Ann Fulmer on Mortgage Fraud

Yesterday, Ann Fulmer spoke at the Economic Summit we held at Bryant on the topic of mortgage fraud. Fulmer made herself into one of the nation's leading experts on the subject when the problem invaded her own upscale neighborhood in the suburbs of Atlanta. She gave a dynamic presentation, in which she showed us how much it may have contributed to the mortgage meltdown, while providing vivid examples of how fraud simply decimates some neighborhoods (because there's some benefit to the criminals of clustering their activity in particular areas). It was truly frightening to see how mortgage fraud works, and to see that it can affect upscale suburban neighborhoods, bringing other more dangerous crime along with it. For more on Ann Fulmer, see this story about her in Business Week, and this one in the New York Times.

Ethnography, Failure, and Diaper Design

Fortune has a great article on how Kimberly-Clark designed a new line of premium diapers, in part to cope with declining future demand due to demographic trends (lower birth rates). The article highlights two important practices that firms are employing these days. First, it points out the importance of ethnographic marketing research, i.e. direct observation of consumers in natural settings using a company's products. Firms are employing these observational methods, rather than relying solely on focus groups and surveys, because they have learned that people often say one thing and do another. Moreover, consumers often aren't even aware of key aspects of how they use particular products. Observation yields great insights about the specifics of consumer behavior. Here is an excerpt from the article on this point:

"In many cases they went into homes to do interviews; in others, they placed motion-activated cameras in the home to observe diaper-change routines and then watched the hours of footage at K-C headquarters... Nelson plays some footage of a newborn getting its diaper changed, taken from one of the videocameras. You see the baby's legs continually springing up and the mom trying to straighten them as she puts on the diaper; clearly it's a struggle. Footage like that started pushing the team in the direction of thinking that a better diaper would be shaped to get around those legs and follow the curves of a baby's body."

The second key point in this article is that Kimberly-Clark is intentionally creating failures in their research labs to learn more about diaper technology. Only through intentionally causing many types of diaper leaks can they discover how to create a diaper that fits comfortably, yet does not leak. Here is the excerpt on that point:

"Fit diapers in varying states of sagginess, are noisily playing with trucks and watching SpongeBob SquarePants. They're an adorable collection of diaper blowouts about to happen, and when they finally do, K-C's researchers record each failure in obsessive detail: how much the diaper weighed at the end, where the leak seeped out, how the diaper fit around the legs.
The goal of this forced-failure test, as Kimberly-Clark calls it, is to check that the diapers being churned out at the company's factories match the rigorous standards for Huggies Supreme Natural Fit..."

As the father of three, with one still in diapers, I found the article quite interesting. It's rather amazing how much time and money is spent trying to perfect diaper "technology" at Kimberly-Clark.

The Perils of Going Green

Fast Company has an article about how Clorox struck up a partnership with the Sierra Club when it launched its Green Works line of more environmentally friendly cleaners. The deal means that the Sierra Club label to appear on all Green Works products. Naturally, the environmental organization receives a payment in return for the use of its logo. This partnership has been very beneficial for Clorox, but it has created much internal furor within the Sierra Club. Some members apparently do not agree with this type of commercial deal.

This case illustrates the perils of "green" strategies, both for the for-profit firms and the environmental organizations. In this case, the environmental organization found itself on the hot seat for its commercial tie-ups. In other situations, we find that firms who are trying to "go green" find themselves inviting much more scrutiny than they had ever experienced. Sometimes, claiming progress on the environmental front only invites more attention, and perhaps criticism, from various constituencies and activitists. In sum, becoming more environmentally friendly has many merits, but it can be a perilous activity for all involved.

The Importance of Design

From the remarkable success of Apple to the popularity of kitchenware products made by Alessi, we see many examples of the power of innovative design. More and more companies have rediscovered the basic notion that success in the marketplace is not simply a function of a product's quality or technological superiority; design matters. Now, Business Week reports that Coca-Cola has taken a fresh look at how design can freshen up the iconic brand's look and feel. There's no question that great designers can not only help to improve the products we purchase and use, but they also can help connect consumers more closely with brands. A good design can and should convey the meaning of a brand. Some of Coca-Cola's recent work seems quite interesting, particularly because the firm does have some interesting design roots - particularly with the famous glass bottles of old.

Prewards- Coupons for a Digital Age

Business Week has a fascinating article about a new Web 2.0 technology that marketers are using to court millenials. The concept is called a preward. Here is how Business Week describes it:

"Edo Interactive, a Nashville-based firm that deals with Web 2.0 technology, is trying to change the game. After spending a year studying young consumers, they developed Facecard, a prepaid credit card aimed squarely at millennials and the businesses that court them.
Launching nationally Sept. 1, Edo's gimmick works like a fiscal Facebook: After applicants create profiles on Facecard.com, they get a card in the mail that allows them to borrow, lend, or give away money to buddies electronically. For a fee, retailers can send them "prewards," small denominations of instant store credit, based on their age, location, and personal interests. Because the $2 to $3 gifts are redeemed via credit card, tracking consumer response is a cinch."

Now, I found this technology rather interesting, but I was also struck by the amount of spending by millenials, and thus the amount of marketers' attention focused on this demographic. According to the article, "America's 80 million millennials (and their folks) shell out roughly $200 billion annually, according to Chicago-based investment firm William Blair & Co.." Wow! Those are some huge numbers.

