuda, April 02, 2009

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Tropicana’s rebranding debacle did more than create a customer-relations fiasco. It hit the brand in the wallet.

After its package redesign, sales of the Tropicana Pure Premium line plummeted 20% between Jan. 1 and Feb. 22, costing the brand tens of millions of dollars. On Feb. 23, the company announced it would bow to consumer demand and scrap the new packaging … It had been on the market less than two months …

Moreover, several of Tropicana’s competitors appear to have benefited from the misstep, notably Minute Maid, Florida’s Natural and Tree Ripe. Varieties within each of those brands posted double-digit unit sales increases during the period …  As the leader in the category, it makes little sense that Tropicana Pure Premium would see such a drastic sales decline while the category remained relatively flat, industry experts said …

A spokeswoman for Tropicana in an e-mail said, “No dots to connect here.” The company did not respond to further requests for comment.

“It surprises me that their performance is so different from the rest of the category,” said Gary Hemphill … at Beverage Marketing Corp. “It’s a little tough to draw conclusions over such a short period of time. But I would say that’s unusual.”

Mr. Hemphill said typically when a beverage brand undergoes a rebranding it signals increased marketing expenditures and leads to improved performance, at least in the short term. “It gets people to look at the brand again and brings some kind of news and excitement around the brand,” he added.

Tropicana had certainly sought to create excitement around the Pure Premium rebrand, announcing Jan. 8 a “historic integrated-marketing and advertising campaign … designed to reinforce the brand and product attributes, rejuvenate the category and help consumers rediscover the health benefits they get from drinking America’s iconic orange-juice brand.”

Beverage experts were hard pressed to think of another major brand that had pulled the plug on such a sweeping redesign as swiftly as Tropicana. “It’s a black eye when you have to backtrack that quickly … There must be [another example] but nothing comes to mind. [Tropicana] is a big brand, and it was a big restage. This is something that I’m sure they were not happy about.”

While it’s impossible to say whether Tropicana has permanently lost share, as a result of the blunder, competitors are likely taking note. “We think the Minute Maid brand has opportunity for growth, and we’re working hard to make that happen,” said Ray Crockett, a Coca-Cola spokesman.

Edit by SAC

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Full Article:
http://adage.com/article?article_id=135735

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Glimmers of Nope ….

April 20, 2009

Consider the following:

(1) Last week, it was broadly reported that foreclosures have continued at a brisk and increasing rate since Team Obama’s mortgage rescue plan was announced.

According to USA Today: “Foreclosure filings in February jumped nearly 6% from January, despite foreclosure moratoriums and prevention programs … Foreclosure filings were up almost 30% from February 2008, … one in every 440 U.S. homes received a foreclosure filing in February.”
http://www.usatoday.com/money/economy/housing/2009-03-11-higher-housing-foreclosures_N.htm

(2) The WSJ reports that lending has been declining at banks that have received TARP funds

“Lending at the biggest U.S. banks has fallen sharply … despite government efforts to pump billions of dollars into the financial sector.

The biggest recipients of taxpayer aid made or refinanced 23% less in new loans in February …  than in October, the month the Treasury kicked off the Troubled Asset Relief Program.

The total dollar amount of new loans declined in three of the last  four months …  All but three of the 19 largest TARP recipients … originated fewer loans in February than they did at the time they received federal infusions.” http://online.wsj.com/article/SB124019360346233883.html#mod=testMod

(3 Most banks have been reporting better than expected Q1 earnings making rosy projections, and moving to pay back TARP funds.

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Ken’s Take:

Sure, Wall Streeters and the banks blundered big time in the mortgage mess.  Still, they are a shrewd bunch.  Obama’s Team of career government bureaucrats and academics are no match for the big league finance sharks.  The Administration’s haphazard programs are easily exploited.  The banks can take the near-free money and generous processing cost subsidies and simply drop them down to their bottom lines without doing much differently that they otherwise would.  For the bank’s, it’s like taking candy from a baby …

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Fixed Fee Flexibility – Firms Change Pricing Strategies

April 20, 2009

Excerpted from WSJ, “Firms Try Alternative to Hourly Fees” By Simona Covel, Apr 2, 2009

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For decades, marketing firms, accountants and other professional-service companies have all billed nearly the same way — by the hour, or, on occasion, with long-term contracts. But the recession is chipping away at that tradition, with companies forced to adopt performance-based pay and fixed prices in an effort to retain and attract clients.

The billing changes affect a broad swath of businesses, including marketing, advertising, accounting and recruiting. Even a few law firms have recently begun to talk about moving away from the billable hour, a hallmark of the legal-fee structure.

In recent months, advertising and communications company Button Worldwide began offering its clients an alternative to its regular billing after a few clients requested that the company cut monthly retainers for continuing work … Instead of a retainer, Button clients could use a pay-for-performance model where the company earns money only if it secures publicity for a client …

As the economy wavered this past summer, clients of Geary Interactive Inc. began balking at the $100 to $135 hourly rates charged by the digital marketing agency. To please clients and attract new ones, the agency started reducing its fees on a case-by-case basis — with a twist. 

The reduced fees are now approximately $80 per hour, but Geary added a contractual bonus to be paid at the end of a certain time period if its marketing campaigns met or exceeded a client’s goals … The move also has meant a shift for a staff often accustomed to thinking about longer-term goals such as brand development. “There’s a higher sense of urgency,” Mr. Roell says …  

Edit by SAC
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Full Article:
http://online.wsj.com/article/SB123862458936679977.html

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Caution: 535 backseat drivers onboard … (all unlicensed)

April 17, 2009

Ken’s Take: 

Many banks were forced to take TARP funds even though they didn’t need or want them.  Why?  So that banks that did need the money wouldn’t be stigmatized and to get more money into the economy.

Now, “industry officials have been expressing growing concern about Washington changing TARP terms, as Congress did last month on rules for executive compensation … That creates uncertainty and disincentives for companies in TARP. You have 535 backseat drivers in Congress. ”

“Think about it: If Rick Wagoner can be fired and compact cars can be mandated, why can’t a bank with a vault full of TARP money be told where to lend? And since politics drives this administration, why can’t special loans and terms be offered to favored constituents, favored industries, or even favored regions? Our prosperity has never been based on the political allocation of credit — until now. ”

Unfortunately (for TARP holders), Team Obama is rejecting attempts to repay the loans … and dodge encumbering Congressional control.

I guess backseat driving is way too much fun … especially when it comes with no accountability.

Source article:
http://foxbusiness.proteus.com/content.html?contentId=29318

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In praise of tax code simplification …

April 17, 2009

Ken’s Take:

(1) Of course a simpler tax code makes sense, but it’ll never happen.  Why?  Because the complicated tax code is Congress’ source of power.  It allows them to pick winners & losers — among people, ideas and, oh yeah, contributors.

(2) I’d add a 7th principle: Everybody has to have some skin in the game.

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Excerpted from WSJ, “We Need a Simpler Tax Code”. April 10, 2009

As the national taxpayer advocate, I am required to report to Congress each year on the most serious problems facing U.S. taxpayers. With April 15 fast approaching, it will come as no surprise to many frustrated taxpayers that the complexity of the tax code tops my list.

