Paying customers to get them on your mail list

Last week I took my car to the dealer to attend to the recall. The service manager asked if I wanted to be on their mailing list, "No spam, we will jsu send you coupons and offers". I was hesitant then I asked if they can do the oil change at a $10 discount and he immediatly agreed. This led me to thinking:

1. It is possible service manager is incented to signup as many customers as possible for the mailing list and may even be incented per email. Since he is not hit with the $10 reduction in oil change fee he is more inclined to offer these discounts to sign up people. If this is the case the dealership not only does not know for building its customer mailing list but also may be acquiring cutomers with very low or negative Long Term Value (LTV).
   
2. Perhaps the dealship always overcharges customers and only the uninformed pay the full charge. This would mean they are relying on their customers ignorance and not building a trust based relationship. If this were the case then it defeats the purpose of a mailing list, when your interactions with the customers are more transactional, you hope to capture all the value in one transaction.

I think it is more of case 1 than 2.

School Market Research

Results from our work with one of our clients.

Deflation is in the minds of customers, just like Inflation

The New York Times story on Black Friday sales has this quote from a non-shopper,

At Westfield Century City Shopping Center in California, Harper Mance, 31, said: “I’m looking around, thinking, ‘If there are discounts on everything now, what’s it going to be like after Christmas?’ You know it’s going to go down further.”

Innovation Crisis in US

"The US system of public education must lay the foundation for developing a workforce that is literate in mathematics and science, among other subjects. It is the creative intellectual energy of our workforce that will drive successful innovation and create jobs for all citizens."

Is Business of Business Business

Featured Google Presentations

Market Share At Any Cost

Going after market share with a low price strategy may look attractive in a competitive environment with no clear differentiation between the products. But when price is the only appealing factor, companies stand to  lose value in a spiraling price war.  The lure of market share is more prevalent in consumer products where companies are destroying value and commoditizing their premium brands with price cuts.

The newly appointed CEO, Paul Polman, of embattled Consumer Products maker, Unilever, has this to say about his strategy:

We are not going to have a mentality to grow at the expense of others

He was quoted as saying that he would avoid fighting for market share at any cost, a trap that lead companies to cut prices too steep or chase low-margins products.

Mr.Polman nailed it.

Randy Pausch and Randy Komisar - Trade Money For Time

This weekend I watched the time management lecture by Randy Pausch, (well known for his terminal condition and his book The Last Lecture). I also read a book by Randy Komisar, The Monk and The Riddle. The two Randys talked about exactly the same thing.

Their core concept is the same, simple and profound - worry about the scarcest and non-reprehensible resource. Time and not money. Both goad us to ask ourselves, " if I only had a short time to live, would I want to do what I am doing now. Is what I am doing worth my time? What is the opportunity cost?

While Komisar is more holistic in his approach and asks " if I am doing step-1 because it has to be done so I can get to do step-2, which I love and is really what I want to do for the rest of my life, why? Why not do what I really want to do now? Why wait? Why subscribe to 'deferred life policy'?"

He talks about 'drive' which pushes you to do things you have to do while 'passion' pulls you towards things you would rather be doing.

While Komisar simply asked us to imagine our final days, Pausch literally had only few days to live and died recently.
Pausch gives tools and tactics to operationalize this, with specific and tionable and habit forming TODOs.

Together the two tell us to focus on our passion and how we go about achieving it.

Komisar's book also gives brief insights into how startups and VCs work, how they think about valuation from their perspectives and some funny anecdotes on life in the valley.

Time Management Speech By Randy Pausch

You can get the deck from the talk here. (PDF)


Randy's book is The Last Lecture.

A Bottle of Ice Cold Coca Cola

I was reading a book on Coca Cola, "The Real Thing" by Constance Hays. I realized I have not had a Coca Cola, the real thing not the diet type, for as far as I can remember. As I read about the mystique surrounding the flavor, the stories Coke built behind the flavor, and the public outcry about the new Coke I felt something missing from the story without the experience of enjoying Coca Cola.

The story about the Coke bottle, the reason for creating something is recognizable as Coke even from its fragments shows the essence of branding and  capturing customer's imagination.

I now have an uncontrollable desire to drink ice cold coke, not from fountain, not from a can, not from a plastic bottle but from the original thick bottomed glass bottle.  From the stories Hays tells us I feel there is something magical about this brand. Yes, it is sugar water and I would not want to drink one everyday, but I now have to taste it.

I have not had a Pepsi either for the same duration. I do want to try that as well and take the Pepsi challenge.

Branding Transit System

In the Nokia World 2007 (Webcast), Chris Anderson of Wired gave a keynote speech on "Free". He described a scenario in which an entire subway line is made free through corporate sponsorship. Corporate sponsorship has enered public transit system, in Dubai. The WSJ talks about the city state auctioning off naming rights of the train lines and the stations.

This isn't going to be free but the Ad revenue will go on to subsidize otherwise expensive tickets. It is a clever move by the Dubai transit authorities this isn't guaranteed to work for two reasons:

1. When you base your profit on sponsorship revenues even though your service adds value to your customers you destroying this value add. Your customers will end up valuing your service lower than they would have otherwise. 
2. If there are any changes in your Ad revenue you will need to compensate with increase in fees paid by travelers. As studies showed, moving from fee to free and increasing fees for an Ad subsidized service  causes customer dissatisfaction. The recent example is the failed attempt by The New York Times to charge for their Op-Ed pieces through Times Select.

In the end it still makes sense to determine your costs correctly and price it based on what your customers will value it. 

Marketers Love Parents With Daughters

From the Wall Street Journal interview with CEO of Six Flags:

studies show that young girls influence their parents' spending habits more than young boys do

I am one data point for this study.

Can Brands Make You Break Out In Hives?

Brands are like people, they have personalities. Well not quite, we as consumers tend to attribute human like personalities to brand. If we are allergic to certain human personalities, can we be allergic to brands too?

MarketPlace.org Beach Reads recommends a 2003 novel, Pattern Recognition. It was described as "the most finely observed and entertaining text on branding that's ever been written", by the reviewer Karrie Jacobs. Karrie describes the novels heroine Cayce Pollard to be "literally allergic to logos. The Michelin Man for example makes her physically ill".

While this level of brand sensitivity and reaction reads like hyperbole, there is certain truth to the emotional response. In her 1997 paper in the Journal of Marketing Research, Prof. Jennifer Aaker described five dimensions of brand personalities:

1. Sincerity
2. Excitement
3. Competence
4. Sophistication
5. Ruggedness 

If a brand's personality dimensions are not aligned with those you require of a brand, the brand is bound to cause a negative response.

Willingness To Pay

Imagine a store, not just any store, one that sells just Aquafina brand of standard size bottled water.
Suppose there are no price lists, no price postings anywhere in the store.  You walk in to the store and pickup a bottle and walk to the cashier, who instead of scanning the barcode on the bottle scans your forehead. A LCD display flashes the price, $1.09. You pay that amount and enjoy the bottle of water.

It is you again and the same store, but a different day. You have just run 10K, practicing for Bolder Boulder race. As you walk to the cashier with the bottle, the LCD now reads $2.25.  You pay as indicated.

This scenario is  described as the Monopolist Dream, the Holy Grail of First Order Price Discrimination.  The price that flashes on the LCD display is your Willingness To Pay. The price is not only different for different customers, but is different to you as well based on your need.

Willingness to Pay is exactly that, how much you value the product. Priced exactly at your WTP, you are indifferent to keeping the money vs paying for it. Priced even a penny above you will not buy, and anything less you get a price rent or more commonly defined as "Consumer Surplus".

