Adele’s New Album Is Unavailable on All-You-Can-Stream Services

Yesterday, while out Black Friday shopping, my brother-in-law informed me that Adele’s new album dropped! I had heard her single, “Hello,” which had been released a few weeks ago and loved it. So, today, I logged on to iTunes Radio to stream Adele’s new album, 25. But, it wouldn’t show up! I thought this was odd because I’ve never encountered this problem before. Adele’s hit single “Hello,” is the only song off the new album I was able to stream. So, I went ahead and purchased the album in order to listen to it. As a side note, it was well worth the cost.

A quick search on the internet revealed that Adele and Sony, Adele’s record company, opted not to allow streaming services such as iTunes Radio and Spotify access to her new album initially to drive her album sales up. A few explanations are found here:  Why Adele Isn't Streaming Her New Album on Spotify or Apple

All-you-can-stream providers pay less to the artist, and Adele and Sony must’ve figured the demand for Adele’s new music was quite inelastic. They were right; consumers who couldn’t listen to the music on a streaming service have elected to purchase the album instead. This resulted in Adele selling 2.8 million album copies within the first five days of the album’s release – a record for the first week! You can check out the details here: Adele's '25' Sets One-Week Sales Records in U.S. and Canada

All I can say is, nice move Adele.


The Myth of Black Friday

I read Where You Definitely Don't Want To Be On Black Friday -- The Mall because today is Black Friday. The article was wrote two years ago, but it really made me wonder if participating in Black Friday is the right decision. I still participated in the Black Friday madness last night, and according to a recent survey over 30 million people said they would shop on Thanksgiving day. As long as consumers create a demand for products store will continue to feed the frenzy. Stores create the frenzy by offering a few products for extremely low prices. They try to create offerings that will get you in their store, and hope you open up your wallets when you get in their store. Last night, my wife and I went to Target. Once we got what we were looking for we got in line. We had to wait quite some time in line. Target made the lines go up and down different isles. By the time we got to the register to check out, my wife had added at least five random items to our cart. 

I've never been one to participate in Black Friday, and I don't pay close enough attention to prices to know if there are better deals available. The author states that that consumers should enjoy the family time that comes with Thanksgiving, because the there are always deals before Black Friday as well as after Black Friday. If consumers are not spending much money early in their Christmas shopping, businesses will slash prices even more to give them an incentive to buy items.


Black Friday Is Coming

I have never really liked Black Friday.  I don’t like the crowds, the crazies, or the early morning lines.  It is, however, interesting to view it from a management/economic perspective.  It used to be that the retailers were participating in a simultaneous, one-shot game for Black Friday each year.  They would all publish their ads in the newspaper on Thanksgiving and hope their products would be in-demand and their prices would be the best thus creating a long, long, line out their front door that began forming at some unearthly hour in the morning.  My experience at that point was that I would wait in this line, freezing my toes off, just to get into the store to find that the item I was hoping to purchase was sold out after 20 people entered the store. 

Retailers now seem to be trying to change the timing and order of moves, creating a sequential-move game. According to  Black Friday and Beyond: The ultimate holiday shopping guide, an article by CNN money, retailers are already releasing information about deals to be had on Black Friday.  It seems that retailers are hoping that by releasing sale information early they may be able to create first-mover advantages yielding higher pay-offs.  This strategy, along with increased “pre-sales and teaser ads”, Thanksgiving Day, and Cyber Monday deals, may help some retailers grab a larger piece of the estimated $369 average to be spent per consumer this year.  As for me, I’ll be keeping my toes toasty warm and will be spending my Black Friday with a book and my family. I hope you all have a safe and happy Thanksgiving weekend as well, no matter how you choose to spend it.


Drug Trials

After reading several articles on Bloomberg, I came across an article that intrigued me; The CEO who Saved a Life and Lost his Job. As I was reading this article, a statement by Kevin Donovan stood out. He said "The company's obligation is the greatest good for the greatest number." This statement got me thinking. How is this statement relevant? The company has spent millions of dollars getting the drug ready for the market, however, these costs are sunk costs. Why would the company, financially speaking, need to refuse to allow the family the use of the drug? 