The law should be plain enough that most people can compute their own liabilities on a single form.

In developing a comprehensive tax reform blueprint, I recommend that emphasis be given to six core principles.

First, the tax system should not be so complex as to create traps for the unwary.

Second, the tax laws should be simple enough so that most taxpayers can prepare their own returns and compute their tax liabilities on a single form, and simple enough so that IRS telephone assistors can accurately answer taxpayers’ questions.

Third, the tax laws should anticipate the largest areas of noncompliance and minimize the opportunities for such noncompliance.

Fourth, the tax laws should provide some choices, but not too many, since choices are confusing and can lead to taxpayer error.

Fifth, where the tax laws provide for refundable credits, they should be designed in a way that is minimally burdensome both for the taxpayers claiming the credits and for the IRS in administering them.

Sixth, the tax system should incorporate a periodic review of the tax code — a sanity check to guard against complexity creep.

Tax simplification would benefit all Americans, regardless of political party.

Full article:
http://online.wsj.com/article/SB123933106888707793.html

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Hollywood’s Newest Concern? A Big Red Vending-Machine

April 17, 2009

Excerpted from LA Times, “Redbox’s $1 vending-machine video rentals worry movie studios” By Dawn C. Chmielewski, March 30, 2009

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The hottest thing in movie rentals is as old as the Coke machine — and just as red. Redbox movie kiosks are popping up by the thousands in supermarkets, drugstores, restaurants and convenience stores around the country. The kiosks stock DVDs that rent for $1 a day, a remainder-bin price that is less than a cup of coffee at Starbucks.

For all the talk about the Internet, Wi-Fi and cellphones becoming the new gateways to watch movies and wiping out the corner Blockbuster, a ubiquitous vending machine the size of a refrigerator is becoming a growing concern to Hollywood.

Consumers are pulling DVDs out of the Redbox kiosks in record numbers, undermining longtime economics that have propped up the movie business — and in the process triggered a backlash from a major studio that sought to cut off Redbox’s supply of hot new DVDs …

Redbox operates nearly 12,900 kiosks throughout the U.S. — four times as many locations as Blockbuster — and plans to introduce 7,100 more by the end of the year … Consumers rent a DVD from the machine using their credit or debit cards, which enables Redbox to charge an additional day’s rental if the DVD is not returned within a 24-hour period. A typical kiosk can earn significant coin: about $50,000 annually in revenue per machine in operation after three years.

Blockbuster … started rolling out its own DVD-vending kiosks last summer … “We have been watching very carefully as they have progressed … We think it is very consistent with what Blockbuster does, which is to provide convenient access” to home entertainment.

The discount DVD rental business worries Hollywood movie studios because of fears that it is undercutting DVD sales, which dropped 13% in the fourth quarter … DVD sales historically have been how the studios earn a profit on movies, because ticket sales are barely enough to offset production and marketing costs. Some studios believe that consumers will forgo buying DVDs if they have a cheap option to rent movies …

The kiosks caught on, especially in supermarkets, where they catch customers’ eyes as they push their grocery carts through the checkout counters.

The combination of errands to fill the cupboard and rent movies, as well as the consistent flow of customers, turned out to be advantageous … “It’s a regularity of traffic, and the biggest single place people are going after the supermarket is to their homes,” Redbox’s Kaplan said. “Consumers tend not to rent DVDs when they’re not going home” …

Video industry analyst Adams estimates that the kiosk rental market, which totaled $519 million last year, will reach $1.4 billion in five years — or about one-fourth of Blockbuster’s 2008 revenue.

“You could view that as directly competitive” with Blockbuster, Adams said. “It’s a cheaper option, and during a recession people embrace it.”

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Full Article:
http://www.latimes.com/business/la-fi-cotown-redbox30-2009mar30,0,3496501.story?track=rss

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My #1 tax beef: Under the Team Obama tax plan, a majority of voters will be paying zero income taxes (or less)

April 16, 2009

Note: This analysis was originally posted on July 31, 2008 during the run-up to the election.  It proves the point (ahead of its time)  that less than half of all voters pay any income taxes now that “Make Work Pay”  has been enacted (as part of the  stimulus program).  Think about it: the majority gets to demand more government programs that they don’t pay a cent towards.  I think that’s scary.  Very scary..

It’s the post that continues to get the most hits, and the topic is ‘hot’ this week because of the tea party rallies.  So, here’s a flashback .
..

* * * * *

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

 

Why?

 

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

 

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

 

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

 

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

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

 

* * * * *

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

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

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

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

* * * * *

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

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

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

* * * * *

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

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

 

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

 

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

 

click table to make it bigger

click table to make it bigger

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

 

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

click to make table bigger

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

 

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

 

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

 

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

 

* * * * *

The Bottom Line – Why You Should Worry

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

 

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

 

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

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

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Sources & Notes

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

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

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

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

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

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

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

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

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

[10]  http://www.irs.gov/pub/irs-soi/06in11si.xls 
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Simple math … the seeds of a tax revolt

April 16, 2009

Counterattacking the Tea Parties yesterday, Team Obama was out in force declaring: (1) 95% of workers are getting a tax break (2) over 60% of Americans support the President’s spending plans.

Let’s see …

Regarding the tax break: keep in mind that it’s a whopping buck-a-day for the average worker.  Better than nothing, but not by much. If that buys financial stability and happiness, I say ‘go for it’.

Regarding the support for the spending plan: keep in mind that about half of voters don’t pay any income taxes — or get a refundable credit check.  They have no skin in the game — why wouldn’t they support a boatload of new benefits — after all, they’re FREE.

Assuming all 50 on non-tax payers support the programs, getting to 60% support means that 20% of tax payers support the spending plan … or, said differently, 80% don’t.

Think about it: using Team Obama’s own numbers, 80% of the folks who have to pay for the spending spree oppose it … but politically, the payers are dwarfed by the freeloaders.

It’s simple arithmetic.

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Finally, a windfall profits tax that I can support …

April 16, 2009

According to the WSJ, Team Obama (Barack & Michelle) reported $6.8 million income in 2007 ($4.1) and 2008 ($2.7) …  “mainly from book sales”.

I think it’s fair to say that if Obama had not been selected to give a speech at the 2004 Democratic National Convention, his book sales would have been statistically insignificant.

In other words, his book earnings are, by definition, a windfall.

Why not tax them at windfall profits rates — say 90%, Barney Frank’s favorite number?

Obama has an grand opportunity to lead by example.

Makes sense to me

Source article:
http://online.wsj.com/article/SB123983002234522435.html

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When Every Hour is Happy Hour … Restaurants Make More Room at the Bar

April 16, 2009

Excerpted from WSJ, “Bar Wars” By Katy McLaughlin, Apr 3, 2009

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When chef Eric Greenspan opened the Foundry, a $1.3 million restaurant in Los Angeles, two years ago, he created a menu of high-end cuisine, showcasing the culinary skills he had honed at some of the world’s top restaurants. Three months ago, Mr. Greenspan turned the restaurant into a lounge with nightly live bands, cocktail waitresses and promotions such as “fried-chicken-and-waffles night.” The dining room has been banished to a back patio.

