How Beef-Loving Voters Can Get Tofu for President

Ken’s Take: This is from my archives – one of my favs.  The original article was inspired by Clinton’s win over elder Bush (the Perot factor), younger Bush’d win over Gore (the Nader factor), and Jesse Ventura’s gov win in Minnesota.

There’s current news in the article since the independent in NJ may allow Corzine to sneak thru, and the Conservative may prevail in NY 23 as the party cadidates split the liberal vote. It’ll be interesting to watch … and (I think), the article is a fun read.

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Excerpted from WSJ:  How Beef-Hungry Voters Can Get Tofu for President, March 14, 2003

Those odd ducks who scrutinize returns, calculate how each additional candidate affects the others’ chances and analyze strategic voting are hard at work. I refer, of course, to mathematicians.

Yes, there is a mathematics of elections.

Research has identified various voting systems world-wide in which, paradoxically, becoming more popular can make a candidate lose, abstaining gives your preferred candidate a better chance, and picking a winner means accepting someone a majority of voters don’t want.

This last paradox characterizes the U.S. system of plurality voting (vote for one; the top vote-getter wins). It works fine when there are two candidates, but with three or more, plurality voting can come up short.

For a democracy, the mathematicians’ most robust result is chilling. “It’s surprisingly difficult to identify a voting system that accurately captures the will of the people”.

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The Election

So as not to inflame passions with current political examples I’ll illustrate his point with food.

You and two colleagues are planning an office party, and the caterer offers chicken, steak or tofu. You poll 17 invitees:

5 people prefer chicken to steak to tofu.

2 people prefer chicken to tofu to steak.

4 people prefer steak to tofu to chicken.

4 people prefer tofu to steak to chicken.

2 people prefer tofu to chicken to steak.

One organizer tallies the ballots by the plurality method, counting only first-place votes. Chicken wins (7 votes), while steak is last (4 votes).

A second organizer uses “approval voting,” in which voters mark all acceptable choices (everyone’s top two choices are acceptable). Now steak wins with 13, tofu gets 12 and chicken is last with 9.

The third organizer uses a point system that gives their first choices 2 points, second choices 1 and last picks 0. Now tofu wins with 18, steak gets 17, chicken 16.

The ‘winner’ changes with the choice of election procedure … An ‘election winner’ could reflect the choice of an election procedure” rather than the will of the people.

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It gets better. Thanks to a mathematical property called nonmonotonicity, in some voting systems, ranking a choice higher can defeat it.

In a plurality-with-runoff system, the two candidates with the most first-place votes face one another in round two.

This time, we invite other departments to our office party, and get this first-round result:

27 prefer chicken to steak to tofu.

42 prefer tofu to chicken to steak.

24 prefer steak to tofu to chicken.

Chicken (27 votes) and tofu (42) reach the runoff. Assuming steak fans maintain their preference and give their second-round votes to tofu, tofu wins the runoff.

That seems fair.

But what if four people in the group of 27 chicken lovers are last-minute converts to vegetarianism and, in round one, prefer tofu to chicken to steak, like the group of 42?

Now steak (24 first-place votes) and tofu (46) make the runoff, in which steak beats tofu 47 to 46. Tofu’s late surge turned its win into a loss.

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Such paradoxes tend to occur under specific but far from unusual circumstances.

With plurality voting, the most common is when two centrists face an extremist. The majority splits its vote between the centrists, allowing the fringe candidate to squeak in. In Minnesota’s 1998 governor’s race, Hubert Humphrey got 28% of the vote, Norm Coleman 34% and Jesse Ventura won with 37%, even though most voters ranked him last.

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Thanks to such outcomes, scientists say what’s most needed is “a way for voters to register their second and third choices … especially in primaries, where there tends to be a large field.” Both a ranking system (give candidates 4, 3, 2 or 1 point) and approval voting accomplish that.

The U.N. chooses a secretary-general by approval voting. “It is particularly appealing in elections with many candidates … If your favorite candidate is a long shot, you can vote for both him and a candidate with a better chance without wasting your vote on the long shot. Approval voting would do a lot to address the problem of presidential-primary victors not being the choice of most voters.” Approval voting could well make more people (especially supporters of long shots) feel their ballot matters.

Still, no system is perfect. As Nobel-winning economist Kenneth Arrow proved mathematically in 1951, no voting system is guaranteed to be free of paradoxes in a race with three or more candidates, except one — a dictatorship.

Ring, ring, ring … want a couple of bucks off?

TakeAway:  Mobile coupons delivered directly  to  smartphones are catching on, spurring impulse purchases. 

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Excerpted from CNBC, “Coupons Via Cellphone: Whipping Up the Impulse Buy,” By Christina Cheddar Bank, October 15, 2009

To date, the concept of receiving coupons on your cell phone has been more theory than practice. This is despite a resurgence in coupon use and an increasing dependence on cell phones.

But with the focus on mobile coupons as a marketing tool on the rise, is the industry heading to an inflection point? A new Harris interactive survey … of more than 2,000 adults … found that 42 percent of those who were between 18 and 34 years old, and 33 percent of those 35 to 44 years old are at least somewhat interested in receiving opt-in alerts on their cell phones for specials at their favorite establishments …

This type of technology is even more impressive when one considers how many purchases consumers make on the fly … 9-in-10 Americans have made an impulse purchase when they were out shopping in a store based on a sale or a special that was going on around where they were … Among adults who own a cell phone, nearly a quarter — some 22 percent — make this type of purchase at least once per week or more often …

1020 Placecast  has designed a system to use digital marketing and mobile devices in an attempt to drive consumers to specific locations.  Using their systems, a restaurant or retailer can send an alert to a customer’s phone whenever the person is nearing its location …

Coupons.com … developed applications for the Apple’s iPhone and other devices to help consumers sort through coupons and pair them with their grocery lists … also trying out a system that allows shoppers to browse through coupon offerings on its Web site, then load the offers on to a key tag. Once at the store, shoppers can wave their key tags over the scanner during checkout in order to get the credit.

Both companies caution this is still early days for these technologies.

However, with the number of smartphone users on the rise … penetration is about 15 percent in the U.S. today (about 40 million phones) … most forecasts call for that number to at least double by the end of 2011 … coupled with the yet untapped interest, there may be significant opportunities for a technology that is simple enough for consumers to understand and appreciate …

Still, at this time, the reality is there is still more buzz about mobile coupons than people actually using these offers. But as retailers look to hone in on how they can improve relationships with their customers it seems the demand for this type of service is there.

Edit by TJS

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Full Article
http://www.cnbc.com/id/33244923

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About that 4 year old who bought her 1st home and got the $8,000 tax credit … call me suspicious

Ken’s Take: The finding of extensive fraud in the new home owners’s tax credit program can not possibly surprise anybody. But, I am a bit startled by the magnitude — likely to be in the billions when the dust settled.

Just wait until the analysis is done on Cash for Clunkers.  My bet: will make this look like chump change.

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Excerpted from WSJ: Home-Buyer Credit Tempts Tax Cheats, Oct. 23, 2009

The Treasury tax-oversight office told Congress that “tens of thousands of people” submitted suspicious — and possibly fraudulent — claims for a federal tax credit meant for first-time home buyers. 

The credit, adopted as part of the February stimulus bill, modified and expanded on a tax credit that was first passed by Congress in 2008. The current credit is available only to first-time buyers who purchased a primary residence since April 9, 2008. The full credit is available to individuals with incomes of less than $75,000 and $150,000 for married couples.

The IRS is conducting more than 100,000 examinations that could require filers to give back the credit and pay civil penalties.

At least 19,000 filers who hadn’t bought homes claimed $139 million in tax credits and were reimbursed.

An additional 74,000 tax-credit claims, valued at $500 million, for people who previously owned a home. 

More than 500 people under the age of 18, including a 4-year-old child, also had their names on applications for the credit, which has no minimum-age requirement. Most of the claims involving children were made by parents who purchased a home but were ineligible for the credit because their incomes were too high.

The authorities blamed a lack of safeguards, including lack of documentation requirements, for the extent of the problems.

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Rep. Charles Boustany Jr. (R., La.) said the problems show the dangers in creating refundable tax credits that give money to filers even if they didn’t owe any taxes. “Every time Congress creates a new refundable credit…the incentive for fraud is magnified,” he said.

The credit’s main sponsor, Sen. Johnny Isakson (R., Ga.), said he is “cautiously optimistic” that an extension — with procedural safeguards added — can move in the Senate next week. “Just because someone used fraud [to claim the credit] doesn’t mean the credit is a bad idea, it means there are some bad folks running around,” he said.

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Full article:
http://online.wsj.com/article/SB125622884824101553.html

The housing glut … peaking, but still high — very high.

There are still a record number of houses on the market — 9.4 months’ worth of existing homes for sale, according to NAR data.

The backlog is usually under six months.

And, based on current and projected delinquencies, nearly seven million housing units will eventually enter foreclosure … that could add 1.35 years’ worth of inventory to the market.

Source: WSJ: Housing Recovery Obstacle: So Many Houses, Sept 24, 2009http://online.wsj.com/article/SB125374552378835617.html#mod=WSJ_hpp_MIDDLENexttoWhatsNewsTop

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Ironic twists as Hurricane Bill heads for Bermuda

1) Bill & Hillary Clinton are vacationing in Bermuda.  Imagine Hillary dealing with 2 Hurricane Bills simultaneously.

2) Wouldn’t it be justice delivered if the 4 terrorists who got relocated from Gitmo to Bermuda got their clocks cleaned ?

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Marketing to retiring boomers …

For many Boomers “aging is not about the inevitable end, but rather about the evolving self.”

It seems this age group is redefining retirement as “a time of growth when identity is broadened, expressed, and completed through consumption.”

Researchers scoured the current literature on aging and lifestyle, observed seniors in a wide range of communities and life situations, and concluded that a boomer retirement is:

• A dynamic life stage full of self-evolution and identity work.
  Marketing hint: Emphasize making a mark, leaving a legacy (take heed, nonprofits).
• A culture in which “identity experimentation” is increasingly acceptable and common.
  Hint: Keep it in mind as you market that those in this age group are rediscovering their true selves. “It’s finally time for me!”
• A culture that emphasizes staying busy and traveling.
  Hint: Forget frailty. Assume they’re tough and ready to explore!
• A time when consumers favor consumption.
  Hint: Don’t rule out any product as not fitting this generation. They’re ready to buy—once they’re shown a little respect.

Don’t treat today’s seniors like they’re old and frail. Instead, market to them as the vital, active individuals they think are.

Extracted from: Marketing Profs, Now Is the Time for Me, Baby!, July 29, 2009

Source: “Consumer Identity Renaissance: The Resurgence of Identity-Inspired Consumption in Retirement,” by Hope Jensen Schau, Mary C. Gilly and Mary Wolfinbarger. Journal of Consumer Research, 2009.

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Presidential Legacies …

FDR: The New Deal

 

 
LBJ: The Great Society

 

 
BHO: Cash For Clunkers

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Brace yourself for higher healthcare premiums … (unless you live in NY or NJ)

Ken’s Take: Article cuts to the chase on 2 critical reform issues: guaranteed coverage and community rating … both of which will push up premiums for folks who currently have health insurance …

Excerpted from WSJ, The Truth About Health Insurance, Aug 12, 2009

9 out of 10 people under 65 are covered by their employers, most of which cover all employees and charge everyone the same rate.

The tax code subsidizes private insurance only when it is sponsored by an employer

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President Obama’s horror stories are about the individual insurance market, where some 15 million people buy coverage outside of the workplace.

The individual market is relatively small and its turnover rate is very high. Most policyholders are enrolled for fewer than 24 months as they move between jobs, making it difficult for insurers to maintain large risk pools to spread costs.

