Monday, June 26, 2017

Blade Wars

For some time now we’ve been seeing ads on television and various other media for new companies that are selling razors and shaving products over the Internet. I’ve been watching them with some interest, both because I use such products myself and also because this is a product category that has suffered from artificially inflated prices for as long as I’ve been old enough to shave. Whether this is an isolated case or if it turns out to have relevance to other product categories remains to be seen, but at the very least it would appear that the traditional strategic advantages are no longer quite as sustainable as you might think…

Fox Business is reporting that Gillette’s share of the men’s shaving market has been dropping for at least the last six years – from nearly 70% in 2010 to 54% in 2016, and possibly still dropping. To the best of my knowledge, there has never been any reason why other companies could not have challenged Gillette’s domination of the industry, any more than other companies could have challenged Frito-Lay for control of the potato chip and corn chip industry. But as in the case of salty snacks, it can be very difficult for a new competitor to break into an industry that already has an entrenched competitor with vendors, distributors, retailers, and the majority of the end users already its control. The purchase of Gillette by Proctor and Gamble in 2005 only made things that much harder for anyone else who might have thought to break into the market…

As a result, Gillette has been selling razor cartridges for as much as $6 each, and is in the middle of testing and introducing new extensions to the product line that might go even higher. It has become something of a running joke in recent years that the company keeps adding blades and jacking up the price. And while exactly how much of the price was made up of profit margin remains in dispute, it has not been much of a surprise to learn that the well-known Schick competing products run for as little as 50% of the Gillette equivalent’s price. Finding out that the cheapest Dollar Shave Club refill cartridge goes for as little as 20 cents was rather more surprising, to be sure, but what was really amazing was seeing the full-page ad in the newspapers responding to the new competition…

You can see one of the examples at Campaign Outsider if you’d like to. Gillette was already planning to answer the shave clubs delivery/convenience advantage by launching their own subscription service, but apparently the threat posed by the price advantage has caught their attention as well, and they are now publicly announcing upcoming price reductions across their product line. If the Fox Business story is correct, this should amount to an average reduction of about 12% on Gillette shaving products. Whether this will be enough to counter the 90% price advantage offered by the new online competition remains to be seen, of course…

Now, I’m not saying that the new price reductions won’t work, or that the success of the new shave clubs will bring additional competition into the market. I don’t begin to have enough data to make any such predictions, and I’m not sure anybody else does, either. For all that the situation is a classic example of a previously dominant company having to deal with an unexpected entrant crashing their market, the use of an Internet-based campaign and a direct-billed subscription model, not to mention home delivery, is almost literally unprecedented in this industry and product category. I can’t see any reason it shouldn’t work, and I’m not sure there’s anything Gillette or P&G can do about it – except compete with the newcomers on their own terms, that is…

Gillette is still entrenched in the market; their product is available in virtually every supermarket, drug store, convenience story, and general merchandise retailer in this country. They’ve got the technology and knowledge-base to create superior products, the distribution channels to get them into any customer’s hands, and the capital to run better ads and set whatever price points they can get away with. It seems possible for them to compete in this market and win, especially with the support of their corporate parent. What they can’t do is ignore the threat that these new competitors represent. The way they have been doing until now…

Wednesday, June 21, 2017

Sucker Showcase

Many years ago, the original cast of Saturday Night Live did a sketch about a game show called “Irwin Mainway’s Sucker Showcase” during which the host would tell various credulous idiots (the titular “suckers”) various obvious lies in order to get them to humiliate and/or injure themselves. It’s a variation on the old idea that people will do literally anything in order to get on television or win money; when you combine the two there’s almost nothing that is too obviously stupid to keep people from doing it. Dan Ackroyd was the MC (Irwin Mainway) and Steve Martin was the show’s “returning champion” – e.g., somebody so dim that he couldn’t figure out the show’s true nature even after enduring an episode of it. Steven Martin later included the sketch in his own T.V. special; you can find the clip here: https://youtu.be/4Hi8DIEhb_o

What seems most remarkable to me isn’t so much how prescient this sketch turns out to have been as how much more honest the format is, to the viewers if not to the contestants. Modern reality television has subjected contestants to activities at least this unpleasant, and potentially even more hazardous to life and limb, starting with shows like “Fear Factor” and “Survivor” and continuing to the current day. But where the fictional Irwin Mainway and whatever heartless production company was behind him were openly making fun of people, and inviting their audience to laugh at these suckers/contestants, the modern reality show hosts (and, one assumes, producers) go on endlessly about how exciting and competitive their contests are, and how well their contestants are dealing with the challenges involved…

