ChaosScenario

New bloggers demonstrate passion

Blogging takes a lot of work. Increasingly more people more companies and people want a blog. That's a good thing, however, most don't understand the hard work that it takes to come up with content and the discipline it takes to write often enough. It might be a little easier for those who write about online marketing, etc. We live so much of our work and personal lives online. For those who don't, I'm sure blogging may seem like a recipe for frustration.

Friends of mine have taken the challenge. At Fleishman-Hillard, we have an Energy practice that is focused on communication and marketing for companies in the energy industry (utilities, oil and gas, etc.). Excited about getting their ideas out, they created the Energy Communicators blog. A lot of the people in my group helped them set it up but it has been up to them to create content and keep it interesting. Their effort so far has inspired me. They've posted consistently and the posts have been interesting and informative.

As you can imagine, it is not easy to write on these topics. There is a lot of misunderstanding and misconception about energy issues. Real, informed dialog is difficult to find. Most people are just interested in bashing different groups rather than trying to find solutions that will work.

I've forgotten what how exciting it was at first to post a thought and look at the stats and realize people are reading it. I've also probably lost a little of that excitement you get when you have that great idea and you have to blog about it right away. Kudos to these people for taking on the challenge. Check out their blog and let them know what you think. - Paul Herring

The Age of Conversation on Amazon

Profits are still going to Variety, the children's charity. - Cam Beck

Many thanks to Fraser at AdaptiveBlue for the widget and the email done right.

Intense Debate Making Significant Improvements

I'd love to get your thoughts on this. If it weren't so much work to recover from the last time I had difficulties with it, I'd try this out immediately.

To review, here's what I liked about it the first time we tried it:

• It's flat-out easy to use. (That is, if the glitches have been fixed, which so far seems to be the case)
• It's free.
• You can track commenters across blogs.
• Word filtering.

In addition, they've added a few other things that I like since I took it down:

• Twitter tracking
• Leave comments on certain blogs without leaving Google Reader (This requires a Firefox add-on called Disqus created by Paul Arturburn, and it has a few issues, at least on a Mac I'm still trying to figure it out)
• Improved interface

For those of you who remember our prior experience (and those of you who are hearing this for the first time), what do you think? Is it time to give Intense Debate (official blog) another shot? - Cam Beck

Props to Nathan Snell for jogging my memory about Intense Debate.

Apple Posts New Fun Internet Ad on Engadget

I'm curious. If you're a PC user, do you enjoy these spots?

- Cam Beck

A Safety Video That Sticks

CK directed me to this little gem as a good example of a airline's use of the principles written in Made to Stick (Download our PDF review). It is Delta's new in-flight safety video. It does such a good job, it has even been featured in the Atlanta-Journal Constitution (feed readers click through).

My favorite part is the demonstration of the proper use of floatation devices. Watch it and see.

The authors of Made to Stick, Chip and Dan Heath, use the example of in-flight safety videos to make one of their points. I think they'd be impressed by this effort.

Question of the Day
How can you turn something familiar, bland and generally ignored into something fun and sought out, at last count, about 500,000 times? - Cam Beck

P.S. I'm taking a break from writing an economics post today to ensure I can give the next article adequate attention, but if you've been enjoying the subject, I encourage you to read Jalal's recent contribution to the discussion concerning Barack Obama's recent speech, which has implications on the concept of the free market.

Gas Prices in a Free Market - Part I

When I express my admiration of a free market, the efficiency of natural price fluctuations, and how people have the choice to accept the new terms that market forces demand, someone always wonders how this applies to gasoline, which people rely on to a much greater degree than, say, coffee -- the example we have been using (though Jay may disagree that ad agency folks can live without it). The challenge is -- as always -- to encourage people to think beyond the immediate impact on their own pocketbook to realize that, even with gasoline, the free market still works better than anything else that exists or can exist.

In economic terms, the principle people refer to with gasoline is called price elasticity. Simply put, a product is elastic if increased prices cause a decrease in demand: People buy less of something if it costs too much.

A product is considered inelastic if increased prices  have little or no impact on demand: People consume the same or close to the same amount even when the price increases.

Gasoline, considered a relatively inelastic product, is a great example for several reasons:

1. Gasoline is the most popular and (even still) inexpensive mass-produced fuel commodity used for transportation,
2. Our economy relies on it,
3. We have plenty of historical market data to learn from, respecting events that may have had an impact on price, and
4. Government has a history of meddling with the market's ability to increase supply and regulate demand through prices

To demonstrate the historical real price of gasoline, below is a graph found on Illusion of Prosperity.

A Reminder:
To establish context about what that $1 means in today's dollars, we have to adjust for inflation according to a model that we're currently familiar with. Therefore, Real prices are prices adjusted for inflation. Usually this uses current prices as the basis, or prices from a set year as an index.

