Posts tagged ‘marketing’

So Why Is Paul Krugman Now Defending the Privileges of the 0.1%?

Apparently Paul Krugman has weighed in on Amazon and has concluded that it has "too much power".

I just cannot believe progressives are falling into the trap of defending major publishers against Amazon.  People like Krugman who bash Amazon are effectively setting themselves up as defenders of a small oligarchy of entrenched publishers who have, until recently, done a very good job of making themselves the sole gatekeeper of who gets into print.  Amazon is breaking this age-old system down, in the same way that Uber is challenging taxi cartels and Tesla is challenging traditional auto dealer networks, and giving most everyone access to the book buyer.

The system that Krugman is defending is the system of the 1%.  Or 0.1%.  The current publishing system benefits about 200 major authors who are in the system and whose work has traditionally been spammed by the large publishers to every bookstore and news outlet.  When you walk into an airport book seller, how much diversity of books do you see on the front table?   You just know that you are going to see Sue Grafton's "AA is for Aardvark" and Janet Evanovich's "Fabulous Forty-Six".  The publishers have risk-return marketing incentives to push the 46th Stephanie Plum novel over trying any new author.

So while the traditional publishers flog the 0.1% of authors, Amazon has empowered 20,000 authors.   Those who sell just a few thousand copies (or fewer) of books have found an outlet in Amazon that never existed for them (as disclosure, I am one of those).  And writers who distribute mainly through Amazon get a far higher percentage of their book revenues than they ever would get from the traditional publishers.

So Amazon is helping the consumer (lower prices) and 99.9% of authors (better access and higher profits).  It is perhaps hurting the top 0.1% and a few century-old entrenched corporations.  So what doesn't Krugman like?

Super-Smart!

I didn't get that big Internet payout from my year or so at Mercata, but those of us involved have this to fall back on:

Founder and CEO Steve El-Hage acknowledged that “super-smart people had tried to get the ball rolling in the past” on group buying — one of them was Mercata, which shut down back in 2001. (More recently, I’ve written about a group-buying startup called Higgle.)

It's amazing how group buying is an idea that keeps coming back.   Even pre-social media, we found it to be a better tool for driving viral marketing than for achieving any economies of scale.

Non-Monetary Job Benefits Example

The other day I wrote about non-monetary job benefits.  Here is an example:

A small-time vintner's use of volunteer workers has put him out of business after the state squeezed him like a late-summer grape for $115,000 in fines -- and sent a chill through the wine industry.

The volunteers, some of them learning to make wine while helping out, were illegally unpaid laborers, and Westover Winery should have been paying them and paying worker taxes, the state Department of Industrial Relations said.

"I didn't know it was illegal to use volunteers at a winery; it's a common practice," said winery owner Bill Smyth.

State law prohibits for-profit businesses from using volunteers.

Before the fine, volunteer labor was common at wineries in the nearby Livermore Valley, said Fenestra Winery owner Lanny Replogle.

...

About half the people the state considered Westover employees were taking a free class at the Palomares Canyon Road winery. Students learned about growing vines, harvesting and blending grapes and marketing the finished product.

"This was an incredible opportunity for me," said Peter Goodwin, a home winemaker from Walnut Creek who said he dreams of opening a winery with some friends. "I got to learn from someone who knows the business."

The winery sometimes asked Goodwin if he wanted to assist in different tasks.

"That's what I wanted, to be as involved as much as possible -- it was all about learning," he said. "I don't understand the state's action. It was my time, and I volunteered."

I have mixed feelings on this.  On the one hand, this demonstrates the appalling violation of individual freedom that minimum wage laws create -- not just for the employer, but for the employee as well.  Minimum wage laws mean that you are not allowed to perform labor for less than that minimum, even if you choose to and get non-monetary benefits that you feel fully compensate you for the time.

On the other hand, you have to be particularly clueless, especially in California, to claim ignorance on this.  I work in an industry that 10 years ago routinely accepted volunteer labor (illegally) and I was never lulled by the "everyone else is doing it in the industry" excuse.  I will say that it is irritating to try to run a business in compliance with the law and to find yourself undercut by folks who are avoiding the more expensive parts of the law.  Years ago there used to be a couple of non-profits who competed against me running campgrounds.  They were really for profit - they just paid their president a large salary rather than dividends - but used the non-profit status** as a dodge to try to accept volunteer labor.  Eventually, they were stopped by several courts from doing so.

Yes, I know this is kind of odd.  You might ask yourself, why are there so many people willing to take their volunteer position when you are offering paid jobs?  It turns out here are a lot of non-monetary benefits to this job such that people will do it for free.  In fact, that huge fountain of hypocrisy that is the Federal Government exempts itself from paying minimum wage and accepts volunteers to run its campgrounds where I must pay them.

