Stanford's Entrepreneurial Design for Extreme Affordability

As we talk about sustainability and global issues this week - and new product development later in the semester - I wanted to share a write-up and videos about a really cool class at Stanford Graduate School of Business: Entrepreneurial Design for Extreme Affordability.

The class is very similar to the University of Illinois, Chicago's (UIC's) Interdisciplinary Product Development (IPD) class: it includes teams from the school of design, engineering, and the business school. It's a two semester offering at both universities.

What I love about Stanford's program is that the focus last year was on developing new products that really impact people's lives in developing countries. Rather than trying to explain it all, just take a look at some of the things they did! Their projects are exemplars for how to develop really cool products that make people's lives much better at "the bottom of the pyramid." I can not think of anything more noble for using the tools and techniques we learn in Marketing.

Everyday Cases: Bing's Big Picture

Learning marketing is like learning anything else: to really learn it, you need to use it. One of the best ways is to pay attention to "everyday cases:" try to understand what companies are trying to do in everyday life in the context of tools we learn in the classroom.

This week, I received an interesting e-mail regarding Bing.com, from Greg A, a participant in our Monday evening class.

First, here's the video Greg linked me to:

Second, here's what Greg wrote:

I saw this commercial this evening and I think it is a good example of The Big Picture. Considering Microsoft is going up against Google, which has such a large share of the search engine marketplace, it's a good example of share stealing I believe. I want to switch to bing but ugh, it's so hard to not automatically type Google when the need arises haha... "It's not just a search engine, it's the first ever decision engine.. From Microsoft." Great, great clincher.

I agree! To put this in Big Picture terms, I believe Microsoft's Bing.com is looking to build a viable search engine that both realizes the revenue inherent in providing search, as well as challenges Google's hegemony in search and the cash flows that allow it to threaten Microsoft in the browser and operating system markets.

To do this, Bing's Marketing Objective is to Acquire new customers and their Source of Volume is to Steal Share. Their Segmentation scheme appears to be an internet search engine as the Main Variable (the ante to play in this game), with a superior "decision engine" as the Dynamic Variable differentiating Bing.com from Google. Their target audience is (probably) something like "heavy internet search users who are frustrated with the amount of effort required to find fairly mundane things, like local restaurants, specific people, etc." Their positioning is all about the "Decision Engine," which actually ties in nicely to WHY people actually use search engines - to learn something and/or make a decision about something very specific. Their goal is NOT to search; it's to FIND! (Their 5-box positioning encompasses that thought - moving people from thinking they need to search to getting them to realize they want to find and, thus, using Bing.com would be better than Google.)

Nice job Greg. This is a great everyday case!

What's GM's Angle?

Interesting bit in the New York Times today about General Motor's apparent reluctance to sell its German/European Opel Division to Magna Corporation in Canada.

While I agree that part of the Magna deal, where "G.M. might have to subsidize interest payments on Opel’s debts" is unacceptable, it seems that GM might be much more interested in either (a) keeping Opel or (b) selling it to a company that will screw it up worse. Actually, the article all but says as much.

I think GM is very worried that a well-run Opel could really hurt GM, not just worldwide, but particularly in North America (Canada and the US).

Magna is a very well-run international company that already participates extensively in the automotive market, providing products and services to automotive OEMs (Original Equipment Manufacturers). The most interesting business of Magna - to me - and perhaps the most frightening part to GM is Manga's Complete Engineering & Assembly capability. For example, Magna currently produces all of the Chrysler 300M, Jeep Commander, and Jeep Grand Cherokee models to all non-NAFTA (North American Free Trade Agreement) countries - including the right-hand driver versions sold internationally. So Magna could probably run Opel fairly well, it would also create a new entrant into the OEM category (same brand, but controlled by a different owner), therefore increasing competition internationally. Given some Opel cars have already been modified slightly for North American markets - Magna could conceivably consider moving into the North American markets and create yet another competitor for GM's (historically) most profitable market.

Although GM is making motions to sell Opel to the Germany, I'm guessing they believe that Germany will screw up the company worse. Perhaps part of that belief is grounded in the fact that Germany's unions are pushing hard for Germany to acquire Opel. But German unions are not the same as US unions and it's not clear that Germany will hold the company for very long before letting a group of investors take over primary management responsibilities along with the unions. That mirrors the relationship Germany has with most of the German-based automotive companies - except for Opel, since it is owned by GM.

At the end of the day, though, it looks like GM's primary goal is to keep Opel, if for no other reason than to make sure no one else gets it and competes with GM. This is a classic anti-competitive move, the only difference is that instead of buying Opel and shutting it down, GM can keep it and let it die a long, slow death - all the courtesy of the US Taxpayer that's now the majority shareholder of the company.

