L'eggs Pantyhose

Since I had such great success posting yesterday about a business-related issue, I thought I'd continue the trend and relate another business story I heard from long ago. A story about L'eggs Pantyhose.

Now just to be clear, I am not now, nor have I ever been a consumer of L'eggs Pantyhose. However, I may or may not have been a person who played with the packaging. You see when the product was first released in 1969, I was a 10 year old boy (if you want to devise my age from that, do the math). The product was packaged in what looked like a large white egg. I honestly don't remember playing with the eggs, but it seems like something I would have done.

Originally the product sold for 99 cents. However sales were weak. The manufacturer did what any good manufacturer would do, it brought in consultants. They evaluated the product quality and found that it was acceptable. They evaluated the packaging and (at the time) kept it. They evaluated the marketing effort and found it within expected norms. And then they evaluated the price.

The consultants found the pricing model to be good. The margins were good. The price was within the range that the expected consumer could pay and was, at 99cents, a bargain. So what did they recommend? Increase the price. To $1.49. Now that may not sound like much, but it's a 50% price increase. No change to quality, just 50% price increase. No change to style, no change to quantity, just 50% price increase.

And sales increased. Because the perception was that the product was now on the level of other products. (I've seen a similar reaction with pricing at an institution of higher learning) And consumers bought more readily.

So what do you think this says about the product? What does it say about consumers?

The Sears Catalog

Most people today don't remember the Sears Catalog. Think of Amazon.com, put into a book and mailed to your doorstep. Or picked up in the store. This was a 1970's version of internet buying.

If you can imagine that, the Sears Catalog had pictures and descriptions of everything you could buy in the magazine/book. It was a couple of inches thick and you could order things over the phone or by mail (US Mail, not email.)

There's a story of a company that moved a plant into Mexico. This was before outsourcing was "popular", so ignore the negative connotations associated with it in this case. The company paid their Mexican workers a small amount compared to US workers, but an ENORMOUS amount on the Mexican pay scale.

The problem they had was that many workers would quit after their first paycheck. They had never before seen that much money at one time and couldn't imagine needing more, so they just didn't show up the following day.

After much consternation, the company came up with a good idea. Next payday, with every paycheck, they gave each employee a Sears Catalog. The following day, every employee returned to work, ready to make more money and order from the Sears Catalog.

The moral of this story? I'll let you decide, either from an individual viewpoint, the viewpoint of the company or even the viewpoint from Sears. Comments are welcome.

Now where did I place that catalog....

Service with a frown - resolved

My last post was about a problem with an exterminating company. Today, that problem has (apparently) come to a resolution. I had a conference call with the company and the Better Business Bureau. The BBB representative took my call, then called the business. She thanked each of us and explained the "ground rule" (her words) and that was no interrupting the other person.

I got to speak first and explained my situation (which had been previously done in the letter). The business then explained the issues. I corrected him on a couple of matters and then bluntly asked if he understood why I was upset. It took a minute, but he said he did.

We discussed a few aspects of the inspections they had done, specifically trying to separate the inspection cost from the "insurance" aspect of a termite bond. He said there was no way to separate them. (I would have asked for a refund of the inspection).

I asked him about the reluctance to write a check and he explained that they only wrote checks 1-2x/month and then only when a PO was created. He asked if I would give my credit card number to the BBB. I explained that I was reluctant to give him the number because I still didn't trust the company and if I gave it to the BBB, they would have to give it to him to process the refund. He then offered to send a certified check for the refund.

The total refund I'll be receiving is $100. This is the "discount" that was originally discussed. Had I gotten this refund in September, it would have saved a lot of hassle.

In addition, he explained a couple of ways this could have been prevented, I'm not sure any would have worked. I could have gotten a second estimate, but I felt like I didn't have time for that. He said in his business line, companies are on call 7x24 and make emergency calls within a day. He said my realtor could have called the day of closing and he would have faxed a new estimate (which would have had to go through the lawyer, forced a redo of all the paper-work, delayed closing, etc).

The end result is the discount I originally was promised and I don't have to give my credit card info. I'm not what I would call a satisfied customer and won't give them a good reference, but then they probably don't want a reference anyway. I won't go around bashing them and haven't posted their name here.

Service with a smile

What makes "good service"? There's one company I recently dealt with that made me start thinking about this question. Unfortunately, the company didn't have "good service" and it made me thinking about what set them apart. I decided to initially focus on a company I deal with that does indeed have good service.

The "good service" company is a local dog groomer, I'll gladly share the name with anyone interested. (Since most of my readers aren't local, you probably don't care). We struggle with a couple of dog groomers including one that I'm convinced infected our dog with fleas. Since our older dog (since past away) was getting more and more difficult to transport, we decided to try a "mobile" groomer. These folks come to you with a van and all the equipment. When they leave, the dog's hair has been cut, cleaned and combed.

