Thursday, November 29, 2007

A disappointing turn of events

The bozos at Yoshinoya have increased the price of the "Spicy Combo" bowl with impunity! Including tax, the cost is now 22 cents higher. That's disgusting! I wouldn't have objected so much if they had increased the price of the "sissy" combo (which I never have), but why would they increase the price of the spicy one, knowing full well that it's my favorite?

Tuesday, November 20, 2007

Supply, Demand, and Holiday Sales

Economic theory suggests that as demand increases, sellers will be able to increase prices of scarce products. With an increase in demand, the new demand curve would intersect the supply curve at a higher equilibrium price. Why, then, do we actually see steep price discounts during the holiday shopping season when consumers are seeking to buy a large amount of goods?

        • Demand requires a willingness to pay in addition to an interest buying in the item. Therefore, it cannot be definitively concluded than an increase in demand has actually occurred.

        • There is high substitutability among many gift items. Although some shoppers are intent on buying a specific gift for an individual—such as a particular toy requested by a child—most consumers have considerably more leeway in choosing between numerous suitable gifts for an individual. A book, a DVD, or a T-shirt may all be suitable for an individual. Within each of these categories, there are a lot of choices—both among brands and retailers. The ready availability of substitutes decreases demand, resulting in a lower equilibrium price.

        • Increased elasticity among consumers during the holiday season will encourage retailers to discount. Retailers which offer low prices are likely to both attract more shoppers and sell more merchandise to each. This is especially the case in densely populated areas where traffic—and finding a parking space at the mall—may be difficult, thus making “one stop” shopping convenient. Consumers may choose to other, higher-margin merchandise while in the store when they come to find the “loss leader” items. For children who may receive multiple gifts, sales may especially encourage greater quantity purchases.

        • Retailers compete intensely among themselves. Each retailer competes not just with others selling the same brand and category, but with all who offer substitutes. Antitrust laws in the U.S. prevent retailers from getting together to “fix” prices. With the proliferation of discounters, everyone competes against the lowest price. Large discounters such as Wal-Mart and Target have considerable bargaining power due to the volume they purchase, so these can negotiate very low prices and, because of the high price elasticity among consumers, will find it optimal to pass much of the savings on to customers. Over the last two decades, a large number of “category killer” retail chains have emerged. Chains such as Circuit City, Best Buy, Staples, and Office Depot specialize in a limited assortment of goods. Within these categories, the “category killers” move large volumes, resulting in considerable bargaining power. In addition, many of these chains will make very large volume orders on items in targeted categories well in advance in return for exceptionally low prices. All these retailers must in turn compete against warehouse clubs such as Costco and Sam’s Club.

        • Since much of the merchandise ordered for the holiday season will lose considerable value after the holidays, it is important to “move” this merchandise before Christmas. Extreme examples of this involve ornaments and wrapping paper, but even categories such as jewelry are heavily affected since there will be few major gift occasions during the subsequent months.

        • Because of a tradition of heavy pre-Christmas discounting, retailers must try to “one-up” each other to stay competitive. Historically, there were few major before-Christmas sales. Back in the days when the retail environment was less competitive, the plan was to discount little before and then hold “after Christmas” sales as needed. However, in years with a sluggish economy, retailers often got nervous over the large amount of inventory remaining and, fearing that they would be stuck with merchandise, they concluded that sales would be the lesser of two-evils. In subsequent years, then, stores had to second guess each other, trying to discount before they did. Gradually, then, these sales became institutionalized, with consumers being reluctant to buy before discounts, spurring on the vicious cycle.

        A November 14, 2007, article in the Wall Street Journal suggested that discounts might be less extreme this year than they have been in recent years. Retail stores now have access to better price optimization software and are, in some cases, less dependent on the holiday season due to the growth of store brands. There may well be some modest “cooling off” this year for these reasons, but it is unlikely that discounting will decline dramatically. The retail environment is, if anything, getting more competitive. Further, with Thanksgiving falling on November 22 in 2007—the earliest it can fall in any year—many retailers may, ironically, be overly optimistic in their sales expectations and may, therefore, stock too aggressively. Although consumers have longer to shop, there is also a potential for much more merchandise to remain at critical points. Even if retailers, on the average, order the right amount, those which have over-ordered may have to discount heavily and, in return, spur on the competition. They “category killers” and discounters are here to stay, and their effects spill into the entire retail market.

        Thursday, November 15, 2007

        An extra day of profit

        This year, Thanksgiving falls on November 22, the earliest I ever remember it. The date of Thanksgiving has some significance to me since this way the day on which my family immigrated to the United States. Back in 1978, Thanksgiving fell on November 23, and I do not remember Thanksgiving ever coming earlier. It probably did at some point during the past 29 years--even with leap years, I would think that the fourth Thursday of November should happen at least once every 7+1+7=15 years--but I don't remember this ever being the case.

        The good news for retailers is that with the Friday after Thanksgiving traditionally marking the "serious" start of the holiday shopping season, this year, people will have a longer time for shopping this year. Legend has it that former President Dwight D. Eisenhower once tried to move up Thanksgiving one week to allow for a longer holiday shopping period. I am not sure how successful he was at this--that is, whether he actually succeeded or not--and, as I understand it, a lot of people resented this seeming "commercial" motivation for messing with a day marked by a long tradition. Others may take a different perspective. In an admittedly different context, an earlier President had expressed his strong approval of certain people "in the way of progress."