Now, I would be the first to admit that this isn’t a new idea. A number of television series have based episodes around the concept over the years, and there are at least three full-length movies of which I’m aware that have been released on the same themes. I will admit, however, that I have started worrying about the long-term effects of both encouraging people to be credulous idiots and encouraging other people to watch them and laugh. As the world becomes more complicated all around us it gets easier every year to make an innocent mistake that can screw up your entire life. Even ten years ago if you lost your cell phone, the worst that would happen is that you would report it as lost/stolen, have the carrier deactivate the account and give you a new one, and buy a new phone. If you’d bothered to sign up for the insurance, they’d just give you a new one. Today that same phone could allow someone to drain your bank account and max out all of your credit cards before noticed it was gone…

I point this out for a number of reasons, not least of which is I’m worried about the corrosive effect this is having on our society; however, the effects on business, and particularly on business strategy, may be even worse. Business runs on information, even more so than money, and without complete and accurate information it isn’t possible to plan your activities or make competent decisions. If you base your calculations on bad data there is no way you can possibly get the right answers (the infamous programmer’s term GIGO – garbage in, garbage out – comes into play here), and with people deliberately introducing nonsensical information into reference sources just for the fun of watching more people behave like credulous idiots it’s getting harder every day just to tell what is real and what is supposed to be humor…

Earlier this week I noticed a clickbait item trumpeting that Don Knotts had just blurted out his “real” reasons for leaving the Andy Griffith Show. Which sounds like minor celebrity gossip, at best, until you realize that Mr. Knotts has been dead for eleven years as of today’s writing, and he revealed the complete rationale for leaving the show in the early 1970s. Heaven only knows what kinds of malware or online scams you might be subjecting yourself to if you clicked on that link, but the one thing I’m fairly sure of is that if you did click on it you would not have learned anything about the late Don Knotts that everybody else didn’t know forty years ago. If you make a practice of clicking on such links you probably won’t learn anything else, either, but you’ll definitely have qualified for an appearance on the next Irwin Mainway production when it comes out…

And that’s still not even the worst of it…

Thursday, June 15, 2017

The Hits Keep Coming

Suppose for a moment that a random customer of yours has just saved your company from a disaster that would have meant the loss of an asset worth at least $100 million, plus at least a few hundred wrongful death lawsuits, each of which can easily run into the millions of dollars all by itself. Let us further suppose that the employees to whom they initially reported the impending disaster did not believe their report, and only reluctantly verified the story while being particularly rude to those customers. And while we are at it, let’s suppose that the signs of impending doom that they discovered could have been noticed by any ordinary school child, and that enough witnesses exist that trying to cover up the details of the story would be asinine. Where would you expect to find those customers when the dust clears?

Well, unless you said “Sleeping on the floor in the Baggage Claim area because no one gave them a hotel voucher” you have, again, over-estimated the customer service and public relations skills of our old friends over at United Airlines. According to a story from the New York Post a United flight was departing from Newark for Italy when two of the passengers noticed fuel leaking from the airplane’s main tanks in the wing. Not just a dribble, either; they described it as looking like the stream from a fire hose. The flight attendants reacted to the report of this information by yelling at the passengers to get back in their seats, and only reluctantly looked out the window – whereupon they immediately called the cockpit and told the flight crew…

After aborting the takeoff and returning to the gate the flight crew were nice enough to the heroes of our story, personally thanking them for saving the plane and everyone aboard from the fiery (and idiotic) death the airline had unknowingly been courting. United’s ground personnel were less effusive, however, proceeding to attempt to cover up the incident, issuing a statement downplaying the leak, and trying to get everyone on the flight rebooked and overseas before they could start talking to the press. They managed to get meal vouchers to all of the passengers, but somehow failed to supply hotel vouchers to all of the customers they had just massively inconvenienced (and nearly killed), including the couple who had noticed the leak in the first place…