If you develop an expensive condition such as cancer or heart disease, and then get fired or divorced or your employer goes out of business — then individual insurance is going to be very expensive if it’s available.

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By forcing insurers to cover anyone at any time (“guaranteed coverage”) and at nearly uniform rates … many people will buy insurance only when they need medical care. This raises the cost of insurance for everyone else, in particular those who are responsible enough to buy insurance before they need it; they end up paying even higher premiums. 

Another proposed reform known as "community rating" imposes uniform premiums regardless of health condition. This also blows up the individual insurance market, by making it far more expensive for young, healthy or low-risk consumers to join pools — if they join at all. And if the healthy don’t join risk pools, then premiums go up for everyone and insurers have little choice but to reduce their risk by refusing to cover those who have a high chance of getting sick, such as people with a history of cancer.

New York, New Jersey and Massachusetts have both community rating and guaranteed issue. And, no surprise, they have the three most expensive individual insurance markets among all 50 states, with premiums roughly two to three times higher than the rest of the country.

In 2007, the average annual premium in New Jersey was $5,326 for singles and in New York $12,254 for a family, versus the national average of $2,613 and $5,799, respectively. ObamaCare would impose New York-type rates nationwide.

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ObamaCare would impose on all 50 states rules that have already proven to be failures in numerous states.

Because these mandates would raise the cost of insurance, ObamaCare would then turn around and subsidize individuals to buy the insurance that the politicians made more expensive. Only in government could such irrationality be sold as "reform."

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Full article
http://online.wsj.com/article/SB10001424052970204908604574332293172846168.html?mod=djemEditorialPage

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Some course adjustments for the immutable laws of economics …

Homa Note: Mankiw – a Harvard prof – is probably the foremost econ teacher these days.  Evidence: he got an author’s advance of over $1 million for his textbook …

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Excerpted from NY Times, “That Freshman Course Won’t Be Quite the Same”, Mankiw, May 24, 2009

Despite the enormity of recent events, the principles of economics are largely unchanged. Students still need to learn about the gains from trade, supply and demand, the efficiency properties of market outcomes, and so on. These topics will remain the bread and butter of introductory economics courses.

Nonetheless, the teaching of basic economics will need to change in some subtle ways in response to recent events. Here are four:

THE ROLE OF FINANCIAL INSTITUTIONS

Students have always learned that the purpose of the financial system is to direct the resources of savers, who have extra funds they are willing to lend, to investors, who have projects that need financing.

The economy’s financial institutions — banks and insurance companies are  part of a system [that is largely taken for granted] and quickly fade into the background

The current crisis, however, has found these financial institutions at the center of the action.

Financial institutions are like the stagehands who work behind the scenes at the theater. If they are there doing their jobs well, the audience can easily forget their presence. But if they fail to show up for work one day, their absence is very apparent, because the show can’t go on.

THE EFFECTS OF LEVERAGE

The economic crisis arose because some financial institutions had, in effect, invested in housing by holding mortgage-backed securities. When housing prices fell by about 20 percent nationwide, these institutions found themselves nearly insolvent.

[The] important question: “If housing prices have fallen only 20 percent, why did the banks lose almost 100 percent of their money?”

The answer was leverage, the use of borrowed money to amplify gains and, in this case, losses.

Economists have yet to figure out what combination of mass delusion and perverse incentives led banks to undertake so much leverage. But there is no doubt that its effects have played a central role in the crisis.

THE LIMITS OF MONETARY POLICY

The textbook answer to recessions is simple: When the economy suffers from high unemployment and reduced capacity utilization, the central bank can cut interest rates and stimulate the demand for goods and services.

When businesses see higher demand, they hire more workers to meet it.

But,  what would happen if the central bank cut interest rates all the way to zero and it still wasn’t enough to get the economy going again?

Now, with the Federal Reserve’s target interest rate at zero to 0.25 percent, that question is  pressing.

The Fed is acting with the conviction that it has other tools to put the economy back on track. These include buying a much broader range of financial assets than it typically includes in its portfolio.

Economists are far from certain how well these tools work.

THE CHALLENGE OF FORECASTING

It is fair to say that this crisis caught most economists flat-footed.

In the eyes of some people, this forecasting failure is an indictment of the profession. But that is the wrong interpretation.

In one way, the current downturn is typical: Most economic slumps take us by surprise. Fluctuations in economic activity are largely unpredictable.

Yet this is no reason for embarrassment.  Some things are just hard to predict. [The vest an economist can do is] assess risks and to be ready for surprises.

Full article:
http://www.economics.harvard.edu/faculty/mankiw/files/That%20Freshman%20Course.pdf

Your cellphone will keep you connected … with companies trying to sell you something.

Summary: The jargon is “mobile marketing” — marketers placing ads, coupons, reminders, and links in and around your cellphone apps.  It’s the next wave of innovative marketing and will spread quickly.  Why? Because it seems to work.

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Excerpted from Business Week, “Pandora: Unleashing Mobile Phone Ads: Kraft, Nike, and others are getting results advertising on Pandora’s mobile music service. Is cell-phone marketing finally taking off?” By Tom Lowry, May 21, 2009

It’s just a matter of time until mobile marketing will take off in the U.S.  … for two reasons: Web-surfing smartphones are selling briskly even in a downturn, and applications for those gadgets … are proliferating.

People are spending a lot more time playing games, watching TV, and shopping on their phones. That’s what marketers call engagement, a fancy way of saying people are paying attention. Companies, of course, prize that, so they’re looking for mobile applications that are a good fit for their brands.

Which brings us to Pandora, a nine-year-old, free online service that lets users design “radio stations” based on their musical preferences. Since Pandora launched a mobile edition two years ago, it has signed up 6 million people…That has prompted the likes of Best Buy, Dockers, Target, and Nike to buy ads on Pandora and experiment with what remains a cheap advertising medium

“Marketers, especially consumer brands, have to take mobile seriously now. You have to be where your customer works, lives, and plays.”

Pandora has become a test bed because people who use the service tend to spend a lot of time playing around with it. They are constantly creating stations, rating songs, and scrolling through playlists to find artists they don’t know … on average subscribers use the mobile service about 90 minutes a day (though there are no independent numbers).

Advertisers are trying out Pandora in myriad ways. Sometimes it’s as a direct marketing tool. Domino’s, for example, puts up ads that urge people to call in for a pizza directly from their phones.

Other companies are using coupons. Docker’s offered a 20% discount if visitors went to the brand’s site and entered a promotional code .

Some companies prompt users to watch movie clips where their products are featured prominently.

If one thing has surprised advertisers, it’s how avidly consumers are responding. Target says 27% more people clicked on its ad for the release of Christina Aguilera’s greatest hits CD last fall than on any other mobile Web campaign. The ad urged users to visit a site where they could get a free Aguilera ringtone and buy the album…

Sonos, which sells home music systems, just wrapped up a campaign on Pandora. DeAnna Wassom, Sonos’ senior marketing director, says she has never seen better customer response in her 20 years in the business. The ads asked people to click through to a promotional video. Typically, only 1% to 2% of people click on ads overall. But nearly 5% clicked in this case…and almost 40% of those clicking watched the entire video. During the campaign, nearly twice as many people asked to be put on Sonos’ e-mail list as those signing up on the company’s regular site.

Most brands have no clue how to market on mobile devices. Many try to do too much, including making sites so technologically flashy that they crash phones. The key is to keep it simple … build special mobile sites, because regular ones don’t translate well to supersmall screens.

Edit by TJS

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Full Article:
http://www.businessweek.com/magazine/content/09_22/b4133052597112.htm

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Soften your hard edges … with an empathic logo

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

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

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

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

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

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

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

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

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

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

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

Edit by SAC

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

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How much hope can the market withstand ? … Update

For folks who like to keep score:

The Dow closed at 8,228 on inauguration day.

The Dow closed at 7,114 yesterday (Feb. 23, 2009)

A decline of 1,114 points (13.5%) for the presidency to date.

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The Dow dropped 382 points on the day that Geithner’s speech bombed.

The Dow dropped 298  points on the day that Obama signed the non-stimulus package (the first day that the market was open after the bill was passed).

The Dow dropped 468  points on the days after Obama announced his mortgage modification plan.

The total decline since recovery initiatives were mobilized 1,114 points

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Fasten your seat belt for Obama’s announcement of his intention to increase in the capital gains tax rate in 2010.

Keep the change …

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The Stimulus … Line Item Detail

Below is a summary of the top spending items in Obama’s stimulus plan.

And, here’s a PDF with all of the line items:
Stimulus by Line Item High to Low -PDF

If you’d like the Excel file, email me at homak@msb.edu

click to enlarge

WSJ Source:
http://online.wsj.com/public/resources/documents/STIMULUS_FINAL_0217.html 

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Using card member databases to protect consumers and boost relationship marketing

Excerpted from MSNBC.com, “Dial-a-recall? Stores use cards to warn buyers” by JoNel Aleccia, January 23, 2009

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Jon Lowder usually disdains computer-generated telephone calls but when he got two this week from Costco, he didn’t mind.

The giant warehouse retailer was dialing Lowder to warn him that two brands of peanut butter sports bars he bought for his kids had been recalled as part of a growing salmonella food poisoning scare.

“They’d scoured their database and found any members who had purchased Clif Bars from them and then called them to let them know that they should dump those Clif Bars,” said Lowder. “Did I mention I love Costco?”

Certain shoppers are getting personalized warnings from the stores that sold them. They’re customers who hold membership cards at places such as Costco, or “loyalty cards” used to access discounts and services at some grocery stores.

About 1 million of Costco’s 54 million card-carrying members got calls about peanut butter products this week.

And in the Northeast, the Wegmans regional grocery store chain completed more than 17,000 calls about potentially tainted ice cream on Tuesday, and nearly 3,000 calls about suspect peanut butter cup candy on Thursday, all to holders of the store’s “Shoppers Club” cards who bought the affected items.

“It was really amazing that so many customers had no idea about the recall.”

The outreach is part of a small but growing trend that raises questions among consumer privacy advocates but draws praise from shoppers warned away from suspect products.

Chalk up a victory to “relationship marketing,” in which retailers try to woo consumers with personal reasons to seek their stores. In the case of food safety outreach, it’s a win all around.

But that confidence may come at a cost, noted Alessandro Acquisti, assistant professor of information technology and public policy at Carnegie Mellon University. He said he appreciates the constructive use of consumer data to warn about food poisoning, but worries about less benevolent actions.

“In this case, many consumers would be happy their information was used that way,” said Acquisti, “But they may be very unhappy if that same data is used to send them advertising they don’t want or if it is used in other ways they don’t want.”

Costco started making phone calls within the last two years, after a decade of sending letters about recalled items.

The effort isn’t comprehensive. Costco makes calls only for items identified as potentially serious or deadly Class 1 recalls by federal officials. Calls can only be made to consumers who provide accurate phone numbers and, in the case of Wegmans, only those who provide landlines.

Edit by NRV

Full article:

http://www.msnbc.msn.com/id/28802536/ 

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Brands that win by a nose … huh?.

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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Am I the only person on earth who didn’t watch the inauguration?

Excerpted from Ad Age, “How We Watched the Inauguration” By A. Hampp and A. Klaassen, Jan 20, 2009

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By the time final numbers are crunched President Barack Obama’s inauguration likely will have been watched by more people and on more platforms than virtually any other televised event in U.S. history — including the Super Bowl. This year’s biggest winner: the web, with cable news, social networks and even sports leagues capturing a record share of viewers tuning in and live-blogging online throughout the afternoon.

The early winners in the battle for inauguration-media-coverage supremacy were CNN and Facebook, which teamed up for a unique live-streaming event that integrated CNN.com’s video player with Facebook status updates, so users could update their statuses with up-to-the-second commentary.

