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Teri Bernstein, MBA, CPA has been teaching full time in the Business Department of Santa Monica College since 1985.  Prior to that, she worked in Internal Audit and Special Financial Projects for the 1984 Los Angeles Olympics, CBS, Inc., and Coopers & Lybrand (which is now part of PricewaterhouseCoopers).  She attended the University of Michigan and Wayne State University.


  • Tiny Hachette publishing is taking on Amazon

    image from the prnewswire Michael Pietsch (rhymes with "beach"), the CEO of the Hachette Book Group, is in a battle with Amazon over pricing and availability issues regarding manipulation of the market for books. All of the other book publishers are waiting to see what happens. Other publishers have been afraid to take a stand against Amazon, because of Amazon's tremendous clout. Amazon has huge volume and it is willing to sacrifice profits in pursuit of market share. Not every publisher can afford to pursue that strategy. But Pietsch seems willing to get the issues on the table in order to not lose everything in the long run. Unfortunately, because Amazon and Hachette have signed confidentiality agreements, the nitty-gritty details of their dispute remain secret. Nevertheless, other publishers guess that Amazon is trying to sell Hachette e-books at bargain prices, and Hachette is trying to maintain their profit margins. One tactic that Amazon is using to prevail in this fight is to deliver this message to potential customers wanting to buy a Hachette title: Image from Amazon...when they are trying to delay shipping your book, whether they have it or not... This is a risky strategy for Amazon, because delays tend to annoy customers. Amazon's "branding" includes being customer-friendly, so any delay tactic might tarnish their image. Nevertheless, it also thwarts sales of Hachette titles--especially for those customers who are loyal to Amazon via their Amazon Prime relationship, or those who have an Amazon gift card to spend. Other customers take the bait and switch to another title recommended by Amazon when they are on a Hachette author's pages. The "currently unavailable" strategy is also used by Amazon in dealing with independent, single-book-inventory booksellers (who know they have delivered inventory to Amazon's warehouses). Even if the titles are somewhere in Amazon's inventory, Amazon can put these low volume items on the back burner without tarnishing their reputation for delivery within two days...if they say the title is "currently unavailable." The roots of this dispute go back to before the 2012 Justice Department anti-trust lawsuit against book publishers. Five publishers were found to have conspired to raise e-book prices. They'd banded together to try to maintain their profits in the face of the Amazon undercutting of prices. [See: " Can eBooks get past the price-fixing scandal? "] The settlement included a two-year period where Amazon was allowed to discount e-book prices. That agreement has expired, and now Hachette is stepping up and bargaining on principle. Pietsch insists that books are a special kind of product and cannot be treated like some of the other mass-produced items sold by Amazon. A major Hachette author, James Patterson, supports Pietsch and has said, " Amazon also, as you know, wants to control bookselling, book buying, and even book publishing, and that is a national tragedy. ” Other booksellers may want Hachette to win, but like scared schoolchildren in the face of a bully, they are standing quietly on the sidelines, fearful of the retaliation that has already been directed at Hachette. Meanwhile, some customers are upset by Amazon's policies. " If Amazon thinks I don't care about its silence, it's wrong. I take it personally that the company doesn't think it owes me even a half-baked explanation for why I can't buy some books from it, " complained Jack Shafer, writing for Reuters .In addition, some legal observers think that Amazon is risking government anti-trust action. Who will "win" in the long run? Source: " Hachette Chief Leads Book Publishers in Amazon Fight " by Jonathan Mahler, the New York Times, June 1, 2014. " Amazon Absorbing Price Fight Punches ," by David Carr, the New York Times, June 1, 2014. F ollow up: Read the articles and previous post linked above. In hindsight, do you think that the anti-trust suit brought against the publishers in 2012 may have had the unintended consequence of creating a better environment for an Amazon monopoly? Give your reasons. What do some established authors think are the risks of this stand-off? How might this affect sales? What are the marketing and potential sales issues for Amazon, and for the publishing industry as a whole?
  • How much would a Made-In-America iPhone cost?

