Uh-oh: Girl Scouts cut number of cookies in the box …

February 12, 2009

Excerpted from The Dallas Morning News, “Rising costs bite into Girl Scout Cookie portions” , Dan X. McGraw, January 22, 2009

* * * * *

If you seem to be tearing through those Girl Scout Thin Mints a little faster this year, you aren’t imagining things.

Fewer cookies were packaged into Thin Mints, Do-si-dos and Tagalongs boxes this year, and the Lemon Chalet Crème cookies were resized to compensate for the rising cost of baking staples. No changes were made to other cookies, according to the Girl Scouts of the USA.

Alternatives to the changes were to raise cookie prices or use cheaper ingredients – two options that were rejected, said Natalie Martin, marketing director for the Girl Scouts of Northeast Texas.

A box of cookies costs $3.50.

“We aren’t talking about a drastic change. We are just talking about a couple cookies,” Martin said, adding that the boxes shrunk by only a centimeter. “People understand that we are all taking hits.”

The Girls Scouts certainly aren’t the first organization to alter product size and portions because of higher food costs.

Products on grocery-store shelves throughout the nation have been reshaped, resized and repackaged in response to new marketing ideas, jumps in food and gas prices and the economic downturn,

“It is a reflection of them needing to keep the price in line with other products, but they also need to keep in mind the rising baking cost. You’ve got to balance it the best way you can.”

The Girl Scouts faced spikes in ingredient costs from 2007. Flour rose in cost by more than 30 percent, various cooking oils by 40 percent to 187 percent, and cocoa by at least 20 percent.

A Girl Scout mom, says the changes haven’t stopped people from ordering.

Edit by NRV

Full article:
http://www.dallasnews.com/sharedcontent/dws/fea/taste/stories/012309dnmetgirlscoutcookies.1c01e735.html

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Feeling special is one thing … really special is another

February 12, 2009

Excerpted from the Journal of Consumer Research, “Feeling Superior: The Impact of Loyalty Program Structure on Consumers’ Perceptions of Status.” by Xavier Drèze and Joseph C. Nunes, April 2009.

* * * * * 

How special does that gold card offered by a hotel or airline make you feel? A new study explores the connection between status and loyalty. Many businesses create loyalty programs to confer a sense of status to their customers. Examples are platinum, gold, and silver charge cards, or red and blue membership levels. The study provides insight for planning programs that enhance consumers’ perception of status.

The authors studied the limits of customer loyalty, testing how far an organization can go in adding status levels to a loyalty program before customers feel they are not so special anymore.The authors tested a variety of options for expanding loyalty programs. They added tiers and people to customer loyalty programs in varying combinations to determine how people would feel if an organization added people to a top-tier program. They asked respondents how they felt when they added more tiers on top of them (platinum on top of gold), or added more tiers below them.

“We find that increasing the number of elites in the top tier dilutes their perception of status, but adding a subordinate elite tier enhances their perceptions of status.”

“Thus, if the firm creates a larger top tier while adding a second status tier rather than persisting with a single small top tier, it can recognize more customers without decreasing the perceptions of status among its most elite.”

In other words, being in the gold level is more special if there is a silver level below.

“A possible drawback a firm always confronts when providing preferential treatment to an elite few is whether it might disenfranchise the masses. Our study shows this concern to be unfounded. We find that given the choice between alternative firms, respondents favor companies that offer elite programs even when it is clear they would not qualify for the lowest elite tiers.”

“In other words, those at the bottom of the pyramid do not begrudge the success of those at the top.”

Edit by NRV

Full article:
http://www.xdreze.org/Publications/superior.html 

 

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Stimulus tax breaks: going for the capillaries instead of the jugular

February 11, 2009

The tax cuts included in the current version of the stimulus bill deserve the resounding “thud” that they’ve been getting.

Setting ideology aside and just resorting to basic arithmetic reveals the plan’s glowing deficiency: it is so “in the box” and marginal that it is unlikely to have any measurable effect on the economy.  Rather than slashing at the economy’s jugular, the tax cuts barely scratch the capillaries.

For example, take President Obama’s pride and joy, the $500 refundable tax credit.  Does anybody really believe that $1.37 per taxpayer per day is going to jump start the economy?    Or, will an extra $40 per month save many struggling mortgage holders from foreclosure? 

Similarly, take the GOP’s idea of a $15,000 tax credit on the purchase of a new home.  Somebody buying a $150,000 home with a 5%, 30 year mortgage would save about $80 on their monthly mortgage payment (getting it down to about $750) and provide a $15,000 equity cushion, just in case home values fall further.  Is that really enough incentive to pull job-threatened folks off the sidelines? 

The annual AMT adjustment would have happened later in the year anyway, especially since its greatest impact is in Democratic strongholds with high state income taxes (think NY, CA. NJ, and CT). That said, its average impact is about $2,400 for affected taxpayers.  These folks earn enough to have an AMT problem, so an extra $200 per month isn’t likely to change their shopping behavior, let alone their life style.

The biggest business tax break is the tax loss carry backward which allows retroactive tax credits (refundable I assume) for companies that made money during the boom but are tanking during the bust.  Again, the extra money may keep some marginal companies on life support for awhile, but isn’t likely to turn a struggling company into a jobs creator.

Congressional thinking has been trapped in partisan boxes.  Many ideas have been death-branded as either old and tired, or as favoring the rich.  No big ideas have been proposed that could realistically get the economy moving again.

There are big ideas for the politicos to consider if they are really serious about moving the economy forward.

First, there is the tried and true investment tax credit.  Give companies a 15% ITC for investment spending in 2009, and a 10% ITC for investment spending in 2010.  If necessary, sweeten the pot by allowing 2009-2010 investments to be written off on a very accelerated basis (say, over 3 or 5 years).

Second, give multi-nationals a tax holiday on repatriated earnings.  Cut the 2009 rate from 35% to 5% or 10%.  Such a move could bring over $500 billion back into the U.S. from foreign stashes, and generate $25 to $50 billion incremental tax revenue.  Otherwise, companies will use the money in their foreign operations and the U.S. tax take will be zero.

Third, give companies that maintain or grow their workforce a payroll tax rebate.  For example, a company that contributes the same amount of payroll taxes in 2009 as it did in 2008 might get 25% of its aggregate contributions rebated; a company that pays in10% more payroll taxes year-to-year might get a 50% rebate. A company that shrinks its workforce gets no rebate.

Fourth, since a depressed housing market is the root cause of the economic turmoil, adjust the standard income tax deduction a bit and allow the two-thirds of all taxpayers who use it to deduct their home mortgage interest payments.  This move alone would put money into more than 35 million pockets, might save a few people from foreclosure, and could coax some new buyers into the market.

Fifth, eliminate capital gains taxes on all residential real estate purchased in 2009 that is held at least 18 months. This initiative would certainly get investor-landlords back into the market.  They could buy some of the existing excess homes’ inventory, and deploy it as affordable rental housing.

Sixth, eliminate capital gains on all stocks bought in 2009 and held for at least 18 months.  Doing so would jolt the stock market upwards.  Would it favor the rich? Sure.  But it would also help restore the value of soon-to-retire baby boomer’s IRAs.

These ideas are representative of the pool of big ideas that have been overlooked in the stimulus package. It is time for Congress and the President stop playing small ball and go for the fences.  Give us something that we can believe will work.

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Stemming foreclosures is tricky … no kidding

February 11, 2009

Excerpted from WSJ, “Finding a Way to Stem Foreclosures Proves Tricky”, Feb 11, 2009

The Obama administration provided few details about its plans to address the foreclosure crisis when laying out its economic-recovery program Tuesday, highlighting the challenges of creating a program that is fair and effective.

Nearly five million families could lose their homes between 2009 and 2011.One question facing the administration is how to win investor support for modification efforts while providing meaningful relief to borrowers.

President Barack Obama suggested that he would propose legislation to make it easier for loan-servicing companies to ease up on troubled borrowers while taking steps that might win investors’ support. Right now, he said, servicers are limited in their ability to modify mortgages that have been packaged into securities and sold to multiple investors. In addition, “the borrower is going to have to probably — if they get some assistance — agree to give up some equity once housing prices recover”.

Another challenge is determining who should get help. Those facing foreclosure aren’t just local residents hurt by job losses, but also real-estate speculators.

Another worry is moral hazard, or how to help those truly in need without encouraging others to fall behind on their payments.

Government officials are expected to create national standards for loan modifications that would be adopted by Fannie Mae and Freddie Mac. But there is little data on what types of workouts are most cost-effective. Data released in December by federal banking regulators show that more than 40% of borrowers were at least 60 days past due eight months after their loan was modified.

Forty-seven percent of loan modifications completed in November resulted in higher payments for borrowers, typically because unpaid interest and fees were added to the loan balance.

Coming up with an effective modification is complicated by the fact that many troubled borrowers also have home-equity loans or credit-card debt, auto loans or other obligations that can make it difficult to afford even a lower mortgage payment.

“You don’t want to modify a loan that you think will eventually redefault …. All that will do is delay the process and increase the cost.”

A focus for the government has been on how to determine the “net present value” of homes. Government officials think that if they can agree on a common metric for determining a home’s value, they can expedite how the loan is modified.

Full article:
http://online.wsj.com/article/SB123431365164570827.html 

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“Paying taxes is strictly voluntary” … so says Harry Reid

February 11, 2009

It makes me shiver to think that this guy is the second most powerful person in the country (after Nancy Pelosi)

Trust me, this is worth watching.
http://www.youtube.com/watch?v=R7mRSI8yWwg

click link to view … picture is just for effect
       image

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Quiznos gets sandwiched … in a price war

February 11, 2009

Excerpted from Marketing Daily, “Quiznos Launches Lower-Priced Menu,” By Karlene Lukovitz, Jan 14, 2009

* * * * *

First there were the burger wars. Now, we have the sub wars. Quiznos has unveiled a new, lower-priced menu, including 20 subs priced under $5, backed by a national TV ad campaign.

Subway’s popular $5, foot-long subs turned up the heat on the pricing front. Just last week, Togo’s launched a limited-run promotion featuring one 6-inch sub selection per day at a special $1.99 price.

The new Quiznos menu includes price reductions spanning more than 37 of the chain’s most popular sandwiches and other items.

The campaign, which will air nationally for several weeks, drives home the point that the same quality sandwiches for which the chain is known can now be purchased at lower prices … Quiznos is also introducing new menu boards designed to highlight the “improved price/quality value equation.” …

“The redesigned menu and lower prices … allow us to compete on our terms–meaning quality–while still offering a price benefit to consumers seeking a premium product” …

Edit by SAC

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Our Take: Quiznos price cuts are in direct response to its competitors’ actions.  Rather than choosing to introduce new lower cost menu items, offering additional bundled price options(combo/value meals) or choosing a nonprice response such as competing on quality Quiznos is reacting to its competitors by taking a simple price action emphasizing the value equation – same product, lower price, more value.  As the price war continues the real winner is the consumer. 

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Save Elkart … buy an RV

February 10, 2009

Pres Obama brought tears to people’s eyes last night reporting back from his touch-and-go photo op in Elkart, Indiana.

Portraying Elkhart as Anytown, U.S.A., Obama emphasized that Elkhart’s unemployment rate has soared to over 15% and implied that the pork-laden stimulus package would fix that fast.

No reporter asked how that might happen.

