In What World?

Sometimes when you encounter news stories concerning monumental stupidity, it’s possible to generate some sympathy for the poor fool (or fools) responsible. The Hughes-Kaiser HK-1, better known as the “Spruce Goose”, made perfect sense in the context of World War II, submarine warfare, and the need to move thousands of men rapidly across the Pacific Ocean during the final phases of the planned invasion of Japan. Charging interest rates that no one could possibly afford, seizing the defaulted property and selling it at a profit made perfect sense during the real estate bubble of the early 2000s, and running off to South America to sleep with a woman other than your wife probably didn’t seem any stupider than having sexual contact with an intern in the Oval Office or breaking into the Watergate complex, at least at the time. But even if we can accept that these decisions made sense, at least in context, it’s still hard to imagine what Universal American Insurance thought it was doing when it mailed out 80,000 postcards to its customers with their account information and Social Security numbers on the back…

As noted by the local CBS affiliate, WGAL the company was working through a third-party vendor, and never intended to send out either the Medicare ID numbers or Social Security numbers. However, I think we are correct in asking why the company didn’t know such a mailing was being sent, why the vendor would be sending such a mailing without the client’s approval, and why the vendor itself though this was ever a good idea in the first place. What possible purpose could there be in sending a mailing to people reminding them of information they would have had to provide to the insurance company when they signed up, and in what world could anyone possibly have thought that having sensitive personal information printed where anyone could see it would be a good idea?

It’s even more egregious, in a way, because a similar blunder occurred in New York about fifteen years ago. The local telephone company (NYNEX) noticed that its customers were not using their “calling card” codes to make calls from pay phones (this was before cell phones were common), and decided that these customers had forgotten their personal ID numbers. So they printed the codes, along with the connected telephone numbers, onto post cards and sent them to all 500,000 or so of their customers. The resulting costs (changing the codes to something that hadn’t been leaked to the public, people refusing to pay for telephone service they claimed not to have used and calls they hadn’t made, associated lawsuits, etc.) would have destroyed any smaller company, and was almost certainly a contributory cause of NYNEX being acquired by Bell Atlantic under very favorable terms a few years later. But apparently nobody at Universal American Insurance, or at least its mailing vendor, ever heard about this case…

For the moment, things seem to be resolving in the present case. Universal American Insurance is offering all of its customers a year of free credit monitoring, and there don’t seem to be any reports of massive Medicare fraud in Pennsylvania or any of the surrounding states. In the meanwhile, I’d have to say that this case serves as a warning to every company out there that has sensitive customer information to be careful with it. Don’t assume that just because something seemed like a good idea at the time that it won’t turn out to be compared unfavorably to the Dot-com crash, the Mortgage crisis, or the decision to give a performance artist $55,000 to place a giant inflatable banana into low Earth orbit. Because in our world, it might be…

They’re Not Listening…

There’s a grand tradition in this country which is known as “voting with your feet” – or sometimes “voting with your wallet.” The basic idea is that if a company is doing something that offends you, they probably have a competitor who won’t – and if they don’t have a competitor you could always start one. Thus, if (for example) a firm is doing something that offends your moral, ethical, dietary, nutritional, political, comedic or religious requirements, you can always choose to take your business to some other firm in the same industry that does not so offend you. And, if you like, you can tell all of the like-minded people in the country about your choice, and encourage them to do the same. In theory, this should persuade the company that is offending you to change their ways, since they will not want to give your business (and that of all of the like-minded people) to their competition. Failing that, you will at least have the satisfaction of giving your business to a firm that is more in line with your belief system, whatever that might be…

Where this becomes a problem is when extremist groups start using the tradition to impose their views on everyone else. Take, for example, the American Family Association’s ongoing feud with the Gap (and any other retailer that doesn’t wish to offend all of their non-Christian customers) over the company’s “refusal” to feature the word “Christmas” in its holiday advertising materials. Leaving aside for the moment the inherent issues with advertising specifically intended to promote gross commercialization of a religious holiday and the fact that our system of government was designed to provide religious freedom (separation of Church and State) specifically BECAUSE of religious persecution in Europe, the calls for boycotts of the Gap over a supposed refusal to include the word “Christmas” in their advertising are completely asinine for a much more basic reason. You see, the current year’s ads DO include the word “Christmas” – rather prominently…