 

** the non-profit status helped them in one other way.  We take over operation of recreation areas under concession contract from the government.  Many government employees hate this sort of outsourcing partnership, and really find it - for the lack of a better word - dirty to sully themselves interacting with a profit-making entity.  The non-profit status helped my competitors seem friendlier -- ie less capitalistic -- than I.  California recently passed a law allowing lower cost third party operation of certain parks functions but only if this was performed by a non-profit.   I had a US Forest Service District Ranger in Kentucky tell me once that he was offended that I made money on public lands, providing services in the National Forest.  I answered, "Oh, and you work for free?"  I said that I did not know how much he made but I guessed $80-100 thousand a year.  I said that would be over double what my company made in profit in the same forest operating and paying for hundreds of camp sites.  Why was I dirty for making money in the Forest but he thought he as "clean"?

The Lego Movie and Transformers Movies Have Something In Common -- And It's Not Toy Tie-ins

I watched the Lego Movie last night, and I found it had something very much in common with the recent Transformers franchise movies -- and its not the fact that they both began as marketing platforms for toys.

I don't think it is too much of a spoiler to say that the Lego movie has all kinds of frankly absurd, sometimes nonsensical, plot lines and dialog (though it is surprisingly entertaining at times none-the-less).  What you find out when the camera pulls back midway through the movie is that the first part of the movie is actually pouring from a little boy's imagination as he plays with his Lego blocks.  We are watching a kid playing alone in the basement, making up stories with his toys.

The Lego Movie is the perfect way to understand the most recent Transformers movies.  The Transformers movies don't make a lot of sense in terms of plot and dialog.   But they make perfect sense if you think of them as Michael Bay playing with his digital toys.  The Transformers movies are a little boy running around his room with a couple of action figures yelling "pew pew" and "kaboom", perhaps in front of the Megan Fox poster on the wall, with Michael Bay as the little boy.  The $150 million in digital effects and some irrelevant live actors barely change this fact at all.  (By the way, I have great respect for Bay being able to have fun with his toys and make a billion dollars in the process).

Unreported Obamacare Data -- Exchange Sales Conversion Is Much Worse When The Taxpayer is Not Subsidizing the Policy

I like digging through the raw data in the Obamacare report rather than just accepting the bits the New York Times wants to report.  As a business guy, I was looking at the data from a sales-conversion perspective -- ie, who is buying and who is not?  And of course, why?

When I was in the marketing world, we used to call the process of sales conversion the sales funnel.  For the exchanges this means some percentage of the available market actually show up at the exchange, and then some percentage of those actually complete the arduous sign-up process, and some percentage of those actually select a policy, and presumably some percentage of those actually pay, though we don't know what that latter percentage is.  At each step, we ask ourselves what people are we converting from one step to the next, and why.

Here is the Obamacare exchange sales funnel through December (as has become tradition, it is a scavenger hunt to fill this in and the data locations move around from month to month).

click to enlarge

 

As you can see, of the nearly 3.7 million people who have selected a private plan or been put in Medicaid or CHIP, fully 88% are on the government dole (subsidized or full Medicare).

The interesting new data is on the plan selection breakdown between subsidized and un-subsidized.   This leads to an interesting finding that is a bit non-obvious from the report itself because the data is spread all over the report.  But lets look at conversion of applicants to plan selection based on whether folks are subsidized or subsidized.

For the 2,383,131 applicants who find they are no going to be subsidized, only 436,603 have selected a plan, for a 18% conversion rate

For the 2,756,667 applicants who find they will get supported by the taxpayer, 1,646,237 selected a plan, far a 60% conversion rate.

In essence, applicants are more than 3 times more likely to sign up if they are getting taxpayer money.  The exchanges are not selling health care, they are selling subsidies.  People sign up, check to see if they have money coming, and go away if they don't and stay if they do.

The next really interesting piece of data would be the demographics and health status of the 18% who did sign up for an unsubsidized plan.  I would not be at all surprised if the demographics there were far, far worse than the average.  Emerging hypothesis:  People come to the exchange, and sign up if they get a subsidy, or if they have health problems or high risk.

Republican Web Folks Still Suck

Somehow I managed to get on the NRCC email list.  I don't generally mind these things, as I am on several lists from both parties and it is kind of interesting to see what marketing come-ons they are using at any particular moment.

But the NRCC has been spamming the hell out of me.  This in and of itself I think shows a lack of understanding about the medium.  You lose effectiveness really fast if you send, say, five emails in five minutes, which is what I just received.  Worse, though, is that there is no opt-out link in the email.  Who in this day and age is dumb enough to send out even quasi-legitimate marketing material and not include an opt-out?  Morons.  I am one of the those people who actually can and do write rules to sort my email box, so I can take care of the problem, but this is just bush league.  If you are a GOP member, I would not be fooled by your parties happy talk that it is closing the gap on digital communications with the Dems.  I see no such evidence.

During my brief foray into politics Chairing Equal Marriage Arizona, we were trying to message from the center right on the gay marriage issue.  We found out, to our dismay, this is not at all a comfortable approach for established gay rights organizations (to say the least), but we thought it an intelligent and necessary approach to win on the issue in a red state.  Anyway, one thing we found quickly is that there is no bullpen out there of talented web people on the Right, at least in Arizona.   They are all on the Left.  If I were a member of the GOP and actually cared about their fate, I would sure be looking for a way to fix this, perhaps with some sort of internship program to start developing a bench.