You see, Elkart is a one or two industry town — depending on whether you count “manufactured housing” (i.e. trailers) and RVs (think Winnebago) as one industry or two.

Since many trailer park folks miss “prime” by a couple of points, the credit crunch is a problem.  Since RVs get about 5 MPG, high gas prices tends to dampen demand.

Does Pres Obama plan to breathe life back into credit-risky trailers and eco-unfriendly RVs? Or, does he plan on the laid off unionized factory workers picking up shovels to work on road crews?

It’ll be fun following Elkhart’s revival over the next couple of months.

For the record, I’m betting under on this one.

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“Up to 4 million jobs created or saved”

February 10, 2009

Call me cynical, but Pres Obama’s promise of  “up to 4 million jobs created or saved” sounds like a pretty soft metric to me.

First, there’s the “up to” part.  So, if the final answer is, say 2 million, the metric is made.

But, the real weasle room is in the “created or saved”.  What exactly is a saved job?  How do you know one when you see it?

My bet: For the next year or two, we’ll be hearing that Bush’s failed policies left the economy in even worse shape than anyone imagined and we’ll get bombarded with TARP-like claims that things would have been even worse without the added spending.  Jobs will continue to evaporate, but at a slower rate than some made up “what if” number.

For sure, we’ll have saved up to 4 million jobs.

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Posted in Financial Crisis, Financial Services & Crises, Gov't Spending, Government & Politics, Obama - Promises Made & Kept, Obama Administration | 1 Comment »

Follow the money from DC … to Detroit … to Sao Paulo.

February 10, 2009

Ken’s Take: You have to hand it to the  Detroit automakers … for their transparency … and their  humongous stones.

* * * * *

Excerpted from Latin American Herald Tribune, “General Motors to Invest $1 Billion in Brazil Operations — Money to Come from U.S. Rescue Program”, Feb. 9, 2009 

General Motors plans to invest $1 billion in Brazil to avoid the kind of problems the U.S. automaker is facing in its home market, said the beleaguered car maker.

According to the president of GM Brazil-Mercosur, Jaime Ardila, the funding will come from the package of financial aid that the manufacturer will receive from the U.S. government and will be used to “complete the renovation of the line of products up to 2012.”

“It wouldn’t be logical to withdraw the investment from where we’re growing, and our goal is to protect investments in emerging markets,” he said in a statement published by the business daily Gazeta Mercantil.

Full article:
http://www.laht.com/article.asp?CategoryId=12396&ArticleId=320909 

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Luxury brands get Sak'ed …

February 10, 2009

Excerpted from WSJ, “Saks Upends Luxury Market With Strategy to Slash Prices” By V. O’Connell and R. Dodes, Feb 9, 2009

* * * * *
When Saks Fifth Avenue slashed prices by 70% on designer clothes before the holiday season even began, shoppers stampeded … Saks’s deep, mid-November markdowns were the first tug on a thread that’s now unraveling long-established rules of the luxury-goods industry. The changes are bankrupting some firms, toppling longstanding agreements on pricing and distribution, and destroying the very air of exclusivity that designers are trying to sell.

The problem Saks faced last November is one that haunts the U.S. economy as a whole: From car makers to home builders, companies are stuck with inventories that are far too fat.  Saks’s risky price-cut strategy was to be one of the first to discount deeply, rather than one of the last. Managing high-fashion inventory is tricky. Clothing can go out of style in just months, so stores don’t want to keep it around. But cut prices too soon or too deeply, and shoppers start to expect it …

Pressured by Saks, and hit by the worst holiday season in almost 40 years, rivals including Neiman Marcus Group Inc. and Barneys New York slashed prices, too. They cut much more deeply and aggressively than usual … That, in turn, clobbered smaller boutiques …

Saks’s maneuver marked an open abandonment of the longstanding unwritten pact between retailers and designers over when, and to what extent, to cut prices. Those old rules boiled down to this: Leave the goods at full price at least two months, and don’t do markdowns until the very end of the season.

That worked fine in the good times. Demand was high, and so were everyone’s profit margins. But Saks’s surprise discounting forced companies and brands that have their own retail operations … to follow suit or forfeit sales. Giving designers a heads-up wasn’t an option, Saks says, without risking that rival department stores get wind of its strategy …

* * * * *

Perhaps the biggest consequence is that customers are now questioning the entire premise of luxury goods: Why pay top dollar today if big markdowns could be coming tomorrow? … Designers are starting to fight back … Some are thinking about splitting their product lines or withholding some top items from department stores in order to feature them in their own stores … Diane von Furstenberg says another solution might involve producers leasing space in department stores …

Mr. Sadove [Sak’s CEO] says he’s working on damage control with designers … Still, he and Mr. Frasch, defend their actions, saying they needed to swiftly fix a big problem that no one saw coming … The change happened “over as short a period of time as you can possibly imagine” … The result: a huge disconnect between Saks’s inventory and shoppers’ appetite …

So [Sadove] floated the idea of deep price cuts. Some colleagues urged drawing the line at 50%. But Mr. Frasch felt strongly that wouldn’t be enough … Their decision: A 70%-off sale would be used, but only in a worst-case scenario, if sales kept declining and shoppers remained bored by less eye-popping 40% rollbacks.

Extreme discounting of luxury goods is perilous. Not only does it potentially leave your best customers feeling duped for paying full price, it also erases fat profit margins of 50% or more … Part of the problem is the designers’ own fault. Over the past 15 years, their products have become so ubiquitous — Gucci is sold in airport, Hermes has mall shops — it’s undermining the image of exclusivity. In a January survey of rich shoppers … roughly half of high-net-worth consumers said luxury brands are becoming commoditized; 64% said they were overpriced …

In hindsight, Saks executives say they may have cut too much in some areas. “We didn’t need to do what we did in accessories” … High-end shoes and handbags would probably have sold out, even at higher prices, because shoppers see them as more practical wardrobe updates than another new outfit …

This year, Saks is spending about 20% less on merchandise to keep inventories lower, but Mr. Frasch acknowledges the number is only a guess. The luxury-goods business is “absolutely flying blind,” … Mr. Sadove, agrees. “One of the big questions that people are asking,” he says, is: “Will people ever buy at full price again?”

Edit by SAC

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Full Article:
http://online.wsj.com/article/SB123413532486761389.html?mod=testMod

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Posted in Mktg - Brands - Private Label, Mktg - Pricing, Retailing | Leave a Comment »

Luxury brands get Sak’ed …

February 10, 2009

Excerpted from WSJ, “Saks Upends Luxury Market With Strategy to Slash Prices” By V. O’Connell and R. Dodes, Feb 9, 2009

* * * * *
When Saks Fifth Avenue slashed prices by 70% on designer clothes before the holiday season even began, shoppers stampeded … Saks’s deep, mid-November markdowns were the first tug on a thread that’s now unraveling long-established rules of the luxury-goods industry. The changes are bankrupting some firms, toppling longstanding agreements on pricing and distribution, and destroying the very air of exclusivity that designers are trying to sell.

The problem Saks faced last November is one that haunts the U.S. economy as a whole: From car makers to home builders, companies are stuck with inventories that are far too fat.  Saks’s risky price-cut strategy was to be one of the first to discount deeply, rather than one of the last. Managing high-fashion inventory is tricky. Clothing can go out of style in just months, so stores don’t want to keep it around. But cut prices too soon or too deeply, and shoppers start to expect it …

Pressured by Saks, and hit by the worst holiday season in almost 40 years, rivals including Neiman Marcus Group Inc. and Barneys New York slashed prices, too. They cut much more deeply and aggressively than usual … That, in turn, clobbered smaller boutiques …

Saks’s maneuver marked an open abandonment of the longstanding unwritten pact between retailers and designers over when, and to what extent, to cut prices. Those old rules boiled down to this: Leave the goods at full price at least two months, and don’t do markdowns until the very end of the season.

That worked fine in the good times. Demand was high, and so were everyone’s profit margins. But Saks’s surprise discounting forced companies and brands that have their own retail operations … to follow suit or forfeit sales. Giving designers a heads-up wasn’t an option, Saks says, without risking that rival department stores get wind of its strategy …

* * * * *

Perhaps the biggest consequence is that customers are now questioning the entire premise of luxury goods: Why pay top dollar today if big markdowns could be coming tomorrow? … Designers are starting to fight back … Some are thinking about splitting their product lines or withholding some top items from department stores in order to feature them in their own stores … Diane von Furstenberg says another solution might involve producers leasing space in department stores …

Mr. Sadove [Sak’s CEO] says he’s working on damage control with designers … Still, he and Mr. Frasch, defend their actions, saying they needed to swiftly fix a big problem that no one saw coming … The change happened “over as short a period of time as you can possibly imagine” … The result: a huge disconnect between Saks’s inventory and shoppers’ appetite …

So [Sadove] floated the idea of deep price cuts. Some colleagues urged drawing the line at 50%. But Mr. Frasch felt strongly that wouldn’t be enough … Their decision: A 70%-off sale would be used, but only in a worst-case scenario, if sales kept declining and shoppers remained bored by less eye-popping 40% rollbacks.

Extreme discounting of luxury goods is perilous. Not only does it potentially leave your best customers feeling duped for paying full price, it also erases fat profit margins of 50% or more … Part of the problem is the designers’ own fault. Over the past 15 years, their products have become so ubiquitous — Gucci is sold in airport, Hermes has mall shops — it’s undermining the image of exclusivity. In a January survey of rich shoppers … roughly half of high-net-worth consumers said luxury brands are becoming commoditized; 64% said they were overpriced …

In hindsight, Saks executives say they may have cut too much in some areas. “We didn’t need to do what we did in accessories” … High-end shoes and handbags would probably have sold out, even at higher prices, because shoppers see them as more practical wardrobe updates than another new outfit …

This year, Saks is spending about 20% less on merchandise to keep inventories lower, but Mr. Frasch acknowledges the number is only a guess. The luxury-goods business is “absolutely flying blind,” … Mr. Sadove, agrees. “One of the big questions that people are asking,” he says, is: “Will people ever buy at full price again?”

Edit by SAC

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Full Article:
http://online.wsj.com/article/SB123413532486761389.html?mod=testMod

* * * * *

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Burgers for buddies … everybody has their price

February 10, 2009

Excerpted from the New York Times, “The Value of a Facebook Friend? About 37 Cents”, by Jenna Wortham, January 9, 2009

* * * * *

You may not be able to get a coupon for a digital TV converter box, but if you’re experiencing a bit of bloat on your Facebook friend list, you can snag a free burger by dropping 10 of your Facebook friends, courtesy of Burger King.

That’s the gist of Whopper Sacrifice, an advertising campaign from Burger King to promote a new version of the company’s flagship sandwich called the Angry Whopper. To earn their free burger, users download the Whopper Sacrifice Facebook application and dump 10 unlucky friends deemed to be unworthy of their weight in beef. After completing the purge, users are prompted to enter their addresses and the coupons are sent out via snail mail.

The application sends a note to each of the banished friends, bluntly alerting them that they were abandoned for a free hamburger.

* * * * *

It may seem like a counterintuitive marketing strategy, but the agency behind the stunt said it’s a way to use the Web to capture a lot more attention for the same advertising dollars.

“Choosing 10 people can take a lot of time. There’s at least an hour’s worth of people’s eyes on your brand. Maybe you can’t quantify those numbers, but they do add up.”

