Drive-by Groceries

A few weeks ago I decided to try out one of the curbside pickup services offered by our local supermarkets. I’ve avoided them for several years now, partly because I prefer surveying the products on offer before making my selections, and partly because there are some things I want to check for myself – expiration dates, freshness and lack of mold, amount of fat and/or gristle, and so on. I trust the company not to try to pass off expired goods on me, if only because of the massive legal and regulatory problems that would cause them, but the difference between something that expires on Thursday and something that is good until the following Monday can be important in my household, especially when you only go shopping once a week. Recently, though, there have been offsetting considerations…

 Unless you’ve been living on another planet since January of 2020 you already know about the world-wide health crisis that makes going out in public a risky proposition, but there are other issues worth the mention here. For example, I already didn’t like people who insist on standing close enough to you in a checkout line that you can tell what they had for lunch; these days, though, that’s practically germ warfare. I also hate people who insist on arguing with the cashier about every price, why the store should accept coupons for things they aren’t actually buying, or why corporate has chosen to impose any one of hundreds of policies. And don’t get me started on people who insist on trying every credit card they own – three times each – before reluctantly admitting that they may not have paid their bills in a while…

And who’s even mentioned people who won’t wear a mask, or who insist on explaining at length why they have the legal, moral, political, or religious right to infect anyone they want to yet?

I’m not going to specify which vendor I was using, any unless you are from this part of the country you probably haven’t heard of it anyway, but like most supermarket chains these days they have their own smartphone app and a website where you can pick out the items you want to purchase. First, the good news: setting up an account isn’t difficult, and the website isn’t hard to navigate. It can take a very long time scrolling through lists of products to find the exact size and flavor you want, and the “search” function isn’t as much help as you’d probably expect, but setting up the order isn’t hard.

 Finding the pick-up location was a bit of a challenge the first time. There are eight parking spaces on one side of the lot with a phone number to call when you arrive, but the parking lot is big enough to land a 747 on, and there’s no indication of where the pick-up spaces are. You also have to plan out the trip in advance – there is a lead time before they can get your order ready, and only so many pick-up times in any given day – but I expected all of that. A much bigger issue, at least for me, was the stock-outs…

The website has a number of products on it with an “out of stock” notation on them, but this does not appear to be tied into the individual store’s Inventory Control system, because almost a quarter of the items on my list were out of stock when I arrived, and the crew member processing the order offered me substitute products instead. Some of these were acceptable (I really don’t care what shape my French fries are in) but others weren’t (my wife will not go near anything cherry-flavored except actual cherries), and there were a number of items for which no practical substitute exists. And there was at least one case where I didn’t want the substitute product, but ended up getting it mixed in with my order (and having to pay for it) anyway…

Now, I’m not saying that going inside the store would have helped with any of these issues, particularly the stock-outs. There were a few items in my order that I haven’t seen on the shelf in weeks now, but I selected them anyway, since they weren’t marked at “out of stock” on the website, and it was always possible that they had some in the stockroom that hadn’t been put out yet. And there are some health and hygiene products I’m not going to trust someone to pick out for me anyway. But while I don’t believe the curbside service will ever completely replace going into the store and looking for things I might need, I can’t deny that there is a definite utility to not having to deal with quite so many stupid, annoying, entitled, or diseased people when I go to the store every week…

Is It Worth the Cost?

I haven’t been in the market for a new car for some time now, and as a result I was only vaguely aware of Ford repositioning its product line. I don’t recall seeing ads for the Fusion or Taurus sedans for some time now, and it has been a while since the company has allocated any marketing resources for the Fiesta or Focus lines, at least on any channel where I would have seen them. It’s not as if this is a particularly radical action anyway; every large company that makes consumer products has to reposition at least some of its products from time to time as customer preferences change and the economy fluctuates. But apparently these most recent moves are raising the prospect of reduced sales going forward…

You can pick up the article from the Automotive News site if you want to, but what they’re talking about is a survey that indicates that at least some percentage of Ford owners will purchase their next vehicle from another company if their preferred model of sedan isn’t available. The findings aren’t conclusive – the sample size isn’t big enough, for one thing – but it suggests that the company’s plan to replace sedan models with SUVs and crossovers offered at a similar sticker price may have failed to take into account the fact that some people don’t like SUV body types, or that some people are more loyal to the kind of car they want to drive than they are to the brand identity…

