Is your Vision damaging your business?

…it is if your business planning cycle is typically 3 years or lesser. The longest planning horizon for most businesses entails new product development or acquisitions at around the 3-year horizon mark and marketing activities like advertising communications and pricing/promotions are typically planned annually.

Brands aren’t built overnight and sustainable brands need an evolving strategy that will navigate economic cycles that are a lot longer than 2 or 3 years, in fact typical economic cycles are 7+ years.

What you are missing out on is an opportunity to understand how your customers are adjusting their consumption behavior as the economy waxes and wanes. Granularity of information flooding researchers in recent years has motivated business strategy to be focused on maximizing short term profits and opportunities. Don’t get me wrong, short-term planning is important- the short-term is the bridge to the long-term and public companies are answerable to shareholders in the short-term. At the same time the most sustainable brands and businesses are the ones that have the information and experience to help them adjust to economic changes. In that respect, Businesses need to be like Neural Networks- learn and adapt based on past experiences, while adjusting to newer paradigm shifts. While lifestyles evolve and change much more rapidly today than they did 10 years back, there are some consistencies that business managers need to take into account especially if they are in the B2C domain.

For example how people adjust to economic upheavals, what spending categories do they curtail during a downturn and which ones do they prioritize coming out of a downturn. If you compare the growth in Retail spend data by segments from the U.S. Census Bureau from 2004 to the spending from 2011 (2 years post the respective recessions), you will notice some remarkable consistencies. The top 3 segments by growth vs. prior year in both cases were Building Materials, General Merchandise and Restaurants, while Electronics, Apparel and Sporting/Music stores were bottom segments.

How cool would it be if you could predict how your customers are going to change their consumption preferences in a sluggish economy and an expanding economy, what trade-offs in terms of share of wallet would they make as the size of their wallet shrinks or expands? And how cool it would be if you were able to anticipate these changes in consumption preferences and adjust your product portfolio, assortment and marketing/pricing strategies accordingly? So one would think it is easy for businesses to compare what their customers did in the Great Recession vs. the 2001 Recession, but you would be surprised even with big data how few companies have less than 5 years of data readily accessible for analysis. However different we are today compared to 10 years back, some elements of history do tend to repeat and if you chose not to learn from history you may well be condemned to repeat it.

Redefining Risk-Free...

For the longest period of time the classic proxy for the theoretical risk-free rate has been the 3-Month U.S. Treasury Bill, this may have to be re-thought given the U.S. debt-crisis that just got "resolved" today. The crisis brought home the realization that the U.S. Ecoomy, far from being infallible, is actually vulnerable in it's present state.

The longer-term ramifications of both the crisis itself and the solution that was agreed upon today are going to be profound. The United States has re-discover its place in the global economy instead of relying on past laurels, and soon, while the other developed nations still look to it for economic leadership and haven't realized that this need is more psychological than anything else...

Employment Outlook: ADP vs BLS...

Earlier this week the Markets were buoyed up by some favorable economic reports coming out, but most significantly by yesterday's ADP Employment report that predicted a 157K increase in private jobs. Traders that were holding short positions given the low seasonal performance of markets in summer months, further drove markets up in a "short squeeze rally".

Come Friday morning, the BLS Employment report came out, and proved ADP wrong...yet again. According top BLS estimates, only 18K Non-Farm jobs were added in June, much lesser than the 105K economists were expecting and a miniscule fraction of the 157K ADP predicted. And this is a consistent pattern in the past year, ADP has been off vs BLS by 50% or more on at least 6 occasions. That is a coin toss. So I say either ADP proves why they have a better read on employment than BLS or they stop reporting this number in the public interest...as it is the markets are jittery and beyond the implications to investors, the markets have a direct bearing on consumer and corporate morale. We do not need another volatile factor added to an already chaotic mix of indicators.

"Mix Modeling on its death-bed" Starcom MediaVest Group CEO Laura Desmond

http://www.adweek.com/internet-week-blog/laura-desmond-wants-her-industry-deep-six-its-market-mix-132255

Starcom MediaVest Group CEO (and #57 on Forbes 100 most powerful Women in 2008) Laura Desmond believes that Marketing Mix Modeling, platform for measuring Advertising ROI is on it's death-bed, citing backward-looking focus and lack of ability to evaluate consumer attitudes as part of the reason it is becoming obsolete.

I think Marketing ROI as a concept won't go away (taking care to distinguish Mix Modeling as the device and Marketing ROI as the objective) for at last a couple of reasons:
-Elegance in evaluating Marketing Strategy was not the primary raison d'etre for the approach, it came about as a means for stakeholders outside the Marketing Department to understand how the dollars they were pumping into advertising was contributing to topline growth (and bottomline performance)- in other words the "business performance" focus she faulted. After all influencing consumer attitudes is not the end-goal of advertising, growing sales is (by influencing consumers positively), so successful advertising needs to demonstrate ability to drive both, not just any one of the two purposes.
-Today the approach does more than that and can simultaneously evaluate both business performance and consumer attitudes, depending upon how much effort you want to put in. I have already written in the past that consumer attitudes not only can but should be measured in marketing-mix models (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1411790)

Playboy Outsourcing Operations? Times must really be tough!!