    Ironically, the image above is from the Moto X, which can be made in America for approximately the cost of making it overseas. "How much would an iPhone cost if it were entirely made in the U.S.?" This question was posed on a recent Marketplace radio-cast. The supporting data had already been analyzed by IHS Technology . The bottom line? A 100% American-made iPhone would cost around $2,000...compared to the $650 - $850 retail cost of the iPhone on the market today. It turns out the the increased price is partly due to labor costs and partly due to supply-chain issues for component parts. Labor in the U.S. is two to three times the cost of labor in China, where the phones are currently manufactured. But access to the needed parts is a larger factor. Whole "villages" have evolved around iPhone manufacture in China (for example, Shenzen) . Component parts are nearby and few logistics problems exist to keep the assembly lines for iPhones moving. In addition, labor costs for the manufacture of component parts--the most expensive of which is the display-- are also a factor . Source: " How much would an all-American iPhone cost? " by Stacey Vanek Smith, Marketplace, American Public Media, May 20, 2014. F ollow up: Does it matter to you where the iPhone is made? Is maintaining production facilities and production jobs in the USA a value to you? List your reasons. Read the link regarding the Moto X as well. One point in that article is that customization is possible with the Moto X. What do the authors of that article see as the pros and cons of American production for that phone? What percentage mark-up, from cost to retail, is IHS assuming in arriving at the $2,000 retail estimate?
  • Dealflicks: selling seats nobody wants is a valuable business

    image from wefunder.com Dealflicks is like Priceline: it tries to match moviegoers with seats that are not otherwise going to be used --and offers big discounts. According to Sean Wycliffe, CEO of Dealflicks, the statistics show that 88% of movie theater seats go empty. This is a marketing niche that was crying to be filled! Entrepreneur Kevin Hong teamed up with Wycliff and website whiz Zachary Cancio to start the business with venture capital funding. Wong and his sales teams have traveled the U.S. in their minivan trying to woo theaters across America into signing up with their service. image from article linked below Dealflicks is very flexible--letting the theaters set prices and determine which shows get discounted. Moviegoers access the deals via phone apps or the Dealflicks website. Dealflicks makes its money by taking 10% to 20% of the ticket price. Last year, sales were $245,000...but they are projected to be more than $2 million this year. Source: " Dealflicks aims to put movie fans in cheaper seats, " by Richard Verrier, the Los Angeles Times , May 6, 2014. F ollow up: According to the article, when do discounted tickets really work for the theater owners? What are the downsides? Who funded Dealflicks? What was their motivation? Why does Wong make sales calls by minivan rather than by phone?
  • Peeps all year: too much of a "good" thing?

    photo of the formerly seasonal Marshmallow Peeps; image from the radio article linked below Just Born , the maker of the polarizing marshmallow snack called "Peeps," recently announced that Peeps will be available all year round beginning May 1, 2014. Of course (Peeps fans already know this), the Peeps season--springtime: for the festive and secular side of Easter--has already begun. A company spokesperson said, " We're making every day into a holiday. " I think I'm more aligned with the comment made by Marketplace host Kai Ryssdal: " It is this week's sign that the apocalypse is upon us ." I'm wondering if the marketing people have really thought this through--will Peeps lose its market niche as a seasonal treat if it is always in the candy or treat aisle? Or, like Oreos , are Peeps so beloved by their fan base that sales will increase? Sources: " Peeps year-round: Harbinger of apocalypse ," by Kai Ryssdal, Marketplace.com , April 9, 2014. F ollow up: What are the risks of the decision to produce Peeps year-round, from a marketing and sales point of view? What are the possible rewards? Very few folks are neutral when it comes to Peeps. Where do you stand?
  • Toyota criminal penalties: Are fines a real punishment? Why isn't Toyota in jail?

