Take advantage of unexpected events

What is common (and of interest to businesspeople) among Brangelina (the relationship of Brad Pitt and Angelina Jolie), TomKat (the relationship of Tom Cruise and Katie Holmes), Revenge of the Sith, Paris Hilton & Paris Latsis, and Carrie Underwood (the latest American Idol)? Well, these popular culture "events" can actually throw your business planning into chaos due to the enormity of their impact. While businesses can plan for certain events, for instance, release of a movie or the finale of a TV program, but the divorce of Brad Pitt and Jennifer Aniston was totally unexpected and no one could predict when Paris Hilton would accept a proposal from Paris Latsis?

While people are affected by political and economic events, the engagement is less powerful than cultural events. President Bush would love to get the kind of audience Michael Jackson received the day of his verdict for his proposal to privative Social Security.

What does it mean for you?

1. Have a contingency plan in place for unexpected events. While your day-to-day business may be impacted, the impact is far greater if you are launching a new product or starting a sale.
2. Events can affect you negatively if you do not plan ahead or fail to react on time. A classic example is that of a bar that offered one free drink to anyone who watched the Michael Jackson verdict on the large screen TV in their bar. While Jackson was driving to the courthouse, the restaurant owner was able to get his message on the local radio. It was one of the best evenings for the business.
3. Always stay on top of what your customers are doing and where their attention is focused. For example, you do not want to organize a customer appreciation day when all of them are attending an industry event. Similarly, you can not launch a new music CD when all music fans want to know if Michael Jackson is going to jail or not.

Recommended article: How to delight your customers?

Guidant slow in recall of Ventak Prizm, Contact Renwal

In terms of an effective product recall strategy, I have argued that there need to be two fundamental elements:

1. Development of a strategy at the same time the product is launched so that in case of a problem, everyone knows what to do.
2. Be proactive in recalling rather than dragging your feet.

Guidant Corporation did neither of the two. When first report came out that that the company continued to sell defective cardiac defbillators, the process of delays and denials started. Only now the company has finally decided to recall a series of devices (Ventak Prizm, Contak Renewal, Vitality AVT, etc.).

There is a very important reason why we at iProceed insist that our clients have a product recall strategy in place and always demonstrate the highest ethical values - the impact of lawsuits. A few recent examples of drugs like Vioxx, Bextra, Tysabri, Adderall, etc. show that when companies delayed their recall process, they were hit with more class action lawsuits and attorneys find it easier to show bad intent and negligence when companies deliberately hide information and/or do not act fast enough.

So when the president and CEO Ronald Dollens says, “Patient safety is paramount and our highest priority,” it sounds as hollow as Merck's motto "Where patients come first."

What does it mean for you?

1. Product recall strategy should be a part of a company's risk management program. It is not a good idea to avoid dealing with this issue.
2. Never show a careless attitude about the well-being of your customers (particularly where health is concerned). People understand that things may go wrong or some products may be manufactured with defects; the problem gets worse when a company engages in a "fight" with the customers hoping that they can either make the problem go away or that they can simply ignore those who have been injured.
3. Research cases of companies that have recalled products in your industry (if no examples are available, analyze cases of similar studies) and learn from them in developing your strategy.

Related article: Strategic lessons from recall of Vioxx and Bextra

Pfizer mishandles Viagra controversy, particularly if a recall happens in the future

How to grow in emerging markets? Nokia tells how

In March this year, I had a chance to have lunch with Sanjay Behl (at the conference on India and its neighbors at the Harvard Business School), the head of marketing at Nokia India. It was quite exciting to hear about the rapid growth of mobile phones in a poor country like India and how Nokia has been creative in customize its offering to the local situation. In other words, Nokia is an excellent case study for all those companies that have huge businesses in the developed world but are struggling to grow because of the mature nature of the market.