Around the country, proprietors are turning their restaurants — or significant parts of them — into glorified bars. They’re ripping out dining-room tables to make more bar space, applying for late-night and cabaret licenses and adding the word “bar” to their names. Top chefs are serving up bar snacks like grilled cheese sandwiches and hot dogs.

The reason: While consumer spending at restaurants is falling precipitously, drink orders, particularly for cheaper drinks like beer, are barely dropping off. For restaurants, it’s now proving more cost-effective to serve lower-priced dishes that diners can munch on as they buy drinks …  

The morphing of some of the nation’s top dining rooms into bars and lounges with food demonstrates how dramatically and quickly consumer behavior has changed since the economy plummeted this fall … this year fine dining sales will plunge at least 12%, after falling 4% last year. Meanwhile, analysts are predicting a less painful contraction in alcohol sales …“Historically, consumption of alcohol tends to outperform compared to other parts of the economy in a recession” …

Selling alcohol, and cocktails in particular, is typically a better business than selling restaurant food because the margins are higher. While ingredient costs may account for as much as 35% of the price of an entrée in a high-end restaurant, they typically only account for about 14% of the price of a cocktail or 25% of the price of a glass of wine.

Bar snacks, which often include inexpensive items like pizzas, can also have better margins than fine-dining dishes with expensive proteins such as filet mignon or organic lamb. Since restaurants are already paying to run a kitchen, selling additional, easy-to-make food is simply an extra revenue stream.

Beyond thrift, there is a social component to noshing at bars. Restaurateurs say patrons seem especially eager to rub shoulders with one another at the bar, rather than isolate themselves at dining-room tables.

“People want to socialize and be out; they don’t want to be miserable at home,” says Chris Douglass, co-owner of three Boston-area restaurants … Informal dining is increasingly popular, and some of the restaurants launching bar menus and lounges will likely keep them even after the economy bounces back …

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Full Article:
http://online.wsj.com/article/SB123871155276784313.html#

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The power of FREEconomics

April 16, 2009

Excerpted from Knowledge@Wharton, “How About Free? The Price Point That Is Turning Industries on Their Heads”, March 4, 2009

* * * * *

There’s an old joke about a businessman who gives away his products. A customer asks: “How do you make money doing that?” He answers: “I make it up on volume.”

It’s nonsensical, yes. But a funny thing has happened: Giving away the product has become a legitimate business model on the Internet and even beyond. And it’s been getting increased attention. Author Chris Anderson will publish a new book in July titled, Free: The Past and Future of a Radical Price. Anderson, the editor of Wired and a former Economist reporter, also wrote the 2006 book, The Long Tail, in which he observed how companies such as Amazon.com and Netflix were thriving by offering gigantic catalogs of products that each sell in small quantities. Today, those companies are among the few thriving through a recession.

Anderson isn’t alone in exploring what has been dubbed “freeconomics.” Venture capitalist Fred Wilson of Union Square Ventures popularized the term “freemium” to describe an emergent business model — popular among online service and software companies — of acquiring users en masse with a free offering but charging for an enhanced version in hopes of subsidizing the free usage.

But what is really new here? After all, “free” has been around “probably since the beginning of business,” says Z. John Zhang, a Wharton marketing professor who has authored books on pricing strategy. “You go to a supermarket and they give you free samples and then you buy a whole box. Some bars let women go in for free and they charge the men. ‘Free’ is one of the most powerful words in marketing. It truly motivates people. If you see ‘free,’ even if you don’t want it, you’re going to get it. Marketers will take every opportunity to use that word.”

Bending the Demand Curve

Indeed, the appeal of “free” has been shown to be so extraordinary that it bends the demand curve. “The demand you get at a price of zero is many times higher than the demand you get at a very low price,” says Kartik Hosanagar, a Wharton professor of operations and information management who studies pricing and technology. “Suddenly demand shoots up in a nonlinear fashion.” Josh Kopelman, a venture investor and entrepreneur who founded Half.com, has written about what he dubbed “the penny gap.” Even charging one cent for something dramatically lessens the demand [generated at] zero cents.

It’s no surprise that many companies have worked “free” into their offers in a number of different ways. “Cosmetics are never on sale. They say, ‘Buy this at regular price and get a free gift.’ That protects the normal price,” says Wharton marketing professor Stephen J. Hoch. Adobe gives away its Adobe Reader software for displaying documents that use the company’s PDF electronic document format, but charges corporations for the Adobe Acrobat software needed to create the documents. “If you charge for both, the software will never take off,” states Hosanagar.

Of course, products and services offered for free aren’t really free; they’re just paid for in another way. Cross-subsidies have been a selling strategy for ages, the classic example being Gillette’s move a century ago to sell razors cheaply to create demand for expensive blades, long before printer makers adopted a similar strategy with printers and their supplies.

Then there are two-sided markets, which derive revenue from two sets of customers. In those, “whichever side is more price inelastic [less sensitive to price changes], that’s the side you want to charge more [for],” says Zhang. In the case of “Ladies’ Nights,” he says, establishments may increase overall revenue by letting women in for free to attract more males — who are price inelastic in that their desire to be there will not be greatly affected by entrance price.

Newspapers traditionally have charged readers as well as the advertisers who want to reach those readers. For years, however, some types of publications have been given away to readers for free, with publishing costs supported by advertisers. But the profusion of free content online has made reader demand extremely elastic — suddenly sensitive to any price above zero — and many publishers are fumbling with revised models, including cross-selling. The Wall Street Journal, for example, now sells wine to readers at wsjwine.com, Zhang notes.

What’s new, of course, is the Internet, which makes the marginal cost of delivering one more product close to zero. As Anderson explains in a February Wall Street Journal article, “Digital goods — from music to Wikipedia — can be produced and distributed at virtually no marginal cost … making price a race to the bottom.” Add in easier sourcing online of cheap products and materials, and the Internet means cost is evaporating from the system and opportunities for free offers have exploded.

Beyond minimizing distribution costs, the Internet has fostered other distinct trends that have pushed prices and consumer expectations toward zero. Two-way markets become more sophisticated online — Google is able to offer web searches for free by matching advertisers to what people appear to be seeking: Search for cars, get some car ads. “Some of these transactions could not be done before, because transaction costs for matching an advertiser with a consumer were too high,” says Hosanagar. This has inspired online firms, such as Google, Yahoo and Facebook, to take advantage of the nonlinear allure of “free” to build giant audiences in hopes of future revenues, even in cases where revenues from ads or other sources are not covering the cost of the free service.

Other factors also have been at play. On the web there’s little financial barrier to set up a store, an information site or blog, and compete with established players who may have high fixed costs and brick-and-mortar investments. This easy entry into markets has played a role in creating what BusinessWeek called the “free-labor economy.” People are putting together elaborate and sometimes useful sites at no cost other than time. Simultaneously, digital technology has enabled easy copying of copyrighted materials — music, movies, photos and news articles — that are or were products of traditional industries. The result of all this has been a change in consumer expectations. A “culture of free” has emerged — there are a lot of things for which people simply don’t expect to pay.