As noted by The Los Angeles Times this week, the current Gap ads advocate purchasing the company’s products for Christmas gifts – and also Chanukah, Kwanzaa, and Solstice/Yule presents, for that matter. One has to wonder if the American Family Association was unaware of the ads when they issued their annual boycott, or if they’re just not bothering to actually listen to any of the advertising before they start spewing this sort of nonsense. A much more disturbing issue here is what we, as businesspeople, as supposed to do about this sort of lunacy. Leaving aside for the moment the obvious impossibility of trying to conform to the requirements of the literally thousands of competing religions groups in the world, should we even concern ourselves about what a small group of fruitcakes from one specific group want us to do and say?

In the long run, I suppose, it comes down to a matter of servicing the customer. If the majority of your customers belong to a religious sect that will only do business in a room with a blue floor, investing in blue carpeting for your retail stores would probably not do any harm. And if a major demographic group in your customer base wants you to wish them a Merry Christmas every year, you certainly could. But if someone if going to release official pronouncements condemning your company for advertising practices that you’re not even actually doing, your best bet is probably just not to listen to them. After all, they’re clearly not listening to you…

No Substitute

This past weekend I took our daughter over to a nearby shoe store that I’m not going to identify (or provide a link to) because they’re annoying me and I’ll probably end up calling them something actionable before the end of this post, but you’ve probably seen this chain or something quite like them before. Basically, it’s a single huge room the size of an aircraft hangar with long aisles of shoes piled up, surrounded by banners, signs and other promotional artifacts that extol the high quality and low prices of these products to the high heavens. There are “Clearance” racks on the back wall (which contain the products that the store no longer has enough of to make up a complete pile) and four cash registers at the front, and that’s about it. The company calls it a “shoe warehouse” and apart from having carpet and zombie-like sales associates instead of concrete floors and forklifts it’s not a bad description. You might expect that this would be an easy place to find a good quality pair of dress shoes at a decent price. If so, you’re either an idiot or else you have feet in one of the three or four most common sizes…

Walking up and down the aisles (any of which are long enough to land a small plane on), I was struck almost at once by the lack of size choices available. Specifically, there was nothing available below a 9 or above an 11 in most of the products offered for sale. Granted that these are the most common men’s shoe sizes, and that these constitute something on the order of 70% of all products for sale, that still makes it impossible for a significant number of people (in the greater Lansing area, 30% of all male customers would mean something like 45,000 to 50,000 people) whom you’re just blowing off. Telling, in fact, to go away and not give you any of their money. When the first style of shoe I wanted to buy turned out to have nothing in my size, I went to the next decent style, and the next and the next, without any success. Disheartened by this, I went to find a sales zombie and ask if they had any additional stock anywhere…

At this point, the shoe warehouse had already broken the First Law of Business by not taking my money, but now they went the extra mile and broke the Second Law as well. The salesperson I found told me that they don’t have any back stock; what they have is what you see out on the floor. However, they do have a special online service you can sign up for which has a much wider range of sizes, and will sell them to you electronically and send them to you free of shipping charges! All you have to do is fill out their paperwork and agree to receive an almost unlimited amount of SPAM emails in order to have the privilege of spending money on shoes you can’t try on and will have the devil’s own time trying to return! Was that something I might be interested in? I think the sales zombie almost cracked an expression when I said, flatly, “no,” but it was hard to be sure…

I could point out, of course, that if I wanted to do my shopping online there are already several websites that specialize just on virtual shoe sales, not to mention sites like Amazon that carry all manner of foot ware, and none of which require extensive (and invasive) sign-up procedures. But the fact is, I don’t buy shoes online, simply because there is a fair amount of variability in shoe sizes depending on the manufacturer and style selected. There are some shoes where I’m a 12 1/5, and others where I need a 14 just to have a chance of getting my feet into them, and there’s no way to tell which is which in a virtual shoe store. There’s also a little matter of needing to wear them the following day, not some time in a week or two when the shipping department and the freight carrier get around to sending them to me. Until such time as you can virtual try on a pair of shoes and reliably get them delivered the next day, there’s really no substitute for an old-school shoe store – and the shoe warehouse people should probably put more effort into their original business model…