What is really odd about these findings is that they are almost directly contradicted by trends in purchasing decisions in recent years. Whether SUV types really have higher profit margins than sedans or not depends on whom you ask, but the market has definitely been trending toward them for some time now, and it’s hardly surprising that Ford would try to produce more products in the categories in which they sell the most units. From a strategic viewpoint, the real question is whether Ford can achieve enough additional sales – or, failing that, secure enough additional revenue – through this change in their product mix to make up for whatever they lose by discontinuing the sedan models…

Now, I don’t mean to imply that this kind of forecasting is easy, or that the consumer preference analysis that drives it is something that anyone can just throw together on the spot. One could argue that eliminating products with lower purchase prices and higher gas mileage (e.g. lower operational costs) might be viewed negatively by people in some market segments; one could also argue that if you alienate buyers at the entry levels of your product line you have dramatically reduced the possibility that they will ever graduate to the more lucrative levels. On the other hand, there may also be savings that can be realized by producing a smaller number of models, requiring a more limited variety of parts, which are not obvious from the published information. At least, that seems to be the way Ford is placing its bets…

I’m going to try to keep an eye on this one as the next few model years hit the market. It’s possible that the Forward Planning team at the Ford Motor Company knows more about the way their market is developing than the folks at Automotive News (or various scruffy bloggers) do. But it’s important to remember that they’ve been wrong before, too…

Another Try for an Old Idea

I can’t exactly say that I was disappointed when I saw a news item about a “flying car” on one of the news aggregation sites. Flying cars have become a meme over the last decade or so, and there will be at least one mention of something that might be one, or a snarky reference to some flashy (but ultimately pointless) piece of technology that ends with the question “Where’s my flying car?” in the news each month. Most of these turn out to be vague rumors about something that might happen in ten or fifteen years if a currently unproven technology turns out to have legs, or something that has already failed to catch on multiple times before. Although this week’s story may ultimately turn out to be both…

We should probably note that flying cars, or “roadable” airplanes, have been around for at least seventy years at this point, and if you actually care I could show you both contemporary accounts and advertising pieces about models actually offered for sale at various points. Most of these projects ultimately fail, either because the vehicle in question is too expensive to afford, because it is too hard to operate, or because it is too hard to get permission to operate from the applicable Federal, state, or local laws. A flying car that you can’t use without first obtaining a (very expensive) private pilot’s license, or that you can’t fly from where you live or to anywhere that you’d want to go, isn’t going to be much of a draw as a consumer product…

In this particular case, the new entry into the field isn’t a new technology or even a new concept. Fans of James Bond movies are already familiar with it, and so is anyone who has ever studied the history of experimental aircraft in or out of the movies. The PAL-V Liberty, made by a Dutch company of the same name, is actually a gyroplane, or auto gyro. If you’re not familiar with the term, imagine a small propeller-driven airplane with an unpowered rotor instead of a conventional airfoil. It can take off and land on much shorter airstrips than a conventional airplane, and a skilled pilot can actually land one like a helicopter, although the leadership at PAL-V describes it as being more like landing a parachute or paraglider…

Now, I’m not saying that the Liberty and similar craft don’t have potential, because they absolutely do. The gyroplane was a competing technology to both fixed-wing aircraft and helicopters in the early 20^th Century, and its lack of acceptance had more to do with lower top speeds and problems with its public image than with its safety or V/STOL capabilities. Advocates of the type claim, with some justification, that it is safer to operate than comparable fixed-wing aircraft, and more efficient than comparable helicopters. But anyone who wants to keep one in the garage and just fly to work is going to be disappointed to learn that gyroplanes and their pilots are regulated, certified and licensed by the FAA just like any other light airplane…

The unfortunate fact is that flying cars, or at least the kind that anybody can get into and fly around any time or place they like, are a terrible idea. The next time you’re out on the road and you see someone driving like an idiot (and you will) imagine them travelling two or three times faster and crashing into the side of somebody’s house if they take their eyes off of what they are doing – and who’s even mentioned flying while texting or flying while under the influence yet?

