The Grass is Greener at USC

It is clearly evident that the grass on campus is now both literally and figuratively greener. Normally, I am rather suspicious of change, but, with green being my favorite color and with the environmental benefits of not having to irrigate artificial grass, this seems like a good one.

Valentine's Gift for Geeky Girlfriends

Costco features a deal at http://www.costco.com/Browse/Product.aspx?whse=BC&topnav=&prodid=11188565&ec=BC-EC877-CatHome&pos=6&lang=en-US where a $59.99 discount is given when a Magellan Maestro 3250 auto GPS system is bought along with three dozen roses.

Juicy gossip in the LA Times

The online version of the Los Angeles Times today features an article whose link from the front page features a title one might expect more to read in the National Enquirer: "Text messages point to affair in Detroit."

On second thought, maybe the Enquirer would use words less restrained than "point to."

A bad dream--in two stages

The other night, I first dreamed that I was on my way to guest speak to a colleague's class at a nearby institution. I had budgeted plenty of time, but suddenly realized that I had only twelve minutes until the talk was scheduled to talk--but would definitely not be able to make it to the location--which I wasn't entirely clear on where to find. To make matters worse, as I was sitting in a parking lot to call my colleague, my cell phone was stolen. A woman approached me, asking, of all things, for an aspirin (which I must somehow had had with me), and while I was distracted, her partner in crime stole my cell phone. I woke up and wondered if it was really safe to keep my cell phone on my belt, or whether I was too vulnerable to get it stolen that way in real life.

In memory of Dr. Walter Rice

The day before yesterday, I received the sad news that my old economics professor--both from my undergraduate days and from the MBA program--had passed away that morning.

Dr. Walter Rice was an old-timer at Cal Poly--going back to the days when the place was known by some as "Cow Poly." As I recall, Dr. Rice joined the Cal Poly faculty in 1964, the year in which I was born. Before then, he had first had a pre-college stint as a textiles buyer and then, after completing college, a career with the Department of Transportation (or some other state or Federal transportation related office). Dr. Rice developed a course in the Economics of Transportation, and his interest in that showed itself in other courses, too. One day, he prefaced an example by saying something to the effect that "Knowing my personality, you can probably guess that this has to do with transportation." Having originally joined the faculty without a doctoral degree, Dr. Rice spent an interlude receiving his Ph.D. at what was then (and until recently) known as the Clairemont Graduate School. He had, however, returned to campus years before I ever showed up.

Dr. Rice showed a great deal of enthusiasm for his field and was renowned for his constant references to "fat little dollars." One time, when the MBA Association had a contest for the design of an Association T-shirt, a group of us submitted one featuring capitalist pigs (with curly tails) "gobbling up fat little dollars." One time in class, to demonstrate reservation prices, Dr. Rice pointed out that you would obviously not turn down an offer from a potential employee to work for less than you would have been willing to pay. "You jump with joy!" he said instead.

Every year, Dr. Rice would start his MBA economics course with the story of Robinson Crusoe, illustrating first the benefits of investing time in making a net to catch fish and then diminishing returns to scale when more people joined Robinson in catching the fish. Robinson Crusoe was, of course, a profit optimizer. During my second MBA year--the course was featured in the first year--one of my classmates told me that a dozen or so people from my year had returned to hear his introductory story again.

Dr. Rice knew that some of us--especially those of us who did not have much of a math background--found certain aspects of his course rather difficult. Sadly, I no longer remember exactly what "isoquant" curves are about, but I remember those being especially challenging. One day, Dr. Rice alluded to the relief that many of us might feel after the upcoming exam was over. He then discussed a hypothetical scenario where, to celebrate the completion of the exam, we would head up to San Francisco. He suggested--illustrating some marginal phenomenon--that when we reached Gonzalez (probably about 75 miles North of San Luis Obispo--or some 300 miles North of Los Angeles on Interstate 101) and suddenly spotted him, we would want to be as far away as possible from him. Fortunately, it happened that at Gonzalez, there was an "arc" type road briefly running along the freeway, and going on that would maximize the distance from him.

