The Management Mythbuster

The Beer Wars are over -- cartel anyone?

Following my last post castigating Bud Light marketing I maybe forced to reassess the intelligence of the beer industry.  You know a market is not working properly when  consumption is down, the economy is still mired in recession, many of the target customers can't pay their mortgage and have lost their jobs, and the two dominant players raise their prices! http://tinyurl.com/l4brcw

The normal rules of economics in the beer market have been suspended. Anheuser-Busch InBev  and Miller-Coors control 80 percent of the U.S. beer market (at least for quantity but certainly not quality or taste) and both companies have simultaneously announced price rises. Smells fishy doesn't it?  This should prove an interesting test for the newly energized Federal Trade Commission.  I'm not sure if beer is a blue or red state issue but it is certainly populist.  Will the FTC act?  Should be a good one to watch...

Bud Light - pure marketing genius

The scene; a conference room in St. Louis

Big Cheese: "Well team, the football season is almost here, the perfect reason to drink gallons of Bud Light.  How do we capture that thirst? I don't want to wait for the Superbowl this year - after all the season is over by then."

Red Hot Marketing Whiz: "I think the NFL is the wrong wagon to hitch the Clydesdale to, we should go after the college game.  After all a lot of NFL games are played in frigid weather in godawful places like Buffalo, Cleveland and Green Bay - who wants acold beer when its -20 outside?. We should make Bud Light cans in the colors of top college teams.  After all who wouldn't want to sup a cold one while tailgating before a Texas, USC or Florida State game, never mind the millions who will happily chug a team brew sheaved in the college colors in front of the big screen with their frat brothers."

Big Cheese: "Sounds like a great idea but aren't most college students under 21?"

The Whiz (after loud guffaws): "Sure but we will make sure the promotion is targeted at the over 21's - no ads on Nick or Disney, just ESPN."

Big Cheese: "OK I like it. Do you think we can get in by the new bosses in Belgium?"

The Whiz: "Sure, the drinking age there is like, 12, isn't it?"

Big Cheese: "OK -  go for it."

And so another stroke of pure marketing genius is born...

Today's dominant management best practice - bankruptcy!

The recession has raised the art of executive spin to a new level. As falling sales and asset values combined with high debt levels sent many companies into bankruptcy court we have been informed that bankruptcy is not actually a bad thing (unless you are a creditor, of course). 

Apparently, a quick trip through bankruptcy court is the corporate equivalent of a spa retreat.  All those nasty toxins can be erased from the system and you emerge revitalized and rejuvenated.  Donald Stebbins, the Chief Executive of Visteon, a $9.5 billion automotive parts company that was once part Ford, stated on the day the company filed for bankruptcy in May 2009 that the course of action was the best way, “to maximize the long term value of the company.”

Chrysler spent a mere 42 days in bankruptcy (GM even less) allowing it to shed lots of unwanted debts, contracts and other obligations in order for it emerge as an attractive partner for Fiat. Masonite, a maker of doors used its passage through bankruptcy to clean up its balance sheet so it could make some acquisitions.  Chief executive Fred Lynch emphasized the positives when he said that, "Whenever you can de-lever the way we have through Chapter 11, it clearly puts you in a position to be on the offensive. Our new investors have all expressed interest in growth organically and through acquisitions."

Clearly, bankruptcy is now one of the most effective management tools available. No doubt future business strategies will plot a course through bankruptcy en route to market leadership based upon these unique insights.

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[1] Auto Supplier Visteon Files for Chapter 11 in U.S., Wall Street Journal, May 29,2009

[2] Barbarians in Court, Wall Street Journal, June 18, 2009

Healthcare - answering the wrong questions - a personal perspective

It does not matter which side of the health care debate you are on, truth has long been subjugated by politics and posturing.  It seems that the latest scare tactics for those opposed to any change is to darkly warn that the U.S. will become like the U.K. That intellectual giant, Sarah Palin, went so far as describe the U.K. National Health Service as "evil" evoking Darth Vadar like images of anyone over 55 being left to rot rather than waste valuable resources. I cannot compete in the supposed facts being thrown about but what I can offer is some personal experience having lived for 30 years under the evil system and that past 18 years in the land of the free but chronically under-insured.

- Both my parents lived (and died) under the British system and I cannot fault the system for the care they received.  Yes the waiting lists were long for knee and hip replacements (much shorter now) but the quality of care was perfectly acceptable and the medical staff the equal (from my dumb consumer perspective) to that found in the U.S.

-Basic medical care through the General Practitioner channel was much more effective in the U.K. Doctors will still visit homes and access was easy.  In the U.S. everything seems to require a referral to a specialist. Notwithstanding I have generally received great health care in the U.S. and it used to offer value for money - not anymore.

- The U.S. system seems test and drug happy - no one feels like they have received effective treatment unless at least one MRI is ordered and two prescriptions written.  Tests are much less frequent in the U.K. Of course this is not always a good thing but the again you don't get a $3,000 MRI bill confirming what the cheap X-ray already showed.

- From a personal perspective I pay around four times more in the U.S. for family health care than the equivalent tax burden would be in the U.K.  When I moved to the U.S. in 1991 it was around twice as much but the lower U.S. tax rates more than made up for the difference.  However, my total tax burden in the U.S. is now close to what it would be in the U.K. (even with the Bush tax cuts) so the extra U.S. cost is a reduction in income and hence spending power.  No doubt this is going to get worse as I pay for my share of Chevrolet, AIG, and a few thousand Las Vegas condos further hampering any consumer-led economic recovery.

- The one fact that seems tough to avoid is that the U.S. spends almost double the amount of GDP (17%) on health care than the U.K. but fails to cover 47 million people.