Is Cronyism Private Enterprise's Fault or the Government's?

Oddly enough, this is perhaps the most frequent argument I have with people on the Left in cocktail party conversations.

It begins this way -- some abuse of "private enterprise" is cited.  Almost every time, I have to point out that the abuse in question could not occur if private companies were not availing themselves of government's coercive power to [fill in the blank: step on competitors, limit choice, keep prices high, rake in subsidies, etc.] Michael Moore's Capitalism: A Love Story is very much in this mold, blaming bad outcomes that result in government interventions on free market capitalism.

Kevin Drum has a great example of this.  Asthma inhalers are expensive because certain companies used the government to ban less expensive competitive products.

Nick Baumann picks up the story from there:

The pharma consortium transformed from primarily an R&D outfit searching for substitutes for CFC-based inhalers into a lobbying group intent on eliminating the old inhalers. It set up shop in the K Street offices of Drinker Biddle, a major DC law firm. Between 2005 and 2010, it spent $520,000 on lobbying. (It probably spent even more; as a trade group, it's not required to disclose all of its advocacy spending.) Meanwhile, IPAC lobbied for other countries to enact similar bans, arguing that CFC-based inhalers should be eliminated for environmental reasons and replaced with the new, HFC-based inhalers.

The lobbying paid off. In 2005, the Food and Drug Administration (FDA) approved an outright ban on many CFC-based inhalers starting in 2009. This June, the agency's ban on Aerobid, an inhaler used for acute asthma, took effect. Combivent, another popular treatment, will be phased out by the end of 2013.

In other words, pharmaceutical companies didn't just take advantage of this situation, they actively worked to create this situation. Given the minuscule impact of CFC-based inhalers on the ozone layer, it's likely that an exception could have been agreed to if pharmaceutical companies hadn't lobbied so hard to get rid of them. The result is lower-quality inhalers and fantastically higher profits for Big Pharma.

Rosenthal has a lot more detail in her piece about how the vagaries of patent law make this all even worse, and it's worth reading. But she misses the biggest story of all: none of this would matter if drug companies hadn't worked hard to make sure the old, cheap inhalers were banned. How's your blood doing now, Dr. Saunders?

No one has more disdain than I for companies that attempt to use the coercive power of the government as a competitive weapon in their favor.  Heck, I have barely gone 2 hours since the last time I bashed an industry for doing so.

But the implication that this is all the fault of corporations is just wrong, as is the the inevitable Progressive conclusion that somehow more government regulation and powers are necessary to combat this.

The Left has been the prime cheerleader over the past decades in creating the Federal behemoth that not only allows this to happen, but actively facilitates it.   We have created a government whose primary purpose is to redistribute spoils from one group to another.

Just look at the example he uses.  These drug manufacturers could have protected their markets and products the free market way, by investing tens of millions in more research, manufacturing cost reduction, and customer marketing.   But instead, we have a system where - entirely legally - a company can spend a fraction of this (the chump change amount of half a million dollars) to market to a few dozen people in DC and get the same benefits as investing tens of millions in satisfying customers.    The wonder is not that losers like these drug companies go this route, but that anybody at all still has enough sense of honor to actually invest in the customer rather than in DC bureaucrats.

I put it this way - "invest in customers rather than DC bureaucrats" - because every new regulation, every new government power over commerce is essentially a dis-empowerment of consumers in the marketplace.  Nowhere is this more true than in pharmaceuticals, where the government tells consumers what they can and cannot buy.

In a free market, accountability is enforced by consumers defending their own best interests and new competitors seeking fortunes by striving to serve consumers better than market incumbents.  Every government intervention is essentially saying to consumers that the government is going to make yet another decision for them.  So, having taken over so many decisions of consumers in those huge office buildings in DC, is it any wonder that companies go to DC to market to bureaucrats rather than bother marketing to consumers?

The problem, then, is not that some corporations avail themselves of legal shortcuts to profits.  The problem is that these legal shortcuts exist at all.  The problem is the coercive power of government to intervene in markets, chill competition through incensing, subsidize one competitor over another, etc.  These kinds of stories are going to proliferate endlessly until  that power is scaled back.

The Progressives I argue with come back with one of two answers.

This is a crock, and is the worst bit of enablement for a bad system ever invented.   The folks in government are not bad people -- they are normal people with bad information and bad incentives, and that is never going to change.  After all, something that Drum glosses over here, the agency in hid example went along and did the industry's bidding.  I know why the industry was doing what it did, but why did the agency roll over?  The whole theory is that these are public spirited people without commercial incentives.  Yet they rolled over none-the-less.  And it's not like these government employees are Rothbardian libertarians.  I work with the government all the time.  Their employees are there because they believe in public solutions over private ones.  In outlook and biases and beliefs they look a lot more like Kevin Drum than myself.  So why do they get a pass?  Of the two people here -- the drug company guy and the regulator guy -- which one is not doing his job right for his constituents?  So why does the drug company get the blame?