According to early data … CNN.com had generated more than 136 million page views, while CNN.com Live had served more than 21.3 million live video streams globally … easily surpassing its previous record of 5.3 million live streams on Election Night …

If CNN and Facebook were the biggest winners in terms of streams served, Starbucks was arguably the biggest winner on the marketing side, as its new video ad aired on CNN.com Live directly after President Obama left the stage. The ad … was a community-outreach “grass-roots initiative” that offered pledge cards and free cups of coffee to consumers who promised to do five hours of community service during 2009 at their local Starbucks between Jan. 21-25 …

Another marketer looking to benefit from Obama mania is Audi, the German automaker, which will sponsor the evening broadcasts’ recap of the swearing in of Mr. Obama on ABC, CBS, NBC; the automaker also ran ads during numerous streamed broadcasts of the event online …

The inauguration was available from multiple sources and on multiple platforms. MobiTV offered live coverage from ABC News, CNBC, C-Span, Fox News and MSNBC on its mobile services. On the web, the inauguration aired on sites as diverse as Major League Baseball’s mlb.com and MySpace, which streamed the inauguration on its MySpace Impact website … 

Other online broadcasters reported early success and record traffic. Hulu streamed live coverage of Fox News. The site wouldn’t report specific streaming numbers, but a spokesman said today’s inauguration “set a new record for us in terms of live streams, ahead of our previous events, which included the presidential debates, the acceptance speech in Grant Park and the Sarah Palin/Joe Biden debate.”

However, Fox is likely to gain a significant increase in new viewers thanks to its syndication on Hulu, which could boost its audience by as many as several million unique visitors. It attracted just more than 5 million to FoxNews.com on Election Night vs. the 10 million to 15 million who watched CNN.com and MSNBC.com.

Edit by SAC

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Full Article:
http://adage.com/digital/article?article_id=133920

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Online ads … customized on the fly

Excerpted from the New York Times, “Web Marketing That Hopes to Learn What Attracts a Click”, by Stephanie Clifford, December 3, 2008

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Online advertisers are not lacking in choices: They can display their ads in any color, on any site, with any message, to any audience, with any image.

Now, a new breed of companies is trying to tackle all of those options and determine what ad works for a specific audience. They are creating hundreds of versions of clients’ online ads, changing elements like color, type font, message, and image to see what combination draws clicks on a particular site or from a specific audience.

It is technology that could cause a shift in the advertising world. The creators and designers of ads have long believed that a clever idea or emotional resonance drives an ad’s success. But that argument may be difficult to make when analysis suggests that it is not an ad’s brilliant tagline but its pale-yellow background and sans serif font that attracts customers.

Adisn, based in Long Beach, and Tumri, based in Mountain View, are working both sides of the ad equation. On one, they are trying to figure out who is looking at a page by using a mix of behavioral targeting and content analysis. On the other side, they are assembling an ad on the fly that is meant to appeal to that person.

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Adisn’s approach has been to build a database of related words so it can assess the content of a Web site or blog based on the words on its pages.

Adisn then buys space on Web sites, and uses its information to find an appropriate ad to show visitors to those sites. If a visitor views pages about beaches, weather and Hawaii, it might suggest that the visitor is interested in Hawaiian travel.

Based on that analysis, Adisn’s system pulls different components — actors, fonts, background images — to make an ad. For example, it might show an ad with a blue background, an image of a beach, and a text about tickets to Hawaii.

Simple Green, the cleaning brand, began working with Adisn this year to advertise a new line of products called Simple Green Naturals.

“If it’s a woman looking at a kitchen with a stainless steel refrigerator, they can show a stainless steel product.”

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Tumri’s approach is slightly different. It creates a template for ads, including slots for the message, the color, the image and other elements.

Unlike Adisn, it does not buy ad space, but lets clients choose and buy space on sites themselves. And rather than building a contextual database, Tumri uses whatever targeting approach advertisers are already using, whether it is behavioral or contextual or demographic, and assembles an ad on the fly based on that information.

“It’s reporting back to the advertiser and agency saying, ‘Guess what? The soccer mom in Indiana likes background three, which was pink, likes image four, which was the S.U.V., and likes marketing message 12, about room, safety and comfort.”

Edit by DAF

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Full article:
http://www.nytimes.com/2008/12/03/business/media/03adco.html?_r=1&ref=media&pagewanted=print

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Happy Holidays

May your holiday season be peaceful and happy …

Ken 

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Goldman: "Must pay to retain talent to insure continued success" … say, what?

Excerpted from IBD, “Bailing Out Bonuses”, December 22, 2008

Amid coast-to-coast cutbacks and layoffs by the thousands, bankers at the center of the financial crisis pay themselves $1.6 billion in taxpayer-funded bonuses .  In addition to the bonuses, they got club dues, financial planners, corporate jet travel, daily limousines and home security systems, courtesy of the taxpayers.

It’s obvious these banker bonuses had no correlation to productivity or performance. In the real world, enterprises provide such benefits only when executives produce results — that is, profits.

Goldman Sachs said it needed to retain and motivate its talent to ensure its “continued success,” not mentioning where this talent is threatening to migrate in a global and industry downturn.

Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=314842162013024 

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As Detroit burns (figuratively), UAW gets a paid vacation …

When Chrysler plants are idled because they are not making vehicles, Chrysler is still required to pay its UAW workers 95 percent of their wages.
http://voices.washingtonpost.com/economy-watch/2008/11/corker_uaw_should_not_be_paid.html?hpid=topnews

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Letting the Chicken Loose to Understand the Bottom of the Pyramid

Excerpted from WSJ, ” McCann Offers Peak Lives of Latin America’s Poor” By Antonio Regaldo, December 8, 2008

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During presentations at McCann Worldgroup’s office in Bogotá, Colombia, staffers have taken to letting a chicken loose to hunt and peck around clients’ feet. Racks of potato chips and other products on display in McCann’s Mexico City conference room, which has been designed to look like a bodega…

The point of these exercises: to give big marketers some insight into the lifestyles of Latin America’s low-income consumer…McCann’s move comes as multinational companies increasingly consider such “emerging consumers” as a big opportunity. But these consumers’ tastes, habits and needs remain largely an enigma to global marketers…

McCann’s research is helping Nestlé market Nido Rindes Diario, a brand of fortified powdered-milk product…one of Nestlé’s challenges was to overcome the perception that milk powder is a specialized formula for babies, and too expensive for the whole family to drink. McCann says its research helped position the product…

The idea of targeting low-income consumers may raise some eyebrows. But greater access to industrialized products like deodorant, and packaged food, can improve their physical and “psychological welfare…We do not pretend to be Mother Teresa”…

Advertisers say practical insights into low-income groups are hard to come by. “A lot of people talk about the emerging consumer, the bottom of the pyramid, but no one really has a structured approach…We have to do a lot for ourselves, and sometimes fall on our face doing it.”

In Mexico, Nestlé decided to sell Nido Rindes Diario exclusively through mom-and-pop stores, not supermarkets…That decision came after McCann found that local shopkeepers exert outsize influence in tightly knit, low-income neighborhoods. “It’s the shopkeeper who can recommend or disavow a product,” he says…

Some experts say marketing directly to low-income groups has yet to become a full-blown trend. “Usually multinationals just put out a Mexican version [of their product] that looks as American as possible”…But examples of products tailored to thin pocketbooks are increasing…

Edit by SAC

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According to the theory of the bottom of the pyramid, there is a combination of profit opportunity and social responsibility to be had by marketing to consumers at the bottom of the economic pyramid. Critics of the theory argue that the benefits of marketing to this group are overstated and that marketing to this group can be exploitive.  Whether the profit opportunity is real or a mirage, McCann is taking the right steps to help Nestle benefit from this group by working to understand the group’s purchase desire and developing tailored solutions for the market to ensure that consumers are able to access the product.

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http://online.wsj.com/article/SB122824726034173129.html

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Breaking through all that clutter …

Excerpted from The Wall Street Journal “Notice Me: Cutting Through the Clutter” by S. Balasubramnian and P. Bhardwaj, October 20, 2008

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It’s hard to cut through the clutter.

Even as customers are constantly bombarded with advertising messages, they are getting progressively better at tuning out the endless stream of come-ons. Companies then typically up the ante and try to out-shout their competitors to draw attention. All of which just leads to more shouting, and everybody is drowned out…

Here are five questions marketers should ask themselves as they craft new strategies to capture customers’ attention in an increasingly noisy marketplace.

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Can the marketing stimulus be delivered at a time when the customer has few other distractions?

Marketing messages should target customers at times when they are unoccupied, perhaps even actively seeking some sort of information to process. Consider, for example, an airplane on the landing path into an airport. Sitting upright, with in-flight entertainment and electronic devices switched off, passengers have little to do but to look out of the window and wait for the aircraft to land.

Seeking to capitalize on this opportunity, London-based Ad-Air Group PLC places advertisements flat on the ground over an area as large as five acres alongside flight paths in and out of the world’s busiest airports. Depending on their landing approach, passengers are provided with an unrestricted view of an ad for more than 10 seconds.

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Can the marketing message be designed to pique the customer’s curiosity?

Piquing customers’ curiosity can be more effective than inundating them with information. Stimuli that are carefully placed, so that they are encountered in sequence, can be particularly successful at this task…

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Can the marketing message piggyback on another brand?

With television and newsprint media being increasingly saturated, marketers need to seek out new and interesting formats and media for their messages.

Goodyear Tire & Rubber Co., for example, has teamed with Addidas AG on a range of motorsport-inspired driving and sports shoes. The soles of these shoes are made of rubber with tread patterns designed by Goodyear. If customers viewed the shoe purely as an Adidas product, Goodyear’s contribution would remain unnoticed. However, the Goodyear brand is prominently displayed on the outsoles of the shoes. The result is that every person wearing the shoes is now a messenger for the Goodyear brand.

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Can the product or service occupy a piece of the physical environment that the customer frequently interfaces with?

Consumers today tend to spend inordinate amounts of time interfacing with just a few objects — for many, it is their computer screen at work. Marketers must consider how they can capture the customer’s attention when they interface with these objects. Customers, however, guard access to these objects zealously…

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Can your company build into its messaging a consistent stimulus that affects one or more of the five physical senses?

Successful marketing messages excite customers not only when they first encounter them — they ingrain themselves into the customers’ permanent memory. Once a message is embedded, customer resistance to processing it drops when it is encountered in the future…

Not each of these five questions will necessarily generate a great idea for every company. But they do provide a common language for comparing, debating and improving managers’ proposals. 

Edit by SAC

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Full article:
http://online.wsj.com/article/SB122427109679945225.html

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Boost your ROI by building your brand ..

Excerpted from Brand Channel “Trust as a Tangible Brand Attribute” by Mary Weisnewski, November 3, 2008

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How do you transform your company’s core values into a business asset you can see and feel?

Investing in branding is a good start.  Unfortunately, too many companies slow their efforts to a grinding halt after the rollout party to unveil the new website design and hand out pens embossed with the new logo..

.“Investing in brand development is increasingly important to build credibility and differentiate…People are making purchasing decisions based on how closely aligned their values are with an organization and how much they trust what that organization is providing. This is as true whether people are making donations to nonprofits, buying consumer products, or hiring consultants.”

Revealing your organization’s core values by developing an authentic brand platform, then consistently walking the talk of those core values, is the foundation of employee and customer trust and loyalty—both of which directly affect your bottom line.

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Trust is the engine that powers your brand. When a brand delivers consistently on what it says it will do there are tangible results. When the visual brand is aligned consistently with the experience it communicates an honest, reliable organization and there are tangible results. It’s all about building loyalty and long-lasting relationships…

Trust results from a reliable cache of perceptions and experiences, built over time. We think of organizations just like we do people we know. If I have heard of you I am more likely to trust you. If you do what you say you are going to do, my level of trust will increase…

You have to survey, or audit, everyone involved with your organization to find out what they really think and feel about what you’re offering, and listen to their concerns and desires…

What every company really wants, regardless of its size or market niche, is brand equity: tangible results that show a return on investment. When United Way underwent a rigorous brand evaluation in 2003, they discovered that the strong brand was 67 percent of the reason why people chose to invest in the organization.

