Unilever Sees More Isn’t Always Better With Ideas

March 30, 2009

Excerpted from Harvard Business Review, “Nurturing Good Ideas” by Jan van den Ende and Bob Kijkuit, April 2009

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Managers know that simply generating lots of ideas doesn’t necessarily produce good ones. What companies need are systems that nurture good ideas and cull bad ones—before they ever reach the decision maker’s desk. Our research shows that tapping the input of many people early in the process can help ensure that the best ideas rise to the top.

It’s not uncommon for companies’ idea-generation activities to produce thousands of ideas. Reviewing all of them to find the best is resource intensive and doesn’t guarantee high-quality results …

Some firms, however, are taking steps to systematically improve the quality of ideas before they’re submitted for review. They’re encouraging employees to first discuss ideas with their colleagues to gain insights about their technical and market feasibility or how they fit with company objectives, which will either enhance the ideas’ value or lead to their early and appropriate demise.

Consider how this works at Unilever, where we followed the development of ideas at the company’s food labs in a 14-month study. Employees there usually discussed an idea with colleagues and, based on their feedback, made changes in the idea before submitting it. People who tapped colleagues outside their departments were more successful; discussing an idea with them increased its chances of adoption, whereas discussions with colleagues from the same department didn’t.

Interestingly, communication with friends or trusted colleagues appeared to aid adoption, probably because their input tended to be richer and offered more constructive and critical feedback, leading to more substantial changes to the idea itself. What’s more, the greater the number of perspectives an employee got, the higher his idea’s chances of being adopted were.

Other firms take a similar tack. At the biotechnology research company KeyGene, management advises employees to discuss ideas with others before submitting them to a review committee …

This approach to idea development offers a clear payoff in efficiency and in the quality of ideas. But it has another benefit as well: It enhances motivation by improving the odds of success and reducing the chance that an employee will invest unduly in an idea that’s likely to fail.

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Full Article:
http://hbr.harvardbusiness.org/2009/04/nurturing-good-ideas/ar/1

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

Airlines’ Battle a Boon for Travelers

March 27, 2009

Excerpted from Washington Post, “Downturn Puts Air Travelers on Cloud Nine”, by Sholnn Freeman, March 14, 2009

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Airlines have rushed out coast-to-coast travel deals for as little as $99 each way for the spring and summer as the economic downturn has taken hold. Continental Airlines and United Airlines, fighting it out on routes between Washington and Los Angeles, have priced round-trip tickets under $200. Airlines in recent weeks have cut ticket prices as much as 50 percent from a year ago.

The fare war comes as American companies scale back business travel and skittish consumers put off vacation plans, putting new pressure on airlines that only a year ago were fighting high fuel costs.

Yet some travel analysts are skeptical that travelers will buy, even at those prices. “With 600,000 or 700,000 people losing their jobs every month, they are asking themselves, ‘Can I really afford this?’ “

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Airlines began the year thinking the passenger market wouldn’t be so bad. Many had spent 2008 cutting less profitable routes and scaling back the number of flights, giving them more room to boost prices on the seats that remained.

Operationally, flight cutbacks mean fewer planes stacking up at airports, alleviating congestion. The government has reported that airline on-time rates are at their best level in years, even at busy New York airports.

Airlines began offering discounted fares in October after Wall Street banks began to buckle, grounding bankers and other financial executives who paid top dollar for transatlantic tickets. The steady stream of price cuts continued over the winter holidays. Now the discounting is spreading into the spring and summer — historically the strongest profit period for airlines as travelers take vacations.

“This is a major war,” said Tom Parsons, chief executive of BestFares.com, a discount travel Web site. “We never expected airfares like this in June or July of last year. We would have expected air fares double this.”

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Full article:
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/13/AR2009031303564_pf.html

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Posted in Airlines, Mktg - Pricing | 1 Comment »

How to Stop Customers Before They Defect

March 27, 2009

Excerpted from Ad Age, “Are Your Customers About to Defect?” By Chris Dickey, March 16, 2009

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In today’s tough economic environment, the most precious asset an organization has is its current customer base. And maximizing returns on that asset begins with a solid retention strategy … it is possible to curb customer defection before it’s too late. Here are three ways to maximize customer value by decreasing defection.

1. Determine the warning signs. This begins by developing a predictive model to identify the behavioral changes that are precursors to defection. The variables that predict defection, churn and other negative behaviors are often, but not always, intuitive: usage (recency and frequency), average ticket, satisfaction, visits, engagement. A model can identify the most significant variables … so the marketer knows which to monitor …

For example, the model may indicate that usage is the most meaningful variable in predicting defection, and that a 20% change in a given time period exceeds the threshold of concern and is, indeed, a warning sign to be concerned about …

2. Track and monitor changes to warning signs. Once marketers know which customer behaviors to focus on and what levels of change should be cause for concern, they can isolate and track behavior changes over time. They can then monitor those changes in real time by setting up automated tracking processes within a data warehouse.

Marketers can monitor behaviors with database-mining software and view them at a macro level using dashboards.

3. Develop a trigger-based engagement strategy to address behaviors in real or near real time. Marketers can actively intervene before a warning sign becomes a real defection. A trigger strategy must be developed over time, testing and optimizing to see which interventions can most quickly reverse negative behaviors. Interventions should be built around a highly relevant and dynamic message, an offer of relevant and significant value communicated in a channel that takes advantage of real-time data … 

Trigger-based programs are generally easy to set up and automate, and they are highly measurable. They can be geared to a wide variety of customer behaviors, and business rules can be developed to change the message, offer or channel based on other factors beyond just the behavior … By understanding the key warning signs within your customer-behavior data and developing proactive trigger-based programs to intervene, you can more precisely hone your marketing effort to those communications that drive the highest incremental return on investment …

Examples of Warning Signs and Thresholds of Concern

A member routinely visits three times a week for six months. In the past two weeks, usage is down 30%.
A retail customer’s average ticket is in the top 20% range. Her average ticket drops 10% to 20% in a month.
A top customer rates you at five consistently. Overall satisfaction drops from five to four in two consecutive quarters.
A “best” customer visits your website weekly, with an average engagement time of 20 minutes. Average time spent on the site falls 30% in three weeks.

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Full Article:
http://adage.com/cmostrategy/article?article_id=135269

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Dear AIG, I quit !

March 26, 2009

The NY Times reprinted the following  letter — sent on Tuesday by Jake DeSantis, an executive vice president of the American International Group’s financial products unit, to Edward Liddy, the chief executive of A.I.G.

Won’t change many people’s minds re: the bonuses. but certainly paints another side to the picture …

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Excerpted from NY Times, “Dear AIG, I Quit”, March 25, 2009

Dear Mr. Liddy,

It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P.

Most of those responsible have left the company and have conspicuously escaped the public outrage.

Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. A.I.G. management assured us on three occasions  that the company would “live up to its commitment” to honor the contract guarantees.

I have the utmost respect for the civic duty that you are now performing at A.I.G. You are as blameless for these credit default swap losses as I am. You answered your country’s call and you are taking a tremendous beating for it.

You’ve now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised.  They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you.

I can no longer justify spending 10, 12, 14 hours a day away from my family.

That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn.

This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.’s or the federal government’s budget.

Sincerely,Jake DeSantis

For the full text of the letter:
http://www.nytimes.com/2009/03/25/opinion/25desantis.html?_r=2&ref=opinion&pagewanted=all

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How about a stimulus package for brands?

March 26, 2009

Excerpted from Brandchannel.com, “Time for a brand stimulus package” by Kevin Randall, March 16, 2009

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In the marketing world, our industry is witnessing a diminishing commitment to long-term brand building. The mission of the moment is driven by the CFO, not the CMO, and calls for cost-cutting and short-term revenue-generating activities represent the only immediate focus.

A weighty and consistent body of historical data shows that marketers will do harm in the short- and long-run to their businesses and brands by knee-jerk budget slashing and running scared.

Hundreds of studies of marketing over ten recessions in the 20th century have concluded that not only did sales and profits decline for brands that cut brand-oriented advertising during the recession, but also that performance continued to lag upon the recovery (“Why it is important to invest in communications during an economic downturn,” IVCA.org, 2009).

Today’s brand leaders would be wise to consider and follow these 7Ps of Branding as a guide for the recession and beyond:

1. Profit
Marketers now have a golden opportunity to profit and establish real competitive advantage by exploiting the current situation. They can increase brand value and market share now relatively more easily and cheaply than during good times. With competitive noise levels reduced it is easier for a brand to stand out in the marketplace. Media costs are more attractive.

2. Persistence
Corporate brand directors need to stay the course by going against the grain and not following the marketing herd. Even if budgets are trimmed in some areas, there should be a core of strategic and tactical activities that endure (the former initiatives tend to be less budget consuming even in good times). Such brand perseverance will provide reassurance during uncertainty to both the existing customer base, an especially critical target now, and to internal stakeholders.

3. Planning
Despite the strong economic headwinds, brand builders should remain committed to pursuing long-term visions and executing plans while selectively and pragmatically improvising marketing tactics. IBM during the recessionary early 1990s and Southwest Airlines after 9/11 are examples of brands that never wavered from their long-range strategic compasses and profited enormously by doing so. These brands did not and do not meander based on quarterly results. The strongest, top-performing brands are built to weather the various storms that come along.

4. Performance
Brands (and their communications) will be judged and rewarded now by delivering on “value” over merely price. Some marketers have and will cut prices. Brand leaders do need to (re)define the value of their offering while not compromising the quality and experience customers expect or need. Harvard Business School professor John Quelch also recommends investing in opportunistic, focused market research since there is a real need to define “performance” and “value” and gauge what is relevant to customers in the shifting environment (“Marketing Your Way Through a Recession,” HarvardBusiness.org, 2008).

5. Positioning
Brand owners must uphold and defend their core positioning and resist the temptation to sacrifice quality, reduce innovation efforts or cut prices. A study of more than 1,000 companies showed that firms that cut manufacturing and administrative functions in a recession did tend to reap the benefits while those that decreased spending on new product development, quality and marketing suffered (“What strategic investments should you make during a recession to gain competitive advantage in the recovery?,” Strategy & Leadership, Profit Impact of Market Strategy [PIMS], Keith Roberts, 2003).

6. People
There needs to be an appreciation of the link between top talent and top-performing brands. Hiring, motivating and keeping the best people (who exemplify the brand) while competitors are pruning overhead is a key source of proprietary advantage. Management guru Jim Collins chronicles the cases of Boeing, Hewlett-Packard and Procter & Gamble, who bucked the trend during tough times by investing in talent (when their rivals were shedding critical human capital) only to thrive and outperform the competition (“Crisis into opportunity,” CNN Money.com, Jim Collins, 2009).