Response 2:  We just need to ban lobbying and contact with the regulated industry.  The whole theory of regulation is that the regulators are totally knowledgeable about the industry, but they have different incentives so they can work in the public interest.  But how are they going to be totally knowledgeable about the industry without frequent contact?  Or even experience in the industry?  And as to lobbying, lobbying is just speech.  It would be Constitutionally impossible to ban lobbying, and wrong anyway.  Think of it this way-- let's say you ran a restaurant but had to get a government agency's permission for each change in your menu (just as drug companies have to get permission for each change in their product offering).  Would you be happy with a situation in which the government made decisions on your menu without consulting you?  You would want to explain your desired changes and the logic behind them, right?   That's called lobbying, and you would not be happy to see it banned.

On Language Courses

Last time we were in Italy, my wife and I vowed that we would try to learn some Italian before we return (she has some high school French and I have a fair amount of Spanish).   Well, we never did much about it.  I will confess that despite being often skeptical of the paradox of choice, it may actually explain my lack of action.  I could not make up my mind between the various courses.

Then along came my son, who has decided with his roommate that they want to do a semester abroad in Italy next year.  I am not sure why he chose Italy -- I can only assume it had something to do with my euphoric descriptions of finding myself in Milan on Vogue fashion night and being surrounded by Italian models.  You know that language course ad with the guy picking up the Italian course so he can have his one chance at the Italian supermodel?  It's a funny ad, but I fear it may actually hit kind of close to home in my household.

Anyway, my son pushed me over the top to buy a course.  The conflicting online reviews can leave your head spinning, but the general conclusions I came to were:

  • Rosetta Stone is all marketing, but not the best course
  • Pimsleur got the most positive ratings.

So I went with the Pimsleur course.  It is PC-based, which fits how my family works.  It allows four installations, so each family member got one.  And it allows its lessons to be downloaded to mp3 files so you can listen in the car or on your iPod (though you lose out on the other parts of the lesson which are non-audio).

So far, 20 days into the thing, I have been happy.  I have never thought of myself as good at languages but I have decided to trust the process.  So far, I feel like I am learning and retaining a lot.  My son reports that he thinks it is better than Rosetta Stone, which his roommate is using.

The weird part for me, who learned Spanish from a grammar nazi, is to work with verbs without first learning all the conjugation rules.   In fact, the course seems to work this way -- you learn examples and phrases first, then over time go back and learn the grammar behind what you are doing.  It seems to work, for a few reasons.  One is that a lot of the verbs you need early on to say basic things (is, go, like) have non-standard conjugations anyway, so memorizing them is what you would have had to do with any approach.  A second reason is that it is a hell of a lot more fun to say useful things than to spend what I remember to be years farting around with conjugation and use rules for the subjunctive.  After all, I am not trying to write an academic paper in Italian, I am trying to enjoy my tourist experience.  The third reason this is working for me is that I do remember a lot of my old Spanish verb conjugations, and it turns out Italian conjugates (at least in the present tense) very similarly to Spanish.

Postscript:  To the early joke about learning Italian to meet women, I will say we were all laughing through about the first 7 lessons of Pimsleur.  If you had designed a course solely to pick up people of the opposite sex, I am not sure one bit of the first few lessons would have been different.  Seriously, we were repeating phases like "do you want to have a drink at your place or mine?"

Progressives Suddenly Support Health Insurance Marketing

For years Progressives, led by President Obama during the legislative process for the PPACA, have attacked health insurance companies for their profits and overhead.  I never understood the former -- at generally 5% of revenues or less, even wiping health insurance profits out altogether would offset less than a year's worth of health care inflation.  The Progressive hatred for health insurance overhead was actually built into the PPACA, with limits on non-care expenses as a percent of premiums.

Progressive's justification for this was to compare health insurer's overhead against Medicare, which appears to have lower overhead as a percentage of revenues.  This is problematic, because lots of things that private insurers have to pay for actually still are paid for by the Federal government, but just don't hit Medicare's books due to funky government accounting.  Other private costs, particularly claims management, are areas that likely have a real return in fraud reduction.  In this case, Medicare's decision not to invest in claims management overhead shows up as costs elsewhere, specifically in fraudulent billings.

None of these areas of costs make for particularly fertile ground for demagoguing, so the Progressive argument against health insurance overhead usually boils down to marketing.  This argument makes a nice fit with progressive orthodoxy, which has always hated advertising as manipulative.  But health insurance marketing expenses mainly consist of

  1. Funding commissions to brokers, who actually sell the product, and
  2. Funding people to go to company open enrollments and explain health care options to participants

Suddenly, now that Progressives have taken over health care via the PPACA and federal exchanges, their tune has changed.  They seem to have a near infinite appetite for marketing money to support construction of the exchanges (which serve the role of the broker, though less well because there is no support)  and information about options to potential participants.  That these are exactly the kinds of expenses they have railed against for years in the private world seems to elicit no irony.  Via Cato

Now we learn, from the Washington Post’s Sara Kliff, “Sebelius has, over the past three months, made multiple phone calls to health industry executives, community organizations and church groups and directly asked that they contribute to non-profits that are working to enroll uninsured Americans and increase awareness of the law.”