Dr. Rice would often refer to "utils," a unit of utility. He mentioned that a meter to measure this quantity could be calibrated by pointing to the course text book. Finding that the utility for the book measured at -3.5, we would know that the meter was working properly. Dr. Rice's constant use of the term "utils," unfortunately, came back to haunt him when a disgruntled former student--with a vivid imagination--filed certain outrageous charges against him. Among her allegations was that the term was a secret code word used by Dr. Rice and a student assistant to refer to cocaine--or some other elicit substance--that they were allegedly dealing. Tragically, it took close to a year to clear Dr. Rice of these fabricated charges.

Dr. Rice did not take kindly to people who ditched class or failed to pay proper attention. Back in the days where few faculty recorded student attendance, he was a pioneer. One day, he announced that for those who were absent that day, the day's notes would be due at our next class meeting. Those of us who were present, however, did not have to worry about this. Dr. Rice took grave exception when, on the first day of classes, the caught a student looking through the class schedule during class. He expressed his vehement view that he considered such behavior "very rude." The last two words, in particular, thundered. One of my classmates who took a different section from mine mentioned that near the end of class, a student was startled by some outside noises and glanced at her watch. "Class ends when I say it ends!" came the stern and roaring reprimand. Dr. Rice liked to keep the door to his classroom open--presumably so that passers-by would not miss out on his wisdom. In my second year of the MBA program, a very beautiful woman in the program was taking Dr. Rice's class. I knew that I could stop and admire her--deeply absorbed in the lecture--for a few moments without getting caught. Later, she told me about not daring to fail to pay full attention in that class.

To make sure that no one--despite paying close attention--missed out on his wisdom, Dr. Rice would often repeat himself. There were also certain hypothetical entities that kept coming up--e.g, the "W. E. Rice Widget Company."

I have fond memories of Dr. Rice and will miss him. I am also very disappointed that Dr. Rice passed away years before he would have had a chance to see one of his favorite students receive the Nobel Prize in economics.

I saw Adrian Monk knock out Santa Claus with a candy cane...

Well, it wasn't actually the real Santa Claus, but rather a criminal who ran away after he had created a distraction by dressing up in a red suit while his accomplices robbed a nearby museum.

Earlier in the episode, Adrian had astutely admonished Julie, his assistant's daughter, that "You wouldn't like [Christmas], either, if you hated it as much as I do."

At one point, Adrian was accused of shooting (albeit not fatally) the impostor when he was engaging in a previous failed attempt at distraction. Adrian, however, claimed that the impostor had come at him and that he only shot in self defense. When interviewed on TV, Adrian's reassurance to the children that he did not shoot the real Santa Claus backfired when he explained that there is no such thing.

It took me so long to find out I was wrong--but I found out

As John Lennon says in the song "Day Tripper," "It took me so long to find out, but I found out." Let me hasten to say that I am not--and have never been--into drugs. (After all, tall people are naturally high.) So that is not the reason for my mistaken impression of what I, until today, thought of as "the 'Barumbumbum' song."

In Denmark--at least until I left--I am not aware of a translation of the "Little Drummer Boy" ever being popular. At least, I do not recall ever hearing the song. Since another Christmas song explicitly refers to "the little drummer boy," I actually thought that that was the song with what title.

Imagine my surprise when--after being in the U.S. for twenty-nine years and one and a half weeks--I learned the name of the song. I also learned that the words apparently are "pa rum pum pum pum." This mistake is clearly not of the astronomical magnitude discussed in my previous post "How Could I Have Been So Wrong"--but it still stings!

Biggest points of the semester

This is the last week of classes for the semester. Tomorrow's lecture will include a reminder of some fundamental truths:

• Income ≠ willingness to pay
• You do not have to make a direct profit on everything you do. What matters is TOTAL profit.
• Having a great product does not mean that consumers will (a) know this and (b) be able to find a place to buy it.
• Selling online usually costs more than going through traditional retailers
• Behavior of segments tends to differ. Averages are often meaningless and misleading.
• Messing with Microsoft is stupider than messing with Jim, spitting into the wind, tugging on Superman’s cape, or pulling off the Lone Ranger’s mask.

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?

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.

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.

Why is gold so valuable?

My first post on the Marketing College: Essential Marketing Knowledge blog at http://marketingcollege.blogspot.com/ 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?

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!

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.