Competitive Strategies

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Mixing Business With Racism Is Crazy

Last week I was shocked to get a Penzeys Spices newsletter with the title, “Newsletter +Racism Update!” As an IT professional I am familiar with the current best practices for email marketing practices. This title was a completely unnecessary risk to the business. For many businesses this is their peak season. Suffice to say anyone in their right mind would recognize this is the season to connect with their customers in positive ways. It takes about twenty postive engagements to overcome one mean spirited engagement. This is not the time to toss your marketing plan out the window because your candidate lost an election. You actually have to be an adult about running a business. To compound the problem he actually wrote in the body of the newsletter, “The open embrace of racism by the Republican Party in this election is now unleashing a wave of ugliness unseen in this country for decades. ” Regardless of how you felt about the election this statement will antagonize half of the population. Then on the next day I cringed again as he wrote another email with instructions on how to unsubscribe from the newsletter if the previous email bothered you. I am not making this up! On the third day he wrote again. This time the title was, “Opt-out results for racism update email!” When will the insantity stop!

To Opt Out Or To Not Opt Out Has Nothing To Do With Racism

I checked my records and my first order with Penzeys Spices was in 1996. Typically this is the time of year I stock up with their products. They have a great selection and good product quality but they are not the only business selling spices.  Recently I have been weaning myself away from them because I bought too many spices. To save myself from myself I opted to purchase spices locally when I run out. Jungle Jim’s has a great selection of spices. Someday I may buy bulk quantities of spices from Amazon. The important point is for a business like Penzeys Spices to remember is that customer retention is crucial. Customers have plenty of reasons to opt out of your newsletter without you forcing the question. Do not encourage them to opt out for an issue unrelated with your business. The number-one rule of business is to stay business-focused.

David Burge On Lefties

David Burge On Lefties

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Is The Online Advertising Market Bursting?

Although a Fabius Maximus post, The online bubble is bursting, makes a good argument that we are probably witnessing a tech bubble bursting, I think that has more to do with irrational company valuations and a subset of social media problems rather than online advertising problems. If Facebook or Twitter collapses do we stop buying goods from Amazon? Even if all of the companies described in the Kalkis Research paper, End Of The Online Advertising Bubble, collapse does that mean we stop buying goods from Amazon or stop using Google for comparison shopping? I don’t think so. Online advertising is dominated by Google and Amazon is making many forms of online advertising less valuable. When you think about the history of the Internet and online advertising, the problems are evolutionary. The biggest problem facing online advertising is the creative destruction forced on the online shopping market by Amazon. I work for a small online retailer. A couple of years ago the shopping experience consisted of a customer searching for a product and then following one or more of the ads or links on the search results page to an online retailer. In a world dominated by the Google search engine, it is not surprising that our largest and most cost effective source for orders was Google AdWords.  Despite the occasional abuse and fraud from pay per click vendors and the weirdness of search engine optimization strategies, this was a pretty good business model for an online retailer to drive traffic to their site.

Today the largest and most cost effective source for orders is Amazon. Amazon has two things going for it, customers are increasingly going to Amazon for their shopping experience and Amazon has a viable alternative to the pay per click business model for online retailers. Many Amazon customers expect Amazon to have the lowest price. Our web site analytics say our customers have dramatically reduced the number of times they are using Google for comparison shopping. The most important change for online retailers is that Amazon’s unique business model says that Amazon gets paid only when they process an order. This solves several problems for retailers. Retailers do not worry about Amazon orders causing pay per click abuse, credit card fraud, or payment processing problems. Since the percentage Amazon charged us for an order was less than our pay per click advertising budget, it was an easy decision for us. To increase sales and profit we listed more products on Amazon and cut down on our online advertising. In a flat retail market our Amazon sales have gone up, our Google sales have gone down, and our profitability has gone up slightly. We live to fight another day.

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Did Jonathon Gruber Advise The FCC Commissioner On How To Pass Net Neutrality?

As a long time IT guy I am embarrassed to say how much time I wasted trying to figure out what the FCC’s version of “Net Neutrality” means? It was as if the FCC was deliberately trying to make their reasons for increasing internet regulation as difficult to understand as possible. They seem to be using the same lack of transparency tactic Jonathon Gruber made famous. Whether you are lying about health care policies or Internet regulations, it looks like political suicide on the big stage. As both a retail and commercial Internet client I have no idea what problem they are trying to solve that would not be solved faster and better via the marketplace.