I’m glad to see the humble gyroplane getting a new lease on life, and I’ll be looking forward to seeing more of them in use over the next few years, at least if PAL-V is as successful as they’re hoping to be. But anybody who is looking for the mythical flying car had best keep on walking…

Born to Fail

It must have been twenty years since I last heard about the short-lived Coke product called Tab Clear, and probably longer since I’ve seen any. Most people knew of the product, if they became aware of it at all, as one of the wave of clear beverage products that appeared, briefly, in the early 1990s, along with Zima, Crystal Pepsi, and a number of others. What was not widely recognized at the time, but has since been confirmed, was that the Coca-Cola Company had never intended for Tab Clear to become a viable brand, and had accordingly spent almost no funds to test, launch, advertise or promote the new line extension. On the contrary; Coke wanted Tab Clear to fail spectacularly enough to take a competitor’s product with it…

I found the story on the Mental Floss site last week, and it immediately took me back to my first time in graduate school, when one of my MBA classes discussed what was then known about the product and the category. Pepsi had been the first company to try to take over the clear cola market, or create it if there wasn’t one, with Crystal Pepsi. The development and launch of the product had been a major expense for the company, but Pepsi was expecting to appropriate enough market share from various Coke products to recover the cost and then gain on the competition in overall sales. Coke might decide to create their own clear cola, or even reverse-engineer Crystal Pepsi and knock off their own version, but either way Pepsi would gain the coveted “first mover” position in the “clear cola” segment – if there was going to be one…

Instead, what the Coca-Cola people actually did was create a clear version of their legacy Tab cola. With the rise of Diet Pepsi over the previous decade, the Tab brand had become increasingly redundant, and any risk the company might incur from changing its formulation (e.g. alienating any remaining Tab customers) was less significant than the threat of losing share to Crystal Pepsi. What made the move so interesting was that Crystal Pepsi wasn’t a diet beverage, but since Tab was, consumers became confused and started expecting both products to be low-calorie. I have no evidence to suggest that Coca-Cola intentionally made Tab Clear taste bad (and neither do the people at Mental Floss, apparently), but they knew it couldn’t stand up to a full-sugar cola on taste alone – and with the products becoming conflated in the public’s imagination, anyone who was appalled by Tab Clear would also assume that Crystal Pepsi tasted terrible…

None of this was apparent in 1992-1993, of course, but even then people tended to place orders for “any generic diet cola” by just saying “Diet Coke.” Over the years since it has become increasingly clear that except for unusually brand loyal consumers the two products are, if not exactly interchangeable, then at least acceptable substitutes for each other, but the Coca-Cola people seem to have picked up on this phenomenon before anyone else did. I would suggest that the company’s experience with the New Coke debacle in 1985 may have given them some insights about the difference between perception and actual flavor, given that some of the most vocal opponents of the “new” formula were unable to distinguish it from the original Coke in repeated blind taste tests…

In the event, the strategy worked perfectly. People who had never tried either beverage became convinced that all clear cola products were terrible, and attempts to debunk these (baseless) opinions were no more effective than the ones regarding New Coke had been. Pepsi was never able to develop a large enough market for Crystal Pepsi, and they ended up withdrawing the product two years later without recovering most of the development costs. I’m not aware of any exact parallel cases in history, but I call the Tab Clear story to your attention anyway because it demonstrates two of the principles I try to teach my own students. First, always assume that your competition, whoever and whatever they may be, are as smart and as capable as you are – and that they will be watching you just as closely as you are watching them. And second, remember that no matter how bad the strategic picture seems to be, things can always get worse…

Something's Fishy

I probably shouldn’t have found the story out of New York regarding a seafood company’s claims of using “local” fish failing to pass the “sniff test” as amusing as I did. After all, mislabeling any food product is a crime, and misrepresenting the source of seafood products is a Federal offense. That doesn’t even consider the fact that telling people you purchase your fish from “traditional fishing communities” in their area, when you actually outsource the fishing to providers on the other side of the world, is considered fraud in most jurisdictions in the United States. It’s just that in this case, in addition to the usual schadenfreude of someone using purple prose to describe something they don’t (and can’t) actually supply, there’s something funny about a company insisting that they have “locally” sourced species of fish that are not found within 3,000 miles of where you live…

You can pick up the New York Post story if you’d like to see more of the company’s rather florid marketing language, but the basic idea is that a company calling itself “Sea to Table” has been claiming to have caught fish that are native to the Central Pacific and Indian Oceans in Long Island Sound, to have harvested Red Abalone (which have been a protected species for decades now) on the wrong coast of North America, and to have just had boats arrive with a new catch when satellite imagery demonstrates that they didn’t have anybody at sea that day. To me the question isn’t even whether the “farm to table” movement has finally jumped the shark (so to speak) as how it took them this long to get caught…