This follows on from revelations in California (revelations that occurred before a new California law that makes PPACA costs double-secret).

[California] will also spend $250 million on a two-year marketing campaign [for its health insurance exchange]. By comparison California Senator Barbara Boxer spent $28 million on her 2010 statewide reelection campaign while her challenger spent another $22 million.

The most recent installment of the $910 million in federal money was a $674 million grant. The exchange's executive director noted that was less than the $706 million he had asked for. "The feds reduced the 2014 potential payment for outreach and enrollment by about $30 million," he said. "But we think we have enough resources on hand to do the biggest outreach that I have ever seen." ...

The California Exchange officials also say they need 20,000 part time enrollers to get everybody signed up––paying them $58 for each application. Having that many people out in the market creates quality control issues particularly when these people will be handling personal information like address, birth date, and social security number. California Blue Shield, by comparison has 5,000 employees serving 3.5 million members.

New York is off to a similar start. New York has received two grants totaling $340 million again just to set up an enrollment and eligibility process.

These are EXACTLY the same sorts of marketing costs progressives have railed on for years in the private world.

Obamacare Hypocrisy

Proponents of Obamacare and other aggressive government health care interventions often argue that government health insurance will be less expensive than private health insurance.  Ignoring the whole history of government provided services (which you have to do to accept this argument), it is entertaining to press them on what costs will go away.

First, they will argue "profits."  Health insurers "obviously" make a lot of profit, so doing away with that will amount to a lot of savings.  Several years ago, when Obama was actively demagoguing** the health insurance business, the profit margins of health insurers were all around 3-4% or less.  Which means in exchange for eliminating all private profit incentives towards efficiency and productivity, we get a 3% one time cost reduction.  Not very promising.

After profits, Obamacare supporters will point to administrative costs.  Their philosophy that private insurance administrative costs drive health inflation is built into Obamacare, which places a cap on non-care related costs as a percentage of premiums.  I would argue a lot of this cost is claims management and fraud detection that government programs like Medicare don't have, to their detriment, but let's leave that aside.  I think most Obamacare opponents are convinced that there are billions in marketing costs that could be eliminated.  This has always been their bete noir in pharmaceuticals, that drug companies spend too much marketing.

I have said for years that to a large extent, what outsiders call "marketing" in health insurance is actually customer service and information, in particular agents who go out to companies and help people understand and make their insurance choices.

Well, it turns out that when the shoe is on the other foot, Obamacare supporters suddenly are A-OK with massive health insurance marketing costs, even when what is being marketed is essentially a monopoly:

[California] will also spend $250 million on a two-year marketing campaign [for its health insurance exchange]. By comparison California Senator Barbara Boxer spent $28 million on her 2010 statewide reelection campaign while her challenger spent another $22 million.

The most recent installment of the $910 million in federal money was a $674 million grant. The exchange's executive director noted that was less than the $706 million he had asked for. "The feds reduced the 2014 potential payment for outreach and enrollment by about $30 million," he said. "But we think we have enough resources on hand to do the biggest outreach that I have ever seen." ...

The California Exchange officials also say they need 20,000 part time enrollers to get everybody signed up––paying them $58 for each application. Having that many people out in the market creates quality control issues particularly when these people will be handling personal information like address, birth date, and social security number. California Blue Shield, by comparison has 5,000 employees serving 3.5 million members.

New York is off to a similar start. New York has received two grants totaling $340 million again just to set up an enrollment and eligibility process.

** Don't be fooled by the demagoguery.  This is standard Obama practice.  In exchange for eating sh*t from Obama in public, private companies get all kinds of crony favors in private.  Remember, health insurers got the US government to mandate that everyone in the country buy their products, and got the Feds to establish trillions in subsidies to help people do so.  This may be the greatest crony giveaway of all time, and to cover for it, like a magician distracting your eye from the sleight of hand, Obama made it appear in public as if he were health insurers' greatest enemy, rather than their sugar daddy.

Incredible Level of Cronyism

I am simply amazed at this level of cronyism enjoyed by the sugar industry -- import restrictions on cheaper world sugar, price supports, and government loans that can be paid back with excess product rather than cash.

The U.S. Department of Agriculture is likely to buy sugar in the domestic market this year in order to drive prices up and prevent defaults on loans made to sugar processors, according to a USDA economist.

The USDA estimates it would need to buy 400,000 tons of sugar to boost prices to an “acceptable level,” said Barbara Fecso, an economist at the department. A purchase of 400,000 tons would amount to about 4.4% of projected U.S. sugar production in the marketing year that ends Sept. 30.