Framing the Discussion
Over the next few days, we'll look at some very real scenarios that would have an effect on gasoline prices, and how the increase in price is not only justified, but necessary to the meeting of demand.

1. Supply falls, relative to demand. When Hurricane Katrina smashed into the Gulf states, nine large oil refineries (which produce gasoline) and 30 oil platforms were put out of commission for a period of time. This produced such a shortfall of supply of gasoline that it affected world prices.
2. Demand increases, relative to supply. There is a direct correlation between the prosperity of a nation and the amount of energy it consumes. It's no coincidence, then, (assuming a free market works) that as countries started opening up their economies, they started becoming more prosperous. Along with that came an increase in energy consumption, even as both national and world governments restricted others from increasing supply.
3. Taxes increase. This is simply an additional sum tacked onto the price of gasoline. As of 2002, the average combined gasoline taxes leveled by federal and state governments was 42 cents per gallon.

And we will also debunk the myths of excess profits and price gouging, popularized by too many politicians to count (including all, if I'm not mistaken, major contenders for President of the United States), as well as the fruitlessness of the efforts they make to regulate prices.

Please join the discussion. - Cam Beck

The Problem with Price Controls

Price helps people make decisions. It helps them prioritize. It helps people assign value and meaning to objects. Efforts to centrally control prices have historically caused more problems than they have solved.

By way of example, let's keep using the coffee analogy we used yesterday to explain the free exchange of goods and services using a common currency.

A 75-cent a cup of joe has a low cost of entry, and therefore it is accessible by just about anyone.

It would be considered a drink for common people.

However, if there were a great coffee famine in Columbia, the price of coffee might shoot up to $15 per cup, and people would be forced to be more judicious with their consumption of coffee.

Keep in mind that the price of producing the coffee would not increase on lands unaffected by the famine. Their costs are exactly the same, only now they can sell their coffee at a higher price because the global supply would be affected.

Most of us -- even those who work at an ad agency -- would find a way to live without coffee.

With increased prices, it would be considered a drink for the affluent.

To ease your caffeine addiction, you might substitute sodas, tea, energy drinks -- something else -- in the place of coffee, but you probably would not have bothered were the price of coffee not so high.

Now, a few things could happen from this point. Probably a number of them would happen at once.

1. The price of sodas, tea, and energy drinks may increase due to the elevated demand, especially if supply could not be increased quickly.
2. The price of coffee could fall with demand until an equilibrium was met.
3. If the famine seems as if it will be sustained, some would invest in coffee growth to cash in on greater margins the crop promises to yield.

The growers outside of Columbia would experience a huge spike in their margins: Their costs would have stayed the same, but they would charge a higher price.

To compensate for this horrible famine and "obvious example" of market failure, typified by the "excess profits" of "big coffee," government may pass a "coffee stimulus package" or place controls on the price of coffee -- or promising hefty fines to anyone who "gouges the customers."

This line of reasoning is completely bunk.

Were price controls to pass (or if the coffee growers were sufficiently afraid of congressional reprimands for making a profit), people would go on consuming coffee as they normally had, but with the decrease in the global coffee supply, this would cause a coffee shortage, and a lot of people who wanted a cup of coffee and who would have paid for it at full market value would not be able to obtain one.

What about price-gouging?
Say you bought a truckload of (Columbian!) coffee before the famine hit, and you paid $3 per pound. After the famine hit, the value of that coffee significantly increased, even though your costs did not. If you're going to sell your current supply, you have a choice:

1. Sell the stock at a same margins you had been before the famine.
2. Sell the stock at a rate that would allow you to buy and sell more.

Choosing option #1 would stave off the Congressional investigations, but option #2 will allow you to earn a living. With option #1, you wouldn't earn enough to buy much coffee. Option #2 would ensure you had ample supply for people willing to open their eyes to the reality of the shortage before them.

Plus, as we explored yesterday, no one is forced to buy what you have, at your price.

Price helps govern demand so that supply is adequate.

If anyone were selling coffee at the previous levels, the smart business person would buy up his entire stock and resell it at market price. Plus, if your competitor decided to charge above what the market would bear, people would naturally consume less, which would result in less income for your competitor.

In this way, prices regulate themselves.

People have a choice to use their money how they wish in a marketplace of virtually infinite options. They will refuse to buy if the price is too high. And they make these decisions every day, on their own and without government interference.

This does not mean that everyone always makes the best possible choices from the available options, but the choice is theirs, and no one else's. That is freedom.

(This implies, by the way, that freedom requires a certain level of discernment and wisdom -- a topic for another day)

In fact, government interference just restricts companies from compensating for the realities of the marketplace, which makes it harder for them to make a profit, employ people, grow their businesses, and maintain a high level of productivity that is necessary for a growing economy. - Cam Beck

Next time
It would be useful to talk about how these principles apply to something specific that's in the news. You get to decide which. Here are your options.