The first thing that I like about the mobile groomer was the price. They were actually a couple of dollars CHEAPER than the ones with a house. Cheaper is always better in my book! (well, maybe not always, but at least often) They did at least as good as any other place we took the dogs.

Second thing we noticed was that the couple doing the grooming were very polite. They listened to what we wanted, offered advice and did what we asked. Our dog has sensitive skin, so they manage that aspect well (I have no idea what they do, I just remind them to treat her like they did before).

The final aspect of their service that I wanted to mention is the trust. We've used these people several times. On one or two occasions, they've come and we've had to mail them a check. Most recently, we were away and had someone else there to dog sit for us. We forgot to leave the payment and rather than re-schedule, the groomer went ahead and did her work and we mailed a check.

This level of mutual trust is the basis for good, continued service. This business can rest assured that they have earned our business for a long time. Next post will focus on a company that doesn't give good service

Dulles Station

I'm in DC this week for a business meeting. Our meetings are in an office complex called Dulles Station (see here). I ended up arriving a day early, so I had some time to find the office and look around a bit. What I saw was an urban community much like ones I've seen in Richmond, Bethesda, and to a lesser degree even Charleston and Greenville, SC. These communities pop up in most cities (I know Charlotte was headed towards one when I left) and combine office, retail and housing (typically apartments/condos).

So why am I blogging about it? It's the economic statement. No, this isn't a sign of a turn-around or the stimulus package. I'm trying to keep this a-political and besides, Dulles Station first opened in April 2007 (according to their sign). Instead, I'm making a comment about the long term economic impact. I believe this country is basically strong and will continue to be that way in spite of the actions of the previous president and the current one. Dulles Station has some big names in the area. Strayer University has a big office there (not sure how many offices they use, but it's a big building). And there are others in the general area: BAE systems (air defense), XO Communications (telecom), DLT Solutions (hardware reseller for Oracle) and GTSI (Government IT) were just some of the names I saw.

There's lots of small business in the area too. Several fast food restaurants as well as some nicer places. A near-by strip mall boasts two Chinese restaurants and a Sushi place (seems like redundant repetition). What strip mall wouldn't be complete without a dentist's office, an animal hospital, a rug/floor center and a Staples. And of course, the area has at least 3 or 4 Starbucks.

As mentioned, there are lots of apartments in the area. The ones at Dulles Station seem to cater to those who work in the community itself, but then there are several more apartments in the general vicinity. While I would have thought these were mainly for young singles, I did see a couple of kids that had made a nice snow fort (I wish I could have gotten a picture). And their are lots of schools in the area, one on a road named EDS Road (HP - the new "owner" of EDS has at least two facilities on that road).

As I mentioned earlier, I've seen these kinds of places before in other locations. It makes me feel good to see the growth. I'm sure some of it (in this area a lot of it) is related to government spending. Some of it is related to "green" spending (green as in $$) and some of it is likely related to companies trying to cash in on the stimulus money. But it means jobs and hopefully a brighter tomorrow.

Tax credit for new jobs

Ok, one of the president's points the other night was to create a tax credit for companies that create new jobs. They can't lay people off and then rehire them, they can't eliminate one high paying job and hire two lower paying people, they have to be real jobs that are created (based on what I've heard - still haven't read all the details).

This sounds good. Someone said that this was tried in the 1970's and it didn't work. I remember a lot of things were tried in the 1970's that didn't work. Not sure why. Someone also said that companies need more business before they hire people. That's true. This tax credit would encourage businesses to speculate and invest ahead of new business.

Here's my problem with this idea. What has the current administration done to companies that were offered a bail-out, then were successful? Well, for GM, it was nationalized and handed to the unions. For banks that were given TARP money (which should never have happened), they paid back the loans WITH INTEREST and now they are being threatened with new taxes. Executives who put their jobs on the line are being threatened with large fees (when most of their "income" is in the form of long term stock options - not cash).

So let's play this out. Say Mom & Pops, LLC hires 4 new people and gets a $20,000 tax credit. Their business does well and they keep expanding. In 2011, the administration sees that they are successful and hits them with a "windfall profits" tax. After all, they got a bail-out credit, didn't they? Isn't it time they paid back?

I'm sorry, this administration has shown that they are willing to back-date decisions, I'm not sure this tax credit is safe.

Funny email response

I sent an email to an individual trying to set up a meeting for next Tuesday afternoon. The response I got said:

"Unfortunately Tuesday and Thursday afternoon I am volunteering to read to some 8-10 year olds. I felt I needed to work with some people that were properly mature for their age. I can understand tantrums from an 8 year old, it is the 30-60 year olds throwing tantrums around here that puzzle me."

I tend to agree.