Domestic sugar prices have been trading at about 20 cents a pound, their lowest level in nearly four years, putting companies that make sugar from cane or beets at risk of defaulting on loans they received from the USDA when prices were higher.

People talk about these supposed government subsidies for oil companies, but every time I see a list of them they are dominated by things like depletion allowances, FIFO accounting, and investment tax credits, which are either standard accounting rules that apply to all industries or tax credits that apply to all manufacturers.  But Big Sugar gets real heavy-duty subsidies no one, except maybe ethanol companies and other farmers, get.

Modern Serfdom

The well of government absurdity is simply bottomless

In this case, the USDA imposed on the [raisin farming] Hornes a “marketing order” demanding that they turn over 47% of their crop without compensation.  The order—a much-criticized New Deal relic—forces raisin “handlers” to reserve a certain percentage of their crop “for the account” of the government-backed Raisin Administrative Committee, enabling the government to control the supply and price of raisins on the market.  The RAC then either sells the raisins or simply gives them away to noncompetitive markets—such as federal agencies, charities, and foreign governments—with the proceeds going toward the RAC’s administration costs.

I have seen estimates that a Medieval serf had to pay between 30 and 70 percent of his crop to his master.  The RAC seems to be right in line with these numbers.

A Really Bad Deal

In Obamacare, it was mandated that health insurance companies spend 85% of premiums on care (vs. marketing, profits, and overhead) or else they owe their customers a refund.  So if the same standard was applied to unions, how much of their dues would they have to refund?

For example, according to the most recent federal filings, the Michigan Education Association — the state’s largest labor union — received $122 million and spent $134 million in 2012. They averaged about $800 from each of their 152,000 members.

According to union documents, "representational activities" (money spent on bargaining contracts for members) made up only 11 percent of total spending for the union. Meanwhile, spending on “general overhead” (union administration and employee benefits) comprised of 61 percent of the total spending.

The union appears to have spent nearly the entirety, or $119 million of their $122 million in dues, just supporting their leadership  (and various politicians) in grand style.  They actually had to borrow $12 million to do their job of representing their members.

By Obama's standard of good management (core activity costs = 85% of total customer dues paid) then the union should have taken only $17.4 million from their members, and owe them a $104.6 million refund.

Part-Time Job for College Student

The trade group that represents companies like mine that privately operate public parks is looking for a college student to work part-time for us, either this summer or into the fall.  The ideal committment is 20 hours a week for 6-10 weeks but we could accommodate fewer hours for a longer span of time.  We are willing to pay in the ballpark of $13 an hour plus expenses (phone and Internet bills, etc).  We anticipate the candidate would work from his or her own home (or dorm) and already has access to a computer and Internet connection as well as a word processing software of some sort.

Job responsibilities would include:

  • Working with our members to accumulate and organize our intellectual property vis a vis this business.  This includes marketing material, regulatory and statutory information, how-to guides, etc.
  • Working with our partner agencies, like the US Forest Service, to get statistics on our members' scope  (e.g. we don't even know how many US Forest Service parks are run privately) and to synthesize these into marketing materials

The candidate need not have any specific knowledge of our business, and we have experts in the organization that can supply contacts and information.  Being an all-volunteer organization, we need someone with the time and the focus to gather and organize the information we have.  The candidate will have direct contact with the CEO's of most of the key players in this industry as well as with senior staff officers of a number of public recreation and lands agencies.    We want someone who is bright and unafraid to approach, even pester, strangers for information.  Quantitative skills and/or economics or business-related studies are a plus but are not required.  Experience with web tools such as content management systems like WordPress also a plus.

If someone is interested, have them email me at warren -at- camprrm *dot* com or hit the email link above.

Christmas Tree Tax

Yes, its stupid, but perhaps for a different reason than has been mentioned.  The tax is on producers, and is meant to fund a promotion and marketing campaign.  Really.  Because Christian families in the US might forget to buy a tree this year if the government did not remind them.  Seriously, do any of these folks have kids.  "Dad, can we get the tree today, can we, can we, please?"

By the way, this kind of taxation authority that bypasses Congress is actually fairly often used by the Department of Agriculture.   If you see random TV ads for avocados or almonds, you probably are seeing one of these government marketing forced-cooperatives.

Update on Fisker Karma

I had some fun yesterday, dashing off a quick note about the Fisker Karma electric car and just how bad the electric mileage is if you use the DOE methodology rather than the flawed EPA methodology to calculate an mpg-equivalent.

It was the quickest and shortest column I have ever written on Forbes, so of course it has turned out to be the most read.  It has been sitting on top of the Forbes popularity list since about an hour after I wrote it, and currently has 82,000 reads (I am not a Twitter guy but 26,000 tweets seems good).

I wanted to add this clarification to the article:

Most other publications have focused on the 20 mpg the EPA gives the Karma on its backup gasoline engine (example), but my focus is on just how bad the car is even in all electric mode.    The calculation in the above article only applies to the car running on electric, and the reduction in MPGe I discuss is from applying the more comprehensive DOE methodology for getting an MPG equivilent, not from some sort of averaging with gasoline mode.  Again, see this article if you don’t understand the issue with the EPA methodology.