Besides, “we aren’t giving the burgers away -– you have to sacrifice. You are paying for it but the currency is different.”

* * * * *

What price is Burger King placing on a Facebook friendship? At a suggested retail price of $3.69 for the Angry Whopper sandwich, customers are trading each deleted friend for about 37 cents’ worth of bun and beef.

Since the application became available in late December, nearly 200,000 Facebookers have been de-friended for the sake of a hamburger. That amounts to more than 20,000 coupons for free Whoppers.

Edit by DAF

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Full article:
http://bits.blogs.nytimes.com/2009/01/09/are-facebook-friends-worth-their-weight-in-beef/

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My Take: Another mis-step … delaying the announcement of the bank bailout plan

February 9, 2009

According to Obama’s economic adviser Lawrence Summers,  Barack-O decided to delay unveiling the administration’s new bank bailout plan until Tuesday, in an effort to keep Washington’s focus on the stimulus package now before Congress.

In other words: to keep the spotlight on the President’s prime time press conference tonight.

My prediction: the market will tank today because of the bank plan delay — the delay prolongs uncertainty and creates doubt that the administration — with an avowed policy of “big & fast” over “deliberate & right” —  has figured out what to do.

All the chatter today will be about the market slide and bank plan.  Maybe that’s the strategy — take people’s eyes off the (un)stimulus package.

WSJ article:
http://online.wsj.com/article/SB123410527886060705.html?mod=article-outset-box

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The case for (some) economic optimism …

February 9, 2009

Ken’s Take: With the stock market down and politicos running around saying that the sky is falling, it’s easy to tailspin into pessimism.  While everybody feels some worry about job security and older folks fret about retirement … the fact is that more than 9 of 10 folks are still doing pretty well, and there are some signs that things have bottomed out.

* * * * *

Excerpted from Rasmussen Reports, “Jobs Down, Stocks Up?”, Lawrence Kudlow, Saturday, February 07, 2009

Broad stock indexes are up 15 percent to 20 percent from their November lows. How can this be? Well, the stock market is telling us that the economy’s future is a lot brighter than its past.

For the 92.4 percent, or 135 million workers, still employed, wages now stand nearly 4 percent higher than a year ago. With zero inflation, that’s a real increase in worker purchasing power

The Federal Reserve has pumped almost $600 billion to the money supply to offset credit and asset deflation … a 20 percent annual rate of increase. Increases in the money supply historically kick in (to help the economy) somewhere between six and 12 months. Money growth could well produce the biggest economic surprise this year.

And while the quantity of money is rising significantly, the quality of credit is improving, too. All the credit-fear indicators — from LIBOR all the way out to corporate-bond spreads — have declined substantially.

And, there’s the simple fact that marginal tax rates will not be raised. Obama seems to have shelved that notion — at least for 2009.

So cheaper energy, bundles of new money creation, zero inflation and no tax hikes could very well combine to produce a stronger economy as the year progresses — to the great surprise of the majority of economic pundits. 

Full article:
http://www.rasmussenreports.com/public_content/political_commentary/commentary_by_lawrence_kudlow/jobs_down_stocks_up 

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Who says a cup of latte is 4 bucks? … Starbucks fights back.

February 9, 2009

Ken’s Take: Uh-oh. Premium brands shouldn’t try to shift focus to price … cheapens the brand and plays to the other guy’s advantages. Starbucks is flailing …

* * * * *

Excerpted from WSJ, “Starbucks Plays Common Joe”, Feb. 9, 2009

Starbucks — built a coffee empire on its premium image — wants to convince customers that its drinks aren’t that expensive.

Soon, it’ll be selling discounted pairings of coffee and breakfast food for $3.95, a type of promotion long used at fast-food chains. It’s the first move in an aggressive campaign to counter the widespread perception that Starbucks is the home of the $4 cup of coffee.

The Seattle-based company is training its baristas to tell customers that the average price of a Starbucks beverage is less than $3, and that 90% of Starbucks drinks cost under $4.

For Starbucks, the effort is also an attempt to fend off McDonald’s … whose advertising includes billboards saying “Four bucks is dumb.”

Few companies embody the consumer spending boom of the 1990s and 2000s like Starbucks … it  transformed  coffee from a commodity drink into what he billed as an affordable luxury … but sales have been in steep decline during the recessionary era of penny-pinching … so, executives began plotting a new strategy to portray the company as offering value.

Research uncovered what executives describe as a disconnect between the company’s actual prices and consumers’ perception of those prices.

“The myth of the $4 latte … is not true” … the average price of a Starbucks latte is $3.25 (before tax).

Pinning down the price of the drinks is more difficult than it may seem. The price tag climbs when customers add flavoring or additional shots of espresso, and sales tax also makes the tab higher. Prices also vary depending on the city.

Indeed, the price gap has narrowed  and some sizes and varieties of Starbucks are cheaper than Dunkin’ Donuts coffee when adjusted for size differences. McDonald’s is still cheaper than Starbucks.

Dunkin’ Donuts says, “We believe we are the faster and more affordable alternative” to Starbucks.

McDonald’s says “everyone’s looking to get more from a dollar … our customers know that’s what they’ll get at McDonald’s.”

Asked whether Starbucks is considering simply reducing drink prices: “Today, no. But never say never.”

Full article:
http://online.wsj.com/article/SB123413848760761577.html?mod=testMod#printMode 

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Value is the name of the game

February 9, 2009

Excerpted from the Progressive Grocer, “Nielsen Consumer Insight Report Offers Ways for Retailers to Navigate Rough Economic Seas“, January 8, 2009

* * * * *

How to Cope During Difficult Economic Times,” a Nielsen Consumer Insight report provides value programs and dramatic cost-reduction strategies to help retailers struggling to attract beleaguered shoppers.

While declines in discretionary expenditures have been taking a toll on low-, mid-, and high-end department stores, select retailers within grocery, dollar, club, and drug stores fared better. Retailers carrying more “need-to-have”, not “nice-to-have,” assortment have registered positive same-store sales growth. 

Consumers — protective of their spending power — learned to trade down to value channels, reduce purchase frequency, move from on-premise consumption to off-premise purchasing, and downscale from premium to mid-tier or value brands.

Fully 40 percent of shoppers think that food and personal care prices have increased over the past three months.

When offered some ideas for coping, consumers expressed a preference for larger sizes with a lower price per serving (47 percent of shoppers) over smaller pack sizes at lower prices (17 percent).

Nielsen research shows that shoppers are increasingly happy with private label products, calling them a good alternative to name brands, at parity with or better than national names on quality criteria, while offering good pricing and value. The social stigma is gone, along with boring generic-looking packaging. Many retailers treat private label and exclusive brands as an integral part of their corporate brand image.

Forecasts call for continuing tough times and economic instability that filters throughout the economy. In short, we can brace for more of the same, and expect existing behaviors to intensify. Shoppers will first meet their basic needs and forgo discretionary purchases.

At-home opportunities will climb. Variety and convenience will take a back seat to value. Trading down will become an acceptable way to stretch budgets. Local sourcing gains traction, not as a green activity, but rather as a strategy for controlling costs, delivering value, and maintaining product freshness.

Edit by NRV

Full article:
“http://www.progressivegrocer.com/progressivegrocer/content_display/features/center-store/e3i9953839003c11ce8daf4ca7117546a38?imw=Y 

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GM’s Reputation gets a jolt … oops, I mean Volt?

February 9, 2009

Ken’s Take: It will be interesting to see how the Detroiters position hybrids when they grovel back to Washington in a week or so with their economic viability plans.  Zero chance that they make any money from hybrids in the next couple of decades (if ever).  But, they’ll have to play “emporer’s new clothes” to get their government money

* * * * *

Excerpted from Fortune, “Chevy Volt: Marketing meets technology” By Alex Taylor III, Jan 13, 2009

Whenever you ask General Motors CEO Rick Wagoner what he needs to do to revive the troubled automaker, he invariably replies, “Make great cars and trucks and achieve technology leadership.”

Despite GM’s financial troubles, he is arguably making progress … But one piece of a GM revival has consistently eluded Wagoner and frustrated its executives: restoring the tattered company’s good name. Until GM improves its reputation with potential customers, all the improvements it makes in its product line go for naught …

Indeed, GM’s determination to improve its standing with the public dictated the creation of the Chevy Volt as the company’s technology flagship. The Volt was chosen to be a leading-edge image booster rather than an immediate moneymaker for the cash-strapped automaker … And its capabilities were designed at least as much to grab attention as to make a big impact in the marketplace.

Due to reach the market in late 2010, the Volt is a vehicle unlike any other in the world. It consists of an elaborate battery pack and a small gasoline engine … GM calls it a “range-extended electric vehicle” and it may price around $40,000.

According to GM executives, the Volt was conceived in the spring of 2006 as a way for the automaker to leapfrog the technology edge that Toyota gained when it made a success of the hybrid gas-electric Prius …

GM decided it needed an electric car. But it faced another decision when it tried to figure out how capable it should be. The range and cost of an electric car are directly related to the size of the battery pack. Use a few batteries and you limit the electric diving to a few miles, but you also hold down the cost.

GM figured that it needed a lot of batteries – and hence a higher sticker price – to give its image the needed lift. “It was an engineering solution to a marketing problem,” says Burns. It settled on a 40-mile all-electric range because it would satisfy the commuting needs of a majority of the population. The Volt’s $40,000 price tag, which will sharply limit its sales volume, was given less weight, as was the fact that GM would lose money on the car. Pizzazz outranked practicality …

By comparison, Toyota is pursuing a sharply different strategy. It plans to introduce a plug-in version of the Prius that will only go 12 miles on a charge of electricity … As a result, the Prius will be significantly less expensive than the Volt, perhaps $10,000 or less, and it could be expected to sell in much larger numbers.

GM executives say that so far the Volt has been successful at raising the automaker’s profile and helping to refurbish its image. Whether it continues to do so once it arrives on the market with its high price tag and limited number of potential customers will be another question.

Edit by SAC

Full Article:
http://money.cnn.com/2009/01/13/autos/motor_world.fortune/index.htm

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Things change: Terrorist "renditions" – bad by Bush, ok by Obama

February 6, 2009

Ken’s Take: Under Bush, terrorist renditioning was dirtier than dirt.  A clear violation of terrorists rights.  Now, it’s ok.  Hmmmm.

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Excerpted from LA Times, “Obama preserves renditions as counter-terrorism tool”, February 1, 2009 

The CIA’s secret prisons are being shuttered. Harsh interrogation techniques are off-limits. And Guantanamo Bay will eventually go back to being a wind-swept naval base on the southeastern corner of Cuba.

But even while dismantling these programs, President Obama left intact an equally controversial counter-terrorism tool.

Under executive orders issued by Obama recently, the CIA still has authority to carry out what are known as renditions, secret abductions and transfers of prisoners to countries that cooperate with the United States.

Current and former U.S. intelligence officials said that the rendition program might be poised to play an expanded role going forward because it was the main remaining mechanism — aside from Predator missile strikes — for taking suspected terrorists off the street.

The Obama administration appears to have determined that the rendition program was one component of the Bush administration’s war on terrorism that it could not afford to discard.

The decision underscores the fact that the battle with Al Qaeda and other terrorist groups is far from over and that even if the United States is shutting down”

“In some ways, [rendition] is the worst option,” the former official said. “If they are in U.S. hands, you have a lot of checks and balances, medics and lawyers. Once you turn them over to another service, you lose control.” the prisons, it is not done taking prisoners.

