PeppercomBlog

Double Happiness Travel

Posted by Milos Sugovic 

This weekend I learned it the hard way – you get what you pay for. Like many New Yorkers, I looked to get out of the city for the Easter weekend and headed down to Washington. My mode of transportation: Eastern Travel, a Chinatown bus that’ll take anyone with a $20 bill and the willingness to watch “Shaolin Soccer” for five straight hours. I thought the quality of service hit rock bottom about a year ago when we were stranded on the Washington-Baltimore Parkway for about 30 minutes, after which a delayed act of Buddha miraculously kick-started the engine. Well, this weekend was worse.

I decided to beat the traffic and take the bus down on Thursday after my class concluded at 8 p.m. (hence my decision to go with the low-cost alternative) and boy was I in for a treat. The bus driver, a rookie for the calling, departed from Chinatown at 9 p.m. to pick up passengers at Penn Station. You’d think the trip would take less than an hour, unless of course, the driver isn’t familiar with New York City’s grid and is desperately looking for Houston Street (still puzzles me why). It took several individuals at the front and a couple of iPhone navigation systems to get us safely to Penn Station. And that was only round one.

Can Search Trends Predict Economic Activity?

Posted by Milos Sugovic

You bet. A new piece of research by Choi and Varian (2009) shows that search query data is correlated with the level of economic activity in a given industry, and thus may help in predicting the subsequent sales data release. Or, put in layman’s terms: more searches translate into more sales. Now some might be thinking “so what?” Isn’t it obvious that if people seek out a product in cyberspace, they’re more likely to purchase it? Yes, but look at the bigger picture.

This sort of analysis can be extended to several industries, and it’s only a matter of time before marketing and sales departments start paying even more attention to Yahoo! Buzz and Google trend indices. (Full disclosure: Yahoo! is a Peppercom client.) So when Ford’s marketing department sees a one percent decrease in searches, they can expect a 0.5 percent decrease in sales, as the article shows. Perhaps then they’ll start paying attention to the correlation with keywords like “hybrids” and “bailout” as well. So it’s only natural for search trend data to creep its way into sales models.

Till then, it’s important to keep an eye on the digital movements specific to you and your industry. Economists, investors and journalists will increasingly be looking for data releases with a shorter time lag, and digital data is proving it’s a good complement, if not replacement, for traditional measures. And for those of us in PR, it’s important to stay on top of this thing called the “cyberspace”. You never know what the next Google, Yahoo! or MSN Live search might uncover for your client.

Go With The Bank

Posted by Matt Purdue

During this, the Great Recession, media and pundits have thrown around the phrase, “Not since the Great Depression…” It’s become a horrible cliché. But today we’re facing a situation where this tone might be appropriate. The federal government’s response to the problems in the U.S. auto industry are certainly unprecedented in recent times. Just for review, the Obama administration’s intervention hit a high (or low, depending on your political leanings) point late last week when it decided to ask GM CEO Rick Wagoner to resign.

Think about this: The government has essentially told the head of a publicly held company to take a hike. Not the shareholders, not the board, not even Congress--but the President of the United States. What kind of precedent does this set? In today’s era of cut-throat media, CEOs always get too much credit for organizational success and too much blame for failure. Certainly Wagoner should take the heat for stubbornly pushing GM’s ruinous reliance on SUVs and trucks over the past decade. But, in a way, Wagoner is being made the ultimate scapegoat. In this case, at least, it looks like many GM board members will also get the axe. At least six of them will be resigning. 

Going, Going, Gone?

Posted by Milos Sugovic

The following empirical question was posted as a comment on Free Exchange, an Economist.com blog, regarding the economics of newspapers and their evolving business model:

“I think there is a correlation between falling broadband prices and falling newspaper demand. How much? I would like to know.”

I too wanted to know, especially since we’ve discussed it here and here on Reason Enough, so I went ahead and mined data, graphed it, and did some back-of-the-envelope forecasting calculations. 

Based on a few Datamonitor reports on changes in internet access volumes (instead of broadband prices) and newspaper quantities from 2003 to 2007, I generated the below scatterplot:

The Green (Re)Allocation

Posted by Milos Sugovic

Many Americans have already taken important steps to make their homes energy efficient while those that are dropping the ball would pick up their slack if financial resources permit, according to a recent national survey conducted by Yale and George Mason University. There’s no surprise: Americans are willing and ready for energy efficiency and pollution reduction, especially if it saves them money in the long-run and improves the quality of their lives. 

The most intriguing finding of the survey is that consumers face a natural barrier to going green – the significant upfront financial cost. A reduction in this barrier requires a new set of market instruments, perhaps one where upfront costs are diffused over time like the cost of a cellphone that’s covered via monthly fees (and let’s not forget the government subsidy option either). But assuming this barrier to sustainable consumer behavior is done away with, will the U.S. of A. pollute less? Will CO2 emissions drop to 1990 levels? Probably not.

The consumer wants to reduce emissions demand given the push that’s coming from the new administration, energy prices and declining incomes. But here’s the paradox: an environmentally friendly consumer base reduces a supplier’s pollution level, which creates room for other polluters to “make up” for the reduction and keep national emissions constant. So effectively, nothing really changes.

