Ken’s Take: Economists are trained to focus on “real” costs. 

One of my major complaints about the current healthcare “reforms” is that — except for electronic medical records — there are, for all practical purposes, no structural changes proposed.  No gov’t clinics, no additional medical schools, no tort reform. 

Just more money being thrown at the problem and more obfuscation of real costs.

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Excerpted from RCP: The “Costs” of Medical Care, Thomas Sowell, November 3, 2009

We are incessantly being told that the cost of medical care is “too high”– either absolutely or as a growing percentage of our incomes.

But nothing that is being proposed by the government is likely to lower those costs, and much that is being proposed is almost certain to increase the costs.

There is a fundamental difference between reducing costs and simply shifting costs around, like a pea in a shell game at a carnival.

Costs are not reduced simply because you pay less at a doctor’s office and more in taxes– or more in insurance premiums, or more in higher prices for other goods and services that you buy, because the government has put the costs on businesses that pass those costs on to you.

Costs are not reduced simply because you don’t pay them. Letting old people die would undoubtedly be cheaper than keeping them alive– but that does not mean that the costs have gone down. It just means that we refuse to pay the costs. Instead, we pay the consequences. There is no free lunch.

Despite all the demonizing of insurance companies, pharmaceutical companies or doctors for what they charge, the fundamental costs of goods and services are the costs of producing them.

If highly paid chief executives of insurance companies or pharmaceutical companies agreed to work free of charge, it would make very little difference in the cost of insurance or medications.

If doctors’ incomes were cut in half, that would not lower the cost of producing doctors through years of expensive training in medical schools and hospitals, nor the overhead costs of running doctors’ offices.

What it would do is reduce the number of very able people who are willing to take on the high costs of a medical education when the return on that investment is greatly reduced and the aggravations of dealing with government bureaucrats are added to the burdens of the work.

In short, reducing doctors’ income is not reducing the cost of medical care, it is refusing to pay those costs. Like other ways of refusing to pay costs, it has consequences.

http://www.realclearpolitics.com/articles/2009/11/03/the_costs_of_medical_care_98986.html

TakeAway:  In an age where company reputation is playing an increasingly important role in sales generation and growth, the decline of traditional business media could cause big problems for marketers.  Companies must now take the laboring oar and find creative ways to ensure that their preferred message makes it to the consumer.

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Excerpted from Strategy & Business, “What a Declining Business Media Means to CEOs” By William Holstein, September 28 2009

The business media is mired in deep economic crisis … the surviving business magazines are much thinner … Newspapers are suspending publication of stand-alone business sections and downgrading their coverage … Even at relatively healthy business news outlets, there is a decline in the quality of business coverage …

One might argue that the weakened state of business media doesn’t matter much … But the consequences for business decision makers are three-fold, and grave.

First, it means that business coverage could become more negative toward profit and enterprise than it is today … Criticism of corporations will be less nuanced, less aware of context, and less insightful. Competent, complacent, and craven companies — or divisions within companies — will all be tarred with the same brush.

Second, the decline in business journalism gives corporate decision makers less of a platform to display and test their own company’s strategy. “It means that there are fewer opportunities for a CEO to get his or her story into the media,” says CNN …

But perhaps the worst effect is the most subtle: Corporate leaders now have fewer opportunities to learn from one another’s experience, or even to know what’s going on in their regions and industries …

What specifically should a corporate leader do differently in this environment? The first priority is to maintain the visible public presence of his or her own company — to build its reputation as a reliable entity, in a time when the integrity of many companies has come under scrutiny …

Meanwhile, it’s more important than ever for CEOs to develop core communications messages that go beyond the issue of profitability and stock price. GE has been very effective with its Ecomagination campaign. Companies must define the way they appear in the world at large …

Edit by TJS

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Full Article
http://www.strategy-business.com/article/00003?gko=83b3c

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TakeAway: Whether it’s due to the economy or consumers’ general frustration with price inflation, private label products are booming.

Accordingly, more and more companies are offering private label products in an attempt to steal sales from their branded counterparts.

Now, this battle has moved from the stores to the Internet. Consumers’ appetite for value is spurring Amazon’s move into the private label business.

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Excerpted from WSJ,”Amazon Is Selling Designs Of Its Own,” By Geoffrey Fowler, September 21, 2009

Amazon.com is quietly expanding its private-label business in a bid to diversify away from its online bookstore roots and become more like a general retailer.