Now, I don’t mean to suggest that these two people, a couple on their honeymoon, were the only thing standing between United and total disaster. We can probably assume that the flight crew would have noticed the rapidly dropping fuel levels, either on a routine check or when the flight computer’s alarms went off, and returned to the airport. I’m also not suggesting that the airline go to any special lengths to thank them, although one would imagine that customer retention concerns alone would make that worth the effort. I’m just pointing out that I’ve gotten better care than that when a flight I was supposed to be on was canceled at the last moment, and all I have ever done for that particular airline was buy a ticket…

Okay, so this wasn’t really an atrocity. The worst thing that seems to have happened is that a group of passengers was moderately to severely inconvenienced (if the worst thing that ever happens to you while traveling is having to sleep in an airport, you’re an extremely fortunate traveler), and any of that could have happened on any ordinary day, even without mechanical failures and employees who appear to be thick as a brick. But it does make you wonder how many close calls a single company can survive, even leaving potential air disasters out of it for the moment. Sooner or later people are going to get fed up with the various United shenanigans and start voting with their feet. You might expect that the company would want to put off that day for as long as possible, or at least avoid any billion-dollar disasters in the meantime…

But unless this story turns out to be a hoax, you’d be wrong about that, too…

Wednesday, June 14, 2017

Museum of Failure

As I’ve mentioned a number of times on this blog, I originally went back to grad school to learn more about management failure, with an eye towards getting people to stop running perfectly good companies into the ground. This turns out to be harder than you would expect, because as one of my professors pointed out during my first year in Michigan, it’s difficult to study companies that don’t exist anymore. Even if you could find financial data, operational records or human resources information for defunct companies, and you generally can’t, the problems that killed the company could just as easily be intangibles like personality conflicts, poor stakeholder management, greedy owners, poor corporate governance, or sudden economic downturns. Usually the best you can do is study the failure of specific products or programs…

Regular readers of this blog (assuming I have readers) already know that I collect these stories; they’re a staple of my lectures at MSU as well as a major part of why the “Stupidity” tag appears on more of these posts than any other. Sometimes I do find myself having to remind people that most businesses (and business people) aren’t actually idiotic failures; it’s just that people who operate a business successfully very rarely need to hire management consultants, and they even more rarely do anything funny enough to be worth making snarky comments about in a business blog. And while anyone who aspires to run a successful company, or even work for one, absolutely should study the way successful firms have accomplished their missions, I was still practically giddy when I learned that an entrepreneur and clinical psychologist had launched a Museum of Failure in the city of Helsingborg, Sweden…

You can visit the Museum’s own site if you want more information, or pick up the Detroit News story online if you’d like to read about the operation. Some of the artifacts in their collection will probably already be familiar to the reader, such as the infamous Apple Newton PDA or the venerable Sony Betamax, while others may have slipped under your radar, like the Harley-Davidson fragrance products or the visually revolting green catsup. But while many of these items may move you to wonder what the inventors were thinking, the key point of this exhibition isn’t so much that they failed as specifically how. Because while many of these products are every bit as preposterous as they sound, some of them are quite sound in themselves…

Take, for example, the Betamax. Most people know it simply as an older format that lost out to the more common VHS tapes (before the entire product category were rendered obsolete by DVDs, Blu-rays, and eventually streaming video services). What most people today may not realize (or remember) is that the Betamax was actually a better product. By any objective standard, the Betamax had better picture quality, better sound quality, better workmanship, and was generally more reliable than even the most advanced VHS systems. What did it in wasn’t price or quality so much as a fundamental misunderstanding of the market – and the competition…

When Sony first introduced the Betamax it was a very innovative concept: bringing both the size and the cost of video tape down to the point where any private citizen could have one at home. Consequently, the company decided to keep close control of all aspects of the system, refusing to allow anyone else to use the technology. With no real competitors, they could set the price point wherever they wanted to, and take their time bringing out additional features. The extent to which their competitors reverse-engineers the Betamax design remains somewhat unclear, but in addition to the lower price it was the longer tape running time and pre-recorded tapes that made the VHS so much more successful. With a run time of less than an hour, later increase to just over two, it would be difficult to record movies from cable or broadcast television on a Beta tape, and initially it was almost impossible to find anything pre-recorded on one…