Being Sensitive to the Price Paradox

Posted by Milos Sugovic

During a recession, firms face a decrease in demand for their goods and services. To compensate for this drop they can charge more and maintain revenues, right? Wrong. If that were the case, we’d see a significant increase in the CPI and PPI over the last few quarters, indicating a 1970s-style stagflation. But the data point to a deflation instead.  

So why don’t prices increase? In layman’s terms: firms can’t charge more because consumers can’t afford more – they’re increasingly sensitive to price changes. But let’s not forget the multitude of microeconomic forces at play behind this simplistic and somewhat incorrect statement.

Yes, the income effect plays an important role. If people are losing jobs or watching their real wage decline, their consumption patterns will change. Usually, and I do mean usually, they’ll demand less of a particular good. But that’s not true for all goods, because the responsiveness of the quantity demanded to a change in income (also called income elasticity of demand) comes into play. For some goods, like instant ramen and spam (even rat meat, according to Freakonomics), demand increases as income decreases, so producers can get away with raising prices. So what was once cheap becomes relatively more expensive. A 99-cent bag of ramen is suddenly $1.09. Counter-intuitive, isn’t it?

You say “layoffs,” I say “strategic expense reduction”

Posted by Matt Purdue

At least there are some winners during this, the Great Recession. This week they happen to be Wyeth shareholders. Pharmaceutical giant Pfizer has announced plans to buy Wyeth for $68 billion in cash and stock. Pfizer will be paying $50.19 per share, a premium of nearly 15 percent over Wyeth’s closing price last Friday. 

At the same time, Pfizer said it plans to trim 8,000 jobs, or about 10 percent of its workforce. As Pfizer takes over, however, 15 percent of the combined companies’ staff is expected to be laid off, totaling some 20,000 jobs. 

Surprisingly, there’s been little outrage over the fact that somehow Pzifer was able to come up $22.5 billion in cash as part of this deal, yet continues to slash jobs. One blogger does connect the dots, wondering why banks that received federal bailout money are now financing this deal that will result in thousands of job losses. But other than a few voices in the wilderness, the mainstream press essentially ignores the human cost of consolidation in the pharma sector. 

Obviously, no bank is going to give any company financing to give employees raises or bonuses. But, in this case, Pfizer seems to have gotten a free pass from the media to make a deal despite the consequences. AP mentioned the job cuts in the third paragraph, but also called the acquisition a “bold move.” Forbes mentioned layoffs only in passing. The IHT doesn’t mention layoffs anywhere on the first page of its coverage.

CSR: Does “S” Stand for Strategic?

Posted by Milos Sugovic

Starbucks is a textbook example of clear reporting and excellent corporate social responsibility (CSR) positioning. They’ve skillfully integrated cause marketing and CSR initiatives that are bottom-line "friendly." CSR should be strategic and the only way to attain that is to have some sort of competitive analysis of the CSR marketplace. It should advance the business while doing good and being transparent. But most companies fall short and that resonates in their CSR reporting. 

Starbucks has used CSR to strengthen its supply chain, and more importantly, the product via an improvement of the suppliers' business. This did several things: it established their brand as a synonym for high quality, it introduced a large number of suppliers into their supply chain, it elevated the standards that suppliers need to meet (meaning new supply chain entrants have to become better at what they're doing), and most importantly, they've been able to tie the cause marketing bow around it all. Not only does the supply chain story make sense from a business case perspective, it's marketed as a cause that justifies a higher price. They've shown how an integration of different strategies can create significant business opportunities, and they did a pretty good job at communicating it. 

Cue Thelma and Louise

Guest blogger Rodger Low is a marketing and communications strategist with 15 years of automotive industry experience. Based in Los Angeles, he has worked with manufacturers such as Honda, Toyota and Subaru.

As we do with everything at this time of year, let’s take a moment to reflect upon the nation’s biggest manufacturing industry and at the same time its biggest head-scratcher. Just how did we get to the point where the US-based automotive industry seems on the brink of extinction.  The Once-Big-Three have now become the corporate equivalent of the Salvation Army – ringing its bell at every threshold in Washington, DC, and beyond to get whatever “bailout” funds it can get its hands on just to get through the short term.

But let’s take a closer look at the situation, and what has led us down this path to automotive irrelevance. Did this really come out of nowhere, born out of the recent credit crunch? Or were there signs over the past few years that might have prevented any or all of this?  If you listened to the corporate heads plead their case on Capitol Hill recently, they had no way of knowing that this sales slide was going to be so drastic and so prolonged, and that their cash reserves were so low.

Converge or Die

Posted by Matt Purdue 

I’ve seen the future of communications, and the first PR firms to master this new standard are going to come out winners. The biggest brands on the web and world’s leading television manufacturers are finally, at long last, serious about bringing the internet to TV systems. In the next week or so, in conjunction with the consumer electronics show, companies like Yahoo!, Intel and Netflix are set to announce deals with manufacturers to embed web-friendly technology into traditional TV sets. (Full disclosure: Yahoo! is a Peppercom client.) 

This is the beginning of a trend that will usher in a paradigm shift in business-to-consumer communications. Television-web crossover is finally coming to the masses. Many of us in PR sometimes forget that we’re on the cutting edge of communications, when, in reality, many people still lack internet access. How many North American households are on the web? What would you guess? 90 percent? Not even close. As of June 2008, only 73.6 percent of North Americans had internet access. Leave North America and those figures plummet. Around the world, only 21.9 percent of the population can get on the web.