Consumers’ sense of entitlement to free content online “has had catastrophic effects — meaning both large and quick — that I don’t think anyone would have predicted,” says Hoch. “It’s had a yet unknown catastrophic effect on the news. It’s had a catastrophic effect on music. Clearly the concept that you can make it up in volume is bogus, because you can’t. Music CD sales have gone from $13 billion in the U.S. to about $7 billion since 2001 while legal digital downloads generated about $1.5 billion in sales.” 

“Right now, newspapers are doing things that level the playing field, bringing themselves down to the level of lower-quality competition. They should move to the high-end and exploit their advantages and distinctions.” Isaacson advocates for a system that makes it easy for readers to pay small “micropayments” online for the articles they view. But that’s easier said than done. The sort of online micropayments Isaacson and others advocate have a poor track record, in large part because the psychology of the “penny gap” is hard to overcome. It’s especially difficult because people have come to expect a vast selection of no-cost news online. “The last thing you want to do is get people addicted to free. If you’re going to go free, you ought to expect that it is going to be the price forever,” says Hoch. “If you’re going to be a low price seller,” he adds, “you sure as hell better have low costs.”

More Software Apps, Fewer People

The effects of the free culture online have had a hard impact on offline businesses. Many jobs once done by people are turning into software applications, Anderson says. “Your cranky tax accountant has morphed into free TurboTax online, your stockbroker is now a trading web site and your travel agent is more likely a glorified search engine.”

Companies have experimented and struggled with a wide spectrum of pricing strategies. Some see hope in the “freemium” model, giving away a basic version of a product, but charging for premium features. Yahoo lets tens of thousands of fantasy football players participate in its online leagues for free every season, then lures them into paying for real-time game statistics or player scouting reports. Every tax season, companies — including H&R Block and Intuit — offer free basic online tax filing, but charge for more complicated returns. Newspaper web sites have grappled with the question of what content to give away and what to lock up in areas that readers must pay to see.

Some businesses have been especially creative. In 2007, the rock band Radiohead offered its album In Rainbows as a download for a “pay what you want” price. Research firm ComScore estimated 38% of people downloading the album paid an average of $6. A later release of the album as a physical CD sold more copies than the band’s prior two CDs.

“A business needs to adapt its revenue models to new technology,” says Zhang. Not everyone can compete against free, but there are still creative ways — more ways now than ever — to employ the strategy. 

“The problem is in thinking the business model of your industry is ordained forever,” says Werbach. “Business isn’t static, and it’s less static today than it’s ever been. The great challenge the Internet poses is that it makes it possible to very quickly shift the allocation of money in certain industries. It’s not easy to go through that kind of transformation, but that’s life. Successful companies are the ones that appreciate that.”

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Full article:
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2169

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High taxes, out-of-control gov’t spending, ballooning national debt … let’s have a tea party.

April 15, 2009

Just in case you haven’t heard (since NBC, NY Times, etc. have been ignoring the story or playing it down) …

According to the WSJ: Today, American taxpayers in more than 300 locations in all 50 states will hold rallies — dubbed “tea parties” — to protest higher taxes and out-of-control government spending. Below is a map of planned rallies and a link to an interactive map with specific locations and times.

Why you should care

If you’re reading this, your tax burden is considerable — probably way more than you think.  Consider a reasonably typical “professional”  couple earning about $125,000 (maybe with both husband and wife working).  Subtracting $10,900 for the standard deduction and  $13,600  in personal exemptions (assume a husband, wife, and 2 kids @ $3,400 each) leaves $100,000 in taxable earnings.  The Federal income taxes would be about about $15,000 … not bad, if that’s all there were.  But they’re not.

Add to that total payroll taxes, which are payroll deducted at a rate of 7.65% based on gross earnings (called FICA earnings) not taxable income … that’s another $9,500.  The couple is up to 24.5%.

Then, there are state income taxes.  On average, state income taxes run about 5.5% of taxable income.  That gets the couple up to 30%.  Note: for specific state rates, see
http://www.taxfoundation.org/taxdata/show/228.html

Then there are sales taxes.  The couple is left with $70,000 after income taxes.  Assume that they spend about 75% of it on taxable goods and services at an average state sales tax rate of a little more than 5%.  That’s another $3,000.  They’re up to 1/3 of their taxable income going to taxes.

Finally, let’s assume that they own a modest house and pay $5,000 in local property taxes.  Now, they’re approaching 40% … and that doesn’t include gas taxes, cell phone taxes, etc.  … which gets the number into the 40s for sure, and maybe up to 1/2 of taxable income … for a couple that probably doesn’t consider themselves to be rich. 

Think about it : half of what you make going to support about $4 trillion in annual government spending … much of it wasted.  For details, see the just released “Pig Book” — the annual summary of government spending published by the Citizens Against Government Waste
http://www.cagw.org/site/DocServer/CAGW-Pig_Book_08.pdf?docID=3001

That’s why there are tea parties today …

 

image

Interactive map:
http://www.freedomworks.org/groups/19186

Related article:
http://online.wsj.com/article/SB123975867505519363.html#mod=djemEditorialPage

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Extreme Entrepreneurship: Products for Bottom of Pyramid

April 15, 2009

Excerpted from Fortune, “Products for the other 3 billion” By Michael V. Copeland, April 1, 2009

* * * * *

Jim Patell … operates out of Stanford’s design school, where he teaches a class called Entrepreneurial Design for Extreme Affordability … the class mission: to teach a new generation of entrepreneurs to use their business and engineering smarts to design and sell products – profitably – for the developing world.

Some of the students – a mix of would-be MBAs, engineers, and designers – truly are do-gooders, but a fair number think building good, cheap products is a skill any corporation would value.

“We can fill a gap, with an approach that goes beyond a fast profit motive.”

For the smart, ambitious students in his classes  …professional success and saving the planet aren’t mutually exclusive.

Two such budding entrepreneurs … make cheap, solar-powered lights to replace the kerosene and diesel lamps so common in the developing countries of Asia and Africa.

 

* * * * *
Often the approach involves combining cutting-edge technology with widely available products that are moving down the cost curve.

One application … make cheap, solar-powered lights to replace the kerosene and diesel lamps so common in the developing countries of Asia and Africa.

D.light, for example, marries next-generation light-emitting diodes (LEDs), proprietary power-management tools, and increasingly cheap solar panels. As a result, D.light is able to offer poor communities an affordable alternative to kerosene, which is ubiquitous but hazardous … The D.light lamps sell for about $25, steep for someone earning $1 per day, but … the quality of light was so good that people with the D.light lamps were able to do more work at night and increase their income.

* * * * *

Empowering would-be customers is one of the mantras of Patell’s class … Patell doesn’t expect every student to start a company, but he does demand that every product in the class offer poor consumers tools for their own microenterprises.

* * * * *

Capitalists in Silicon Valley are starting to take notice of the projects coming out of the Stanford course. In November, D.light secured $6 million in funding from … venture capital firms, to ramp up production and get its lamps into markets, initially in India and Africa … the financiers think D.light can model itself after another successful enterprise in the developing world: the cellphone industry.