7. Principles
Brand leaders should work with CEOs to make sure their brands and organizations are integrated and that employees internalize and externalize a set of values that don’t change. Valued customers and employees will be more loyal if they are reassured on principles—by the brand and by its chief executive and sponsor. This is especially critical in the B2B world, with its large transactions and numbers of stakeholders involved in the customer experience.

Brands by the numbers

• McGraw-Hill analyzed 600 companies from 1980 to 1985. The results showed that B2B firms that maintained or increased their advertising during the 1981-1982 recession averaged significantly higher sales growth—both during the recession and for three years following—than those that eliminated or decreased advertising. By 1985, sales for companies that were aggressive recession advertisers had risen 256 percent over companies that did not maintain their advertising (“US Recession”, McGraw-Hill, 1988).

• A study of 1,000 firms during recessions between 1982 and 1999 identified key differences regarding the strategies of the best and worst performers, with the measure of performance being changes in the company’s market-to-book ratios. Notably, the best performers had increased their marketing and advertising spending not just relative to their competitors, but also compared to their own spending in better times. (“Learning to love recessions,” Richard F. Dobbs, Tomas Karakolev and Francis Malige, McKinsey & Co., 2002).  

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Full article: http://www.brandchannel.com/brand_speak.asp?bs_id=214

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A Balancing Act for Credit Card Issuers: Cutting Costs While Keeping Customers

March 26, 2009

Excerpted from Reuters, “Credit Card Firms Slashing Rewards to Cushion Losses”, March 11, 2009

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U.S. credit card issuers are slashing rewards, raising interest rates and increasing fees as loan losses mount, taking action to “maintain a certain profit level in the business.”

Reward programs are expensive for credit card companies—for example, Discover Financial Services posted revenue of $5.7 billion in 2008, while the net cost of its rewards program was $710 million—so issuers want to make sure they are worthwhile.

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In a recent presentation to investors, JPMorgan said cardholders using its reward program showed a faster increase in spending, generated higher revenue and had lower credit loss rates.

But that does not mean card companies will keep offering freebies to attract customers. They are trying to determine which customers are good bets. 

In addition, lenders are trying to pass on part of the cost of reward programs to merchants by offering joint promotions that could bring new businesses and customers to battered retailers.

Not only have rewards been cut back—it has become more difficult to cash them in.

Still, losing a few rewards may be the easy part. Other credit card companies are raising interest rates and increasing fees, or simply closing down accounts entirely.

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But this strategy could backfire: Higher costs and fewer rewards could frighten clients away, reducing the risk of default but also cutting into card company revenue.

“The people who have better credit quality have more offers, and if you raise their rates too much they will in fact leave you for somebody else.”

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Full article:
http://www.cnbc.com/id/29637583 

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Posted in Credit Cards, Mktg - Consumer Behavior, Mktg - Loyalty Programs | 1 Comment »

What ? No teleprompter ?

March 25, 2009

At his press conference last night, President Obama appeared to deliver his introductory remarks without a teleprompter.

True, his trademark twin-barreled, remote controlled teleprompter was MIA, but … in the back of the room were 2 gigantic big screen TVs  that scrolled the speech.  Same process, different media.

Call me cruel, but I’m still waiting for somebody to kick out a plug and give us a Milli Vanilli moment ….

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Over-Supply and Under-Demand-: A Tough Equation to Balance

March 25, 2009

Excerpted from BusinessWeek, “What Falling Prices Are Telling Us”, by Peter Coy, February 4, 2009

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Consumer prices in the U.S. fell at an annual rate of nearly 13% in the last three months of 2008. Prices plummeted for all sorts of goods, ranging from clothing to TVs to furniture.

But deflation missed big chunks of the economy. For all of 2008, college tuition and fees increased by 5.8%, followed closely by price increases for hospitals and legal services. Even fees for preparing tax returns are going up.

This inconsistency in prices casts doubt on the usual explanation for the recession, which is that it’s mainly due to the credit crunch and the resulting squeeze on demand. It also hints at why government efforts to fight the downturn have been ineffective so far.

Here’s the big idea: If the lack of demand that the Obama Administration is fighting were the only problem, you’d expect prices to fall across the board. Instead, it appears that supply—that is, oversupply—is at least as important a factor. The sectors in which prices are falling are those plagued by an excess of factories and ways to get goods to consumers, often because of huge investment in plants in China and other developing nations. Most services, in contrast, are not in severe oversupply and have domestic labor as their main ingredient. Consider this: Prices of goods fell 4.1% last year; prices of services rose 3%.

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The government’s deflation-fighting weapons—low interest rates, financial bailouts, and spending packages—can boost demand but do little to deal with oversupply. The world’s productive capacity is simply too big. That means prices need to fall further, or more factories need to close in the U.S. and abroad, or some combination of the two.

A stimulus can ameliorate the downturn, but not prevent continued contractions in the sectors of the economy where global overcapacity is the most extreme. The world is able to make 90 million vehicles a year, but at the current rate of production, it’s making only about 66 million.

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“Pricing power is now deteriorating,” says a Morgan Stanley economist , describing a “vicious circle” of declining output, prices, and profits.

In many goods sectors, prices still aren’t low enough to bring forth enough buyers. There will have to be some combination of falling prices and destruction of productive capacity before supply and demand come back into balance.

Edit by DAF

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Full article:
http://www.businessweek.com/magazine/content/09_07/b4119000357826.htm?chan=top+news_top+news+index+-+temp_top+story

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Posted in Economics, Financial Crisis | 2 Comments »

Watch Out Wal-Mart, Best Buy Prepares for Battle

March 25, 2009

Excerpted from WSJ, “Best Buy Confronts Newer Nemesis” By Miguel Bustillo, March 16, 2009

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Finally victorious over longtime archrival Circuit City Stores Best Buy  is now gearing up to fight an even more powerful foe: Wal-Mart.

Leading the challenge will be Brian Dunn, the company’s chief operating officer … His new strategy is to head off Wal-Mart Stores Inc.’s brutal price competition by giving consumers something the discounter cannot: more interactive stores, where customers can step into the world of a new videogame or see their faces captured by a high-definition video camera, instead of trolling aisles stacked with merchandise.

Analysts expect Best Buy to pick up at least half of the business of Circuit City, which closed its doors earlier this month, a victim of management and sales miscues as well as the recession.

Mr. Dunn won’t have time to celebrate. Wal-Mart has ratcheted up its once-tiny selection of big-brand television sets, videogames and mobile phones to become a fierce contender … Best Buy remains well ahead of Wal-Mart in U.S. electronics sales, but Wal-Mart is gaining in critical growth areas such as flat-panel TV sets … By contrast, Best Buy’s sales have shrunk during the recession, and it has cut inventory to compensate, perhaps too sharply …

At a meeting of store managers from the Southwest earlier this month, managers complained to Mr. Dunn that they had lost sales of flat-panel TVs because of a lack of inventory, a sore point for the chief operating officer … Mr. Dunn hopes to leapfrog growing competition from Wal-Mart by transforming the retailer’s stores into lively showrooms for the latest gadgets …

Focusing on showmanship and service to combat Wal-Mart’s low-price draw is risky in a recession where consumers are clamoring for no-frills bargains. But Mr. Dunn said he intends to win customers by matching Wal-Mart on prices, and then offering something more, building on Best Buy’s existing strategy of helping customers navigate increasingly complicated technology. The key will be making the most of Best Buy’s tech-savvy sales force, he said …

Mr. Dunn hasn’t always agreed with some of the ground-breaking changes at Best Buy; most notably, he opposed the 1989 decision to do away with commissioned sales in favor of salaried staff, which was widely opposed by sales workers who feared losing income. He now concedes it was the most important shift in company history, lowering worker costs and changing the core model of electronics retailing. Best Buy expanded across the U.S., and Circuit City eventually followed by eliminating sales commissions …

Right now, retailing needs leaders who can guide companies through troubled times, not visionaries, said Advance Auto Parts Inc. Chief Executive Darren Jackson, a former Best Buy vice president …  “Brian is someone who can still command respect from the rank and file.”

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Full Article:
http://online.wsj.com/article/SB123715878814235117.html?mod=djemMM

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“Mark to market” … what ? so what?

March 24, 2009

I finally heard an understandable definition of “mark to market” accounting as it applies to the so-called toxic mortgage backed securities that banks are holding:

‘Mark to market’: setting a book value for an asset that you have no intention of selling based on the price that a third party — who doesn’t want to buy it — is willing to pay for it. (I think it was Harvey Pitt, former SEC commissioner who said it)

Since the asset is what it is, why is the accounting such a big deal? 

First, because of basic financial reporting  — on which people decide whether to invest in a company or not.  But, that can be handled by using another valuation scheme (say, net present value of expected cash flows) and footnoting the differences to mark to market

Second, because — by government regulation —  banks have to keep a specified ratio of capital to loans.  So, if some non-sellable assets are undervalued. a bank has to raise other capital or reduce the amount of loans it has on the books.  That causes a credit squeeze.

There seems to be some momentum to easing the strict mark to market accounting rules, allowing banks to loan more money while staying in regulatory compliance.

Makes sense to me … especially since it’s free.

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Starbucks New Mission? Shed image as "poster child for excess"

March 24, 2009

Excerpted from Ad Age, “Starbucks: Not as Expensive as You Think”, By Emily Bryson York, March 18, 2009

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Distressed that Starbucks has become the “poster child for excess,” CEO Howard Schultz said the coffee company plans to run an ad campaign proving its coffee isn’t expensive.

“There’s a myth out there that there’s this $4 cup of coffee at Starbucks,” Mr. Schultz told shareholders … “For whatever reason, Starbucks has become the poster child for excess, and if you want to be really smart, you should cut out that $4 cup of coffee.”

Mr. Schultz, noting that half of the chain’s beverages cost less than $3 and one-third are priced less than $2, admitted that Starbucks has been defined by its competitors … “We’ve been silent about these issues, but I can assure you we’re not going to be silent for too long.” Starbucks has also launched “value pairings,” such as a breakfast sandwich or muffin and a drink, for $3.95.