For the business owner, both situations are sub-optimal, they either let you walk out with too much surplus or lose out on sales. Every business would love to get the exact WTP of every customer who walks into their store.  But that is not possible, hence we need the multiple pricing models, customer segmentation and all the research that goes with it

Next time you walk into Chipotle, think why the Vegetarian Burrito is priced at $5.29? How much surplus are you getting at that price?

Source: My class notes from Microeconomics by Professor Steven Tadelis.

The Economics of Giving

I read a paper on The Economics Lives of Poor by two MIT professors of economics. I have mixed feelings. I understand the arguments at the end but I cannot roll with it.

What Worked For Coke Will Not Work For Dr.Pepper

A product without the messaging does not have a market. But the two are not different and interchangeable. You can't lift a successful messaging that worked for one product and apply to another. For messaging to be successful it has to start at product inception and should evolve with it.

The New York Times talks about Republicans applying the messaging that worked for Bush reelection campaign to McCain 09 campaign. The two products are basically different. A former strategist for McCain perfectly described the move to employ the previous successful team and messaging, in this way:

“It could be the Coca-Cola strategy of marketing that they’re trying to apply to Dr Pepper,”

Picking A MindMapping Tool

Over the past few weeks I used Windows version of MindJet and web based MindMeister.
My recommendation is to go with MindMeister.

Crocs Valuations Wearing Out Faster Than The Sandals

For $6, you can buy a pair of sandals that looks identical to Crocs which retails for $30. You can now buy a share of CROX stock for less than $5.

There may be differences in how these two feel, but it is  not easy to find the differences in the look. How can Crocs expect to retain its market share at such price premium? It can't.

No one can expect to defend their price premium when close substitutions are available. Add to this, the current tough economic conditions. Crocs is not going to find it easy to convince customers that value-add from its resin technology is worth the high price.

Crocs pre-warned that it will barely break even for this quarter and the outlook isn't positive for the rest of the year.  It reduced its earnings forecast from 43 cents to 3 to 7  cents, at almost the same revenue levels of $220 million.  Its profits are expected to drop 93% while its revenues are expected to be down only 10%.

Crocs is obviously reeling under high cost of goods sold from high oil prices and high cost of sales and marketing. But these two alone are not enough to justify such a lopsided change in operating margin. There is more hidden in its books, and this makes the stock unattractive even though it is trading close to its book value (assets less liabilities).



As I wrote last time, there are serious red flags in its accounting. It is much better off to look for other investments. In the words of Benjamin Graham, buying shares of Crocs now is not investment, it is speculation.

Influencing Consumer Decision With Deliberate Versioning

Thanks to my friend Helen I learned about a lever for nudging consumer behavior  called  Asymmetric Dominance Effect also known as the Decoy Effect.

Joel Huber, a marketing professor at Duke, explanined this effect in a Washington Post article (via Wikipedia entry):

What the decoy effect basically shows is that when people cannot decide between two front-runners, they use the third candidate as a sort of measuring stick. If one front-runner looks much better than the third candidate, people gravitate toward that front-runner. Third candidates, in other words, can make a complicated decision feel simple.

In fact if you release two versions, 1 and 2,  of a product, it would help you to position these two in such a way that you capture market share in respective segments. In addition to these two versions, a marketer should introduce two more versions, 3 and 4,  each one unattractive by themselves but will make both version 1 and 2 attractive to the respective segments.

Books On Bart This Week

Murder at Bertram's Bower
Monster - a biography of LA murderer
Mrs Perfect
Unaccostomed Earth - Jhumpa Lahiri
Musicophilia
Reconstructing Clothes for Dummies
The Scream
Safe and Sustainable World
The Yellow Rose Trilogy
You Can Heal Your Life
Rich Dad Poor Dad
Intuition
The Judas Strain
The 13th Juror
Devils Web
The Connection
Mortgage Free For Life
Fade Away
The Tenth Circle
Bhagavad Gita
No Ordinary Time
San Francisco Tenderloin
The Da Vinci Code
Calculus
Decision Theory
Selling All
Accounting
System Design
Stalking The Vampire
Stronghold - Melanie Rawn
Sex,Drugs and Cocoa Puffs
Race of the Century
Beautiful Lies
Matters - Iain M Banks
An Irish Country Doctor
Speaker for the Dead
Women of Magdalene
Under the Banner of Heaven
Michael Cabon. The Yiddish Policemen's Guide
Precalculus - Sullivan
Jazz Masters of the Fifties
Sleep No More
Interpreter of Maladies
Aloha Mr. Lucky

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Deliver now! Improve iteratively!
www.IterativePath.com

The Gap

What happened to all the speculators driving up oil prices?

Speculators were an easy target for the Congress that wanted to show the people that they are doing something about the oil prices.  A simple explanation of demand and supply was not enough, it was too complex for most to comprehend.

Every story needs a villain, a damsel in distress and a knight in shining armor.  Arguably, the speculator are the real knights but they are not up for reelection nor are they good at pitching their side. So the lawmakers took the opportunity to pitch the plausible story of oil speculators driving up prices.

But as the demand fell due to consumers adjusting their behavior, the oil prices fell back 13% from its highs.  The Nightly Business Report's Suzanne Pratt said this nicely:

PRATT: So what happened to all the speculators that were supposedly driving up prices and ignoring fundamentals? Today, futures regulators said an inter-agency task force has found that supply-demand fundamentals are the best explanation for the recent run-up in oil prices, not excessive speculation, as some lawmakers believe. Many economists and analysts agree that fundamentals, mostly strong demand from India and China, have been the primary price driver, as well as stagnant supplies. But those fundamentals may be changing. Economist Carey Leahy says investors are waking up to the idea that slowing U.S. growth and other global factors could result in a big drop in demand.

Of course there is enough room in this for lawmakers to tell a different story, the mere mention of curbing speculation was enough to slay the dragon.

NYTimes Reports Increase in Online Shopping

Greg Manikw, the author of my favorite Macroeconomics book, writes in his blog a series on Cross-Price Elasticity of Demand.

The New York Times reports that shoppers are doing more online shopping than driving to the stores. While the demand for the products has not shifted to their substitutions, the channels through which people buy has.

Online shopping is gaining at a time when simply filling up a gas tank to head to the mall can seem like a spending spree.

A number of retailers — including Gap, Victoria’s Secret and J. C. Penney — are experiencing double-digit sales growth at their shopping Web sites, creating a surprising bright spot during an otherwise gloomy time for sales in brick-and-mortar stores.

Down the line this means drop in incentives to the employees who work in the shops and it is bound to cause shift in their consuming patterns.

If I can make predictions about other economic and consumer behavior changes we should expect in the future, these are in my short list:

1. People brown-bagging lunch
2. Product unbundling in restaurants. No more free bread, chips-salsa or worse no more free napkins or water.
3. 4 day work week, with 10 hours a day
4. US Mail stopping Saturday delivery
5. Newspapers adding a higher delivery surcharge, causing a shift to their online version.

Judging the Book just by the reviews

I am less inclined these days to buy the recent crop of books despite their compelling case for remarkable concepts. There are many books on business, economics, and marketing topics written for the general public. A common pattern is that they take a seemingly plausible concept and fill the book with examples and experiments in which the concept was found to be true. The concept is also repeated many times in the 200-300 page books that is also filled with references that are seem to add credibility.

When considering buying these books you not only look at the price you pay to buy the book, you also the opportunity cost of time spent reading the book. In fact, after you buy the book it is sunk cost and you need to reevaluate the decision between reading it fully vs doing something else. People feel guilty just for spending $25 on the book and hence spend more (by way of opportunity cost) to read the whole book.