Now, I want to emphasize that this story isn’t about an atrocity; no one is claiming that the company sold anything that was past its sell-by date or otherwise unsafe to eat. I’m also not saying that there is anything with importing fish from where the species your customers want to purchase actually live, or that there is anything wrong with farm-raised shellfish or crustaceans. I do believe that basing your business model on the concept of offering a higher-quality product than you can actually provide is not a particularly smart or ethical idea, and doing so in flowery language playing up what good and responsible people you are is just asking for trouble…

I’m also not willing to state that anyone who cooks, processes, or re-sells seafood should also be required to hold credentials as an ichthyologist; if I’m paying someone to make my dinner I’m really more concerned with the dish tasting good (and being safe to eat, of course) than I am in knowing the exact species names of the fishes involved. And frankly, I think blaming the company for the working conditions and pay scales of the companies from whom they have been buying the outsourced fish, as the Post article also does, isn’t really fair. A small company operating in Brooklyn does not have the resources of a firm like Nike or Apple, and can’t very well travel the world assuring that both the fish and the fishermen involved with their products are being ethically treated. Although, again, it would probably be better not to brag about how much you love and respect fishing communities and fishermen, just in case…

The Ethics of Gun Sales

Here’s another hypothetical for you: Suppose for a moment that you own a retail business, and the child of one of your customers uses something that his/her parent purchased from you to commit a heinous crime. Let us also suppose that the product you sold in entirely legal in your city, county, and state, that ownership of such articles is (debatably) protected by Federal law, and that you have complied with or exceeded the requirements of every law and ordinance that regulates these purchases and your class of business. Let us further suppose that your customer took all measures required by law and all of the measures that a reasonably prudent person would take to secure the article he/she purchased from you, and that their child defeated those measures and precautions in order to get access to the article. What degree of responsibility do you still have for the resulting heinous crime?

Before you answer that, consider what your opinion would be if you owned the company that had manufactured the article used in the aforementioned heinous crime. Suppose that your product was legal to produce in the United States, that you were in full compliance with all state and Federal laws regarding the production, distribution, and sale of your products, and that the heinous crime in question was committed by a person unknown to you in a location hundreds or thousands of miles from any facility that you own. What degree of responsibility would you and/or your company have for the heinous crime mentioned above?

As you’ve probably guessed, there is such a case currently before the courts following the Santa Fe Texas School shooting, as the families of some of the victims have brought suit against the gun store that sold the guns used in the shootings, and the companies that manufactured them. People who identify as pro-gun and/or libertarian are calling these actions absurd, and are comparing them to the lawsuits filed against food companies for making the plaintiffs obese. People who identify as in favor of gun control and/or victim’s rights have responded by saying that if you’re going to manufacture and/or sell devices that make it remarkably easy for a single deranged individual to injure or kill a great many other people in a short period of time, you’re going to have to expect to be held responsible when exactly that happens…

As an amateur historian I actually do have some knowledge of both the inclusion of the Second Amendment in the Bill of Rights and the ways it has been interpreted in modern times, but I’m not going to offer opinions about Constitutional Law without a license. The legal exposure (or lack of it) that these companies might have in this case is up to the court system, not scruffy business bloggers. For now let’s stick to the issue at hand: what ethical responsibility do the people who make and sell guns have for atrocities committed by their customers?

On the one hand, one could argue that any customer could conceivably use any tangible object to commit a crime, regardless of whether or not that object is normally considered to be a weapon. Nothing else appearing, a customer could use the objects you have sold them to stab, bludgeon, or smother their victim, and the number of things that can be used to poison an adult human being are appalling once you start to enumerate them. On the other hand, guns generally have no practical function other than launching small quantities of lead into targets at extremely high velocities. Guns do not, in fact, kill people. They do, however, make it far too easy for people who have one to kill other people. And while there are some people who do have a legitimate need for a gun, decades of historical data covering millions of incidents very clearly establishes that the odds of being killed in a gun mishap (or a gun-related suicide) are several hundred times more likely than the odds of defending one’s self or one’s family with a personal weapon…

All of which brings me to the question: Do we, as business people, have an ethical responsibility to prevent customers from purchasing consumer products that could be used to injure or kill another person, either by them or by someone who has stolen the products? Alternately, do we have the right to tell anyone what kinds of products they should or should not be allowed to purchase, let alone prevent them from doing so by refusing to make and/or sell those products? Even granting that the current gun laws in this country are clearly not sufficient to prevent multiple school shootings every month in America, do we want to have private citizens deciding which Constitutional rights their neighbors should or should not be allowed to exercise? Or should we just make products that people want to buy, offer them for sale at competitive prices, comply with all Federal, state and local laws, and let the people decide for themselves?