        Dysfunctional maybe, but gratitude nevertheless

        As thanksgiving approaches, it may be instructive to examine the case of the rather dysfunctional--but hugely successful--singer portrayed in Joe Walsh's song "Life's Been Good."

        The singer owns a mansion. Although he has been told that "it's nice," he has never actually been there and cannot remember its price. Instead, he "live[s] in hotels" and engages in the rather socially irresponsible behavior of "tear[ing] down the walls." At least, however, he has the decency to "have accountants pay for it all." He he readily admits that "[he] can't complain" but nevertheless "sometimes [he] still [does]."

        The singer owns a Mazaratti capable of going "185" (it is not clear whether that is miles or kilometers per hour). Unfortunately, he has "lost [his] license," and as a result, "[he doesn't] drive" anymore. Instead, he rides in limousines, sitting in the back. He has the presence of mind to "look the door" to guard against attack.

        The singer is somewhat overwhelmed by the his lot in life, acknowledging that "It's tough to handle this fortune and fame." Although he looks "for clues at the scene of the crime," he seems to be rather clueless as to why he is actually so successful. It may have something do with his fans who "can't wait" for the release of his next albums and write him letters saying that he is "great." His office features "gold records on the wall." He is rather non-committal in saying that "maybe [he'll] call if you leave a message." Personally, I wouldn't hold my breath waiting.

        He is accused for being crazy, but on the upside, he "has a great time." He admits to staying late at parties "sometimes until 4 [a.m.]." Although it is not clear why he ultimately succeeds, he reminds the listener of the difficulty of leaving "when you can't find the door." People accuse him of being lazy, but he indignantly insists that his activities "take all [his] time."

        This guy really seems do be doing the best he can even if he fails to comply with social norms. All this seems to suggest that being normal is not necessary for success--and may, in fact, be an obstacle to extraordinary success.

        Monday, November 12, 2007

        Why is gold so valuable?

        My first post on the Marketing College: Essential Marketing Knowledge blog at addresses the question why gold is so valuable considering the fact that supply by far outstrips its substantive uses. Why is it so attractive to have gold sitting around in a bank vault?

        Sunday, November 04, 2007

        How many absent-minded professors does it take to change a tire?

        Surprisingly, at least in some circumstances, just one. It is not clear, however, that he or she will know when to change the tire--or get the "details" right.

        Today, I got a bit worried when my front right tire scratched against a cement barrier after a sharp turn, so shortly afterward, I stopped at a Staples parking lot to check out the tire. Sure enough, it looked like it might have lost some air. Luck had it that Costco, where I had been headed, was only 0.4 miles away, so I changed the tire to the spare and brought it into the tire shop at Costco. The technician who looked at it did not see anything wrong, and measured that the tire actually had a normal 26 lbs. pressure. I showed him a bit of an indentation on the side of the tire, but he said that this would not be a problem. I was concerned about how sagging the tire had seemed, but he then explained to me that front tires "always look flat" because they carry "2,000 more lbs. of weight" than the back tires. So, I ended up changing back from the spare to the "original."

        Back many years ago, a tire technician laughed when he was about to put the tire he had fixed back on and noticed that I had turned the wheel the wrong way.

        This is clearly not my area of competence!

        Saturday, November 03, 2007

        What would have been a century mark

        My grandfather passed away a little less than seven years ago--on December 31, 1999, which was probably a rather symbolic date. Today would have been his one hundredth birthday. At the end of this month, we will be celebrating my grandmother's 95th birthday. As I reported in this summer's "unholiday letter," my grandmother is still active online and in Photoshop. Yes, it is somewhat embarrassing that my grandmother knows considerably more about that program than I do!

        Getting back to my grandfather, he was, like nearly all of the rest of the family, a genuinely proud eccentric. A one hundredth birthday celebration would probably have been a rather mixed blessing. My grandfather, for one thing, did not really like to receive gifts. He was one person who would actually be happy to hear that his gift had been bought on deep sale or at least in K-Mart or Wal-Mart. We learned to give him gifts that it would be least unpleasant for him to receive. For many years, I would always give him a stash of pens for his birthday and for Christmas. Being absent-minded in addition to being eccentric, he would lose pens at a quick rate. My sister learned that it was a "safe" bet to give my grandfather Vitabath, the bath aromatic that he would use every day.

        My grandfather was also into getting value. When eating at restaurants, he would collect all the small packs of sugar on his table to feed to his bees. For many years, I and the other grandchildren would be sure to collect sugar from the restaurants we visited so that we could bring them go Grandfather on our next visit. (At the time, dining out tended to be a relatively rare event in Denmark, so I doubt that all of us together were able to provide sugar for the bees for much more than one day per year). These gifts that had not cost us anything did not bother him.

        When we were little, my grandfather used to tease us about our noses being missing. When we pointed out that we had noses still, he would say that those were not our real noses but rather ones that we had bought at the grocery store.