Forthcoming advertising will attempt to convince consumers that Starbucks products aren’t as expensive as they are perceived. Mr. Schultz said to expect social-media efforts, internet advertising, and more and sporadic TV ad buys he refers to as “brand sparks” …

Mr. Schultz also gave some insight into Via, the company’s foray in instant coffee … Via, he hopes, will lure some people to convert from brewed coffee. Of the 65 billion cups of coffee brewed in the U.S. every year, Starbucks has only about 4% of the market. The company will attempt to change consumer behaviors at home, where 25% to 30% of coffee is wasted, and at work, where many people don’t like the coffee that is sometimes offered free of charge in company kitchens.

Starbucks is testing Via in Seattle, without advertising, and in Chicago, with TV ads, in-store displays, and an outdoor push … Via will launch nationwide this fall and internationally next year.

Starbucks is, of course, attempting a complicated turnaround. In January, the company reported earnings were down 69% to $74 million, due largely to restructuring charges and same-store sales down 10% in the U.S. alone. At the time, Mr. Schultz said the company was beginning to see improvement in its business. Starbucks reports earnings again next month.

Edit by SAC

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Full Article:
http://adage.com/article?article_id=135361

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Starbucks New Mission? Shed image as “poster child for excess”

March 24, 2009

Excerpted from Ad Age, “Starbucks: Not as Expensive as You Think”, By Emily Bryson York, March 18, 2009

* * * * *

Distressed that Starbucks has become the “poster child for excess,” CEO Howard Schultz said the coffee company plans to run an ad campaign proving its coffee isn’t expensive.

“There’s a myth out there that there’s this $4 cup of coffee at Starbucks,” Mr. Schultz told shareholders … “For whatever reason, Starbucks has become the poster child for excess, and if you want to be really smart, you should cut out that $4 cup of coffee.”

Mr. Schultz, noting that half of the chain’s beverages cost less than $3 and one-third are priced less than $2, admitted that Starbucks has been defined by its competitors … “We’ve been silent about these issues, but I can assure you we’re not going to be silent for too long.” Starbucks has also launched “value pairings,” such as a breakfast sandwich or muffin and a drink, for $3.95.

Forthcoming advertising will attempt to convince consumers that Starbucks products aren’t as expensive as they are perceived. Mr. Schultz said to expect social-media efforts, internet advertising, and more and sporadic TV ad buys he refers to as “brand sparks” …

Mr. Schultz also gave some insight into Via, the company’s foray in instant coffee … Via, he hopes, will lure some people to convert from brewed coffee. Of the 65 billion cups of coffee brewed in the U.S. every year, Starbucks has only about 4% of the market. The company will attempt to change consumer behaviors at home, where 25% to 30% of coffee is wasted, and at work, where many people don’t like the coffee that is sometimes offered free of charge in company kitchens.

Starbucks is testing Via in Seattle, without advertising, and in Chicago, with TV ads, in-store displays, and an outdoor push … Via will launch nationwide this fall and internationally next year.

Starbucks is, of course, attempting a complicated turnaround. In January, the company reported earnings were down 69% to $74 million, due largely to restructuring charges and same-store sales down 10% in the U.S. alone. At the time, Mr. Schultz said the company was beginning to see improvement in its business. Starbucks reports earnings again next month.

Edit by SAC

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Full Article:
http://adage.com/article?article_id=135361

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Outliers’ KFS … find a satisfying job

March 24, 2009

This is one of several posts extracting some key points from the book Outliers: The Story of Success by Malcolm Gladwell, Little Brown, 2008

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Gladwell’s Observation

The ingredients to a satisfying job:

Autonomy … “a long leash”, “room to roam”

Complexity … varied experiences, sufficiently challenging

[Meritocracy] … strong connection between effort and reward

The more you like your job, the more likely you are to succeed at it. [No kidding, Malcolm]

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The American craving for small cars …

March 23, 2009

Ken’s Take: How often do you hear: “the Detroit 3 just make gas guzzlers … not the small, fuel efficient cars that Americans want.”  Maybe some day …

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Excerpted from WSJ, “Industry’s Big Hope for Small Cars Fades”, March 23, 2009

Last summer, when gas cost $4 a gallon, buyers snapped up small cars so fast that dealers couldn’t keep them in stock. Ford decided to convert some truck plants to make small cars. GM added an extra shift at its Lordstown, Ohio, plant that makes the Chevy Cobalt, a diminutive sedan. Import brands also pumped up their production of small models.

Now, with gas prices half that level, almost 500,000 fuel-thrifty models are piled up unsold around the country. Practically every small car in the market is stacked up at dealerships.

The turnabout comes at a bad time for the struggling U.S. car industry, which has revamped factories and shifted product plans to produce more small cars in coming years.

“I don’t think Americans really like small cars,” said Beau Boeckmann, whose family’s Galpin Ford in southern California is the country’s largest Ford dealer. “They drive them when they think they have to, when gas prices are high. But we’re big people and we like big cars.”

AutoWay Honda in Clearwater, Fla.,  has a whole row of Civic hybrids that draw little interest.

Over the five months ended in February, industrywide sales of small cars totaled 718,000. That was down 28% over the same period in 2008, but small cars grew to 18.4% of total market, up 2.1 points from the year-earlier period.

Full article:
http://online.wsj.com/article/SB123776430557508813.html#mod=testMod

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‘Oppressive, unjust and tyrannical’ … but retribution is so, so sweet

March 23, 2009

Ken’s Take: Over the weekend, engaged in a family debate.  Everybody agreed that the AIG FP hedgers were scum. Rest of family thought the bonuses should be reclaimed by whatever means it takes.  Period.  I argued that once contracts are broken to allow retroactive, punitive taxation is ok’d for one group of folks, there’s no room for complaint when the guns get pointed at you.  We’ll see …

* * * * * *

Excerpted from WSJ, “A Smoot-Hawley Moment?”, March 23, 2009

Bottom line: The Congressional action on AIG and banks is oppressive, unjust and tyrannical.

When does a single policy blunder herald much larger economic damage?

Sometimes it’s hard to know ahead of time. Few in Congress thought the Smoot-Hawley tariff was a disaster in 1930, but it led to retaliation and a collapse of world trade.

The question amid Washington’s AIG bonus panic is whether Congress’s war on private contracts and the financial system is a similarly destructive moment.

It is certainly one of the more amazing and senseless acts of political retribution in American history.With such a sweeping assault on contracts and punitive taxation,

Congress is introducing an element of political risk to economic decisions that is typical of Argentina or Russia. The sanctity of U.S. contracts has long been one of America’s competitive advantages in luring capital, a counterpoint to our lottery tort system and costly regulation.

Meanwhile, the 90% tax rate marks a return to the pre-Reagan era when Congress and the political class behaved as if taxes didn’t matter to growth or incentives. It is a revival of the philosophy of redistributionist “justice” in the 1930s, when capital went on strike for an entire decade.

Full editorial:
http://online.wsj.com/article/SB123776465612908965.html

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A new market force: Government induced ‘systemic risk’

March 23, 2009

Ken’s Take:

The Congressional act placing a retroactive confiscatory income tax on the understandably unpopular AIG FP bonuses is already beginning to have an impact — an impact that will certainly slow the untangling of the financial mess, and may even thwart it entirely.

All the Friday Wall Street chatter was about how the government can — on a whim — change the rules of the game in midstream, ditching contracts and agreements when it (the government) wakes up and realizes that its programs are ill-onceived and under-analyzed (i.e. unread) before enactment.

So, word has it that the government was soliciting 200 hedge funds to buy toxic securities as part of a public-private partnership.  Reportedly, only 3 have signed up — and it’s my bet that they did so before Thursday’s Congressional action and head for the exits.  (It’s ok for them to back out since deals aren’t deals any more).

Similarly, reasonably sound companies that took TARP funds because they were coaxed to do so by the government (think Northern Trust) are scrambling to find ways to pay back the money and walk away from TARP.  Reportedly, companies targeted with the TALC program (think student and consumer loans) are doubting whether government assistance is worth the pain.

Bottom line: in one svelte blame-dodging move Congress managed to put the recovery effort back to about square one. 

Way to go Nancy & Barney.

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Why does he always have to use that “trope” ?

March 23, 2009

“Trope”: a common or overused theme or device.

* * * * *
Excerpted from WSJ, “The unbearable lightness of Obama’s administration”, Peggy Noonan, March 20, 2009

There is something insubstantial and weightless in the administration’s economic pronouncements and policies.

The president seems everywhere and nowhere, not fully focused on the matters at hand. He’s trying to keep up with the news cycle with less and less to say.

The administration seems buffeted, ad hoc. Policy seems makeshift, provisional.  “The administration has an economic program. But there is, so far, no clear statement of the thinking behind the program.”

This in part is why the teleprompter trope is taking off.

Mr. Obama uses it more than previous presidents. No one would care about this or much notice it as long as he showed competence, and the promise of success. 

But the teleprompter trope has taken off: Why does he always have to depend on that thing?

The fact is that Mr. Obama only has two jobs, but they’re huge. The first is to pull us out of an economic death spiral—to save the banks, get them lending, fix the mortgage mess, address unemployment, forestall inflation. TARP, TALF, financial oversight and regulation of Wall Street—all of this is enormously complex, involving questions of scale, emphasis and direction. All else—windmills, green technology, remaking health care—is secondary. The economy is the domestic issue now, and for the next three years at least.

Mr. Obama’s second job is America’s safety at home and in the world.

These are the two great issues, the economic crisis and our safety. In the face of them, what strikes one is the weightlessness of the Obama administration, the jumping from issue to issue and venue to venue from day to day.

Isaiah Berlin famously suggested a leader is a fox or a hedgehog. The fox knows many things but the hedgehog knows one big thing. In political leadership the hedgehog has certain significant advantages, focus and clarity of vision among them. Most presidents are one or the other. So far Mr. Obama seems neither.

Leadership is needed here. Not talkership, leadership.  

Full commentary:
http://online.wsj.com/article/SB123750000839989123.html

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There is a new Web site where the President’s teleprompter shares its thoughts in a breathless White House diary. It’s bummed that it has to work a news conference next week instead of watching “American Idol,” it resents being dragged to L.A. in Air Force One’s cargo hold “with the more common electronic equipment.” It also Twitters: “We are in California! One of the interns gave my panels a quick scrub and I’m ready to prompt for the day.” And: “Waiting for my boss’s jokes to get loaded for Leno!”

Teleprompter blog:
http://baracksteleprompter.blogspot.com

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Banks Turning Away from TARP

March 23, 2009

 Ken’s Take: The retroactive conficatory tax on bonuses will insure a rush to TARP doors … shooting the program smack dab in the foot …

* * * * *

Excerpted from CNNMoney.com, “Banks: Take My TARP. Please!”, by David Ellis, March 12, 2009

Just weeks after Congress removed a key hurdle that prevented banks from paying back funds from the Troubled Asset Relief Program, or TARP, some banks are already queuing up with checks in hand.