Franchises Revisited

Las summer I brought you the story of Burger King’s ongoing war with its own franchise holders, in a post I called The Trouble With Franchises. The issue, in case you’ve forgotten, is that Burger King wanted its franchise holders to participate in a national $1 promotional price for the double cheeseburger product, which would be the subject of television, print and Internet advertising. The franchisees were resisting the program because, on average, it costs them roughly $1.10 to make a double cheeseburger, which turns the entire product into a loss-leader for them – without actually costing the company itself anything. The company had put the subject to a vote, only to have the franchise holders vote it down. They attempted a second vote, with voting conditions rigged to make it harder for the franchise holders to vote “no” the second time, but the vote still failed. So the company did the logical thing and just went ahead with the promotion anyway, figuring that the franchise holders would have to go along with it once the television ads started to run…

It’s an impossible situation for the franchise holders. If they go along with the promotion they’ll be losing money on every double cheeseburger they sell, and there’s no limit on these things – nothing to keep an entire college football team from coming in and ordering ten of them for each player, or 550 of the things, every one at a loss, for example. But if the franchise holders refuse to honor the promotion, they will be in the position of having to telling paying customers that they can’t have special promotional price from the television ad, thus violating both the First and Second Laws of Business in one simple statement. Nor can they just explain the situation and try to get the customers’ sympathies; most fast-food consumers will not know the difference between corporate advertising and local franchise holder economics, or care if they did. So the franchise holders have done the only logical thing: they’re suing the parent company…

As reported by the Associated Press through the St. Petersburg Times, The National Franchise Association (which represents about 80% of the Burger King franchise holders) has filed suit in Federal court, claiming that the promotion will cost them a fortune and contending that the parent company’s franchise contract does not allow it to set maximum menu prices in the first place. The parent company, in turn, is claiming that the case is without merit because an earlier court decision ruled that the company can require franchise owners to participate in “value-menu” promotions. It remains to be seen how the court will interpret this new case, and the contract it is based on; if the contract specifies that the franchise owners must produce the promotional items but does not specify participation in a pricing scheme (or control of menu prices) then the franchise holders may have a case. Otherwise, they will probably be treated to another iteration of the advice that just because you don’t like what your contract is telling you, that doesn’t mean you can just ignore it…

In the long run, the franchise holders may have to accept the situation, eat the loss on each burger, and try to make up the difference on soft drinks and other menu items with huge markups. But even if the company does triumph in court, I think we case safely assume that Burger King franchises just got a lot harder to sell – and probably won’t sell for as much, assuming that the prospective franchise owner has been following this case. Which may turn out to be an example of the company winning the battle – but ultimately losing the war…

The Trouble with Land Grabs

One of the most worrisome legal proceedings of local years came in 2005, when the Supreme Court ruled that the City of New London, Connecticut could use eminent domain to seize a large number of private homes and give the land to developers. The rationale for the original land-grab was that the developers would construct new high-end housing, shopping facilities and office space, which would bring a huge influx of business into New London. The city had to pay the homeowners for their property, of course, but the people who were evicted claimed that they were paid pennies on the dollar (as such people always do), and just about everyone who isn’t either ultraconservative or a real estate developer who stood to make money on such dealings condemned the entire action as being nothing more than “corporate welfare”. None of which would really have mattered, in the long run, if the project had lived up to its hype, or at least succeeded. Or, for that matter, gotten off the ground in the first place – which does not seem likely, now…

At the time, the seizure (and subsequent bulldozing) of an entire neighborhood did appear to make sense, at least if you held stock in Pfizer. The original real estate development project would have constructed facilities that would have been perfect for the use of personnel from the nearby Pfizer corporate facility, which was already one of the area’s largest employers. In fairness, we should note that Pfizer itself was not given any of the land or any other goodies by the city, and had no stake in the project other than being located nearby (and therefore being one of the potential key customers for all of the business units involved), but the concept of Pfizer employees buying the new condos, shopping in the new stores, staying in the new hotel when working at the facility temporarily, and so on figured heavily in the developers’ plans. Which just makes it that much more unfortunate that the company has decided to close its New London facility…