In general you may be better off not buying the book and instead reading the reviews from trusted sources. You will be better off than buying the book and reading it in full.

I have said a few times that everyone should read the book Predictably Irrational. You can instead read this excellent review of this book and two others like it from Federal Reserve Bank of Minnesota.

Books on Bart This week

Feather Crowns Black Friday - James Patterson Under World - don deLillo A Passage To India Principles of Water Rates Fees and Charges Inspired - How To Create Products Customers Love Pride and Prejudice Certain Girls The Din In The Head Shopaholic Takes Manhatten Curse of the Spellmans Belt Preventive Maintenance Manual For Edgar Echoes of an Alien Sky Principles Of Marketing The Shakespeare Wars Swan Park Persuasion - Jane Austen John Adams - David McColough Collapse Casino Royale Rereading America - colombo, cullen Factotum She's Come Undone The Berlin Stories Pink Carnation Liberating Paris Cooking Up Murder Makig Waves - Catherine Todd Angels - marian Keyes Code Check HVAC Shoot Him If He Runs Foot and Lower Extremity Biomechanics The Parisians Fundamentals of Foot Surgery The Bible - pocket edition A Time For Trumpets Cycling Vietnam

Quote of the century

"If all you have is a squirt gun, you may have to use it. But if carried a bazooka, people know and you don't have to take it out.". - Hank Paulson

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Deliver now! Improve iteratively!
www.IterativePath.com

Buy, Beg, Borrow, Today's Wall Street Journal

If you do not subscribe to the WSJ, the print or online version, head over to the newstand near you and buy today's paper.

The cost of $1-$1.50 you pay is a bargain considering the value you will get from the articles on the credit criss, Bernanke's warning, why we use measuring cups and not kitchen scales, the European recession.

The Problem With Increasing Oil Supply Now

There is bound to be a bigger push on the Congress and the President to do something about the high oil prices. On an election year, the candidates wanting to show they care, get in the fray with their own recommendations like Gas Tax Holiday.

A common theme across all these plans is they either seek to increase supply or reduce total price.The supply increase is recommended through, more drilling in existing fields, open up new fields in protected areas, stop adding to strategic reserve.The price control methods are just that, seeking to introduce price control, windfall taxes and eliminate taxes.

The problem is the shock is demand induced and not a supply shock. The demand is global is nature and not limited to US. When the prices rose first, it was a shock. Now people, across the world, come to expect the higher prices are here to stay and are changing their behavior like using public transit, using cattle for plowing the field (India), or working from home one day a week.

Not everyone is doing this but enough to put a dent on the demand. If the lawmakers choose to address this demand side problem by increasing supply, the demand will only increase to absorb the added supply. The price of crude is at its market clearing price and not spiralling out of control because people can make behavioral adjustments.

Adding new supply will negate these and will keep the prices at their current levels or higher and not push them any further down.

Dynamic Pricing Under Scarcity

I came across an online made to order T-Shirt shop, which is a very legitimate and decent site despite its name  200nipples.com. It is different from any other made to order shop, like Cafepress.com.

1. This is not a site for you and I to sell T-shirts
2. They make custom print on T-shirts, graphics done by designers they hire on 10% commission
3. They sell only 1 design at a time 
4. There are only 100 t-shirts to sell for each design and then they say they scrap the design
5. The T-shirts are numbered 1-100
6. The Price?  It is same as the number on the T-shirt. You pay $1 for #1 and #100 for $100

From the 200nipples blog:

What's with "200 Nipples?"

That's how many nipples we assume will be covered by any single run of our high-quality shirts. (We'll have the third-nippled buyer in there occasionally, but we didn't want to count on it when naming the company; this is serious business, after all.)

It is a new model of dynamic pricing under scarcity (however artificial) and betting on customers high willingness to pay based on exclusivity.

I think this is a great experiment, I like the entrepreneurs showing creativity  but ...

As a viable business model I doubt its viability and scalability. Limiting to one design at a time seems unnecessary. It is easy to change however, but may cannibalize the sales as those not willing to buy a T-shirt for $40 or more may choose one that is available for less. While the first few designs and some of them will sell out for a total revenue of $5050 from a design, it is questionable that this would hold for the majority. There isn't a large customer base that would want exclusivity or would want to pay $30-$100 for exclusivity. This is a T-shirt not limited edition collectors item. The macroeconomic conditions are also not conducive to such a pricing model that requires high discretionary income (or even abundance of bubble days).

I see the latest version that shows RIAA people going to heaven sold just  42 T-shirts. The number has not changes since Sunday night. True they have not done any marketing, but is not going to be an outlier.

I think those entrepreneurs are not after making it big with this T-shirt shop, they are probably looking for marketing credentials or more, just like more bloggers who spend hours of their unpaid time writing blogs that never get read.

Good luck Wade and Shandra.

Product Placment in News Media

Suppose you read this in the Wall Street Journal or any other newspaper,
"Hank Paulson, stopped to take a sip of the ice cold Coke and replaced it under his lectern as he addressed the reporters on the Freddie and Fannie crisis"

As people use time-shifting and Ad skipping methods like TiVo to watch TV, the advertisers, entertainment content producers and distributors are resorting to product placement as a revenue source. The Amercan Idol judges proudly displayed over-sized Coke cups  during the show.  But should this extend to news stories?

The print version of WSJ had a box story titled "Lunchanomics". You cannot find this in its online version. The primitive search function of WSJ.com does not help.  The story posted two side by side pictures of turkey sandwich lunchs, one home packed and the other deli bought and compared the prices.

Both featured, a bottle of coke and a bag of Lays chips. This is product placement slowly getting into the news stories.  I wonder why they left out putting a brand name on the meat, Sara Lee or Kraft would have perfectly fit here.  I also wonder if the sponsorship did not include online media and hence the photo and the story do not show up on the website.

As I type this on my Apple MacBook Pro, and sip the freshly brewed Floger's coffee from a large red Martha Stewart ceramic cup,   I wonder if this fundamentally changes what is an Ad inventory.

On a serious note, this does require a new Ad selling process for the media if product placement has to become a carefully executed operation rather than a set of isolated opportunities.

You have the option of not standing in line

When I was walking by the Apple Store in Emeryville on the Saturday after the iPhone 3G release, I saw a line about 100 deep. Everyone in the line seemed happy "just to be there". It was surprising to me because, iPhone 3G is not that big a change from the version released an year ago and it was the day after the release.

The people who were standing most probably wanted to and liked standing in line. Quite possibly they stood in line for every Apple product release including Leopard. These are the people who "want to be inspired". After years of experiencing average products, these people are carried away by Apple's design and simplicity. Despite the fact that neither the iPhone 3G nor an Operating system will ever be in short supply, they choose to stand in line.



The problem with wanting to be inspired is that one has to give up the economic decision making or worse, rationalize their actions. A classmate of mine who had bought the original iPhone before the prics dropped, declared in a class on pricing discussion, " I am not at unhappy the prices dropped, I would not mind if they had announced the $100 store credit, because I got to use my pone for 3 months and it was totally worth it". Again there is a choice and if indeed a person want to put an economic value of overpaying for the pride and pleasure of using it before most, then they can.



Seth Godin blogged about the iPhone 3G lines. He said Apple should treat its different customers differently and not make all stand in line. I think the who people who stand in line for Apple release would do that in any case. These are the people who want to be inspired.



On related note, there is another class of people who have been waiting to be inspired and they found their inspiration in Obama. The problem with choosing based on inspiration and not on economical decision making process is that we choose to ignore flaws, however big and choose to be downward counterfactual. We take it to the extreme and start attacking anyone who raises a counter-point.