So far, three banks have formally declared their intentions to pay back the government, and the list doesn’t include the dozens of institutions that were approved for government aid, but subsequently decided to turn down the money.

But even more banks are poised to return TARP money, including some of the nation’s largest.

PNC and US Bancorp, as well as JPMorgan Chase and Goldman Sachs, have been stating they hope to return the funds as quickly as possible. A repayment by those four alone would return an estimated $49.2 billion to government coffers.

* * * * *

Some institutions have argued that it is too costly to keep government capital on their books at a time when banks in general have been resistant to make new loans as the economy sours and more Americans lose their jobs.

Other banks have suggested that the recently passed stimulus package, which included a measure aimed at reining in bonuses for senior executives and top earners at banks that got TARP funds, would harm their firms even further.

Others worry that regulators or lawmakers could change the accompanying terms of the government’s capital purchase program as they see fit in the future.

For example, some fear that banks which have received TARP funds could be pushed to make certain types of loans or fulfill some sort of loan quota, following the ongoing public outcry that banks are not lending.

Edit by DAF

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Full article:
http://finance.yahoo.com/banking-budgeting/article/106724/Banks-Take-My-TARP-Please!

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Outliers’ KFS … Speak up if the plane is going to crash

March 23, 2009

This is one of several posts extracting some key points from the book Outliers: The Story of Success by Malcolm Gladwell, Little Brown, 2008

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Gladwell’s Observation

Historically (until recently), Korean airlines have had a disproportionate number of major commercial plane crashes.

Gladwell says that it’s because flight crew members are too deferential to the captains and downplay or sugar coat information that they give them.  It’s called “mitigated speech” — a result of a culturally high PDI (power distance index). 

When a culture’s PDI is high, deference to authority figures is high.  So, subordinates are reluctant to speak up — even in a crisis.

So, instead of yelling “pull up we’re too damn  low”, a co-pilot might ask “are we on the glideslope, sir?”.  So, critical information is either not conveyed, is conveyed casually, or requires an extra analytical step (or two) for its importance to be decoded.  Valuable time is lost in the process — sometimes fatally.

The countries with the highest PDI are: Brazil, Korea, Morocco, and Mexico.

* * * * *

Important Note: the air lines in high PDI countries are aware of this dynamic (now) and train their flight crews accordingly.  So, not to worry.

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Why did Nero fiddle when Rome was burning ?

March 20, 2009

Some questions to ponder over the weekend …

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Why did Nero fiddle when Rome was burning ?

Obvious answer: Because there was no TV in 64 A.D., so appearing on the Tonight Show wasn’t an option.

Call me ‘old school’, but I would have rather seen the President huddled all day with his economic advisers …

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Do people who don’t pay takes have a right to be outraged ?

I cringe when I hear “everybody has a right to be outraged … those are your tax dollars going to the AIG execs”.

Now (post-stimulus), less than half of voting age Americans pay income taxes.  In other words, less than half have any skin in the game.

I guess those folks (who don’t pay income taxes) are outraged because taxpayer money going to AIG bonuses potentially drains the pool of freebies that they’re lining up to get.

Geez

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Why doesn’t Ed Liddy resign ?

This guy was pulled from retirement by the Treasury Dept to step in to the AIG CEO slot.  His comp package: a whopping buck a year.  Then, he has moron Congressmen denigrate him in public.

If I were he, I’d tell them to stuff it … let Barney Frank run the place if he’s so smart

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What about Wells Fargo, Northern Trust, and JP Morgan Chase execs ?

Press reports say that those banks took TARP money only because the Treasury Dept pressured them to do so — so that badly run banks wouldn’t suffer the indignity of being so easy to pinpoint.

OK, so those execs are running good businesses and, in reasonable people’s opinions, deserve performance bonuses.  Now, they get the bonuses taxed at 90%

And, TARP says they can’t just repay the TARP funds out of earnings, they have to replace it with fresh capital.

Prediction: you’ll hear a lot about this over the weekend.

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Who’s next ?

As I pointed out yesterday, once a precedent is set to impose retroactive confiscatory taxes on people just because they are politically toxic … there’ll be no stopping the train. 

Imagine a $2 per gallon Federal tax on gasoline retroactive to January 1 … why not?

And, some folks got rattled by the Patriot Act.  This is one to worry about.

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Outliers’ KFS … Spend your time off wisely

March 20, 2009

This is one of several posts extracting some key points from the book Outliers: The Story of Success by Malcolm Gladwell, Little Brown, 2008

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Gladwell’s Observation

Generally, people conclude that U.S. schools fail miserably.  That’s probably true, but Gladwell found an interesting twist. 

Some Baltimore elementary schools gave students a battery of standardized tests in September to set a baseline and June — to measure accumulative school year achievement.

The general conclusion: roughly equal progression (from different baselines) for all students — regardless of their family’s income level.

The twist: researchers looked at changes from the June scores to the September scores — to measure retention or development during the summer vacation period.

What they found: at best, low income kids scored the same in Sept as they did in June — suggested limited development during the summer.  In general, higher income kids scored higher in September than they did in June — suggesting that their summer activities (reading, camps, classes, family trips, etc.) were constructively developmental.

Bottom line: students from lower income families would do better with a longer school year or more structured summer activities

Takeaway: Don’t waste your time off … think of it as valuable development time.

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We don't like you … so give us all of your money

March 19, 2009

Ken’s Take: Sure, the AIG FP execs are scum, but abrogation of contracts and retroactive confiscatory taxation can’t possibly be a good idea.  Once the precedent is set, there’s no way to stop them from doing it to me or you … just because they don’t like us. 

(OK, you run less risk because you’re probably more likeable than me.)

* * * **

Excerpted from Wsj,”Obama’s AIG Pani”, March 19, 2009 

Congress looking to string up AIG bonus recipients and, more generally, bankers in whatever bunker they can be found.

Senators Grassley and Baucus want to double the current income tax on bonuses, to 70% from 35% …Congresswoman Carolyn Maloney,  wants to tax it all — at 100%.

This is all too much even for Rep. Charlie Rangel, the House’s chief tax writer, who says the tax code shouldn’t be deployed as a “political weapon.”

He’s right. AIG’s managers may be this week’s political target of choice, but the message to every banker in America, indeed every business and individual  in America, is that you could be next.

At least we haven’t yet seen the resolution that was proposed in the English parliament, in 1720 in the aftermath of the South Sea bubble, that bankers be tied in sacks filled with snakes and tipped into the Thames.

But this fracas is still in its early days.

Full editorial:
http://online.wsj.com/article/SB123742023932678335.html

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We don’t like you … so give us all of your money

March 19, 2009

Ken’s Take: Sure, the AIG FP execs are scum, but abrogation of contracts and retroactive confiscatory taxation can’t possibly be a good idea.  Once the precedent is set, there’s no way to stop them from doing it to me or you … just because they don’t like us. 

(OK, you run less risk because you’re probably more likeable than me.)

* * * **

Excerpted from Wsj,”Obama’s AIG Pani”, March 19, 2009 

Congress looking to string up AIG bonus recipients and, more generally, bankers in whatever bunker they can be found.

Senators Grassley and Baucus want to double the current income tax on bonuses, to 70% from 35% …Congresswoman Carolyn Maloney,  wants to tax it all — at 100%.

This is all too much even for Rep. Charlie Rangel, the House’s chief tax writer, who says the tax code shouldn’t be deployed as a “political weapon.”

He’s right. AIG’s managers may be this week’s political target of choice, but the message to every banker in America, indeed every business and individual  in America, is that you could be next.

At least we haven’t yet seen the resolution that was proposed in the English parliament, in 1720 in the aftermath of the South Sea bubble, that bankers be tied in sacks filled with snakes and tipped into the Thames.

But this fracas is still in its early days.

Full editorial:
http://online.wsj.com/article/SB123742023932678335.html

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The “wealth effect” … err, make that the “drop in wealth effect”

March 19, 2009

Excerpted from IBD, ” Wealth Connection”, March 13, 2009

Economy: The Federal Reserve last week announced that Americans’ net worth took an $11.2 trillion hit in 2008 — the biggest on record.

Net worth — basically, the value of everything you own minus the debt you took on to buy it — plunged 9% from 2007’s $64.4 trillion to $51.5 trillion last year. In the fourth quarter alone, Americans lost $5.1 trillion in wealth. Both are records.

This is more than just a paper reduction in wealth. Such a big shift affects our behavior, making us less prone to take risks, less able to borrow, less able to spend and more anxious about the economy.

This is known as the “wealth effect.” When wealth rises, we spend more; when it falls, we spend less. For each $1 change in wealth, spending changes by 5 cents or so, economists say.

Across the economy, such impacts can be enormous. An $11.2 trillion drop in national wealth, for instance, translates into a $560 billion drop in spending — about $1,963 for every American.

This is why economists worry about net worth. If we don’t do something about stemming the decline in wealth and encouraging wealth accumulation, our economy will continue to struggle.

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image

 

Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=321837955855701

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What do field goals, 3-pointers, and hotels on Vermont have in common?

March 19, 2009

Answer: they’re all “advantaged assets” …

* * * * *

Field Goals
As professional kickers have specialized and improved their technique, field goals have become more common. National Football League teams last season made nearly 85% of field goals, compared with barely 60% in 1974, according to Brian Burke of Advanced NFL Stats. There were two successful field goals for every three touchdowns last season, compared with barely two for every five touchdowns in 1974.

3-Pointers
In college basketball, meanwhile, three-point shots are falling with about the same level of accuracy of closer jump shots, even though they’re worth 50% more. To address this, the three-point line has been moved away from the basket by a foot, as college-hoops fans may notice during March Madness. Yet shots from 21 feet and 22 feet, the shortest three-point distances, were accurate more than 37% of the time this season — easier than those from any distance between five feet and 19 feet from the basket, according to college-basketball analyst Ken Pomeroy.

Hotels on Vermont
in Monopoly, paying $50 for that hotel on Vermont Avenue pays itself off in fewer than 15 rolls of the dice by your opponent, compared with more than 40 rolls for other hotel-adorned squares, according to simulations of 32 billion rolls by Truman Collins.