The announcement came a few days ago, and was recorded on the Wall Street Journal opinion page, among other places. But while the Journal ends the piece on an up note, crediting the New London debacle with inspiring the creation of laws limiting eminent domain and preventing this type of blatant corporate handout in 43 of the states, I have to admit that I’m not reassured by these events. We’re living in a country where the same people who will oppose any form of public subsidy for food, housing or healthcare (because that’s “Socialism!”) apparently see nothing wrong with a financially weak city (and State) spending $78 million to benefit a wealthy real estate developer or the country spending $700 billion to allow financial service companies to maintain their million-dollar annual bonus program. As incredible as it sounds, people on the Far Right are still arguing in favor of the New London land grab – and that means that it’s only a matter of time before somebody, somewhere tries this again…

Now, I’m not going to argue against government-backed development projects. I’m not even going to try to tell you that there is no place for eminent domain proceedings. I’m just pointing out that any government-sponsored program that takes money or property away from average citizens and gives it to well-heeled companies so that they can make even more money at taxpayer expense is not merely bad government; it is also, of necessity, bad business practice. And there’s definitely a limit to how much more of that the country can afford before something REALLY bad happens…

I’d Buy That for a Dollar!

Most of the time I avoid comment on whether the current age is better or worse than the way things were when I was a child; that sort of thing is clearly geezer-talk, and along that path lies madness. Kids today may not actually have things any better or worse than we did; the world grows more complicated every year, but “good” and “bad” are value judgments, and therefore subjective. For every person who sincerely believes that the iPhone is actually the greatest invention since the wheel there is at least one other person who hates everything about cell phones, smart phones, the Internet, or the Information Age itself and wishes we could all go back to manual typewriters, carbon paper and party lines. But I’d be willing to bet that even some of those people would have liked to be able to purchase higher grades in Middle School…

From the pages of the News Observer online comes the story of a middle school in Goldsboro, NC that was having trouble with its school fund raisers. Last years efforts to raise money by selling candy appears to have fallen flat, so this year the school came up with the idea of using class credit to incentivize its pre-teen salespeople in the student body. According to the published account, a $20 donation to the school would have bought the student a 10-point credit on two tests of the student’s choice; enough to make the difference between a “B” and an “A” – or enough to turn a fail grade into a marginal pass. Of course, school officials dispute whether this would be enough to impact a student’s overall grades in a class, and they insist that no student would be allowed to obtain more than 20 points this way, but I’ve been in class with enough grade-grubbers over the years to know (even if the principal apparently doesn’t) how the students would see this…

Now, I don’t want to imply all of the parents and educators who are talking about how this sends the wrong message to the students and teaches the kids that it’s okay to pay for grades are wrong, exactly; most people do learn ethics by watching their parents (or other authority figures) deal with exactly this sort of decision. What needs to be pointed out here is that this is a slippery slope – and this fund-raiser is hardly the first step onto it. Kids today are already facing such inequities as private test preparation for the SAT (or equivalent) that determines who will get into college based on whose parents can afford such services, and private consultants who can help “package” a student’s college applications to similar effect. The college you select will determine your starting position in a great many careers (or your choice of graduate schools), and every college student in the world has services that will offer to provide “sample” term papers targeting them in various media ads. Even the good kids have to be wondering if it wouldn’t be more efficient to just purchase the grades in the first place…

But what I think is the most disturbing thing about this entire story is the origin of the grades-for-cash program: a parent advisory group came up with it, and the school’s principal approved it. If the school district hadn’t stepped in and shut it down, this program might have become a regular feature at Rosewood Middle School, and might even have spread to other schools. Which means that all of the people who have been railing about the degradation of our educational system by parents who think they can buy their child’s way through everything are actually quite right – and it’s later than we thought. Maybe we should start thinking seriously about education reform in this country while we still can…