Yes, I agree that selling the company with "strings attached" to pay for future unseen financial changes is unacceptable. However, GM needs to sell Opel and focus on the core of GM's brands that it's keeping. Consumers around the world would be better off with a well-run Opel, German unions would be better off (and more secure) with a well-run Opel, and GM's majority stockholder - the American Taxpayer - would be better off selling Opel to a company that can run and realize more value from Opel going forward.

When customers attack!

Over the past week or so, I've run into an interesting confluence of things that all relate to the cultural meme of consumers rebelling against brands they were formally loyal to - or at least bought from.

The first of these was Whole Food's CEO John Mackey's rather ill-advised Wall Street Journal Editorial, titled "The Whole Foods Alternative to Obamacare." Well, this caused quite the kerfuffle among Whole Foods customers. Why? Well, Whole Foods is positioned as a place that focuses on selling "whole food" and, basically, all kinds of good stuff, like sustainability, community involvement, best practices for employees, etc.

Their actual core values can be found here. Their core values are much longer and detailed than I've summarized and, quite honestly, I'm also stating how Whole Foods's customers perceive Whole Foods, which is really the important point of positioning - irrespective of how managers might wish consumers perceive them.

Which gets to my point. Who do you think shops at Whole Foods? I'm guessing the majority of customers are progressive people: people who value organics, have higher than average disposable income, have higher than average education levels, believe in social justice causes, vote democratic or progressive, and probably voted for Obama more than the average American. (Disclosure: I actually own Whole Foods stock and I have been Whole Foods Fan ever since I found them in Chicago more than a decade ago. I actually picked my apartment in Evanston based on the fact that there was a Whole Foods between Northwestern and the apartment. That also means I have a pretty good bead on their customer base.)

Anyway, CEO John Mackey writes the above op-ed piece and, no surprise had he been thinking, his customers REVOLT! Although citing every nasty, "let's have a boycott" piece in the blogosphere is beyond the scope of one posting, here's a sampling:

• Facebook has a few "Boycott Whole Foods" groups, the biggest of which is up to 19,000+ members just more than one week after the WSJ op-ed appeared (the Whole Foods page has 115,000, has been up a lot longer, and has an incredible number of people posting who are pretty ticked off),
• The Daily Kos wrote a scathing review of John Mackey's op-ed, and then an equally scathing satirical bit on Whole Food's PR team to address the ticked-off customers (the "annotated version" is pretty spot-on),
• The Huffington Post ran a number of pieces, summarized here, and also had a poll showing that 58% of respondents planned on boycotting Whole Foods and another 20% disagreed with Mackey's views, but didn't think they were boycott-worthy.

Although some postings on Whole Foods website, Facebook, and various conservative blogs suggests that some people are "new" fans of Whole Foods, it's not really clear how long they'll stay once they've shopped there once or twice (or ever).

Instead, it seems that John Mackey really stepped in it. What's amazing to me is that John Mackey's ill-conceived op-ed piece ironically violated one of Whole Foods's Core Values: CREATING WEALTH THROUGH PROFITS & GROWTH.

Seriously, it shouldn't surprise anyone the op-ed piece ticked off a large portion of Whole Foods customers. Assuming John Mackey has any sense of what his customers are like, publishing that op-ed as CEO of Whole Foods was like flipping off a good chuck of his customers. Which is exactly what happened.

What may have surprised Mackey - and the point of this post - is that with today's technology, a CEO can no longer assume he/she can print something in the Wall Street Journal and have only business people see it. Quite the contrary. Various social networks - and Facebook in particular - allow for an incredibly easy way for consumers to communicate and organize very, very quickly. It's not clear when the largest "Boycott Whole Foods" page showed up on Facebook, but it was instigated by the op-ed piece and, therefore, it could not have been more than eight days before it hit 19,000+ fans. That's not good if you're Whole Foods.

Related to all this, Michaela Draganska (Northwestern, PhD) turned me on to Huggy Rao's (Case/Weatherhead Ph.D. in Organizational Behavior) book "Market Rebels: How Activists Make or Break Radical Innovations," via a nice little interview published by Stanford Business School.

One of Rao's points is that the social identity of customers, as the collective core of any market, are an important factor in explaining why some innovations take off and others do not. The challenge, of course, is when a company built on a collective identity has its CEO mouth off in a way that runs counter to that collective identity and the company's customers find out. Maybe as a Whole Foods Stockholder I should send John Mackey a copy of Huggy's book? Then again, that would only be helpful if I had a time machine....