Countries in Latin America, South East Asia, Africa, the Middle East, and Central and Eastern Europe are among the fastest growing new markets for mobile services, according to new consumer research by Nokia. The study found that brand, handset quality, and network service quality are strong market drivers in New Growth Markets that sometimes outweigh the cost factors that industry watchers typically expect.

I have even come across studies that camera phones are really popular in these markets compared to the United States, for example, where vast majority of us are happy with a handset that can simply let us make phone calls. The study also revealed another interesting statistic - the value of a brand. We have become so obsessed with lower price that brand for us is rarely an issue. With commoditization being the trend all the way from grocery items to electronics, we do not value brands as much. In these markets, on the other hand, handset brand is the main factor in phone choice among respondents. On average, 46 percent expressed this opinion unprompted; among the 16-24 age group it is even higher at 52 percent. In India it is 64 percent.

What does it mean for you?

1. While the developed world may continue to provide you with the bulk of your sales and profits, the growth is simply not there. So look for markets that are growing and try to ride the wave.
2. A lot of growth is happening in countries where English is not spoken (India is the only exception). That should not scare you. While English usage will grow as the world shrinks, as local economies become stronger, people will see lesser need to learn English (similar to the cases of countries like Japan, South Korea, France, etc.). Like Nokia, develop a local team of smart executives like Sanjay Behl that can drive growth because they understand the local market better than anyone who is not there.
3. Stay on top of trends and drivers through research. Useful information on growth opportunities can often come from unexpected resources. For instance, this article while talking about the cell phone market growth, also indirectly points to growth opportunities for batteries, cell phone accessories, prepaid cards, retail outlets, etc.

Recommended articles: Growth opportunities in China

61 million Americans seek cheap healthcare

When I had argued that our healthcare system is ready for structural changes (as a result of a collapse due to it being totally dysfunctional), I did not know that the problem was even worse. Apart from 45 million uninsured Americans (US is the richest country in the world), there are as many as 16 million adults that were underinsured in 2003, meaning they did not have enough financial protection to cover their health care expenses. (Related article: Business opportunity in providing healthcare to uninsured Americans)

In a study, "Insured But Not Protected: How Many Adults Are Underinsured?" The Commonwealth Fund's Cathy Schoen, Michelle Doty, Sara Collins, and Alyssa Holmgren find that inadequate coverage — much like no coverage at all — creates obstacles to care and other burdens. Underinsured adults are almost as likely as the uninsured to go without needed medical care and to incur medical debt. Lower-income and sicker adults are most at risk of having inadequate coverage. The authors warn that recent market trends will likely place increasing numbers of insured patients and their families at risk, due to higher cost-sharing and out-of-pocket cost exposure. An increase in the numbers of underinsured could undermine effective care, health, and financial security—making it harder to distinguish the uninsured from the insured.

While the statistics are very depressing, as I have been arguing before, not all the under-insured (and of course, uninsured) are poor or unemployed. As shown below, the Census data shows that as many as 12 million uninsured Americans have family incomes exceeding $50,000.

While the authors are talking about "the need for policy attention to insurance design," I think that market forces will be the drivers of change here. The cost of healthcare will drop and that will happen not because of policy changes but due to globalization. The authors warn that without policy attention, current trends toward rising cost-sharing will likely mean increasing numbers of underinsured among modest and lower-incomes adult and their families. Since policy changes are unlikely, businesses have to step in. And based on some recent discussions that I have had with overseas firms, the players will not be American firms - they will be companies based in Latin America and Asia.

What does it mean for you?

1. Americans are already comfortable with overseas treatments since they order prescription drugs from Canada and Mexico and fly to many countries for plastic surgery. For non-emergency care, as long as the total cost of going overseas is lower than what they would have to spend here, Americans will take it - we know how to get value.
2. The goal for any business to serve this market has to be to provide high-quality services at affordable prices. Long-term value will be created only through excellent healthcare.
3. Forget the policy changes. The system is broken to an extent that nothing is likely to happen at the federal level anytime soon. I like the efforts of Governor Mitt Romney, but it is very likely that his plan might simply die because his political opponents may not want him to succeed at something that will be so remarkable.