    image (of a Prius that had accelerated to 90 mph on a mountain road) from the Colorado State Patrol, published in the Los Angeles Times Toyota recently entered into an agreement to pay a multi-billion dollar settlement as a result of a known problem that caused deaths. The documented problem was that of sudden, unexplained acceleration. Last week, Toyota settled a criminal case brought against it by the Justice Department. Various lawsuits remain, but costs to this point include: $1.6 billion settlement of civil claims in a class-action lawsuit on this issue a $1.2 billion payment to the Justice Department, a criminal penalty, relating to wire fraud issues National Highway Traffic Safety Administration fine, which is capped by law at $35 million an agreement that Toyota will not be allowed to deduct its criminal penalty on its tax returns, which means that the American taxpayer will not lose out because of this settlement Part of the Justice Department agreement also stated that no individual executives will be prosecuted for these injuries and deaths related to the sudden acceleration problem. “The rules of evidence sometimes do not allow you to use certain kinds of evidence and certain documents against individuals, although they might be admissible against the company itself. Although there is an admission that they were individuals who engaged in conduct which provides for a basis to bring a case against the company, they are not charged here,” explained Preet Bharara, the U.S. attorney for the southern district of New York. Toyota can afford these penalties, as its current year profits total about $19 billion. If an individual person had committed these crimes, it is unlikely that they would get off without any jail time. Here are some mandatory minimum sentencing guidelines for individuals: Mandatory sentencing guidelines, Federal, from Wikipedia But Toyota is still allowed to operate. Toyota's stockholders continue to make money. According to the doctrine of " Corporate Personhood ," corporations have many of the rights as individuals. But if a corporation has the benefits of a person, should it also not be subject to the same criminal penalties? Source: "T oyota sudden-acceleration suit is ratified ," by Tina Susman and David Hirsch, The Los Angeles Times , March 20, 2014. " Toyota admits deceiving consumers; $1.2-billion penalty is record, " by Jerry Hirsch, The Los Angeles , Times, March 19, 2014. Follow up: What do you think? Is manufacturing a car when you know a defective part will cause deaths a punishable crime? Is it better to charge money penalties or to give the corporation the same penalty a "person" would receive: inability to work for a time period. What are the pros and cons of shutting down a corporation the same way an individual would have his or her business life shut down by incarceration? Should individual executives be prosecuted? Discuss the pros and cons. Comment on the agreement that Toyota cannot deduct its penalties from its taxes. Can individuals deduct fines such as parking tickets on their tax returns? Discuss the reasons for tax deductions and how criminal penalties fit into that logic.
  • Coffee convenience bad for the environment (and expensive)

    image from www.coffeemarvel.com As a committed coffee enthusiast, I periodically pine for a Keurig single-service brewing machine. The problem is, the little cups that that machine requires are not only expensive--they are bad for the environment. Still--the convenience and the visual artistry of it all does speak to me. I have to admit that the first time I tried to use this machine--at a motel--I had no idea how to manage it, and I made every mistake, creating a colossal mess. Now, however, I am an expert, and each morning--as I am either making my pot of home brew or walking the 1/2 a block to my neighborhood coffee house--I fantasize about what it would be like to have one of those splendid little single-brew machines. I'm not alone. In 2008, single-pod coffee sales were $132 million; in 2013, they were $3.1 Billion. But there are issues. First, to properly recycle the remains of the pods means separating the aluminum top, from the plastic pod, from the wet coffee. Do users really do that? Probably not. Moreover, the #7 plastic that almost all of the K-cups are made from is not recyclable. In addition: there are a lot of tiny cups to recycle. To put it in perspective, the 8.3 billion cups produced last year by Green Mountain for Keurig machines would circle the earth more than 10 times. For now, I'm sticking to home-brewed or my Tall red-eye half-caf dark in a personal cup at my local coffee place. Source: " Your Coffee Pods' Dirty Secret ," by Maddie Oatman, Mother Jones , March 19, 2014. Follow up: Make a chart comparing the cost of a cup of coffee, 5 cups, 10 cups, 20 cups, 100 cups and 365 cups brewed vs. K-cup. What can you conclude from this analysis? What are all of the environmental and health issues of these cups, according to the article?
  • How to Sell a Box of Frozen Seafood