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Excerpted from Wsj, “Price Drop: Stocks, Homes, Now Triple-Word Scores”, March 18, 2009
http://online.wsj.com/article/SB123731266862258869.html?mod=djemalert

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Outliers’ KFS … be smart, but not too smart

March 19, 2009

This is one of several posts extracting some key points from the book Outliers: The Story of Success by Malcolm Gladwell, Little Brown, 2008

* * * * *
Gladwell’s Observation

Success requires intelligence plus personality plus ambition.  But, intelligence and achievement are far from perfectly correlated.  That is, high intellect doesn’t always translate into a greater likelihood of success.

Why?

First, because “general intelligence” does not assure “practical intelligence” … think book smart versus street smart.

[Often, people with high intellects tend to become linear logic specialists … that is, they may have vision, but not peripheral vision … they can connect the dots (convergence) but not think out of the box (divergence).]

Below a certain level of intellect, success is very unlikely.  But, there’s a “threshold effect” … if a person is just smart enough or talented enough to pass the qualifying threshold, then success is more a function of personality and ambition, moreso than incremental intellect.

Example cited: affirmative action law schools … some students may not have as high an intellect as others do, but they do well because they are “smart enough” to succeed.

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Quick takes …

March 18, 2009

In 2008, 75% of AIG’s Congressional political contributions went to Dems …

image

… about half of that went to Dodd and Obama (and that doesn’t count  $$$ to the DNC)

image

The Stimulus Bill contained an amendment called the “Dodd Amendment”, which says:

“Bonuses can only be paid in the form of long-term restricted stock, equal to no greater than 1/3 of total annual compensation, and will vest only when taxpayer funds are repaid. There is an exception for contractually obligated bonuses agreed on before Feb. 11, 2009.”

Sen. Dodd says the exception to his amendment was slipped in without his knowledge.  Hmmm.

If an amendment had your name on it, wouldn’t you read it before signing it ?

http://www.foxbusiness.com/story/markets/industries/finance/dodd-cracks-aig—time/

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What ever happened to Roland Burris?

A couple of weeks ago, Obama, Reid, Durbin, the new governor of Illinois, and most pundits were calling on him to resign after acknowledging that he “forgot” that he raised money for ousted governor Blago. 

Seems that the old coot survived the firestorm …

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New bumper sticker popping up …

image
http://www.worldnetdaily.com/?pageId=89958

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One man’s foreclosure is another man’s affordable housing …

March 18, 2009

Ken’s Take: Yes, there is a silver lining in the decline in home prices.  For many responsible people, sky high home prices made ownership out of reach.  Now, maybe some of these folks will have a fair shot.

* * * * *

Excerpted from RealClearPolitics.com, “Subsidizing Bad Decisions”,  Sowell, March 10, 2009

The current political stampede to stop mortgage foreclosures proceeds…  

What if the foreclosures are not stopped?

Will millions of homes just sit empty? Or will new people move into those homes, now selling for lower prices– prices perhaps more within the means of the new occupants?

The same politicians who have been talking about a need for “affordable housing” for years are now suddenly alarmed that home prices are falling. How can housing become more affordable unless prices fall?

The political meaning of “affordable housing” is housing that is made more affordable by politicians intervening to create government subsidies, rent control or other gimmicks for which politicians can take credit.

Affordable housing produced by market forces provides no benefit to politicians and has no attraction for them.

Study after study, not only here but in other countries, show that the most affordable housing is where there has been the least government interference with the market– contrary to rhetoric.

When new occupants of foreclosed housing find it more affordable, will the previous occupants all become homeless? Or are they more likely to move into homes or apartments that they can afford? They will of course be sadder– but perhaps wiser as well.

The old and trite phrase “sadder but wiser” is old and trite for the same reason that “saving for a rainy day” is old and trite. It reflects an all too common human experience.

Full column:
http://www.realclearpolitics.com/articles/2009/03/subsidizing_bad_decisions.html

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Outliers’ KFS … the 10,000 hours rule

March 18, 2009

This is one of several posts extracting some key points from the book Outliers: The Story of Success by Malcolm Gladwell, Little Brown, 2008

* * * * *
Gladwell’s Observation

Mastery of a complex skill doesn’t come easy orfast.  Given an adequate amount of talent, the magic number is 10,000 hours.  That’s how long it takes the brain to assimilate the necessary knowledge and habitualize a complex set of relevant tasks.

Examples cited: Bill Gates and his mastery of PC software; elite classical musicians; the Beatles (before becoming overnight sensations).

Note: a typical work year is 2,000 hours (8 hours per day times 5 days times 50 weeks) … So, it takes 5 years of dedicated full-time effort to become success proficient.

* * * * *

Ken’s Question: Tell me again how much relevant experience Obama had before becoming President ?

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PAI … gap closes to 4 points … believe it ?

March 17, 2009

According to Rasmussen it’s true … Top box approvers are fairly constant … bottom box disapprovers appear to be growing  … hmmmm

image

Source article:
http://www.rasmussenreports.com/public_content/politics/obama_administration/daily_presidential_tracking_poll

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Some simple tax math …

March 17, 2009

Adopting a European welfare-based economic model requires taxing about 50% of labor costs.

Question:  if the bottom 50% pay no income taxes, then how much does the top 50% have to pay?

Do the math … you can take 50% from 100% of the citizens … or 100% from 50% of the citizens.

Technical note: the top 50% of the citizens is a broader group than the targeted top 2%

[Labor's European Model]

http://online.wsj.com/article/SB123716333620835923.html

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Satisfied customers reduce stock price risk … here’s proof

March 17, 2009

Excerpted from Knowledge @ Emory, “Positive Feedback: Why Customer Satisfaction Means More than Just Happy Customers,” February 12, 2009

* * * * *

Businesses are wielding a new weapon these days in the battle to survive economic uncertainty: the chopping block. No longer just a kitchen accessory, the chopping block has become a fixture in divisions and boardrooms across the country, claiming budgets, superfluous expenses and, yes, jobs.

Managers may want to hold off, however, on hauling that block into the marketing department. Market research firm Gartner recently reported that companies eager to cut their marketing budgets in a weakened economy risk damaging their ability to hold and add customers when conditions improve. Marketing, while possibly appearing to be the low-hanging fruit, is not necessarily ripe for chopping.

Sundar Bharadwaj … would welcome Gartner’s support of marketing budgets … “When most organizations are under spending pressure or they have to cut costs, marketing is one of the first things to go … If you can’t demonstrate its value to the bottom line or to metrics that matter to senior managers, then it becomes difficult to justify the existence of such spending. So, there’s a growing area of research in marketing that looks at marketing’s impact on the financial performance of a firm.”

Bharadwaj and colleague, Kapil R. Tuli, are the latest marketing mavens to contribute to this body of research. In their paper, “Customer Satisfaction and Stock Returns Risk,” they study the impact of customer satisfaction on stock returns risk—both systematic risk or beta … as well as idiosyncratic risk … The authors set out to develop, test, and find empirical support for the hypothesis that positive changes in customer satisfaction result in negative changes in overall and downside systematic and idiosyncratic risk. In doing so, they test the effect of changes in customer satisfaction on changes in risk …

* * * * *

The results of the analysis … indicate that customer satisfaction does indeed lower a firm’s overall and downside systematic and idiosyncratic risk. Ultimately, customer satisfaction has a vigorous impact on stock returns risk …  

“The argument of the paper is that if I’m satisfied with the firm as a customer, I tend to be loyal and I tend to buy more from the firm. The firm has a richer understanding of my needs so they can more efficiently sell to me, which lowers their costs … They can plan their internal operations given that they understand me very well. That could lower their costs. I’m less prone to switch to other companies even if other companies come up with better offers. So, I stay with this firm and work with them. The firm’s cash flow therefore is not volatile. This is important because the financial market stock price is actually the present value of future cash flows. That’s why you would expect that firms with greater satisfaction would have much lower idiosyncratic and systematic risk” …

The study also proves that customer satisfaction is a metric that offers valuable information to financial market … “Customer satisfaction is critical,” stresses Bharadwaj … The results also underscore the holistic value of overall marketing efforts on a firm’s strength.

This is not only important for company managers, but the investment community and regulators, as well … customer satisfaction is a vital component of a firm’s performance and possibly worthy of more widespread public distribution. “Companies need to start thinking about reporting customer satisfaction numbers,” in annual reports and other investor relations material, suggests Bharadwaj. “Given their implications for risk, it will help investors to be more informed about how the company is doing in the marketplace” … 

Edit by SAC

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Full Article:
http://knowledge.emory.edu/article.cfm?articleid=1216

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Who’ll pay the climate tax ? … Oops, I meant “Cap and Trade” ?

March 17, 2009

Hint: They were promised a tax cut during the Obama campaign.

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Excerpted from WSJ, “Who Pays for Cap and Trade?”, March 9,2009

Cap and trade is the tax that dare not speak its name, and Democrats are hoping in particular that no one notices who would pay for their climate ambitions.

Perhaps Americans would like to know the deeply unequal ways that climate costs would be distributed across regions and income groups.

Politicians love cap and trade because they can claim to be taxing “polluters,” not workers. Hardly.  the costs would inevitably be passed on to all consumers in the form of higher prices. Stating the obvious, Peter Orszag — now Mr. Obama’s budget director — told Congress last year that “Those price increases are essential to the success of a cap-and-trade program.”

The Congressional Budget Office — Mr. Orszag’s former roost — estimates that the price hikes from a 15% cut in emissions would cost the average household in the bottom-income quintile about 3.3% of its after-tax income every year. That’s about $680, not including the costs of reduced employment and output. The three middle quintiles would see their paychecks cut between $880 and $1,500, or 2.9% to 2.7% of income. The rich would pay 1.7%. Putting a price on carbon is regressive by definition because poor and middle-income households spend more of their paychecks on things like gas to drive to work, groceries or home heating.

Hit hardest would be the “95% of working families” Mr. Obama keeps mentioning, usually omitting that his no-new-taxes pledge comes with the caveat “unless you use energy.”

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But the greatest inequities are geographic and would be imposed on the parts of the U.S. that rely most on manufacturing or fossil fuels — particularly coal, which generates most power in the Midwest, Southern and Plains states. It’s no coincidence that the liberals most invested in cap and trade — Barbara Boxer, Henry Waxman, Ed Markey — come from California or the Northeast.

Coal provides more than half of U.S. electricity, and 25 states get more than 50% of their electricity from conventional coal-fired generation.

In Ohio, it totals 86%, according to the Energy Information Administration. Ratepayers in Indiana (94%), Missouri (85%), New Mexico (80%), Pennsylvania (56%), West Virginia (98%) and Wyoming (95%) are going to get soaked.