It’s worth thinking about…

That’s Nuts!

These are some days when I spend hours combing through news aggregation sites and actual news channels, looking for interesting and/or funny stories within a business context to write about in this space. Sometimes there will be something I want to share from my oddball life experiences, lessons I’ve learned or taught in business school, or ethical musings that are as close as an old cynic like me ever gets (or should ever get) to discussing philosophy. Sometimes there are days of quiet desperation, when neither the online news sources or my over-active imagination yield anything, and I wind up just writing insulting jokes about people I don’t like and calling it a day. And then there are days when the first headline I run across says “Fake dog testicles made this man a millionaire…”

I wrote a post about this product – known commercially as “Neuticles” – early on in the blog, but if you missed it, the idea is that some pet owners want to have their dog neutered, but don’t want the animal to look or feel any different afterwards. As is often the case with off-beat entrepreneurial projects, the company was started by a man who wanted to purchase such a product but was unable to do so because no such implants existed. Reasoning that if he wanted the product, others might also, he joined forces with a veterinarian and a group of investors and started a company which has now sold over 500,000 pairs of Neuticles at an average of $310 per pair – which works out to $155 million USD in gross sales…

You can pick up the CNN story here if you want to; alternately, you might want to look into purchasing Gregg Miller’s own book on the subject if you can find a copy – the volume, called “Going… Going… Nuts!” sadly appears to be out of print at the moment. Despite its rather unusual product and the problems inherent with making and marketing cosmetic implants for dogs (and other animals), the company itself is really the classic American entrepreneurship story of finding an empty niche and filling it. Founder Gregg Miller’s life story is a bit more eccentric, as one might expect from the inventor of cosmetic testicular implants for dogs, but in both cases I felt there was a story worth repeating here…

When I first read about Neuticles and wrote my original post on the subject I was treating it with a vaguely satirical air; the sort of (hopefully) gentle mockery that one might suggest befits anyone who would spend money on cosmetic surgery and implants for an animal that can and does eat its own droppings. That was wrong of me, and if Mr. Miller is reading this post I most sincerely apologize for any disrespect or implied criticism. The greater truth behind this story is that however bizarre I might have found his invention to be, Mr. Miller was clearly quite correct in his assessment of its commercial potential, and I should not have been critical of it without any marketing data whatsoever…

The belief that just because I find a product to be outlandish that everyone else will also have that reaction is the management error I have often presented in these posts as the “I am the World” fallacy, and I’m not sure I have ever seen a more extreme example of it. I am, after all, a management instructor and business consultant of some experience, and the product in question is bizarre enough that even CNN is treating this as a weird or amusing piece of news. Apparently it bears repeating that one should never reason ahead of one’s data, and also that while it’s true that 90% of all entrepreneurial start-ups will ultimately fail, that does mean that one out of every ten will succeed…

Even if its business concept STILL seems too outlandish for words…

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…

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…

Sweet

Some years ago in this space I brought you the story about Coca-Cola selling bottles made entirely out of ice on beaches in South America. At the time, I noted that the whole idea was a stunt, and not a very well-chosen one, either. While it is certainly interesting and memorable to have a product package that just melts when you are done with it, the actual ice bottles were problematic both because ice does not make a good, contaminant-free package, and because it’s much too expensive to keep your entire supply of product refrigerated at all times. Even worse, though, was the fact that in many of the countries where they tried this stunt, clean drinking water is hard to come by…

To be fair, the ice bottles were never really intended as anything more than a publicity stunt, and once it was pointed out the company that this was actually much worse for the environment than relatively clean and easily-recyclable glass would be, they abandoned the idea. But this week there’s word of a new type of Coke packaging that looks to be quite a different matter. If the story available off the Fortune website is correct, the new bottles are made from plastic derived from sugar cane…

I’m not enough of a chemist to understand (let alone explain) how you can make plastic out of plant matter, but the business implications of this article are staggering. Coke started experimenting with plant-based plastics back in 2009, and initially released a bottle that was 30% plant-based plastic later that year, but the new version does not use petroleum plastics at all, and the company claims that just over the last six years they have already saved the equivalent of over 36 million gallons of gasoline – and even more importantly, kept 315,000 metric tons of carbon dioxide out of the atmosphere…