Finally, yesterday I happened upon two anti-United Airlines music videos created by David Carroll, a musician whose guitar was broken by United baggage handlers. He wasn't able to get resolution through United, so he promised to make three videos about United. After the first one - which was a HUGE hit on YouTube and currently has 5M+ views - United changed its mind. Dave said "too late" and has since published a second video. When customers attack, indeed!

Here's the first:

And the second, which has better production values:

What Scholastic, Inc. Doesn't Understand About Their Brand

One of the participants in Basic Marketing asked me about the Scholastic fiasco. (See the link here if you don't know what we're talking about.)

Yea, this is a mess. On the one hand, the ethics are fuzzy. Schools approve having the book clubs and, in return, participating schools get a kickback/commission on sales. So although selling "crap" along with books is not the point of the club - the the schools are complicit by allowing it. One of my close friends, Dr. Bryant Hudson at FAU, used to have the following quote as part of his e-mail signature that seems particularly relevant for this situation: 

"It is difficult to get a man to understand something when his job depends on not understanding it."

- Upton Sinclair, US novelist & socialist politician (1878 - 1968)

Pointedly, Scholastic has 75% of schools in the U.S. signed up for book clubs!! That's an amazing market share!! And since the schools get a kickback - particularly in such tough economic times - cash-strapped schools are the least likely to complain about selling more "stuff" so they get more money. (I am, however, a little surprised the teachers' unions didn't blow the whistle on this a while ago.) This is the same reason schools were so reticent to remove soda machines from schools, even though they were detrimental to students, learning, and family budgets: the schools got a cut of the action and didn't want to give it up!! So they rationalized that it was "OK."  

From a marketing standpoint, the concept is simple: Scholastic essentially has a monopoly distribution channel to target kids in school. The kids nag their parents for this stuff (both books and, more questionably, other stuff) and the school gives the whole thing legitimacy. Scholastic is trying to maximize their profits (and a review of investor information on their website confirms this) - and adding more things for the target market to buy only increases profits.....  

HOWEVER, I think Scholastic has monumentally screwed up! Their brand was probably one of the purest "good for kids" brands in the world. Literally. (Multiple puns intended.) Look, I still know the brand and....well...it's been awhile since I've read a Scholastic book. Plus, access to 75% of K-8 classrooms in the U.S.? That's amazing!! But by putting junk into the channel (book clubs), Scholastic is sullying their brand meaning as valuing profit-seeking over reading! I think now that the "Campaign for a Commercial-Free Childhood" has released their assessment and gotten a ton of press, I think we'll be seeing a lot more schools, like The Bradford School referred to at the end of the article, terminating their relationship with Scholastic. This is going to be painful!! 

The bottom lines, from a marketing perspective, are to

1) ALWAYS understand how your target customers understand your brand, 

2) realize that brands are "living" constructs and a company's actions will change brand meaning, and

3) think of your brand as a reputation - which really is what most brands are - and ask yourself, "If I do X, how might that affect how customers view my brand/reputation."

By the way, lots of companies have made similar missteps. At one point Howard Schultz drank too much coffee and didn't realize what the "Starbucks" brand really meant. He announced that Starbucks could sell anything they put their name on and planned on selling furniture on-line. The stock promptly plummeted by more than 10%... It's never really recovered. The stock was at $11.20 in March 2000. Today, it's at $9.93.

Creating the T-Mobile Dance Advertisement

OK, first read the prior post and watch the T-Mobile advertisement. 

Then, watch this video on the making of the advert. 

What's really, truly amazing is that the advertisement was all real! The producers actually staged a live, unannounced event in the Liverpool Train Station and got passerby's to join in. I love the passerby interview clips at the end! How very, very cool!!

Cultural Trends Toward More Personal Marketing

Great article in Ad Age about cultural trends toward more personal marketing: "What T-Mobile's 'Dance' and Ikea's 'Du' Teach Us About Messaging," by Gunnar Brune.

Related to this week's Basic Marketing topic, the external environment, I think Gunnar's observation that cultures are moving away from a me-centric orientation to a we- or us-centric orientation is quite fascinating. And, let me (us) be completely honest: the videos are AWESOME!! 

In case you can't get to the link, here's the text and the youtube videos. 

In meetings with almost all our clients the same topic comes up: Will our relevant market be hit by the crisis and if so, how hard? While the specific answer differs according to the different scenarios, of course, there is one element all these discussions have in common. It is a growing sense of family, community, society or "We." It will be the most important positive word for 2009. While "We" values have always been elements of the messaging in certain markets (especially food), today it is a different story for two reasons. The first is the reflex of "bunching up" in times of uncertainty, crisis or danger, which elevates the importance of social values vs. individual benefits. The second reason is the opportunities of modern social media -- where the consumer is in control, not the brand. "We" communication does also mean communicating with the consumer on eye level.

