Customer life time value

A quite good example of the application of Customer life time value measures can be found at consumerist.com:

A customer service source inside Cingular sends us some interesting internal documents and says the cellphone company has a new policy that's got the headset set in a bind. He reports that Cingular will, "no longer discount equipment for customers that are not profitable for us, no mater where they stand contractually. I have received several calls from customers attempting to upgrade, only to have to inform them that although yes, they are out of contract, we will not offer them discounted equipment. "

But wait, how does a lowly Cingular rep determine how profitable you are as a customer? Luckily, there's a handy box on the operator's screen showing a computerized calculation.

If you threaten to leave Cingular for a wireless provider that doesn't suck, the degree to which they try to lure you back into the fold will depend on how green your mercury is.

Next step in outsourcing?

The outsourcing of "Coolness" is discussed in Fastcompany

When Hasbro wanted a hand lifting its decades-old My Little Pony toy line out of the realm of kitsch last year, it turned to a tiny Brooklyn, New York, creative agency called Thunderdog Studios. The result: a New York gallery show full of Ponies, each uniquely decorated by a different woman artist.

Now, that was cool. Which is exactly what Hasbro was after. ...

We should've seen this coming. For decades, business pundits (and, okay, we) have lauded the merits of lean, flexible organizations: Embrace the activities that truly add value; jettison everything else. And companies have done so, outsourcing their IT departments, human resources, copy shops, even manufacturing and distribution.

But this is something different, and more sinister. Companies are outsourcing cool. They're paying other companies--smaller, more-limber, closer-to-the-ground outsiders--to help them keep up with customers' rapidly changing tastes and demands. Talk about a core competency! It's like farming out your soul--or at least, asking someone what you should wear in the morning.
...

There's something ageless about this: One generation has looked to the next for advice on cool for as long as there have been out-of-it parents. But seeking advice is one thing; letting an outsider set your agenda is another. Doing so forfeits control of your brand to someone who doesn't own it; it turns you from a creator into a distributor, which is a pretty low-value activity to base a business on. Martin Lindstrom, whose 25-person consulting firm, Brandsense, helps 11 of the world's 100 largest companies keep their brands cool, says, "I'm surprised when they come to us, because they should have structures built in to inform and shape their brand in those fundamental ways."

They don't because staying cool is difficult work. It requires constantly scanning the horizon and taking gambles. And that's scary. "People in huge corporations are afraid of being fired," says Lindstrom. "They don't dare take those risks anymore. The only way they can get a mandate to do this is by taking the risk outside of the company."

ESOPs

Adam Lashinsky debates the role of employee stock options in Fortune:

Stock options were invented as a way to align the interests of employees with shareholders.
...the system began to crack... in the 1990s, when companies with falling stock prices began to re-price their stock options in order to retain their employees.
...
the system of awarding options has gone from an incentive program to an entitlement. Companies that can't or don't offer rich options are at a disadvantage to those that do. Executives - with the complicity of their accountants, lawyers, compensation consultants and boards of directors - game the system to ensure not that employees are working for the shareholders, but rather that employees will make extra money in all but the gravest of circumstances. Options were considered so sacrosanct that Silicon Valley bigwigs fought tooth and nail to avoid having them accounted for as a compensation expense.
...
So here's a radical proposal: Scrap the whole system...
True entrepreneurs, by the way, the kind that drop out of school, max out their credit cards, eat ramen noodles and risk everything for a dream, won't mind this at all. They don't need stock options to get stinking rich. They have the stock of the companies they start.
True entrepreneurs don't need to play games to become wealthy. It's the executives - the people the shareholders hire to look after their interests - who've been reaping entrepreneurial returns that need to be stopped.

The importance of blogging("marketing") for universities

Brad Delong discuss the importance of blogging for academic institutions...

Next step... Viral academia?

A lot of a university's long-run success depends on attracting good undergraduates. Undergraduates and their parents are profoundly influenced by the public face of the university. And these days, a thoughtful, intelligent, well-informed Web logger like Juan Cole or Dan Drezner is an important part of a university's public face. Michigan gains in reputation and mindshare from having a Cole on its faculty. Yale loses from not having an equivalent.

A great university has faculty members who do a great many things — teaching undergraduates, teaching graduate students, the many things that are "research," public education, public service, and the turbocharging of the public sphere of information and debate that is a principal reason that governments finance and donors give to universities. Web logs may well be becoming an important part of that last university mission.