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Making your brand tangible leads to: ongoing affirmation of purpose, organizational alignment, differentiation, stronger relationships and connections, increased recognition; stronger recruitment, and increased ROI.

The bottom line is that a tangible brand is a win-win for your company and your customers…When a brand delivers consistently on its promise there are tangible results. This is true whether your company is just starting out or has a well-known national or international presence….People will pay more for, and choose faster, the experience and peace of mind a healthy brand promises.  

Edit by SAC 

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Full article:
http://brandchannel.com/brand_speak.asp?bs_id=205

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McCain: Hoisted on his own pitard?

Note: I love that expression.  See below for what it means.

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Ken’s Take:

(1) McCain took on enormous political risk when he pushed campaign funding reform (McCain-Finegold).  Wonder how he’s feeling about that today?

(2) In rough numbers, Obama spent about $6 per vote ; McCain spent about $1.50 per vote.

(3) Next election: it’ll cost $1 billion to ante in.

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Excerpted from McClatchy Newspapers, “Obama spent $250 million on TV ads in general election”, Nov. 6, 2008

Beginning in early June, Obama amassed about $364 million for the fall campaign, Federal Election Commission records show. Obama’s campaign reports already show that he raised a record-shattering $668 million since entering the race last year, with some donations yet to be disclosed.

In contrast, McCain was limited to $84.1 million in public money beginning in early September.

Flush with a tidal wave of campaign donations, Barack Obama spent $250 million on television ads … outspending John McCain and the Republican Party combined by as much as $80 million [i.e. over 40% more].  McCain’s campaign spent about $135 million on TV ads, and the RNC kicked in more than $40 million for coordinated or independently produced pro-McCain or anti-Obama television ads. Obama’s ad spending smashed President Bush’s 2004 record of $188 million on TV ads.

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Obama’s decision takes away any incentive for congressional Democrats to pass legislation strengthening the public financing law. Any Republican seeking to challenge Obama in four years will have to ask the question, ‘Can I raise $600 million?”  Federal funding “will remain as a safety net for underfunded ‘populist’ candidates,” but won’t be an option for those who want a serious chance of winning.

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Full artcile:
http://www.miamiherald.com/news/politics/AP/story/758740.html

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“Hoisted on his own pitard“

From Yahoo Answers:
“The word is really”petard”.  A  petard was a bell shaped metal container filled with explosives. It was used to blow in gates or breach walls. It was lit with a slowly burning fuse, but there was always the danger of a premature explosion – the chance that you would be hoisted (lifted) by your own petard. It comes from Shakespeare and I think the quote is actually “hoist with his own petar.” (Not “on” – that’s just become the common parlance.) Some sources cite petard as deriving from the French word for “fart.” A different kind of explosion!”

http://answers.yahoo.com/question/index?qid=20070815011415AA667i9

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Marketing – Destroying Starbuck’s Brand Value

Excerpted from: “Starbucks: How Growth Destroyed Brand Value” by Prof. John Quelch, HBS Online / BusinessWeek Online

Founder and CEO Howard Schultz had a great concept, and it worked for a while. But too many new stores and diverse products changed the experience … Schultz recognized (that) … “Stores no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store.”

(Now) Starbucks is a mass brand attempting to command a premium price for an experience that is no longer special. Either you have to cut price (and that implies a commensurate cut in the cost structure) or you have to cut distribution to restore the exclusivity of the brand … Sometimes, in the world of marketing, less is more … Growth targets undermined the Starbucks brand in three ways.

First, the early adopters who valued the club-like atmosphere of relaxing over a quality cup of coffee found themselves in a minority. To grow, Starbucks increasingly appealed to grab and go customers for whom service meant speed of order delivery rather than recognition by and conversation with a barista … many Starbucks veterans have now switched to Peets, Caribou and other more exclusive brands.

Second, Starbucks introduced many new products to broaden its appeal. These new products undercut the integrity of the Starbucks brand for coffee purists. They also challenged the baristas who had to wrestle with an ever-more-complicated menu of drinks. With over half of customers customizing their drinks, baristas hired for their social skills and passion for coffee, no longer had time to dialogue with customers. The brand experience declined as waiting times increased. Moreover, the price premium for a Starbucks coffee seemed less justifiable for grab and go customers as McDonald’s and Dunkin Donuts improved their coffee offerings at much lower prices.

Third, opening new stores and launching a blizzard of new products create only superficial growth … Eventually, the point of saturation is reached and cannibalization of existing store sales undermines not just brand health but also manager morale.

None of this need have happened if Starbucks had stayed private and grown at a more controlled pace. To continue to be a premium-priced brand while trading as a public company is very challenging. Tiffany faces a similar problem. That’s why many luxury brands like Prada remain family businesses or are controlled by private investors. They can stay small, exclusive and premium-priced by limiting their distribution to selected stores in the major international cities. “

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Ken’s Take:

1. Nice synopsis of Starbuck’s current position and challenges.

2. The issue is strategic discipline — not private vs. public ownership.

3. Eventually, you run out of folks who are willing (and able) to shell out $5 for a cup of coffee that keeps losing taste tests to both Mickey D and Dunkin’ Donuts. And, as budgets tighten, brand panache starts to look like wateful spending.

4. Things are likely to go from bad to worse as stores close and Barista “partners” confront job insecutity — so much for kumbaya.

5. Still, you have to hand it to these guys for their spectacular run.

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Note: Prof. Quelch wrote a series of cases on Black & Decker marketing, including the classic “B&D Brand Transition”

Source: BusinessWeek Online / Harvard Business Online,
July 9, 2008         For full article:
http://businessweek.com/managing/content/jul2008/ca2008079_888377.htm?chan=top+news_top+news+index_news+%2B+analysis

Thanks to MSB-MBA alum Suhrud Atre for the heads-up on the article

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Encore – So, is the U.S. tax system regressive or progressive?

Last night, I heard a group of pundits claiming that the US tax system is regressive when payroll taxes (for Medicare and Social Security) are considered.  Huh?

This encore was originally posted on Aug.3, 2008.

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OK, I’m officially confused. Is the current U.S. tax system “regressive” – the more you make, the lower your effective rate – or is it  “progressive” – the more you make, the higher your effective rate. 

The politicos and pundits – even the smart ones – seem split on the question.  So, which is it?

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Summary

Practically everyone agrees that the U.S. federal income tax structure is progressive (i.e. high earners pay a higher tax rate).  But, the Reagan and Bush tax code changes did make it less progressive than it was in the 1960s; there are some isolated anomalies ( e.g. Warren Buffett and his secretary); and it may be less progressive than some folks want.

The estate tax (a.k.a, “death tax”) is – by definition –  progressive since only the wealthiest 1% of folks who die pay it.

• Note: there’s a difference between “income” and “wealth” – while high income usually correlates with high wealth, income is a “flow” variable and wealth is a “stock”.

So, any dispute must arise from so-called  “payroll taxes” – the paycheck deductions that fund Social Security and Medicare. 

There is a single rate for Medicare (1.45%) that is applied to all wages; and.there is a single rate for Social Security(6.2%) that is applied to at most $102,000 in wages.  Employers match their employees’ contributions dollar-for-dollar.

• Note: most economists argue that, in the final analysis, employees bear the full burden of their employer’s matching amounts since employers most likelycover the tax by reducing wages.

Since the same rates are applied to all taxpayers , and since Social Security’s “base earnings” are capped at  $102,000, then payroll taxes are regressive with respect to current earnings.  But – as I’ll demonstrate is future analytical posts – Medicare benefits are the same, regardless of how much a taxpayer contributes (and high earners contribute more than low earners); and Social Security benefits are “coupled” to earnings via a very progressive formula – i.e. high-earners get disproportionately less in benefits.  So, taking into account the benefits received as well as the contributions made, both programs are very progressive.

The bottom line: all of the components are progressive:  federal income taxes, estate taxes, payroll taxes.  So, it logically follows that the combined program is progressive.

In this post, I’ll set-up the issue and provide some references.  In subsequent posts, I’ll provide some numbers and analysis that support the above conclusions..

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The Details

The question: Is the current U.S. tax system “regressive” – the more you make, the lower your effective tax rate – or is it  “progressive” – the more you make, the higher your effective tax rate.

Let’s look at the pieces that make up the U.S. tax system..

There’s the estate tax (a.k.a. “death tax”).  It’s clearly progressive since only the richest 1% of folks who die pay it.  As the exclusion levels increase under the Bush plan, fewer dead people have to pay it – making it even more progressive.  When it gets eliminated entirely in 2010, it stops being progressive, but it doesn’t start being regressive.  It just stops.

The estate tax in small potatoes in the overall  tax mix.  The big behemoth is the federal income tax.  The aggregate statistics  (i.e. looking at the broad population , and not just Warren Buffett and his secretary) are – in my opinion – incontrovertible.  Higher income folks – say the top 50% — pay a higher effective income tax rate and shoulder over 97%l of the federal income tax burden. The federal income tax is progressive.  Period..

Why then, do many really smart, well-intended people say the tax system is regressive and that high earners aren’t paying their fair share?

• Note: though some people use the terms interchangeably, “regressive” and “fair share” are not synonymous.

First, what some of them are really saying is that the income tax code isn’t as progressive as it used to be (true, but so what?),  or that it isn’t as progressive as the tax code in other countries, say France (true, but — for sure — so what?),  or that it’s not progressive enough based on higher order socio-ethical criteria (very important, but also, quite debatable).

• Note: for a recent, left-leaning, comprehensive recap, see “How Progressive is the U.S. Federal Tax System?”, Journal of Economic Politics, http://elsa.berkeley.edu/~saez/piketty-saezJEP07taxprog.pdf

A more structural argument posed by many people is that so-called “payroll taxes” that fund Social Security and Medicare are regressive and tilt the balance of the tax system..

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For example, Robert Reich, Bill Clinton’s former Secretary of Labor says:

The fact that “84.6% of all federal taxes are paid by the top 25% of income earners, and over a third are paid by the top 1%, advances a specious argument.

Most Americans pay more in payroll taxes than in income taxes … payroll taxes take a much bigger portion of the paychecks of lower-income Americans than of higher-income.

Viewed as a whole, the current tax system is quite regressive.”

http://economistsview.typepad.com/economistsview/2007/10/robert-reichs-p.html

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OK, so parsing Reich’s argument, if the overall system is regressive, and if major parts of the system –  income and estate taxes are progressive – then it logically follow that payroll taxes are both substantial (especially to low-earners) and very regressive.  The culprit is payroll taxes.

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The Tax Policy Center–  a joint venture of the Urban Institute and Brookings Institution and self-proclaimed non-partisan organization   – explains:

“Taken as a whole, the federal tax system is progressive: on average, households with higher incomes pay a larger share of their income in federal tax than do those with lower incomes. In other words, the overall average effective tax rate-total tax paid as a percentage of income-rises as income rises.

But not all taxes within the federal system are equally progressive. The estate tax is the most progressive federal tax. The individual (and corporate) income taxes are also progressive. In contrast, payroll taxes for Social Security and Medicare are regressive, claiming a larger share of income from lower-income than from higher-income households.

For 2008 average effective payroll tax rates are estimated at 8.4 percent for the bottom fifth of income earners, and 10.4 percent for the next fifth, but only 5.7 percent for the top fifth. Households in the top 1 percent will pay an estimated average of only 1.5 percent of their income in payroll taxes.