At the end of the day, choosing a product or president is just that, a choice. You can't blame others for "making you stand in line".

Roll Your Own Digg Like Site

coRank allows you to build your own Digg like site with public sharing, voting and commenting. Anyone can create their own site for free and with very simple steps. Such a service can be applied to any generic purpose that requires voting and user collaboration but coRank is somewhat narrow in its focus and restrictive. It has modeled everything about it to be a Digg clone, to share web link items and vote on it, rather than looking at the purpose such a tool would serve. The labels, interfaces and backend are sharing links.

It is free and it does its job very well, I only wish they had taken a step back and had made this more generic. The Digg-clones should be just another "templates" one can create with coRank, not the only ones.

I have created a new site, Books On Bart, to implement the Social networking around commuter readers idea.  It isn't the perfect fit but serves the purpose well.

I think coRank offers big opportunities. When they open up complete customization and API, this tool will become the meta-tool that can be applies for innumerable purposes.

They seem to make money from the Google Ads they display, but I wonder if a subscription model for those who want API and other features might be a better business model

Submit your book

How Does Kindle Fit In Amazon's Strategy

Amazon.com sells its Kindle books below costs, at a flat $9.99 even though the publishers charge amazon.com the same price for their hardcover books.  While the devices are still not priced for the mass market, probably due to high costs, amazon.com is trying to encourage higher adoption for its eBooks. It is my theory that Amazon may not want to be in the Kindle business. There are several reasons:

1. It is a low margin business except for Apple which found a way to sell at premium price
2. The customers are fickle minded and hard to satisfy with designs, many a hits like Palm and iPaq have lost their traction now.
3. The current design,  despite being a very well crafted one, is still rudimentary. There are many possibilities. This is just a start. This is a carefully chosen strategy by amazon.com, no one know how the most popular eBook reader is going to look like.
4. amazon.com is subsidizing the Kindle books for two reasons. One to reduce total cost of ownership of Kindle devices to customers, second to increase the footprint for the Kindle format.

In the value chain of authors, publishers, distributers (amazon.com), and customers the power is shifting and the medium used for books is changing.  amazon.com, as it had always done,  is shaping its own future and not waiting for it. It is driving the new format, reduce the value captured by publishers and position itself to be the distribution medium of choice. The goal is to capture the format market and control the value chain and not the devices market. Since no one else s making such devices amazon.com took this on itself.  

If the above thesis is correct, then the logical next step is for amazon.com license the reading format and publish the reference design to have others compete in the devices market. Kindle proved the point, now it is time for it to become the "Kindle Inside".

Will you feel unhappy about picking up the whole tab?

Last week a big group of us went to eat at a Dim Sum place in the City. The group was so big that they had to sit us in two round tables, 10 in each. I did not understand how the Dim Sum pricing works. I admit, I consider price before ordering. But we never got to see a menu, there were Dim Sum carts coming by and they kept serving.  When it came time to pay, it was  $230 for the table.

The ritual of how to spit the check began awkwardly as people trying to figure out what they ate. But in a Dim Sum restaurant when everything was shared, and some of us were vegetarians and did not get to eat much, how would you decide who ate what? The easy decision was to split it. One of us suggested playing credit card roulette. Everyone drops their credit card in the middle and the waitress picks one and charges the full check to that card. We ended up splitting $23 per head. I bet everyone felt equally unhappy.

Dan Ariely, author of the must read book Predictably Irrational, had a piece on exactly this in MarketPlace. Dan's book Predictably Irrational is about consumer behavior and our personal decision making.  Dan recommends,

Findings from behavioral economics tell us that one person should pay the entire bill and that the person paying should alternate over time. When we pay any amount of money, we feel some psychological pain. We call this the pain of paying. This is the unpleasantness that is associated with forking over our hard earned cash. But it also turns out that this pain does not increase linearly with the cost of the meal.

 

 

 The extension of the non-linearity argument is, even when one pays in full they don't feel 10 times as bad as splitting the tab and the rest of the group are all happy. However this leads to a few questions on generality:

1. Is the "pain of paying", in this model, uniform for everybody when it is their turn to pay? 
2. Did the person who kick starts this feels more pain than the one who comes last?
3. Does she feel "more happy" than the rest of the cycle? 
4. Do people who already paid feel the pain when they see the next person's total tab is less than that during their period?
5. Do people whose turn is coming up start feeling the pain before it is their turn?

I am interested in finding answers to these questions. Generalizing from personal perspective, I would answer YES to all the above questions.

Early in my career, our office had the tradition of  having bagels on Fridays. There was a "Bagel Wheel" with employee names written on it. The wheel is passed around and the holder of the wheel is responsibile for buying all the bagels and cream cheese. Then he passed it to next one in random. It was my fourth week and I got the wheel. In a sixty member office I felt the "pain of paying". I sure did felt pain that was directly associated with the perceived unfairness of paying for 60 people when I had only 4 bagels. I did not look ahead to the future (to make matters worse, the very next week the Organization decided to pick up the weekly bagel tab).

 

Which scheme do I prefer? I recommend splitting the tab evenly. If you see everyone order a glass of wine, salad, or dessert go ahead and order it.  Your marginal cost is much less due to your extra and you end up enjoying the experience more.

Books On BART This Week

Only Revolutions How will we feed ourselves Simple Genius The Wheel of Darkness Sisters & Lovers For Whom The Bell Tolls Marathon for Dummies If you liked school you'll love work Separation Anxiety and Anger Second Sight - charles mccarry Atonement Positioning Made to stick Presentation Zen Night Shift - Stephen King The Taking Washinton Square The Art of Doubles Tell me Lies The Bourne Identity Fooled By Randomness Kafka The Tempest Tales High Fidelity One Up On Wall Street The Wise Heart Hannibal - Thomas Harris Embrace The Night Dispatches From The Edge Intrigue Alaska. A novel. Joe College Tribal Leadership Baby Proof Livingstone's Daughter The Broken Window Second Chance Lullabies for little criminals - Heather O'neil Cheaters - Eric Jerome Dickey

--------------------------------------
Deliver now! Improve iteratively!
www.IterativePath.com

MindMap for the Book List Idea

This is the mind map I created with the web-based mindmapping tool, MindMeister. The idea is the Public Transit Book List I talked about in a previous post. I like the ease of use and how fast I can flesh out the idea. I wish MindMeister will allow an easy way to publish the images instead of downloading to my Mac and uploading to Blogger. Click on the image for a better view. I have also shared this Mindmap, you can get this here, Public Transit Book List.

Mind Mapping Tools For Organizing Your Ideas

I was introduced to MindMapping tool by a colleague. I keep my ideas, plans and TODO lists in Google notes and Blackberry. I store articles I find interesting in Google Notes ad tag these appropriately to connect these to the ideas I have.  The promise of a visual organizing tool that promises to encourage non-linear thinking, collaboration, scheduling, prioritization and progress tracking, intrigued me. So I decided to try out two of the MindMapping tools. This is not a review of the tools, that should come in a month or so.

1. MindMeister:  The first think I like is that it is web bases, hosted in the cloud. Its AJAX interfaces provide a nice user experience. It has a free version and a subscription version. It is very easy to get started and start building "Maps".  They provide just one template as example. I am trying out their free version which is still feature rich.
2. MindJet: This is a PC or a MAC application, so you have to download and install. That is a turn-off for me. Why install and upgrade software when you can run it from the cloud and get continuous upgrades?  It does not have a free version but provides a 30 day trial period. MindJet provides more sample templates to start with, which is very useful if you are new to Mind Mapping software. The Maps created with MindJet can be imported into MindMeister.