This puts those brands that are already positioned as "We" brands at an advantage. Brands like Ikea, for example. Ikea's customer loyalty program focuses on eye-level contact: "IKEA FAMILY is different to regular loyalty schemes. We want to get to know you, our customers, and so we reward each purchasing visit you make to our stores, regardless of how much you spend" (that's an extract from the U.K. site). Some languages, like German and Spanish, offer a "We" approach in the way the brand speaks -- Ikea in Germany, for example, uses the "Du" instead of the formal "Sie" ("Sie" equals "Usted" in Spanish).

There is a recent trend for brands to go for this more personal language. Even the biggest German social campaign -- an initiative of a number of the biggest German companies -- says: "Du bist Deutschland." This would have been a great issue not long ago, as it would have been considered "improper language." A different -- but very exciting -- "We" approach is the much-discussed T-Mobile viral, which is taking the "We" beyond family into a completely new field of social interaction.

All of these are examples already in the market. We will see which brands are the first to go for "We" as a response to changing consumer behavior in the crisis. It will be an interesting thing to see which of them get this right in 2009. They will be the cases we talk about in 2010.

Really? Tasers are "great fun?" Really?

Amazingly disturbing video from Ad Age interviewing the Taser EVP of (not really all that) Strategic Communications. Most amazing thing to come out of his mouth - and there is a lot to choose from - Tasers are "great fun." Really? Considering we're discussing ethics this week in Basic Marketing, I can't imagine a more interesting case study regarding whether marketing a product is ethical or not. Calling Tasers "fun" just seems insanely irresponsible! Nick Papas, the EVP, has "worked for Taser for a year." I think it's time to let him go..... 

Want them to learn? Eliminate Mass Lecture Sections!!!!

Great article in the NYT today regarding how MIT (yes, that MIT) has done away with the large lecture section of basic physics and replaced it with smaller class sizes that utilize hands-on learning and a lot of small assignments. This article makes ME feel great because it reinforces a lot of my own beliefs about how to teach and what's wrong with trying to teach 440 people marketing by standing up and talking! My favorite quote in the article is:

“Just as you can’t become a marathon runner by watching marathons on TV,” Professor Mazur said, “likewise for science, you have to go through the thought processes of doing science and not just watch your instructor do it.”

Awesome metaphor!! I agree!!!

M U C H Better!!

Here is the REVISED poster for MyFitnessChannel.com's Model Search! (This is an iPhone photo of the flier at Xtreme Health Club in South Tampa - so there's some degradation in quality compared to the original.)

MUCH, MUCH better!

Notice how much cleaner the entire poster/flier is? Notice how the POINT is clear.
What I find most interesting is that the new version uses the exact same models with flags - and it works because all of the confusing symbols related to Barack Obama's Inauguration are gone - as they should be, since that had NOTHING to do with the point and only confused things. And look! We now know that the event is happening at the Lime on South Howard! (Pretty important clarification for any USF community members who might want to try out. And don't worry, I'm not going to try out...LOL!!!)

Anyway, just another "everyday case" of marketing - what works, what doesn't, and why....

Help David Norrie Create New Fliers

Basic Marketing participants: you saw this ad on Monday night or Wednesday day. When I asked David Norrie (who runs myfitnesschannel.com) what was up with this ad, he said "It's a play on the Obama Inauguration." I said, "OK, I kinda got that -but what was the purpose of the ad?"

OUCH! To be clear, I really like David a lot and think he's a great guy. I just can't help myself when I see stuff like this - especially if I know the person and I'm worried that they won't get the outcome they desired.

So here's a challenge - if you're up to it.

Create a new flier (or perhaps a number of different fliers) given the goals that David stated he had for the event:

1. Get people to compete to be models for his website,

2. Get people to come to the venue (Lime - on south Howard, I'm assuming) to see the competition and patronize the co-sponsors of the event and, finally - and most importantly,

3. To increase awareness of and traffic on myfitnesschannel.com.

David's e-mail is davidnorrie6 at A O L dot com....

Tell him Dr. G sent you;-)

UPDATE: I misspelled "flier" about five times in the original post as "flyer." UUGGHHH. But now it's fixed. (Ironically, Firefox web browser pointed out the misspelling - but I missed it originally.)