Cap and trade, in other words, is a scheme to redistribute income and wealth — but in a very curious way. It takes from the working class and gives to the affluent; takes from Miami, Ohio, and gives to Miami, Florida; and takes from an industrial America that is already struggling and gives to rich Silicon Valley and Wall Street “green tech” investors who know how to leverage the political class.

Full article:
http://online.wsj.com/article/SB123655590609066021.html

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Outliers’ KFS (Key Factors for Success) … Check your ‘born on’ date

March 17, 2009

This is the first of several posts extracting some key points from the book Outliers: The Story of Success by Malcolm Gladwell, Little Brown, 2008

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Gladwell’s Observation

When you’re born significantly impacts the likelihood that you’ll be successful.

On a macro level, outliers reach maturity in the early stages of a “transformational era”.  For example, Bill Gates was wildly successful, in part, because he caught the early wave of PCs.

On a more micro level, your specific birthdate matters because of “relative age”.  Many schools and sports have cut-off dates for admitting annual cohort groups.  For example, little league baseball leagues typically place kids in age brackets that run from Aug.1 to July 31.  Schools may require that a student turn 6 by a certain date (say, Sept.1)

Kids born right after a cut-off date have an advantage — they’re older.  At young ages, there’s a big  proportional maturity difference (physical & intellectual) between the oldest and youngest members of the cohort.  So, the oldest tend to outperform the youngest by a big margin.

And, the advantage tends to be an accumulative because early high achievers are often “steamed” or “tracked” — think fast reading groups and competitive travel teams — with their sub-cohorts getting more attention, more resources, and better teaching & coaching.

Generally speaking people born on the right date are beneficiaries of  more and more specialized opportunities to succeed.

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The case for focus … on the the financial crisis, that is.

March 17, 2009

Excerpted from IBD, ” Friendly Fire Shows Obama Losing Focus”, Barone, March 13, 2009

Driven by Rahm Emanuel’s advice to “never let a serious crisis go to waste”,  Pres. Obama continues to assert that we can solve our economic problems only by advancing national health insurance, a cap-and-trade system to reduce greenhouse gases, and the end of secret ballots in unionization elections.

But, none of the issues … was in any way a cause of the financial crisis.

We did not have a housing bubble collapse because we don’t have a national health insurance program.

We don’t have toxic waste clogging the balance sheets of the banks and other financial institutions because of carbon emissions.

The Bush tax cuts were not a proximate cause of the giant public debt being run up under the Toxic Assets Relief Program or the 2009 stimulus package.

Perhaps the President should heed Warren Buffett’s advice  to “pay attention to the first thing on your platter : the financial crisis”.

Full column: 
http://www.ibdeditorials.com/IBDArticles.aspx?id=321836253252674 

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Pity the baby boomers …

March 16, 2009

Excerpted from cnbc.com, “Market Meltdown Amplifies Baby Boomer Worries”, 03 Mar 2009

If losing one’s job weren’t enough to worry about in this recession, for many Americans there’s the added angst of being able to afford one’s retirement.

And that may help explain why the seemingly relentless declines in home and stock prices have ravaged consumer confidence.

The depth of that damage … household wealth in the fourth quarter, … was some 12 percent below what it was during its peak in the third quarter of 2007.  The decline in wealth is the greatest on record.

Thus far, the median price of a home is down more than 20 percent from $219,000 at the market peak in 2007 to $170,000 in January.

Stock prices, however, have fallen twice as much, some 50 percent, from their October 2007 peak.

And while a greater percentage of Americans are homeowners than investors and thus the average household’s wealth is more defined by real estate than investments, the investment outlook is still a major force.

In 2008, 47 percent of all households, or some 54.5 million, participated in the market through equity or bond ownership .., 65 million.people participate in defined contribution (DC) retirement savings plans, such as 401(k)s.

The value of those holdings has shrunk considerable. Americans held $15.9 trillion in retirement assets at the end of the third quarter of 2008, accounting for 35 percent of all household financial assets.

At the end of the second quarter of 2007, right before the credit crunch first bit, the value of those holdings was $17.4 trillion.

In the current environment, the huge losses in the stock market may actually have a larger psychological effect than those of the housing market because of the more frequent reminders; the declines are measured daily and weekly, not just monthly, like housing.

While major stock market indices are at 12-year lows; existing single family home prices are a mere six-year low.

“Economic advisors are worried about the stock market because it is part of the puzzle, and it’s almost as if the politicians don’t care what the stock market is doing,”

Some say the President’s stated desire to raise the tax on dividends and capital gains from 15 to 20 percent … sent a negative message to Wall Street, even if it was consistent with his campaign comments.

What’s more, a higher capital gains rate may not pay off if investors continue to lose money because stock prices head ever lower.

Economists don’t expect the President to identify with investors the way he does with homeowners …

Full article:
http://www.cnbc.com/id/29471950

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Electronic medical records: huge savings, huge benefits … well, not so fast.

March 16, 2009

Ken’s Take:

The evidence is equivocal, but on balance, I’m a fan of electronic med records.  As a patient, I get frustrated when I have to repeatedly document my medical history — sometimes to multiple people on the same doctor’s visit. But, I think Team Obama severely underestimates the time, effort and resources that will be required to upgrade and integrate the multitude of competing  legacy computer systems in place in hospitals, labs, and doctors’ offices.  It’ll make landing a man on the moon look like a walk in the park.

Also — while I have zero concerns re: the FBI or any other government agencies tapping my phone or rifling through my bank accounts — I do do have concerns about the lack of privacy re: medical records. 

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Excerpted from WSJ, “Obama’s $80 Billion Exaggeration”, March 11, 2009

The flagship of Pres. Obama’s healthcare proposal is the national adoption of electronic medical records — a computer-based system that would contain every patient’s clinical history, laboratory results, and treatments.

This, he said, would save some $80 billion a year, safeguard against medical errors, reduce malpractice lawsuits, and greatly facilitate both preventive care and ongoing therapy of the chronically ill.

Physicians at the Harvard teaching hospitals, where electronic medical records have been in use for years, are dumbfounded, wondering how such dramatic claims of cost-saving and quality improvement could be true. The real-world use of electronic medical records is quite different from such an idealized vision.

To be sure, there are real benefits from electronic medical records. Physicians and nurses can readily access all the information on their patients from a single site. Particularly helpful are alerts in the system that warn of potential dangers in the prescribing of a certain drug for a patient on other therapies that could result in toxicity. But do these benefits translate into $80 billion annually in cost-savings? The cost-savings from avoiding medication errors are relatively small, amounting at most to a few billion dollars yearly..

Other potential cost-savings are far from certain. The impact of medication errors on malpractice costs is likely to be minimal, since the vast majority of lawsuits arise not from technical mistakes like incorrect prescriptions but from diagnostic errors, where the physician makes a misdiagnosis and the correct therapy is delayed or never delivered. There is no evidence that electronic medical records lower the chances of diagnostic error.

In fact, once a misdiagnosis enters into the electronic record, it is rapidly and virally propagated. A study of orthopedic surgeons, comparing handheld PDA electronic records to paper records, showed an increase in wrong and redundant diagnoses using the computer — 48 compared to seven in the paper-based cohort.

But the propagation of mistakes is not restricted to misdiagnoses. Once data are keyed in, they are rarely rechecked with respect to accuracy. For example, entering a patient’s weight incorrectly will result in a drug dose that is too low or too high, and the computer has no way to respond to such human error.

What is clear is that electronic medical records facilitate documentation of services rendered by physicians and hospitals, which is used to justify billing. Doctors in particular are burdened with checking off scores of boxes on the computer screen to satisfy insurance requirements, so called “pay for performance.”

Some have speculated that the patient data collected in national electronic health records will be mined for research purposes to assess the cost effectiveness of different treatments. This analysis will then be used to dictate which drugs and devices doctors can provide to their patients in federally funded programs like Medicare. Americans should decide whether they want to participate in such a national experiment only after learning about the nature of the analysis of their records and who will apply the results to their health care.

All agree skyrocketing health-care costs are a dangerous weight on the economic welfare of the nation. Much of the growing expense is due to the proliferation of new technology and costly treatments. Significant monies are spent for administrative overhead related to insurance billing and payments. The burden of the uninsured who use emergency rooms as their primary care providers, and extensive utilization of intensive care units at the end of life, further escalate costs.

Full article:
http://online.wsj.com/article/SB123681586452302125.html

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Does $1.3 million per new job sound high to you? … Economists rip stimulus plan

March 16, 2009

Excerpted from WSJ, “Old Europe Is Right on Stimulus”, March 12, 2009

A recent study by a trans-Atlantic team of four economists subjected the Administration’s stimulus to the most recent Keynesian scholarship.

The White House estimates of 3.6 million new jobs is based on an “Old Keynesian” model on the impact of government spending, while the new models adjust for the rational behavioral response to the stimulus by businesses and consumers.

What the four economists found is that the Administration’s estimates for stimulus growth were six times as high as they could produce under a modern Keynesian simulation. By their estimates, the stimulus would produce, at most, 600,000 jobs and add perhaps 0.6% to GDP at its peak.

For those keeping score at home, that’s $1.3 million in spending per job … and pushes the US deficit over 60% of GDP

image

The Administration is already worried that its stimulus will come up short … and the outside intellectual godfathers of the Obama plan are denying paternity.

Full article:
http://online.wsj.com/article/SB123681403239101741.html

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Help Wanted: Apply US Treasury Dept … why Geithner can’t staff up

March 16, 2009

Noticed that Secretary Geithner hasn’t been able to fill many direct report slots in the Treasury Department.   Hmmm. Wonder why ?

There’s the obvious: some folks don’t want to sign up with a guy who got caught ducking  his income taxes, who has stumbled in his initial prime time showings, and who has, at best, a 50/50 shot of being at Team Obama’s Christmas party.

More subtle: A high ranking finance person from real world ops — say, Jamie Dimon from JP Morgan Chase — would bring with him a team of tested, trusted stars — a cadre of key people who already buy in to his philosophy and way of doing business.

Geithner doesn’t have that expedient luxury.  He can only bring some fellow geeks from the Fed, or start the drawn out process of recruitment, selection, indoctrination, etc.  Which gets back to the obvious point — who’d want the jobs ?

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Trading down … from Target to Walmart

March 16, 2009

Excerpted from WSJ, ” Wal-Mart’s Trickle-Down Economics”, March 5, 2009 

The economic crisis is compelling shoppers to dig ever deeper for bargains.