Now, I don’t mean to suggest that the failure of the Betamax, or any of the other products in the Museum, for that matter, would have been easy to predict in advance. If I could tell you with any certainty what products or features would sell in any specific market I could probably have retired on the fees from telling companies not to build the Apple III, the Google Glass, or the Pontiac Aztec. I am in full agreement with the founder of the Museum that all future innovators, and the operational leadership of companies attempting to sell new and innovative products, should study all of the products in this collection, and any others that they can get their collective hands on…

Because I can almost guarantee you that the next big exhibit in the Museum of Failure will have its initial product launch any time now…

Monday, June 12, 2017

Strategic Failure: Profit

There’s a common Internet meme that has been around for some years now in which includes three step-by-step directions, to wit: 1. Buy Products; 2. Sell Products; 3. Profit! As far as I can tell it started out as a sarcastic comment on people doing things that shouldn’t normally gain a profit, either because one or two of the steps involve criminal/unethical behavior, or because at least one of the steps involves something for which no sane person would pay money. What may not be clear, especially now that the meme has become something of a cliché, is that this faulty strategic approach is responsible for a very large number of business failures every year, especially in the case of online businesses and websites that are intended to make a profit…

With the rapid expansion of online businesses in the late 1990s and early 2000s, a lot of people with brilliant technical and programming skills but limited business experience began creating websites that they believed would be an effective license to print money. I got to work with some of these folks during my time with the Small Business Development Centers program from the SBA, and almost inevitably, the founders of the company had created an amazing product or service, but had never considered how they would get paid for their work. Most net citizens at the time would not pay for content, and selling advertising on the site was difficult unless you could prove that the advertisers would be able to generate actual sales off those specific ads…

Even today, it remains difficult to get people to pay for online content unless it serves some function they can’t get in the real world or just steal off of any of the various pirate sites. Selling advertising is still a possibility, of course, if you have millions of visitors each day, but the presence of sites like YouTube and Facebook make that harder for a small business to achieve, not easier. Most internet advertisers today will only pay on the basis of verifiable “click-throughs” – people who saw their ad on your site and clicked on it – and some won’t even pay for that traffic unless it results in a verifiable sale. This has led to some to some desperate and often far-fetched approaches…

Consider, if you will, any of the Internet businesses that will allow you to use their basic services for free, and then attempt to get you to purchase an upgraded version or add-on features for the free version (or occasionally both) – the so-called “freemium” services. Pandora is probably the best-known example, but I can list dozens of others; one could actually see any of the media sites with a “paywall” arrangement as using the same tactics (e.g. newspapers that will allow you to read 10 articles a month off their online site, after which you have to pay). Some of these have met with limited success, but even something like Pandora, which provides a service to recording artists and music holding companies as well as consumers, has struggled to stay operational, and with the appearance of the App Store it’s increasingly difficult for anyone else to sell software…

My experience is hardly universal, and even the published research isn’t entirely clear on this point, but it has always seemed to me that this particular strategic failure comes about because people immersed in the challenge of building a new product or service aren’t usually thinking about the strategic aspects of the new business that their invention will create. Even within the business community itself, the kind of long-term strategic planning that is one of the staples of the management function is not widely appreciated by our colleagues from other disciplines. After all, why would anyone want to spend their time working on a musty old business plan, articulating the strategy that will make their business a success, when they could be coding, drawing, animating, welding, soldering, polishing or shipping their products? Or, for that matter, tracking sales, balancing the books, paying the vendors, managing the other stakeholders, or investing the proceeds? But unless there is some method by which people will give us money for doing whatever it is we are doing, the whole thing is a hobby, not a business – and it won’t last any longer than our hobby budget does…

Of course, failure to create an adequate business plan is a strategic failure in its own right – but that’s a discussion for another day…

Sunday, June 11, 2017

The Ethics of Profits

I hadn’t intended to follow up on this week’s piece concerning the EpiPen scandal at Mylan because, as usual, I didn’t really think there were two sides to discuss. Anybody who would intentionally charge a 60,900% markup – or even a 600% markup – on a medication that could save someone’s life in an emergency is going beyond simple capitalism into a realm that might get their company (or occasionally their entire industry) placed under government price controls just to keep people from rioting. That is to say, there is no ethical justification for such a policy, according to any standard of which I’m aware. But while it seems obvious that allowing people and organizations to earn some profit is the basis for our entire economic system, the point at which something goes beyond a reasonable profit and into outright exploitation or usury is rather less clear. I thought we should take a closer look…