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Keywords: Underinsured Americans

TV advertising about to decline

An unconfirmed report by The Wall Street Journal says that Procter & Gamble is sharply cutting its advance purchases of television commercials. My reaction was "So some advertising folks are finally getting it!" In fact what surprises me is that there are still so many ad executives who continue to spend their dollars on television advertising - what is clearly a very low ROI channel.

The report says that P&G will reduce its spend with cable channels by about 25 percent. So where is the money going? Product placement is clearly happening. I had talked about this in the past in the context of what you need to do when traditonal advertising is not effective. The approach that I like is what you see on a program like the Queer Eye for the Straight Girl. I had used the example of Crest Whitestrips placement by P&G.

If P&G were to do what the Journal is reporting, it is nothing surprising to us here at iProceed. However, since it has become public knowledge now, other advertisers will follow considering that the company is the No. 1 U.S. advertiser, spending roughly $2.5 billion on TV.

What does it mean for you?

1. Think of your advertising effectiveness all the time by measuring ROI.
2. Take action when your advertising ROI is lower than your target. It is better not to advertise than to advertise with a low ROI. (Related article: How to change advertising strategy?)
3. Explore other channels to advertise. Be creative. See if online advertising will work for you. Check out affiliate marketing or whatever other channels are appropriate for your business.

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Keywords: Television advertising

Is your website blacklisted by a search engine?

There will be occasions when your website might be thrown out of a search engine for no reason at all. Actually you may not even have done anything wrong at all and you may still be thrown out. Why would that be? If you follow standard web design practices and a substantial number of websites start to employ the same tricks, it is not uncommon for search engines to penalize all websites so that they can control search engine manipulation. In other words, you are simply a victim of search engine algorithm change. (Related article: How to do marketing for your website?)

What can you do if a search engine blacklists your website?

1. You can write to them. However, except for Google, do not even expect that your email will be read by a human being. You might simply receive an automated response. With the huge number of websites on the Internet and the number of emails that the search engine staff might receive, it is unreasonable for you to expect that someone will actually read that email. Most companies do not bother to read or respond to emails unless they are from paying customers.
2. Another point to remember is that in most cases blacklisting of a website is not done by a human. It is an automated process. Thus, changing the database to include a website that has been thrown out by a computer is not easy.
3. Most search engines do provide some guidelines about what they consider as unacceptable practices for web design. Read these carefully and if you realize that some of them apply to you, try to redesign your website. But as I said before, a practice that is encouraged by one search engine may mean blacklisting by another.
4. Finally, it is important to understand that some of the search engines use these methods to force you to pay them for inclusion in their results. This is simply a desperate attempt by these search engines to make money either through a listing or through advertising.

Suggested strategy if you get blacklisted

While it is important to use good web design practices, you do not have to change your practice if you rank well in most search engines but one of them bans you. However, if your analysis shows that you can make minor changes to satisfy the requirements of that search engine, it is fine to do so but most search engines do not have automatic reinclusion feature. In other words, the system will throw you out but will not automatically include you back because once you are thrown out, the spiders stop crawling your website. So my suggestion is that you should simply move on and focus on other search engines.

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Healthcare sector ready for major reforms

For the longest time, I have been arguing that there are enormous business opportunities in the healthcare sector - more specifically, in providing healthcare services to the uninsured. During last couple of days, two more interesting pieces of data were made available that make the argument even stronger.

1. Health insurance premiums will cost families and employers an extra $900 on average during 2005 to cover the costs of caring for the uninsured, according to a report released by Families USA, a non-profit, non-partisan organization. With the added cost, the yearly premiums for a family with coverage through an employer will average $11,000 in 2005. By 2010, the additional costs for the uninsured will be $1,500, and total premiums will hit $17,000. In 11 states, the costs of the uninsured will exceed $2,000 per family.
2. General Motors is reporting that its huge healthcare commitments are primarily responsible for its problems ($1,500 comes out from the profit of each car to pay for health insurance). GM also announced massive layoffs and plant shutdowns.