It’s not clear from the article, or from the original source on CNN Money’s web page, how well the new packaging will hold up for other kinds of products, or if the process will be commercially viable for companies smaller than Coke. The company is apparently being a bit cagey about the process, but CNN reports that they are using sugar cane from Brazil and waste products left over from sugar cane refining operations in India to make the new plant-based plastic. This may require a global logistics base beyond the reach of some organizations, but any chemical company that can develop a similar process shouldn’t have any problem finding a wealth of customers who will want to order packaging in the new plastics. Assuming, of course, that the new material is actually as economical as Coca-Cola is claiming it is…

Now, one could reasonably ask why companies wouldn’t want to use a more environmentally friendly packaging material, even if it was slightly more expensive than conventional plastic. Surely the knowledge that you are helping to save the planet – and the positive public relations you can realize by doing so – would be worth the smaller profit margin. Unfortunately, this isn’t always the case, especially in industries that do not feature a large profit margin in the first place. When we consider this development from a business standpoint, it is important to remember that not only does Coke already have a massive international infrastructure to make the operation less complicated, and vast amounts of capital (and income) available to cover the expenses, they also have one of the highest profit margins in the world – two or three cents worth of water, sugar and flavoring that one can sell for $1 at McDonald's and $5 at a football game…

I don’t know if this is a game-changer, or something that will flame out and disappear as quickly as the ice bottles did. But if plant-based plastics turn out to be viable in both a financial and a manufacturing sense, then things are about to get interesting – and we’d all probably be well advised to start paying more attention to agribusiness…

The Private Sector Catches Up

Some years ago I wrote in this space about what I felt was the ultimate in Public Sector funding nonsense: an art project, funded by the Canada Council for the Arts (the Canadian equivalent of our National Endowment for the Arts), in which a performance artist received a $55,000 grant for explaining his plans to build a giant inflatable yellow banana and place it in orbit of the Earth, but not actually doing anything. According to the story, upon receiving the grant the artist realized that it would actually take at least ten times more funding to actually complete the project, and elected not to proceed until he was able to raise the additional funds. But, due to the nature of the grant program, he was not required to pay back any of the money; hence my contention that he had received five figures worth of money to do absolutely nothing…

At the time I acknowledge that there have always been private sector fiascos that were just as bad, but in terms of sheer flamboyant lunacy, it’s hard to beat paying someone to create an orbital banana that never happens. This, however, was before the era of crowdfunding, and specifically sites like Kickstarter that allow people to solicit all manner of art projects, public performances and product developments that they have no intention of actually doing. Including, apparently, a company that raised over $1 million USD for the creating of a watch that they will never actually make…

You can pick up the original story off of the New York Observer website, but if you’d rather not wade through it what they’re talking about is a company called Central Standard Time, which issued a Kickstarter project requesting $200,000 in January of 2013. It was to be the thinnest wristwatch ever built, and even though it wasn’t a smartwatch product, the Internet when crazy over the idea, eventually raising over $1 million USD for the project. At the time, the company claimed that they had already designed, prototyped and tested the product, and were ready to begin production, needing just the upfront money to start everything in motion. But as things turned out, the product wasn’t ready, there was no production contract in the works, and the watches turned out to cost about three times what the company originally projected…

Originally, the company had promised to ship its first production run in about three months; this lengthened to six months, then to twelve, and then they stopped announcing dates altogether. Finally, over two years after they were supposed to have product in stores (and rewards to the participants of the Kickstarter) the company announced that they were out of funds and would not be able to continue with the production. Normally this would mean that they had to return the money to their backers, but since the company has never actually declared an end to the project – as of this writing they are still “investigating alternatives” – legal action against them isn’t yet possible. Even if you wanted to sue them, there would still be some question of whether the company has anything you could use to recover your funds…

Now, we should probably note that the majority of crowd-funding sources are entirely legitimate, and a surprising number of them have ended up creating wildly successful products and services. Writing on the Forbes site, Goncalo de Vasconcelos notes that crowdfunded companies start out with a large base of potentially fanatical customers (the people who liked the product or concept enough to bankroll the project in the first place) who will often promote the product or service to everyone they know. Whether or not this makes such projects superior to the ones generated by professional venture capital firms is debatable (de Vasconcelos makes his own argument in the article), but it’s hard to deny that the concept can be extremely powerful when it works. Unfortunately, it can be difficult to tell the difference between a can’t-miss project and an embarrassing boondoggle even for the professionals, let alone for a crowd of Internet supporters – and that doesn’t even consider the possibility of outright malfeasance…