First off, it should be obvious that in a completely free market it makes no sense to price something at a level that no potential customers can afford, or even at a level that no one would be willing to pay. In fact, pricing strategy to a large extent deals with how many additional purchases we can generate for each increment by which we lower the price; the point at which we can’t increase revenue by lowering the price any further being the price point. If price is the only factor driving the transaction then we probably can allow the “Invisible Hand” professed by Adam Smith and beloved of conservative pundits to sort things out. Unfortunately, conditions in the real world are rarely that simple…

In any situation where the purchase decision is more complex than simply buying the product or not having one additional levels of complexity come into play. One can choose not to pay for a luxury item, but one cannot chose not to pay for food, clothing, shelter, or medical care, just to take the obvious examples. In any situation where different customers have different resources available the situation becomes more complex again, as in cases where some people can afford to purchase food, or pay for medical care, while others in the same society can’t. And when we introduce issues like social stratification, racial discrimination, gender discrimination, transportation, logistics, government regulation, crime, spoilage, and cultural importance of specific goods and services (just to name a few) the entire situation can become baffling complex…

At the same time, we should probably acknowledge that none of the large-scale experiments with command economies, whether partly or fully socialist, appear to have ended up as anything other than complete (and usually repressive) failures. The post-scarcity economies so beloved of utopian philosophers might conceivably be different, but for the moment no such system appears to be technically possible, and thus far in history no system that requires people to sell products or services for what the government says they must (as opposed to what people are willing to pay) appears to have worked. So long as people remain motivated more by personal gain than they are by the greater good, it does not appear than any of these conditions are going to change…

As business people, we know that we would like to make as much profit as possible while at the same time creating the best possible society in which to live and the healthiest world in which to live – not because business people make any claim to being saints or angels (we’re not) but because healthy, prosperous, long-lived customers have more money to spend and more years in which to spend it. And as much as we might like to make a 60,000% profit we don’t want to do so in such a way that we get sued, regulated, mocked by thousands of scruffy bloggers, used as evidence in favor of nationalizing our industry, or that involves having our factory burned to the ground around us. So I have to ask the question:

At what point does our responsibility to our society, our nation or our world supersede our responsibility to our employees, vendors, creditors, customers, and stockholders to earn the highest possible profit on a given transaction?

It’s worth thinking about…

Thursday, June 8, 2017

Consider the odds

If anyone out there is surprised at hearing about new and different examples of airline personnel screwing up by the numbers no one has mentioned it to me. It’s possible that this is the result of all of us getting desensitized to these stories because of how often they come up, or perhaps the increasing deluge of horrible and horrifying news is making all of us jaded. For the record, I don’t believe that the world is actually getting worse; I think it’s far more likely that as the world becomes increasingly interconnected we’re getting more information of all kinds, good and bad. I do consider the most recent story, which is being brought to you by United Airlines (the people behind the Dave Carroll episode!) is particularly inept, but I think it speaks as much to the size of the problem as it does to any specific airline or airport…

If you missed the original story you can pick it up off the Washington Post site. It’s another one of those cases of a United supervisor trying to have their own way instead of thinking, in this case continuing to insist that a musician travelling on a United flight had to check her 17th Century violin despite Federal law that explicitly gives musicians the right to carry their instruments aboard. In this specific case, the musician had informed the airline at the time she booked her ticket that this carry-on arrangement would be necessary, and told the gate agents that she would leave and take a different airline if they wouldn’t let her carry her violin with her. For the supervisor to have continued to insist on checking the instrument at that point is absurd, as well as illegal, but when the supervisor made a sudden lunge and tried to rip the violin case out of the passenger’s hands it crossed the line into a level of stupid that we rarely see even in Airline stories…

Fortunately for the airline their passenger was not permanently injured during the ensuing wrestling match; even more fortunately, she has apparently decided that she has better things to do than suing the airline. Why, exactly, someone in a supervisory position was either unaware of the laws regarding this situation or too pig-headed to obey them (or both) is beyond me, but I think it points up just how complex the customer service function is in this industry. Consider, if you will, that the last time I checked the US airline industry moves somewhere over 2.2 million people a day – on the order of 820 million people per year. That means that even if screw-ups like this one are literally one in a million, there will be a couple of them every day, and over 800 in a year. It also means that the various airlines could get everything perfectly right 819,999,948 time each year and we would still have an atrocity like this one going on somewhere every week on the average. Or, if you like, every company in the industry could get every one of its people certified to Six Sigma standards and there would still be around 2,780 failures per year (about 53 per week), although admittedly not all of them would be this idiotic…