Wal-Mart Stores and Target both stand to benefit from trade-down purchases, but even price-matching can’t trump Wal-Mart’s reputation for value.

Target has been matching Wal-Mart’s prices on identical items in local markets for over 10 years. That’s 20,000 to 30,000 of the roughly 80,000 products in a store.

But Wal-Mart’s image as a bastion of value may be helping it steal traffic, causing customers to purchase items that they could otherwise buy at Target for the same cost.

Target also carries more expensive variations on items such as apparel that consumers are passing over. And more than half of Wal-Mart’s products are regular purchases such as food and personal-care products, while that is about a third of Target’s mix.

Full article:
http://online.wsj.com/article/SB123628850444943445.html

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Told you so … Charities revolt to O’s tax hikes

March 16, 2009

Ken’s Take: We were on this one early last week.  O’s strategy: nationalize funding of NFPs … let government, not individuals, decide which charities are worthy.

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Excerpted from WSJ, ” The Charity Revolt Liberals oppose a tax hike on rich donors”, March 10, 2009 
  
Among those shocked by President Obama’s 2010 budget, the most surprising are the true-blue liberals who run most of America’s nonprofits, universities and charities. How dare he limit tax deductions for charitable giving!

They’re afraid they’ll get fewer donations, but they should be more concerned that Mr. Obama’s policies will shove them aside in favor of the New Charity State.

His budget proposes to raise the top personal income tax rate to 39.6% in 2011 from 35%, and the 33% rate to 36% while reducing the tax benefit from itemized deductions for the top two brackets to 28% from 35% and 33%, respectively. The White House estimates the deduction reduction will yield $318 billion in revenue over 10 years.

Some worry that the tax change “could be a disincentive to some donors.”

In 2006, Americans gave $186.6 billion to charity, more than 40% from those in the highest tax bracket.

A back of the envelope calculation by the Tax Policy Center, a left-of-center think tank, estimates the Obama plan will reduce annual giving by 2%, or some $9 billion.

Americans of all income levels have long given generously, notably in the 1980s as income tax rates fell and the economy boomed. Over the last five decades, American giving overall has hardly deviated from 2% of personal income

The White House may have underestimated the power of the liberal nonprofit lobby. The charity deduction cut is the only one of the President’s many tax increases that Democrats on Capitol Hill have publicly criticized. Politics hath no fury like a rich liberal scorned.

Full editorial:
http://online.wsj.com/article/SB123664427493678121.html

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Soften your hard edges … with an empathic logo

March 16, 2009

Excerpted from Brandweek, “Grim Times Prompt More Upbeat Logos” By Todd Wasserman, Feb 21, 2009

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As the economy gets uglier, logos are getting prettier. The stolid, angular look of visual trademarks like IBM’s and Bank of America are being supplanted by ones that sport softer, more approachable fonts; multiple colors and natural, child-like symbols.

The latest example of the trend is Kraft. While the food giant’s previous visual treatment was a red, white and blue hexagon, the new one, which the company introduced with great fanfare last week, is in lower-case and sports yellow, green, purple, blue and orange as well …

Designers have a name for the trend: The Google Effect. Many say that Google’s multicolor design and the company’s willingness to tweak its logo for holidays and such have been widely influential.

Ruth Kedar, the woman who designed Google’s logo, agrees … While acknowledging that Google wasn’t the first to tweak its logo … she said the notion was still an anathema to most companies until recently. “The idea that you could modify a brand and play with it was kind of a radical change in branding, going way out of the corporate ID manual” …

Indeed, the Google Effect in this case may have a triple meaning—Google’s introduction of an era of more transparent corporate images and the advancement of the Internet as a medium to showcase logos are also influences. Years ago, logos were designed to be seen on buildings and trucks, but now the primary forum is the Internet where “color restrictions aren’t as much of an issue” …

In regard to transparency, Mike Mitchell, a Kraft rep, said that the company’s new logo is a manifestation of a bottom-up change at the company. The visual treatment, he said, is designed to convey Kraft’s new mantra: “Make today delicious.” It symbolically represents various Kraft products. The triangle shape “is invocative of pizza,” he said.

Most consumers won’t catch those references but instead will walk away with a more positive feeling about the company, said Mitchell.

Cal McAllister, co-founder of Wexly School for Girls, a design firm … said the new logos are a reflection of a desire to at least appear more approachable and transparent. “Everyone is working off the same brief,” he said. “They say, ‘Give me something natural, like a sun or a flower,’ or ‘Make it soft and make it seem friendly …”

Since such sentiment is based on consumer research, McAllister speculated that the gloomy times may be prompting consumers to gravitate to such imagery.

“Because we’re in a tough time and people are getting laid off, I think there’s a subconscious desire to take you back to when you weren’t worried about things like that, which is why we’re seeing these almost hand-drawn logos … And when you see a logo that’s boxy and the edges are hard and sharp, and the company just laid off 10,000 people, you get mad at them. But if it’s a watercolory rounded logo, you feel kind of sorry for them” …

Edit by SAC

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Full Article:
http://www.brandweek.com/bw/content_display/news-and-features/direct/e3i6c21c5456af55219d01b2ee3650498cf

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Tough week for Warren Buffett …

March 13, 2009

Citing concerns about Berkshire’s  equity and derivatives investments, Fitch stripped Warren Buffett’s Berkshire Hathaway of its ‘AAA’ credit rating …  cutting the insurance and investment company’s issuer default rating by one notch to ‘AA+’.

The downgrade is another setback to Buffett, coming a day after the billionaire lost his position as the world’s richest man to Bill Gates. 

According to Forbes’ annual list. Buffett’s net worth plunged to $37 billion from $62 billion last year, as shares of Berkshire Hathaway fell nearly 50% in 12 months.

http://www.cnbc.com/id/29666975
http://www.forbes.com/2009/03/11/worlds-richest-people-billionaires-2009-billionaires_land.html

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FLASH ! … The HomaFiles scoops WSJ … by almost one month !

March 13, 2009

Today’s WSJ contains an editorial titled “Obama’s Poll Numbers Are Falling to Earth” by GOP pollster Scott Rasmussen and Dem pollster Doug Schoen.

In summary, they report: “It is simply wrong for commentators to continue to focus on President Barack Obama’s high levels of popularity …  a detailed look at recent survey data shows that … Mr. Obama’s approval rating is dropping and is below where George W. Bush was in an analogous period in 2001 and that . his net presidential approval rating — which is calculated by subtracting the number who strongly disapprove from the number who strongly approve — is just six, his lowest rating to date.”

For the full article, click to:
http://online.wsj.com/article/SB123690358175013837.html

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Ken’s Take:

It will be interesting to see how the press covers this column. My bets:

(1) Fox will loop it; CNN will have commentators debunk it; MSM will ignore it completely

(2) No media will push Rasmussen for the more controversial data nuggets: Obama’s PAI (presedential approval index) is near 100% among blacks, around 70% for Hispanics, and negative for whites; Obama’s PAI is negative among investors and taxpayers; and according to FD/Diageo, support for Obama’s programs is only strong among groups who “know little about them”

(3) Robert Gibbs — fronting for Team Obama — will say that the administration doesn’t pay attention to polls … ducking questions regarding Karl Rove’s revelation that “senior White House staff meet for two hours each Wednesday evening to digest their latest polling and focus-group research.”
http://online.wsj.com/article/SB123682426946303905.html

Also, with two consecutive days of bad polls (yesterday, economists gave Obama and Geithner failing grades for their handling of the economy ), it will be interesting to see how Team Obama — known for its rhetorical offense — plays defense.

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Loyal readers of the HomaFiles got a heads-up on this trend almost a month ago. 

On Feb. 17, 2009 — using Rasmussen’s data — we posted  “Uh-oh … is Obama’s star starting to fade ? ”
https://kenhoma.wordpress.com/2009/02/17/uh-oh-is-obamas-star-starting-to-fade/

On March 2, 2009, we posted a follow-up “Uh-oh … Barack-O’s presidential approval index drops to single digit”
https://kenhoma.wordpress.com/2009/03/02/uh-oh-barack-os-presidential-approval-index-drops-to-single-digits/

This Monday — March 9, 2009 — we posted “So really, how strong is Obama’s approval rating ?”
https://kenhoma.wordpress.com/2009/03/09/so-how-strong-is-obamas-approval-rating/

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81% say Madoff should not keep any of the money ….

March 13, 2009

As part of the plea bargain being worked out, Bernard Madoff  is expected to plead guilty to 11 criminal counts, but he’s angling for his wife Ruth to keep at least $70 million to live on while he’s in jail.

In a Rasmussen survey, 81% of the respondents said that neither of the Madoffs should be permitted to keep any of the ill-gotten money.

Amazingly (to me at least) 5% of the respondents thought Madoff or his wife should be allowed to keep at least some of the money

14% were not sure … or hadn’t heard of Madoff

Ken’s Take:

(1) Man, that guy has got some stones.

(2) Think: those 19% get to vote in Presidential elections …

Full article:
http://www.rasmussenreports.com/public_content/business/general_business/81_say_neither_madoff_nor_his_wife_should_keep_any_money

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Even credit card companies are tightening up …

March 13, 2009

Excerpted from WSJ, “Credit Cards Are the Next Credit Crunch”, Whitney, March 10, 2009

Currently, there is roughly $5 trillion in credit-card lines outstanding in the U.S., and a little more than $800 billion is currently drawn upon.

(That compares to total mortgage debt of over $10.5 trillion)

I believe that there will be at least a 57% contraction in credit-card lines. Of the $5 trillion, over $2 trillion of credit-card lines is likely to be cut in 2009, and $2.7 trillion by the end of 2010.

As we return to more realistic underwriting standards, certain borrowers will no longer appear worth the risk, and therefore lines will continue to be pulled from those borrowers.

Lenders have reduced credit lines based upon “zip codes,” or where home price depreciation has been most acute. Such a strategy carries the obvious hazard of putting good customers in more vulnerable liquidity positions simply because they live in a higher risk zip code.

Currently five lenders dominate two thirds of the market. Credit-card lenders are currently playing a game of “hot potato,” in which no one wants to be the last one holding an open credit-card line to an individual or business. While a mortgage loan is largely a “monogamous” relationship between borrower and lender, an individual has multiple relationships with credit-card providers. Thus, as lines are cut, risk exposure increases to the remaining lender with the biggest line outstanding.

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Over the past 20 years, Americans have also grown to use their credit card as a cash-flow management tool.