For the record, I have no reason to believe that anyone associated with the Central Standard Time company or its Kickstarter project are anything other than well-meaning, naïve and possibly credulous entrepreneurs. I think we can safely assume, however, that there are crowdfunding projects out there in cyberspace that are being run for nefarious purposes – and if there weren’t any before, there almost certainly are now. From where I’m sitting it looks like the private sector has caught up with our beloved Orbital Banana and is currently breaking away…

Predators on Parade

Over the years I have written in this space a number of times on the subject of predatory lending, and the occasional feedback I’ve gotten about it usually ranges from confused to skeptical. People in general are reluctant to believe that a financial company would simply ignore state and Federal banking laws in order to offer loans with unscrupulous terms to the desperate; people in the Internet age find it hard to believe that anyone would accept a loan at four or eight (or 20) times credit card interest when they could almost certainly obtain something better online. Unfortunately, neither of these beliefs is necessarily true – as an article on the Detroit Free Press website last week makes all too clear…

According to the story by Susan Tompor, Michigan’s Attorney General has just announced a settlement following legal action against two out-of-state lenders who had been offering short-term loans at rates ranging from 89% to 169% interest, or between 12 and 24 times the State limit for unlicensed lenders of 7%. The story notes that under such a loan a consumer who borrowed $1,000 for a two year period would end up paying over four times what they borrowed. Even worse, however, was a much shorter (six-month) loan program with an effective APR of over 350% - effectively, paying $1.75 for each dollar you borrowed in addition to repaying the full amount…

It’s not always clear why people agree to loan terms like these. In some cases it really is desperation – the need to pay off some expense that can’t be financed any other way, and for which default (or foreclosure) isn’t an option. In other cases it’s a matter of speculation – the belief that the customer can take the money, buy something, sell it quickly for more money, and pay back the original loan before the interest has a chance to add up. You will see this kind of thing happen any time there’s an investment bubble in play – we saw it in 2005-2008 in the Real Estate Bubble, around the turn of the Century with the Dot-Com Crash, even during the Beany Baby craze in the late 1990s. But the sad truth is that many of these loans result from the fact that most people don’t really understand how finance actually works…

Now, we should probably acknowledge that loans of this type do represent a large risk for the lender. Generally unsecured by anything, and frequently take out by people who lack either the assets or the income that would make it worth taking them to court, a disproportionately large number of these loans will end up in default, and the company will never recover any of the money. Consequently, the interest rate on these loans has to be high enough to make up for the increased risk, or no one would ever offer them in the first place. Unfortunately, that’s also where and why the whole topic moves into the grey area…

If the state imposes a hard limit on the interest that can be charged for unsecured loans (in Michigan that limit is currently 7%) then there is also a hard limit on how risky the individual loans can be. If the lender can only make 7% on its money, and more than 7% of its funds are never repaid at all, it will quickly go out of business. Such a policy will prevent people from being charged 169% interest on a loan, but it will also keep someone with an 8% chance of defaulting from getting a loan. Predatory lending appears in the first place because there are people with a (real or perceived) desperate need for funds who can’t qualify for an ordinary loan – and as long as that need exists, there will always be unscrupulous companies who will be willing to risk state and Federal sanctions to make a fast buck…

Unless we can manage to educate the public about how finance works, or at least about how consumer loans do, this situation is probably going to continue. Alternately, I suppose, we could try teaching people about saving money, living on a budget, and not blowing money on get-rich-quick schemes or inappropriate purchases. In either case, however, I would not recommend holding your breath…

That’s Not an Egg!

Some time ago in this space I speculated that Apple needed to come up with the next Big Thing in personal electronic devices, and noted that while the iPhone has been the mainstay of their business model for several years, there is a limit to how far they can develop the smart phone using the current technology. They needed to come up with a new product that would renew the company’s previous reputation for innovation and cutting edge technology, and I really doubted that the new Apple Watch was going to be that new product. Although, to be fair, I also noted that I didn’t have any better ideas, and pointed out that I could be wrong about the watch…

Now, I don’t suppose it will come as much of a shock to anyone that the product development people at Apple know their customers better than I do; that is their job, after all. I’ve been using Apple equipment ever since my family got its first home computer (an Apple II+) in 1981, but I’m still not one of the fanatic Apple fans who will buy whatever the company produces and then tell everyone in the world that this is the greatest thing ever (even if they don’t know exactly what it does). I own an iPhone, for example, but I’m writing this post on a Windows machine. Based on the news reports we’ve been seeing lately, however, I’m pretty sure that no one in the Apple-using community, or even anyone from the company itself, was expecting that nearly one million people would purchase the Apple Watch during the first six hours of the pre-order period…