It should come as no surprise to regular readers of this blog (assuming I have readers) that even in the Airline industry, where customer service failures can result in million-dollar fines, billion-dollar lawsuits, and potentially even deaths, customer service is apparently still being regarded as an expensive function that does not generate any income. I don’t know how much longer the industry can go on this way, and I don’t know how many additional companies can go bankrupt before people stop blaming rising fuel prices, uncooperative unions, or fickle customers, and figure out that what is really killing these companies is management incompetence and inadequate customer service…

Or that, at least in this case, those two factors are one and the same…

Wednesday, June 7, 2017

Check Your Assumptions

In any strategic problem, the first step is always to gather as much information as possible. Failing to see something that is going on in front of you can destroy your best efforts before you even recognize the problem, but reacting to something you believe is there that really isn’t can be even worse. On the asset utilization side failing to understand what you have to work with, and the limitations of those assets can be fatal, and on the competition side, it’s not really possible to fight against an opponent you don’t know you have. But the one that can really kill your enterprise is when something that you knew about all along turns out to be something you didn’t realize it was…

All of that might seem obvious, especially if you have read about or studied strategy formulation, or if you have a decent grasp of competitive situations in history, but it continues to amaze me how often people and organizations get beaten by things they didn’t take the time to understand. Consider, if you will, the growing market for electric vehicles and the rise of companies like Tesla Motors that are building products in response. As recently as the turn of the Century, even analysts within the Automotive industry were still dismissing the electric car as a novelty item, or at best, a golf cart with delusions of grandeur. The sort of thing that might sell a few dozen units in environmentalist bastions like California, but would never have any real impact on the international market for combustion-engine vehicles…

Since then, of course, we’ve seen the rise of hybrid vehicles like the Toyota Prius and Honda Insight, the appearance of plug-in hybrids like the long-delayed Chevy Volt and Bolt projects, and the surprising persistence of Tesla itself. One might still forgive the casual observer for failing to realize that the demand for electric vehicles has risen from almost zero to the vicinity of 2.5 million units per year world-wide, but according to the story running this week on the Bloomberg site, that’s exactly what has happened. Increasing demand from China is driving a lot of the increase, but the ability of fully-electric cars to reduce any given country’s carbon emission totals are making this class of vehicle attractive to every country that is still in the Paris Accords (which is all but three of them as of this writing)…

Now, I would be the first to admit that 2.5 million doesn’t sound all that impressive when you consider that in 2016 (the last year for which figures are available) world-wide production of cars exceeded 72 million units according to the OICA – it’s a bit under 3.5%, if you care. But those numbers are still rising, as VW claims to be preparing to launch an entire line of electric vehicles in the US and EU markets, with the goal of selling at least 2 million units per year by 2025, and Mercedes-Benz has already announced its intentions to bring out 10 new electric vehicles by 2022. And there’s no telling what might happen if the Big Three ever start taking this new threat seriously and get their own offerings into the market…

Personally, I do still believe that the folks over at Bloomberg may be a little premature when they declare that the dominance of fuel-burning engines is fading. Until such time as it becomes possible to drive long distances without having to wait for an hour or two every 200 miles while your batteries are recharged, it’s hard to see the American consumers (among others) giving up vehicles that can just be refueled in a few minutes. But I can still remember when GM brought out the EV-1 concept vehicles (essentially a small fleet of prototype electric cars) in 1996, only to see them dismissed with a collective sneer, as a curiosity that would never lead to a viable product, let alone a product class that is already accounting for 2.5 million years and growing…

Check your assumptions constantly, people, because it’s the threat you never recognized that can kill your company before you know to worry about it. In fact, it might save a bit of time if we all just stop making assumptions about strategy…

Tuesday, June 6, 2017

Worse Than You Thought?