Device manufacturers … are selling millions of handsets in rural parts of India, China, and Africa, places that in many cases don’t have centralized electricity. But even some of the poorest of the poor will pony up several months’ salary for the benefits of connectivity …

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Full Article:
http://money.cnn.com/2009/04/01/technology/copeland_developing.fortune/index.htm

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Treasury Directs GM to Prepare for Bankruptcy Filing … surprise, surprise, surprise

April 15, 2009

Source: CNBC.com 

The NY Times reports that The Treasury Department is directing General Motors to lay the groundwork for a bankruptcy filing by a June 1 deadline, despite public contention that it could still reorganize outside court, people with knowledge of the plans said during the weekend.

The goal is to prepare for a fast “surgical” bankruptcy … creating a new company that would buy the “good” assets of GM almost immediately after the carmaker files for bankruptcy … Less desirable assets, including unwanted brands, factories and health care obligations, would be left in the old company, which could be liquidated over several years.

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But what about the UAW?  Not to worry … 

President Obama, who was elected with strong backing from labor, remained concerned about potential risk to GM’s pension plan and wants to avoid harming workers, these people said.

So, GM may require as much as $70 billion in government financing, and possibly more to resolve the health care obligations and the liquidation of the factories, according to legal experts and federal officials.

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Preserving GM’s stellar reputation.  Huh ?  …  

a quick restructuring is necessary so its image and sales are not damaged permanently.

The government has said it will guarantee GM’s vehicle warranties.

GM has started an aggressive advertising campaign stressing that car buyers should have confidence in the company, and offering to make nine months of payments, up to $500 each, for owners who lose their jobs.

* * * *

Promise: a transparent administration.  Yeah, right … 

None of these people agreed to be identified because they were not authorized to discuss the process. GM declined to comment and the Treasury Department did not comment.

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Full article:
http://www.cnbc.com/id/30184869

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Outlook is Optimistic for Marketers’ Job Security

April 15, 2009

Excerpted from Brandweek, “Marketers Expect to Keep Jobs, Budgets” By Kenneth Hein, March 14, 2009

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While many reports suggest the sky is falling for marketers, a large number of top-level executives feel that their jobs and much of their staff’s jobs are safe. What’s more, the majority do not anticipate cutting their marketing budgets.

The CMO Council interviewed 659 global senior marketers online between mid-January and March 2. Overall, it found that marketers are not planning major restructuring, head-count reductions or wholesale agency terminations this year.

More than half do not feel their jobs are at risk and 20.6% simply are not sure. More than a third plan to keep their teams intact and 26% expect to add staff.

“There was not as much panic about job security that we thought there would be,” said Liz Miller, vp, programs and operations at the CMO Council. “The big story for the marketing community is it is not about budget slashing; it’s about budget reallocation. Marketers are looking to better support the sales team, drive business growth and engage the individual customer” …

“It’s not about window dressing this year … Marketers need to stop looking at how to refresh our brand, change our logo or what we mean to consumers. This year they don’t have the millions to do that. It’s how do you do it faster, better and more efficiently with less cash to waste on things that don’t work. You need to better support your sales team because they need leads, that’s the bottom line” …

Marketers top marching orders from their bosses are: Growing and retaining market share (48%), lowering costs and improving efficiencies (44%) and improving customer insight and retention (33%).

The top factors affecting marketers are customer anxiety and cutbacks (49%) and slower, more complex selling cycles (38%). The top frustrations were: Insufficient budget (43%), the organizational culture (37%) and senior management mindset (33%).

Overall, “We’re coming out of a long phase where the wind was in our favor … When they are in your favor you don’t need to be particularly smart to be somewhat successful. In these conditions, you need to be a lot smarter than before.”

Edit by SAC

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Full Article:
http://www.brandweek.com/bw/content_display/news-and-features/direct/e3idd9d6803dbe30862f19d9fb07e5dfbca

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Ken’s personality … scientifically inferred from his posts … hmmm

April 14, 2009

There’s a website (www.typealyzer.com) that claims to identify bloggers’ personality types  by “analyzing” the posts in their blog.

Dave Fedlam put the Homa Files to the test.  The results: a Myers-Briggs ISTJ. 

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Value to consumers…it’s more than price

April 14, 2009

Excerpted from Brandchannel, “Get Back to Basics. Win Back the Trust” by Ted Mininni, March 30, 2009

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We’ve seen a number of instances where high-profile brands have violated the trust of consumers lately, eroding confidence and resulting in disastrous consequences. Even if a brand hasn’t violated consumer confidence, if it isn’t actively building trust, it’s likely losing customers. Let’s face it: without trust, there is no consumer loyalty—and, ultimately, there is no business.

Consumers are hungry for values they can put their trust in. Not hype. True value doesn’t just equate to price, mind you. While important to consumers who are tightening their belts, price isn’t the only component of value. These are the values consumers care about: fair pricing, innovation, authenticity, honesty, transparency, customer service and connectivity.

After years of overconsumption, people are learning some hard lessons about debt and economic reversal. Smart marketers understand that if customers are going to part with their hard-earned money now, they’re going to have to be given a reason to believe—a reason to trust in their brands.

Fair Pricing.
With McDonald’s launch of its McCafé ads, the company capitalized on the current consumer mood. Their business proposition: offering quality lattes and cappuccinos without high prices in order to appeal to a large swath of consumers.

Lest anyone think Starbucks can afford to stay above the fray, guess again. A recent Wall Street Journal article dubbed “Starbucks Plays Common Joe” notes a move to “counter the widespread perception that Starbucks is the home of the $4 cup of coffee.” According to the article, “To retrench, (Starbucks) executives began plotting a new strategy to portray the company as offering value.” To prove they’re not too pricey, Starbucks recently launched value-priced breakfasts at US$ 3.95 each.

The move shows how premium brands are trying to reposition themselves for a prolonged economic downturn. “I strongly believe we are going to be in this environment for years,” Howard Schultz, chief executive at Starbucks, said in an interview. “It is a reset of both economic and social behavior.”

Innovation and Service.
Down economy or not, consumers will pony up some of their hard-earned cash for specific brands that “own” innovation. Nintendo, for example, has accomplished what no other game company has: the brand has created acceptance among all age groups and both sexes in a phenomenal way with Wii and its other properties. By finding innovative ways to engage people of all ages, Nintendo defined a new genre of home entertainment at exactly the right time; people are looking for ways to be entertained at home rather than spending a lot of money going out.

In spite of intense competition in the mobile phone category, Nokia continues to take on all comers, owning a staggering global market share—38 percent of the entire category— despite intense competition. By constantly launching new-generation mobile devices, Nokia continues to raise the bar for mobile phones. Other notable brands that continue to win by focusing on quality, innovation, good design and value: IKEA, Samsung, L’Oréal, Volkswagen, Apple, Nike.

When confronted by tough challenges, Hewlett-Packard responded by putting its customers front and center in its product design development. This allowed the company to make service and innovation the focus of its brand revitalization efforts. Its interactive approach, resulting in the kinds of products consumers want, has reinvigorated the brand. And how about total reincarnations? IBM’s transformation from hardware purveyor to customized “business solutions provider” is a great B2B success story.