The decision to preserve the program did not draw major protests, even among human rights groups. Leaders of such organizations attribute that to a sense that nations need certain tools to combat terrorism.

Full article:
http://www.latimes.com/news/nationworld/washingtondc/la-na-rendition1-2009feb01,0,1822531,full.story 

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A Greener, Leaner Detroit: Rebranding the Big 3

February 6, 2009

Excerpted from Washington Post, “Detroit Overhauls Its Image”, by Kendra Marr and Peter Whoriskey, January 10, 2009

* * * * *

Ditching their usual glitz and glamour, U.S. carmakers used the nation’s biggest auto show for presenting green, fuel-efficient cars as the industry’s ride to the future.

Getting there will depend not just on salesmanship but on behind-the-scenes discussions the auto companies are holding with the United Auto Workers and the Obama administration.

With the industry dependent on government help, this year’s event took on a starkly muted character: “No fog machines, no laser light shows”  …   Smaller exhibits … Fewer product launches …  Fewer concept cars … no fashion shows (huh?) 

The automakers’ new posture is not just a reflection of the downturn but also of lessons learned since company executives descended on Washington two months ago, arriving in private jets but approaching Congress with hats in hand.

* * * * *

If the domestic industry survives, the show may have heralded a new era.

Hybrid technology stole the spotlight from old-school horsepower.

Although large sedans such as the new 2010 Ford Taurus and 2010 Buick LaCrosse stirred interest among industry watchers, fuel-efficiency drew the crowds.

Ford boasted that its Fusion hybrid beats the Toyota Camry by 8 miles per gallon in the city and 2 mpg on the highway …  An advanced hybrid propulsion system allows it to travel up to 47 mph in electric mode — faster than any other hybrid on the market. Its engineers also installed a smart gauge to teach drivers how to squeeze the miles out of each gallon of gas. The better you control that gas, the more green leaves pop up on the dashboard display. See a forest? You’re a pro.

Ford unveiled details of a plan to bring to market by 2012 a family of hybrids, plug-in hybrids and battery electric vehicles.

Even GM’s 2010 Cadillac CTS Sport Wagon, which will be marketed as a luxury SUV alternative, maximizes its fuel efficiency, boasting 28 mpg on the highway.

“It’s part of the rebranding of Michigan as the technological leader in environmental, green, zero-emissions vehicles.”

Edit by DAF

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Full article:
http://www.washingtonpost.com/wp-dyn/content/article/2009/01/09/AR2009010903639_pf.html

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PVP: CPGs passing on higher food costs with smaller packaging

February 6, 2009

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

* * * * *

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

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

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

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

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

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

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

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

Once a product changes, buyers often forget the previous size, creating a new standard. Five years ago, ice cream tubs were a half-gallon, or 2 quarts; few noticed when it dwindled to 1.75 quarts and then, this past year, to 1.5 quarts.

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

“This is the packaging equivalent of three-card monte,” said Ben Popken, editor of Consumerist.com, a website whose “Grocery Shrink Ray” tracks shrinking packages. “By changing several factors at the same time, food companies disguise the fact that you’re getting less for the same price.”  

Edit by NRV

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

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What's magic about one stimulus bill? … Answer: nothing … so bite size it

February 5, 2009

Pres Obama and his surrogates have taken to repeating a mantra: the stimulus bill must be big and must be enacted quickly or else we’ll face an economic catastrophe.  The logic: we’re already taking a shelling and economists say $1 trillion is about the right number.

I’m struck that the emphasis is on big and quick … not right and effective.

There are parts of the proposed bill that make sense and seem to have consensus — e.g. extending unemployment benefits.  Others are debatable philosophically but can probably pass the “does it stimulate” criteria — e.g. Barack O’s $500 refundable tax credits.  Many (most ?) are outright pork and pay-offs.

Why not break the bill into parts?  Pass the stuff that’s on target and relatively non-contentious now … then debate the marginal and flakey stuff in due course.  Since most of that stuff won’t make a bit of difference to the economy, delaying won’t matter.

Even if $1 trillion is the right number, we can roll up to it … it’s not necessary to swallow it in one huge gulp.

What am I missing?

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What’s magic about one stimulus bill? … Answer: nothing … so bite size it

February 5, 2009

Pres Obama and his surrogates have taken to repeating a mantra: the stimulus bill must be big and must be enacted quickly or else we’ll face an economic catastrophe.  The logic: we’re already taking a shelling and economists say $1 trillion is about the right number.

I’m struck that the emphasis is on big and quick … not right and effective.

There are parts of the proposed bill that make sense and seem to have consensus — e.g. extending unemployment benefits.  Others are debatable philosophically but can probably pass the “does it stimulate” criteria — e.g. Barack O’s $500 refundable tax credits.  Many (most ?) are outright pork and pay-offs.

Why not break the bill into parts?  Pass the stuff that’s on target and relatively non-contentious now … then debate the marginal and flakey stuff in due course.  Since most of that stuff won’t make a bit of difference to the economy, delaying won’t matter.

Even if $1 trillion is the right number, we can roll up to it … it’s not necessary to swallow it in one huge gulp.

What am I missing?

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Now, it must be ok for the automaker’s to file for bankruptcy …

February 5, 2009

Back in December, the Detroit Three argued for a bailout because American consumers won’t buy General Motors and Chrysler cars if they are forced into bankruptcy. They would be tainted by a stigma and by worries that warranties and parts wouldn’t be available years down the road if the firms ran the risk of liquidation. They cited consumer surveys that support the view. One survey of 6000 consumers by CNW Research this summer found that 80% said they would abandon an auto maker if it were to file for bankruptcy.

At the time, I called out the automaker’s bankruptcy argument as completely specious.

As I said then, “the survey results are misleading.  Would somebody be more likely to buy a car from a financially healthy car maker?  Of course.  Would somebody prefer to by from one that is on the brink of financial collapse or one that is in bankruptcy proceedings?  I bet that would be a statistical tie.”  
https://kenhoma.wordpress.com/2008/12/16/the-automakers-specious-bankruptcy-argument/

Well, January sales results for the  automakers are in.

According to the Wall Street Journal: “Sales by the Big Three U.S. auto makers plunged in January to the lowest levels in decades, raising fresh questions about the future of the companies and the viability of the government’s bailout program.

Chrysler LLC’s U.S. sales fell 55% compared with January 2008 to 62,157 vehicles. General Motors Corp.’s sales slid 49% to 128,198. Ford Motor Co.’s dropped 40% to 93,041.”

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Ken’s Mega-Take:  As predicted, cash strapped consumers decided not to buy cars from “non-bankrupt” automakers that are on government life support 

Is there anyone who doesn’t recognize that the Detroit automakers are hanging by financial threads?  The companies are bankrupt, they’re just not in legal bankruptcy proceedings. If they were, they’d at least stand some chance of restructuring themselves into healthy positions. The current government thinking stands no chance of doing that.

So why not simply have them file for bankruptcy proceedings?  Simple, bankruptcy proceedings would dismantle the high cost, work rules heavy UAW contract.  Politics trumps market forces and economic sense.

[Detroit Reels as Auto Sales Skid]

http://online.wsj.com/article/SB123367018137943377.html

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Scan It! Bag It! Save Time! … and, oh yeah, Spend More!

February 5, 2009

Excerpted from Mediaweek, “Stop & Shop Deploys Scan It! in 50 Stores” by Katy Bachman, January 8, 2009

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Launched in Aug. 2007, Modiv Media’s Scan It! system is designed both to save shoppers time, and offer targeted promotions based on current shopping behavior and purchase history. Here’s how the system works: Shoppers pick up a hand-held device as they enter a store and scan their loyalty cards, allowing the system to track the shopper’s progress through the aisles.  They scan and bag their items as they make their way through the store. 

* * * * *

Coupon offers appears on the device for products in the area where they are shopping.  If the shopper scans the item, the offer is instantly redeemed and the new price is reflected in the total on their scanner.  Once they are ready to check out they scan their loyalty card and pay. 

* * * * *

A number of major brands have launched campaigns with Modiv Media, including Coca-Cola, Unilever, ConAgra and Procter & Gamble. Retailers—which get a share of the revenue from participating brands—pay for the installation of the system. “Our partnership with Modiv Media is helping us increase customer loyalty and sales by extending our ongoing effort to provide the fastest, easiest and most rewarding personal shopping experience possible,”

According to the CEO of Modiv Media, the Scan It! system saves shoppers as much as 10 to 15 minutes in the store and leads to an increased average spend of $7 more per basket, compared to shoppers that don’t use the system.  

Edit by NRV

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For AMS students – past & present:: A Rogers’ Five Factors analysis of the new device:

The good news…

  • Observable: Yes, very.  Other shoppers notice and watch to see how it works.
  • Trialability: Good.  Store associate there to assist with “training” and answer questions and convince shoppers to give it a try. 

The bad news…

  • Relative advantage: Exclusive coupons may entice some shoppers to continue to use it.  Looking at how long self-scan lines have been in operation it is obvious that most shoppers prefer to use the traditional method of checking out.
  • Simplicity: Questionable.
  • Compatibility: This will likely be the biggest hurdle for most shoppers.  “Trusting” the technology and their ability to master it is likely to take time since it is very different than the current shopping experience. 

Possible vertical niche? 

(Patient) Moms shopping with kids.  Some blog comments from mothers shopping with little ones say that the device keeps their kids engaged and entertained while shopping.

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Full article:
http://www.mediaweek.com/mw/content_display/news/out-there/place-based/e3i7463e6c2968d742bf50c4fcc2b357a09 

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Are these things stripped down computers or phones on steroids?

February 5, 2009

An example of a disruptive innovation …

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Excerpted from Knowledge@Wharton, “The Net Impact of Netbooks?”, November 26, 2008

PC makers Hewlett-Packard, Dell, Lenovo, Acer and Asus are increasingly thinking big about small netbooks — portable computing devices that can cost anywhere from $200 to $500 and depend on the Internet for many computing tasks.

Research firm IDC estimates that 10.8 million netbooks will ship in 2008, just about a year after Asus launched what is considered the first device in the category. Asus has a 46% share of the netbook market..

Netbooks are mobile computers with screens ranging from 5 inches to 10 inches. Originally intended principally for the education market, they typically run Linux or Windows XP and need to connect to the Internet for heavy computing tasks.

Analysts  agree that netbooks will be disruptive to the PC industry, but it’s not clear in what way.

  • Will netbooks poach sales of laptops?
  • Are netbooks replacements for smartphones?
  • Will netbooks increase the popularity of cloud computing in which users store files on the Internet and manage them with web-based applications?

It’s too early to know where netbooks fit or how well they will ultimately sell among consumers, who are projected to buy about 70% of these devices.

Gartner notes in a recent research report that it is also possible netbooks will be viewed as deficient by consumers, who expect the capabilities of a fully featured PC.

Meanwhile, these small devices are proliferating. Qualcomm, a wireless semiconductor company, announced plans in November to launch its own designs for a “PC alternative” that would compete with netbooks. Qualcomm’s device, code-named Kayak, is being tested in Southeast Asia in early 2009.

The success of netbooks may ultimately rely on always-on Internet connections. Since these small PCs lack significant storage, they largely depend on the Internet to access content and documents. “Once Internet connectivity gets to the point where it’s everywhere, these devices become more viable. Dark spots and dead zones in wireless coverage are a hindrance to the netbook market.”