You can pick up the original story from the Washington Post website if you don’t believe me, and I can certainly understand why you wouldn’t. The Post is estimating that 957,000 people placed orders, and that at least some of them placed multiple orders, with an average of 1.3 units per order and an average sale amount in excess of $500. Customers who ordered any of the more expensive Apple Watch types went even higher, with an average sale price of over $700. If these numbers are accurate, the gross sales amount on this new product exceeded $481 million in just the first six hours they were available for pre-order…

Now, I still have my doubts about the long-term prospects of the Apple Watch. For one thing, it seems that fewer and fewer people are even wearing watches these days – a lot of my students tell me that when you carry a device around with you that has a time and date function on it, a separate device that just tells you the time seems redundant. There’s also the fact that you need to sync up the Watch to some other Apple device (usually an iPhone) to use most of its functionality, and the fact that most of those functions are already present on the iPhone itself. But what this argument does not consider is what else the development teams may have learned during the process…

One of the most important factors in any R&D project is what you learn by doing it, and while this often gets overlooked when we talk about product development research, all of the same points apply. Sure, the circular hotdog never made it into production because it was the dumbest-looking thing anybody had ever seen, but the company that invented it has been making money on products that make use of the same meat-extrusion technology for at least the last 30 years. Apple’s first attempt at a small electronic device (the ill-fated “Newton” personal digital assistant) cratered hard, but the experience in building compact electronic circuit boards, power systems, displays and housings paid off when it came time to build the first iPod, and then again with the iPhone. And even if the company’s first attempt at wearable computer technology had failed, there’s no telling what they might have learned in the process…

That doesn’t look like it’s going to be a problem in this case (957,000 orders in the first 6 hours?), but I think it’s worth pointing out to anyone else who might be considering public statements questioning the development of the Apple Watch…

Best. Billboard. Ever.

Over the years there have been any number of stories, television skits, scenes from movies and so on about advertising media that would be truly interactive with the target market – print ads or electronic media that would carry the smell or texture of food products, ads through which you could touch or feel the product, and so on. There have been a number of attempts to produce such things in real life, although they have largely been on the primitive side – scented inserts in magazines selling fragrances, for example, or billboards promoting bakery companies that emit the smell of freshly-made cinnamon rolls. But the ultimate version of this concept would be an ad in which the target customer could actually sample the product – taste it, ingest it, or the equivalent. The infamous “television chocolate” from Charlie and the Chocolate Factory is one familiar example – a television commercial where it is possible for the viewer to reach into the screen and pull out an (edible) bar of chocolate…

Needless to say, in real life there would probably be several more immediate applications for a device that can send physical matter over television transmissions, and even the fantasy writers have been unable to explain how you could input one chocolate bar into your transmitter and allow thousands or millions of viewers to draw it out of their personal set. So despite the incredible impact this concept would have on potential customers, it has remained in the realm of fantasy, or at best science fiction – until now…

According to a story posted online by the Daily Record (UK) Carlsberg Beer has set up a billboard near their brewery in London that features an actual beer tap. Anyone who want to sample the company’s product can simply walk up and pull themselves a glass of beer from the tap. It’s hard to say for sure, but it looks like they also have security personnel (or possible police officers) keeping an eye on the tap to make sure everyone stays orderly and no one tries just drinking directly from the tap until they pass out. Given that all of this is happening in England it isn’t at all surprising to see that a long and enthusiastic but extremely orderly line has formed to wait for the free drinks…

Now, I don’t imagine I have to explain why this stunt would never work in the US – or any other place with a definite restriction on drinking age. I can also see it being an issue in places where under-age drinking isn’t a major factor but drunken bad behavior (and riots) is. And in much of the world I would actually be less worried about people overdoing it when they drink from the tap than I would be about people showing up with gallon bottles, five-gallon drums or armloads of quart/liter bottles and trying to appropriate as much of the free beer for themselves as possible. But as advertising stunts go it’s amazing, and it makes me wonder if you could apply the same idea to other types of product…

What about a billboard that didn’t just make people walking by see and smell the product, but also made samples available to try? You could have garment ads that allowed people to feel the fabric, or ads for consumer goods that had working features you could actually try out – although I suppose that given the tendency in this country to use sex to sell literally everything, it would only be a matter of time before somebody tried to combine all of these elements and ended up with a billboard ad you couldn’t show on television without being hit by massive fines from the FCC…

Maybe it’s just as well that the concept has been limited to beer so far…