I think we can agree that the Internet is a fairly, robust free market. On the other hand health care is a heavily regulated market and the additional Affordable Care Act regulations did not make health care more efficient or result in better health care outcomes. So if the government cannot wring out increased health care efficiency in a heavily regulated market like health care, what do you think the chances of continued Internet improvements are when the government is converting a robust free market into a heavily regulated market. Is this change as potentially disruptive to the internet market as the federal government’s last technology flop, healthcare.gov, was to the health care market? The government technology track record is pretty dismal. They violated practically every software development best practice known to man in developing healthcare.gov and then acted surprised that the site did not work and ran over-budget. This Administration is not technologically savvy so it is way too early to risk killing our golden goose for nothing.

May be it is best to listen to the concerns expressed by FCC commissioner, Ajit Pai. Click on this link to view the Bloomberg interview.

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Greta thinks that NBC should experiment with different formats for the next six months

therachelmaddowshow_sIn her post, Broadcast news — time is up? NBC has a chance to experiment (get out of 1950!), Greta thinks that NBC should experiment with different formats for the next six months. Since I advocated the same strategy yesterday, Greta and I agree on that part of the NBC strategy. Where we differ is that she thinks that Rachel Maddow would be a better choice because she could stir things and provoke a debate. This sounds like she is trying to turn the Nightly News into the O’Reilly Factor. If NBC is trying to adopt some of the successful parts of Fox News into their show, they should select someone more like Brett Baier. Most of the NBC guys and Savannah Guthrie meet this requirement so my first choice is Savannah. She changes things a little by breaking the male news anchor mold but is not as dramatic a change as Rachel. Hopefully Ms. Guthrie recognizes that she not only has to be different than Brian Williams but all the other news anchors, too. If the ratings do not work out then Rachel and the other guys deserve a tryout, too. Here is what Greta said:

So….my suggestion for a troubled news organization (yes, NBC) and I know this will rattle the old timers who have a fixated view about what journalism is..do something bold for 6 months and experiment.  Put one of your strong and determined debaters on to host the nightly broadcast news, the new format, the 2015 one.

And while you are at it, how about a woman? My suggestion: Rachel Maddow.  Whether you agree with her or not, she will stir things up and provoke a debate.  She is also the right price — she is already on the payroll!

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If I Had 30 Seconds With The NBC CEO I Would Recommend They Replace Brian Williams With …

"Savannah Guthrie 2012 Shankbone" by David Shankbone - Own work. Licensed under CC BY 3.0 via Wikimedia Commons - http://commons.wikimedia.org/wiki/File:Savannah_Guthrie_2012_Shankbone.JPG#mediaviewer/File:Savannah_Guthrie_2012_Shankbone.JPGIf I had 30 seconds with the NBC CEO I would recommend they replace Brian Williams with Savannah Guthrie-Feldman. Drudge Report says Ms. Guthie “has emerged as the top replacement option at NBC ‘NIGHTLY’ NEWS”. Like Megyn Kelly and Greta Van Susteren on Fox News she is an attorney who has 20 years of journalism experience, is a former White House correspondent, and most recently was named co-anchor of the Today Show. Although there are plenty of qualified, male candidates for the job I would not be surprised if NBC decides to borrow a page from Fox News’s playbook to restore viewer’s trust. As I said in a previous post the ratings success of Ms. Kelly and Ms. Van Susteren tells me that America is pretty comfortable with female journalists discussing the major issues of the day. This is the time for NBC to take a chance and go big. They should not only replace Brian with Ms. Guthrie but tweak the Nightly News format to beat Fox News at their own game. If you believe Mr. Groseclose’s analysis that mainstream media like NBC is to the left of America then this would be a great time for NBC Nightly News to try moving a little to the right on the political spectrum and see if they can get a few people back to their shows. What have you got to lose! If the ratings do not work out you can always blame it on Brian Williams and quietly go back to the guys.