This regressivity of payroll taxes stems from two factors. First, the Social Security portion of payroll taxes is subject to a cap: in 2008, individuals pay Social Security tax on only their first $102,000 in earnings. Second, higher-income households tend to receive more of their income from sources other than wages, such as capital gains and dividends, which are not subject to the payroll tax.”

http://www.taxpolicycenter.org/briefing-book/background/distribution/progressive-taxes.cfm

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The underlying logic of the regressive claim is simple. Take Social Security: A worker gets docked 6.2% on wages up to $102,000.  The rate drops to zero for any wages over $102,000.  So, somebody earning $50,000 has $3,100 deducted from their paycheck [6.2% times $50,000];  somebody earning $102,000 has $6,324 deducted —  a greater amount, but the same 6.2%;  somebody earning $200,000 has $6,324 deducted — the same as the worker earning $102,000, but representing a lower effective rate (3.2%).  The more that somebody earns over the $102,000 maximum, the lower the effective rate. By definition, that’s a regressive tax since the rate declines as income gets higher.  Case closed. Right?

Not so fast.

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The Urban Institute gets to the real core of the question:

The payroll tax is very regressive with respect to current income: The average tax rate falls as income rises …  (But) the regressivity of the payroll tax is mitigated to a substantial extent when Social Security and Medicare benefits are considered as well..

http://www.urban.org/publications/1001065.html

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In other words, the single payroll tax rate and the cap on taxable earnings combine to make payroll taxes appear regressive when analyzed solely based on current payroll deductions but, the benefits the taxes buy (retirement income and health insurance) are so progressive – i.e. high earners get much lower benefits per dollar than low earners — .that the net effect on tax payers is progressive – very progressive.

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A Congressional Joint Economic Committee states the case more directly:

The rapid growth in payroll taxes over the past 40 years has imposed a large burden on working Americans. This burden has fallen disproportionately on low-income workers. However, in the context of a comprehensive tax policy, it is misleading to focus on the short-term burden imposed by payroll taxes without accounting for the future benefits (since) the progressivity of the benefit formulae outweigh the disproportionate burden imposed by the taxes.

As a result, low-wage workers can expect to receive benefits that exceed the sum of their and their employers’ payroll tax contributions. Middle- and high-wage workers, on the other hand, can expect to pay substantially more into the system than they will receive in benefits.

Overall, middle- and high-wage workers subsidize the income and payroll tax liabilities of low-wage workers, leaving most low-wage workers with net negative tax liabilities throughout their lifetimes.

http://www.house.gov/jec/fiscal/tx-grwth/payroll/payroll.htm 

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In the next couple of tax posts, I’ll get into the numbers (of course)

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Wendy’s Changes its Target, Leaving the Red Wig Behind

Excerpted from the Wall Street Journal “Wendy’s Comes Up With a New Strategic Recipe” by Janet Adamy, September 29, 2009

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Wendy’s plans to target older customers, change its value menu and improve items like its french fries as its new owner takes over.

Wendy’s new chief executive, Roland Smith, says the chain plans to market to older customers…Wendy’s has struggled to increase sales and profit since Mr. Thomas died six years ago, and that led directors to put the chain up for sale last year.

In an interview, Roland Smith, president and chief executive of the new Wendy’s/Arby’s Group Inc., said executives plan to reverse the previous’ management team’s strategy of courting 18- to 24-year-olds and will instead aim its marketing at customers ages 24 to 49. A new marketing campaign that focuses on the quality of the chain’s food “is a breath of fresh air from the red-wig campaign,” a more offbeat series of commercials that Wendy’s ran last year featuring young men wearing red wigs, Mr. Smith said.

Mr. Smith said that, like rivals McDonald’s Corp and Burger King Holdings Inc., Wendy’s plans to change its value menu, which includes three items for 99 cents, as it faces higher ingredient and labor costs. He said Wendy’s is considering higher price points for some items and looking at putting different items on the menu…

Mr. Smith acknowledged that Wendy’s hasn’t done a good-enough job of creating products to bolster sales and fend off competitors. After talking to franchisees, he decided that the chain also needs to improve the quality of existing items and emphasize a message of freshness in its marketing. In particular, he wants Wendy’s to offer better french fries, sandwich buns and bacon.

For Wendy’s, one of the keys to increasing its sales and profit will be breaking into the breakfast business…Wendy’s has been serving breakfast at some locations but has yet to hit on a successful strategy. Mr. Smith said the company needs to reformulate some of its breakfast items and improve its coffee, which is made by Procter & Gamble’s Folgers. Wendy’s also is testing espresso drinks in some stores.

Another key to improving sales will be remodeling thousands of Wendy’s restaurants…The credit crunch is likely to make that more difficult for franchisees who need to borrow money to fund the renovations. “It’s going to be tougher to get money to buy stores and rebuild stores”..

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Full article:
http://online.wsj.com/article/SB122270629158386159.html

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Pssst – Newest Word-of-Mouth Sites

Excerpted from Brandweek “General Mills, Kraft Launch Word of Mouth Networks” by Elaine Wong, October 5, 2008

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Recognizing that a consumer’s two cents are well worth their dollars, General Mills and Kraft have both launched new word-of-mouth networks. 

For General Mills, it is “Pssst . . . ,” an online network that gives members the scoop on the latest product news and offerings. The site, pssst.generalmills.com, currently has 100,000 members after a quiet launch last month…Pssst uses an initial survey to help gauge product preferences. Once registered, users can voice their opinions via blog posts, share online coupon offers and recipes, and test new sample kits via the mail…

Kraft, meanwhile, kicked off Kraftfirsttaste.com last week, which lets consumers share the newest coupon and sampling offers, but also includes features such as a member spotlight, product reviews, discussion boards and a photo-sharing tool.

Neither Kraft nor General Mills pays  members to join. Nevertheless, there is still incentive to participate, both companies say. “Consumers today regularly look to each other for recommendations and reviews on everything from books to food to cars, so we wanted to have a platform that enabled and encouraged this type of interaction and engagement,” said Gwen Gray, who heads consumer relationship marketing at Kraft, Northfield, Ill.

These two companies are following the footsteps of Procter & Gamble. P&G launched Tremor, which recruits teen word-of-mouth marketers, in 2001. It followed up with Vocalpoint for moms four years later…Unlike the General Mills and Kraft networks, Tremor and Vocalpoint are separate business units that operate under P&G…

Although these food companies are replicating the P&G model, they are going about it carefully. The registration process for Pssst contains a mandatory “full disclosure” statement that requires the individual to reveal his or her status as a Pssst marketer, a move to ward off potential litigation.

For instance, in 2005, Commercial Alert, a consumer advocacy group, filed a complaint against Tremor with the Federal Trade Commission. At issue was the fact that P&G’s Tremor did not require teens to disclose their marketing status. “Disclosure of that relationship is the difference between honest and creepy,” said Andy Sernovitz, author of Word-of-Mouth Marketing. The General Mills clause is an obvious response to the Tremor-FTC suit, he added.

Sernovitz expects to see more packaged goods companies getting into the space: “We’ll see more and more companies realize that word-of-mouth is not an accident. It’s something you do as a core part of the marketing mix.”

Edit by SAC

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Another recent article by Brandweek, “Is Talk Cheap, How Cheap?” discusses attempts made to quantify the costs of generating buzz.  The normal cost per word-of-mouth conversation is currently estimated to be about 50 cents.   This figure is generated by BzzAgent, a word-of-mouth marketing firm,  who arrives at the figure by dividing the number of tracked conversations related to a product by its sales.   While it is remains unclear how to best quantify the ROI for word-of-mouth marketing, it is clear that marketers such as Kraft, General Mills and P&G recognize that there is value in generating buzz. 

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Full article:
http://www.brandweek.com/bw/content_display/news-and-features/packaged-goods/e3i2db03fb29d573ec52722456845f5c274?imw=Y

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Companies Bring Agencies Inside

Excerpt from Promo Magazine “Companies Establish In-House Ad-Agencies” September 15, 2008

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When the Association of National Advertisers asked its members whether they had established in-house ad agencies, 42% said yes.

Cost efficiencies and achieving quicker turnaround times were cited as the reasons…

The various types of role cited were: Creative development, Origination, Creative adaptation, Repurposing of work originally developed by an external agency, Production. In addition, 35% of the marketers with in-house facilities also require the agencies to do some media planning, while 24% are charged with media buying responsibilities, the survey found. 

Despite the general favorable view of the in-house agencies there were some downsides. Some 61% of respondents felt the in-house agencies lacked a depth of strategic thinking. About 50% said that it was challenging to obtain fresh thinking when working with internal teams.

“This study suggests that more and more companies are finding advantages to bringing some capabilities in-house and charging these groups with duties across the board,” Bob Liodice, president and CEO of the ANA, said in a statement… 

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Full article:
http://promomagazine.com/agencies/news/companies_establishing_ inhouse_ad_agency_0915/

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General Mills Gets A Cereal Boost from Marketing

Excerpt from the Ad Age “Cereal Business Gives Boost to General Mills” by Emily Bryson York September 17, 2008  

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General Mills reported better-than-expected first-quarter earnings this morning. The company cited particularly strong growth in its cereal business, and said increased marketing investment helped keep its brands top-of-mind… “People are eating more meals at home, and cereal is a quick and healthy option,” Big G President Jeff Harmening said during the call…

The company continued to credit increased consumer marketing spending with much of this success. Ad spending was up 17% in its first fiscal quarter…on top of an 11% increase during the same period last year…

Competitors Kraft and Kellogg have dutifully hiked spending as well, but there has been wide speculation as to when the food industry will begin to show signs of share loss to private labels, or lower ad spending…

Instead of fighting what was expected to be a shift by consumers to lower-priced private-label brands, General Mills CEO Ken Powell said his company is benefiting from consumers seemingly eating out less often and taking more meals at home. (The move away from restaurants appears to have had a positive effect on grocery in general. Kroger reported a 3% increase in second-quarter profit yesterday, citing particular growth in its private-label business.) He said cereal is in a good spot for the current economy, because each serving only costs about 50¢, including milk. 

Edit by SAC

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While General Mills earnings may have been better-than-expected, net income dropped 3.6% in the first quarter as it was hit hard by rising commodity prices.  According to a Wall Street Journal article, the cost sugar, oil and other commodities is expected to continue to rise through the rest of the year.  General Mills and other companies were hit particularly hard when efforts to protect against price surges ended up backfiring, particularly with the price of corn and soybeans.  For more information: http://online.wsj.com/article/SB122165181380247655.html

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Full article:
http://adage.com/article?article_id=131057

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Drink Your Vote – Campaign Cola

Excerpt from the Saginaw News “Drink to Your Presidential Pick with Campaign Cola” by Cole Waterman September 18, 2008  

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Jones Soda Co. has found a way to bottle the enthusiasm fizzing around this year’s historic presidential election.

The Seattle-based company is selling “Campaign Cola,” bottles featuring faces of presidential candidates. Republican John McCain’s “Pure McCain Cola” faces off against Democrat Barack Obama’s “Yes We Can Cola.”

“There are only three areas in the nation it will be sold in, and so far, Obama has outsold McCain, seven to one…On Jones’s promotional Web site, www.campaigncola.com, two additional varieties are available — Democrat Hillary Clinton’s “Capitol Hillary Cola” and Republican Ron Paul’s “Ron Paul Revolution Cola.”The site tallies each purchase as a vote, giving minors a way to cast their ballots…

 Edit by SAC

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Full article:
http://www.mlive.com/saginawnews/business/index.ssf/2008/09/drink_to_your_presidential_pic.html

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More lessons from the financial crisis …

Excerpted from Harvard Business Online, “6 Lessons We Should Have Learned Already”, by Paul B. Carroll and Chunka Mui, September 30, 2008

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The collapse of Washington Mutual, Wachovia, Lehman Brothers, AIG, Bear Stearns, Merrill Lynch, and others soon to fall stem from discredited strategies that should have been avoided.