“If you think of what people do with their computers, it includes a) storing data and b) installing and using applications. Cloud computing will reach the masses on both these dimensions, and netbooks go hand in hand [with this]. More consumer data will move online [or into the cloud]. Users are now more comfortable with their data living in the cloud. Having your data online lets you do things like sharing it easily with your friends and accessing it anywhere.”

While netbooks are showing early popularity, experts at Wharton stopped short of declaring these devices to be runaway hits. They point out many uncertainties.

The first worry is the economy. To be sure, netbooks are inexpensive, but they are also a largely discretionary purchase at a time when the global economy is struggling. In developed markets, like the U.S. and Japan, netbook purchases could be delayed.

Another question is whether netbooks are really suited for emerging markets, as early proponents contend. In the U.S., netbooks can find Internet connectivity through multiple means, but the emerging markets are different. Ubiquitous Internet access may be a fundamental concern.

“The real use of netbooks may be for the amusement of bored teenagers whose needs for connectivity and diversion cannot be satisfied with an iPhone, [which is] not exactly a market that I expect to see emerging in the developing world.”

One thing is certain: The netbook category is worth watching because it is growing and evolving on the fly…

Full article:
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2107#

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Did the Social Security crisis just go away ?

February 4, 2009

A couple of years ago, the hot socio-economic topic was the projected insolvency of Social Security. 

Remember how Al Gore wanted a “lock box” to insulate FICA contributions from Congressional money grabbers?  Or, how Bush wanted to privatize Social Security so folks could earn higher returns?

Now, pundits (e.g. Robert Reich, Larry Lindsay) are calling for payroll tax holidays.

President Obama is bound and determined to give payroll tax rebates to low income folks who don’t pay income taxes.  That is, to reduce their Social Security contributions … by about $135 billion annually.

Does that mean that Social Security has miraculously found strong financial footing?

Hardly.

Social Security is a trust fund (currently over $2 trillion).  Workers make contributions to the trust and draw benefits from it when they retire or become disabled.  In concept, the contributed inflows and trust earnings (i.e. interest) are supposed to cover the benefit outflows. (Think Ponzi and Bernie Madoff … see excerpted article “Social Security: National Ponzi Scheme ” below)

Currently, about $785 billion in Social Security taxes are collected annually  from about 163 million workers and $585 billion in benefit checks are sent out  to 50 million Social Security recipients.

Well, according to the Social Security trustees, because of demographic shifts (i.e. more retirees, fewer workers), outflows will exceed inflows somewhere around 2020 — a little earlier if interest on the trust isn’t counted, a little later if it is.  And, they project that the trust fund will be completely exhausted by around 2040.

With t-bill rates now hovering slightly over zero, earnings on the Social Security trust must be minimal (and less than considered in the projections).

So, if the Feds cut contribution inflows to the trust by over $100 billion annually, won’t Social Security be in a world of hurt — sooner rather than later?

I haven’t heard any of Obama’s smart guys in the room talking about this part of the problem … and it’s a big part !

* * * * *

Excerpted from IBD, “Social Security: National Ponzi Scheme”, Williams, February 02, 2009

Congress collects about $785 billion in Social Security taxes from about 163 million workers to send out $585 billion to 50 million Social Security recipients.

Social Security’s trustees tell us that the surplus goes into a $2.2 trillion trust fund to meet future obligations.

The problem is that whatever the difference between Social Security taxes taken in and benefits paid out, Congress spends it.

What the Treasury Department does is give the Social Security Trust Fund non-marketable “special issue government securities” that are simply bookkeeping entries that are IOUs.

According to Social Security trustee estimates, around 2016 the amount of Social Security benefits paid will exceed taxes collected.

That means one of two things, or both, must happen: Congress will raise taxes and/or slash promised Social Security benefits.

Each year the situation will get worse since the number of retirees is predicted to increase relative to the number in the work force paying taxes.

In 1940, there were 42 workers per retiree, in 1950 there were 16, today there are three and in 20 or 30 years there will be two or fewer workers per retiree.

Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=318470763456742

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Uh-oh … the perils of becoming president

February 4, 2009

According to the Rasmussen Reports, President Obama’s approval index (the % of people strongly approving of the job he’s doing less the % of people strongly disapproving of the job he’s doing) is down by half since inauguration day — from 30% to 15%.  Hmmmmm.

image

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

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The Axe Effect: A Whiff of Truth

February 4, 2009

The Team’s Take:  While a somewhat shallow example, this study shows how products are benefit-based. Axe is more than a physical product.  It is a bundle of emotional and psychological benefits that as this study shows includes not only odor protection, but also self-confidence and the perception of attractiveness. 

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Excerpted from AdAge, “Scientists Prove the ‘Axe Effect’ Is Real. Sort of” By Jack Neff, January 07, 2009 * * * * *By now everyone is familiar with ads for Axe deodorant showing women chasing men who use products from the Unilever personal-care brand. And a new study in the U.K. … indicates that there might be a whiff of truth in it. The research found that men who used Lynx deodorant, Axe’s British-brand cousin, were seen as more attractive by females than men who used a “placebo” deodorant with no fragrance … Of course, the findings might not pass everyone’s sniff test, because the women didn’t meet the men face to face, so technically did not smell them … But the research indicates a statistically significant proportion of the women did find Lynx-wearing men more attractive than their non-deodorized peers when they watched 15-second videos the men made describing themselves …

Men also graded their self-confidence before and after the 48-hour [Axe] trial. Those in the unfragranced group showed a slight and gradual decrease in their self esteem, according to Unilever, while those in the fragranced group had a slight boost in their confidence. The confidence gap apparently was what made the difference for the women … “We wanted to know if this confidence would actually translate into anything that’s really brand relevant … And we saw that link, which was a really nice bonus we got out of the study … Deodorant is supposed to make you feel good about yourself and give you confidence in the mating game, which is what Axe says.” One caveat: The Axe effect could evaporate when men open their mouths. Women rated the fragranced men as more attractive when the sound on the videos was off, but had no statistically significant preference when the sound was on. That clearly indicates body language played a decisive role in making the fragranced men more attractive …  “One way you could look at it is that the Axe Effect works as long as you’re very quiet … We shouldn’t tell the guys not to speak. … Inevitably, what you say will also contribute to your overall attractiveness.”

Edit by SAC

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Full Article:
http://adage.com/article?article_id=133621

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Stubborn Customers Shun the Greatest Product Innovations …

February 4, 2009

Excerpted from MediaPost.com,”Stubborn Customers Shun The Greatest Product Innovations”,Kalehoff,  Mar 14, 2008

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40% to 90% of all new products fail.  According to Harvard prof John Gourville that’s because consumers are creatures of habit and they irrationally overvalue the benefits offered by products they’re already using. They despise having to change their behavior to use an innovation. Consequently, they often reject products that are objectively superior to the incumbents they’re already using.

Conversely, companies mistakenly mark their own innovation as a frame of reference, and therefore irrationally overvalue the benefits it provides. This deadly combination results in a “mismatch between what innovators think consumers desire – and what consumers really want.”

In response, Gourville suggests anticipating and managing consumer resistance to changes as innovation requires during adoption. Specifically, he recommends:

1. Gauge the Degree of Behavioral Change Required. For example, is your innovation an “Easy Sell,” which provides limited benefit and limited behavioral change? Or is it a “Sure Failure,” offering few benefits and significant behavioral change? Is it a “Long Haul,” providing great benefit but also great behavioral change? Or is it a “Smash Hit,” offering tremendous benefit and little behavioral change?

2. Minimize Consumer Resistance. Not surprisingly, Gourville recommends making products that require little behavioral modification. Uniqueness and features – often marketers’ top selling points – can be detrimental. Second, market to new consumers who aren’t loyal to competing incumbents. Thirdly, market to consumers who “prize” the benefits they’d gain, or don’t value those they’d have to give up.

3. Manage Consumer Resistance. Gourville recommends bracing for slow adoption. Especially with “Long Haul” innovations, be careful to deplete marketing resources too quickly. Furthermore, consumers overvalue existing benefits of incumbent products by a factor of three, on average, while companies overweight the benefits to consumers by a factor of three – resulting in a nine-fold gap. To overcome the “9X Effect,” companies must introduce products with 10 times the benefit.

http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=78486&passFuseAction=PublicationsSearch.showSearchReslts&art_searched=gourville&page_number=0 

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“Page by page, line by line” … oh, just kidding.

February 3, 2009

Ken’s Take:

Candidate Obama promised that waste and special interests would be clinically scrubbed from the entire Federal budget. 

So, I wonder:  why didn’t his crack team scrub the pork-laden, non-stimulating $819 BILLION  “stimulus” package? 

Said differently, why should we expect that they’ll do a better job on the full $10 trillion Federal budget ? 

Dire prediction: For the record, if the stimulus package is passed in its current form — or a similar pork-laden variant — the Dow will go to 5,000.

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Excerpted from Boston.com, ” Obama vows line-by-line budget review”, November 25, 2008

President-elect Barack Obama vowed today to get rid of federal programs that no longer make sense and run others in a more frugal way to make Washington work in tough economic times.

Obama said that to make the needed investments to create jobs, “we also have to shed the spending we don’t need.”

“In these challenging times, when we are facing both rising deficits and a sinking economy, budget reform is not an option. It is an imperative,” Obama said.

“We cannot sustain a system that bleeds billions of taxpayer dollars on programs that have outlived their usefulness, or exist solely because of the power of a politicians, lobbyists, or interest groups. We simply cannot afford it. This isn’t about big government or small government. It’s about building a smarter government that focuses on what works. We will go through our federal budget – page by page, line by line – eliminating those programs we don’t need, and insisting that those we do operate in a sensible cost-effective way.”

Full source post:
http://www.boston.com/news/politics/politicalintelligence/2008/11/obama_vows_line.html 

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Radical idea: thinking before buying … what will be next?

February 3, 2009

Excerpted from WSJ, “New Info Shoppers,” By Mark Penn, January 8, 2009

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With so much attention on psychological marketing these days — finding new ways to tap into people’s heads — perhaps the single most neglected trend out there is the move towards more hard-nosed information-based shopping and purchasing … 

A special kind of consumer has taken a major role in the marketplace — the new info shopper. These people just can’t buy anything unless they first look it up online and get the lowdown … They have become highly suspicious of many TV ads: in a shoppers survey we did, 78% of them said that ads no longer have enough information they need. So many of them search online for virtually everything …

A whopping 92% of respondents said they had more confidence in information they seek out online than anything coming from a salesclerk or other source. They believe the information they find, not in the information that is spoon-fed to them, and the vast number of clicks today prove that they really are devoting time and energy to ferreting out detailed info before they buy.

We have seen many of the big market areas convert to an information-driven model — cars, homes, personal computers and medical care are areas where nearly 4 in 5 shoppers say they gather information on their own from the Web before buying … Now this trend is spreading down the product chain. In our survey, 24% said they are doing online research before buying shampoo …

The point is that advertising isn’t just moving to the Web, it’s got to grapple with an entirely new kind of shopper and way of shopping. Marketers now have to balance traditional media, online media, and content that is generated by experts, bloggers and consumers themselves. An astonishing 70% of Americans now say they consult product reviews or consumer ratings before they make their buying decisions …

New Info Shoppers are bigger than a microtrend. They represent a broad shift in the marketplace brought about by the Internet, higher education, and changing economic times. But the question is when is the marketplace is going to really catch up to them.