After starting with private-label patio furniture in 2004, Amazon has since added its own housewares, including a steamer, frying pan and chopping block … the latest: a wooden chopping block …

Amazon doesn’t say what percentage of its $19 billion in annual sales are from its private-label business, but it already sells more than 1,000 products that are manufactured at its request … this underscores how far the company has moved beyond books, CDs and DVDs …

The company has developed private-label products when it felt customers’ needs weren’t being met by the rest of its catalog … developing private-label products has required new skills for the company, such as managing quality control and meeting product safety regulations. But online feedback from customers who leave product reviews helps the company make improvements…

The company won’t disclose profit margins for its private-label merchandise but it is clear that the effort wouldn’t be feasible if it weren’t for Amazon’s economies of scale …

Private labels are popular with many traditional retailers because they can provide higher profit margins by cutting out the middleman in the supply chain … online-only retailers have been slower to adopt private-label brands because they lack the expertise to design products, and lack a physical store presence to introduce a new brand …

The private-label strategy isn’t without its problems. In particular, Amazon’s own products may conflict with the products and merchants that the company already hosts on its site …

Edit by TJS

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Full Article
http://online.wsj.com/article/SB125323090208821381.html?mod=djemMM

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Failure to buy health insurance in the just-passed health care bill could get you five years in jail with a $250,000 fine.

Under sections 7201 and 7203 of  Pelosi’s bill, Americans who don’t maintain acceptable health insurance coverage and who choose not to pay a fine/tax of up to 2.5% of income are subject to fines of up to $250,000 and imprisonment of up to five years.

http://www.investors.com/NewsAndAnalysis/Article.aspx?id=511806

The good news: once incarcerated, these felons get full healthcare … for free.

Do twentysomethings who choose to self-insure understand that they’re going to be subsidizing us old folks ?  Might work …

TakeAway: Under Cash for Clunkers, some owners of large pickups cashed in old trucks for between $3,500 and $4,500 toward new Hummer H3 SUVs that got only 16 mpg.        

Source: Associated Press: Clunker pickups traded for new pickups, Nov 4, 2009

The most common deals under the government’s $3 billion Cash for Clunkers program, aimed at putting more fuel-efficient cars on the road, replaced old Ford or Chevrolet pickups with new ones that got only marginally better gas mileage.

The single most common swap — which occurred more than 8,200 times — involved Ford F150 pickup owners who took advantage of a government rebate to trade their old trucks for new Ford F150s. The fuel economy for the new trucks ranged from 15 mpg to 17 mpg based on engine size and other factors, an improvement of just 1 mpg to 3 mpg over the clunkers.

Owners of thousands more large old Chevrolet and Dodge pickups bought new Silverado and Ram trucks, also with only barely improved mileage in the middle teens,.

Those deals helped the Ford F150 and Chevy Silverado — along with Ford’s Escape midsize SUV — climb into the Top 10 most-popular vehicles purchased with the government rebates. The most common truck-for-truck and truck-for-SUV deals totaled at least $911 million.

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In scores of deals, the government reported spending a total of $562,500 in rebates for new cars and trucks that got worse or the same mileage as the trade-ins — in apparent violation of the program’s requirements.

More than 95,000 of the new vehicles purchased under the program — or about one in seven — got less than 20 mpg, according to the data.

Plenty of consumers bought relatively low-mileage trucks and SUVs with the help of government checks.

Full story:
http://news.yahoo.com/s/ap/20091104/ap_on_bi_ge/us_cash_for_clunkers

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On the plus side:

Popular high-mileage commuter cars including the Toyota Corolla, Honda Civic, Toyota Camry and Ford Focus also were among the Top 10 most popular new vehicles bought under the four-week program, with 105,280 of those models sold for a total of about $2 billion.

Takeaway: If you are pursuing a career as a brand manager, your role may be very different than you imagined.

A report that will soon be released by Forrester will provide a redefinition of what a brand manager should be. Their groundbreaking finding: marketers should get back to marketing. Beyond focusing solely on your product, you should really get into the mind of your consumers and appeal to their needs and desires.

And with the rise of digital media, targeting specific segments can be done with more precision than ever before.

The report also claims that decisions really need to be performance-oriented, with more reliance on research and analytics.

Hmmm, recommending a focus on people and performance? It looks like those extra P’s we learned about in Markstrat were well worth it.

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Excerpted from AdAge, “Why It’s Time to Do Away With the Brand Manager” by Jack Neff, October 12, 2009

Managing a brand has always been a slightly odd concept, given that consumers are the real arbiters of brand meaning, and it’s become increasingly outmoded in today’s two-way world. That’s why a new report is going to recommend changing the name “brand manager” to “brand advocate,” and fundamentally changing marketer organizations in response to the onset of the digital age.

