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 .
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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.

 

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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.

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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]

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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.

 

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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

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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

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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.

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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.

* * * * *

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.

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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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Posted in Customer Satisfaction - Loyalty, Mktg - Brands | 1 Comment »

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.”

Edit by SAC

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

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Chrysler intros a new SUV … these guys have stones!

April 8, 2009

Ken’s Take:

(1) Team Obama says folks want Segway crossover hybreds (see yesterday’s post); but the folks say they want pick-ups and SUVs.  Apparently the folks are too dumb to know what they want … but, they’re allowed to vote.  Go figure.

(2) How dumb is Chrysler making cars that make money instead of ones that lose money … apparently the path to profitability is paved with unprofitable mini-cars.  Go figure that one, too.

* * * * *

According to CNBC:

Just a week after the White House scolded Chrysler for relying too much on gas guzzlers, the company is unveiling a new SUV.

Chrysler insists the Jeep Grand Cherokee is a crowd favorite: “Customers have told us they want this vehicle and that it’s the right size.”

The White House slammed Chrysler for having a product lineup so heavily weighted with trucks and SUVs. It added that the automaker does not have enough products in the pipeline to meet an expected increase in demand for small cars.

But Chrysler is standing by the Grand Cherokee. It’s profitable, recognizable and the No. 2-selling vehicle in the Jeep lineup. Grand Cherokee

One analyst said: “I think it’s going to be written up as being out of touch, but from a business standpoint, I think it’s the right thing to be doing,”

“It may be hard for Chrysler to please both the government, which is demanding greater fuel efficiency from the Big Three, and its customers, many of whom still demand big cars. It would be far more foolish for Chrysler to abandon its core competencies in the Jeep brand lineup than it is to come out with a new” Grand Cherokee” 

“To some extent, it’s refreshing to me to see them not kowtowing to the government.”

Full article:
http://www.cnbc.com/id/30103625

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From Bad to Worse: New Competitors for Struggling Sirius

April 8, 2009

Excerpted from BusinessWeek, “Serious Threats to Sirius Radio”, by Olga Kharif, March 30, 2009

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Since its inception, satellite radio bragged that unique content represented a key competitive weapon in the crowded digital media market. Just last year, former rivals Sirius and XM spent a combined $446.6 million on programming and content alone. But as Web radio and mobile radio applications flourish, they are beginning to erode the value of Sirius’s pricey content deals.

Companies like the Web radio service Pandora, Foneshow, Stitcher, and Slacker—as well as traditional content providers—are broadcasting portable and mobile content that is cheaper or even free. Moreover, these upstarts can often replicate Sirius programming. One example: On Mar. 30, MLB will release an iPhone mobile application that will stream games live from all 30 teams—which is what Sirius customers get now—and offer video clips and live score updates for $10 for the entire season.

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For Sirius XM, this competition over price and content comes at the worst possible time. The company is looking to monetize its content through mobile phones to complement its traditional outlets. Auto sales, which have fueled Sirius’s subscriber growth for several years, have slowed to a crawl. Ditto for retail store sales now that electronics retailer Circuit City is gone. Even worse, many consumers have slammed their wallets shut amid the recession.

Now, new rivals are making Sirius look overpriced and stodgy.  To find growth, New York-based Sirius must change from a satellite radio company into one that offers pure content through new distribution channels, such as mobile.

* * * * *

In its latest quarter, Sirius added a net 82,945 subscribers—down from 1.1 million in the same quarter of 2007. Growth could pick up if the radio service were to be bundled with Liberty Media-owned DirecTV. The two satellite companies could also cross-market to each other’s subscribers. Liberty, which has a 40% stake that is convertible to Sirius XM shares, is also working with the company on a business plan aimed at cutting costs, such as Sirius’s talent fees.

Still, it’s hard to fathom Stern taking a huge pay cut when his Sirius XM contract expires at the end of 2010. He has said he may retire then, but he also may shop around for a better offer if Sirius decides not to pay. Stern contributed roughly 2 million of Sirius XM’s 19 million subscribers. While a near-10% customer base is worth plenty, Sirius may well decide it is not worth $100 million annually.

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The New Competition:

Some of Sirius’ 69 music channels have already been replicated online. As much as 40% of Slacker’s 1 million monthly listeners come from mobiles. The service is free for those willing to listen to 30 seconds to two minutes of advertising per hour. For $3.99 a month, Slacker has no ads and allows song skipping.

iPhone users can now listen to talk shows through a service called Stitcher, which grabs RSS feeds from online podcasts and allows users to “stitch” together custom radio channels of popular news and talk shows. Stitcher users listen to 5 million minutes of radio a month, up from 1 million last August, and is on track to reach 1 million users by the end of 2009.

Foneshow lets any phone with text messaging capabilities to catch custom talk radio programming.  Whenever a new show segment becomes available, your phone receives a short text message with a link. You hit “Send,” and your phone starts streaming audio, which you can pause, skip or forward to a friend.

This summer, Myine Electronics, begun by two former satellite radio hardware engineers, will launch a device called Abbee. The $250 gadget scans FM stations and records songs onto an internal hard drive while erasing all commercials. The gadget has a cable for use in a car, the domain of satellite radio.

Edit by DAF

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Full article:
http://www.businessweek.com/print/technology/content/mar2009/tc20090327_877363.htm

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Why Zara Stays Strong as Other Retailers Slip

April 8, 2009

Excerpted from WSJ, “Zara Grows as Retail Rivals Struggle” By Cecilie Rohwedder, Mar 26, 2009

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Defying the recession with its cheap-and-chic Zara clothing chain, Spanish retailer Inditex SA posted strong sales gains that show how low prices and a rapid response to fashion trends are enabling it to challenge Gap for top ranking among global clothing vendors.

The improved results highlight how Zara’s formula continues to work even in the economic downturn. The chain specializes in lightning-quick turnarounds of the latest designer trends at prices tailored to the young — about $27 an item.

While apparel chains in the U.S., Europe and Asia are struggling and closing stores, Inditex reported a 10% sales gain and higher gross margin, which already exceeds many rivals. A fast logistics system allows it to get clothes from drawing boards to stores in less than two weeks, compared with an industry average of nine months. Its lean inventory and fast shipments allow it to avoid profit-damaging markdowns.

Revenue hit €10.41 billion ($14 billion) for the fiscal year … up from €9.44 billion in 2007. Annual profit was flat at €1.25 billion, but the company said it expects same-store sales to increase this year. The company’s gross margin rose slightly to 56.8%, reflecting the lean inventories.

In contrast, San Francisco-based Gap, the largest independent clothing retailer by revenue, last month posted a 23% decline in full-year sales … It plans a modest 50 new stores this fiscal year. Gap’s gross margin rose, but to 37.5% …

In recent years, Inditex has become known as a low-priced alternative to designer boutiques. Zara stores sit on some of the world’s glitziest shopping streets — including New York’s Fifth Avenue, near the flagship stores of leading international fashion brands — which make its moderate prices stand out.