Me-media and the quest for ever increasing social networks

From NYT:

My life goes like this: Every morning, before I brush my teeth, I sign in to my Instant Messenger to let everyone know I’m awake. I check for new e-mail, messages or views, bulletins, invitations, friend requests, comments on my blog or mentions of me or my blog on my friends’ blogs.
Next I flip open my phone and check for last night’s Dodgeball messages. Dodgeball is the most intimate and invasive network I belong to. It links my online community to my cellphone, so when I send a text message to 36343 (Dodge), the program pings out a message with my location to all the people in my Dodgeball network. Acceptance into another person’s Dodgeball network is a very personal way to say you want to hang out.
I scroll through the messages to see where my friends went last night, and when, tracking their progress through various bars and noting the crossed paths. I check the Google map that displays their locations and proximity to one another. I note how close Christopher and Tom were last night, only a block away, but see that they never met up.
I log on to my Friendster, Facebook, MySpace and Nerve accounts to make sure the mail bars are rising with new friend requests, messages and testimonials.
I am obsessed with testimonials and solicit them incessantly. They are the ultimate social currency, public declarations of the intimacy status of a relationship. “I miss running around like crazy w/you in the AM and sneaking away to grab caffeine and gossip,” Kathleen commented on my MySpace for all to see. Often someone will write, “I just posted to say I love you.”
I click through the profiles of my friends to the profiles of their friends (and their friends of friends, and so on), always aware of the little bar at the top of each profile indicating my multiple connections. A girl I know from college is friends with my friend from college’s best friend from Minnesota. They met at camp in seventh grade. The boyfriend of my friend from work is friends with one of my friends from high school. I note the connections and remind myself to IM them later. On Facebook, I skip from profile to profile by clicking on the faces of posted pictures. I find a picture of my sister and her boyfriend, click on his face and jump right to his page.

From popmatters

The essence of friendship is its immeasurablility, not its publicity. I don’t want a database for an identity, nor do I want it for a community. I don’t want to run statistics on my social life. I don’t want Nielsen ratings for my friendships, I don’t want to apply marketing tools to them to see how they might be tweaked, to see how I might reach a better demographic, socially. I don’t want to meter the amount of attention I receive. All of that seems counterproductive, unless I decide to run my personal life like a firm and decide that I need to promote myself the way Proctor and Gamble promotes its toothpastes.

Know your customers

How much do you know about your customers?
From fastcompany

Mothers in the small Swiss village of Bulach may have been wary of the man with a goatee staring at them as they strug-gled to navigate an ATM, grocery bag in one hand, fractious child in the other. But the man didn't care what their PIN numbers were or how much money they had in their accounts. He wanted to know, Why didn't they just put the bag down?

The answer: The bags were paper, and when the ground is wet--it rains a lot in Switzerland--putting them down means getting the contents soggy. Now, thanks to the man with the goatee, Stephan Kubler, the moms using the ATM at the Credit Suisse branch in Bulach can keep their groceries dry, by resting them on an inch-high grille.

The long tail

slate presents a good discussion abou the concept of the long tail:

"What are the Long Tail's limits? As a business model, it matters most 1) where the price of carrying additional inventory approaches zero and 2) where consumers have strong and heterogeneous preferences. When these two conditions are satisfied, a company can radically enlarge its inventory and make money raking in the niche demand.
...
it's important to remember that many industries don't rely on the weird economics of information products.
...
The Long Tail also sometimes doesn't work in its home category: the information-technology industries. The key issue is the question of standardization. Sometimes consumers want a diverse set of product offerings. But sometimes they prefer a standard or compatible product. Most of Anderson's examples are content firms, where product diversity is almost always a good thing. But in the information-transport industry, standardization is usually more important. Do people want 10 different types of (incompatible) Internet connections? Or just the fastest one they can get? How about 30 types of (incompatible) Ethernet cables?
...
for every diverse Long Tail there's a "Big Dog:" a boring standardized industry that isn't sexy like Apple or Amazon but that delivers all that niche content you're hungry for.