Press responses from Fisker Automotive highlight the problem here:  electric vehicle makers want to pretend that the electricity to charge the car comes from magic sparkle ponies sprinkling pixie dust rather than burning fossil fuels.  Take this quote, for example:

a Karma driver with a 40-mile commute who starts each day with a full battery charge will only need to visit the gas station about every 1,000 miles and would use just 9 gallons of gasoline per month.

This is true as far as it goes, but glosses over the fact that someone is still pouring fossil fuels into a tank somewhere to make that electricity.  This seems more a car to hide the fact that fossil fuels are being burned than one designed to actually reduce fossil fuel use.  Given the marketing pitch here that relies on the unseen vs. the seen, maybe we should rename it the Fisker Bastiat.

The Appeal of Coupons

Ages ago, I was an executive at Mercata, an Internet store whose strategy was to sell items whose price would go down as more people agreed to buy the item.  In theory, this creates an incentive for viral marketing, as anyone who buys has a financial incentive to get their friends to join in.

The company died for a variety of reasons, in part just because like many startups in that weird era of the late 90's, we just built up too many fixed costs too fast to reach breakeven in any reasonable amount of time.  We were also ahead of our time in some ways -- the model makes a ton more sense in the Facebook / social media age.

But we also failed, as did many Internet stores, because order fulfillment, product inventory, shipping, etc was and still is expensive.

Glenn Reynolds notices that a lot of folks (including Amazon in his link) are selling coupons.  This may be a blinding glimpse of the obvious to all of you, but the appeal of a retailer of selling coupons online is that they are virtually free to inventory, to fulfill, and to ship.   Think of it this way -- you want to compete online on price.  You can actually sell the physical stuff at a discount.  Or you can sell the coupon, which gives access to the customer access to the same discount but is much easier to fulfill.  It also lets you "sell" things you normally can't provide over the Internet, like a restaurant meal.

The model is not that compelling to me, because I shop online for the convenience rather than the price.  I buy some Groupon type coupons, but generally for things like restaurants rather than products.

First Ever Inside Reference to My Novel

This is probably the first ever inside reference to my novel. The funny part is that when I read TJIC's post, I thought "hmm, Preston Marsh, where have I heard that name?"  LOL.  By the way, the business idea Travis has is actually intriguing

Restaurants get napkins and linens as a service "“ every day, they trade huge bags of dirty whites for clean whites. They are in the business of cooking food and hiring wait staff, not in the business of knowing how to bleach things (or in the business of picking out linens that can stand up to bleach).

So what does clothing as a service entail? It could include cleaning, sizing, rotating wardrobes as fashions change, etc.

It removes some hassles, and bundles responsibilities in the place where there are economies of scale "“ people in the fashion industry can and will know more about sizing, cleaning, coordinating, etc. than consumers.

I and others have thoughts on the model in the comments.

By the way, for those who have not read my book, Preston Marsh is an entrepreneur who has made money in a series of sortof odd business models.  Years ago I used to get bored at parties (actually, I still get bored at parties but I no longer use this entertainment technique) and make up occupations for myself.  I remember convincing one woman who had recent evidence that I could not ski well that I was on the Olympic Ski Jumping Team  ("You don't have to turn in ski jumping!")

Anyway, all the business models in the books are ones I made up for myself on the fly at parties.  One involves building fountains in malls and then recouping the investment by harvesting coins from them.  Another, which is central to the book, is a sort of guerrilla marketing startup which does some lifestyle consulting with teens but makes its money placing products in the hands of the coolest, trendsetting teens at high schools (a model that has since been emulated by a couple of real-life companies).

By the way, the book is still on sale at Amazon and available on the Kindle for download.  Just search "BMOC."

Timing is Everything

A decade ago, I was an executive at an Internet startup named Mercata.  Mercata was one of a couple of entrants in a field we had named "group buying."   In practice, this meant there were limited time sales where the price of a product would fall based on the number of people who agreed to buy.   Obviously the volumes were not large enough to get economies of scale of any sort, so they main advantage of the approach was viral marketing -- once you had agreed to buy, you had an incentive to get others to join in as more buyers would reduce your price.

The company eventually folded.  The company was very professionally run for an Internet startup of the day, but it had a lot of overhead for its volume, and, as eBay would learn, a lot of people wanted to buy immediately rather than wait for some sort of auction to play out.

But it turns out that one of our biggest failures was timing.  Recently, a company called Groupon has taken advantage of social networking that did not exist 10 years ago and has been quite succesful building a business using a very similar model to Mercata's.  It appears that Google has just bought Groupon for $2.5 billion.  Sigh.

This is not, however, even my largest financial missed opportunity.  I still have in my desk a 1984 job offer from Microsoft, which I eschewed at the time because it paid less than my other offers and tried to compensate me in these crazy pieces of paper called "options."  I once calculated the current value of the options just in the offer letter (ie not including any future grants over time) and their value was well north of any conceivable net worth I might reach currently.