The report, due out next week from Forrester, finally puts the onus on marketers to change their structures — a welcome conclusion for media owners and agencies who keep hearing how they should change, but often complain that their clients have done little to shift their organizations to cope with an increasingly complex world of media fragmentation and rising retailer and consumer power.

Among the specific recommendations in its report, “Adaptive Brand Marketing: Rethinking Your Approach to Branding in the Digital Age,” Forrester suggests “brand advocates” be responsible for rapid adaptations of global brand platforms and programs, charging centralized global brand strategists with ensuring what local managers do conforms with the brand equity and strategy.

It also advocates recognizing the brand isn’t the only organizational structure that’s important for multibrand companies, but that structures aimed at marketing to demographic or other segment cohorts are equally important. And it also maintains that marketing executives should think less about anchoring annual plans around one or two big hits and more about doing many smaller things quickly and adapting based on real-time consumer feedback and other data.

He believes marketers in the digital age need to be more “numerate,” with more training in research and analytics even if they still rely on staff for help. Marketers today need to balance art and science, he believes, not unlike architects, musicians or cinematographers.

Key to any change, the former Tide brand manager said, is a return to marketing as the focus of brand management, “rather than one of six things a brand manager does.”

“So much of [brand managers'] time is subsumed by internal management, and so much of the creative process and planning is outsourced to agencies and other parties,” Forrester’s Ms. Bradner said. Brand advocates, she said, “really need to be in charge of the heart and soul of what the brand stands for. It does move you off the generalist track to be more of a pure marketer.”

Edit by JMZ

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Full Article:
http://adage.com/cmostrategy/article?article_id=139593

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Ken’s Take: Here are two very different stories re: how companies respond when they let customers down.. AT&T tries to slick over the problem.  Cox Cable steps up, takes responsibility, and offer a couple of freebies to ease the pain.

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AT&T 

“AT&T customers have been complaining for months about dropped calls, spotty service, delayed text and voice messages and slow download speeds for the iPhone”.

In response, AT&T produced a three-minute YouTube video in which it appears that a spokesperson called “Seth the Blogger Guy” will address concerns from a large number of unhappy customers.

“Look, we see the discussions on the Web,” he says, “on blogs, on Twitter, on Facebook. So we thought it would be a good idea to take what’s being said head-on.”

So far, so good, but Seth quickly loses his focus by:

• Describing the huge demands placed on networks by smartphone usage
• Congratulating AT&T for its role in expanding the smartphone market
• Detailing the extraordinary efforts to facilitate a smooth rollout for the iPhone’s MMS feature (which had yet to be released when the video was made, and about which no customers had complained.)

Nearly two minutes into the presentation, Seth finally gets to the point.

“So what are we doing about it?” he says. “Well, put simply, we’re working around the clock to enhance and expand out network to meet these challenges.”

He concludes by telling viewers what AT&T plans to do and how much it plans to spend, but fails to offer concrete timelines, or much else that would matter to a customer frustrated by terrible service.

More important to consider is what Seth left out: He never says what customers really want to hear … sorry.’”

Source Marketing Profs: Sorry Seems to Be the Hardest Word, Nov. 5,2009
http://www.marketingprofs.com/short-articles/1412/sorry-seems-to-be-the-hardest-word/?adref=NmiF1B9

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Cox Cable

Background: On Wed, Nov. 4 Cox had a massive system outage in Northern Virginia that lasted most of the nite.  As luck would have it, that turned out to be the nite that the Yankees beat the Phillies to win the World Series.  Lots of disappointed sportsfans.

Here’s how Cox responded.  I think they did a pretty good job …. considering.

An email from Cox NOVA’s General Manager:

We let you down. You expected to turn on your television and sit down to watch the game or your favorite Wednesday night show. That probably didn’t happen and I apologize for that.

Some of our most vital equipment took a significant power hit, and when rebooted, much like a home computer, it did not come back on line properly.

In spite of tremendous effort on the part of our best people, that reboot process took several hours and frankly, probably ruined your night. As your neighbor, I experienced the same in my home.

We are committed to you, our valued customer, and nothing is more important than rebuilding your trust in us by taking action to make things right.

First, we’re going to credit your residential account with a free month of digital gateway service.  The credit will be automatically applied to your account, no need for you to do anything. We also hope you will take advantage of a free video On DEMAND movie .

While such an outage has not occurred in the history of Cox NOVA, we take this very seriously and are already working to ensure higher reliability of our video network as we completely review processes and emergency procedures so that you can enjoy your your TV service uninterrupted.