Game Theory

Rick Harbaugh presents a lot of interesting articles and working papers such as:

Cheap Talk Comparisons by a Clearly Biased Expert
False Modesty: When Disclosing Good News Looks Bad
Early Round Upsets and Championship Blowouts
Cheap Talk Comparisons in Multi-Issue Bargaining
Too Cool for School? Signaling and Countersignaling
Does Copyright Enforcement Encourage Piracy?

investing, diversification, and human capital

Remember the importance of human capital when trying to figure out what to invest in. From allfinancialmatters

'I talked to two friends who worked in i-banking recently and asked what they invested in. One invested in index ETFs and a few actively managed, low-expense mutual funds in small-cap and foreign sectors, mostly because of the reasons stated above. The other said his 401-k was invested in, of all things, fixed-income and gold, which really surprised me. But his reasoning made sense: his job is in researching in Asian small-cap equities, meaning his salary and bonus was already tightly tied to a highly risky asset class, so by putting his retirement account in essentially the opposite type of investment, he was diversifying across all his current and future income sources. This is actually a very common practice in i-banking.

The clash of civilizations

A quite good analysis of mr. Huntingtons book by Lars hvidberg (sorry but it is in danish)

income equality

Tyler Cowen and Brad Delong has a very good discussion about the development in income equality in the US.

inductive inferences

Always remember to discuss the confirmation bias

other important cognitive biases

Reversal of priorities?

The rules have changed in Corporate america. From Fortune

	New Rules	vs.	Old Rules
1	Agile is best; being big can bite you.		Big dogs own the street.
2	Find a niche, create something new.		Be No. 1 or No. 2 in your market.
3	The customer is king.		Shareholders rule.
4	Look out, not in.		Be lean and mean.
5	Hire passionate people.		Rank your players; go with the A's.
6	Hire a courageous CEO.		Hire a charismatic CEO.
7	Admire my soul.		Admire my might.

....

and why did they do that?

Managing to create shareholder value became managed earnings became managing quarter to quarter to please the Street. "That meant a disinvestment in the future," says Khurana, author of "Searching for a Corporate Savior."
"It was a dramatic reversal of everyting that made capitalism strong and the envy of the rest of the world: the willingness of a CEO to forgo dividends and make an investment that wouldn't be realized until one or two CEOs down the road."

...

"How do you think about building shareholder value when a lot of people are really just going to hold the share for the moment?" says Jim Collins, a former Stanford Business School professor and the author of "Good to Great" and "Built to Last." "The idea of maximizing shareholder value is a strange idea when [many shareholders] are really share flippers. That's a real change. That does make the notion of building a great company more difficult."

A case for awareness marketing?

From bps,
first seen at Marginal revolution

Awareness creates new demand?

Patti Williams and colleagues recruited 167 undergrads and asked some of them about their intentions to take drugs, and the others about their intentions to exercise. Two months later, the students were contacted again, and those who had been asked about drugs reported taking drugs an average of 2.8 times in the intervening period, compared with an average of 1.1 times among the students previously asked about exercise.

Nope... Just increased demand by existing consumers

The effect was even more dramatic when those students who said they hadn’t taken any drugs at all were omitted from the analysis. Among the remaining students, those asked about their drug-taking intentions said they’d used drugs an average of 10.3 times over the past two months, compared with an average of 4 times among the students previously asked about their exercise intentions.

This observation, together with further analysis, suggested it wasn’t that new drug users had been created, but rather that the questioning had led to increased use among current users who presumably had a positive attitude towards drugs in the first place.

Pointers for starting your own company

From blog.guykawasaki.com:

1. Focus on cash flow, not profitability
2. Forecast from the bottom up
3. Ship, then test
4. Forget the ”proven“ team
5. Start as a service business
6. Focus on function, not form
7. Pick your battles
8. Understaff
9. Go direct
10. Position against the leader
11. Take the “red pill

Power Point Pointers

From blog.guykawasaki.com

A couple of tips for writing

Active vs passive writing
from blog.guykawasaki.com

Income vs. happiness

But what about wealth vs. income?...
People tend to work a lot in order to have a high income... You have to love your work a lot with high income, since leisure time goes down...
From news@princeton

"The belief that high income is associated with good mood is widespread but mostly illusory," the researchers wrote. "People with above-average income are relatively satisfied with their lives but are barely happier than others in moment-to-moment experience, tend to be more tense, and do not spend more time in particularly enjoyable activities."

Systematic vs. unsystematic risk

Is biotech really that risky?
From Knowledge@wharton

Prior to the discussion, Wharton finance professor Andrew Metrick explained how financial economists view risk by citing two hypothetical companies -- Box Co., an established manufacturer of corrugated boxes, and Drug Co., a biopharmaceutical company. Box Co.'s returns rise and fall with the overall economy, while Drug Co. is working on a cure for a host of diseases, but has little probability of success. Assuming both companies have the same expected cash flow, which company would be expected to generate higher returns for investors? Metrick asked.

