Featured Google Presentations

  1. Marketing Research for a private school in Boulder
  2. Mobile Advertising Market

Quote of the century

"If all you have is a squirt gun, you may have to use it. But if carried a bazooka, people know and you don't have to take it out.". – Hank Paulson

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Deliver now! Improve iteratively!
www.IterativePath.com

Capitalism Is Still the Right Approach To Address Poverty

Who will have the bigger impact on addressing global hunger poverty?
A philanthropist who writes checks or the captilast responding to market forces?

What will add value to those at the bottom of the pyramid? 
Charity or Business Operations?

If you have $100 discretionary income for charity budget, what would you do with it?
Subsidize someone volunteering their time in a 3rd world country or invest in a profit maximizing organization that is developing products and services for the same market?

I will side with the second option for the questions above. There is no question that the value creation comes from business development. I have talked before what Nokia and P&G have done to add value to those at the bottom of the pyramid. Now, it is an information services firm,  Thomson Reuters with its Market Light, price information delivery system.

The New York Times reports on Thomson Reuters’  new service in India to serve the poorest of farmers. This is a for profit service that delivers commodities market data to farmers through their mobile phones. 

[Thomson Reuters] has been testing a program called Reuters Market Light for several months in Maharashtra, India’s third-largest state, about the size of Italy. The state is one of India’s prominent agricultural centers, with farmers growing onions, oranges, corn, soybeans, wheat and bananas. But the farmers’ business suffers from the difficulty of comparing prices from one market to another.
“We kind of saw that there was a clear market inefficiency,” said Mans Olof-Ors, a Reuters employee who had the idea for Market Light three years ago. “The farmer would decide which market to travel to, then would just sell to that market. So there was no competition between markets.”

Customers Dont See It As Their Job To Ensure You Make A Profit

There is an interesting 40 year old Harvard Business School Case on selling contact lens to chickens. The key question in that case is how would you price it? The lens cost pennies for pairs of 1000s. While the cost is relevant, the right way to price is based on the value creation to the customers, how much of that value they “see” and willing to share with the marketer in the form of price they pay.

If you think contact lens for chickens is silly, consider this story of diapers for chickens from WSJ:

Everyone was talking about how there was a need for diapers. She usually charges between $9 to $14 depending on a bird’s size

Peter Drucker calls cost based pricing as one of the Five Deadly Business sins.

Most American and practically all European companies arrive at their prices by adding up costs and then putting a profit margin on top. And then, as soon as they have introduced the product, they have to start cutting the price, have to redesign the product at enormous expense, have to take losses — and, often, have to drop a perfectly good product because it is priced incorrectly. Their argument? “We have to recover our costs and make a profit.”

This is true but irrelevant: Customers do not see it as their job to ensure manufacturers a profit. The only sound way to price is to start out with what the market is willing to pay — and thus, it must be assumed, what the competition will charge and design to that price specification.

The cost gives you the basis, so you know you can’t price any lower than that. But when your sales team know the cost they may pressure you to keep dropping the prices to generate sales. They are incented to close sales and will resort to trade commissions, especially near end of quarters to make their quota.

A Very Simple Primer On Short Sales

This is a work in progress. So far I showed very simple transactions involving short sales and their impact on your balance sheet. Give me any feedback.

Principal-Cut is not attractive, yet

As I wrote in my last post about the housing-market legislation pushed by Rep. Barney Frank, the deal is not yet attractive to the mortgage firms. Today the WSJ says just that.

Mortgage companies are more likely to participate in the write-down program if they expect home prices to continue to decline steeply, he notes, increasing the chances of larger losses.

These firms have a variety of options and will evaluate the risk return on each before agreeing to the congressional plan. The risk however is if there are any loopholes in the plan that will allow the mortgage firms to selectively agree to high risk mortgages.