Great Olbermann Comment on "Pro Marriage" Amendments

WOW. Amazingly great Special Comment by Keith Olbermann on "protecting marriage" amendments. (Focus on Proposition 8 in California, but it's just as applicable for Florida's Constitutional Amendment #2 that passed last week.) 

If only Keith had made this comment BEFORE the election! But bravo to him for pointing out the hypocrisy of the marriage amendments nonetheless!

Check Cashers Redeemed

Great article in the New York Times Magazine this past Sunday on check cashing businesses and how American banks have ignored the needs of the poor - as well as ignored the huge financial opportunities in serving that market! 

As I've pointed out in every class, there's something to be said for serving the world's poor, profitably. (The title, in fact, of C.K. Prahalad's Harvard Business Review article.) The amount of money charged by check cashing businesses is huge, but, as the article points out, the lack of "traditional banking" services in poor areas suggests that check cashing businesses are actually making many customers better off than if the check cashing businesses didn't exist at all. However, the fact of the matter remains that the gap between what traditional banks could do to serve the poor (at a profit) and what check cashing businesses provide (and charge, for a huge profit), suggests an enormous opportunity for banks - such as Bank of America - to serve this market with tailored solutions that are profitable and grow long-term customers. To that point, it's interesting to read some customer quotes about how loyal check cashing customers actually are, because all the traditional banks had ignored them or charged them exorbitant fees when something went wrong. 

The most inspiring part of the story was that of Tom Nix - of Nix check-cashing. He sold his business to a credit union, which kept him on as president and - together - they added a credit union window at every check cashing location. Tom's goal is to convert traditional check-cashing customers to credit union customers over time - because the business could still make a lot of money serving these customers and the customers would be better off working with the credit union side of the business!! Fantastic!

In addition to explaining the check-cashing business, payday loans, the customers who use such services and the creation and on-going transformation of Nix - the story also provides some insights into how local governments are trying to create similar models for serving their poor with higher value banking services at a lower cost than the check-cashing and payday loan services. Overall, a very, very good article! 

New JetBlue Terminal at JFK

Yesterday, while talking about STP and the importance of making sure your marketing mix supports your positioning, I talked about JetBlue's new terminal at John F Kennedy (JFK) Airport in New York. 

Here is a link to the 3-minute Ad Age video podcast on iTunes regarding the terminal and why JetBlue built it. 

Adam Smith was Right

As often happens, economic turmoil begets questions of whether free market thinkers were right or wrong – and whether regulation needs to be increased to preserve the country’s economic integrity. Now, even greater questions need to be asked: should the government be bailing out companies that make bad bets, and if so, who ultimately pays for these bailouts? These questions are ironic, particularly from avowed free marketers, because Adam Smith himself warned about the challenges of capitalism in his conclusion of the mercantile system in 1776:

Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer. The maxim is perfectly self-evident, that it would be absurd to attempt to prove it. But in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.

Today, we find ourselves precisely where Adam Smith said we would be.

The irony of US Taxpayers bailing out banks is that the bailout follows years of the banks insisting – and getting – less banking regulation. This gave banks the ability to branch into other businesses and freedom from oversight of financial derivatives so complex that most bankers don’t even understand what they’re buying and selling. It’s truly appalling that the U.S. Government is bailing out bankers who made outrageous bets and, now get to keep “earning” their six and seven-figure incomes while their banks are in bankruptcy. And what do consumers get? They get to pay for incompetence of these avowed “free marketers” through taxes.

The banks also asked for – and got – a new bankruptcy law that makes it much harder for consumers to discharge debt. This makes it much more lucrative and less risky for banks to extend even more credit to the American consumer. The avowed “free marketers” claimed that the new law benefitted consumers who couldn’t get loans before – and therefore caveat emptor, let the buyer beware – and somehow this was a great way to let individual consumers decide what is best for them. But that is a very naïve view of how marketing and banking work. While not perfect, banks are far better at predicting which consumers are likely to default on a loan or credit card than the individual consumers themselves. Banks have the advantage of being able to model consumer behavior using enormous databases of past consumer behaviors to understand how similar consumers will act in the future. A first-time homebuyer has no experience paying a mortgage, property taxes and upkeep for a home.  So the bank has an overwhelming information advantage over the consumer, yet the new bankruptcy laws put the burden on the consumer. And what happens when the late charges and higher interest rates force homeowners to give up their homes, their down payments and their dreams? The banks take the homes and the US Government bails out the banks. And consumers get to pay again because the avowed “free marketers” got the bankruptcy law they insisted would help the consumers – but didn’t.