The article explains that Josh Hardy's medical condition didn't meet the criteria set for all previous trials. The company had a number of assumed risk to consider: first, Josh's treatment didn't meet the criteria, second, the possible delays that could occur if the drug didn't work, or three, if the FDA pulled it all together.  These risk could have had drastic financial consequence because the results on Josh's condition were unknown. 

After Chimerix completed a new analysis, I am sure the Net Present Value would now be lower than expected from shareholders. This could potentially prevent investors from continuing to invest in the drug. The company currently was not earning any revenue and was relying strictly on money from investors. This insight helped me understand Kevin's statement as I related to Chemerix point of view versus taking an emotional position.

Will McDonald's Latest Strategy Work?

After several years of declining sales and decreasing market share, McDonald's has tried many different strategies to remain competitive in the fast-food industry that  they once dominated. Each strategy seemingly comes at the problem from a different angle, trying to entice new customers or simply to keep current customers coming back. Years ago, in an effort to capitalize on the gourmet coffee craze, McDonald's introduced a line of premium coffee drinks to entice new customers to their restaurants, hoping they would also purchase food that wasn't offered at the time by competitors. That strategy had mixed success, and a number of different strategies followed along similar lines. McDonald's latest strategy is to place "Create Your Taste" kiosks in its restaurants that let customers customize their burgers with premium buns and toppings.  But is McDonald's really taking a hard look at their core customers base?  Why do customers frequent McDonald's, as opposed to the many other available options for burgers?  Will McDonald's customers be willing to pay more for premium sauce, cheese, and toppings, such as guacamole and chili lime tortilla chips? Will they be willing to wait longer for their burger? Or do they just want a cheap and fast hamburger?  My bets are on cheap and fast.

Aside from possibly missing the mark on how much their customers are willing to pay for a burger, according to Hayley Peterson in the Business Insider, McDonald's turnaround strategy has one key problem: customers can only order food from the "Create Your Taste" kiosks by walking inside its restaurants.  That's a real problem when McDonald's gets as much as 70% of its sales from the drive-through.  So given the cost of the new technology for each franchise of between $120,000 and $160,000, will there be any payoffs, and will the franchise owners be able to recoup those sunk costs for the kiosks?  It's quite a price for technology that will only be available to a fraction of its customers.  McDonald's certainly believes the pricey kiosks will reap rewards as more and more customers are looking for menu customization at restaurants.  But is that what a typical McDonald's customer is looking for?  Especially when the vast majority of their customers are using the drive through, which implies they want their fast-food FAST.

According to Darren Tristano, Executive Vice President at Technomic, "the danger is in moving away from what made McDonald's successful in the first place: speed of service and affordability." I couldn't agree more.

Peterson, Hayley (2015).  McDonald's Turnaround Strategy Has One Major Flaw, Business Insider, August 25, 2015.  


Vertical Disintegration

During 2014, A.G Lafley left the retirement life to try and calm down the upset shareholders of Proctor and Gamble (P&G). Lafley left P&G after working there for thirty years, and shortly after the company’s profits began to decline. The board went wild, and demanded the former CEO return. Coming back has already been shown successful, with P&G seeing an increase in profits by 3% (Ng).
                Lafley declares the issues with decreasing profits are a result of not enough specialization and too much vertical integration. An article in Wall Street Journal talks about Lafley’s changes says only a few of its brands produce 90 percent of its profits (Ng). P&G’s move now is to sell off or shut down the less profitable and lesser known brands and reap the benefits of specialization. The goal is that when consumers are making a purchase P&G’s products are the preferred choice, and P&G will rake in profits assisted by specialization.
                Chapter six in the textbook warns us of the costs of vertical integration, and P&G is evidence of these costs to the bottom line. With P&G’s loss of profitability so quickly, there is suspicion if vertical integration is not only the issue. While Mr. Lafley has reversed the decline, his forerunner and successor (Bob McDonald) as CEO may have been experiencing some principle-agent issues that plague today’s management decisions.