“Inditex gives people the most up-to-date fashion at accessible prices, so it is a real alternative to high-end fashion lines … Gap, Benetton and others haven’t been alternatives because they sell more basic styles.”

The chain keeps profits high by avoiding advertising and by building a low-cost perception. That is helping as shoppers trade down from higher priced chains … While competitors are resorting to deep discounting, Inditex isn’t. “We prefer to stick to our commercial policy even in the current environment,” said Marcos Lopez, capital-markets director at Inditex … “The key driver in our stores is the right fashion. Price is important, but it comes second.”

In the short term, Inditex must still weather the uncertainty over how long and how deep the economic slowdown will be in Spain and Western Europe, which together make up 79% of its sales.

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Full Article:
http://online.wsj.com/article/SB123801606310041287.html

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Turning around the economy on a dollar-a-day …

April 7, 2009

Well, the “middle class tax cut for 95% of workers” has officially started hitting paychecks.

So, if you work but earn less than a couple of hundred grand per year, your paycheck is now about a buck-a-day higher — the $400 tax rebate spread across 365 days.

For perspective, the total stimulus bill was about $800 billion.  The Congressional Budget office estimates that about 1/4 of it  (~ $200 billion) will hit in the first year.  The $400 program is about 1/2 of the $200 billion.

In other words, about half of this year’s stimulus is in place. Yipes.

I hope you’re feeling better about this plan than I am.

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Finally GM "gets it" … an Obamamobile !

April 7, 2009

Part of GM’s viability plan, I guess …

Hitting the news today, GM is joint venturing with  Segway to develop a clean, all electric urban vehicle.  Reportedly, it can go 35 miles on each charge.

At last, a vehicle less safe than a Smart car.

Question: how long do you think it takes for a person to get feeling back in his / her butt after traveling a few miles in this joke machine ?

Just shoot me, please.

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http://online.wsj.com/article/SB123906731177395605.html#mod=testMod

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Japan Jumps Ahead: The Honda/Toyota Hybrid War Leaves Detroit Playing Catch-Up

April 7, 2009

Excerpted from BusinessWeek, “Toyota, Honda Heat Up the Hybrid War”, by Ian Rowley, March 27, 2009

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Honda and Toyota are launching hybrid cars in quick succession—and neither one is skimping when it comes to generating hype. The Honda Insight boasts a sub-$20,000 sticker price, fuel economy of 40 miles per gallon in the city and 43 mpg on the highway, and is arguably more fun to drive. The latest Toyota Prius is larger than its Honda rival, gets better mileage, and (unlike the Insight) has an EV mode, where the driver instructs the car via the touch of a button to run solely on battery power. However, the soon-to-be-released Prius is expected to be more expensive, with a U.S. sticker price starting at around $23,000.

Toyota is also planning a smaller, cheaper hybrid based on its Yaris platform to take on the Insight. “We are going to compete by expanding our hybrid vehicle lineup to smaller hybrids.”

Toyota is also taking the unusual step of selling a cheaper version of the current Prius alongside the new one. “There will be demand for the two to co-exist,” Toyota said at the unveiling of the new car for the Japanese market. This cheaper Prius, like the Insight, will go on sale in Japan for less than $20,000.

* * * * *

Analysts question, however, the impact of launching a cheap version of the old Prius alongside the new one. They worry the older Prius may eat into sales of the new Prius and similar-sized models such as the Corolla, or that it might force Toyota to cut prices of nonhybrid models.

The new Prius may go on sale in Japan for as little as $20,900, which would be $3,000 cheaper than the current model—even though the new Prius has a larger engine and is more luxurious.

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It is feasible, though, that both companies can win the hybrid war. For one thing, the rivalry is helping to bring the “hybrid premium”—the incremental cost of making hybrids compared with regular vehicles—down to levels where owning is as much about economic sense as sending an “I’m green” message.

Improved production efficiency is just as important. Honda can now make 250,000 hybrid cars a year at its Suzuka plant. Increased scale is making it easier to bring down costs. The company increased the number of workers assembling battery modules from 20 to 54. But by increasing automation, Honda now has the capacity to produce 1,000 packs a day, vs. about 250 before the Insight went into production.

At Toyota, engineers didn’t quite manage to reduce the size and cost of the Prius’ new-generation hybrid system by half, but both have been reduced by 25% to 35%, compared with the current second-generation model.

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In a deep recession, meeting sales targets will be tough for both companies. Still, even if sales disappoint, the new models will help the two Japanese companies maintain their dominant market share in hybrids. Although rivals are launching more gas-electric vehicles, no other automaker is yet close to producing hybrids in the hundreds of thousands.

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Full article:
http://www.businessweek.com/print/globalbiz/content/mar2009/gb20090327_626019.htm

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Will Sex Sell Sandwiches? Quiznos’ Edgy Campaign Sparks a Price War

April 7, 2009

Excerpted from Ad Age, “Quiznos Throws Subway Curve With ‘Sexy’ $4 Foot-Long” By Emily Bryson York, March 23, 2009

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Seeking to return to its identity as an edgy upstart, Quiznos is undercutting rival Subway’s $5 foot-long with a $4 version called the Toasty Torpedo, pitched as a product with “12 inches of flavor” by a smoky-voiced toaster that asks a chef to “Say it sexy” and “Put it in me.”

It’s the latest attention-grabbing bid by the nation’s second-largest sandwich chain, which has struggled in recent years because of problems with franchisee profitability and the perception that the food is expensive … “The reality is that we are a challenger brand,” CMO Rebecca Steinfort said … “Our main competition is Subway, which is an 800-pound gorilla. We may be 200 pounds, but they’re 800.”

Quiznos built a following with toasted, high-quality subs and envelope-pushing marketing … While the recession hit Quiznos hard, rival Subway has gone gangbusters with its $5-foot-long promotion, which helped to fuel double-digit increases in same-store sales. At Quiznos, marketing failed to drive traffic and closed stores …

Creative aside, the $4 price point might just be a magic bullet for Quiznos, undercutting its rival in a recessionary market where every dollar counts for consumers. “I think the right price point is very important in the sandwich business,” said Dennis Lombardi, exec VP-food service strategies … Subway’s foot-long “changed the paradigm. So the trick now is: How do you create a product that counters that? And a $4 sandwich sounds like a good start.”

Earlier this year, Quiznos revamped its menu to reduce prices and come closer to the critical $5 mark … This month, Quiznos offered a “Million Sub Giveaway” … While the promotion was an overwhelming success in terms of data collection, a few problems ensued. Quiznos had 1 million e-mails within three days, but some consumers didn’t get their coupons, and others couldn’t print them. A few flustered franchisees turned coupon holders away.