There was an interesting article on the New York Times site this week about a company called Mylan, which is probably best known for the scandal that erupted last year over alleged price gouging over the emergency epinephrine injector marketed under the trade name “EpiPen.” Readers who follow such things (assuming I have readers) may recall last summer, when there was a national outcry about this product, which contains less than $1 worth of the drug, but retails for $609 for a box of two. There were various accusations, claims and counter-claims, and the sort of official corporate statements that make people who don’t know any better wonder if command economies are really so bad (spoiler alert: they are). One might reasonably assume that the company would have done something about the situation by now…

Unfortunately, that assumption does not appear to be supported by the observable evidence. According to Times columnist Charles Duhigg, the company is still charging $609 for two name-brand EpiPens, or about $370 for the generic versions. The company insists that it isn’t doing anything wrong, and when challenged on this its CEO pointed out the on-line coupon and discount programs that can bring the consumer’s cost down below $100 per package. All of this appears to be correct, or at least Mr. Duhigg was able to confirm it when he looked up the offers in question. The real question seems to be why this situation is still going on a year after it made national headlines? Did the company restore its prices to the infuriating levels once the public outrage died down? Actually, it’s worse than that…

According to the linked article, the company has never actually lowered the prices on this product, although they have released the generic version and started up the discount and coupon programs over the past year. It’s probably also worth pointing out that despite the preposterous television commercial Mylan ran last year – it’s probably what drew enough attention to push the whole situation into the public consciousness in the first place – the EpiPen was never intended as anything other than an emergency measure to stop a life-threatening allergic reaction after everything else fails. Unless the user is extremely careless – or exceptionally unlucky – the only time they should need to buy a new EpiPen is when their current ones expire. But even considering that this isn’t a purchase anyone should have to make more than once every few years, there’s still the question of why the company hasn’t taken any real effort to lower the price. It turns out that this is also worse than you’d expect…

Put simply, all the company did was issue some ass-covering public relations measures and wait for the outrage to blow over – because that’s all it needed to do. In today’s Internet culture most people will have moved on to another scandal within a few days – which is as much a comment on the number of horrific news stories that come up these days as it is about the attention span of most people with access to multiple media. In such cases it usually helps if the outrage spreads to the shareholders of the company, or at least to the employees, but in this case both groups DID complain to senior management, only to be brushed off as part of the same stalling tactics. It’s unclear how much longer senior management and the Board of Directors a Mylan might have continued with these tactics if Federal regulators hadn’t announced that they were investigating the company for overcharging Medicaid by $1.27 billion for the aforementioned EpiPens…

Now it would appear that a group of pension fund managers, who control large blocks of Mylan stock, are planning to unseat most of the Mylan board for what their press release called “new lows in corporate stewardship.” The Times story also notes that Mylan’s chairman was paid $97 million in 2016, which was more than the salaries of the chief executives at Disney, GE and Wal-Mart combined. I can’t speak for anyone else, but I’d certainly be demanding my money back if I was one of the stockholders. And I hope somebody does, because while this may be a new low in terms of ethics and decency, unless the people who actually own these corporations (generally the stockholders) and the governments that give them money (that’s your government, folks) don’t start paying attention, and demanding better management practices, I’m reasonably sure that there will be something even worse coming along any time now…

Monday, June 5, 2017

Strategic Failures: I Am Not The World

In this space I have often mentioned the common strategic failure commonly called the “I am the World” fallacy; it’s the belief that some people have that everyone in the world likes the same foods, colors, clothing, cars, movies, books, television programs, furniture, vacation activities, appliances, climates, landscaping, sports, drinks, weather, building designs, sports teams, cities, states, nations, or many other things, just because they do. But in recent years I’ve started noticing a related problem that I think might be almost as disastrous, and potentially even more insidious. Until somebody comes up with a better name for it (or tells me that they already did), I’m going to refer to this as the “I am not the World” syndrome…

During my time working with entrepreneurs and some of their more problematic new business concepts I saw this kind of fallacy far more often than simple logic would suggest. To many of these people, the fact that dozens (or thousands) of other firms had attempted to launch the same exact business, possibly even on the same exact site, and ultimately failed, was irrelevant to their own plans and would be casually brushed aside. Obviously, those previous failures had been attempted by people far less clever, hard-working, likable, determined or knowledgeable than themselves, and all of the previous attempts to launch such a venture had only needed their input in order to achieve utter triumph. Well, their own input and a six-figure low-interest loan secured by your tax dollars, that is…