Trader Joe’s and Wegmans supermarkets excel in customer service, offer quality products and real value, and never shy away from innovation. Both companies have a loyal cadre of shoppers as a result. Let’s hear it for innovation with service…values that customers long for and rarely receive.

Authenticity, Transparency, Honesty.
Take a look at the recent downfall of notable companies, and you’ll find some venerable brands that left these virtues behind. They ran into problems and chose not to be upfront and transparent about it. Rather than stave off bad opinion, their actions had the opposite effect. Unfortunately, it’s easy to find examples everywhere these days, especially in the financial sector. How about AIG? Merrill Lynch? Citibank? When the truth did emerge, badly calculated choices by company management actually made the situation worse.

For the companies that manage to survive, customer perception is greatly diminished since their trust has been abused. Proof once again that when problems crop up, companies need to own up, speak up and take steps to rectify them, or they risk breaking trust with the customer.

On the flip side, over 25 years ago, Stonyfield Farm yogurt took a stand. Working with local farmers, the company pledged itself to support organic milk farming and implement environmentally responsible policies in every aspect of its business. The trust the company has built with its customers is legendary. Stonyfield Farm doesn’t talk about environmentalism in an era of greenwashing; the company walks the walk. Stonyfield Farm went “carbon neutral” in the mid-1990s, produces 100 percent organic products and gives 10 percent of its profits to organizations that “help protect and restore the environment.” It also collects used product packaging so that TerraCycle can “upcycle” it—that is, turn it into new consumer products.

Connectivity.
When Dell launched its Idea Storm social media site recently, the company’s intention was to solicit ideas from consumers and, in the process, foster closer relationships with its customers. “These conversations are going to occur whether you like it or not…do you want to be part of that or not? My argument is you absolutely do. You can learn from that. You can improve your reaction time. And you can be a better company by listening and being involved in that conversation,” Michael Dell said in a BusinessWeek discussion with Jeff Jarvis. Exactly.

Reaching out to customers and allowing them to express themselves in direct conversation with the company might yield some surprising results. Product innovations, valuable dialogue and being able to deal with problems quickly and effectively are no less important. Too many consumers feel as though their ideas and concerns go unheeded; the companies that engage their customers will win.

Positioning brands in alignment with the basic core values that resonate with consumers to build trust is job #1. Smart marketers must prove their brands’ worth and value to increasingly disenfranchised consumers. Win back the trust—and reap the rewards.

Edit by NRV
Full article:
http://www.brandchannel.com/brand_speak.asp?bs_id=215

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Great Moments in Marketing: Stores Lure Men With Booze

April 14, 2009

Excerpted from WSJ “Belly Up to the Bar and Buy Some Jeans” By Ray A. Smith, Apr 2, 2009

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On a recent afternoon, customers at Lost Boys in Washington, D.C., sipped cold beers and watched “Casino Royale” on a giant flat-screen TV.

Lost Boys isn’t a bar. It’s a men’s clothing boutique catering to young professionals. The store’s staff offers shoppers free beer in hopes they’ll enjoy hanging out in the store and shopping a little longer, increasing the odds they’ll buy more.

By offering in-store drinks, a growing number of retailers are trying to get men to shop more like women, who often linger and browse, buy items on impulse, and return time and again to a favorite store. The recession is driving stores to search for anything that gives them even a small edge over rivals. And generally slower traffic gives sales staff more time to offer drinks and talk with shoppers …

When Rick Matthews walked into Lost Boys recently, a sales clerk offered him water or beer. His beer “certainly made me more relaxed,” says Mr. Matthews … He says he doesn’t like shopping … The beer “kept me in the store longer, at least long enough to finish my drink,” he says. Mr. Matthews ended up special-ordering a pair of $200 Earnest Sewn jeans, something he says he would have done without a drink.

Offering alcohol puts men at ease, says Lost Boys owner Kelly Muccio. “I wanted it to be like you’re going to your best guy friend’s house, a guy friend who has great style” …

“Men are more purpose-driven as opposed to window shoppers, so the addition of lounges and/or bars provides a club setting that can give sales associates a natural entrée to engage with this guy,” says Tom Julian, president of brand consultancy Tom Julian Group. “The biggest downside is the investment in these services for a retailer. This can eat up square footage and revenue stream. And once something like a bar or pool table is in, it needs to be maintained.”

While store managers say they don’t measure the sales that serving drinks generates, they think it helps. “It’s that type of innovation in these trying times that sets [retailers] apart and creates buzz” … For stores, the cost of purchasing alcohol is minimal, especially compared to other brand-building efforts like advertising.

Store managers say they are careful when they break the liquor out: usually later in the day. Sometimes, if it’s near the end of the day, store employees will have a drink with customers, the retailers say … Men “love to sit down on the couch, have a drink, try a couple of things on and hang out with some of the staff,” says Matthew Simon, a co-owner of Kesner. “They have that kind of experience and they’ll want to come back.”

His co-owner, Philip Silverman, says that being able to fix customers drinks at the downstairs bar “fit with the whole aesthetic of trying to create a loungey, comfortable atmosphere” and helps differentiate the store …

Stores say they have rarely had a problem with customers drinking too much or spills. “No one’s coming in and doing tequila shots,” says designer Billy Reid. “We’re a clothing store not a saloon.”

Edit by SAC

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Full Article:
http://online.wsj.com/article/SB123862311574879951.html?mod=article-outset-box

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In pursuit of mediocrity … Congress moves to squash pay for performance.

April 14, 2009

Ken’s Take: (1) Expect this to spread to private industry as Congress grabs more and more power to control managers’ compensation  (2) And folks wonder why government bureaucracies are so inefficient.

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Excerpted from WSJ, “Forget About Merit”,  April11, 2009

Last month the Pentagon announced it would “review” a pay-for-performance system that now covers some 200,000 of its civilian employees. In short, merit pay for work well done.

House Democrats are now pushing to freeze pay for performance across the entire federal government.  They say, “A well-designed performance management system can recognize and reward high performance without a linkage to compensation.”

As the biggest merit plan in the government, the National Security Personnel System has been a prime target of federal employee unions  … Unions prefer a return to a universal General Schedule system, which compensates employees based on time served …  keeping workers out of a system where their own efforts can affect their compensation and advancement …  makes them more dependent on the union to negotiate for them.

During the campaign, Obama said he would consider an overhaul or “complete repeal” of the merit pay system.

Full article:
http://online.wsj.com/article/SB123940322061309643.html

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Uh Oh … Obama’s PAI Drops to +2 … negative by the end of the week ?

April 13, 2009

Sunday’s Rasmussen Report pegged President Obama’s Approval Index (the difference between “top box” Strong Approvers a,d “Bottom box” Strong Disapprovers) at +2 …  the lowest during the Obama presidency — down from +30 just after the inauguration.