    from article linked below, by Primary Hughes This is one person's story of his first job in Sales. The product? Boxes of seafood and steaks. The territory? Cold-call door-to-door sales in the San Francisco Bay area. The interview and training? Ride around with another salesperson in their truck until you had 6 sales in one day--then you get your own truck and got to work purely on commission. Here is a brief account of the young salesperson's experience: His first "trainer" was "high on confidence" even though he did not look the part of a successful salesman. He got to witness some failed attempts by his trainer; he had some failed attempts on his own. He witnessed his trainer's success when the trainer was smiling, relaxed and assertive. The trainer had sold everything in his truck, but the new salesperson had sold nothing. The trainer said, "You're a real college boy." Trainer #2 was charming, British, and got traction with customers by lying. The new salesperson managed to get qualified for his own truck with this trainer. Things went well for a few weeks, but in the subsequent weeks: 1)$250 of merchandise (taken home over the weekend) spoiled ; 2) The British salesperson sold the new salesperson a list of "sure things" for $300; and 3) the new salesperson brought home some shrimp and started an electrical fire in his landlady's kitchen when frying it. The new salesperson quit...turned in the truck and was $300 short of enough money to pay for the damage for the fire. He hit up his father for the damage. The young salesperson met up with Trainer #1 after he quit, and took a "big picture" view: Trainer #1 was having a good time...but the young salesperson had been dreading to go to work. What does this all mean? My guess is that "cold call" Sales are tough to finalize. Still--cold-call sales are where-it's-at in terms of drumming up new business, one of the keys to success. Would you have the grit to do this job? Source: " A Man, a Truck and a Load of Stuffed Shrimp ," by Matthew Sharpe, New York Times , March 15, 2013. Follow up: What did "high on confidence" really mean in terms of the sales day? How did this work out? What was the most successful technique? What do you think the "takeaway" is from this tale, regarding the Sales profession? Does the price of these goods compared to the price that could be obtained in a storefront impact your opinion? Comment on the story-form delivery system of this tale vis a vis a talk about Sales that might typically be held at a Sales convention. What does "cold call" mean?
  • China wants U.S. milk

    image from www.trust.org: powdered milk produced by Fonterra, and were part of a bribery scandal. Above is a picture of a shopping aisle in China--fully stocked with powdered milk. In the above photo, however, the milk is being removed because of a bribery scandal involving a foreign company that paid to have its product stocked on these shelves. The market for non-domestic milk product in China is particularly high for two reasons--breastfeeding is unpopular, and the 2008 melamine-tainted Chinese milk that poisoned over 100,000 infants is still on the minds of parents. Responding to this demand are tiny farming towns in the United States. The town of Fallon, Nevada, has built huge processing plants to convert milk into powdered milk for shipping overseas--since shipping to nearby California has been thwarted by "Real Milk from Real California Cows" advertising campaigns. image from Fallon, NV production plant from the article linked below Because U.S. milk consumption has plateaued, the new Chinese market represents a growth opportunity. Source: " China's thirst for milk gives dairy farmers a boost ," by David Pierson, The Los Angeles Times , March 15, 2014. Follow up: What might happen to domestic milk availability and prices as a result of factories being built to process powdered milk for overseas shipment? Is this production and sales system sustainable? Why or why not?
  • T-Mobile spurs competition among wireless providers

    [View:http://community.cengage.com/GECResource/themes/gew /utility/ :550:0] Video from cnbc.com T-Mobile offered to pay the costs of contract termination for those willing to switch from one of the big carriers. AT&T countered by offering to pay $200 of the costs--but only of T-Mobile users switching to AT&T. This comes on the heels of T-Mobile reporting higher 4th quarter 2013 earnings--a result of an increase of 1,645,000 customers. T-Mobile seems to have zeroed in on the costs of switching providers as being a major factor in customers being unwilling to change. It has taken a marketing risk in covering the costs of this switch...and it could be that the gamble is paying off. Source Strategy Analytics , however, feels that even though T-Mobile is a catalyst for price competition, that they will not prevail moving forward against the bigger providers--primarily AT&T and Verizon. The market reaction to T- Mobile's moves has shown that a larger number of companies in the pool can stimulate competition and improve the situation for custormers. Sources: " Comparison: How Does T-Mobile’s New Plans Stack Up Against the Competition? " by Alexander Maxham, Android Headlines , March 27, 2013. " T-Mobile to Pay Termination Fees; Reports Customer Growth ," by Reuters, cnbc.com , January 8, 2014. " LTE Enables US Wireless Price War as Carriers Fight for 60 million New LTE Subs in 2014 ," by Source Strategy Analytics, 12 NewsNow, February 25, 2014. Follow up: What does "LTE" mean? What are the alternatives, and why does LTE look to be a medium for the future? What is the projected growth according to Source Strategy Analytics? What are the key factors that keep you from switching wireless carriers, even if there is a price advantage? Consider: your level of understanding about the plans, the information sources you trust, the time factor, start-up or termination costs, and any other factors. What is the industry term for customer defectors? (read all of the linked articles...it is in there somewhere)
  • Sweet-to-the-core product launch