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The Changing Face Of Journalism

h943kAt the end of last year I was reading a post over on Fabius Maximus, Fox News gives us what we want: journalism for a New America, when I realized that the article attempted to make the argument that Fox’s success could be attributed to “pretty women in tight outfits with short skirts and high heels on tall stools chatting about the news” (Ed. corrected) on Fox and Friends and Red Eye. Don’t get me wrong. The women are pretty but the last time I looked at the Fox and Friends ratings, they were in fierce battle for the 6 am slot with Nickelodeon and Red Eye was in a fierce battle with station test patterns in the 3 am slot.  Are you really trying to make the argument that the success of Fox News rested on these two shows and not the prime time shows? Okay, the article was never intended to be anything other than a rant but it did get me thinking. Why do some news channels thrive and prosper and others just suck?

Obviously if you want to graduate from MBA school than you should first look at who is dominating the prime time line up. These are the folks who are paying the bills. At 6 pm you have Special Report with Bret Baier, at 7 pm you have On The Record with Greta Van Sustern, at 8 pm you have The O’Reilly Factor, and at 9 pm you have The Kelly File. These four shows constitute the heart and soul of Fox News and all of these shows are winning the ratings war in their time slot. From this lineup we can say three things about Fox News, they are not afraid to put strong women in prime time, they respect these women enough to let them pursue stories they thought were important, and the viewers respect the judgment of these women. When you are number one in your time slot that tells me that America is pretty comfortable with female Fox News journalists discussing the major issues of the day. The more I looked at the female journalists in Fox News, the more amused I got. On several occasions I saw both the host and the experts were women and they were talking about defense issues. I could not find a subject that was off limits for women. This trend is not just at Fox News. One of my wife’s favorite morning shows is Opening Bell with Maria Bartiromo although she also watches Bloomberg’s In The Loop With Betty Liu. Her favorite investment show is Consuelo Mack’s Wealthtrack on PBS. At least in my household I think I can see why Fox News is thriving and the others suck. They hire good female journalists and get out of the way! That goes a long way to explaining why Maria Bartiromo and Sharyl Attkisson joined Fox News and Fox Business. It is less about politics than management style. Good stories still rule journalism and the ratings! So far the female journalists have not abused the opportunity Dan Rather and Brian Williams served up on a platter.

Speaking of Ms. Attkisson here is a nice lecture she gave at Hillsdale College recently. I get the distinct impression that she is one of those pure journalist who went to Fox News because she really wanted the freedom to pursue the best stories of the day. Maybe this is a lesson the other networks might start paying attention to before the lights go out.

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Keystone Pipeline Vote Is About Growing The Economy

BarrelOilI am getting increasingly annoyed with the President saying that the Keystone pipeline will allow Canada to send their oil through our land where it will be sold elsewhere. Here is an example from a yahoo news story, Keystone Pipeline vote isn’t about energy.

In a press conference last week in Asia, Obama remarked that the pipeline wouldn’t add anything to the U.S. energy economy and would allow Canada to, “pump their oil, send it through our land, down to the Gulf, where it will be sold everywhere else.”

As a guy who lived in Houston for 18 years the idea that the oil will be sold elsewhere is very unlikely. What is likely is:

  1. Refiners along the Gulf coast will see lower prices for all of their feedstocks. Most of the refiners can handle a variety of feedstocks and will switch to the feedstock that makes them the most money.
  2. Refiners will convert every barrel coming out of the pipeline into high valued products like gasoline, diesel, jet fuel, and the chemicals used to make plastics and fibers. The Gulf coast already has an intricate web of product pipelines for the building blocks of plastics.
  3. The United States oil and chemical industries are very, very good at capturing as much value as possible out each barrel of oil. That is what they have been doing for over 100 years. It is unlikely that Canada will get a better price exporting crude.
  4. Almost all of these high valued products will be consumed within the United States. The State of Texas has this great summary on crude and it echoes what Keystone Pipeline folks say on the Myths & Facts page.
  5. Lower feedstock prices will translate into higher profits and potentially into a combination of higher profits and sales since the Gulf coast will now have a competitive advantage over other countries. It is the ripple effect from lower feedstock prices that may be the most significant contributor to economic growth. If you are the low cost producer then selling value added products overseas becomes feasible again. If we continue to focus on infrastructure policies that improve productivity then we should see the result in real growth in the business sector and eventually in middle class disposable incomes.
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Amazon Raising Its Popular Prime Service By $40