My favorite hotel chain

I've been traveling a good bit lately and I'm trying to book all my stays at a hotel in the Hilton chain. These include Hilton, Hilton Gardens, Hampton as well as Doubletree and Homewood Suites (mostly, I use the first three).

Recently, on two separate occasions, I stayed for free (once for two nights) using the points I've built up. I like a free weekend (even if I was helping someone move).

Last week I found an extra charge on my corporate charge statement for a hotel that I have used several times. I made a few phone calls and found out that the charge was for a reservation made in my name, but was a no-show.

What really bothered me about the charge was they didn't award my any Hilton points. If I was going to pay for the stay, at least I could get reward points, right?

So, I made a few other phone calls. Looks like I made the reservation, the date of travel was a week where my plans were very fluid. I must have made the plans, then changed them and never cancelled. I don't remember it, but it must have happened.

So today, I called the Hilton again. Monica in accounting (who I had talked with last week) answered the phone and I explained the situation. She remembered me and I asked if there was something we could do about the charge. I explained I was a frequent guest and didn't feel I should have to pay.

To my surprise, Monica agreed to reverse the charge - "this time" - but she admonished me to please call next time so they could rent the room. I told her I would and that I would definitely stay at her hotel again. I thanked her and will be watching for the credit to show up on my account.

Now, the last time I stayed at this particular hotel, they were no where near full. I doubt that the room would have been rented even if I had called. But the hotel had within their rights to charge me for the room and I (or my employer) would have had to pay. I'm very glad they reversed the charges.

This particular Hilton gives me a free buffet breakfast including a made to order omelet, so it was already top on my pick list, but after this treatment it will stay there.

Multi-level marketing

I've written about pyramid schemes and profit, I thought I'd devote a few bytes of storage to discussing multilevel marketing (MLM). Also called network marketing (my preferred term), this is a group of people, most working only on commission, who sell a product through other people. For example, you may get a call from your friend to sell a product and find out his friend got him involved. Once you start selling, you'll be encouraged to get other friends involved. You'll get a part of the commission on each product your friends sell, and you'll pass some of your profits up the line.

Sound a little like the pyramid scheme? Well, you're not alone in thinking that, but more on that later. Examples of multi-level marketing include some well known companies like Avon and Mary Kay. Amway was probably the biggest named MLM company for a long time, but has since dropped in popularity. Another company that I've heard about is Vector Marketing. Vector sells Cutco knives. Reported to be the best knives in the industry, the most popular knife set sells for about $1200. With "associates" making commissions of 10% to 30%, a person could make a lot of money selling these products.

You can even spot older and more common examples of network marketing. Tupperware, Christmas Around the World, and even lingerie parties (I never get invited).

But network marketing counts on you selling your products to your friends, co-workers, family and those around you. If your selling technique is abrasive, you can start losing your friends. Co-workers and family and people will avoid you. If you're not a strong seller, you might just go hungry. This means that MLM works best with products that, to some degree, sell themselves or are consumable, like Avon and Mary Kay. That way the customer comes back to you. It's hard to use up a knife set (unless you're OJ Simpson), but make-up is used ever day.

So what's the difference between network marketing and a pyramid scheme? Basically, it's the product. In my airplane example of the pyramid scheme, there is no product involved. With Mary Kay, Avon or Vector the purchaser has something they can hold in their hand. The product may be overpriced, there are a lot of people who make a profit on the product, but at least there is a product.

So where is the line between pyramids and networks? 70% according to MLM Legal Attorney Jeffrey Babener. The idea is that 70% of product sales should be to outside consumers, not just to build inventory or for self-use. If an "associate" buys a lot of product for his/her own use, they're not really selling. (Same goes for "selling" to your family). Also, most of the commissions earned by an "associate" should be from product sales, not for signing up other "associates" (sometimes called "suckers").

I should note that Amway was sued for being a pyramid scheme. However, this part of the lawsuit was dropped. They were found guilty of price fixing, but their sales technique was not dismantled. (see here).

MLM is not the same as a pyramid scheme and the profits are (at least somewhat) justified. However, the companies should be evaluated and anyone entering an MLM should make sure he/she knows the costs associated.

Margins

Ever wonder what margins on the paper are made for? Probably not, but I'm just weird, I think about things like that.

Wikipedia is no help, it has three different definitions, one for finance, one for economics and one for typography. None explain why we have margins.

When I was in school (back before Al Gore invented the internet), I was taught that the margin on the paper was in case you had to make corrections. Word processing involved a pencil and eraser and you could insert new sentences in tiny "font" in the margins.

We had this discussion at dinner the other night. My wife thought I was talking about the margins in her life. Actually, I was directing it at my son, but it could apply to other people as well. Please take the time to read this and see if it applies to you.

My son talked about a "margin of error" in math. That makes sense, you know the answer is X within a margin of error. In both the math case and the written paper, the margin allows you some wiggle room in case you've made a mistake.