To my simple mind there are only two things I care about:

1. The U.S. needs to offer universal health care to its people in the same way everyone has the right to education and national defense.

2. Current health care costs are so far out of whack that radical redesign of the process is needed.  How can the U.S. spend more of GDP and cover less of its people than any other developed nation in the world?  An effective system should cover everyone at a total cost of around 10-11% of GDP (40 percent less than today).  This is the challenge American ingenuity and entrepreneurship should be tackling. Unfortunately it seems that our politicians are the ones tasked with doing it and they do not exhibit these character traits in abundance.   So put the right people on the job and give them a share of the benefits. 

Economic confusion reigns; only certainty is that death pays

Which way is up?  According to global stock markets the recovery is starting.  This maybe true, after all stock prices are supposed to reflect future expectations, but the data presents a much more confusing picture.

Today's headlines show that the U.S. has a way to go as "US data dim optimism on Wall Street"  and  "Retail sales and jobless figures disappoint" while "U.S foreclosure activity hits new record."  

In Europe things are not so bleak as France and Germany have started growing again.

Amidst all the confusion there is one piece of good news. Any euthanasia provision in the health care plan may actually be a boon to personal wealth creation as this headline from CNBC indicates:

"Michael Jackson Earnings Grow by Millions After Death"

What was the 80's John Cusack film?  Oh yes, I remember, "Better Off Dead!"

Golf - a leading or lagging economic indicator?

Spent the last four days volunteering at the Bridgestone World Golf Championship event held at Firestone Country Club here in Akron, Ohio. Akron boasts an unemployment rate of over 10 percent and remains a shadow of the once vibrant "Rubber Capital of the World."  Yet all is not bleak - as an 18 year resident of the area I can vouch for the quality of both the life and the people. 

Firestone has hosted a PGA or Seniors golf tournament each of the last 56 years - so top flight golf has been one constant in a rapidly changing world. Why Akron?  Well the course is one of the pro's favorites and, perhaps, more importantly in today's world one of Tiger's favorites. His win yesterday was his 7th at Firestone. But the whole package must be attractive to sponsors as yesterday Bridgestone announced a four year extension to its sponsorship of the event. A sharp contrast to the final playing of the Buick Open last week in Flint, Michigan as GM pulled its support. So what do the events at Firestone tell us about the economy?

1. Tiger is not feeling the pain, he added $1.4 million to his bank account, even last place paid $35,000 so all 80 players made a nice profit on the week

2. Corporate hospitality is still a dodgy pastime.  One major sponsor told me that fewer than half the people they invited to attend had accepted due to either financial or political fallout from being seen to accept hospitality and risking any enjoyment whatsoever.  My wife who spent the weekend checking the credentials of people seeking enter "hospitality land" had time to read the latest John Grisham from cover to cover so rushed off her feet was she.

3. Until Sunday, the crowds were modest.  The leading two ball on Saturday (Padraig Harrington and Tim Clark) was accompanied by all of 100 people. On Thursday, a front row view of Tiger could be had with ease. Want to watch any other player?  No problem you would probably have to jostle with all of ten other people to secure your preferred vantage point.

4.  There is a nice boost to the local restaurant economy.  According to their tweets, Stewart Cink splashed out on dinner at Bob Evans and Mariachi Grill while Ian Poulter sampled the steaks at Flemings. Yet a table for 12 at one of the best restaurants in town was available at two hours notice on Thursday night.

5. The concessions were doing steady business even with $7 burgers and $6 beers, the merchandise pavilion was low on stock by sunday morning so that is probably a good thing. Beer moved fast in the 90 degree heat on Sunday proving that some things are recession proof.

6. Parking in the front yards of houses on the surrounding roads was "recession-priced" with prime spots available for $5, down from $20 in past years.

7. Technology still drive the (golf) economy. On Sunday that renowned muscleman, Padraig Harrington hit he longest drive on the eighth hole at 382 yards - yes it was downhill and slightly downwind but that is ridiculous.

So the overall forecast is still very mixed. Some "greens shoots" but a lot of caution. Stay tuned for an update after next year's event. One prediction - Tiger will walk away with a the biggest check again!

Goldman Sachs could single-handedly jumpstart the economy!

A New York Post report says that Goldman Sachs Chief Executive Lloyd Blankfein has told employees to avoid making high profile purchases. (link).  Apparently he doesn't want conspicuous consumption to tarnish the bank's reputation.

I say let 'em spend.  In fact they should go crazy and then the firm can claim to have single-handedly revived the economy.  The government should add any Ferrari, Porsche, Lambo or Bentley that is more than six weeks old to the cash for clunkers program -  after all the sales tax alone on the new vehicle will more than fund the program!

So flex that Amex Centurion card you Goldmanites -- your nation needs you. 

Chrysler - running out of vehicles!

It is really tough being an American car maker these days.  Never mind bankruptcy, Chrysler now does not have enough cars on dealer lots to meet demand! (Wall Street Journal) The success of the cash for clunkers program plus Chrysler's offer to double the the rebate has brought lots of demand to dealers where inventories have been run down for months.  One dealer summed it the shock of actually having customers wanting to buy cars: "Unfortunately the problem that we face with Chrysler is the lack of inventory. I can't believe I'm saying this, I need more Chrysler inventory. My goodness, I've got to rehearse that line a couple times."

Well he should get used to it. This type of boom and bust cycle may well be the norm in the future. Yet another reason why the old planning methods no longer work.

On a related point, why are some people surprised that the cash for clunkers program worked?  The consumer has kept their wallet under lock and key for nine months and 89 percent still have a job - so there is money out there.  If you offer up to $9,000 off a new vehicle plus disposal of the old one people will bite.