Archive for March 6th, 2012

Overheard in the faculty lounge … re: the Target flap.

March 6, 2012

By now, everybody has heard how Target mines data on shoppers to ID when they’re approaching life events — e.g. having a baby — that make them “vulnerable to marketing initiatives.”

The reaction of many marketers seems to be: “why aren’t we doing that?”

The reaction of shoppers is predictably negative: “Invasion of privacy”, “manipulative”, “creepy”.

The reaction in the faculty lounge is interesting.

Background: a branch of marketing studies consumer behavior … how and why consumers think and act … why they pick one brand over another, etc.

There seems to be concern among some academic CB researchers that their findings are  being hijacked by evil profiteers, to the disadvantage of the masses:

Consumer behavior research clearly helps the stores in the “attack” on the consumer. Does CB help in the development of the “defense” of the consumer?

One colleague sought to allay any pangs of guilt:

The “consumerism” defense is that the findings can be used to benefit both producers and consumers.

Any way, as [a famous consumer researcher] used to argue “the effects we study are so small in the real setting that any harm done is minimal.”

Now, that’s a rallying cry for you …

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Flashback: Thinking about $4 per gallon gas …

March 6, 2012

Since gas prices are on many people’s minds these days, I pulled the following post out of the archives.  Originally posted August 22, 2008, it’s strikingly current today.

* * * * *.

Most folks wonder why the pump price of gas is surging this year.

I ask a different question: why didn’t the oil companies — branded by most folks as evil profit grubbers — push the price up into the $4 /gallon range a year or two ago?

In my pricing course, I harp on a basic point: marketers should be respectful of costs (i.e. never sell stuff below “fully-loaded cost” plus an acceptable profit), but they MUST price to the market. That is, they should determine the price that the market will bear, and then adjust accordingly to maximize profits — taking into account downward sloping demand curves and volume-related cost functions.

It’s starting to look like $4 per gallon gasoline is about what the market will bear. That’s the price point where folks started to cutback in gas consumption the past couple of months.

* * * * *

Question: Why did the oil companies wait for the cost of crude to push up gas prices? To me, it seems that the oil companies have actually showed restraint over the past couple of years.

* * * * *

Here’s a crude analysis (pun intended):

Simply divide the price of a barrel of crude over the past couple of years by 42 (since the are 42 gallons per barrel), and compare the result to the retail price of gasoline (which is usually expressed per gallon).

The difference — gasoline’s “back of the envelope” mark-up over crude prices — is plotted below.

Note that for the past 9 months, or so, the crude mark-up been about $1 per gallon — at the low end of the historical range.


* * * * *

Since the cost of a barrel of crude has skyrocketed over the past couple of years, the percentage mark-up has trended down. Hmmm.


* * * * *
Bottom Line:

It certainly looks like the oil companies price gasoline using some sort of “cost plus” formula.

I think the oil companies left a lot of profits on the table during the past couple of years — the retail gas market would probably have borne higher prices.

Now, I’m betting that retail gases will be “sticky” — there will be a “ratchet effect” and gas prices will come down proportionately slower than crude oil prices.

And, I predict that if the oil companies get hit with a windfall profits tax, they’ll just pass the tax along into retail gas prices. Just watch.

* * * * *

Analytical note:

The “real” calculations re: the economics of converting crude oil into gasoline are way more complicated than the above simple analysis (e.g. only about 1/2 of a barrel of crude is made into gasoline, there are refining and distribution costs, the 1/2 barrel that doesn’t go into gas earns other profits).

My bet: the conclusions drawn from a more precise analysis would be directionally the same, and probably pretty close to the $1 per gallon — which has a certain memorable ring to it.

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Sara Lee splits company … incorporates part in the Netherlands.

March 6, 2012

I bet you missed this one.

It announced on a Friday afternoon, so most folks missed it.  And, it sounds innocuous enough …

According to the WSJ:

Sara Lee Corp. said Friday it will seek a listing for its coffee and tea business on the Amsterdam stock exchange, as part of its plan to split the company in two.

Sara Lee said the business will be incorporated in the Netherlands, where its Douwe Egberts coffee brand is already based.

The new company, which also makes Pickwick Teas, will be headquartered in Amsterdam.

Maybe the move is simply to get company execs closer to the relevant markets.

Call me cynical, but I think we’re going to see quite a few of these offshore splits by U.S. companies.


Simple.  If Team O continues to push for taxation without repatriation of non-U.S. earnings, you can bet that more American companies will split and plant major parts of their companies in non-U.S. locations.

The economics are compelling …

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Your Diet Coke bottle is … well, quite chic!

March 6, 2012

TakeAway: Diet Coke partners with Diane von Fürstenberg to design new packaging for its Diet Coke bottle. Proceeds from the sales will go towards the Foundation for the National Institutes of Health. Diet Coke + Fashion + Health? Hmm…

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Excerpted from “Diane von Fürstenberg Redesigns Diet Coke


Proceeds from the sales of Diane von Fürstenberg’s Diet Coke collection will go towards the Foundation for the National Institutes of Health.

Although there’s nothing new about celebrity bottles these days, we think the fashion designer has a fresh approach on an aging marketing gimmick – plus the charity angle is interesting (if a little ironic considering the discussion about the healthiness of diet soda).

Edit by KJM

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