Trying to feed alongside the bankers at the trough of public money last week were American automobile companies. The group is led by G. Richard Wagoner, the CEO of General Motors. Mr. Wagoner is the same man who orchestrated his company’s purchase of Hummer in 2000 because he was confident GM had tremendous opportunities to “grow the brand” of a truck that yielded seven miles to the gallon. The same man who has been arguing against raising the US fuel economy standards and fervently fighting the reclassification of light trucks since at least 2001. The same man who, in 2002 when Toyota was experiencing tremendous success with the Prius, stated, “I don't think anybody's got confidence that the economics make any sense,” and then gave us the Hummer H2 – which gets eleven miles to the gallon. Now Mr. Wagoner and executives from Ford and Chrysler are pleading for subsidized loans to make more economical vehicles.

Of course the ultimate irony of all this is that the big three have been making gobs of money selling Americans gas guzzling SUVs over the past decade while their Japanese and European competitors focused on making great cars that are much more fuel efficient. Now the big three want the US taxpayer to subsidize building more fuel efficient cars so they can compete with their Japanese and European competitors – and make money by selling Americans more fuel-efficient cars to replace the SUVs they so happily sold them. So Mr. Wagoner pulls in millions a year over the past decade based on his leadership of (1) buying the Hummer brand, (2) lobbying Congress not to raise gas standards because that would make GM uncompetitive, (3) selling Americans gas guzzling vehicles, then (4) realizing that GM needs to sell Hummer because no consumer would buy a Hummer with gasoline at $4 a gallon, and (5) lobbying Congress for more handouts, because somehow items 1-4 were not his fault. And what do the American consumers get? Gas guzzling vehicles, more polluted air, greater dependence on foreign oil and, ultimately, stuck with the bill for Mr. Wagoner and his avowed “free market” cronies’ highly paid “leadership.”

Adam Smith was right. True capitalism benefits the consumer. But too often, the needs of America’s consumers are almost constantly sacrificed to the needs of America’s producers. 

Social Responsibility & Ethics: Student Loans and Google

Well, having just finished up our sessions on Social Responsibility and Ethics in Basic Marketing, I was surprised to see two of the topics covered show in the New York Times in the following days. 

Code of Conduct for Student Loan Companies

First, eight student loan companies - seven of them were being investigated by the New York Attorney General, Andrew Cuomo for misleading students about the obligations and attractiveness of various student loans - agreed to a new "code of conduct" and put up $1.4 Million to fund efforts to educate students and their parents about the risks and responsibilities inherent in taking out student loans. [You can see the NYT's article here.]  

If you go the Attorney General Cuomo's web site, you can see the kinds of things that are now prohibited under the code of conduct, which include: 

using logos and return addresses that made it look like the lender's solicitation to consumers was from the federal government or the student's current lender;

mailing fake checks or false rebates offers on current loans to entice students to take out loans;

giving inducements to students, such as gift cards, iPods, and GPS devices, to distract students from focusing on the (sometimes onerous) terms of the higher education loans being promoted;

offering inducements to students to convince their friends to take out loans with particular lenders;

making false and misleading representations as to the advantages of private student loans over lower-cost federal loans;

providing illustrations of loan costs or terms that are available only to a tiny fraction of borrowers without disclosing that fact;

failing to guarantee that advertised borrower benefits, such as discounts on the interest rate of the loan during the repayment phase of the loan, follow with the loan, regardless of who purchases the loan in the future.

What's kind of amazing is how these seem like very straightforward - and commonsense  - ethical obligations. But sometimes, when companies get into the thick of things in trying to compete with others, they can lose perspective of what's ethical and what's not. Also - as is clear from the code, which is based on questionable practices that already existed in the industry - is that what's best for the customer clear gets lost!!  Hence, to the point made in class, having an explicit code of ethics is so critical for so many companies. If everyone knows what's "OK" and "what's not," then it's a lot more likely that everyone will act appropriately and not start down the slippery slope of doing things that, in hindsight, clearly look wrong. 

Also, to the point of our conversations, it's interesting that it took the threat of legal action by the New York Attorney General to make this happen. So again, the role of government and the law have a role to play in making consumers better off. 

Is Google behaving monopolistically? 

Another article was fascinating because it deals with whether Google is acting in a monopolistic fashion in dealing with its customers (who buy advertisements from Google) and its channels (who sell advertising space using Google). 

One source estimated that Google controls nearly 70% of the on-line advertising market through its various programs that sell and buy space on Google web searches and a plethora of other web sites. OK, by classic Industrial Organization Economic's standards, that's sounding pretty monopolistic. 

Of course, the "Chicago School" would argue that just because Google does a better job than any other service of matching buyers and sellers of advertising doesn't make them "bad." 