For example, 90% of credit-card users revolve a balance (i.e., don’t pay it off in full) at least once a year, and over 45% of credit-card users revolve every month.

A relatively small portion of U.S. consumers have actually maxed out their credit cards, and most currently have ample room to spare on their unused credit lines. For example, the industry credit line utilization rate (or percentage of total credit lines outstanding drawn upon) was just 17% at the end of 2008.

Full article:
http://online.wsj.com/article/SB123664459331878113.html

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Remember when getting upgraded to a bigger rental car was, well, an upgrade?

March 13, 2009

Excerpted from Direct, “Thrifty Marketing for Thrifty Times: A Car rental case history” By Ken Magill, Dec 1, 2008

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When gas prices skyrocketed this summer, Dollar Thrifty Automotive Group — along with the rest of the car-rental industry — faced a tough marketing challenge: What to do when customers’ demand for economy cars soars and the fleet simply isn’t built to meet that demand.

“Consumer behavior has really changed a lot for us with high gas prices,” says Chris Payne of Dollar Thrifty … “There are road warriors who like to get the best deal they can. [Before gas prices went up] they would reserve a smaller car than they really needed knowing we’d probably sell out and they’d get a bigger car at no extra cost. Now people are saying, ‘Wait a minute — I reserved a smaller car and you want to give me that gas guzzler? Forget it, I don’t want it.’ Four-dollar gas definitely was a tipping point.”

As a result, the company found itself in a rough spot. “You just can’t change your fleet overnight … It’s the same issue the manufacturers have had, where for a while Detroit was pumping out all these SUVs and minivans and everybody thought bigger was better.” Moreover, he says, the cost of cars to rental companies has gone way up, so these firms have been forced to keep their vehicles longer, making fleet changes even more difficult.

“Think about running a business where the cost of your commodity has gone up by 50% twice in the last two years … All the companies have been holding on to cars for from 12 to 14 months. It used to be we’d hold on to them for about nine …”

To overcome the challenge, Dollar Thrifty began running regular e-mail promotions on larger and luxury vehicles … the company’s two brands — Thrifty Car Rental and Dollar Rent a Car — have 1.8 million and 1.3 million opted-in e-mail subscribers, respectively … The average opt-out rate for a Dollar Thrifty mailing is .12% — “which is amazingly low … we’re reaching a very targeted audience … ” Also, he says, the average mailing generates most of its activity within 72 hours and brings in over $1 million in revenue.

“Dollar Thrifty is a perfect example of a company that’s built a successful permission-based marketing program … By providing subscribers with content that’s directly relevant and valuable to them, Dollar Thrifty is able to increase revenue while keeping opt-outs incredibly low” … 

Dollar Thrifty also created a chart to be given to customers at rental counters. With it, customers can cross-reference the gas consumption of smaller vehicles against larger ones and figure out how much more they’d end up spending on an upgrade.

“What we’ve found is that consumers’ perceptions are way out of whack on the gas thing … families of five are showing up having rented an economy car because it was the best price they could find online … They’re forgoing comfort to save a few bucks, but they’re not saving as much as they think. In some cases, they’re literally spending a dollar or two more for the entire rental.”

Anecdotally at least, Payne says the program is working … As of this writing in October when gas prices had dropped, Dollar Thrifty customers remained cost conscious and the chart was still being used.

“It’s still helpful,” Payne says. “People are getting hit in a lot of areas and anything they can do to cut costs, they’ll do …”

Edit by SAC

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Full Article:
http://directmag.com/email/1201-thrifty-email-promotions/

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Posted in Mktg - Pricing, Mktg - Revenue Mgnt | 1 Comment »

Avoiding the Chardonnay tax & other restaurant price gotchas …

March 13, 2009

Excerpted from WSJ, “10 Ways to Save Money Ordering Wine”, March 7, 2009

Here are 10 insider tactics for not overpaying for wine at restaurants:

1. Skip wine by the glass. Restaurateurs like to make enough on a single glass to pay for a whole bottle … many wines by the glass are poured from bottles that have been open for too long and mistreated after opening … wine bars that specialize in wines by the glass, and keep them well, are a major exception.)

2.  Make sure the wine is from a very recent vintage. Most wines are meant to drink young and fresh and many restaurants, especially informal restaurants, don’t keep their wines in perfect conditions. .

3. Bypass the second-cheapest wine on the list. Restaurateurs know that diners don’t want to appear cheap by ordering the least expensive wine on the list, so they’ll hose you for ordering the second-cheapest. The least expensive is actually a pretty good deal at many places.

4. Scope out the owner’s passion for value. If there are, say, a dozen wines from South Africa on the list and no more than a handful from anywhere else, chances are the owner knows and cares about South African wine — and therefore is more likely to know good values from there.

5. Avoid the Chardonnay tax. Chardonnay is America’s favorite wine. Just about everybody loves it and feels comfortable with it, which is why the Chardonnays on so many lists are grossly overpriced compared to other wines.

6. Never order Santa Margherita Pinot Grigio.  Because so many people like it, it is routinely one of the most outrageously priced wines on the list.  If you stay within your comfort zone, ordering only wines you already know, you will be punished for it, price-wise.  There is value in tasting something new.

7. Don’t ignore house wines, by the bottle or in carafes … more often than not, we have found these lusty and fun.

8. Look for half-price deals.  This trend is sweeping the nation. Look around and you are likely to find a deal like that in your neighborhood.

9. BYOB. Check around for restaurants that allow you to bring your own wine.   More restaurants than ever, eager for business, are relaxing their rules on BYOB and lowering corkage fees. Even some fancy places now are offering special BYOB nights.

10. Check online before you dine to see a  restaurant’s wine list . This will give you more time to study the list to find good values.

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No wine is going to seem like a good value to you when you know you could buy it at a local store for half the price or less.

And while personally we wouldn’t do it, we know there are people out there who enjoy bargaining and we’d guess that at least some restaurants would be willing to dicker on the price of more-expensive wines these days.

Full column:
http://online.wsj.com/article/SB123638925101858707.html?mod=djemtastings 

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Uh-oh … Obama & Geithner get failing grades from economists

March 12, 2009

Ken’s Take: Pres. Obama frequently cites broadscale support from economists.  Let’s see if that line keeps rolling off the teleprompter.

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Excerpted from WSJ, ” Obama & Geithner Get Low Grades From Economists”, March 12, 2009

In stark contrast with Pres. Obama’s popularity with the public, he and Treasury Secretary Geithner received failing grades for their efforts to revive the economy from participants in the latest WSJ survey.

A majority of the economists polled said they were dissatisfied with the administration’s economic policies.

On average, they gave the president a grade of 59 out of 100, and  42% of respondents rated Mr. Obama below 60.

Mr. Geithner received an average grade of 51. Federal Reserve Chairman Ben Bernanke scored better, with an average 71.

image

Economists’ main criticism of the Obama team centered on delays in enacting key parts of plans to rescue banks. “They overpromised and underdelivered … The uncertainty is hanging over everyone’s head.”

The economists’ negative ratings mark a turnaround in opinion. In December, before Mr. Obama took office, three-quarters of respondents said the incoming administration’s economic team was better than the departing Bush team. However, Mr. Geithner’s latest marks are lower than the average grade of 57 that former Treasury Secretary Henry Paulson received in January.

Despite the growing criticism elsewhere, the respondents were broadly supportive of the Fed. More than 85% of the economists agreed that the central bank’s proliferating lending programs are well-designed, well-executed and helping the economy. And while grades for Mr. Bernanke remain off of their 2007 highs, the average has stabilized after falling as low as 69 in the November survey.

Amid all the gloom, there is a bright spot: Four-fifths of the economists said now is a good time to buy equities, especially if the investor has a long-term view.

Full article and source data:
http://online.wsj.com/article/SB123671107124286261.html#mod=testMod

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It’s payday … and I’ve got a deal for you.

March 12, 2009

Ken’s Take:

(1) Surprised this is new news to consumer goods companies. 

(2) Wouldn’t want to be around a cash strapped senior at the end of the month.  Keep reading to find out why 

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Excerpted from WSJ, “Consumer-Goods Makers Heed ‘Paycheck Cycle'” By Anjali Cordeiro, Feb 23, 2009

Makers of household goods and food are paying more attention to the “paycheck cycle” as cash-strapped consumers are showing a tendency to make their largest purchases when their salaries first come in and to cut back as that money runs out.

With more consumers living from paycheck to paycheck, some companies have looked at ways to time their promotions around periods when consumers’ wallets are likely to be well cushioned.

PepsiCo Inc.’s Frito-Lay … has tried “promotions that are different at the beginning of the month than at the end of the month,” CFO Richard Goodman said in a recent interview. “People have more money to spend at the beginning [of the month] and a little less at the end,” he said.

The insight to promote around paychecks came from one of the company’s retailers … That retailer noticed “the strength of the first of the month compared to weakness at the end of the month as people were simply running out of cash” … Early in the month the food and beverage maker started promoting large “multipacks” of snacks sold in the range of $5.98 to $6.98, while near the end of the month it pushed smaller packs that sold for less than $2 … The company’s direct store delivery system, which delivers products directly to retail store shelves, gives it more flexibility on merchandising and promotions.

Consumer purchases can be driven by a paycheck cycle in good times and bad. But the cycle has been heightened in the midst of the U.S. recession and global slowdown. Reaching consumers at the right time and stocking store shelves with the right package size can be key for makers of branded consumer goods …

Kimberly-Clark has watched the paycheck cycle “to make sure we understand it so we have the right things in stock” … The company has seen volume spikes in the first week of the month in its Depend incontinence products business, which is used a lot by senior citizens, who get Social Security checks around that time.

“We want to make sure we’ve got extra inventory, displays set up so we don’t run out of stock at retail … It’s just an understanding of how the consumer wants to buy, so they’ve got the right mix of goods at retail so they are not disappointed.” Consumers have been picking smaller pack sizes rather than the big bundle packs later in the month …

As consumer companies gathered last week at one of the industry’s largest annual conferences, the theme of offering consumers better “value” took center stage. Most consumer makers aren’t cutting list prices for their brands, so finding ways to help consumers stretch paychecks is key. Some companies are rejiggering products to keep prices down and push the value concept …

Heinz is offering consumers larger ketchup bottles that sell at smaller price gaps to private label in the U.S. Meanwhile, Frito-Lay in North America will begin adding 20% more product to take-home bags of its corn-based Tostitos, Fritos, Cheetos and Doritos without increasing the price.

Edit By SAC

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Full Article:
http://online.wsj.com/article/SB123535246479645145.html

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