    image from article linked below Pictured above is one of Ben & Jerry's new "core" ice cream flavors: Hazed and Confused. There is a core of Nutella (chocolate/hazelnut), surrounded by hazelnut ice cream and chocolate ice cream with fudge chips. The products in this launch have multiple ice creams in one yummy container. Ben & Jerry's is a company that started in 1978. During that time, they have expanded world-wide and have remained profitable. One way that they have continued to thrive has been to adapt their product line on a regular basis. This product launch is one innovation. The other products that are a part of this launch are: That's My Jam Chocolate Peanut Butter Fudge Salted Caramel I wish I could say I'd already done a product taste test. Which flavor do you think will be most successful? Source: " Ben & Jerry's Nails It With New Core Ice Cream Flavors, " Huffington Post, February 25, 2014. Follow up: Read about Ben & Jerry's on their website, linked above. What attributes make Ben & Jerry's different from other corporations, and in what way is it similar in terms of structure? What are Ben & Jerry's "core" values? How do they influence the following: marketing campaigns? product manufacture? employee relations?
  • The Lego Empire

    image from Forbes magazine This movie has something for everyone--parents, kids, casual moviegoers, erudite film critics, and Warner Brothers investors. It only cost $60 million to make, and its domestic box office for the first three weeks topped $183 million . My husband and I saw it in 3D on a Saturday afternoon and we didn't know what to expect. But a few minutes in, it was pretty clear that the script was dense with puns and double-entendres. The story itself contained themes about job autonomy and the responsibilities and choices corporations make to improve or harm the world of its employees and customers. Plus, it was a sweet story about overcoming the obstacles of low self expectations...and of inflated self-perceptions. The song " Everything Is Awesome " has staying power as well. [View:http://community.cengage.com/GECResource/themes/gew/ utility/ :550:0] The movie is a metaphor for the success of both the Lego Company and Time Warner. According to Scott Mendelson in Forbes , "...in all likelihood, The Lego Movie will be a big hit that will not only sell countless new Lego sets, but also be the first building block towards reestablishing Warner Bros. as an animation powerhouse." Opportunistic investors have probably missed their best window to buy, but it remains to be seen whether either company can build on this success. Source: " Lego Builds an Empire, Brick by Brick ," by Gregory Schmidt, New York Times, February 15, 2014. " Review: Everything About The Lego Movie Is Awesome ," by Scott Mendelson, Forbes , February 4, 2014. Follow up: Are you familiar with the Lego brand name? Have you owned Lego block kits? Visited LegoLand? Played the Lego video game? What are the first words that come to your mind with respect to this product? What does Gregory Schmidt think about Lego's business plan?
  • Making the post office $ profitable $

    image from delawareonline.com The United States Postal Service (USPS) could be a money-maker. As in $$ Very Profitable $$. The problem is: banks don't want to see it happen. The USPS could offer bank-like services to the 68 million Americans who are "underbanked" now. "Underbanked" means that they do not live in areas that have decent branch banking services, or they fall so far below the median of easier-to-serve banking customers that they cannot get services from branches in their areas. Now, these potential customers are using paycheck-cashing services and draining up to $2500 a year from their meager earnings. Here are some of the services that a "bank-like" USPS could provide: check-cashing services bill-paying services small loan services re-loadable pre-paid credit cards According to the linked article, "of the nation's 35,000 post offices, more than half are in zip codes with one or no banks." This means that there would be a trustable institution with real estate already in place that could provide these banking services, with no additional investment. And the percentage fees charges would go to support the US Postal Service, rather than paying the almost usurious fees of the paycheck-lenders . As it turns out, going to the post office to cash a check was more of a "norm" for our great-grandparents. In the presidential campaign of 1908, post office banking helped the campaign of William Howard Taft. Source: " Post Office Could Rack Up Billions By Offering Money Services ," by Brian Naylor, National Public Radio, February 7, 2014. Follow up: List several of the attributes of the "underbanked" American. Why do banks disapprove of the post office adding these services? What is the monetary impact to banks, if any?
  • Trying to escape a 7-day work-week...