1. The housing market
2. Gasoline
3. The consequences of the XM/Sirius merger

Please cast your vote in the comments section, along with anything else you'd like to talk about.

How the Free Market Works

Imagine that you walk into a coffee shop and tell the barista that you want a large cup of cappuccino.

"I will agree to give you a title and deed to this coffee," the barista tells you, "and you can use it however you wish. But this is not a charity. You will have to work for it."

"But I've already done some work," you say. "Can I just give you something I've already contributed?"

When the barista asks you to prove that you've done work, you show him a $5 bill. You say, "This is proof that I have done something of value, and I will give you this -- to use however you wish -- in exchange for a cup of coffee."

If both of you find the terms acceptable, you would walk away with the coffee, and the barista would place the $5 bill in the cash register.

Both of you believed you got the better end of the deal. You thought having coffee was worth more than keeping the $5, and the barista thought having the $5 was worth more than keeping the coffee.

Otherwise, you'd have held onto your money, and he'd have kept the coffee.

What if the barista refused your offer and demanded twice that amount of work?

You would then have a choice. You may either:

1. Accept the offer. You hand over a $10 bill.
2. Reject the offer. No way is a cup of coffee worth that much work.

If you rejected the offer, you could make a counter-offer, but only you can decide how much of your useful daily contributions you are willing to commit to a cup of coffee, and only the coffee shop can determine how much they are willing to accept in exchange for that coffee.

In that way, price plays a very important role in a free market. At its core, it is characterized by the following attributes:

1. The owner is free to set his own prices and terms, and
2. You are free to accept or reject those prices and terms.

The only coercion that exists in such a relationship is that the terms of both parties, once agreed to, are upheld. So if you pay the owner's fee according to his terms, you can expect to receive what you paid for, and with full force of the law, the government will support your claim if the owner fails to live up to his end of the bargain.

Later, we'll examine how price helps people make decisions, prioritize, and even assign value and meaning to various objects. Please join us. - Cam Beck

P.S. Credit for the vein of this analogy goes to economists Walter Williams ("Compassion vs. Reality") and Thomas Sowell (Basic Economics and Applied Economics).

Great Service is Always a "Big Idea"

A slowing economy often motivates companies to cut costs. They should exercise discernment when doing so, for they may not know it, but their customers are ripe for the picking.

A brand is built when a company or individual consistently delivers on an extraordinary promise. This promise serves as the foundation of the "Big Idea" companies seek and marketers crave. People have learned to despise marketers in general and advertisers in particular because, in their zeal to carve out and define a competitive advantage, marketers tend to over-promise, which reduces both the effectiveness of all advertising and the reputation of all marketers.

On the other hand, it is easy to believe, then, that once a company has established a consistent habit of delivering (or over-delivering) on an extraordinary promise, that behavior becomes ordinary and expected. It is an ever-escalating arms race to attract and keep the attention and loyalty of a demanding and fickle audience.

This might help explain why consumers think customer service is getting worse. But don't ignore the possibility that customer service may, indeed, be getting worse.

Whichever explanation is correct, it's clear that two things are true:

1. People value great customer service
2. They aren't getting what they consider great customer service

This indicates a great opportunity for anyone trying to break into an under-served market.

Even large companies, long having abandoned the principle that they exist to serve their customers, and not the other way around, are vulnerable to small competitors who wage commercial guerrilla warfare against them -- slowly capturing too few customers to take notice, until it's too late to level a credible response.

Question of the Day
Who has the more enviable position? The current, profitable category leaders who don't serve their customers well or the struggling, hungry and feisty competitors who are absolutely fanatical at serving a much smaller (but growing) audience? - Cam Beck

Starbucks refocus

  Starbucks is changing. Changes are happening at all levels, from the coffee that is being served, to the design of stores, to how the baristas  great customers (as recently experience by Cam).

You have to admire what's happening here. Most companies of similar size wouldn't change a thing. It's not like Starbucks is suffering all that much. It suffered a sales downturn of 1%. Given the economy, one could legitimately blame "hard times". The coffee market is competitive but let's face it, Starbuck has a pretty dominant position.

As part of getting back to it's roots, Starbucks is listening to it's customers. They've created a new site where people can make suggestions, vote on other suggestions. The site is all over articles covering the transformation and Starbucks is apparently investing some advertising dollars in getting ideas through paid search. (Note: paid search may not be present the older this post gets). Here are some of the most popular ideas:

1. Offer free Wi-fi
2. Develop a point card where loyal customers can get free drinks
3. Free drinks for birthdays, new coffee introductions, etc.

The proof is in the pudding. All of these ideas involve an investment by Starbucks, essentially giving something away. The activity on the site is reflective of their loyal customer base. If they don't implement some of these ideas and communicate them back to their customers, The whole initiative may backfire.

- Paul Herring

Update: Having a law suit by employees to get back tips is not the best news to have come out during the PR blitz for these changes (whether or not you agree with the lawsuit).