We appreciate having you as a customer. It’s important to us. My thanks for allowing us to serve you,

Janet Barnard
SVP and General Manager
Cox Communications

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I often harp to my students that it’s a cardinal sin to confuse revenue with profits, or to confuse price with cost.  Here’s an example of the latter — in the context of the current healthcare debate.

Excerpted fron IBD: Misconceptions That Mar Medical Care, 11/06/2009
From the book “Applied Economics” by Thomas Sowell.

A number of confusions plague discussions of the economics of medical care.

A confusion between prices and costs has allowed politicians to claim to be able to bring down the cost of health care, when in fact they only bring down the individual patient’s out-of-pocket costs paid to doctors, hospitals, and pharmacies.

The costs themselves are not reduced in the slightest when additional money to pay for these costs is collected in taxes or insurance premiums and routed through either government or private bureaucracies.

Most proposals to “bring down the cost” of medical care pay little or no attention to the actual cost of creating pharmaceutical drugs, training medical students, or building and equipping hospitals.

To the extent that the government imposes some form of price control by refusing to pay doctors, hospitals or pharmaceutical companies as much as they would receive through supply and demand in a free market, that does not lower the costs either.

It simply means that the government refuses to pay all those costs — and such refusals to pay costs have a centuries-old track record of leading to a reduction in the amount supplied, whether what has been subject to price controls has been housing, gasoline, food or other goods and services.

Medical treatment has been no exception. The reduction in the supply of doctors, hospitals or pharmaceutical drugs may be quantitative, qualitative or both.

In Britain, with one of the oldest government-run health systems and therefore one which has long since gone past stage one, there have been such difficulties in getting enough British doctors that there have been large and chronic importations of foreign doctors, many from Third World countries whose qualifications standards are not always up to those in more affluent countries.

As for pharmaceutical drugs, countries which have succumbed to the politically attractive policy of keeping drug prices low by fiat, or by ineffective patent protection, have had much lower rates of discovery of major new medications than does the United States, which has been left to supply a disproportionate share of the world’s major new medications.

Various organized groups in a position to bargain for lower medical charges or lower drug prices — government agencies, health insurers or large health maintenance organizations, for example — may receive preferential prices, but the total costs do not go away and have to be paid by somebody.

One consequence is a multitiered set of prices for the same medical treatment or the same medication, with the highest prices of all being paid by patients who do not have health insurance, do not belong to a health maintenance group, and are not covered by any government program.

In short, misconceptions of the economic function of prices lead not only to price controls, with all their counterproductive consequences, but also to organized attempts by various institutions, laws and policies to get most of the costs reflected in prices paid by somebody else.

For society as a whole, there is no somebody else.

Full article:
http://www.investors.com/NewsAndAnalysis/Article.aspx?id=511637

TakeAway:  Are apps the next best thing to a Web site?  Some say yes! 

With consumers becoming more and more reliant on their cellphones as an information resource, apps are positioned to be a key tool to drive trial, loyalty, and cross-sales. 

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Excerpted from NY Times, “What Do All These Phone Apps Do? Mostly Marketing,” By Roy Furchgott, October 4, 2009

Useful applications are seen as a gold mine for building brands.

Stanley Works, the hand tool maker, iPhone App turns the phone into a level …The company does not know if the iPhone app drove a single sale or fostered any brand loyalty. But based on the 400,000 downloads, Stanley declared the iPhone level a resounding success and is now looking for other tool apps … Other companies are experimenting as well …

Behind the land rush to apps is a belief that they may be some of the cleverest advertising devised. They are advertisements that people voluntarily choose to watch and share with friends. Some apps are even consulted in store aisles when customers decide what to buy. “Apps have a huge advantage,” said a mobile market analyst … “You had to take a step to get it; you are already half sold.”

When people open an app, they give it full attention, which helped drive MasterCard’s decision to follow its A.T.M. locator app with one that would show shoppers nearby stores that offer discounts to MasterCard users.

Apps also give the company a chance to sell cardholders on more services. “It allows consumers to engage with the brand every day,” said SVP for mobile digital marketing at MasterCard …

Novelty apps have had the most downloads, research shows, use of them fades quickly …

Current thinking is that utilities that people use repeatedly are the most effective …

Edit by TJS

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Full Article
http://www.nytimes.com/2009/10/05/technology/05apps.html?ref=media

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The current refrain: almost 1 million jobs saved or created.  Yeah, right.

The chart says it all …

http://online.wsj.com/article/SB10001424052748704795604574519602476681352.html?mod=djemEditorialPage