The Liberal Order

Speaking of Super Bowl ads . . .

. . . here is a funny remake of the old Coke commercial starring Amy Sedaris. Amy is from Raleigh and my wife and I enjoyed her talk at Quail Ridge Books last spring.

 

Reinvented to give you "everything you could possibly want."

Check out the ad below, which is to air (supposedly) during the Super Bowl. Isn't this the beauty of capitalism? Complete strangers - the investors, the managers, the contractors, the labor, and more - toil to give me "everything I could possibly want" in a car. I don't even know these people. A tear rolls down my cheek. 

Reinvented from DTan on Vimeo.

 

Russian News Anchor Flips Off Obama

Wow! Don't hold back; tell us how you really feel?

 

Here is a link to an active video.

Institutions Matter - Three Videos From The Daily Show Worth Watching

There wasn't any doubt that the Super Committee would fail at coming up with a plan to reduce the budget deficit - neither side had an incentive to do so. This is an institutional problem, not a procedural problem. If you collectivize more than 40% of U.S. GDP (federal, state and local governments) put it up for "debate" regarding who gets what, and then push payment of much of this spending onto future generations, don't be surprised when the rent-seeking class shows up to influence the size and distribution of government largesse. If you want to get rid of the ants, stop pouring sugar on the floor. 

With that said, although he doesn't quite get exactly to that point, I give Jon Stewart much credit for attempting to hold Nancy Pelosi accountable for the problem we refer to as Washington. She tries her best to pin it all on the Republicans, who do deserve much of the blame for out-of-control spending, but it's not just them. The debt and deficit is not a procedural problem, it is an systemic flaw in the system. The Democrats act the same way and the Libertarians would too should they ever, ever control Congress.

Here are three videos of an interview by Jon Stewart of Nancy Pelosi. She embodies everything that is wrong with our federal government and spending and debt.

The Daily Show with Jon Stewart
Get More: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

 

The Daily Show with Jon Stewart
Get More: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

 

The Daily Show with Jon Stewart
Get More: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

 

3/5ths of A Person?

Hilarious!

 

 

 

The Beautiful Consequences of Market Competition

The beauty of market comptition.

Forbes considers the Kindle Fire much ado about nothing.

Is the $99 iPad on the horizon?

Netflix Underestimates The Elasticity of Demand For It's Service

The revision reflects the negative reaction to Netflix's decision, announced in July, to separate its DVD-by-mail service from its faster-growing Internet streaming service. Before, DVD-by-mail was a $2 add-on for some streaming subscribers; now, each service now costs $8.

Some subscribers were upset by what was effectively a price hike, and a subset of them have cancelled their Netflix accounts.

In July, the company said it expected that it would end the third quarter with 22 million subscribers to the streaming service, 12 million of whom would also opt for the DVD-by-mail service. It expected back then that 3 million would opt only for the DVD service.

Now, it's expecting that just 2.2 million will opt only for DVDs, a drop of 800,000.

Netflix also anticipates a slight drop in streaming subscribers, to 21.8 million, a difference of 200,000 from the earlier estimate. It still expects 12 million of those streaming subscribers to also pay for DVD-by-mail, helping it to generate more revenue overall.

Story here.

Price Discrimination?!?

Firms price discriminate to maximize profit. If the marginal cost of providing some good or service is $25, and profit maximization requires the firm sell at, say, $75, then the firm misses profit oppotutnities to sell to customers whose value for their product is less than $75, yet more than its $25 cost. This is the reason for things like coupons, Groupon, generic goods, dented appliance and furniture sales, and outlet malls.

The products sold in regular markets and discounted markets typically are the same, with possibly some minor blemishises insignificant to the purpose and functioning of the good or service. If the marginal cost to Whirlpool of manufacturing a clothes dryer is $300 and it normally sells for $600, dent the side of it to make it unattractive for high valued users and sell it to those who value one for at least $300, but less than $600. But using cheaper parts? Well, that's no longer price discrimination. 