I plan to try out these two tools over the next 30 days for a variety of use cases.

The other alternative is to use paper and pencil, but it is very difficult to manipulate, store, share, tag and to add attachments.

On its fast lane, India hits a rough patch

Last March I had to answer an analysis question on whether or not India can keep up its 8.5-10% growth. With inflation then raching 7.5%, its deficit 6% of GDP, its national debt close to 80% of GDP, the Government's lack of infrastructure spending,  excessive transfer payments for populist schemes and with a vast majority of the population earning less than $2 a day, I took a stand that the current growth was not sustainable and expected a slowdown. I compared it with China which despite its high inflation could control it by letting its currency float freely and with its National Debt just 15% of its GDP had lots of room to fund its growth.

Business Week writes

Most economic forecasts expect growth to slow to 7%—a big drop for a country that needs to accelerate growth, not reduce it. "India has gone from hero to zero in six months," says Andrew Holland, head of proprietary trading at Merrill Lynch India (MER) in Mumbai.

The Oil price shock once again hastened what would have been a gradual slowdown process. Inlation is a big concern hitting 14%. So far this has not lead to labors demanding higher salary but once that happens, the inflation is bound to spiral out of control. The Government has been subsidizing Petrol and Diesel prices artificially. With its deficit mounting and rupee falling, and the higher import prices of the Oil, the subsidies have to go. This will lead further price increases and further strain the population that lives on less than $2 a day.

Just like the shock is sudden, India's growth came at a fast pace without any strategic action by the Government. There is infrastructure to support this growth, no even wealth allocation, no investment in primary education and labor training. An year ago the Business Week wrote about India as "Bursting at the Seams". Now the global macroeconomic conditions have placed a considerable roadblock in India's path.

A Goldman Sachs report released in June a report  on India's potential to grow 40 times by 2050 and the 10 things it needs to do to get there.  For the record that would be 3-4 times current US economy. Those are steps the Government should have taken 5-10 years ago, when the economy was still healthy. Now we are in a ER room and looking at triage.  Let alone quadrupling, if India wants to prevent social unrest and save its millions from starving, it needs some drastic steps now.

  I would start with improving tax collection and re-purposing Government spending. But with elections around the corner, the Government may not have the courage to act. The problem is inaction is not enough in the ER room when the patient is bleeding.

Now that is a Score ... GMAT Cheat Sheet Scandal

Last week GMAC won a lawsuit against ScoreTop on copyright violation. GMAC administers the GMAT test, a requirement for MBA admission in top schools. All the schools will say that GMAT score is not a criteria. It is true except when your score is low. GMAT is a gruelling 4 hour test, with 2 half hour essays, 1 quantitative skills section and 1 verbal and logic session. In this Computer Adaptive Test, the test takers get progressively more difficult questions as they answer more correctly. On the other hand, the test takers get easier questions as they answer more incorrectly. As the Business Week reports, some applicants used a service ScoreTop.com to get answers to questions in GMAT's question bank. Obviously, there are only limited number of questions and GMAC recycles them. ScoreTop is like a User Generated Content site with test takers contributing a few questons after they take a test. GMAC won the lawsuit that it retains the copyright for these questions that prevents anyone from publishing them. The bigger impact of the outcome is what GMAC is going to do with those who used ScoreTop services.

There's trouble in MBA Land, and it's not just the ultratight job market. A cheating scandal involving the use of a test prep Web site to get a sneak peek at questions on the B-school entrance exam, the Graduate Management Admission Test (GMAT), may result in thousands of prospective MBA students having their results rescinded.

It is not clear whether GMAC can summarily cancel scores of anyone who used the ScoreTop. How will they prove intent? What if they had used an untraceable credit card? I do not think this is going to cause much repercussions for those who are already in. In the future these people will just use other means to get to the cheatsheets and won't use their own credit card. If GMAC and schools want this to be foolproof they need to think of other ways.

GM Sowed Its Own Seeds Of Failure

(draft version, will be edited continuously)



On Wednesday July 2nd 2008 GM shares hit the levels seen only in the 1950s. Almost six decades of value creation wiped out, serving as a counterexample for the buy and hold thesis of investment. GM is losing money on every vehicle it makes and with current high gas prices there are no takers for its gas guzzlng SUVs. It is an easy answer to blame it a on the oil price shock. Oil price shock is not the root cause of the problem, it only hastened GM's problems.



To look at the root cause we need to go all the way back to start of its growth phase, the 1950s, (the levels to which GM's stock has now fallen). By then GM had successfully eliminated the cheap substitution to its automobiles, Electric Trolleys, and started selling more autombiles to Americans. Historian Stephen Goddard describes in his book, Getting There: The Epic Struggle Between Road and Rail in American Century, how GM teamed up with Firestone the tire maker and, ironically, the Oil companies (Philips Petroleum and Standard Oil), systematically elimiated trolleys in towns across the USA.



Goddard writes,

Trolleys considered artifacts today pervaded all aspects of american life at the turn of the century.

...

There were trolley cars for commuting, trolley cars to carry the mail and trolley car to hire for parties.

This posed two kinds of problems to GM, Firestone and the Oil companies. First they acted as the substitution for automobiles, a cheap and comfortable one indeed. Second the trolleys ran on tracks and the tracks in the middle of the road did not serve well for driving automobiles. Goddard describes how the foursome formed a shell company to systematically buy the local trolley franchises, just to shut them down, blaming it on incompetency.



GM's growth took off. It was a successful strategy, illegal but successful atleast over the next 50 years. But the problem is the strategy was based on the assumption that Oil will remain cheap and ignored the secondary costs like pollution. In any other case, a strategy that delivers 50 years of growth would be considered extremely effective. But the strategy is flawed on two fronts. First, the macroeconomic factors take longer than 50 years, GM's strategy failed to look ahead that long. Second, and arguably the core reason, GM's Marketing Myopia.





Ted Levitt wrote in his seminal work, how companies sow their own seeds failure by narrowly defining their strategy. For example, Kodak look at itself in the business of photo films and missed on the digital photography growth. Instead Kodak should have looked at itself in the business of "memory capture". Then it would not have mattered whether it was selling films or digital cameras.



GM's Marketing Myopia is obvious in the hinsight. While it executed the strategy that correctly identified trolleys as its "true competition", it failed to define correctly the business GM is in. GM looked at itself in the business of selling automobiles and not in the transportation business. GM continued to commit to a strategy that made bigger, faster, powerful and luxurious automobiles, forgetting to look at the "purpose these automobiles served".



People did not want muscle cars, they wanted thrill. People did not want automobiles, they wanted a safe, easy and comfortable way to go to places. People did not want SUVs, they wanted to make a statement and chose big SUVs as the medium.



The other big US car maker, Ford, isn't doing better than GM. Ford suffers from the same two factors that GM suffers from. When Ford started, it was not suffering from Marketing Myopia. Henry Ford purportedly said, "if I listened to people I would have made faster horses". Whether those were the exact words or not, it was a proof point that he realized that what people really wanted was a way to travel from Point-A to Point-B.



As we stand now, at the beginning of the third quarter of 2008, facing increasing Oil prices and the effects on the environment, GM is facing what appears to be a certain failure. It is not easy now for GM to lose its myopia. It has committed all its resources towards automobiles and cannot rally recast itself to make the new transportation means. GM is doing more of the same, with its plan to make more mini-cars than SUVs. Again, the strategy is myopic, reactive to Oil price crisis than solving the real needs of people.



If GM survives for another fifty years, it will be because it recast itself to be in "the business of connecting people to their economic, physical and emotional needs" and not because it made smaller fuel-efficient cars.