Well, this leads me to my main point. Both college faculty and parents need to be paying a great deal of attention to the importance of teaching young people about responsible personal finance. These young people are being hit with massive marketing efforts aimed at getting them to use credit cards and spend their money (and their parents' money!). Yet, many young people do not understand certain essential basics of personal finance. Unfortunately, that means that they leave college in far worse financial shape than simply the debt load of college loans. I don't think we can start too soon by the way. We need to begin educating young people about financial matters when they are in elementary school, and gradually introducing more complex ideas about how to manage one's money.

Knowing Your Target Market

One of my MBA students, Judd Taylor, has shared with me an interesting example of a firm perhaps not being fully aware of how its pricing strategy shapes its target market, particularly given the recent run-up in fuel prices. Taylor wrote:

"I recently completed a new stone patio adjacent to the deck on my house. In the process of researching suppliers for the stone pavers, I noticed that one local company offered free delivery for any amount of goods purchased. I wondered how they got away with this given the recent increases in fuel prices. Further investigation revealed that their stone prices were noticeably higher than their local competitors, indicating that they must transfer their transportation costs onto the price of their products. The ability to offer “free delivery” must be an important advertisement for this firm as it is indicated in all of their flyers and brochures. Conceivably, this pricing strategy would appeal most to homeowners who cannot amortize the cost of the delivery over a large order. Contractors might prefer to pay the delivery charge in exchange for a lower price on the materials, especially for large orders."

Taylor's example is an interesting one, because one wonders if the firm understands how its pricing strategy may be shaping its target market. Does the company understand that it will attract homeowners much more so than contractors with this pricing strategy? Perhaps it does, but in some cases, firms may not understand how a particular pricing strategy may shape who shops, and who does not shop, for their products.

How about the implications of oil price increases? Well, a free delivery ad might play well given high gas prices. However, those increases in gas prices certainly will result in higher and higher item prices for the stones, if the firm wishes to continue make profit with its free delivery strategy. This will only drive more contractors away, and it will mean that homeowners with very small jobs will be the most likely purchases of their products. Will this be economically attractive for the firm? What will its cost structure look like with a high frequency of deliveries of small batches of items? The cost of these kinds of deliveries, naturally, is higher than traveling to a job site to deliver a very large order.

The point is simple: Every firm should be clear on how its pricing strategy shapes the kinds of customers who will purchase its product. Does the pricing strategy attract the kind of consumers that a firm wishes to target? Or, is a firm attracting customers which it does not want, or with which they cannot make an attractive profit?

Productivity of Scientific Researchers

The Wall Street Journal had an interesting article yesterday about the productivity of scientific researchers. The article cites studies about the period during one's lifetime when a researcher tends to be most productive. The Wall Street Journal cites research by Benjamin Jones of Northwestern, who argues that innovators tend to make their peak contributions around the age of 40, but then their contributions decline markedly in their early to mid-50s. Thus, the period of peak productivity is fairly limited. Naturally, these studies simply report the averages; there are many outliers, both young inventors who make substantial contributions at an early age as well as people who continue to innovate well beyond their early 50s.

The article points out that some companies are trying to find ways to extend the peak period of research productivity for their most talented people. They are trying to find ways to both help the young promising stars accelerate their learning curve and become more innovative at an earlie age, and they are trying to help older workers maintain their pace of innovation beyond their early to mid 50s. For instance, companies such as Sun and Texas Instruments are pairing up young engineers with experienced mentors; the partnerships benefit both the young and the old. The young come down the learning curve faster, and the old get access to new ideas and fresh perspectives.

As an academic, from time to time I think about this issue of research productivity over one's lifetime. I've seen plenty of scholars who make great contributions at a relatively early age and then become rather stale. They continue to work in a very narrow domain for decades, and they don't branch out to learn and discover new things. I think it takes a concerted effort on the party of any researcher, whether commercial or academic, to keep exploring new territory and exposing one's mind to completely new perspectives. It's easy to continue to mine the same territory upon which one has built their reputation; it's harder, but ultimately more beneficial, to take the risk to go beyond one's comfort zone and stake out new ground. In sum, I think all of us need to set some personal goals about the new bodies of knowledge and new skills that we would like to develop in the next 3-5 years; we need to keep setting these goals over time, so that we truly become lifelong learners. Hopefully, this will keep us innovative and productive for decades to come.

The Fall of Oil Prices

It's been amazing to watch the rapid decline of oil prices in recent weeks, driven in large part by the fact that demand has dropped. People and companies have finally begun to make substantial changes in their behavior, as witnessed by AAA's data on the reduced amount on miles driven by Americans this summer.

If there is one positive from the high oil prices that we've experienced, it is that firms have implemented major changes to eliminate wasteful use of energy. Such cost reductions will help them become more competitive in the long run. It's interesting that the U.S. productivity numbers have been rather strong during the past few quarters, despite the downturn in economic activity. Perhaps the productivity growth is a reflection of firms trying to become more efficient to offset the high price of energy. Whatever the cause, the growth in productivity in 2007-2008 bodes well for long term economic growth, despite the short term economic troubles.

One last thought on oil prices... One does have to wonder about the timing of the shift in the oil market. Is it just a coincidence that prices began to fall when the goverment began discussing ways to crack down on short sellers who may have been acting inappropriately? Short sellers clearly play a useful role in our capital markets, but there are some questions regarding the appropriateness of some behavior.