Mr. Lombardi said Quiznos will have to be careful of the promotions it uses to survive the recession, but “it’s much easier to go from premium product to bargain product than it is to go from bargain product to premium product” …

Ms. Steinfort said the chain’s recent marketing efforts have already begun to pay off. Quiznos’ consumer research shows that most customers come into Quiznos and notice the prices are lower, and 70% say they plan to come back. She described the results as being “significantly better,” or showing “hockey-stick-type improvement” over last year, when the chain’s prices were on the rise.

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Full Article:
http://adage.com/article?article_id=135435

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Outlook is Optimistic for Marketers’ Job Security

April 7, 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.”

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

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What’s up with the President’s approval ratings ?

April 6, 2009

Excerpted from Rasmussen Reports, Friday, April 03, 2009

Most media reports say that the President has sky high approval rating.  But …

According to the Rasmussen Daily Presidential Tracking Poll,  35% of the nation’s voters now Strongly Approve of the way that Barack Obama is performing his role as President …  32% Strongly Disapprove … That gives Obama a Presidential Approval Index rating of +3, his lowest rating to date

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While the President is maintaining his rockhard support among African Americans, more non-African Americans Strongly Disapprove (35%) of the way he is performing as President than Strongly Approve (28%) … giving him a negative PAI (-7) with that group.

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Cap & Trade … and you think mortgage-backed derivatives were risky

April 6, 2009

Excerpted from WSJ, “The Carbon Cap Dilemma”, March 28, 2009

The essence of cap and trade:

“Congress puts a ceiling on emissions, and then allows businesses to sell any of its extra allowances that stand for the right to emit, it is essentially creating the world’s largest commodity market — in carbon-backed securities. These will be extremely valuable, and everything comes down to how the government chooses to distribute them. ”

Full article:
http://online.wsj.com/article/SB123819777143661833.html#articleTabs%3Darticle

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Ken’s Take: Think about it … a financial derivative tied to the amount of carbon that an energy generating facility doesn’t emit.  At least mortgage backed securities were, well, backed by mortgages — albeit risky ones.  These derivatives would be backed by, well, nothing, except a Congressional definition that could change at Barney Frank’s whim.  You’d think that Enron and the current financial mess would have soured folks on those sorts of financial instruments.

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Coke’s Challenger Brand Hopes to Power over Gatorade

April 6, 2009

Excerpted from Ad Age, “Gator Baiter: Powerade Jabs at Powerhouse,” By Natalie Zmuda, Mar 23, 2009

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The billboard shows the vertical half of what appears to be a Gatorade bottle on one side, with the other side open to the bare blue sky. But what might at first be taken for a mistake is explained by the text: “Don’t settle for an incomplete sports drink.” A few feet down the road perches another billboard, this one showing a fully intact bottle of Powerade. It’s tagged: “The complete sports drink.”

It’s a classic challenger strategy, except it comes from one of the world’s biggest marketers, Coca-Cola Co. The company might be a giant when it comes to soda, but in sports drinks, Coke’s Powerade runs in the shadow of PepsiCo’s Gatorade. So in true competitive fashion, the smaller rival is undertaking a bold and innovative print and outdoor effort that positions the category leader as only half the brand Powerade is.

Powerade’s plan is to blitz the market with messaging that Gatorade is an inferior method of hydration, and says it has the science to back it up. Since early last year, Powerade has been in the lab reformulating its trademark sports drink to include four electrolytes — sodium, potassium, calcium and magnesium — lost during exercise. Gatorade’s formula contains just two electrolytes, sodium and potassium …

To get its message across, Powerade … developed a clever comparative campaign that pits the brand against PepsiCo’s Gatorade. “They’re the lion in the category, and we wanted to compare what our drink does for you vs. the competition,” Mr. Kahn said. “People associate [Gatorade] with the category. When you’re another brand competing, you want to make sure to give people a point of difference.”

Powerade also … will take over the cover of ESPN The Magazine, marking the first time the publication has mingled editorial properties with advertising on its cover. It will feature a blank flap obscuring half of the cover image but retaining the magazine title. The front of the flap states, “You wouldn’t want an incomplete cover.” And the back of the flap shows half a Gatorade bottle with the text, “Don’t settle for an incomplete sports drink.” Powerade is then held up as the “complete sports drink” on the inside of the front cover …

According to Beverage Digest, Powerade controls 22% of the sports-drink market, while Gatorade has a 77% share … For its part, Gatorade is shrugging off the attack, maintaining that all Powerade has done is create a spinoff of its Gatorade Endurance Formula, developed in 2004 …

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Full Article:
http://adage.com/article?article_id=135436

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Automakers Promote A New Breed of Pony Cars … on the cheap, of course.

April 6, 2009

Excerpted from Ad Age, “How to Get Consumers to Pony up for Pony Cars? With Little Advertising” By Jean Halliday, March 26, 2009

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Question: How do you launch a big ad campaign for sexy sports car in the teeth of a recession? Answer: You don’t.

The pony car is back, as each of Detroit’s three carmakers revs up an entry in the segment for the first time in decades. General Motors is bringing back the Chevrolet Camaro, which it discontinued in 2002; Chrysler revived the Dodge Challenger last fall after a nearly 35-year absence … and Ford, which started the pony-car craze in 1964 with the Mustang, launches the newest version of the coupe in April.

Although the redone versions of the classic cars are getting good reviews from auto-buff books and car enthusiasts … the timing is awful as the industry tries to pull out of its worst sales year in decades. As a result, there won’t be high-profile national TV blitzes for the cars from Chevy or Dodge, which will rely more on nontraditional media.

Chevrolet, which started shipping the 2010-model Camaro to dealerships this week, activated a new microsite for the car … Much of the Camaro’s launch will be online … In addition, Chevrolet will back the new Camaro in co-branded ads for the movie “Transformer: Revenge of the Fallen” …

Ford teamed with the nonprofit Mustang Club of America for a long weekend of events in Birmingham, Ala., to celebrate the 45th anniversary of the pony car … Ford Racing also linked up with Miller Motorsports Park to develop a new racing series with Mustangs that will kick off there, complimented by a street party, a driving cruise for Mustang owners and a banquet …

Mike Accavitti, director-Dodge marketing, said the … there are no dedicated ads for the [Challenger]. He said the automaker plans to keep the car fresh by introducing special, limited-edition colors or racing-stripe packages … He figures the Challenger will get a boost from consumers also shopping for the Camaro. He doesn’t expect Chevrolet to bite into Challenger sales, at least for the first two months it’s on sale, because loyal Camaro fans will be the early buyers. “We’ll see a battleground after that … After 35 years, the three pony cars are back” …

U.S. sales across the entire mid-size sporty coupe segment last year only tallied 150,000 units … That compares to some 575,000 units sold in 1995, or 3.9% of all vehicles sold that year. J.D. Power projects the tally for the coupe category next year will total just more than 200,000 units, or 1.7% of all new vehicles sold.

“There’s been a shift in consumers’ taste, so the larger, sporty, two-door vehicles have fallen out of favor … But these two models are more practical than their predecessors.”