The odd part of this concept is that if you look around you there are examples all though our modern world. I don’t mean the people who believe that they can get a million-dollar job right out of college with a B.A. in English, or even the students who seem to believe that they can write a term paper at 4:00 AM for a deadline of 8:30 AM the same day and still receive an A for the assignment. Both of those behaviors are traditionally, really, and can ultimately be solved without more than a somewhat regrettable loss of time or money. The really bad examples are things like people who ignore all of the evidence about texting while driving (or drinking and driving, for that matter) and wind up causing inexcusable harm to others, as well as themselves, because obviously THEY can do these things safely. Evidence to the contrary doesn’t apply to them; only to people who are somehow less special…

Now, I would be the last person to tell anyone that they can’t change the rules of the game, find a different path, or try a more oblique approach to a traditional problem – but then, that’s kind of the point. I’m not saying that all of the previous attempts are irrelevant, nor would I advocate dismissing anyone else’s difficulties or failures. On the contrary, I began studying ineffective strategies and analyzing failed companies precisely because I believe that the best way to avoid making mistakes is to avoid the ones other people have already made. By the same token, I’m not going to tell anyone that their new service, product or strategy will not work just because similar ventures have failed, but I will ask them to explain why they believe their approach is superior – and if their reply comes out to “Because it’s ME!” I’m going to assume that they are suffering from the aforementioned strategic fallacy…

It’s a widely-known, often repeated statistic that nine out of every ten entrepreneurial projects fails – and it’s also true that nearly all successful entrepreneurs have had multiple failures for every project that succeeds. The fact is, creating a new company, let alone a new industry, starting with only a good idea and a lot of hard work really is extremely hard, and even the people who are exceptionally good at it will fail nine times for every time they succeed. The last thing anybody can afford to do is ignore all of the examples of the people who have already tried something and failed. Because if they do, they’re probably going to end up the same way…

Saturday, June 3, 2017

Yet Another Bad Choice

Several times over the past few years I’ve written in this space about the frequently baffling marketing programs attempted by the Burger King Corporation, and the backlash from both the consumers and their own franchise holders as a result of these occasional crimes against good taste. The “Freaky King” ads alone would be enough to make me want to fire my ad agency, but after episodes like the marginally obscene print ads for their foot-long burger and internal management fiascos like demanding that their franchisees sell products for below cost in order to align with national advertising campaigns, I have begun to question why the people running this company haven’t been committed for their own safety. And then I learned that the company had decided to open their newest overseas operation by insulting the royal family of the country they are just about to launch in…

According to an article on the BBC News site, Burger King is about to start operating in Belgium, and have been running an online ad that asks people to choose between a picture of the “Freaky King” mascot character and a picture of King Philippe, the actual monarch of that country, under the heading of “Who is the King?” Apparently, if you select the picture of the actual King, you get a pop-up message asking if you’re sure about that, considering that he’s not the one who will be cooking your fries. A spokesman for the Royal Family has issued a statement saying that they do not approve of this tactic, and would not have given permission for Burger King to make use of the King’s image if anyone had actually asked them…

I’m not familiar with Belgian popular culture, so I can’t tell you what level of offense this ad campaign with rise to with the people being subjected to it. There are places in the world where the royal family would simply ignore this kind of thing, and consider it nothing more than part of being a public figure in an increasingly vulgar world. There are other countries where this sort of campaign would result in the company being sued, banished from the kingdom, or just having all of their local assets confiscated and all of its local management team jailed. And there are other places in the world where this sort of thing might result in outraged subjects boycotting the company, marching in protest, setting fire to their in-country locations, or burning local managers in effigy (or possibly in person)…

What isn’t clear to me is why any company would take such an approach in the first place. In any nation where their actual king is a beloved figure this will be taken as a cultural insult, and in any place where there is a totalitarian government this would be considered an actual incitement to insurrection in the streets (which it actually might be). But regardless of the population’s actual relationship with their monarchy, it’s hard for me to imagine any circumstances under which this type of advertising would be considered a sly in-joke as opposed to yet another tone-deaf attempt by a particularly ugly American company to appropriate some part of the local culture in order to sell food products that are potential health risks…

I’ve read the same things you have about there being no such thing as bad publicity, and to some degree that might be true, but given the worsening relations between the US and Europe during the past few months, and the past week in particular, it just doesn’t seem like the best time to be going around calling attention to American arrogance and tone-deafness. Not that there is ever a really good time to do that, of course…