The original outlet and factory stores sold overstocked, discontinued items, and imperfect merchandise unfit for retail sale; that’s what made the prices so cheap. But nowadays, the majority of common outlet stores supplement their stock with merchandise created especially for outlet-store sale. These lines carry the brand name, but they’re made with lower-quality fabrics and cheaper construction techniques. The companies depend on customers’ inability to tell the difference between the quality of real designer merchandise and the lower-quality knockoffs carrying the same label. The knockoffs may be cheap, but that cheapness comes at the expense of quality.

A friend who managed a Bose plant remarked to me that that company refused to ever sell imperfect merchandise; it's brand was too important and brand loyalty was dependent on high quality. 

The practice noted above first canabalizes the brand maker's primary market. (People with loyalties to the brand and would have paid full price are attracted to the lower quality items with the mistaken notion that they're the same quality.) But more importantly, it blemishes the brand name, providing the firm short-term profit at the expense of longer term profit. This may be just a temporary tactic during a severe recession, but reputation declines, and customers may not return later on. Just ask General Motors.

I've also noticed during this recession increased use of a marketing trick whereby something is advertised for sale at a fraction of its "normal" list price. For instance, I bought a watch for $50 that was advertised as normally selling for $550. I knew the Swiss Legend watch was not worth anything more than the $50 I paid for it - it was about as high quality as a cheap Timex. But there seems to be a lot more of this type of deceptive advertising taking place over the past three years, more than I remember in the past twenty-five years. 

The Psychology Behind Marketing - Don't Be Fooled By Words

Often, the people choosing those words know a lot about how to get in your head. If you don't believe us, just take a look at the marketing curriculum at a business school: there's increasing emphasis on studies of "consumer behavior," and many of the faculty have backgrounds in psychology. For marketers, it's all about choosing the words that appeal to basic psychological impulses.

Words like "free," "limited time," and "new and improved," enter into our subconscious, eliciting an impulse to buy something you might not otherwise have purchased.

Here's another example of the psychology behind marketing from a previous post.

The Success of Apple's Retail Stores

More people now visit Apple's 326 stores in a single quarter than the 60 million who visited Walt Disney Co.'s four biggest theme parks last year, according to data from Apple and the Themed Entertainment Association. Apple's annual retail sales per square foot have soared to $4,406—excluding online sales, according to investment bank Needham & Co. Add in online sales, which include iTunes, and the number jumps to $5,914. That's far higher than the sales per square foot and online sales of jeweler Tiffany & Co. ($3,070), luxury retailer Coach Inc. ($1,776), and electronics retailer Best Buy Co. ($880), according to estimates.

Story here.

Further down is this:

Apple's success with its stores stands out at a time when many retailers have struggled. In 2009, when retail sales declined 2.4%—the first down year in several decades, according to retail consultancy Customer Growth Partners—Apple's retail sales rose roughly 7%. In 2010, Apple's retail sales, excluding online, jumped 70% to $11.7 billion, or about 15% of its revenues of $76.3 billion, handily exceeding the overall retail industry's sales growth of 4.5%.

Other retailers have tried to copy everything from Apple's in-house tech support to store layout. Best Buy acquired computer repair service Geek Squad in October 2002, a year after Apple opened its first store, but it has failed to reinvigorate its business. Best Buy's profit margin hovers at about 1% before taxes and excluding online sales, estimates Customer Growth Partners. In comparison, Needham & Co. puts Apple stores' profit margin at 26.9%.

It's all about the experience. Apple's products are the "cool" in products to own. Its competitors are even made fun of in popular television shows. (See the video clip below.)

When you walk into an Apple store you want to play with the products and Apple facilitates that desire. Like going to Las Vegas, you walk into Caesar's Palace and feel the ambiance - the marble and the brass statues, the furniture and window treatments, the vaulted ceilings, the expensive shops - all that luxury just sitting there urging you to splurge. Apple's stores create the same feeling. You walk in with the attitude, "Man I'd like to own an iPad, but I just can't afford one." Sure enough, you're walking out with an iPad and asking yourself, "How did I ever get by without one?"

Compare the experience of shopping at an Apple store with shopping at Best Buy or Wal-Mart. First, you're inundated with too much stuff packed into a far too complex store layout. Second, even if you could play with the merchandise, much of it is somehow inoperable or just not fun, and it's not cool. And in the case of Wal-Mart, too much of the stuff you can't touch and play with, and too much of it is broken.