Edit by SAC

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Full Article:
http://online.wsj.com/article/SB123144483005365353.html

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Google clicks for General Mills …

February 3, 2009

Excerpted from Brandweek, “General Mills: Google Ads Click for Nature Valley” By Elaine Wong, Dec 18, 2008

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As marketers question the effectiveness of display ads and their ROI value, General Mills is telling a different story. The packaged goods giant revealed the results of a partnership with Google’s Content Network and YouTube, where consumers were exposed to display ads for a Nature Valley contest … The ads resulted in a 525% sales lift and delivered more than 830 million impressions for the Nature Valley brand…

It was the largest in scale for General Mills as far as online efforts go. General Mills didn’t disclose the cost of the effort … I t spent $2.8 million in Internet display advertising during the period when the contest ran…

The company used Google’s ad technology, including display, YouTube in-video, text and search ads, to reach out to consumers. As a result, the brand saw a 1,050% lift in related search behavior and a 1,000 percent increase in Web site visitation among consumers who were exposed to the ads…

“The key takeaway is, when we gave folks who care about Nature Valley an easy and fun way to talk about and share their experiences about the brand, they jumped into it with both feet”…the campaign’s success lies in its ability to tap into “the affinities and passions of consumers,” who, in this case, were avid nature enthusiasts. “Obviously, they didn’t just build a granola bar web site. Instead, they leveraged the passions and interests that most aligned with consumers likely to interact with their brand”…

General Mills said more digital campaigns are in the works following this success…

Edit by SAC

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Full Article: 
http://www.brandweek.com/bw/content_display/news-and-features/digital/e3i213af1e960abb3d865852c02173d4c5e?imw=Y

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“No special interests” … unless you count labor unions

February 2, 2009

Ken’s Take: Candidate Obama pledged that he wouldn’t play to special interests if elected.  Yeah, right. 

First in line to get their favors: the labor unions.  No surprise, except for the fast timing. (Source post from left-leaning CBS News is below).

Ken’s Prediction: Laws prohibiting secret ballots for  union elections — the misnomered “Employee Free Choice Act” which allows union thugs to “encourage” employees to sign-up for unions publicly — will be enacted before the end of the summer. 

And, the Southern-based “transplant” auto factories will be among the first targets.  Why?  There are 2 ways to make Detroit’s labor costs competitive: either lower Detroit’s unionized wages and work rules, or force the the high wages and restrictive work rules on the transplants.  I’m betting the Obama administration pursues the latter tact.  Wrong answer !

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Excerpted from CBS.com, “Obama  Reverses Bush Orders For Labor Unions”,  Jan. 30, 2009

The Democratic president, not even two weeks into his term, was already trying to address the needs of one of his party’s most reliable constituencies – organized labor.

Labor leaders visited President Obama in  the White House for a second consecutive day Friday. Unions have been lobbying the Obama administration to repeal scores of executive orders they view as hostile to their cause. Officials gave administration officials their top 10 executive orders they wanted to see dismantled quickly.

Pres. Obama signed a series of executive orders Friday that he said should “level the playing field” for labor unions in struggles with management.

“I do not view the labor movement as part of the problem. To me, it’s part of the solution,” he said, to a round of applause. 

“Over the last 100 years the middle class was built on the back of organized labor. Without their weight, heft and their insistence starting in the early 1900s we wouldn’t have the middle class we have now.”

Full article:
http://www.cbsnews.com/stories/2009/01/30/politics/100days/economy/main4764111.shtml 

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PVP: Consumer Goods Rethink Price Hikes

February 2, 2009

Excerpted from BusinessWeek, “CEO: Clorox rolls back prices, more cuts possible”, by Vinnie Tong, January 9, 2009

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Price hikes on some consumer staples may be hitting their limit.

As prices for oil, gas and plastics rose to unprecedented heights last year, most major consumer products companies raised prices for a range of staples, including pet food, toothpaste and toilet paper.

Now that commodity prices are easing up and consumers face a financial crisis, some companies are cutting prices to attract shoppers.

Clorox has rescinded a 10 percent price increase on Glad trash bags that took effect in October, for example. And many of the hikes Clorox had planned for the first half of 2009 have been abandoned.

“Competitors will definitely do the same. We’ll see that the people who took pricing aggressively are going to have to give it back aggressively. Companies that took more measured pricing will have less pressure.”

Edit by DAF

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Full article:
http://www.businessweek.com/ap/financialnews/D95JS7380.htm

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PVP: CVS Earnings Dive After Offering “Disciplined” Pricing

February 2, 2009

Excerpted from Dow jones Newswire, “Medco: Kept Pricing Discipline While Winning Business”, by Dina Wisenberg Brin, January 9, 2009

Ken’s Take: (1) “Discipline” is an interesting name for price cuts  (2) Pricing is somewhat of a  throttle on the hardship tough economy.  If folks have any $$$ in their wallets, they can find plenty of good deals

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While a disappointing 2009 forecast from CVS Caremark Corp. has some worried about a pricing war among pharmacy-benefits managers (PBM’s), competitor Medco Health Solutions  has been able to keep “disciplined” in pricing its contracts.

Medco said in a statement: “Based on our ability to deliver considerable value to our clients and the power of our advanced clinical model, we have been able to both maintain our pricing discipline and win $7.2 billion in new business in 2008.”

CVS issued disappointing earnings guidance for the year, with repricing of pharmacy-benefit management contracts a major factor.

The company said more than half of its PBM business received “improved pricing” in 2009, part of an effort to lock in three-year contracts that become more profitable after the first year.

Wall Street analysts voiced concern about the price concessions.

Wachovia said it “stokes fears that the PBM business has become more price competitive or that CVS is in a weaker position vis a vis its peers. Pricing has become broadly more competitive. CVS sells a differentiated product and seems willing to accept lower margins in the PBM to boost returns in the retail business and gain traction for new offerings, arguing that returns in the consolidated business will improve.”

Edit by DAF

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Full article:
http://money.cnn.com/news/newsfeeds/articles/djf500/200901091705DOWJONESDJONLINE000836_FORTUNE5.htm

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Attention! Food safety alert …

February 2, 2009

Excerpted from Marketing Daily, “CPGs Are Improving Their Recall Response” by Karlene Lukovitz, Dec 5, 2008

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During the past two years, the U. S. Department of Agriculture (USDA) and the U.S. Food and Drug Administration (FDA) issued nearly 500 food safety alerts…

A recent consumer survey … found that 58% of respondents who had heard about product safety and/or quality problems changed their buying habits. Consumers turn away from such products for more than nine months, on average, increasing the likelihood that they will discontinue the use of the product or brand entirely.

“Consumers are becoming less tolerant of recalls, with more than 50% changing their product choices … As these consumers continue to buy different products, product manufacturers can expect lower sales and run the risk of damage to their brands.”

So how well-prepared are CPGs when it comes to product recall response time? Better than many consumers might assume, it turns out.

According to new research…24% of CPGs can currently trace and track a product and issue a 100%-correct recall alert within 6-24 hours, 20% can respond within 1-6 six hours, 12% within 1-2 days, and 8% within 1 hour. However, for another 20%, the response time is between two and five days…CPGs reported having specific goals for further recall response improvement…

Consumers can get food product alerts delivered by email by signing up for free membership in USFoodSafety.com. The service also says it will deliver unbiased articles on food safety issues and advice on safe food handling from academics who are experts in the field.

“Consumers have to become their own food safety advocates by actively searching for recalls and alerts”…

Edit by SAC

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Consumer tolerance of product recalls is declining. While recalls negatively affect brand value, companies with fast response times are more likely to retain the trust of their customers.

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Full Article:
http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=96115

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Want to curb outrageous compensation? … Here’s how!

January 30, 2009

There was broadscale outrage yesterday with the revelation that Wall Street bankers collectively walked off with almost $20 billion in bonuses — associated with their stellar 2008 performance.  Barack-O even chided them for gross irresponsibility — sucking money from taxpayer and digging our nation’s financial hole deeper.

It is ironic that Obama’s criticism comes at a time that he’s planning to dig our financial hole deeper by taking current and future taxpayer money and throwing it irresponsibly into a trillion dollar, pork-laden grab bag of whacky, non-stimulating social programs.  Nonetheless, he has a point.

Now, if he really wants to fix the problem, here’s some free advice

First, require all companies to publish — as an appendix to their proxy statements — a list of all employees who get annualized W-2 compensation over, say $250,000.  Companies are already reporting their 5 most highly compensated execs. It would be easy to expand the list since the numbers are already compiled and reported to the IRS.  If companies push back on the idea, then — privacy be damned — simply post the information to a government web site.

Hopefully, sheer embarrassment and activist shareholder pressure would dampen some of the excesses.    Failing that, the transparency would at least provide a centralized target list  for outrage and  “clawbacks”.   At an absolute minimum,  these publicly identified, highly compensated folks would get “punished” by being hounded endlessly by annoying boiler room investment hawkers.

More substantively, change the income tax codes.  For corporations, eliminate the tax deductibility of any annualized compensation exceeding $250,000 per individual.  If companies feel the need to pay people more, that’s fine.  They just do so on their own dime — not on the back of other tax payers.

For individuals, go pre-Reagan and re-introduce a couple of very high income tax brackets with draconian marginal rates.  For example, leave the current brackets where they are (35% starts at $357,700), but add a bracket that starts at $500,000 with a marginal rate of 40%, a million dollar bracket at 50%, and a $5 million bracket at 75%. Business incomes — like family farms  — could be exempted, and individuals could continue to income average so they don’t get blasted in isolated windfall years.  While individuals might clamor for still higher compensation to cover their added tax burden, their claims would likely be throttled by the corporate provisions which would disallow corporate tax deductibility.

This multi-part plan has a couple of related benefits: (1) Obama fulfills his pledge to fill the tax coffers bysoaking the rich, (2) it becomes very expensive for companies to over-compensate employees, (3) it makes uber-compensation less valuable — at the margin — to individuals, and  (4) it can be implemented Monday morning.

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Related point: Wall Streeters argue that they have to pay high levels of compensation to retain their talent pool.  Aren’t these the smart men and ladies that cratered firms and threatened our entire economy? I say: let ’em walk.  Try recruiting randomly from the jury pool. Results can’t be worse.

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Brands that win by a nose … huh?.

January 30, 2009

Excerpted from Brandchannel, “Branding by the Nose in Brazil,” By Ana Paula Palombo Terzi

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An estimated 80% of brand communication is auditory or visual.  As competition for brand awareness intensifies and the battle for consumer attention becomes increasingly competitive, marketers in Brazil are developing strategies that appeal to another, just as powerful human sense: the sense of smell …

Branding experts have learned to tap into the powerful emotions triggered by the sense of smell…No other sense can revive experiences and recollections so vividly as the sense of smell…But does this olfactory fact present actual, viable and achievable branding opportunities and new areas for the branding industry to explore and benefit from? Absolutely…

Scent branding…is an important and growing marketing segment, particularly in Brazil—a nation and culture known for its sensuality. Scent branding highlights smell as an emotional cue that induces positive behavior, accentuates brand attributes and generates recall—that subconscious action sought by every ambitious brand strategy…

Brazilian brands are now creating their olfactive logo, a scent signature which helps generate brand recall…A wide variety of businesses have been adopting olfactive logos…Brazilian baked goods brand Bauducco also strategized with olfactive marketing to appeal to a younger demographic in Brazil. A chocolate fragrance was diffused into movie theaters at the same time they ran a preview commercial for its signature product, the panettone. The campaign was a success.