The conclusion is that inefficiencies in the healthcare system are reaching a point at which structural changes in the marketplace will eliminate these efficiencies. Indeed, there will be resistance from current participants in the healthcare value chain (particularly those that do not know what a business model transformation is, but eventually market forces will win.

In a recent speech Massachusetts Governor Mitt Romney confirmed what Families USA is saying by pointing out that the costs of the uninsured are eventually shifted to businesses and insured Americans - or to the governments, where those same businesses and individuals pay for uninsured care through their taxes. He said, "There is, in fact, no such thing as truly free care - free care is just an additional burden on those who are already paying their own way." In other words, the current system is broken can not survive power of market forces in a capitalist economy like ours. The current system "is costly, inefficient and ineffective. Put simply, a bad deal for everyone," Romney said.

In that context, there are two developments that should be highlighted:

1. Governor Mitt Romney has put together an excellent program to reform Massachusetts' healthcare system to allow all citizens to access affordable healthcare, without raising taxes. How is he able to do it? He is working with the insurers to provide a product that covers preventative care, outpatient, inpatient, pharmacy, ambulatory and mental health services at a mere $200 a month. It is not just a catastrophic-only or any other type of "skinny" health insurance. The prospects of this being approved are extremely high and that only means that additional revenue for anyone in the value chain who chooses to participate in it.
2. A company called TelaDoc has implemented the idea that I have mentioned previously. While it is not conventional health insurance per se nor is it comparable to a clinic visit, but the service offers cost-effective, around-the-clock telephone access to physicians at just $35 per call. The service costs just $4 a month. So for all those millions of Americans who get suffer because they can't even speak to a doctor, this is an excellent service as it allows them to have even prescription drugs.

What does it mean for you?

1. Research the healthcare sector, particularly the value chain. A paradigm shift is about to happen and that means a lot of new opportunities to create value.
2. Some the existing business models in the healthcare and pharma value chain are about to become obsolete. This is an excellent time to research the trends and competitive dynamics to assess how you will be affected and take action.
3. If the Massachusetts initiative succeeds, it will generate a tidal wave in the insurance industry. That means both opportunities and threats. Study how it will impact your business.

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Keywords: Healthcare - Insurance - Business model

Links: Massachusetts Government - Families USA - TelaDoc

Cost cutting by GM is not the solution

When General Motors' Chairman and Chief Executive Officer Rick Wagoner announced that it will reduce its manufacturing employment level in the U.S. by 25,000 or more people in the 2005 to 2008 period to generate annual savings of approximately $2.5 billion, my reaction was, "Too little, too late."

When a business leader uses layoffs and plant shutdown as the only ways to create shareholder value, it is time for her/him to stop leading that enterprise. It is the easiest way out. Even an idiot can cut costs by doing this and make the business look profitable. It does nothing to improve the overall, long-term outlook of the business. (Related article: How to implement cost-reduction programs?)

Let us briefly look at what GM's competitors are doing while it is trying to cut costs and shut down plants. Hyundai has recently invested approximately $1.4 billion in North America and has now facilities in Alabama, Michigan, and California. The company does not stop talking about the number of American jobs that it has created, because it really has. The Alabama plant, Hyundai’s first U.S. manufacturing facility opened May 20, 2005 with an investment of $1.1 billion.

Similarly, Kia - another GM competitor, continues to sell more cars each year, as demonstrated by the chart below provided by the company.

So why is GM having difficulty surviving in a market in which the Korean and Japanese carmakers are thriving. Wagoner attributes "high structural, or fixed, cost base" as the main reason. Of course, there are others - healthcare costs, for instance. GM reports that it loses $1,500 from the profit of each unit that it sells. In a market in which margins keep shrinking and consumers are opting to buy fewer expensive SUV's, this can make all the difference.