Obama’s Total Approval (Strong Approvers plus Somewhat Approvers) has been relatively stable at 55% … down from about 65% right after the inauguration.  (Note: Total Approval is what most news organizations report)

Obama’s Strong Approval has fallen from about 45% to 34% … while his Strong Disapproval has increased from 15% to 32% … netting out at the current PAI of +2

Possible explanations for the declining PAI:

(1) liberals disappointment with the pace of he Iraq withdrawal and the intensification of Afghanistan

(2) moderates concerns that Obama does not intend to “move to the middle”

(3) Catholics’ “wake up call” regarding abortion rights — fueled in part by the Notre Dame controversy

(4) broadscale concern regarding the current spending spree and concentrated concern re: cap & trade in coal mining states 

(5) mixed reviews re: the European trip — with liberals coining it a “refreshing reset” and conservatives tagging it a “mea culpa tour” 

(6) the declaration — during the Easter week run-up — that the U.S. is not a Christian nation.

Ken’s Take: this Wednesday’s Taxpayer Tea Parties — hyped by conservative media and totally ignored by liberal media — will cause a visible stir … and Obama’s PAI will go negative at the end of the week.

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http://www.rasmussenreports.com/public_content/politics/obama_administration/obama_approval_index_history

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Everyone Should Pay Income Taxes

April 13, 2009

Ken’s Take:

(1) I was all over this issue last fall in the election run-up.  My beef isn’t with tax rates per se — I think they’re pretty reasonable.  But, I hate seeing my tax dollars wasted on wacky programs and government inefficiency, and I think that everybody has to have some skin in the gain.  Having half of all voters pay zero income taxes (or less) may be politically advantageous in the short-run, but it’s economically fatal in the long-run …

(2) Question: Does the half of the population that doesn’t pay income taxes have a right to be outraged with the way tax dollars are spent ?  Perhaps they should at least show some courtesy to taxpayers —  by sitting down and shutting up …

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Excerpted from WSJ, “Everyone Should Pay Income Taxes”, Fleischer, April 12, 2009

A very small number of taxpayers — the 10% of the country that makes  — pay 72.4% of the nation’s income taxes. They’re the tip of the triangle that’s supporting virtually everyone and everything. Their burden keeps getting heavier.

As a result of the 2001 tax cuts . . . the share of taxes paid by the top 10% — those making more than $92,400 a year —  increased to 72.8% in 2005 from 67.8% in 2001.

Contrary to the myth that Mr. Bush cut taxes only for the wealthy, the 2001 tax cut reduced taxes for every income-tax payer in the country. He reduced the bottom tax rate to 10% from 15% and increased the refundable child tax credit to $1,000 from $500 per child,. In so doing, millions of lower income taxpayers were removed from the tax rolls, shifting the remaining burden to those at the top.

Mr. Obama is adding to this trend with his “Make Work Pay” tax cut that means almost 50% of the country will no longer pay any income taxes, up from a little over 40% today.

Today, Mr. Obama and many congressional Democrats want the “wealthy” to pay even more so there is more money for them to redistribute. The president says he wants the wealthy to pay their “fair share.” Who can argue with that? But he never defines what that means. Is it fair for 10% to pay 70% of the income tax? Does he believe they should pay 75%, or 95%, or does fairness mean they should pay it all?

In addition to exempting almost 50% of the country from income taxes, today nearly every other social cause is given a loophole — or a preference — in the tax code. Want to buy a hybrid vehicle? You get a tax break. Do you own a solar water heater? You get a credit. Want to give to charity? You get a deduction. Own a house? There’s another tax deduction for you. How about college savings, certain medical costs, and retirement savings? Yes, yes, and of course yes. Did you move, pay alimony, or “provide housing to a Midwestern displaced individual”? More deductions, credits and exemptions there too, if you qualify.

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It’s time to create an Economic Growth Code whose purpose is to fix and grow the economy, not redistribute massive amounts of wealth. A new tax code that creates growth and reforms our entitlement system is the only way to dig our way out of the hole we’re in.

Everyone in American would pay income taxes — everyone. Such a system would be designed to foster broad-based growth for all, in contrast to the loophole-ridden system we have today. Not only is the current code flawed from top to bottom, it is used by politicians to divide the public along class lines and fails to promote prosperity.

Congress should start by refusing to go along with Mr. Obama’s promise to cut taxes for 95% of the country. With the government running an almost $2 trillion deficit, no one should have their taxes cut — no one. Given the size of the deficit, fiscal responsibility demands nothing less.

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I favor the abolition of all Social Security, Medicare, ending the myth that these programs are supported through government trust funds and payroll taxes.

In their place, we should create a simple income tax system that has no deductions or credits at all. The result would be a progressive, multitiered income tax in which everyone pays.

I’d also create a mechanism so tax rates go up or down for everyone — no more dividing the country by lowering taxes for some or raising them only for others. A revenue system whose purpose is to pay the government’s bills should apply fairly to one and all. If Congress wants to raise or cut taxes, it should do so for everyone.

It’s funny what happens when everyone pays the bills; Americans may want less spending so they can pay fewer bills.

Full article:
http://online.wsj.com/article/SB123958260423012269.html

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A small victory for opponents of the death tax …

April 13, 2009

Excerpted from WSJ, “Death Blow”, April 9, 2009

The Bush tax plan intended to eliminate the death tax in 2010.  President Obama wants to reinstate 45% rate with a $3.5 million per person exemption.

Barely noticed, last week the U.S. Senate voted 51-48 to cut permanently the death tax rate to 35% and exempt all estates of less than $10 million per couple ($5 million for a single taxpayer) from any tax. 

Every Republican voted for the lower rate, and so did 10 Democrats. This is the closest thing to bipartisanship we’ve seen so far this year on Capitol Hill, but naturally the White House and most of the media are appalled. Their idea of bipartisanship is when three Republicans cross party lines to pass $780 billion in “stimulus” spending.

Full article:
http://online.wsj.com/article/SB123923589432903367.html#printMode

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What Brand Would Your Recommend? Apple Tops the List (well, almost)

April 13, 2009

Excerpted from Brandweek, “Apple Has Highest Net Promoter Score” By Todd Wasserman, March 30, 2009

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Apple is not only the brand that marketers love the best, but it’s the one that consumers recommend the most, according to new research from Satmetrix, originator of the Net Promoter score.

Apple posted a NetPromoter score of 77%, which means that 83% of respondents would recommend the brand to a friend versus 6% who would not. (The score is calculated by subtracting the latter from the former and is based on a scale of one to 10.) The only “brand” to beat Apple was the USAA, a financial services firm for members of the military.

Satmetrix’s report … narrowed its focus on a few categories, including telecom, financial services and online. Categories like consumer packaged goods were not tested, though … company is considering looking at other such segments in the future.

The overall winners:

1. USAA
2. Apple
3. Amazon.com
4. Costco.com
5. Google
6. Facebook
7. Wikipedia
8. eBay
9.  Craigslist
10. Barnes & Noble (bn.com)

Satmetrix stressed that Costco and Barnes & Noble’s sites were judged separately from their retail operations …

Satmetrix introduced Net Promoter in 2006 after Bain fellow Fred Reichheld developed the metric with the company.  The company and Reichheld believe the score has the highest correlation to buying behavior.