My point to my son was that we need margins in our life. We need extra time. When I drive to Columbia, I know I can make it in an hour and a half, I allow two hours. I may have to stop for gas, or to get a bisquit. Or I may run into traffic. The margin allows me to still make it to my destination at the appointed time.

For school work (or job work), I allow margins. If something is due Tuesday, I'll work on it to be finished Monday. This way if the phone rings and I get busy, I have a margin to absorb the extra work.

In financial terms, Dave Ramsey calls this an "emergency fund". If the refridgerator breaks (ours did a month ago), you dip into the emergency fund to replace it, then build the fund back up. The emergency fund becomes your margin. A bigger margin is needed for job security, most analysts tell you to keep 3-6 months expenses in savings for such as this. Again, it's a margin.

When we start eating into our margins on a regular basis, problems come up. If we use all of our emergency fund and don't replenish it, next time an emergency happens, we're in trouble. If we have no margin on our homework, we can't handle things outside the norm (late dinner, extra chores, etc). If we have no extra time in our trip to Columbia, and we run into traffic, we will be late.

Margins are necessary in all aspects of our life. Financial, time, or just to give us some reduced stress.

Margins

My take on sub-prime

I've been watching the sub-prime fiasco for some time. The questions are 1) What is sub-prime lending?, 2) Why are lenders in this business? 3) Who loses? 4) Who's to blame? and 5) What can (should) we do about it? The next several paragraphs explore these questions. It's long, but should be easy to read. Please comment.

During my MBA studies, I paid attention to real estate and to legal matters. While I didn't explore either in enough depth to get a real estate license or a law degree, these areas interested me. For my White Collar Crime class, I did a paper on real estate fraud. So I've done some research.

First and foremost, I need to define sub-prime lending. Most lending today is done by a FICO score. If you watch enough TV, you'll see ads about getting your FICO score (don't do it, not worth you money). Basically, you get a score from 0 to 850 that tells your liklihood of repaying a loan. Lenders group everyone into two categories, those with high scores are called "prime" and those with low scores are called "subprime" (sounds like beef). Typically, prime borrowers get good rates and good terms, subprime get higher rates and terms that aren't as good.

Second is why are lenders in this business? Simply put, it's business. Lenders have found that they can make money on these kinds of loans. They may have to increase fees, prevent the borrower from refinancing, increase rates over the life of the loan and anything else. They are taking a higher risk by lending these people money, so they want a higher reward (MBA motto - more risk = more reward).

Another part of the answer to why lender are in this business is that borrowers are in this business. In the past (and somewhat now that the crisis is upon us), subprime borrows simply couldn't get a loan. They weren't able to buy houses at all. Now, thanks to subprime lending, we have the highest home ownership rate in history.

So third is who loses when the subprime industry falters? Well the borrower is the one who is most affected. The borrower who can't pay his mortgage loses his house, trashes his credit and makes the next house even harder for him to buy. His family is rooted up out of his house and his part of the American dream becomes a nightmare.

The lender also loses. Sure they make up for it on other borrowers, but they lose for each borrower who goes under. And in the long run, some subprime lenders will fail. This means the stock-holders lose their investment. Other companies who have supported the lender (including mortgage brokers, appraisers, real estate agents, etc) also lose. Jobs will be lost, mothers will go home to report that they have to look for another job. And because credit tightens up, prospective home buyers everywhere will pay more interest for their mortgages.

One additional loser is the renter. Since mortgages have been so easy, many renters purchased homes. Less apartments have been built and now, the renters are returning. So the supply of rentable space has decreased and the demand has increased. Guess what happens to the average rent payment? (it goes up).

So the next question is who's to blame? The republicans or the democrats? The borrower or the lender? Big business or the little man? Simply put, there's enough blame for everyone. As mentioned earlier, the low rates and easy credit has given us the highest home ownership rate in a long time. More importantly, low income families have benefitted the most from the easy credit situation. They are likely now to lose the most. Everyone who takes credit for the former, also gets credit for the latter. Our capitalist society (in which I gladly participate) means when there is a need, someone will fill it in search of a dollar. So the lender is simply filling a need. Big business is finding a way to help the little man. Could they do it with better terms? Sure, but less people would get loans.

Now, what can we do about it? First and foremost, I believe in personal responsibility. The borrower needs to learn the ins & outs of mortgages (at least HIS mortgage) before he applies. He also needs to practice some discipline, show the lender that he will indeed pay his bills on time and wait for a home until he can actually afford one. Lending terms need to be policed a little better. This burdens me to say this, I typically avoid most legislative changes. But some of the terms in these subprime loans are simply wrong. The purpose is to trap the borrower. Only by cleaning up the laws can lenders be held accountable.

Please post your comments here.