Practical maybe, but not inexpensive. The 2010 Camaro starts at $22,995 and the 2010 Mustang at $20,995, but the latter’s performance GT500 convertible version starts at $51,225. The Challenger starts at $22,545 but the souped-up R/T Classic version that went on sale early this year starts at $34,005.

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Full Article:
http://adage.com/article?article_id=135580

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Cap & Trade … if it smells like a tax …

April 3, 2009

Excerpted from WSJ, “The Carbon Cap Dilemma”, March 28, 2009 

Ken’s Take: The Bushers were clever rebranding the estate tax as the more pejorative sounding “death tax”.  Team Obama is similarly clever calling their energy tax “cap and trade”.  Doesn’t change the essence — it’s a tax.

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On pure economic grounds, a straight carbon tax, would be simpler and more efficient than cap and trade.

But “the political will to go the tax route . . . is just not there. Nonexistent” — namely because the use of the word “tax.”

The cap & trade approach is to design a  program that will “simulate the same thing a tax would do.”

That is, to achieve the increased energy prices essential to the success of cap and trade.

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Full article:
http://online.wsj.com/article/SB123819777143661833.html#articleTabs%3Darticle

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Skype Steps Into Business Seeking New Sources of Revenue

April 3, 2009

Excerpted from WSJ, “Skype Targets Businesses to Ring Up New Revenue” By Geoffrey Fowler, Mar 23, 2009 

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EBay’s Skype Internet phone unit, on the hunt for new sources of revenue, is making a push into the corporate market.

Skype plans to announce a version of its Internet calling software that connects to corporate phone systems. The new software is expected to allow employees to make domestic and international calls using regular office telephones, instead of a headset plugged into a personal computer. Initially, the company will charge about 2.1 cents per minute for calls to cellphones and fixed lines, but calls from computers to phone systems using the Skype software will be free, similar to what it now charges for its consumer service.

The company is known for allowing users to make free voice and video calls between computers, using a technology called VOIP, for voice over Internet protocol. Though the majority of users are consumers, the company says about 35% of its customers already use the service for business purposes.

Now the company is hoping to appeal more directly to small and medium-sized businesses, which may be particularly receptive to lowering their phone bills during the recession … Its new product is called Skype for SIP. The acronym stands for Session Initiation Protocol, a technology used by many business phone networks …

Skype’s announcement comes as parent company eBay — which bought Skype for $2.6 billion in cash and stock in 2005 — faces pressure from investors to make more money from Skype or sell it. The company brought in $550 million in revenue last year, mostly from services such as paid calls to regular phone lines and voicemail.

Its new effort faces plenty of competition in what some analysts estimate is a $200 billion business communications market … Skype argues that its 405 million users give it a leg up in the business market. It points to customers like Steve Mandel, founder of a management training and consulting company, who says his 65 employees use Skype to keep in touch with each other and with clients. “If Skype didn’t exist, our phone bills would be I’m guessing 50% to 100% higher than they are now,” he said.

Skype has been controversial with some technology managers. Though the service seems to be free … mitigating potential security risks posed by the software, since it involves the Internet and often requires software updates, “involves operational and support costs.” Skype insists that its software is secure, and has developed tools to make sure all the computers at a company are using the same version of its program.

As part of the move to attract business users, the company is trying to change its image — including its logo, which used to feature a guitar and rainbow. “Customers told us, ‘How can we take you seriously when you look like an Abba album from 1976?'” said Mr. Oberg. “A lot of the features that we have sold to consumers in a certain way need to be sold to business in another way.”

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Full Article:
http://online.wsj.com/article_email/SB123776338990608661-lMyQjAxMDI5MzI3MzcyNjMzWj.html

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Cap & Trade … the Chinese dilemma

April 2, 2009

Excerpted from WSJ, “The Carbon Cap Dilemma”, March 28, 2009

With breakneck construction of conventional coal plants, China has already surpassed U.S. coal capacity and is on pace to double it sometime in the middle of the next decade.

The U.S.,could close down every single coal plant immediately … but that wouldn’t do much good in the scheme of things,” because atmospheric CO2 concentrations would continue to rise as China continues to expand.

“We go to zero emissions in this country, and if China doesn’t follow us, we’re nowhere. . . . We’ve just ruined our economy, and we’re nowhere,”

China’s not going to follow us because we’re the United States. . . . You say, ‘Shut down your plants’ — well, that’s going to be a short conversation. China has $2 trillion invested in their plants.” 

Full article:
http://online.wsj.com/article/SB123819777143661833.html#articleTabs%3Darticle

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The key to fighting private label…innovation

April 2, 2009

Excerpted from Reuters, “Foodmakers tout innovation to battle imitation” by Nicole Maestri, March 19, 2009

* * * * *

If imitation is the best form of flattery, foodmakers are finding themselves dealing with an inordinate number of compliments these days.

As the recession crimps household budgets, retailers like Wal-Mart  and Target are increasingly looking to woo shoppers with their own private label, or store brand, food items that often look very similar to name brand products but are sold at lower prices.

Foodmakers are defending their turf … they say that they are the ones who develop innovative new products and spend marketing dollars to draw shoppers into retailers’ stores.

They acknowledge that retailers are giving them a run for their money, introducing better products at a faster pace and squeezing out tertiary brands in the process… Seeking to woo frugal shoppers, retailers are giving more shelf space to their own brands and stepping up promotions… The question now looms as to whether retailers will make the leap from simply imitating name brand foods to innovating on their own.

“The entire retail trade has become energized very quickly to bring out products that compete with branded package food,” 

Wal-Mart is relaunching its Great Value private brand, adding more than 80 new products, like double-stuffed sandwich cookies and organic cage-free eggs.

Consumers really take notice of private label products when the price gap between a name brand item and a store brand one reaches more than 30 percent.

Cexclusively on price is potentially a good short-term tactic, but long-term you really want to build your brand and what it stands for in consumers’ minds.”

“If you introduce a new product, no one really knows what the price of that product should be,” he said. That allows foodmakers to set an initial price and build in a hefty margin before imitators come into the space, he said. It can also help sell higher-priced items amid a recession.

Unilever’s Bertolli frozen dinners, which are marketed as “restaurant quality.” While they may be more expensive than other frozen dinners, they are priced “at about a 40 percent value to take-out food or restaurant food.”

Shoppers feel like they are getting a deal when they buy Bertolli because they spent less than they would have in a restaurant, even though the meals are more expensive than other items in the frozen food aisle.

With retailers increasingly eyeing private label, it has become crucial for foodmakers to make sure they have the No. 1 or No. 2 brand in their categories. Brands that cannot distinguish themselves face losing shelf space.

“I wouldn’t want to be a number three, four or five brand that wasn’t differentiated.”

While the recession may create chaos as retailers and foodmakers compete for thrifty shoppers, it remains to be seen if private label can keep its allure once the tough times recede.

“As we get out of this recession, will consumers then look back to their favorite brand or not?”