In fifty years, we may not even travel from point A to point B, but this topic requires its own article.

Ads that make you stop and look for more than a few seconds

AT&T has covered the walls of the Embarcadero BART station in San Francisco with extremely well done hand art Ads. This is something different from the, historicall conservative, at&t. There is one major thing to take note in these artistically pleasant Ads: the phone features is a Samsung phone and not the crown jewel, iPhone. This is not just because iPhone is not available in all the countries, at&t is trying to sell its network and global access and it does not want the attention to be stolen by iPhone. They still can't feature a "dumb" phone, so they picked the middle, the samsung phone and the blackberry. Sometimes the middle is attractive to some, not to cool not too drab, just right to serve its purpose. Here are some pictures (courtesy of mdolla), at&t has two of these in PDF forms in their websites too.

Books

Queen of Broken Hearts
The Inheritance of Loss
Call To Action - secret formlas to selling
90 Minutes in Heaven
Retribution
Firestorm - book five
The Dogs of Riga
The Family
Devil's Highway
The Purpose driven Life
What is the What
Living to Tell the Tale
Predictably Irrational ( I strongly recommend)
Biotechnology at a turning Point (or is it Hidden Connections ?)
Almost Moon
We Can Build You
Memoirs of an Italian Terrorist
Not Without My Sister
The Moonstone

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Deliver now! Improve iteratively!
www.IterativePath.com

When I can't stop to take notes of what I am listening

There has to be a way to "clip" what you are listening in your iPod/iPhone and be able to organize it and retrieve it. I need a way to clip, without stopping the flow, what is being played starting with the past 30, 60 or 90 seconds.

Now if I can have this, then I also need a way to send this clip to a memo taking service like Jott, that will transcribe this for me and send the text as email or post to a blog.

If you want the Economy to move, put it on a train

Larry Summers believes we could possibly at the most dangerous moment since the financial crisis began.  There are calls from others for another stimulus package. I do not like another stimulus package because it a transfer payment that is just a band-aid.  Larry, calls for several options, one of which is  makes for propping up the economy through infrastructure investment.   The idea is that it will spur new job growh (especially in construction sector).

I like the idea of infrastructure investment, and to be specific the Federal Government should invest in public transport infrastructure (trains, subways, mono-rails) across cities.  With as prices on the rise and existing public transit not designed to handle the increased traffic, the secondary effects of improving or install mass transit systems are much more than any other infrastructure projects.  There is precedence to such investment, it is the Interstate Highway network that propped up the economy in the past.

The problems with any Government investment is, one how  to fund it and second the risk of inflation.  To first one can be addressed by increasing the gas tax (which is bound to have secondary negative effects on the economy and inflation). But  in the long run we would have effectively addressed the energy crisis, reduced urban sprawl, and changed people behavior. 

So if the Government wants to help the economy, put it on a train (an electric one).

Data Wags The Long Tail Theory

Harvard Business School Professor looks at the data and finds that  The Long Tail theory does not hold good.  Read the article before HBR yanks the link.

Lee Gomes of WSJ has this to say on the Long Tail theory.

"The Long Tail" seems to have followed the template of many Wired articles: take a partly true, modestly interesting, tech-friendly idea and puff it up to Second Coming proportions.

More books This Week

One - jane evanovich
The appeal - john grisham
Michael Cabone
Helping. Beth lis
Bianca
The Ruins
Little Earthquakes
The Plot Against America
Armageddon In Retrospect
Genghis Khan and the Making of the Modern World
Becoming a Critical Thinker
Present Danger - suan anderson
The Stump
Storm
Big Sur and the oranges of ...
Welcome to thw Great Mysterious
Still left with crows
Hannah's story
American babylon
The Rain before it falls
Oneness and Separateness
Blood Meridian
When will jesus bring home the pork chops
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Deliver now! Improve iteratively!
www.IterativePath.com

Follow up on two short sells I recommended

It is not difficult to make predictions in a down market. In May  I made calls on two stocks, CROCs Footwear and Ruby Tuesday Restaurants. They both had just released their Q1 earnings and I made a call by spending some time with their 10-K and their proposed strategy. While 3 months is a short time to check back, a quick view of their current market prices justify the short call.

RT is now trading at $5.8 down 21%  from $7.35
CROX is now trading at  $8.25 down 30%  from $11.81

Compared to this S&P 500 is at 1283.6 down 8.1% 1397.68.

So not all weakness in these two stocks are due to market downturn. Motley Fool's Tim Hanson called Crox attractive at current prices. But given  the red flags in their accounting it is good to stay out longer.

Capitalism Is Still the Right Approach To Address Poverty

Who will have the bigger impact on addressing global hunger poverty?
A philanthropist who writes checks or the captilast responding to market forces?

What will add value to those at the bottom of the pyramid? 
Charity or Business Operations?

If you have $100 discretionary income for charity budget, what would you do with it?
Subsidize someone volunteering their time in a 3rd world country or invest in a profit maximizing organization that is developing products and services for the same market?

I will side with the second option for the questions above. There is no question that the value creation comes from business development. I have talked before what Nokia and P&G have done to add value to those at the bottom of the pyramid. Now, it is an information services firm,  Thomson Reuters with its Market Light, price information delivery system.

The New York Times reports on Thomson Reuters'  new service in India to serve the poorest of farmers. This is a for profit service that delivers commodities market data to farmers through their mobile phones. 

[Thomson Reuters] has been testing a program called Reuters Market Light for several months in Maharashtra, India’s third-largest state, about the size of Italy. The state is one of India’s prominent agricultural centers, with farmers growing onions, oranges, corn, soybeans, wheat and bananas. But the farmers’ business suffers from the difficulty of comparing prices from one market to another.
“We kind of saw that there was a clear market inefficiency,” said Mans Olof-Ors, a Reuters employee who had the idea for Market Light three years ago. “The farmer would decide which market to travel to, then would just sell to that market. So there was no competition between markets.”

Gas Station owners are not raking in the dollars

Sometime back I wrote about the gas prices and the gas station owners. From a simple math I did, I computed a margin of less than 5 cents a gallon that cost $3.50. If the customer paid in cash, the gas station earned additional 7 cents per gallon.

The Marketplace reports that the situation just got worse for gas station owners with gas now selling for $4.50-$5.00 a gallon.   The credit card charges are set at a fixed percentage of 2% on the transaction but the gas station owners do not mark up gas at a fixed percentage. The retail price is marked up by a fixed dollar amount, 10-12 cents. With gas price at $4.50, the credit card charges come to 9 cents, for a meagre profit of 2 cents per gallon.

It is a tough business to be in.

How Can I Create a Public Book List

I want to create a simple crowd-sourced book list. I do not want to write code, define User Interfaces or design the schema. I want all this to be hosted and be free to me. Here is what I want to do with it:

1. When you go to the website, it will display top 10 books and recently added books
   
2. For each book it will show the title, author, the link to Buy, a count of number of people reading it, used added tags, and comments
3. Anyone visiting the page will be able to add to the count, add tags, add comments. It will be spam proof.
4. Anyone can add a book as well. When you type in words in title or author and click add, it will first search the database of added books and list the matches. It will also search amazon.com and list the matches. Each listing will have a Add Now button and a Buy Now Button.
5. There will be a search box.
6. There will be a tag cloud on the side bar.

Now would somebody make this happen?