Part evidence, part theory and part science, scent marketing demonstrates that the category can be an important component for brand communication and can positively and dramatically impact sales, even though it is still hard to measure a direct correlation with return on investment…

Scent marketing…engages consumers to experience a brand on a deeper level and recall what the brand is offering them. Scent marketing aims to create emotional content and stir these emotions…in a multi-sensorial context that exploits the complex inner workings of the human mind that bind physical sensation with emotions, attitudes and perceptions.

It is not surprising that strategies that capitalize on the full spectrum of human sensuality are finding industry support, and branding success, in Brazil.

Edit by SAC

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Full Article:
http://www.brandchannel.com/features_effect.asp?pf_id=453#more

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J&J lets the blogosphere tail wag the Motrin dog …

January 30, 2009

Background: J&J ran an Motrin ad with an irreverent tone to identify with young moms and the back pain associated with lugging infants in baby carriers. But it struck the wrong cord with some and drew fire on Twitter and from a small cadre of “mommy bloggers” — the most vocal members of the demographic J&J was trying to woo.

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Excerpted from Ad Age, “Crashing Motrin-Gate: A Social-Media Case Study” by Jack Neff, November 24, 2008

At first glance, it looks like J&J’s Motrin was chastened by the power of social media when it yanked a Motrin ad campaign…’Motrin-gate’ proves the power of social media for marketers as well as how quickly marketers can be forced to buckle to a relatively small but vocal minority of people…

J&J might have been a tad hasty in pulling down its ad. In doing so, it bowed to a vocal flash mob that represents a tiny fraction of moms…And despite a storm of media attention, the ad … received less exposure than one 30-second spot on a cable news network.

On the one hand, so-called Motrin-gate proves the power of social media for marketers. On the other, it proves how quickly marketers can be forced to buckle to a relatively small but vocal minority of people who can create “flash floods”…

Yet, not that many people ultimately paid attention…about as many people saw the ad without turning to social media in outrage … as saw it during the week after it broke … most online buzz about Motrin-gate was either positive or neutral in tone toward J&J and the ads…

“If Motrin’s brand managers were not just listening to the market, but accurately measuring it too, they might not have been so quick to panic and pull the ad” …J &J should have kept the campaign in place, apologized to critics in whatever medium they had used to complain, and used the opportunity to engage in dialogue…

Corporate marketers already knew about the power of mommy bloggers…They are buying ads, they are engaging women online. They are sponsoring trips, sending you even MORE free stuff. They are paying for YOU to consult for them. … You have their attention. You have the power”…

 

Edit by SAC

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Some may argue that J&J was too fast to react to the mommy bloggers with the Motrin Ad controversy.  As the article notes, not that many people actually paid attention to the controversy and the resulting buzz was for the most part was neutral if not positive.  However, it is unclear what damage may have done if the ad had not been pulled and as this controversy proves, the influence of small, yet vocal groups such as Mommy bloggers is not to be underestimated. 

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Dr. Pepper Targets Video Game Junkies

January 30, 2009

Excerpted from the New York Times, “A Drink Backed by a Sports Hero (Wielding a Mean Game Controller)”, by Stephanie Clifford, November 19, 2008

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Dr. Pepper announced, for the first time, it is promoting a professional athlete on bottles that it will distribute nationally. But the shaggy-haired athlete on the label is not a traditional sports star: he’s a 21-year-old who has a three-year, $250,000 contract to play video games.

Dr Pepper is featuring the Halo 3 player Tom Taylor, who goes by Tsquared, on the labels, which will appear on about 175 million 20-ounce bottles from January to April.

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Video games are hugely popular with young men, who are playing them instead of watching television and reading magazines. Marketers are trying to advertise their products to this group by sponsoring tournaments or placing advertisements within the games themselves. (The Obama presidential campaign, for example, put ads on virtual billboards in the game Burnout Paradise.)

With the new labels, Dr Pepper is trying to grab the attention of gaming fans, who at Major League Gaming are largely men in their teenage years and early 20s.

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“The successful marketing of major stars is what sports leagues have always been about,” said Matthew Bromberg, the chief executive of Major League Gaming. “What’s really going on here is for tens of millions of young men, the aspiration to be a pro gamer is the new dream of sports stardom,” he said.

Edit by DAF

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Full article:
http://www.nytimes.com/2008/11/19/business/media/19adco.html?ref=technology

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A $545 billion stimulus plan … with no additional debt or taxes … too sensible to be enacted.

January 29, 2009

Ken’s Take: Two proven ideas have gotten little (i.e. no) visible discussion as part of the current grab-bag stimulus plan: (1) investment tax credits that reliably get businesses to step-up and accelerate capital spending plans, and (2) low tax repatriation of foreign earnings.  Most US multi-nationals park sizable cash stashes in foreign subsidiaries to legally avoid high US corporate income tax rates.  If that money were brought back on-shore, it would certainly provide some impetus to the slow economy.

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Excerpted from WSJ, “A $545 Billion Private Stimulus Plan”, Sinai, Jan. 28, 2009

The Obama team should implement a private-sector funded stimulus and allow a temporary reduction in the 35% tax rate that U.S. companies pay to repatriate foreign subsidiary earnings. Doing so could inject more than $545 billion into the U.S. economy without expanding the deficit.

Driven by previously strong foreign economies and a low dollar, the foreign subsidiaries of many successful U.S.-based companies have generated substantial earnings that could be invested in the U.S. economy at virtually no cost to the federal government. These earnings reside overseas, however, because of U.S. tax laws that many foreign competitors do not face.

Under the current system, U.S. corporations are charged 35 cents for each foreign-earned dollar they bring back home to the U.S. If they keep that income overseas, it is taxed at lower rates. As a result, those dollars tend to stay overseas permanently, since companies know they will automatically lose more money by bringing that income home than they can reasonably expect to make by reinvesting it once it is here.

In 2004, the American Jobs Creation Act incentivized U.S. businesses to bring $360 billion of foreign subsidiary earnings back into the U.S. at a reduced corporate tax rate of 5.25% for one year. On average, 25% of those funds went for capital investment, 23% for hiring and training of U.S. employees, 14% for U.S.-based R&D, and 13% for U.S. debt reduction.

A similar opportunity exists now … lowering the tax on repatriating foreign-earned income would inject $545 billion into our economy.

A private-sector stimulus could be a win-win for government.

Full article:
http://online.wsj.com/article/SB123310439653922291.html 

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Analysts say GE’s dividend is threatened … huh?

January 29, 2009

Disclaimer: I’m biased — I own a bunch of GE stock and want it to do well.

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Wall Street analysts are all over GE because of  its dividend policy: it uses cash and the yield is very high at the stock’s current price (approximately 10%).

With a little over 10 billion shares outstanding, the annual dividend payout is about  $14 billion.

But, GE estimates about 40% of its shareholders are retail investors who count on the dividend.

And, analysts estimate that retail investors annually reinvest $4 billion to $5 billion of their dividends in the company’s DRIP

So, the net cash outflow is under $10 billion annually … and, oh yeah,  the company is sitting on $48 billion in cash (end of Dec) — up from $16 billion (end of Sept.)

I must be missing something … 

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Reference:
http://www.thestreet.com/story/10459290/1/ge-dividend-a-cause-for-concern.html?puc=_cnnmoney&cm_ven=CNNMONEY&cm_cat=Free&cm_pla=Feed&cm_ite=Feed 

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Manage your marketing ROI … or else.

January 29, 2009

Excerpted from Brandweek, “CMOs Pressured To Show ROI” By Kenneth Hein, Dec 8, 2008

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Some CMOs are feeling awfully paranoid these days. With good reason, a number of recent studies show that marketers’ spending choices are coming under far greater examination as the economic vise tightens. In fact, 89% of marketers said they are under more intense scrutiny than ever before…The greatest pressure being applied is the demand to show return on investment. However, many are struggling to do so, finding the ROI process complex…

Yet, most recognize a need for improvement maximizing dollars spent. 67% believe that they are not realizing the full revenue potential of customers…

So how are marketers adapting? 64% of CMO Council respondents said they were evaluating all areas of marketing spend to increase yield and accountability…“In a constrained economy you’ve got to focus monetizing existing customer relationships. It requires analytics and better use of customer data. [However], in many cases marketers struggle to integrate and leverage data.”

64% of respondents said better segmentation, profiling and targeting strategies were the top ways they were trying to better engage core audiences…

Despite years of conversation about ROI, the tactic of actually measuring marketing investments is still in its infancy…Among the reasons marketers have been slow to adopt ROI tactics: problems with data and integrity (47%), lack of technology (41%) and resource dedication (39%)…

“The mandate is to do more with less…Part of that is using new strategies and techniques to make sure money isn’t left on the table.”

Edit by SAC

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Marketer’s have long argued that marketing costs and results are difficult to measure, making ROI nearly impossible to quantify.  With the current economic situation the pressure for CMO’s to show results is not likely to go away anytime soon.

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Full Article:
http://www.brandweek.com/bw/content_display/news-and-features/direct/e3ib7f2dc11ebcfe13a1a67c9e3add4f502?imw=Y

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Posted in Analytics, Mktg - ROI | Leave a Comment »

Opposites Do Attract: Google and P&G Partner for Innovation

January 29, 2009

Excerpted from WSJ, ” A New Odd Couple: Google, P&G Swap Workers to Spur Innovation” By Ellen Byron, November 19, 2008

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At P&G the culture is so rigid, employees jokingly call themselves “Proctoids.”

In contrast, Google staffers are urged to wander the halls on scooters and brainstorm on public whiteboards.

Now, this odd couple thinks they have something to gain from one another — so they’ve started swapping employees … staffers have spent weeks dipping into each other’s training programs and sitting in on meetings … Closer ties are crucial to both sides.

P&G, the biggest advertising spender in the world, is waking up to the reality that the next generation of buyers now spends more time online than watching TV. Google craves a bigger slice of P&G’s $8.7 billion annual ad pie as its own revenue growth slows.

The struggle by these two heavyweights to formulate successful strategies highlights how tough it is for myriad other companies, from newspapers to auto makers, to profit from Americans’ rush online …

P&G has a long history as a marketing innovator … But amid the shift to online media, P&G has stayed mostly on the sidelines so far … Tide is P&G’s single biggest brand in North America … It was also one of the first products to advertise on live television … Still, despite the shift among younger consumers toward online media, it is clear P&G’s marketing approach still prioritizes TV…

A big hurdle for Google is that many big ad agencies … still don’t make online strategies a priority. “The worst answer you can hear from an agency is, ‘Don’t worry, we have a group to handle interactive’ … Interactive isn’t a group, it’s everybody’s job”…

Consumer-products companies have been among the slowest to adopt online marketing because the traditional forms of marketing … are still reasonably effective …

A recurring suspicion: It works only for products that people buy online…”Everyone has a mindset that it has to be transactional … But, Online campaigns,  can powerfully influence brand awareness among consumers.”