Ng, Serena (August 1, 2014). P&G to Shed More Than Half Its Brands. Retrieved from: http://www.wsj.com/articles/procter-gamble-posts-higher-profit-on-cost-cutting-1406892304


Supply and Demand—the Minimum Wage Debate

I got my first “real job” at age 15, working at a gas station/lube shop, making $4.25 per hour.  Prior to that I had worked for myself mowing lawns in the summer.  This job was great as it was not just a summer job, but was one that I could work year round.  Not to mention the fact that they paid me minimum wage!  I honestly remember feeling excited about that.  At the time I had friends that were working for less, which made me feel fortunate due to my limited experience.

This job gave me a great start and introduction to the workforce.  I quickly learned what accountability truly meant.  I began to understand both the positive and negative affect of my actions.  My actions could not only affect me, but also my coworkers, my employer, and the company as a whole.  I also quickly learned that the owner of the lube shop was running this company for one reason, and that was to make money.  He wanted people on board that could help him achieve that goal.    

The math was simple, the more cars he could service and the less he paid out to his employees, the more money he could make.  There is a balancing act in keeping talent, but not overpaying for it.  He understood that this was mostly likely not going to be my career and that I would eventually leave for “greener pastures”. 

There has been a lot of conversation about raising the minimum wage.  I don’t feel any of the perceived benefits can truly help the economy in the long term.  States such as California are looking at raising their minimum wage by 66%, from $9.00/hr. to $15.00/hr.  As detailed in the article “The Minimum Wage”, many people, including politicians, are discounting the basic principles of economics in consider these increases. 

There are few conditions in which raising the minimum wage would actually increase demand.  Raising the minimum wage will make it more difficult for the inexperienced worker, specifically teenagers, to find work.  This will deny many of our youth the opportunity to have the experience of being a contributing member of the workforce and learning the valuable life lessons.

As for the increased payroll expenses, employers have several options that they can consider in running their organizations more efficiently.  It should be expected that the consequence of this increase would ultimately be passed on to the consumer in the form of increased prices of goods and services provided.

Minimum wage jobs are just that—they are minimum wage jobs, a starting point for bigger and better things.  They should not be looked at as a final destination.  For those individuals that are unhappy with their pay rate, look at it from the perspective of the owner.  Ask the question, “Am I an asset or a liability.”  If you are an asset and feel your time and efforts are worth more, then that would be a sign that it may be time for you to find a new job.
There is nothing wrong with starting from the bottom and working your way up.  I am thankful for my first job, for the experience I obtained and the foundation it helped create.  We owe it to our youth to allow them to have the same opportunities and experiences, as they will eventually be the future workforce.




Effects of increasing the minimum wage

I am often perplexed by public policies people push for without recognizing the many negative effects they can have. Mark Perry in “Minimum wage hikes and reductions in ‘non-wage job attributes’” states his opinion that “politicians and minimum wage proponents almost never consider…real-world and economic realities when advocating for a…minimum wage law.” Despite good intentions of minimum wage laws, the results can often be quite different than intended.

The minimum wage is a classic example of a price floor, and when a price floor is regulated above the price equilibrium there will be a surplus supplied beyond the quantity demanded. Thus, with a minimum wage above the equilibrium price, the quantity of labor demanded will be less than the labor supplied by the work force. (I am convinced that one hidden variable explaining the reduction in the national unemployment rate is people exiting the work force when they realize the quantity of labor supplied is above the quantity demanded.)

But in addition to less labor being demanded than being supplied, Mark Perry, in referencing Don Boudreaux’s article “More on the Principles of Economic Principles”, points out that there are other “non-wage job attributes” that employers will reduce in response to minimum wage hikes, so that even if unskilled workers are paid more, their overall conditions may not be improved at all. Among these other non-wage job attributes that affect an employee’s work experience are upward mobility, health insurance, on-the-job-training, workplace comfort, workplace safety, and more. As employers are forced to pay a higher minimum wage, they adjust by reducing costs spent on these other benefits. Because of these negative effects, I think the government should avoid increasing the minimum wage.

The Cost of Raising the Minimum Wage

On September 10, 2015 the governor of New York, Andrew Cuomo, with Vice-President Joe Biden by his side announced that New York will gradually raise the minimum wage for fast-food workers to $15 an hour. During the announcement Vice-President Biden reiterated that he and President Obama remain committed to raising the federal minimum wage to $12 an hour.