Playboy Enterprises Inc. recentlly announced that they will be outsourcing most of their operations to American Media Inc. in a 5-year partnership deal.

Apparently it's not party time anymore at the company Hugh Hefner started (partly with money loaned by his mother). In fact they have seen their margins erode progressively over time. They netted out $2.3MM profits on revenues of $331MM in 2006 (0.7% margin), in 2007 they made $4.9MM in profits on $340MM in revenues (1.4% margin). To put their operating profitability in perspective, consider this- Playboy operating profits in '07 were $10MM, giving an operating margin of 2.9%. Bauer Consumer Media, publishers of FHM magazine had operating profits of £65.4MM during the 12 months to 31 March 2008 on revenues of £313.1MM- a 20.9% margin. So they do need a revamping of their operational strategy. Especially given the manual intensive nature of the publishing business, the economies of scale AMI can bring to the table may reeally unlock the profit potential at this controversial yet iconic brand. I guess they are hoping that AMI, which has a score of successful magazine titles in their portfolio can help them improve operational effectiveness.

2009 Retail Season Half-time: Black Friday '09

Black Friday '09 has come and gone and the experts are already making prognostications about the rest of the '09 Holiday Season and the health of the Retail Sector. Talk about opinions being divided- on Yahoo! Finance itself there were two articles posted a day apart taking opposing views- "Early indicators of Black Friday sales promising" and "Black Friday: D-Day for 'Deals' and a 'Dismal' Economy". I think both perspectives hold some water. The average American consumer has seen some benefit from economic pressures easing off over the last few months and have had some of their purchasing power replenished. They do not have enough to splurge across the board this Holiday season, so we will probably see them making a lot of trade-offs-  a family vacation or new clothes for the family or that big flat screen TV we've been thinking off. Seeing the mad rush at Wal-Mart and at BestBuy, I think Retailing analyst Kristin Bentz (The Talented Blonde blog) is right, the two themes top of mind for the American consumer this Holiday season will be Value and Technology- retailers across all sectors that will get the perfect balance of value vs. profitability will come on top, and technology retail in general seems to be poised to do better than the rest- if the average consumer is going to splurge he or she wants to do it on something longer lasting like a computer or a new TV.

Review of "The Shift Index 2009: Industry Metrics and Perspectives” (Deloitte.com Article)

I came across this report from Deloitte “The Shift Index 2009: Industry Metrics and Perspectives” (published November 4, 2009) that takes a deep dive look at Corporate performance across a broad group of industries including Aerospace& Defense, Financial Services Consumer Products and Retail, Technology, Media, Telecommunications, and Automotive. In spite of the vague and cryptic nature of the content, I think there is some real value in going through this (that is if you have the patience to digest a 208-page manuscript- someone should talk to the authors about the need to be succinct when producing content for web-publishing).


The key theme of this rather lengthy report is that Return on Assets across public companies is down 75 percent and corporate performance metrics currently utilized across businesses may not be appropriate.

The report then proposes that there is a “Big Shift” in underlying economic and behavioral trends the convergence of which is the fundamental driver of this performance erosion. The report then goes on to dissect how this so-called Big Shift is playing out across these different industries.

The report further proposes a “Shift Index” to quantify this phenomenon along three dimensions (quantified by 3 other indices- I suppose they need to make it complicated to sound sophisticated!):

Foundation Index: As defined by the report “The Foundation Index reflects new possibilities and challenges for business as a result of new technology capability and public policy shifts.” Put simply this is the infrastructure that has redefined business processes including digital infrastructure, and asynchronous and integration of geographically disparate resources that optimizes productivity. This metric is apparently evaluated at economy-level and therefore not analyzed by industry. Not sure why this would not differ across industries in an economy?

Flow Index: Defined by the report as “the Flow Index, is characterized by the increasing flows of capital, talent, and knowledge across geographic and institutional boundaries.” Translation- this basically builds on the Foundation Index- which is a more static perspective of resources. The Flow Index emphasizes the fact that Knowledge, Technology and other resources are in a constant state of flux and emphasizes the ability to constantly tap into evolving reservoirs of these resources to replenish current resources (not surprisingly- in the spirit of complicating concepts in pursuit of sophistication the report looks at two additional metrics within the Flow Index- Inter-firm Knowledge Flows and Worker Passion metrics).

Impact Index: If the descriptions on the previous two metrics were a bit vague, this one borders the esoteric. “…the Impact Index reflects how well companies are exploiting foundational improvements in the digital infrastructure by creating and sharing knowledge— and what impacts those changes are having on markets, firms, and individuals.” From my humble view-point, I think this is basically a measure of how well companies leverage their abilities around the previous two indices to create competitive advantage- I can buy that.

All in all I think there is some very useful information in this report, as to the effort required to go through this article to get to that information- to tweak a quote from a well-known movie "the juice may be just about worth the squeeze". If you are looking for specific analysis for the industry vertical of your interest, I would recommend going through the corresponding section of the report- what I have summed up above should save you some time on the rest of the material.

Note: This is an independent and unsolicited review of publicly-available material and neither the writer of this commentary nor this website takes any credit or liability for the original material being reviewed in this commentary. Please use your judgment in considering this review.