    image from empireflippers.com Entrepreneurs often have a difficult time setting a work-life balance...particularly if they are running a business open 7 days a week to the public. Carlos Vega bought Father and Son Pizzeria in 2007, and successfully doubled sales over the next few years. Besides serving prepared pizzas, he also sold Italian "gravy"--his popular red marinara sauce. But he was working seven days a week, to save on labor costs. This was not a sustainable business model, so he brainstormed possible alternatives. There were certain constraints, which had to be faced honestly, in developing his alternatives. The constraints included: the restaurant was small and land-locked on the main street of a "blue-collar" town there was no parking maximum gross revenue had hit a plateau of $10,000 per week Mr. Vega considered these possibilities: Adding on to the building that he was in so that there would be a real dining room...but a complication was that he could not afford the quarter-of-a-million dollars needed for a liquor license...nor would the addition bring him any parking spaces Losing the pizza place and switching to the manufacture of "gravy"--which would require a lot of learning and the hiring of a third-party manufacturer. The plus of this option would be more-time-with-the family. The minuses include many unknowns of being in a food manufacturing business rather than a restaurant. Business observers were impressed by Mr. Vega's success so far, and hoped that he would transition slowly into the manufacturing business, which seemed to be the more sustainable alternative from a personal standpoint. Source: " A Business Owner Seeks an Alternative to Seven-Day Workweeks, " by John Grossman, The New York Times Small Business, January 1, 2014. Follow up: What is the difference between "gross revenue" and "profit"? What does the "margins were higher for the red sauce than for his menu items" mean in terms of product mix and future planning? Delineate the ways in which Mr. Vega maximized profits for his restaurant before reached this decision point. How much profit would you need to receive in order to make 7-day work-weeks worthwhile? What kind of work could you sustain for, say, 5-8 years at that rate?
  • Businesses track and respond to the erosion of the middle class

    Image from money.cnn.com Even if politicians and media celebrities debate whether the middle class is struggling in these economic times...the debate means little if corporations are already reacting to their conclusion about this matter. Business entities, in preparing sales and production budgets, have already noted and responded to the current state of affairs: the upper class is buying and the middle class is not. In the Chelsea district of Manhattan, the Loehmann 's discount store is closing and the upscale Barneys store is taking its place. Red Lobster and Olive Garden flounder but the Capital Grille thrives. Only demand for the high end appliances is soaring; mid-range appliance demand is faltering. According to Steven Fazzari (Washington University) and Barry Cynamon (Federal Reserve Bank of St. Louis), in 2012 the top 5% of earners consumed 38% of the domestic product. This was up from 28% in 1995. They also noted that top earners' purchases have been driving the current economic recovery. Sources: " The Middle Class Is Steadily Eroding. Just Ask the Business World ," by Nelson D. Schwartz, The New York Times, February 3, 2014. " The Middle Class Falls Further Behind ," by Aaron Smith, money.cnn.com , August 22, 2012. Follow up: What DID go wrong for Olive Garden and Red Lobster? Read the article that is linked to those chains above. Do you consider yourself middle class? What does that mean to you in terms of your current and future financial life?
  • Nintendo and the State of the Union

    Link to audio from the Marketplace Website On the same day that President Obama was expressing optimism about the economic future in the State of the Union address, Nintendo was announcing its dismal third quarter profits. Nintendo is facing a flex point in its product cycle. For its business life so far (about 30 years), Nintendo has made games that have to be played on Nintendo hardware. image from geekswithwives.com The problem is that in 2014--every smart phone is also a mobile game-playing device. The convenience of carrying around a game station in the same device as one's phone might trump the bells and whistles that can be experienced on a dedicated device. Not to mention that at least some version of many game apps is FREE. It is probably time for Nintendo to re-think its business plan. Source: " Will Nintendo Ditch Hardware ?" by Kate Davidson, Marketplace--American Public Media , January 29, 2014. Follow up: What are Nintendo's options in terms of product mix and marketing? What are your personal game playing habits? How have they shifted over the past 5 or 10 years? How do you think they will change in the future?
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