Edit by SAC

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While the corporate cultures of Google and P&G couldn’t be more dissimilar, the partnership is a merger of two of the best and promises interesting results.  It appears that P&G has been satisfied with and encouraged by the success of the first online campaigns to come out of the partnership.  If this relationship continues P&G is nearly guaranteed to increase its online spending and Google will be there to reap a portion of the benefits. 

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Full Article:
http://online.wsj.com/article_email/SB122705787917439625-lMyQjAxMDI4MjE3OTAxNTk3Wj.html

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Posted in Internet Marketing - eCommerce -, Mktg - Advertising, Mktg - Product & Innovation | Leave a Comment »

Doubts on stimulus plan mount … combo of bad fundamentals and bad marketing

January 28, 2009

Below is a summary of the proposed stimulus plan.

Ken’s Take: (1) No question but that a stimulus is needed to kick the economy back into gear (2) But, a stimulus should stimulate, not be used as a trojan horse to advance a socio-political agenda (3) the Dems made a mistake throwing everything — including the kitchen sink — into the plan — especially controversial stuff like abortion aid and global warming studies and  (4) the Dems make a mistake everyday letting Reid & Pelosi out in public to explain the plan (5) If I were a GOP rep, I’d vote no on the plan — it’s going to pass anyway — conspicuous benefits are unlikely (it’ll be more TARP-talk: “would have been worse without it) — so, let Obama-Reid-Pelosi own it (“we won – we write the laws now”)  — and let them get the credit in the unlikely event that it does work.

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Excerpted from WSJ, ” Doubts on Obama Plan Mount” & “Stimulus Bill Near $900 Billion”, Jan. 27, 2009 

The economic stimulus package proposed by Democratic House leaders totals $825 billion and includes three broad pieces: a $365.6 billion spending measure for such brick-and-mortar projects as highways and bridges; a $180 billion measure to boost jobless benefits and Medicaid, and a $275 billion tax-relief package, which includes a plan to give a $500 payroll tax holiday to all workers (a proposal from Mr. Obama’s presidential campaign).

The Congressional Budget Office estimates that $169 billion (~ 20%) of the $825 billion in stimulus will hit the economy before the end of September and that the bulk of it will show up in 2010 and 2011.

CBO also said that government borrowing prompted by enactment of the plan would add another $347 billion, pushing the estimated cost of the stimulus plan to more than $1 trillion, including interest.

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The estimates point to one of the challenges of formulating an effective plan. Tax cuts can be implemented quickly, but many economists think they wouldn’t stimulate much new spending because consumers and businesses are so keen on saving. Government spending would generate economic activity more quickly, but it is hard to ramp up right away.

The one thing that is certain to flow from the stimulus is a large increase in the federal debt. Large government budget deficits are showing signs of starting to nudge interest rates on government debt higher, from very low levels.

If that persists, it could eventually damp some of the stimulus-plan’s benefits. Higher government rates raise the cost of borrowing not only for the Treasury, but also for many private-sector borrowers, since corporate bonds and mortgage bonds are often benchmarked to Treasury yields.

Bond markets have been hit by a flood of new supply of Treasury debt in the past few weeks, a factor that some traders say has pushed up rates. The yield on a 10-year note hit 2.519% Tuesday, up from a little over 2.00% at the end of 2008.

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It’s projected that deficits in 2009 and 2010 will reach between 10% and 12% of gross domestic product, respectively, roughly double the previous peacetime records set in the Reagan years. It added that federal debt will soar from about 70% of GDP to more than 90% of GDP.

Economists say that the rise in debt will eventually lead to slower economic growth and diminished standards of living in the U.S.

Full article:
http://online.wsj.com/article/SB123311521129023245.html?mod=article-outset-box 

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Posted in Financial Crisis, Gov't Spending, Government & Politics, Taxes | Leave a Comment »

Uh-oh … College endowments plunge… get your checkbook.

January 28, 2009

 Ken’s  Take: (1) On average, colleges apply 4.5% of their endowments to annual operating expenses … so, in most recent years (i.e. excluding 2008), schools were simply reinvesting most of their endowment income … not applying it to operations, (2) Begs the bigger question: why does it cost $25,000 to $50,000 in annual tuition to provide a private college education? Maybe shrinking endowments will get universities to attack their low productivity (of faculty and staff), and wasteful spending (e.g. recent reports on university contributions to the Clinton Library). Not likely, though..Tuition creep has become a way of life, and pretty soon, universities will qualify for more taxpayer funding via TARP or ‘infrastructure rebuilding’.’   …

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Excepted from WSJ, “2009 College Endowmwnnts Drop”, Jan. 27, 2009

College endowments have suffered a sharp blow in the financial crisis, with aggregate investment losses of at least $94.5 billion, according to a new survey.

The losses likely understate the severity of the hit schools have taken, since they don’t include losses in illiquid, hard-to-value investments that many schools have loaded up on. .

Some folks have questioned whether schools were hoarding their money at a time when tuitions were placing a heavy burden on middle-class families.

Endowment income is a critical part of budgets at colleges, especially at private schools … which, on average, spend 4.6% of their endowments annually to support operations.  that number is expected to increase to 6% because of endowment losses.

[Colleges Rich and Poor Lose Big]

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Posted in Education - Academics | Leave a Comment »

Loyalty programs lose their umph … at least for airlines

January 28, 2009

Excerpted from WSJ, “Plunging Value of Fliers’ Miles Saps Loyalty” By Scott McCartney, Dec 9, 2008

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The plunge isn’t as severe as your 401(k) or home appraisal, but the value of frequent-flier miles has dropped so far that airline programs no longer drive customer loyalty as strongly as they used to … But now, a handful of airlines … are launching tweaked programs they hope will rebuild ties with fliers.

The percentage of online buyers who say they are loyal to particular travel companies fell to 25% this year from 31% in 2006 … Customer loyalty for airlines … are worse than for hotels and cruise lines. And travelers buy tickets based on price and schedule more than ever instead of choosing to fly a particular airline.

“Airlines are shooting themselves in the foot…Their loyalty programs are just not worth what they once were to consumers.”

The biggest force driving the erosion of loyalty is the loss in value of frequent-flier miles … Airlines have raised the price of awards and tightened availability of the cheapest award levels, forcing travelers to jump to more-expensive mileage levels to claim seats…

To be sure, frequent-flier programs still drive loyalty for some road warriors… And they still make lots of money for airlines … The programs have grown more profitable as airlines have made it more difficult to cash in miles and added fees and surcharges to awards…

Not surprisingly, research …s hows growing dissatisfaction with mileage programs…Some airlines are addressing these flier gripes and revamping their programs …

Industry watchers say it may be risky to continue to degrade frequent-flier programs … airlines need to re-examine if they have squeezed frequent-flier programs too tightly. He says airlines have ignored trends in other industries where loyalty programs are stronger, and made their rewards more expensive and more difficult to redeem than other loyalty programs.

“Airline passengers get whacked by a lot of sticks, but there are not a lot of carrots out there for them” … airlines need to reinvigorate their customer-service efforts across the board, improving service at the airport and on board aircraft … frequent-flier programs could be more valuable to airlines as stronger drivers of loyalty if carriers revamped their confusing and frustrating redemption schedules, and gave consumers better benefits for purchasing loyalty.

“The idea of trying to reward people for loyalty is good … but it has become too complex and frustrating in the airline industry.”

Edit by SAC

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Declining customer loyalty adds pressure to the airlines already heavy financial woes.  Passengers no longer see the value in the customer loyalty programs that were originally created to increase customer loyalty.  As such, frequent-flyer programs may be profitable for the airlines in the short-term, but in the long-term customer lifetime value is likely to decline having a great impact on the airlines’ bottom line.

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Full Article:
http://online.wsj.com/article/SB122877921525689525.html

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Posted in Airlines, Customer Satisfaction - Loyalty, Mktg - CLTV | Leave a Comment »

Battling Private Label Rivals with Innovation …

January 28, 2009

Excerpted from BrandWeek,”OTC Drugmakers Seek Cures” by Elaine Wong, November 9, 2008

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Makers of branded cold and flu remedies are seeking their own antidotes for flagging sales. But will cash-strapped consumers cough up more money for “innovation?”

Tylenol is launching Tylenol Warming Liquids … that treat cough, sore throat and other cold symptoms via a formulation that delivers a warming sensation…

P&G is introducing Dayquil Plus Vitamin C, which includes 150% of the daily dose of the vitamin in the mix…

Robitussin … is promoting its DM Max mucus relief formula…“Robitussin DM Max has a double dose of mucus-fighting medicine”…

The efforts come as sales of most major OTC brands have declined by low-to mid-single and double digits thanks to advances by private label competitors. Sales of Children’s Tylenol, fell 14.2%…Robitussin’s … medications dropped 8.8%. Private label also prevailed in the tablet and packet category, up 18%…

Meanwhile, retailers have stepped up marketing efforts for their brands. Unlike previous cold/flu seasons … the drugstore is experiencing significant private label growth. The uptick reflects a mix of savvier retail marketing efforts, combined with a smarter and cash-strapped consumer, according to industry analysts.

“It’s the one category where it’s very clear and easy to see that the active ingredients in both national and store brands are identical” … Efforts like these are nothing more than attempts to gain greater market share. Research on vitamin C, in particular, shows no real effect in fighting or preventing colds. “It’s a cheap and easy way to distinguish your product from someone else’s”…

Edit by SAC

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OTC drugmakers know the benefits of choosing a private label OTC product with the same ingredients is clear for cash strapped consumers and are using innovation to add value to their products.  The brands must give consumers a reason to purchase their brand over less-expensive labels. This is becoming increasingly difficult as a recent Neilsen study showed that 62% of consumers perceived private label brands to be equal to name brands. 

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Full Article:
http://www.brandweek.com/bw/content_display/news-and-features/shopper-marketing/e3i8a864b21b4f19fc5d31ca97a9df8da2f

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Posted in Mktg - Brands, Mktg - Brands - Private Label, Mktg - Pricing, Mktg - Product & Innovation, Retailing | Leave a Comment »

Make cell calls from anywhere in the house? … now, that’s progress!

January 27, 2009

Ken’s Take: One of my many hot buttons is awful cell phone coverage.  I get spotty reception in some parts of my home; no reception in others.  What other product has to be taken outside to work right?  Finally, mobile companies are fixing the basics.  Now, if they can only get the price down to $29.99.

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Excerpted from Forbes.com, “Verizon offers $250 in-home cell phone booster”, AP, 01.26.09

Verizon Wireless has started selling a book-sized device that boosts cell phone signals within a home for $250, making it easier for people to drop a home phone line and rely solely on wireless.

The Verizon Wireless Network Extender needs to be connected to a broadband Internet line. Then it acts a miniature cellular tower, listening for signals from a subscriber’s cell phone. It covers up to 5,000 square feet, the company said Monday.

Full article:
http://www.forbes.com/feeds/ap/2009/01/26/ap5963881.html?partner=alerts 

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Posted in Telecom | 1 Comment »

Americans cooling to global warming …

January 27, 2009

Excerpted from IBD, “Warm At The Bottom”, January 23, 2009

In a new Pew Research poll , global warming is ranked dead last in a long list of issues that Americans believe are top priorities for the country.

When asked which issues they believed to be top priorities in 2009, Americans placed global warming 20th out of 20.  Only 30% feel President Obama should focus on it.

This is the third year that Pew has polled about priorities, and each year warming has slipped in the rankings.

Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=317607435688171

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Posted in Environment - Green | Leave a Comment »

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