In other words, GM's business model is collapsing and the company refuses to admit it. And it does not appear as if the company is working on a business model transformation. GM is merely being tactical in its approach, and while this may divert the attention of the shareholders for a few quarters, the long-term issues remain unaddressed.

What does it mean for you?

1. If you are in a manufacturing business, take a hard look at your cost competitiveness. Your competitors may come from overseas, but do not be surprised if an overseas company beats you right in your backyard.
2. Ruthless cost cutting might make sense as part of a business model transformation, but if it is the only thing that you are doing, you are not helping anyone. Neither your employees, nor your shareholders, and nor your customers. If a manager can come up with only this idea to fix a problem, it is time to say goodbye to that individual.
3. What may give you a competitive advantage at some point in time may mean nothing at another point in time. While making cars was high-tech a few decades ago, it is no longer the case. Koreans, who already dominate many high-tech areas, are fully capable of making great cars.

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Keywords: Cost cutting - Healthcare costs

Scripps acquires perfect candidate Shopzilla

On the heels of eBay's acquisition of Shopping.com, which I did not think was an excellent strategic move, comes the announcement by E.W. Scripps that it is acquiring Shopzilla.com. In my opinion, this acquisition makes perfect sense as does the acquisition of About.com by The New York Times.

Why these acquisitions make sense?

• Steady decline in newspaper subscriptions.
• Loss of interest among 18-34 males in watching television.
• Explosive growth in online advertising and search related to shopping

Particularly for Scripps, which owns some of the hottest online properties in its portfolio, acquition of Shopzilla is an excellent strategic fit. As Scripps will face challenges in its newspaper and TV stations business, investment into its online business will provide it with the resources for a gradual business model transformation.

What does it mean for you?

1. The world of advertising is undergoing structural changes with greater emphasis on pay-for-performance. If your business model is based on no guarantees for performance (e.g. television, print media, etc.), it may be a good time to rethink your strategy.
2. Acquisitions provide an excellent vehicle to access new technology platforms and markets if it will take you unduly long to build it yourself.
3. Developing a good understanding of the competitive landscape in real time is key to success in business.

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Keywords: Mergers & Acquisitions - Shopzilla - Scripps

Poor logic for eBay acquisition of Shopping.com

I have been scratching my head all day today to figure out why eBay, a great company that I admire immensely, will acquire Shopping.com. Not that Shopping.com is not a good company, but somehow I do not see a business model fit between the two. eBay has been very successful in its niche and so has Shopping.com, but the two types of shoppers that they attract are so far apart in their approaches to shopping.

While eBay is characterizing the acquisition as a way to provide more opportunities for its sellers, I believe that eBay wants to tap into the pool of 50 million visitors to Shopping.com website. With its 60 million users, eBay will have access to approximately 100 million visitors allowing it to become even a larger player in attracting online shoppers - the people that Google, MSN, Yahoo, Amazon, and many other websites are chasing.

The other reason why eBay is interested in diversification is the modest growth rate in the auction business. Through its aggressive strategy, eBay has captured the market on a global basis faster than anyone would have expected. However, further growth will only come when more users go online in Asia and broadband penetration improves in North America and Eastern Europe.

I am typically very skeptical of M&A where there is no clear business model fit and that is why if I were a shareholder of eBay I will be quite concerned. The value that Epinions and Shopping.com create is available to anyone with a click. Why should Shopping.com then be a part of eBay, I don't understand. I had the same doubts when eBay acquired Paypal. Paypal could have become the de facto payment system for eBay users even if they did not acquire it.

What does it mean for you?

1. Do not make an acquisition just because you want to grow.
2. If a partnership or strategic alliance can do the job, never merge or acquire. In case of Paypal and Shopping.com, eBay would have been better off with an alliance.
3. Acquisitions often create distractions and distractions are not good for business. Small acquisitions are even worse.

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Keywords: eBay - Mergers & Acquisitions