Here are six lessons that, had they been learned a decade ago, would have kept us from being in our current mess:

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1. It doesn’t work to let dealmakers make all their money up front.

Whether it’s lenders hawking mortgages, bankers pushing bonds, or salespeople closing contracts before the end of the quarter, dealmakers have to have responsibility for the health of those decisions years down the road. Where possible, the individuals who make the deals should also have their compensation depend on the long-term performance of those deals.

Green Tree Financial showed how dangerous it can be to separate up-front fees from long-term responsibility. In the 1990s, Green Tree offered mortgages on mobile homes that made no long-term sense — the mortgages lasted 30 years, while the underlying assets had a useful life of just 10 to 15 years. Yet, because Green Tree employees from the CEO on down had so much of their pay tied to the growth in the number of mortgages, the company churned out flawed loans at an ever-accelerating pace. When problems started to surface, Green Tree actually managed to sell itself to Conseco for almost $6 billion in 1999. Conseco subsequently wrote off all the profits that Green Tree ever recorded and went into bankruptcy proceedings.

Subprime lenders, having missed the Green Tree lesson, likewise became addicted to up-front fees and generated an astonishing number of bad loans that were turned into securities and sold.

2. Risks may correlate more than you think. In other words, a single problem can take you down if it’s severe enough.

Long Term Capital Management thought it had diversified its risks in the 1990s but found its whole portfolio turning sour simultaneously and collapsed in 1998. Having missed that lesson, this time around companies such as Merrill Lynch and WaMu built huge portfolios of mortgage-related securities that relied on historical data suggesting that housing markets were localized — in other words, the market in Denver was independent of the market in Sacramento, which was independent of the market in Pittsburgh. In fact, the credit crunch has clobbered all markets and all classes of lenders.

3. In a crisis, liquidity can disappear overnight.

LTCM thought that, in the event of problems, it could always unwind its positions in orderly fashion. In fact, all buyers disappeared. The same thing happened to Merrill, WaMu and others. The market got so scared so fast that nobody would buy their debt portfolios at almost any price. While Bank of America might have bought Merrill at a bargain for $50B, they also acquired $64B of toxic debt that will eventually mushroom the true cost of the acquisition.

4. It’s incredibly dangerous to buy a business unless you understand it in excruciating detail.

Conseco showed the danger. It had a great record of buying and integrating companies, but they were all in insurance. Conseco didn’t know anything about mortgages. It was so clueless about the problems with Green Tree’s business model that it actually stepped up the mortgage business, right to the point where it collapsed. AIG repeated the mistake when it started offering credit-default insurance on mortgage-backed securities that it didn’t understand. Merrill made this mistake when it decided it could copy Goldman Sachs and invest its own capital in what turned out to be toxic loans. (And Bank of America may have made this mistake when it agreed to buy Merrill, whose retail brokerage operation, investment banking unit and investment portfolio are outside its expertise.) As a colleague of ours says: Don’t assume someone smarter than you will understand the risks you’re taking on.

5. Whenever anyone says they’ve managed to do away with risk, head for the hills.

LTCM said its portfolio was impervious to risk. AIG and others said the same thing about the securities that were built based on subprime mortgages. We’ve no doubt that yet others will be saying the same as they argue for ways to take advantage of others’ mistakes as the current crisis unfolds.

6. Perhaps the greatest lesson of all is that bad strategies can happen to great companies and smart people.

The humility that comes with this lesson should cause the smartest companies and managers to instill process and cultural mechanisms that absorb these lessons and avoid such mistakes in the future by creating a culture of constructive debate and deliberation.

Edit by DAF

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Note: The authors researched 2,500 major failures and recently published both the Harvard Business Review article, “Seven Ways to Fail Big” and their book, “Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years”.

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Full article:
http://conversationstarter.hbsp.com/2008/09/six_lessons_we_should_have_lea.html?cm_mmc=npv-_-WEEKLY_HOTLIST-_-OCT_2008-_-HOTLIST1006

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Starbucks: Fewer Baristas to work longer hours …

Excerpted from WSJ: “Starbucks Looks to Reduce Labor Costs”, Oct 3, 2008

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Starbucks is changing its store worker scheduling system so there will be fewer employees working more hours at its coffee shops. The program aims to reduce the company’s labor costs and improve sales by fostering familiarity between customers and a smaller group of employees.

Starbucks introduced its program about a week ago as part of a broader effort to revive the company amid a slowdown in sales that’s prompted it to shut stores and curb its expansion.

Starbucks’ new program also is intend to address the longtime complaint among some Starbucks baristas, who are paid hourly, that it’s too difficult to secure enough hours on the clock each week. Starbucks, which has not guaranteed full-time hours for non-management store workers, is now creating a full-time description that aims to give those employees at least 32 hours per week.

In test markets, workers liked the program because, in the end, it gave them more regular schedules. He said the labor cost improvements will come from a lower rate of turnover among workers and lower training costs.

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Starbucks employs 83,000 people at its U.S. stores. The average Starbucks has about 17 workers.

The Industrial Workers of the World, a union is trying to organize Starbucks workers.

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Full article:
http://online.wsj.com/article/SB122307217095003501.html

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J&J Reacts Fast to Put People First

Excerpted from Forbes “J&J Gets Proactive About Bad News” by Lisa LaMotta, September 27, 2008

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Sometimes being proactive can be your best bet in countering a bad situation.

In an effort to be transparent, the U.S. Food and Drug Administration has been rigorous in issuing early communications to the public whenever problems, large or small, arise that are even remotely related to a drug. These early communications often come out before the FDA has had time to investigate the underlying cause of the problem, and they can have detrimental effects on a pharmaceutical company and its pipeline.

The latest drug to be part of an early communication is Johnson & Johnson’s Eprex, or epoetin alfa, which is approved for the treatment of anemia and is currently being tested in high doses to treat patients who have had an ischemic stroke. The FDA announced on Friday that it had received preliminary information from a study that J&J is conducting in Germany, which showed patients taking Eprex in high doses, about 40,000 units daily for three days, had a higher incidence of death than those in the placebo group. About 14.0% of the Eprex patients died, compared with 9.0% of the placebo group patients.

J&J is also taking a transparent approach, which seems to have limited the damage to its shares. Its subsidiary Ortho Biotech issued a statement last week informing the FDA of the abnormal occurrences in the data…The FDA has yet to determine the underlying cause of the deaths and whether it’s related to the high doses of Eprex…Shares of J&J were little changed, rising 4 cents, to $69.40.

This hasn’t had a large effect on J&J thus far, but other companies have not been so lucky. Amylin Pharmaceuticals has been under fire for deaths reported by the FDA that were loosely linked to its blockbuster diabetes drug Byetta. While the cause of most of the deaths has been attributed to factors other than Byetta, Amylin’s share price has dropped dramatically, about 39.3% since the news broke in August.

Edit by SAC

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In late 1982 Johnson & Johnson recalled over 30 million bottles of Tylenol after several bottles were found laced with cyanide in Chicago, IL.  J&J has been widely praised for its reaction, which included the recall of $100 million worth of product, heavy use of PR, and paid advertising to communicate with consumers followed by reformatted product packaging and heavy use of promotions for the product re-launch.  After dropping from 35% to 8% market share at the time of the incident Tylenol regained its market share within a year. 

The J&J Credo, which speaks to putting its people and consumers first always has guided the company’s decisions since 1943; long before the Tylenol incident of 1982 and through the Eprex situation today.   

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Full article:
http://www.forbes.com/2008/09/27/jnj-fda-closer-markets-equity-cx_lal_0926markets34.html

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Who would do best job handling the economy?

      From Friday’s Diageo-Hotline tracking poll. 

     Who would do best job handling the economy?

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Note: This poll is run by an MSB MBA alum

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Slash the Price and Sink the Brand

Excerpted from Harvard Business Online, “In A Downturn, Discounts Can Be Dangerous”, by Jeff Stibel, August 21, 2008

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Often the first thing companies do during a downturn in the economy is reduce prices on their products and services. While it may be necessary in some cases to reduce prices, discounting has its risks. The biggest risk is that it can create a negative long-term perception of a product and a down-channel effect, ultimately leading to market-share erosion.

And discounting can also be dangerous to low-cost providers not focused on brand. Value-minded consumers have long-term memories and it is hard to retain market-share when the economy recovers and you try to raise your prices or eliminate promotions.

In some cases, it may make sense to buck the trend entirely and increase prices. In fact, many companies are taking this counterintuitive approach. To be sure, many are blaming the cost of commodities and these increases will put a strain on short-term growth. But over the long-run this could build brand value. 

There’s no doubt that discounting and sales promotions are a vital sales technique when done correctly. It inspires excitement and creates a call to action. However, when offered at the wrong times–for no other reason than to boost sales–it can cut the other way and create brand deterioration.

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Consumers give you their hard-earned money in return for something that meets or exceeds their perceived value. They want to see value and quality in return for their money.

And studies have shown that in many cases, the more people pay, the more value they ascribe to their purchase. Money plays a funny role in the purchase process: it anchors perceived value. If you discount prices during adverse times, consumers may begin to question the original value.

When you discount, you undo the “placebo effect” of higher prices. And this leads to a decaying belief in the value of the product offered. So it may be short-term thinking to devalue a consumer’s perceived value of a product simply to move more merchandise during shifts in the economy.

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There are ways around this, of course. Consider the auto industry, typically the first to discount their way out of economic woes. Chrysler recently did something to preserve their price while offering a discount for something that does not affect their brand: gas. Chrysler cleverly took discounting to the next level by offering up a $2.99 gas guarantee for three years on all new car purchases within its fleet. The idea was to subsidize the fuel that goes into the new car, not the MSRP of the car itself.

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Consider the long-term consequences for discounting during a recession and the potential for inadvertently re-positioning your brand. If you must, it may be better to focus on something ancillary rather than what your brand truly represents. Because once that veil is pierced, it may be incredibly difficult to go back and reestablish the value proposition to your consumers.

Edit by DAF

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Full Article:
http://discussionleader.hbsp.com/stibel/2008/08/in-a-downturn-discounts-can-be.html

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Getting Real About Health Care

Excerpted from Newsweek: “Getting Real About Health Care
It’s not about coverage. It’s about costs.”, Robert J. Samuelson
Sep 6, 2008

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Note: There are roughly 45 million uninsudred people in the U.S.  Approximately 1/3 are not legal citizens; approximately 1/3 are in the top 1/2 of wage earners (i.e. over the $50,000 median); approximately 40% are 19 to 34, relatively healthy and, in effect, choose to self-insure.

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Summary; Emphasis should be on fundamental restructuring of costs:     more electronic record-keeping, better case management, fewer dubious tests and procedures (i.e. unnecessary, duplicative), contained end-of-life treatment.

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Article

46 million Americans … or almost one in seven lack health insurance.

By impressive majorities, Americans regard this as a moral stain. Sen. Ted Kennedy echoed the view of many that health care is a “right” that demands universal insurance. This is a completely understandable view and one that is, I think, utterly wrong.

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Health care should be at the top of the agenda. But the central problem is not improving coverage. It’s controlling costs.

In 1960, health care accounted for $1 of every $20 spent in the U.S. economy; now that’s $1 of every $6, and …  it could be $1 of every $4 by 2025.  Ponder that: a quarter of the U.S. economy devoted to health care.

Countless studies have shown that many diagnostic tests, surgeries and medical devices are either ineffective or unneeded.

Greater health spending should not have the first moral claim on our wealth, because its relentless expansion is slowly crowding out other national needs.

For government, higher health costs threaten other programs—schools, roads, defense, scientific research—and put upward pressure on taxes. For workers, increasingly expensive insurance depresses take-home pay, as employers funnel more compensation dollars into coverage. There’s also a massive and undesirable income transfer from the young to the old, accomplished through taxes and the cross-subsidies of private insurance, because the old are the biggest users of medical care.