Edit by NRV

Full article: http://www.reuters.com/article/ousiv/idUSTRE52I5P420090319?sp=true

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KFC filling potholes … with chicken ?

April 2, 2009

Excerpted from Brandweek, “KFC Offers to Fill Up the Nation’s … Potholes” By Kenneth Hein, March 25, 2009

* * * * *

Kentucky Fried Chicken today announced its own urban renewal program. The chicken chain has offered to fill up the potholes in five major U.S. cities to promote its “fresh” brand positioning.

Giving back has become a trend for marketers, including Starbucks, Kellogg’s Frosted Flakes and others that have centered their message around helping the community.

KFC sent a letter to U.S. mayors today asking them to nominate their cities’ roads to be refreshed. Every pothole filled by the fast feeder will be covered in nonpermanent street chalk with the words “Re-freshed by KFC.”

Jason Vargas of the experiential marketing agency Marketing Werks applauded the effort: “That’s street marketing at its finest. It’s a cool way of breaking through the clutter and building buzz.”

The guerilla/community service effort touts the fact that the chain uses only fresh chicken shipped in weekly. The chain’s head marketer Javier Benito, said in a statement, that this is “a perfect example of that rare and optimal occurrence when a company can creatively market itself and help local governments and everyday Americans across the country.” The chain estimates there are roughly 350 million potholes in the U.S. …

Not everyone is enthused about the publicity stunt. “There is an aggressiveness towards moving into new dimensions of public spaces. This would be another example of this unfortunate incursion of advertising messaging into [consumers’ lives],” said Robert Weissman, director of Commercial Alert. “KFC should fix their menu first.”

KFC’s 2008 U.S. sales were off about 1% at an estimated 5.1 billion … It spent $291 million on U.S. media last year, excluding online, per Nielsen Monitor-Plus.

Edit by SAC

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Full Article:
http://www.brandweek.com/bw/content_display/news-and-features/retail-restaurants/e3ic48b7a3a3eb3111d1e753e41e824f324?imw=Y

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Cap & Trade … the Nuclear Dilemma

April 1, 2009

Factoid: 79% of France’s electricity is nuclear generated.

* * * * *
Excerpted from WSJ, “The Carbon Cap Dilemma”, March 28, 2009

On the one hand, environmentalists claim that climate change is a “planetary emergency,” perhaps the greatest threat ever to face humanity. On the other, nuclear energy is still verboten in the green catechism — despite the fact that it provides roughly one-fifth of U.S. electricity, all of it free of carbon emissions. Without more nuclear power, it is nearly impossible to see even the glimmers of any low-emission future.

* * * * *
A lot of companies stand to make a bundle off cap and trade.

Ironically, the nuclear industry stands to benefit as much as any “green” business from a carbon crackdown.

So, if Congress does create cap and trade, expect the next populist outcry to be for a windfall profits tax on nuclear.

* * * * *
Ken’s Take: … and don’t expect any more nuclear power plants to be brought on line.

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Full article:
http://online.wsj.com/article/SB123819777143661833.html#articleTabs%3Darticle

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Money’s important … time is dear.

April 1, 2009

Excerpted from Stanford GSB News, “Focus on Time Sells More Products” by Cassie Mogilner and Jennifer Aaker, March 2009

* * * * *

“It’s Miller Time.” “Live Richly.” What do these vastly different marketing campaigns—one selling beer, the other financial services—have in common? They both focus on experiencing, rather than possessing, products… both are vastly more effective campaigns as a result.

“Because a person’s experience with a product tends to foster feelings of personal connection with it, referring to time typically leads to more favorable attitudes—and to more purchases,” says Jennifer Aaker, the General Atlantic Professor of Marketing at Stanford Graduate School of Business.

Very little research has been done on whether the focus on time actually changes consumers’ purchasing decisions or overall satisfaction with what they buy. Mogilner and Aaker hypothesized that marketers themselves weren’t aware of the value of stressing time. “What our work contributes is that they can trigger very different attitudes and behaviors just by mentioning time rather than money.” she says.

One explanation is that our relationship with time is much more personal than our relationship with money. “Ultimately, time is a more scarce resource—once it’s gone, it’s gone—and therefore more meaningful to us,” says Mogilner. “How we spend our time says so much more about who we are than does how we spend our money.”

Previous research had demonstrated that mentioning money makes people more self-sufficient, physically withdrawn, and less likely to help others. “On the other hand, when you refer to time, there’s a big social component that integrates the products you use with the people in your life, which makes the product experience more meaningful and richer,” says Mogilner.

In their first experiment the authors set up a lemonade stand—operated by two six-year olds, to make it appear authentic—for which they used three different signs. The first sign read “Spend a little time and enjoy C&D’s lemonade”; the second one, “Spend a little money, and enjoy C&D’s lemonade”; and the third, neutral one said simply, “Enjoy C&D’s lemonade.” Only one of the signs was displayed at a time. Customers were told they could pay between $1 and $3 for a cup of lemonade; the exact amount was up to them. After they made their purchase, they were surveyed to determine their attitude toward the lemonade.

The results were instructive: The sign stressing time attracted twice as many passersby—who were willing to pay almost twice as much—than when the money sign was displayed.

In a second experiment college students who owned iPods were either asked: “How much time have you spent on your iPod?” or “How much money have you spent on your iPod?” Students asked about time reported more favorable attitudes toward their iPods than those asked about money. “We were very surprised at how strong the differences were,” says Aaker.

But Mogilner and Aaker were interested in investigating even more complex ramifications of the time-money relationship. One theory is that references to money will always be negative because consumers are reminded of the cost of acquiring a product rather than the pleasure of consuming it. To explore this possibility, Aaker and Mogilner surveyed attendees at an outdoor music concert in San Francisco. Although the concert itself was free, people had to wait in line for long periods of time to get decent seats. Aaker and Mogilner asked random individuals: “How much time will you have spent to see the concert today?” or “How much money will you have spent to see the concert today?” Even in cases where the real cost of the product was time rather than money, asking specifically about time increased participants’ favorable attitudes toward the concert.

Even more strikingly, people who stood in line longer—who actually incurred a higher cost in terms of time spent—rated their satisfaction with the concert higher. “Even though waiting is presumably a bad thing, it somehow made people concentrate on the overall experience,” says Aaker.

The exception to all this: When marketing products that consumers buy for prestige value, stressing money spent seems to be more effective. Designer jeans, expensive jewelry, and high-status cars all fall into this category. “With such ‘prestige’ purchases, consumers feel that possessing the products reflect important aspects of themselves, and get more satisfaction from merely owning the product rather than spending time with it,” says Mogilner.  