I fall somewhere in between - in kind of an "it depends" area. I agree that being successful and, therefore, controlling 70% of the market doesn't mean that a company is "bad." The key underlying concern of the antitrust laws is that a company doesn't act in monopolistic - and, therefore, anti-competitive - ways to prevent competition. (Just to be clear, that's where I think the Chicago School economists were way off base regarding Microsoft, which did use its market power to prevent competition and, therefore, maintain a monopoly in operating systems and create a new one in web browsers.) 

Anyway, back to the article, I think the case against Google is without merit - at least as portrayed in the New York Times article. The key to the article was a case study of Mr. Savage, who built a business model based on the following: 

Mr. Savage estimates that he was paid around 10 cents every time someone clicked an ad on his site. The difference between that and what he paid Google to advertise against search terms — usually around 5 or 6 cents —was his profit.

The article goes on to state that Mr. Savage's business model was pretty much destroyed when Google changed how it bought and sold ads. 

But it doesn't appear to me that Mr. Savage has much of a case. His entire "business model" was based on arbitrage opportunities - the difference between what Google could be selling ads for and what it was selling ads for. If Mr. Savage's "service" actually had value beyond arbitrage  - he runs Sourcetool.com, which is a directory of business-to-business companies - he'd be able to charge: (1) companies who wanted to be listed on his service and/or (2) people who wanted to access his directory. But since he made his service free and then made his money by buying Google ads cheap and selling ads back for twice as much, it appears that the market cleared a bit and Google finally figured out a way to leave less money on the table for arbitrators. 

Well, regardless of what I think, if you read the article you'll get a pretty good sense of why policing anti-competitive behaviors can be difficult. It also highlights the challenge of when people use anti-trust laws to challenge a company, even when there is no merit to the case - whether that's the situation with Sourcetool.com or not. If people cry "monopoly" too often, I think the courts and justice department become overwhelmed and have less to time spend on actual violations of anti-trust laws. 

If you don't vote, you're a moron.

Great monologue from Craig Ferguson on 10Sep08!!! You need to watch the whole thing. It's a great commentary on the media, politicians and Americans. The bottom line, "If you don't vote, you're a moron!!" (It'd be great if all Americans were as passionate about voting as Craig, who's been a U.S. citizen for less than a year!) 

If you don't have new customers, how can you have loyal customers?

OK, executives in the airline industry have officially lost their minds. On Friday, 05Sep08, Continental Airlines decided to start charging $15 for the first bag checked - much like American Airlines and the other airlines that followed. Interestingly, the NYT article about this stated a caveat regarding the fee: 

Continental, based in Houston, said the fee would not apply to elite members of its frequent-flier program, those in first- or business-class seats, customers traveling on full-fare economy tickets, or military personnel and their families traveling on official orders.

Now, two fascinating things about this development. First - as mentioned in an earlier post and updated regarding Southwest Airlines' response in a later post - is the extra fee really worth the aggravation? It certainly can't be good for the brand or customer satisfaction. 

In fact, I looked up the airline satisfaction ratings on the American Consumer Satisfaction Index (ACSI) website and - big surprise - Southwest is the highest rated airline and American, Continental, Delta, Northwest, United and US Airways all are rated below average in customer satisfaction. And those ratings were collected before American instituted their baggage fee!! (Note, ACSI is the satisfaction model I discussed in class.) 

Just to make sure it wasn't purely an ACSI data abnormality or something, I took a gander and J.D. Powers's website and found their most recent Airline satisfaction numbers. At first, I was surprised that Southwest wasn't even mentioned in the press release. Instead, it stated "Alaska Airlines, Continental Airlines and JetBlue Airways Rank Highest in Customer Satisfaction." What's going on here? 

Well, it turns out that JD Powers separates "Traditional Airlines" from "Low Cost Airlines." (I guess calling the "traditional airlines" "full service airlines" would be too much of an oxymoron.) Anyway, although they're separated, both categories use a 1,000 point scale. So, combining the charts from JD Powers, here's what they would look like:

1. JetBlue Airways - 776 points (JetBlue is not rated by ACSI)
2. Southwest Airlines - 728
3. Frontier Airlines - 715 (not rated by ACSI)
4. Airtran Airways - 708 (not rated by ACSI) 
5. Alaska Airlines - 684 (not rated by ACSI)
6. Continental - 684
7. Delta - 669
8. Air Canada - 654 (not rated by ACSI)
9. American Airlines - 644
10. US Airways - 640
11. Northwest - 628
12. United - 628

Also, note that beginning with #5, Alaska Airlines, all of the "traditional airlines" are rated at number 5 or lower in customer satisfaction!!