My First Novel Now on Kindle

My first novel, "BMOC," is now on Kindle for $4.99, a substantial discount off the  $17.95 price Amazon has for the dead tree version.  Incredibly, my author royalty is WAY more for the Kindle version even at that price than for the paper version.

Anyway, if you like this site, you might check it out.  The novel is part murder mystery, party comedy, and part business book.   I used to have fun with my friends at business school and later in nconsulting thinking up odd new business models (e.g. coin harvesting from fountains) and this book embodies some of the odder ones we came up with.  Though as wacky as the business model of the main company in the book (called "BMOC" appropriately enough) was supposed to be, since writing it I have had a number of people send me stories of startups pursuing eerily similar approaches to marketing.  Anyway, the book is a light read though with adult language and a tiny bit of sex.

Will Work for Food

I was reading through some leftish/alarmist environmental blogs, and I was struck by how many desperately want to buy into the story line that poorer nations are the true heroes of Copenhagen, holding the rich nations feet to the fire so they will commit to deeper CO2 cuts.

Really?  A bunch of dictators who demonstrably have little concern for their citizens and spend most of their time trying to figure out how to divert state funds into their Swiss bank accounts suddenly care about the effects of anthropogenic climate change on their nations?  Hugo Chavez, whose nation currently is avoiding following Zimbabwe down the toilet only by its oil revenues really wants the world to wean itself off oil?

Here is the perfect analogy for the Third World's sudden interest in climate:  The "I will work for food" sign.  Beggers learned that (at least for a while) this sign was a good marketing tool.  They had no intention of doing any work  (I had a friend who used to drive up to all of them and offer them landscaping work in exchange for lunch, always to be turned down flat) but they knew it made potential donors more sympathetic -  see, they really want to work but are just down on their luck.   If you haven't seen the movie Interstate 60, you really need to.  Relevant clip below:

This is exactly the equivalent of the Third World's sudden interest in climate change.  Up to this point, their leaders have shown no interest in stopping the raping of their own local ecosystems.  These guys are certainly not conservationists, but they know a good marketing tool.  Copenhagen is about these guys putting their hands out, and using climate as the marketing tool to soften up their marks in the West.  These nations certainly have no intention of having any targets or restrictions placed on their countries.   And it looks like they may succeed, at least in the treaty phase.

Obama has positioned himself in such a way that he feels that he has to have something he can call a win at Copenhagen.  So he goes to the politician's traditional playbook, which is to use taxpayer money to buy a deal to try to make himself look better.  He is working to do this with the passage of the health care bill and he probably will do this in Copenhagen, agreeing to $100 billion a year in payoffs to third world kleptocracies so he can look like a winner to western socialists.

Congrats

My brother-in-law Eric Grove's book on email marketing was voted on the list of top ten small business books for 2009.

Email Marketing

My brother-in-law's book, "The Constant Contact Guide to Email Marketing," is doing quite well on Amazon.   After the early spam-crazy days, email marketing has really had to rebuild itself from the ground up.  I am a big believer in it, and can highly recommend his company Constant Contact as a email service.  I have several accounts and have set most of the non-profits I work with on it.  In his book, Eric discusses email marketing in the context of both customer acquisition and loyalty.  With Google clicks going for $2 or more, email remains a great value if done right.

Probably A Bad Sign

I have crafted any number of Google adwords ads, and every time it is a challenge to get my marketing message across in the limited number of characters available.  So it is probably a bad sign that five top advertisers in one search feel the need to use some of this limited real estate to write "not hiring."

not-hiring

Yeah, That's Me All Right

I was a consultant for McKinsey & Co. for about 5 years in Dallas.  This was NOT me:

Through conversations with several staffers who have endured the McKinsey interviews, we've assembled a portrait of the typical consultant. First, they're quite young! Despite the early perception that they'd look like pasty lawyers wielding big-wheeled suitcases, they're apparently a plucky, charming bunch.

"They're kind of hot," said one source.

Crisp shirts, no jackets, freshly pressed pants"”not unlike the fresh-faced boys who posed for the Harvard fashion shoot in the Styles pages of The Times this past weekend. They jot notes down on legal pads and in marble notebooks.

Though I will say, much to my kids' ever-lasting amusement, McKinsey did send me to a sort of executive charm school when I started managing teams, because I was such a hopeless geek.  Actually, my main problem was that I was adult-ADD, and couldn't sit still in a meeting.  It's fine roaming around the room in hyperactive fashion when its your own company (ala Steve Jobs) but it is not OK when you are a 25-year-old consultant to the CEO of a Fortune 50 company.

My personal style didn't work any better in any of the other companies I worked for.  Aerospace was probably the biggest mis-match.  There is just no place for a hyperactive marketing guy in a business that takes 10 years to close a sale.  So I now run my own company, and there is no one above me to complain.