Edit by NRV

Full article: http://www.gsb.stanford.edu/news/research/aaker_time.html?tr=research

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"Don't touch my jug" … Tropicana cans new packaging

April 1, 2009

Excerpted from brandchannel.com, “Packaging: Lessons from Tropicana’s Fruitless Design” by Jennifer Gidman, March 16, 2009

* * * * *

It’s a revamp-gone-wrong tale that has already secured its place in the annals of packaging: PepsiCo retains Arnell Group to redesign its Tropicana Pure Premium orange juice cartons as part of its new ad campaign. Said cartons make their aisle debut in January, minus the familiar straw-punctured orange and sporting a modernized depiction of—well, fresh-squeezed juice. Consumers revolt and demand the old packaging back. Two months and a reported US $35 million later, PepsiCo reverts back to the original Tropicana packaging, straw between its legs (and back on the carton).

There’s nothing unusual about a perennial product revisiting its packaging, labels or logos in an attempt to bring outdated aesthetics up to par with an enduring brand message…But if the brand is still enjoying hefty market share, why putter around with its packaging?

Tropicana has historically dominated number-two Minute Maid in the OJ category. “Sometimes [package redesign] has nothing to do with the business at all—it [comes] down to the new personnel working on the brand, hell-bent on making a mark on their career,” says Dyfed “Fred” Richards, executive creative director for global branding consultancy Interbrand, which also produces brandchannel. “It’s sometimes difficult for brand managers to demonstrate growth of a brand they’re being tasked to manage and grow. But a new package design associated with those changes demonstrates these changes.”

The agencies commissioned for a redesign may also share some of the blame for failed packaging overhauls. “Sadly, many [of these] companies enjoy the design process so much that design for design’s sake takes over, and all reason jumps out of the window for the benefit of a trend or effect they’ve wanted to try.”

With properly ascertained research and consumer feedback.. a brand can, and should, make an informed decision to redesign its packaging or logo.  “If a brand is in a leadership position, then it should be protecting and leveraging those key equities at all times in an effort to reinforce the reasons why it’s the market leader.” Richards says.

All parties involved need to carefully tread the redesign waters. “Understand the brand’s history,” Richards explains. “Talk to and listen to loyal consumers. This isn’t about sticking a pretty label on a box and hoping you win a design award. All the assets of the brand need careful evaluation to find out equity stretch points and equities that are sacrosanct to the consumer. More often than not, you’re not designing for your client, and certainly not for yourself—you’re designing for the consumer.”

Tropicana’s carton conundrum is a compelling story on a couple of fronts. First, there’s the juicy, schadenfreude-esque media obsession—the panned carton was one of the most blogged topics the week of February 23–27, behind only the machinations of President Obama’s new administration, according to the Project for Excellence in Journalism’s New Media Index.

But even more unusual has been the astonishing backlash from a usually silent, brand-loyal contingent, and PepsiCo’s eventual acquiescence to these vitamin C devotees. Feedback on the design, relayed to PepsiCo via letters, phone calls and e-mails, has ranged from deeming the cartons “ugly” to expressing outright confusion—some customers passed right by Tropicana cartons on store shelves, mistaking the new packaging for private-label offerings. “What’s evident from my experience and perspective is that key equities of the brand were thrown away for a generic offering, and consumers reacted,” Richards says.

So it’s back to the drawing board (or maybe not) for Tropicana. The old cartons are expected to reappear on store shelves this month. The only remnants of the US $35 million Arnell experiment will be the cute, orange-shaped plastic caps, which will be retained on cartons of low-calorie Trop50. The advertising campaign that’s currently in place will also continue.

Perhaps this could have all been avoided if PepsiCo had sought out real consumer input in the first place.

“When you go back and look at packaging through the ages, especially the power brands that have stood the test of time through decades of changes and consumer trends, they offer a unique insight of how to develop and manage key equities and remain relevant to the consumer of today and tomorrow.”

Edit by NRV

Full article: http://www.brandchannel.com/start1.asp?fa_id=469

* * * * *

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“Don’t touch my jug” … Tropicana cans new packaging

April 1, 2009

Excerpted from brandchannel.com, “Packaging: Lessons from Tropicana’s Fruitless Design” by Jennifer Gidman, March 16, 2009

* * * * *

It’s a revamp-gone-wrong tale that has already secured its place in the annals of packaging: PepsiCo retains Arnell Group to redesign its Tropicana Pure Premium orange juice cartons as part of its new ad campaign. Said cartons make their aisle debut in January, minus the familiar straw-punctured orange and sporting a modernized depiction of—well, fresh-squeezed juice. Consumers revolt and demand the old packaging back. Two months and a reported US $35 million later, PepsiCo reverts back to the original Tropicana packaging, straw between its legs (and back on the carton).

There’s nothing unusual about a perennial product revisiting its packaging, labels or logos in an attempt to bring outdated aesthetics up to par with an enduring brand message…But if the brand is still enjoying hefty market share, why putter around with its packaging?

Tropicana has historically dominated number-two Minute Maid in the OJ category. “Sometimes [package redesign] has nothing to do with the business at all—it [comes] down to the new personnel working on the brand, hell-bent on making a mark on their career,” says Dyfed “Fred” Richards, executive creative director for global branding consultancy Interbrand, which also produces brandchannel. “It’s sometimes difficult for brand managers to demonstrate growth of a brand they’re being tasked to manage and grow. But a new package design associated with those changes demonstrates these changes.”

The agencies commissioned for a redesign may also share some of the blame for failed packaging overhauls. “Sadly, many [of these] companies enjoy the design process so much that design for design’s sake takes over, and all reason jumps out of the window for the benefit of a trend or effect they’ve wanted to try.”

With properly ascertained research and consumer feedback.. a brand can, and should, make an informed decision to redesign its packaging or logo.  “If a brand is in a leadership position, then it should be protecting and leveraging those key equities at all times in an effort to reinforce the reasons why it’s the market leader.” Richards says.

All parties involved need to carefully tread the redesign waters. “Understand the brand’s history,” Richards explains. “Talk to and listen to loyal consumers. This isn’t about sticking a pretty label on a box and hoping you win a design award. All the assets of the brand need careful evaluation to find out equity stretch points and equities that are sacrosanct to the consumer. More often than not, you’re not designing for your client, and certainly not for yourself—you’re designing for the consumer.”

Tropicana’s carton conundrum is a compelling story on a couple of fronts. First, there’s the juicy, schadenfreude-esque media obsession—the panned carton was one of the most blogged topics the week of February 23–27, behind only the machinations of President Obama’s new administration, according to the Project for Excellence in Journalism’s New Media Index.

But even more unusual has been the astonishing backlash from a usually silent, brand-loyal contingent, and PepsiCo’s eventual acquiescence to these vitamin C devotees. Feedback on the design, relayed to PepsiCo via letters, phone calls and e-mails, has ranged from deeming the cartons “ugly” to expressing outright confusion—some customers passed right by Tropicana cartons on store shelves, mistaking the new packaging for private-label offerings. “What’s evident from my experience and perspective is that key equities of the brand were thrown away for a generic offering, and consumers reacted,” Richards says.