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It is widely assumed that health care, like most aspects of American life, shamefully shortchanges the poor. This is less true than it seems.

Data show that, on average, annual health spending per person—from all private and government sources—is equal for the poorest and the richest Americans. In 2003, it was $4,477 for the poorest fifth and $4,451 for the richest.

The reason: government already insures more than a quarter of the population, including many of the poor. Medicare covers the elderly; Medicaid, many of the poor and their children; SCHIP (State Children’s Health Insurance Program), more children.

Another reason, stems from the skewing of health spending toward the very sick and dying; 10 percent of patients account for two thirds of spending. People in this unfortunate group, regardless of income, get thrust onto a conveyor belt of costly care: long hospital stays, many tests, therapies and surgeries.

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That includes the uninsured. In 2008, their care will cost about $86 billion, … The uninsured pay about $30 billion themselves; the rest is uncompensated.

Of course, no sane person wants to be without health insurance, and the uninsured receive less care and, by some studies, suffer abnormally high death rates. But other studies suggest only minor disadvantages for the uninsured.

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We need more realism on health care. The trouble with casting medical-care as a “right” is that this ignores how open-ended the “right” should be and how fulfilling it might compromise other “rights” and needs.

What makes people healthy or unhealthy are personal habits, good or bad (diet, exercise, alcohol and drug use); genetic makeup, lucky or unlucky, and age. Health care, no matter how lavishly provided, can only partially compensate for these individual differences.

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There is a basic moral and political dilemma that most Americans refuse to acknowledge. What we all want for ourselves and our families—access to unlimited care paid for by someone else—may be ruinous for us as a society.

Sensible limits must somehow be imposed.

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The crying need now is not to insure all the uninsured. This would be expensive (an additional $123 billion a year, estimates the Kaiser study) and would provide modest health gains at best since 40% of the uninsured are young (19 to 34) and relatively healthy.

The compelling need now is to limit the runaway increases in spending that make private and government insurance more expensive and may not deliver significant health improvements.

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Both McCain and Obama have health-care proposals that …  largely ignore the massive health-care challenge already sitting in the government’s lap: Medicare.

By some studies, 30 percent of Medicare spending may go to unneeded services that do not enhance recipients’ well-being.

Medicare is so large and influential that by altering how it operates, government can reshape the entire health-care system. This would require changes in rules and reimbursements to encourage more electronic record-keeping, better case management, fewer dubious tests and procedures, and a fairer sharing of costs between the young and the old.

The work would be unglamorous and probably unpopular. But if the next president won’t—or can’t—do it, his presidency will fail in one fateful way.

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Full article:
http://www.newsweek.com/id/157573

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Gimme a break: An AIG winner …

American International Group said it paid a $47 million severance package to former Chief Executive Martin J. Sullivan, who “resigned”.

Sullivan, left his position in mid-June after two quarters of record losses at AIG, will receive severance of $15 million, and a bonus of $4 million for the portion of the year he worked, according to a regulatory filing.

Sullivan also will hold on to outstanding equity and long-term cash awards valued at about $28 million, the filing said.

Reference:
http://clipmarks.com/clipmark/C85E7BC6-2172-46E7-B07E-5412446AB182/

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Gimme a Break: A Fannie Mae Winner

Excerpted from Bloomberg,  December 24, 2004

Fannie Mae’s chief regulator is reviewing whether the company paid too much in severance and bonuses to Chief Executive Franklin Raines and Chief Financial Officer Timothy Howard, who were ousted this week because of accounting mistakes.

At stake for Raines, a Seattle native who led the nation’s biggest provider of mortgage finance, is as much as $30 million in stock and options and a $1 million-a-year pension.

Reference:
http://seattlepi.nwsource.com/business/205086_raines24.html

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The sky is falling … or is it ?

Excerpted from Washington Post: “Quit Doling Out That Bad-Economy Line”,  Donald Luskin, September 14, 2008

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In the past two months, the Post alone has written no fewer than nine times, in news stories, columns and op-eds, that key elements of the economy are the worst they’ve been “since the Great Depression.”

That diagnosis has been applied twice to the housing “slump” and once to the housing “crisis,” to the “severe” decline in home prices, to the “spike” in mortgage foreclosures, to the “change” in the mortgage market and the “turmoil” in debt markets, and to the “crisis” or “meltdown” in financial markets.

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Overall, the pessimists are up against an insurmountable reality: In the last reported quarter, the U.S. economy grew at an annual rate of 3.3 percent, adjusted for inflation. That’s virtually the same as the 3.4 percent average growth rate since — yes — the Great Depression.

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Why, then, does the public appear to agree with the media? A recent Zogby poll shows that 66 percent of likely voters believe that “the entire world is either now locked in a global economic recession or soon will be.” Actually, that’s a major clue to what started this thought-contagion about everything being the worst it has been “since the Great Depression”: Politics.

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The Mortgage Bankers Association (MBA) database, which allows rigorous apples-to-apples comparisons, only goes back to 1979. It shows that today’s delinquency rate is only a little higher than the level seen in 1985.

According to the MBA, 6.4 percent of mortgages are delinquent to some extent, and 2.75 percent are in foreclosure.

Moreover, MBA data show that today’s foreclosures are concentrated in that small fraction of U.S. homes financed by subprime mortgages. Such homes make up only 12 percent of all mortgages, yet account for 52 percent of foreclosures.

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It is flat-out wrong … that “the personal savings rate is now the lowest it’s been since the Great Depression.” The latest rate, for the second quarter of 2008, is 2.6 percent — higher than the 1.9 percent rate that prevailed in the last quarter of Bill Clinton’s presidency.

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According to the latest report from the National Association of Realtors, the median price of an existing home is up 8.5 percent from the low of last February.

And according to the U.S. Census Bureau, the median price of a new home is up 1.3 percent from the low of last December. Home prices may not be at all-time highs — and there are pockets of continuing decline in some urban areas — but overall they’ve clearly stopped going down and have started to recover.

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According to the FDIC, there have been a total of 13 bank failures in 2007 and so far into 2008. There were 15 in 1999-2000, the climax of the celebrated era of Clintonian prosperity. And in recession-free 1988-89, there were 1,004 failures — almost an order of magnitude more than today. Since the Great Depression, the average number of bank failures each year has been 94.

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From all-time highs last October, the S&P 500 has fallen 20 percent. But that’s nothing by historical standards. Stocks have often fallen more than that over comparable spans of time. Even the present 20-percent loss isn’t what it seems. The damage has been heavily concentrated in the financial sector — banks, investment firms and mortgage companies. If you exclude the financial sector, stocks are off 14.8 percent.

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Whatever the political outcome this year, hopefully this will prove to be yet another instance of that iron law of economics and markets: The sentiment of the majority is always wrong at key turning points. And the majority is plenty pessimistic right now. That suggests that we’re on the brink not of recession, but of accelerating prosperity.

Full articel:
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/12/AR2008091202415_pf.html

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Uh Oh – Higher text message prices …

Excerpted from AP:  “Senator examining rising text messaging rates
09.09.08

The Senate Judiciary Committee is asking the nation’s top four wireless carriers to justify the “sharply rising rates” they charge people to send and receive text messages … it is concerned that rising text messaging rates reflect decreasing competition in the wireless business.

(Reportedly) consumers are paying more than 20 cents per message, up from 10 cents in 2005.

All four of the (wireless) companies appear to have adopted identical price increases at nearly the same time. “This conduct is hardly consistent with the vigorous price competition we hope to see in a competitive marketplace”.

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European Commission regulators are threatening to impose a cap on roaming fees for text messages sent by Europeans traveling outside of their home nations.

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Full article:
http://www.forbes.com/feeds/ap/2008/09/09/ap5405763.html?partner=alerts

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This picture says at least 1,000 words.

This one should have been easy to call …

 

Great analysis from SMH

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Doh!: Top eight campaign gaffes

Excerpted from Politico.com, “Doh!: Top eight gaffes of the campaign”, by Jim VandeHei and Harry Siegel, September 8, 2008

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Here is Politico’s list of the top eight gaffes that are virtually certain to haunt John McCain and Barack Obama until Election Day:

1. “Bitter”

At an April 6 fundraiser in San Francisco, “You go into some of these small towns in Pennsylvania, and like a lot of small towns in the Midwest, the jobs have been gone now for 25 years and nothing’s replaced them…And it’s not surprising then they get bitter, they cling to guns or religion or antipathy to people who aren’t like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations.”

Not coincidentally, the small towns in places like Western Pennsylvania and West Virginia are where Obama found the least support in his primary bid.

2. Countless houses

McCain wasn’t able to tell Politico in an interview last month …  “I think—I’ll have my staff get to you, I can’t tell you about that. It’s condominiums where—I’ll have them get to you.”

The slip dovetailed perfectly with a just-launched Democratic bid to counter McCain’s ads painting Obama as a lightweight celebrity with an offensive of their own

The Obama campaign had an attack ad depicting the Republican as wealthy and out of touch with the concerns of ordinary Americans.

3. “Shout out to my pastor”

Obama praised Rev. Jeremiah Wright — of ““God damn America.” –  fame last July while addressing a conference of black clergy members:

“And then I’ve got to give a special shout out to my pastor. The guy who puts up with me, counsels me, listens to my wife complain about me. He’s a friend and a great leader not just in Chicago but all across the country, so please everybody give an extraordinary welcome to my pastor Dr. Jeremiah Wright, Jr., Trinity United Church of Christ.”

The comments seems tailor-made for an attack ad, where they can be juxtaposed with some of Wright’s more inflammatory remarks.

4. Don’t know much about economy

In 2005, McCain told the Wall Street Journal, “I’m going to be honest: I know a lot less about economics than I do about military and foreign policy issues. I still need to be educated.”

As damaging as print quotes can be, it’s video of similar comments that may prove most damaging with voters.

5. “Likable enough”

Obama’s crack at his then-rival during the Jan. 5 primary debate may come back to haunt him.

Clinton was asked a question about voters preferring Obama to her on a personal level, and as she replied, “I’ll try to go on. He’s very likable, I agree with that. I don’t think I’m that bad—“ he interrupted to crack, “You’re likable enough, Hillary.”

Hillatry supporters cringed.

6. “100 years”

McCain’s remark at a January 3 town hall that American troops might stay in Iraq for 100 years had been intended to evoke America’s continued peacetime military presence in countries like Germany and South Korea, but the sound bite endures:

Obama quickly added the line “John McCain wants us to keep troops there for 100 years” into his stump speech, and MoveOn.org aired one of the first significant third-party buys of the cycle, “

7. The “Ones”

“We are the ones we’ve been waiting for. We are the change that we seek. We are the hope of those boys who have little; who’ve been told that they cannot have what they dream; that they cannot be what they imagine.”

Republicans will spend the next two months painting Obama as an empty celebrity with a messianic complex. Expect this Super Tuesday Obama moment to resurface as part of that effort.

8. Computer Illiterate

Politico asked McCain: “Mac or PC?”

“Neither,” McCain replied. “I am a pc illiterate that has to rely on my wife for all of the assistance that I can get.”

Younger, internet-savvy voters were aghast.

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Honorable mention: The wives

Michelle Obama — Pride
“For the first time in my adult life I am proud of my country because it feels like hope is finally making a comeback.”

Cindy McCain—The only way to travel
“In Arizona the only way to get around the state is by small private plane.”

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Full article (with pictures & videos):
http://dyn.politico.com/printstory.cfm?uuid=3CAF8BF0-18FE-70B2-A8381956A653CBD0

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Health Care: Wanted – Primary Care Physicians …

Excerpted from AP: “Fewer US med students choosing primary care”, Sep 9, 2008

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Note:

One of my hot buttons is the way that politicos confuse “health insurance” with “health care”.  It’s relatively easy to throw money at problems.  It’s harder to fix fundamental problems.  This article highlights a fundamental problem. 