So, the way that the airline executives think they can increase customer satisfaction - and therefore long-term shareholder value - is to aggravate customers even more than they have already, while the "low cost" airlines eat their lunch. Hmmm...."How's that working out for you?" 

OK - time for the second point, and the title of this posting: If American Airlines, Continental and the others waive baggage fees for their loyal customers (e.g., elite frequent fliers), but charge new/infrequent customers to check bags - how in the world will they ever get any new customers to be loyal? This makes no sense!! The only non-elite people who would fly them regardless of the baggage fees would not have a choice (e.g., Continental has a near monopoly on Cleveland, OH). Of course, if people don't have a choice, why give them incentives to fly you anyway?  In fact, getting back to the example of Cleveland - once Southwest added Tampa-to-Cleveland connection, I stopped flying Continental and refuse to fly them again if I have a choice. 

Hence, by only charging the "non-loyal" customers for baggage fees, you'll never increase the loyal customer segment of customers. I'm not sure they'll be able to replace the loyal customers they're losing!! If I believed in conspiracy theories, I'd be inclined to think that it's Southwest and JetBlue - currently the highest rated airlines in terms of satisfaction - that somehow got American, Continental and the others to institute these fees!  (OK, I'm not a conspiracy theorist, but how someone could possibly think that by offering crappier service and charging more will attract more customers is beyond my comprehension.) 

The bottom line: before focusing on your "best customers" to the detriment of your other customers, it's always a good idea to make sure of two things. First, are you really making more money on those customers - or are you giving all the margins away by trying to keep them happy? Second, make sure you've got a way to get new "best customers." Otherwise, your "best customers" will keep declining until you have no more - and then it's too late! 

I can't wait to see the next batch of airline industry customer satisfaction numbers that include the baggage fees;-) 

Knowing your target market & decision-maker

Over the past two weeks, we've been going over STP (segment-target-position) as part of the overview for Basic Marketing. Related to knowing your target market - and just as importantly - the decision-maker (which is not the same thing), there was a clever post on the New York Times "For the Moment Blog" last week regarding ads for men's underwear. The guest blogger (Grant Thatcher) made the observation, regarding pictures of good-looking men in underwear ads in Milan: 

Do Milanese men have a preternatural desire to look at muscular, seminaked men? Well, of course in some cases, yes, but the canny luxury labels are well aware that the men’s knit underwear industry is worth a staggering $1.1 billion — and even more interestingly, the majority of these briefs are actually bought for men by women. Ding! Now you wonder what’s with all the muscle dudes. … Go figure.

Very funny! And, to the point, although men are the target market for men's underwear - it's either women (or gay men) who are typically making the purchase decision. (OK, to be clear, I mean "or gay men buying underwear for themselves," I think.) So they're the ones you need to target with promotions if you're selling men's underwear. And, apparently, it's also somewhat aspirational for most purchasers, since they think their beau will look as hot in the underwear as David Beckham, etc. 

And lest any guys think this is a bad example, let's just try putting the underwear on the other....well, you know what I mean..... Who do you think spends more time looking at Victoria's Secret catalogs - men or women? How many men buy have bought "items" from Victoria's Secret for their wives/girlfriends as a "gift." (A gift for whom, is all I can think.) 

And of course, taking it all away from sex (or, more precisely, talking about the consequences of all that undergarment inspired sex), even though little kids are the target market for all-things-Sponge Bob, it's Mom or Dad who's the decision maker and ultimate purchaser. 

Anyway, the bottom line is: know your target market - and who the decision maker is. And you should never pick a target market without knowing who the decision maker is, otherwise, you might not have a much of a market at all. 

And with that, I've just got to post this video from AussieBum. It's the same video Grant posted on his NYT's blog. The music is "Would you...?"  from Touch and Go and is downloadable from iTunes. (Yea, I really like the song....):

Hurling down the low road at a breakneck pace - McCain Internet Ad

While searching for a quote on Communism today, look what I ran across! 

The advertisement is paid for by the McCain campaign and it opens a link to weird "petition" (i.e., campaign mailing roster) regarding energy independence on McCain's website.  How very, very sad. McCain's entire campaign has become "anti-Obama" instead of why people should vote for McCain....  I actually gave money to this guy in 2000 in the hopes he'd be the Republican nominee over George W. Bush!  Wow, how times have changed!!

Update: Even sadder - on two levels. First, PolitiFact.com rated this claim a "Pants on Fire" lie (a rarity in their ratings). It certainly is a "different kind of campaign" when John McCain pays for blatant lies after they've been pointed out. The even sadder bit? It was the Florida GOP that started this rumor:-(