So it’s back to the drawing board (or maybe not) for Tropicana. The old cartons are expected to reappear on store shelves this month. The only remnants of the US $35 million Arnell experiment will be the cute, orange-shaped plastic caps, which will be retained on cartons of low-calorie Trop50. The advertising campaign that’s currently in place will also continue.

Perhaps this could have all been avoided if PepsiCo had sought out real consumer input in the first place.

“When you go back and look at packaging through the ages, especially the power brands that have stood the test of time through decades of changes and consumer trends, they offer a unique insight of how to develop and manage key equities and remain relevant to the consumer of today and tomorrow.”

Edit by NRV

Full article: http://www.brandchannel.com/start1.asp?fa_id=469

* * * * *

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Posted in Mktg - Packaging | Leave a Comment »

Mail your warranty card to 1600 Pennsylvania Avenue … Attn: Mr. Obama

March 31, 2009

To me, the most stunning aspect of yesterday’s announcements re: GM and Chrysler wasn’t Rick Waggoner getting canned, or Chrysler being shotgun wed to Fiat (anybody out there own a Fiat ?) … it was Team O’s announcement that the Federal government would now be standing behind the car companies’ warranties.

First, I didn’t know that the Constitution gave a president the unilateral right to declare that my tax dollars will go to keeping somebody else’s shoddy car running for 5 or 10 years. 

More interesting: how exactly is the Federal government going to fulfill the warranty pledge?

Let’s pretend that both Chrysler & GM are headed to the junk heap.  Following them will be their dealers — the guys who currently provide warranty service.  Will they just put a couple of repair bays outside the White House?

More likely, it’ll just be an insurance program that reimburses independent garages who will be licensed to make repairs.  The process for handling the claims ? The reimbursement rates ? The fraud protection ?

And, many warranty repairs require parts.  Where will the parts come from? Answer: probably from China since domestic suppliers will crater soon after GM.

Does anybody in the administration give even a moment’s thought to implementation details?

I guess this program will be good practice for nationalized healthcare.  If they can do it for cars, they should be able to do it for human lives, right?

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This is tough love ?

March 31, 2009

Left leaning pundits were crowing yesterday about President Obama’s “ultimatum to the car companies” and his “tough love approach to the problem”.

Ken’s Take: “If your pulse isn’t revived, I’m going to declare you legally dead” isn’t tough love … it’s just politicizing the obvious.

* * * * *

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Sticking it to the "fly over" states … well, maybe not this year.

March 31, 2009

Excerpted from IBD, “Potholes Ahead En Route To Welfare State”, Barone,  March 27, 2009

Pres. Obama continues to insist that America cannot enjoy real prosperity again without higher taxes on high earners, a government health insurance program, a cap-and-trade program that amounts to a tax on energy and the effective abolition of secret ballots in unionization elections.

Even though there are large Democratic majorities in both houses of Congress, roadblocks have started to appear.

One has been set up by the Senate Budget Committee. Chairman Kent Conrad of North Dakota, who … has apparently decided that cap-and-trade is off the table for this year.

Cap-and-trade would impose higher costs on coal-fired electric power plants. In states where most electricity is produced from coal, this would mean higher utility bills for consumers and industrial users.

So, Democrats from coal states like North Dakota see energy issues differently from Democrats from coal-free states like California.

There are 25 Democratic senators from states that get 60% or more of their electricity from coal (in North Dakota, the figure is 93%). To get 50 Senate votes on a budget with cap and trade, 17 of those Senators have to discard their regional interests and vote for cap and trade..

So you can see why he was ready to ditch cap-and-trade, which, in any case, addresses a problem — climate change — whose purported evil effects are decades away.

Ditching cap-and-trade, however, may set up another roadblock, since the money the government was going to take out of the private-sector economy was slated for Obama’s middle-class tax cut.

This could get interesting.

Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=323047032396219* * * * *
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Sticking it to the “fly over” states … well, maybe not this year.

March 31, 2009

Excerpted from IBD, “Potholes Ahead En Route To Welfare State”, Barone,  March 27, 2009

Pres. Obama continues to insist that America cannot enjoy real prosperity again without higher taxes on high earners, a government health insurance program, a cap-and-trade program that amounts to a tax on energy and the effective abolition of secret ballots in unionization elections.

Even though there are large Democratic majorities in both houses of Congress, roadblocks have started to appear.

One has been set up by the Senate Budget Committee. Chairman Kent Conrad of North Dakota, who … has apparently decided that cap-and-trade is off the table for this year.

Cap-and-trade would impose higher costs on coal-fired electric power plants. In states where most electricity is produced from coal, this would mean higher utility bills for consumers and industrial users.

So, Democrats from coal states like North Dakota see energy issues differently from Democrats from coal-free states like California.

There are 25 Democratic senators from states that get 60% or more of their electricity from coal (in North Dakota, the figure is 93%). To get 50 Senate votes on a budget with cap and trade, 17 of those Senators have to discard their regional interests and vote for cap and trade..

So you can see why he was ready to ditch cap-and-trade, which, in any case, addresses a problem — climate change — whose purported evil effects are decades away.

Ditching cap-and-trade, however, may set up another roadblock, since the money the government was going to take out of the private-sector economy was slated for Obama’s middle-class tax cut.

This could get interesting.

Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=323047032396219* * * * *
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     Click link =>  The Homa Files Blog

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Grape Nuts Breaks the Mold By Targeting Men

March 31, 2009

Excerpted from WSJ, “Grape Nuts Takes Aim at Men” By Suzanne Vranica, Mar 26, 2009

* * * * *
Seeking to revive a crunchy stalwart, cereal maker Post Foods is launching a new ad campaign for Grape Nuts that is aimed at men.

The cheeky campaign includes a special Web site on MSN with dozens of two-minute videos … which tout the cereal’s quality and offer advice, such as how to ask for a raise in a recession … The site also offers “The Guy’s Manual,” with tips on topics like restoring vintage cars. The campaign’s print ads, which will run in Sports Illustrated, feature men fishing and golfing and include the new slogan “That Takes Grape Nuts” … 

The campaign is a departure for cereal advertising, which has been dominated by wholesome images of mom and the family breakfast table. Even Grape Nuts, which is eaten mainly by men, has run ads targeting women …

While men are increasingly sharing grocery-shopping duties, the task is still handled largely by women, ad experts say. “Men will be entertained” by the ad, “but is it going to influence their purchase if they aren’t the ones doing the shopping?” asks Kristi Faulkner, a principal at Womenkind, a marketing firm.

“When you do something that is different, there is always some uncertainly,” says Steve Van Tassel, Post’s president. He says Post plans to step up its in-store marketing efforts to make sure that whoever does the shopping is aware of Grape Nuts.

Post is trying to stand out in the $6.6 billion ready-to-eat cereal category, where the Grape Nuts brand has been hurt by a host of competitors in the healthy-cereal category … Grape Nuts sales slipped 15% to $54.2 million during the 12 months ended Feb. 22 from a year earlier …  All Bran saw sales rise 30%.