Edit by SAC

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Full Article:
http://www.brandweek.com/bw/content_display/news-and-features/direct/e3i1a3d96e3863d2d6cdff085d95d2c1c61?imw=Y

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Sen. Kerry calls for pirate hearings … and I think it's a great idea!

April 10, 2009

Sen. John Kerry,  the chairman of the Senate Foreign Relations Committee called for hearings on the mounting piracy threat

Kerry said. “I plan to hold hearings to further examine the growing threat of piracy and all the policy options that need to be on the table .”

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Ken’s Take:

(1) Now, some people make think hearings on piracy are a waste of valuable Senate time.  I disagree.  It might distract them from the current spending spree.

(2) Which reminds me: whatever came out of the Senate hearings on steroid use in baseball?  That’s another issue I want them spending time on …

(3) Question: Who will testify at the hearings?  Do you think they’ll be able to get real pirates to come and answer Kerry’s inane questions?

(4) Idea: Get Barry Bonds (former Pittsburgh Pirate) to come and testify.  Kills two birds with one stone: steroids and piracy.

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Thanks to SMH for the heads-up on this one.

Source article:
http://thehill.com/leading-the-news/kerry-calls-for-pirate-hearings-as-drama-continues-2009-04-09.html

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It’s simple arithmetic … your taxes going up

April 9, 2009

Excerpted from WSJ, “Obama Plans Sound Fiscally Responsible But Don’t Add Up”, April 9, 2009

For years, the American people have been told they could have it all: costly wars, expansion of Medicare to cover drugs, health insurance for those without, more money for schools — and tax cuts for practically everybody. They deserve to be told that they can’t have it all in the future.

In the 1930s and the 1960s, the government began popular programs to support the sick and the elderly. The cost of treating the sick is rising, and the number of old people climbing. Since 1970, the government has paid for that by cutting defense spending.  But going forward, defense spending will not fall as much as it has, even if the Iraq war ends and the Pentagon is forced to be more efficient.  

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Pres. Obama envisions a federal government that taxes the American economy somewhat more than the historical average and spends significantly more. The president’s own projections show a deficit equal to 3% of gross domestic product well into the next decade, and that assumes all goes well.

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The bottom line:  either taxes as a share of GDP rise or spending on those popular benefit programs (or everything else) is throttled back.

It’s simple arithmetic.

Full article:
http://online.wsj.com/article/SB123921904349802157.html?mod=djemalert

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Nothing Fishy About It … McD’s New Ad is a Hit

April 9, 2009

Excerpted from AdAge, “Behind McD’s Weird Filet-O-Fish Ad” By Eleftheria Parpis, March 11, 2009

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Chris Edwards, evp and group creative director at Arnold, tells a good fish story about scouting locations last year for a garage in which to film a McDonald’s Filet-O-Fish commercial.

The agency team knew going in that the spot would center around a novelty singing fish mounted on a wall. When they found just such a fish proudly displayed at one of the houses they were considering, they knew they’d found the perfect location.

“They had one of the singing fish hanging on their wall … I knew we had picked the right place.”

Today, the McDonald’s spot in question — in which the catch of days’ past sings a techno-driven “Gimme back that Filet-O-Fish!” ditty to a nearby guy chowing on said sandwich — is a legitimate viral sensation. It has garnered more than 300,000 YouTube hits in little more than two weeks.

The team … also seems to have picked the right tune, a catchy, if absurd, song that has led to DJs remixing the track and fans using it as a ring tone.

“It’s definitely the casting and the music,” said Edwards of the buzz the ad has received, including consumer-generated spots posted on YouTube featuring people singing the song while ordering …

The concept for the spot, explains Edwards, came out of the challenge of producing a commercial that could be used in both English and in Spanish. “It was tricky because you can’t rely on dialogue,” he says, and a singing fish would allow for any idiosyncrasies that can occur in dubbing …

Mark Carlson, senior creative director at McDonald’s, said the company traditionally advertises its Filet-O-Fish during the season of Lent with offbeat humor. Of the spot, he said: “We decided it was harmless and that it fits into the personality of the product. We took a risk.”

Carlson said it’s too soon to say whether that risk will pay off, but noted the company usually sees at least a 24% rise in sales of the sandwich during the yearly push …  “There seems to be a lot of viral interest beyond the traditional spot … Because it’s a little different, it stops you in your tracks. It is one of those songs that really sticks in your head — for better or worse.”

Edit by SAC

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Full Article:
http://www.brandweek.com/bw/content_display/news-and-features/retail-restaurants/e3i71419f4d58d0cd4c43fe847f012e10b3?imw=Y

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Hate Overdraft Fees? You’re Not Alone …

April 9, 2009

Excerpted from WSJ, “Consumers Vent on Overdraft Fees” By Kelly Evans, Mar 26, 2009

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In recent years, overdraft fees made billions of dollars for banks, but only worsened the hangover for a debt-addicted nation. Now, amid an overhaul of financial institutions and their services, consumers are seizing their moment to cry foul.

The Federal Reserve ends a public comment period this month to determine whether banks’ current handling of overdraft fees needs to be changed. In the process, its Web site has become a sounding board for Americans’ frustration with all things banking, from billion-dollar bailouts to the average $27 fine for overdrawing on an account …

Overdraft fees usually work like this: A customer makes a purchase … but doesn’t realize his account doesn’t have enough for the transaction. Rather than decline his card or alert him, the bank allows the transaction to proceed, so [the consumer] isn’t aware that his account is negative — or that he has incurred a $35 overdraft fee — until he checks his balance online …

Most banks and credit unions automatically sign customers up for what they call overdraft “protection,” that allows — rather than blocks — purchases and ATM withdrawals that overdraw their bank accounts. For this service, the institutions charge customers fees ranging from $10 to $38 per overdraft …

Some 86% of banks the FDIC surveyed had overdraft programs in place in 2006, and three-quarters automatically enrolled customers in such programs. The survey also found overdraft fees were most common among young adults, ages 18 to 25, and low-income accounts. A separate analysis … shows banks and credit unions earned $36.7 billion in consumer overdraft revenue last year, about three-quarters of their total service charge income …

People … say this isn’t fair. They want the option either to opt out of the service altogether or to be told when they’re about to make a purchase that will overdraw their accounts and incur a fee … others also object that when several purchases happen simultaneously, banks process the largest ones first, so that each subsequent smaller charge incurs a fee.

The Fed is considering a number of different approaches, ranging from no change in current practices to requiring banks to give notification on every purchase that would result in an overdraft, but many institutions say the latter isn’t realistic … others say the only real option is to allow customers to opt entirely in or entirely out of overdraft service. Those who opt out would see their cards declined on those purchases exceeding the amount available in their checking accounts …

[However] it isn’t clear how much ramped-up regulation would benefit consumers, especially if it prompts banks to cover the cost of new regulation and make up for the lost fee income by restricting debit-card usage or imposing fees elsewhere, such as on free checking accounts … “Somewhere or another these costs have to be covered,” said William Cooper, chief executive of TCF Bank … it could mean the end of free checking … “Then everyone will end up paying for it.”

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Full Article:
http://online.wsj.com/article/SB123803178615743761.html?mod=article-outset-box

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