Kindled My Interest

Finally I saw amazon.com's Kindle in use today. I still did not get to touch it or play with it. I saw some someone reading it on BART. This is also the first time I ever saw anyone using Kindle in public. I was a little surprised by it size, I shouldn't be. It is almost the size of a paperback. While the amazon.com gives its specifications and posted many pictures it somehow did not stick until I finally saw one. (The photo is a UG content from amazon.com)

amazon.com was sold out on its first batch of Kindles. Now you can order one. You can buy it only from amazon.com. This direct sales approach does impact market uptake, but I wonder if this is a deliberate strategy by amazon.com than a oversight, at least in the early stages. They may not want the whole world to buy the version 1.0 of the product, and may have much cooler things coming up. They may also not want to price the product for the mass market and would want to wait until their costs go down. I think amazon.com will go for the market share with the version 1.2 of their product.

While amazon.com may not yet want to capture the wallet share of people who are not willing to buy at current price levels it should try and capture their mind share now, preparing them for the next revision. It should provide a few Kindles, loaded with books, to university and public libraries, to expose people to this amazing new second coming of books. If people are exposed to Kindle, it should not be from isolated sightings but through no cost immersion experience.

I look forward to amazon.com donating a few Kindles to Haas's Thomas Long Library.

If you are dying to buy me a gift, please do buy me a Kindle.

Books On BART Monday

Inside The minds: The Insurance Business (I am reading this)
Insurance For Dummies (I was not reading but someone else was)
The Story Of B
Phantom in the night
The Serial
Eat Pray Love - Elizabeth Gilbert
Five Quarters of the Orange
A Village Affair
Unnatural Exposure
The Terror
Montessori Today

BART Writes Back

I sent BART the suggestion to I made in a previous post on user generated book lists. I used their simple contact form. I was surprised that someone read it and sent in a more than a canned response like " we will consider".

it sounds to me like it's a user-generated BART best seller list of sorts?
it would be cool to tie-in with a local, independent bookstore to keep it
Bay Area. We're actually launching some BART imixes along with another
initiative (but without the social input)

as you probably realize, we often have to make a distinction between "need
to have" and "nice to have" when we consider projects from a time/resource
point of view. This seems like it's more on the "nice to have" part of
that continuum, but we're definitely adding it to our development list for
consideration.

we really appreciate your thoughts -- thanks for contacting us

The message is not fundamentally different from the circular file response but I know that they spent more than few seconds on it, parsed it and understood it. This is refreshingly different.

Here is an Idea For Borders Bookstores

Since May I have been commuting on BART, the Bay Area Rapid Transit system. One thing that struck me is the readership on BART. I am surprised by the number of people who read and by the titles. As you might have noticed I started posting the titles I see from my Blackberry, mostly as a note to self.

But this is a great opportunity for two entities, BART and Borders.

As the ridership increases, the trains become more crowded and delays proliferate BART will need a way to engage its riders. Would it not be great if BART created a website of book lists of books seen on BART? As a low tech, low cost effort it could be a simple digg like page to which people add books or add their count to existing books. If they want to get fancy, they could install bar code scanners in key stations, people just swipe their books and presto it will get added to the book list web page.

Borders which is facing store closings and suffering losses just canceled its deal with amazon.com for its web offering and started doing its own web channel. It would benefit from in two ways if it did this project for BART hosted the lists at its expense. The PR on this project , and the sales from adding a "Buy Now" button next each book listing. In fact Borders can then make this generic and let anyone create public book lists, they stand to benefit from the Long Tail.

If these two choose to do it, I would make one additional recommendation: make the site public with no login requirement. The latter would simply kill it.

Customers Dont See It As Their Job To Ensure You Make A Profit

There is an interesting 40 year old Harvard Business School Case on selling contact lens to chickens. The key question in that case is how would you price it? The lens cost pennies for pairs of 1000s. Anyone who did not consider the value to the chicken farmers was taken to task by the professor. While the cost is relevant, the right way to price is based on the value creation to the customers and how much of price rent they expect.

Peter Drucker calls cost based pricing as one of the Five Deadly Business sins.

Most American and practically all European companies arrive at their prices by adding up costs and then putting a profit margin on top. And then, as soon as they have introduced the product, they have to start cutting the price, have to redesign the product at enormous expense, have to take losses -- and, often, have to drop a perfectly good product because it is priced incorrectly. Their argument? "We have to recover our costs and make a profit."

This is true but irrelevant: Customers do not see it as their job to ensure manufacturers a profit. The only sound way to price is to start out with what the market is willing to pay -- and thus, it must be assumed, what the competition will charge and design to that price specification.

The cost gives you the basis, so you know you can't price any lower than that. But when your sales team know the cost they may pressure you to keep dropping the prices to generate sales. They are incented to close sales and will resort to trade commissions, especially near end of quarters to make their quota.

In his recent post, Seth Godin says, "You're not selling a commodity unless you want to." If you forget this and yield to the temptation of market share and the sales team pressures you will be committing the deadly sin.

Trying To Stand Out Among The Airlines

Jay Leno, in his monologue, scoffed at Airline unbundled pricing.

At the rate they are going, in an emergency they will ask us to swipe a credit card before the oxygen mask drops out. Oh listen to this, a SouthWest airline plane landed in Phoenix with one its wheels on fire. If they are going to bill us for every little thing under the sun, may be they should give us some discount, like when the plane is on fire.

Unfortunately for SouthWest, it is the only one not charging extras but it got the bad PR. In fact
SouthWest is aggressively going after the price unbundling by other airlines. All their messaging is now focused on "No fees". But when every airline but SouthWest is charging extras, does it help to be the one who does not? There is a pubic tendency to look at the Airlines as a collective, so it is not a good strategy for SouthWest.

More books

Killjoy
Ellen Foster
Geek Love
Work and Life Strategies
Three cups of Tea
Creating the Perfect Life Mentally
Saving Fish From Drowning
The Cornerstone of the Gospel
The Time Machine and The Invisible Man - H.G. Wells
The Amazing Power of Deliberate Intent
--------------------------------------
Deliver now! Improve iteratively!
www.IterativePath.com

Books on BART Friday

Power down
A book by Orson Scott Card, starts with X
Cluster - Piers Anthony
The Bourne Betrayal
I Left My Back Door Open
The United States Of Arugula
What God Hath Joined Together
Fugitives

--------------------------------------
Deliver now! Improve iteratively!
www.IterativePath.com

Books on BART today

Bitch Reloaded
The Last Promise
The Amber Spyglass
Spanish to English Pocket Dictionary
--------------------------------------
Deliver now! Improve iteratively!
www.IterativePath.com

Books: What People Are Reading In BART

1. Simple genius
2. Psychology of selling - brian tracy
3. Strategy and the fat smoker
4. When We were Orphans
5. Harry Porter and Prisoner of Azkaban
6. The Acquitaine Progression - Robert Ludlum

I created a simple list on Squidoo. Go head and add your selection there.

A Very Simple Primer On Short Sales

This is a work in progress. So far I showed very simple transactions involving short sales and their impact on your balance sheet. Give me any feedback.

Pricing Your Air Travel

The Dallas Morning News gives us the run down of the different charges Airlines make these due to their increasing costs:

FEE SPREE

Airlines are adding fees and charges aggressively as they grapple with rising fuel costs.