He explained that while the drug company has a high level of individual, or idiosyncratic, risk, the box company should offer a premium to investors willing to back it in bad times as well as good. "The box company does well when people are already doing well. It has poor returns when the economy is poor and people are hungry," Metrick noted. "If someone says, 'I will hold Box Co., which will not pay much exactly when I am most hungry,' then they need to be compensated."

Investors in the drug company could mitigate their risk by buying up shares of many drug companies, hoping at least one will come up with a hit product to justify the overall investment.

From the same article. The very important issue of interest versus capability...

He also explained why small venture capital firms take on so much more risk in backing long-shots than do large corporations that have more resources or appear to have the ability to absorb a swing and a miss. Executives and employees at a large company all share in the downside of problems when problems arise at the targeted firm, he said, but the benefits of hitting a home run with a new technology investment are diluted. He noted that even the largest venture capital firms have very few partners, allowing each to win big if a high-risk investment pays off. "These are small organizations. When they get too big, the incentives for any one person aren't so clear," said Metrick. "If someone is better than their partner, then they leave and start their own firm."

Cost benefit calculations

Bilmes and Stiglitz has tried to estimate the cost of the war in Iraq. From Harvard Magazine

Before the United States invaded Iraq in 2003, Secretary of Defense Donald Rumsfeld and then-director of the Office of Management and Budget Mitchell Daniels (now governor of Indiana) put the likely costs at between $50 billion and $60 billion. Former undersecretary of defense Paul Wolfowitz (now president of the World Bank Group) claimed that increased Iraqi oil revenues would pay for the war. When President Bush’s economic adviser Lawrence Lindsey suggested that the actual costs might be closer to $100 billion or even $200 billion, the White House called those figures grossly exaggerated and swiftly fired him.

Those estimates now look Lilliputian. The Congressional Budget Office (CBO) currently projects past and future Iraq-related expenditures to surpass $500 billion, and even that figure severely underestimates the full outlay, according to Bilmes and Stiglitz, whose paper indicates that the war will eventually cost Americans in excess of $2 trillion. (A trillion is a thousand billions.) Speaking of those in Congress who agreed early on to appropriate $87 billion to finance the war, Bilmes says, “Every time someone casts a vote, they implicitly make a cost-benefit analysis. Would they have voted the same way if they knew the costs were 10 times as much as advertised?”

Size does matter?

Is this a way to control consumption? A potential CSR strategy that should be incorporated into the 4Ps?
from BPS Research Digest

‘Unit bias’ – “…the sense that a single entity (within a reasonable range of sizes) is the appropriate amount to engage, consume or consider"

To test this, the researchers left a bowl of M&M sweets in the hallway of an apartment building with a sign that read “Eat Your Fill: please use the spoon to serve yourself”. Some days they left a tablespoon-sized scoop, other days they left a quartercup scoop that was four times as big. Passers-by could obviously help themselves to as little or as much as they wanted regardless of which spoon was provided, but on average, 1.67 times more M&M’s were taken on the days the big scoop was left compared with the tablespoon-sized scoop.

In another experiment, the researchers found that, measured by weight, significantly more pretzels were taken by passers-by when a complimentary bowl of 60 whole pretzels was left in an apartment building, compared with when a bowl of 120 half-pretzels was left. And it was a similar story when either a bowl of 80 small Tootsie rolls (an American snack bar) or a bowl of 20 large Tootsie rolls was left in an office building.

In other words, throughout the study, people took more food when the unit on offer was larger. “Consumption norms promote both the tendency to complete eating a unit and the idea that a single unit is the proper portion”, the researchers said. However, they also acknowledged that other factors must have been at play because the amount of food taken did not vary in direct proportion with the increase in unit size on offer.

Incentives and IT

From Wired

Economics can actually explain many of the puzzling realities of internet security. Firewalls are common, e-mail encryption is rare: not because of the relative effectiveness of the technologies, but because of the economic pressures that drive companies to install them. Corporations rarely publicize information about intrusions; that's because of economic incentives against doing so. And an insecure operating system is the international standard, in part, because its economic effects are largely borne not by the company that builds the operating system, but by the customers that buy it.