* * * * *

The coordinated care provided by primary care doctors can keep costs down by preventing harmful drug interactions, unneeded medical procedures and fragmented specialty care, Goodman said.

Only 2 percent of graduating medical students say they plan to work in primary care internal medicine, raising worries about a looming shortage of the first-stop doctors.The results of a new survey being published Wednesday suggest more medical students, many of them saddled with debt, are opting for more lucrative specialties.

In a similar survey in 1990, the figure was 9 percent.

Paperwork, the demands of the chronically sick and the need to bring work home are among the factors pushing young doctors away from careers in primary care, the survey found.

* * * * *

“I didn’t want to fight the insurance companies”

“Medicare’s fee schedule pays less for office visits than for simple procedures”

Primary care doctors  … “speed to see enough patients to make a reasonable living,” 

* * * * *

It’s hard work taking care of the chronically ill, the elderly and people with complex diseases — “especially when you’re doing it with time pressures and inadequate resources.”

* * * * *

The salary gap may be another reason.

Family medicine had the lowest average salary last year, $186,000, and the lowest share of residency slots filled by U.S. students, 42 percent.

Orthopedic surgery paid $436,000, and 94 percent of residency slots were filled by U.S students.

* * * * *

Meanwhile, medical school is getting more expensive. The average graduate last year had $140,000 in student debt.

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A separate study in JAMA suggests graduates from international medical schools are filling the primary care gap.

About 2,600 fewer U.S. doctors were training in primary care specialties — including pediatrics, family medicine and internal medicine — in 2007 compared with 2002.

In the same span, the number of foreign graduates pursuing those careers rose by nearly 3,300.

“Primary care is holding steady but only because of international medical school graduates … and holding steady in numbers is probably not sufficient when the population is growing and aging.”

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And as American students lose interest, teaching hospitals will probably become less interested in offering primary care programs.

JAMA called on Congress to create a permanent regulatory commission to encourage training for needed specialties.

U.S. teaching hospitals now receive $10 billion a year from the government to train doctors.

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Full article:
http://news.yahoo.com/s/ap/20080909/ap_on_he_me/med_fewer_docs&printer=1;_ylt=AnGPB0GDsuNJ96p_SpCK0D5a24cA

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Brand Power: The label changes the taste ???

Excerpted from “Innovation & Branding”, by Morgan Johnson, SCI Innovation Conference, May 2005

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In blind taste tests, beer drinkers perceive little difference among all but exceptional brands. 

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But, when folks know which brand they’re drinking, taste perceptions diverge markedly.  Hmmm.

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Source:
http://www.soci.org.uk/SCI/groups/bsg/2005/reports/pdf/MorganJohnson.pdf

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More proof … the power of "free"

Excerpted from Warrillow & Co., “Nothing good in life is free? 65% of small business owners disagree”

In 2002,  small business owners were significantly more interested in discounts for new products, with rewards and free trials competing for distant second and third positions. In a growing economy, like that of 2002, the free trial wasn’t worth the effort for most small business owners. Trial campaigns in strong economic conditions generate reasonable uptake, but generally result in poor conversion to the fee product or service and a lower quality customer over the lifetime of the account.

A 2008 survey … yielded the exact opposite set of preferences from small business owners:

Free trials are now preferred by far over discounts, with rewards dropping to the last position. In the current economy, … free offers are much more broadly applicable and appealing to the average business owner.

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Three recommendations to most effectively utilize free trial offers:

1. Prove your superior service: Free trials get you in the door … high quality service remains the key factor in customers. Sell your company as a whole, in addition to … specific products.
2. Provide an in-trial assessment: All too often, engagement with the customer during the trial period focuses exclusively on upgrading to a fee product. Create proactive and customized usage analysis … prior to the end of the trial that gives a reasonably unbiased assessment of the product fit for the customer … and recommendations for getting more out of the remaining trial time.
3. Don’t abandon targeting: Creating a free version doesn’t automatically make your product or service more applicable to business owners outside your target market. Steer clear of blanket offers and focus your efforts on the customers for whom your products have the best fit.

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Full article:
http://www.warrillow.com/weeklyNews.aspx

Thanks to Straz (FOK) for the head’s-up

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Brand Power- Cole vs. Pepsi

Excerpted from “Innovation & Branding”, by Morgan Johnson, SCI Innovation Conference, May 2005

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TakeAway Point:

In blind taste tests, Pepsi usually edges out Coke. But, when folks know which brand they’re tasting, Coke wins convincingly.

Logical inference: it’s the power of the brand.

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Source:
http://www.soci.org.uk/SCI/groups/bsg/2005/reports/pdf/MorganJohnson.pdf

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Product Innovation: Establishing & maintaining dominance …

Excerpted from Strategy & Business, “The Unique Advantage”, by Alexander Kandybin and Surbhee Grover, Aug. 26, 2008

Successful consumer packaged goods (CPG) innovators, those whose new products establish and maintain dominance in the marketplace, tend to focus on seven areas. None of them represents a “silver bullet” on its own, and many of them are common sense, but together they make innovation more difficult to copy and lead to greater returns and higher growth.

1. Technology and patents. New technologies … providie companies with a way to meet new consumer needs, including those that consumers don’t yet know they have.  Patents can sustain a meaningful advantage in the marketplace. 

2. Claims. Claims add substantial value when they are tied exclusively to a product and can be held for a significant period of time.

3. Ingredient synonymy. Arm & Hammer, Planters, and POM Wonderful, respectively, have each carved out an enviable position by becoming virtual synonyms for their category. Such domination affords pricing power for products that are essentially commodities.

4. Unique brand characteristics. Strong brands can build an identity in consumers’ minds that transcends products.

5. Product experience. Successful products have an emotional component that builds a bridge to consumers, becoming part of their lives.

6. Packaging.  Packaging innovation can leverage technology, emphasize unique brand characteristics, enhance the product experience, and in fact prove very difficult to duplicate.

7. Effective vertical integration. [Keeping things "in house" can protect proprietary technologies and "secret sauces" ]

Edit by DAF

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Full article:
http://www.strategy-business.com/press/article/08306?pg=all&tid=230

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Health Insurance – Those %#@& Health Insurance Companies !

In the book Crunch, liberal economist Jared Bernstein criticizes health insurance companies, asserts that:

• “Other countries with advanced economies save a lot by taking the insurers out of the picture. They employ either single-payer or heavily regulated systems, in which either the government is the exclusive insurer or private insurers must provide specified, the subsidized coverage to all … costs are held down by taking advantage of the huge risk pool — the healthy majority subsidizes the sick minority … and, insurer’s profits are weeded out of the system.”
• “Private insurers have an incentive to prevent people from getting all the care they think they need.  Insurers are in the for-profit sector, so they spend time and resources trying to avoid making payouts. “

These are oft repeated refrains from folks who advocate government administered universal heath insurance.

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I think this argument displays a remarkably shallow understanding of what health insurance companies do, how much money they make, and how they make it.  And. it places a remarkably high level of confidence in government administered programs (think, the FDA chasing down salmonella sources). 

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First, what is the financial upside if all health insurance companies’ profits are eliminated and put in the national bank as economic cost savings.

Well, for openers, the health insurance companies — don’t make all that much money.  Consider the 2007 financial results for the two biggest “pure” health insurance companies: United Health Care and Wellpoint.

Note that pre-tax profits are about 9% of revenues [12,555 divided by135,553].  About 1/3 of the pre-tax already goes to the government in taxes; about 2/3’s (6% of revenues) drops through to the bottom line.

Currently, U.S. health care expenditures are about $2,1 trillion (just over $7,000 per person).  Of that, roughly half is “sourced” from the government via Medicare and Medicaid.  Of the half that is private pay, about 2/3’s ($725 billion ) goes through health insurance companies — the other 1/3 is out of patient’s pockets or “other” (e.g. charitable gifts to medical centers). 

 

So, what’s the financial upside if all health care insurers were “disintermediated” and their profits were banked as economic cost savings to the system ?

Well, assuming that the rest of the healthcare insurance companies have profitability profiles comparable to United and Wellpoint — there’s a pre-tax profit of 9% that applies to $725 billion in revenues — or roughly $65 billion dollars.

But wait, the government is already getting about 1/3 of that in taxes.

So, the net gain is at most $40 to $45 billion, or about 2% of the $2.1 trillion in total healthcare spending.  Why “at most” ? 

Simple, because it assumes that the government will be able to administer the programs as efficiently as the private companies.  Call me cynical, but I doubt it.

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On the second point, that  health insurance companies reject claims and refuse to authorize treatment as a means of boosting their.bottom lines.

Well, that’s at most partially true, and catches the government administration folks in a circular argument.

First, about 1/3 of health  insurance companies’ transactions volume is administrative processing done in support of companies (usually big ones) that choose to self-insure.  That is, the self-insuring companies  take all of the risk, and only pay the insurance companies a fee (that includes profit, of course) for negotiating with health care suppliers and processing transactions  — in conformance with terms, conditions, and rules dictated by the companies.  There are agreed to standards that are enforced.

The other 2/3’s of their transaction volume is strictly premium based.  If more treatments are authorized, costs go up and premiums go up to cover them.   If treatments are denied,  costs go down, and the competitive market pushes premiums down,It’s that simple.

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Product Innovation: The perils of playing “small ball”

Excerpted from Strategy & Business, “The Unique Advantage”, by Alexander Kandybin and Surbhee Grover, Aug. 26, 2008

In mature, slow-growth industries such as food and consumer products … Companies often spend relatively little on R&D, and … their innovation results are marginal.

Much of the problem can be traced to conventional wisdom (that) the secret to growth … is to develop new products based on consumer needs, which are discovered through consumer research and focus groups. And  if a new idea is not great … marketing and advertising can always … turn a so-so concept into a hit.  And the first to market … will capture most of the profits.

This kind of thinking leads to … a long list of line extensions — new flavors of an established soda brand, say — rather than the kind of game-changing innovations that can make a real difference to the bottom line.

New products that stand alone longest in the marketplace, without serious competition, bring in the highest returns.

Meeting consumer needs is a necessary but no longer sufficient condition of sustainable innovation.  Rather than thinking about new products as a way to get customers excited for a little while, companies need to think about their innovation strategy as a way to build a high, hard wall between those customers and their strongest competitors … hifting some investment away from marketing and advertising toward the development of … game-changing new products … that are difficult to copy.  

Higher R&D spending does not guarantee success … (but) a minimum innovation investment is required for breakthrough thinking. Without it, companies tend to fill the pipeline with the “base hits” of line extension … falling into a self-created loop of low investment, low returns, and steady but slow growth … that provides the illusion that the company is succeeding

So, the tendency is for companies to focus on relatively small, often superficial line extensions that can be churned out quickly … but require inflated advertising budgets that reflect a defensive mind-set .. (and divert resources from)  breakthrough innovation … locking companies into a pattern of high marketing spending and a need for endless small launches.

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Mature companies also need a strategy for when difficult to copy ideas are in short supply. Here, we suggest defying conventional wisdom about being first to market. If a product can be copied, it’s often more profitable to be the copier.

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There will always be a place for line extensions backed with big campaigns and for being first to market. It is possible to gain additional benefits by building scale, amplifying the effects of hard-to-copy innovations by spreading them across multiple products.

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It’s even possible to gain scale of a kind with a highly nimble, prolific innovation organization. Launching a steady stream of good ideas, as P&G has done in home products in recent years, can give a brand a reputation for fresh thinking that transcends the individual ideas and translates into market share gains. 

Edit by DAF

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Full article:
http://www.strategy-business.com/press/article/08306?pg=all&tid=230

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