AMERICAN AIRLINES

$5 to redeem a frequent-flier award online, up from $0

$6 for a sandwich or liquor,

up from $5

$15 to check the first bag (each way), up from $0

DELTA AIR LINES

$25 for booking a trip over the phone, up from $20

$100 for an unaccompanied minor on nonstop flights, up from $50

$100 for transporting a pet in the cabin, up from $75

UNITED AIRLINES

$25 to check a second bag (each way), up from $0

$150 to change a nonrefundable ticket, up from $100

OTHER AIRLINES

US Airways: $5 and up for a window or aisle seat in the first rows of coach, up from $0

Northwest: $50 for each bag weighing over 50 pounds, up from $25

Frontier: $100 to transport antlers, up from $75

SOURCES: The airlines; Dallas Morning News research

Unbundling Airfares

Southwest Airlines took a full page Ad in WSJ to air travelers about the added costs of all other airlines. The side by side comparison shows Southwest charing $178 flat and the other airline charging extras over over the same $178. The Dallas MorningNews reports:

The message is that "Southwest is not going to do that to their customers," said Melanie Mahaffey, senior manager at Southwest's advertising agency, GSD&M Idea City. "They decided to do this marketing push to show how they're different and not going to raise fees on their customers."

Southwest chief executive Gary Kelly says the airline wants credit for not charging for such things as changing a ticket or checking a couple of bags.

"It's not what customers want," Mr. Kelly said after Southwest's annual meeting May 21. "Nobody wants to be nickeled and dimed."

There are two points we can deduce from this

1. Southwest cost structure is so so low that it can still make a profit $178, even after providing all the usuals (free bags checkin, free soda ...). In other words, Southwest Bundled Price still makes money for them

2. Southwest by committing aggressively to an Ad strategy of speaking against all the fees and positioning itself as "nofees" gives up the option to every do unbundled pricing.

Either they expect their cost structure to continue if not improve or they rely on every airline doing unbundled pricing and transitioning to it without getting noticed. If it is the latter, then it does not make sense to differentiate themselves on this. So we should assume that they are continuously improving their operations and hence will keep their costs down.

It still look like they will be leaving a lot of money on the table if every other airline does unbundling.

Selling Kindle Books Below Cost

The New York Times reports on the eBook for Kindle pricing by Amazon.com. Most books go for $9.99 According to the report, most books are sold below cost, because the publishers sell the books at the same cost of print books.

Amazon sells most Kindle books for $9.99 or less. Publishers say that they generally sell electronic books to Amazon for the same price as physical books, or about 45 percent to 50 percent of the cover price.

The Kindle itself goes for $399, while the books are sold at a a lower price than print books. A model that very much resembles the iPod and iTunes songs pricing model. But Apple's strategy was to sell more iPods and the iTunes was just part of the ecosystem. Amazon on the other hand sated the change in the way books will be read in the future and made Kindle as part of its strategy to lead the next version of books. If Amazon wants to dominate the format it should have priced the Kindle at a lower price and charged a higher price (at least above the cost) to grab market share.

So why would Amazon price below cost? Conversely why would the publishers charge the same for eBook when they do not incur the same cost of physical books, like materials, labor , warehousing and distribution costs? The questions are related but the answers are not.

First the publishers see a very small uptake for eBooks while there are 100 million people who still buy physical books. The do not need Amazon's Kindle, but Amazon needs them. So they do not need to give a price rent to Amazon. They may be uncertain about DRM protection. Any sale they make on Kindle comes at the expense of the physical book sales (cannibalization), so they want Kindle sale to pay the same margin. They also do not want to discount the eBook for fear of the low price expectation creeping into physical books market.

For Amazon, I do not know why they do not do the Razor-Blade pricing. If they want to gain upper hand in the channel relation they should have priced Kindle lower than $399. The books on Kindle also provide value added features that are not available on a physical book, like search, font magnification for easy reading, convenience etc. So they should charge higher than $9.99 for Kindle books. The possible reason is that their margin on Kindle is already low and they can' cut further. On the other hand, they must be thinking that eventually they can convince publishers to cut their prices.

By some measures there are 10,000 Kindles in consumer hands. The next move will depend on how the Kindle's customer base will grow over the next 12 months.

Revised but not Rejuvenated

The GDP numbers for 08Q1 was revised to show a 0.8% growth instead of the 0.6% growth. But the growth components still do not show healthy growth. We are not in a recession by the NBER definition, but the higher expectation among consumers for a faster price increase and the anemic growth point to a worser condition, stagflation.

Budget Hero

Budget Hero is a Flash based interactive game from American Public Media (the MarketPlace people).

The game lets you play with the multiple levers the Federal Government has and see how the national debt performs. Are you for big Government? big defense spending? tax cuts?

Play the game and see.

I left all the Bush tax cuts alone and played the cards like Cap and Limit Greenhouse gases and increase Federal gasoline tax (yes the 18 cent tax that McCain and Hillary wanted waived). But it is hard to see the macroeconomic impact from the results. Here is mine.

Economics or Emotions

Professor Robert Shiller of Yale, wrote for The New York Times on the human side of foreclosures and supporting Rep. Barney Frank's plan. He argues:

It’s easy to take a stern view of this spectacle.
...
This stern view may, in fact, be winning the battle of public opinion.
...
But instead of having sympathy for these homeowners, many people blame them for their predicaments. That isn’t surprising. It’s an example of a general tendency that was documented by social psychologists decades ago.

To put things in perspective:

1. Homeownership rate is about 68% (i.e, 68% of the housing units are occupied by owners). The rest that are occupied by renters who chose not to buy, because they understand the responsibilities that come with a mortgage one can't afford and because some can never afford a house.
   
2. Is there another higher purpose for the $300 billion proposed package to help homeowners? There are 43 million people without medical insurance in America. Can we achieve a much better impact and improve the lives of a vast number of people if we employ the funds to insure the uninsured?
   
3. Shiller paints a picture of 243,353 families losing their homes, moving to other side of town. Compared to the number of renters who move continuously and are always at the mercy of the owners this is still a small number.
4. Shiller described the economical view as "stern" and referred to studies that found people attributing predicaments to one' behavior. Then how would you reconcile the enormous amounts of contributions from the public after man-made and natural disasters? Americans gave $295.2 billion to charity in 2006. Is that not helping people in predicament?
5. From Kant's Universality principle, would a similar legislation be enacted to help everyone who gets into trouble with finances? Many of the uninsured families are just one medical disaster away from bankruptcy. Should they not be helped?
   

I tend to lean on the economic side. I am however confused about what is the minimum responsibility the society has. As Kant would ask, "What moral minimum or basic human rights am I duty bound to honor?"

Conflicting Interests - Environmentalists Oppose Clean Air Plan

There was an interesting story on multi-party negotiations in the WSJ, "Environmentalists Oppose Clean Air Plan". It is not that they are against clean air but object to a plan that disallowed big trucking companies and instead encouraged owner-operators. On the surface it would look like the environmentalists support the big trucking companies, but it is only because the workers of these companies are the members of the union that supports the environmentalists. The union is against the plan as well and favored the trucking companies.

The Mayor of the City, Villaraigosa, is for the trucking companies as well. He couches his argument with environmental concerns by saying, "Right now, the burden to clean up and retrofit the trucks is on an independent contractor who makes $11 an hour and has no benefits. They are never going to have the resources to do that."

Only the Port Officials seem to support the poor independent truck operators. That is again not out of the concern for them but from the fear that the union will end up unionizing the port workers.

Do environmentalists care more about the environment or union jobs? Why do the unions support the cause of environmentalists? Why do unions sometime side with management? Does the mayor of a city care about protecting jobs or the environment?

The answer is, it is a package. An individual issue matters only to the extent it adds to the total value of the package. If winning one issue would add more to the package than losing or compromising on another, the parties would do just that. Sometimes the issues are hidden and long term than what is currently at play. For example, the environmentalists want the union support in all their battles, port officials are afraid of unionization, etc.

This is a text book case of multi-party negotiations. Everyone is trying to maximizing their share of the pie and have more riding on this negotiation that it meets the eye. They all will be willing to trade one for the other as long their share keeps increasing.