Wall Street and the packaged-goods industry will be watching the campaign closely. Ralcorp’s (Ralston Purina) accquisition of Post, whose brands include Honey Bunches of Oats, Shredded Wheat and Pebbles, raised questions about how a company known for shunning advertising to keep prices low would handle brands that were largely built through marketing.  Ralcorp spent just $97, 837 on ads last year …

Edit by SAC

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Full Article:
http://online.wsj.com/article/SB123801803460241457.html

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Miller’s New Strategy … Back to the Future

March 31, 2009

Excerpted from WSJ, “Miller Reprises an Old Theme” By David Kesmodel, Mar 20, 2009

* * * * *
Beer giant MillerCoors, seeking to revive its flagging Miller Lite after a string of marketing missteps, is spending more than $100 million on a new campaign that features redesigned cans and bottles and new ads centered on the brand’s familiar theme: “Tastes Great.”

The campaign … is aimed at grabbing market share from leader Anheuser-Busch InBev and its top-selling Bud Light brand. While the new ads don’t attack Bud Light by name, they are clearly designed to persuade consumers that Miller Lite is the better-tasting brew …

Miller Lite, which introduced Americans to light beer in the 1970s, mostly has posted sales declines in recent years, and its performance has worsened under its new owner, a joint venture of SABMiller and Molson Coors Brewing … One problem is that Miller Lite has bounced from one ad strategy to another in recent years. “The brand has lacked a clear identity for so long … They just haven’t been able to find its voice” …

Now, MillerCoors, borrowing a page from Coors Light, says it will convey a consistent and straightforward message about the Miller Lite brand. That message will be built around taste … In a new twist on the “Tastes Great” theme, MillerCoors is rolling out ads that herald its “triple hops” brewing process, in which hops — the flowers that give beer its distinctive bitterness and aroma — are added to the beer at three different stages. The company says this gives the beer its flavor, “balance” and proper level of foam.

Miller Lite’s new “taste protector” cans will likewise tout the process. The cans have a lining on the inside to keep the beer from touching the aluminum, which can cause a metallic taste. The company also will promote new bottles with different labels as well as a “taste protector cap” designed to preserve the taste of the beer …

Highlighting the brand’s brewing process, however, carries the risk of backfiring with consumers, who are increasingly knowledgeable about beer ingredients. Light lagers like Miller Lite, have a low hops content, especially compared with many of the small-batch “craft” beers that are enjoying the industry’s highest growth rates.

“By overtly marketing their multiaddition hopping process, the consumer would presumably expect Miller Lite to be an overtly hoppy beer; it’s not” … MillerCoors also might find it hard to boost Miler Lite sales at the same time Coors Light sales are growing …

Miller Lite dominated the light-beer wars of the 1980s with its famed “Tastes Great, Less Filling” pitch. Miller Lite is now the No. 2-selling light beer in the U.S. after Bud Light, whose sales volume rose less than 1% last year … Coors Light, the nation’s No. 3 light beer, has been enjoying healthier sales growth than either Bud Light or Miller Lite.

MillerCoors won’t disclose how much it plans to spend on the new ad campaign this year, but Mr. England said it would be “well north of $100 million” …

Edit by SAC

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Full Article:
http://online.wsj.com/article/SB123750883420290503.html

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“I’ll cut the deficit in half !” … depends where you measure from, I guess.

March 30, 2009

President Obama keeps saying that his 10-year budget will cut the federal deficit in half.

Since that’s counter-intuitive — given the amount of new spending he has planned, I got curious …

Here are they key numbers:

From 1969 to 2008, the Federal deficit was about 3% of GDP.  That’s about $350 billion per year.

The deficit ballooned during the recent spending and bailout spree to about 12% of GDP.  That’s about $1.9 trillion.

The CBO projects that the Obama budget — as proposed — would have a 10 year out deficit (in 2119) that’s roughly  $1.2 trillion — 6% of GDP.  Team O claims that the out year deficit will be “only” $750 billion — about 5.5% of GDP.

Bottom line: Big O is technically correct if he measures from the 2008-2009 multi-billion dollar spending extravaganza and heavy rounds the numbers.   The deficit goes from $1.9 trillion in 2009 to $1.2 trillion (or $750 billion if you buy Team O’s numbers) — as a percentage of GDP, it goes from 12% to 6%.  That’s about halving the deficit between 2009 and 2019.

More important, but omitted in the President’s remarks: Team O’s out year deficit will be roughly twice the 1969-2008 percentage of GDP and his out year deficit will be roughly 3 times the recent average deficit (in dollars)

Maybe not a lie  … but very misleading … don’t you think?

Spend, spend, spend …

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http://blog.heritage.org/2009/03/24/bush-deficit-vs-obama-deficit-in-pictures/

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CBO Budget Analysis:
http://www.cbo.gov/ftpdocs/100xx/doc10014/03-20-PresidentBudget.pdf

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Posted in Obama Administration, Taxes | 3 Comments »

“Value” is the New “Green”

March 30, 2009

Excerpted from Wall Street Journal, “Value is the New Green”, by Mark Penn, March 13, 2009

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Until recently, being green was the best way for companies to demonstrate a sense of social responsibility, and for consumers to feel good about their purchases. Healthy food, hybrid cars, energy efficiency — these were the attributes that burnished brands.

But now green is taking a back seat to a new core value — value. Green hasn’t gone away, but companies are having to consider their “value” equation to try to serve the millions of consumers who either can’t afford premium experiences, or just don’t want them anymore.

Companies need to evaluate everything they are offering consumers to see how they can infuse the value of good value into their brands.  

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Starbucks is a great example of one of the world’s greatest success stories being upended by the new times.  Its guiding idea was to give consumers not just a cup of coffee but an integrated experience filled with intoxicating aromas that made customers feel great about paying extra for a grande latte.  McDonald’s emerged as a competitor by saying skip the experience and savor just the coffee and save your cash. Two years ago, Starbucks was flying high. Today it is struggling against the value-based competition.

In the airline industry, those who have been able to make money have offered more for less, not the opposite.  Flagship airlines like United went through bankruptcy emerging in 2006, while value carriers like JetBlue and Southwest have been far more successful.  They not only offer the same basic transportation, but actually offer more up-to-date services like satellite TV in every seat, more organized boarding processes and better customer service.

But beware of being regarded as simply cheap.  Target, while holding up well, isn’t reaping the same rewards as Wal-Mart.  The trick in setting a “value” proposition is that brands need to avoid the trap of simply being less expensive without providing the right level of quality.

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This certainly spells trouble for a wide swath of experience and luxury brands for what could be an extended period, unless these brands figure out how to adapt.  History shows these trends go in cycles, and luxury always comes back.  But we are in a new age of continually declining costs of technology and manufacturing, which could mean the price of luxury will keep declining.

Edit by DAF

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Full article:
http://online.wsj.com/article/SB123689912898512981.html?mod=djemMM

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Posted in Environment - Green, Mktg - Pricing | Leave a Comment »

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