Unique competitive strategies fascinate me so it goes without saying that Amazon’s business strategies fascinate me. They have always marched to the beat of a different drummer. One of their more unique competitive strategies has been free 2 day shipping via Amazon Prime. Two years ago I subscribed to Amazon Prime to see if I would break even on the shipping while enjoying some Netflix type video streaming. What I found surprised me. I purchased more incidental items through Amazon and rarely used the video streaming. I suspect this incidental shipping is killing Amazon’s bottom line. As an example I was repairing a computer and needed some thermal paste. Rather than going to the local computer store I ordered it I from Amazon because I had free shipping. The paste cost me $5 and was shipped to me using UPS. As a person who is real familiar with shipping costs, I am guessing that Amazon lost $5 on that transaction. I followed that up next week with a $10 purchase for a different repair. For high priced items I found that I could find lower prices that include free shipping outside of Amazon if I ran a simple internet search. Since free shipping is such a mixed blessing, I was debating whether to pull the plug on Amazon Prime this year. Now we hear this. It should be interesting to see how the Amazon’s competition respond.

Amazon also said it is considering raising the price of its popular Prime service by as much as $40 a year due to higher fuel and other shipping costs.

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Things That Make Me Go Hmm… Startup-NY advertising in Ohio?

Migration Map 2010Recently Start-Up NY has been advertising heavily in Cincinnati touting New York as a great place to start a business. Cincinnati has a small but interesting start-up business. Most of the buzz has been about Cintrifuse. Although there have been some successes, no one has confused Cincinnati with the start-up meccas like Silicon Valley. Start-ups in Cincinnati and Northern Kentucky largely remain a work in progress. When we look from New York’s perspective the grass sure looks greener over Ohio’s septic tank. The recently released United Van Lines 2013 migration study press release says that New York has the third highest ratio of traffic moving out of state. The reason for the high outbound ratio is complicated but it is hard to ignore the business climate’s consistently low ratings. The 2013 version of the ALEC-Laffer State Economic Competitiveness Index has New York ranked 49th. The year before they were ranked 50th. So why would a budding start-up move from a state like Ohio who is ranked 26th to a state ranked 49th? Cincinnati may not have the cachet of Silicon Valley but it has a better business environment and a lower cost of living than New York.

New York has a difficult marketing problem and from their perspective at the back of the pack, the Cincinnati start-up market is a more appealing target to attract businesses from than Texas or California. Their plan is to create tax free zones in which “businesses can operate 100% tax-free for 10 years. No business, corporate, state or local taxes, sales and property taxes, or franchise fees.” This is an interesting offer but it is restricted to areas located primarily on SUNY campuses around New York City. Their idea was to pair up high tech businesses, low taxes, and college campuses. This might eventually work with Columbia university but I am skeptical of its usefulness at the SUNY campuses. Even if this plan happens to be successful at a major university, what is going to stop Kentucky and Ohio from setting up similar plans at the University of Cincinnati, Xavier, Miami, or Northern Kentucky? In the grand scheme of job migration their plan is a nice employment solution for high tech, college students but it really does not address the much larger unemployment problem with the low education, low skill job market. They may save a few jobs for college graduates but the rest of the people are going to have to look for jobs elsewhere. To fix that problem we have to learn how to grow low and medium tech companies again. We tried to fix the problem by encouraging the growth of the service industries at the expense of manufacturing companies. Now we have learned that the service industry is not the magic bean that will grow the low education, low skill job market. “To grow middle class wealth you must be making things bigger, better, faster, or cheaper.” That will take a different mindset. A mindset that made New York city great a long, long time ago.

When I think of New York City I think of this poem. From huddled masses to high tech college students, it is amazing how the vision of who we are has changed. It is hard to embrace a return to the optimistic vision of the poem when a poor business climate is undermining that vision at every turn. In a very provincial sense I feel like Samuel Gerard in “The Fugitive” who kept telling Dr. Kimble, “I don’t care”. I have a job to do, New York has a job to do, and it is very likely that never shall the twain meet. I hope local start-ups will look at the numbers and stick with Cincinnati. That is the smart decision. Regardless of their decision my life is unaffected. However there is a deeper issue in play. Like Samuel Gerard who finally admits that he does care, I want New York to be successful again.  When I root for New York’s success I am not rooting for a more optimistic future for all of us and the success of New York is part of it. I am rooting for the unbridled optimism of the poem.

Give me your tired,
your poor,
Your huddled masses
yearning to breath free,
The wretched refuse
of your teeming shore.
Send these, the homeless,
the tempest-tost, to me,
I lift my lamp beside
the golden door!