When governments get involved in markets it can have a negative effect on markets and on the labor force. In the case of raising the minimum wage the results to the market and labor force depend upon the demographics of the cities and states where minimum wage is raised. It is possible for a higher minimum wage to not have a negative effect on the labor force, so long as the price floor for labor is set lower than the market equilibrium price for labor. However, when the minimum wage is set above the market equilibrium for labor it leads to a surplus of labor in the market. This surplus results because there are more people looking for work than the market is willing to hire at the higher wage.

I read an article this week that looked at another way, besides labor supply and demand curves, to measure the effect of raising the minimum wage to $15 an hour. The article entitled, "What a $15 Minimum Wage Would Mean for Your City," which appeared in the New York Times, uses the ratio of minimum wage to median wage to look at how a $15 minimum wage may affect different large cities throughout the United States. The higher the income ratio the greater the risk for job losses. The article suggests there is evidence that cities and states are able to absorb an increase in minimum wage when the ratio of minimum to median income is around or below 50%, but that there are few examples of what happens when the ratio is above 60%. The city of New York has a ratio of 55%, whereas Las Vegas has a ratio above 70%. This suggests that raising the minimum wage in Las Vegas to $15 an hour may result in job losses. Thus an increase in the federal minimum wage may not negatively affect cities like Boston or New York whose income ratios are around 50%, but it may affect the labor force in cities like Las Vegas and New Orleans, who both have income ratios above 70%.

The evidence suggests that an increasing in the federal minimum wage may not be a great idea due to the potentially negative effects on local economies whose income ratios are higher than 50%. A universal sweeping federal minimum wage law ignores the negative economic impact on rural towns and large cities whose income ratios are high and where job losses are likely to occur if such a universal law is passed. 

Link to the article I read:  http://www.nytimes.com/2015/08/13/upshot/what-a-15-minimum-wage-would-mean-for-your-city.html?_r=0

Adidas vs. Nike

Adidas is attempting to regain some of their market share that they lost to both Nike and Under Armour. Last year they finished in third place in the US market behind both Nike and Under Armour. Nike has had great success in signing athletes to help promote their athletic apparel. Under Armour has also been extremely lucky this year. Steph Curry and Jordan Spieth, two of the most popular athletes in their sports, are endorsed by Under Armour. Adidas has not had much luck on their side, but that may change. Recently, Adidas has increased spending on marketing by signing new celebrity partnerships with popular athletes. Last year, they signed Damian Lillard. Recently they signed James Harden, who will attract many young athletes. They are currently trying to make a big push by agreeing to partnerships with the NHL and sponsorship deals with top NHL and NFL players. Adidas plans on spending 13 to 14% of sales on marketing, compared with 10 to 11% for most rivals.

Nike controls much more of the market than Adidas does, but Adidas is currently seeing improvement with their new products and marketing ideas. I find it hard to believe that anybody will ever overtake Nike, but Adidas can compete better than they have in the past few years. Their sales growth rose by 6%; which is the fastest pace since 2011. I personally never liked Adidas apparel until I went to school at Southern Utah University. I feel that they their products have improved. I like Adidas more than I used to, but still would prefer Nike products over Adidas. 

Why do the Philadelphia 76ers consistently suck?

The 2015-2016 NBA basketball season has barely started.  However, looking at the standings, we find something familiar.  The Philadelphia 76ers are in second to last place. At the end of the 2014-2015 season, the 76ers finished in second to last place. At the end of the 2013-2014 season, the 76ers finished in second to last place. I think we see a pattern here. The question is “why?”

Why don’t the 76ers improve? You could blame it on the players, you could blame it on bad coaches, you could blame it on the management of the team, or, maybe, you could even blame it on Philadelphia. Really who wants to live in Philly?  What are they famous for anyway? Their claim to fame is a sandwich with cheese whiz and a cracked bell. I state the above with a modicum of sarcasm, but the fact of the matter is that the Philadelphia 76ers are a consistently bad team.

As David Berri points out in “NBA Owners Do Not Understand Competitive Balance,” the problem is with competitive balance. That is the reason why year after year we see the same teams in relatively the same positions. Can that problem be fixed? Berri suggests in his article, that competitive balance is a problem that probably cannot be easily fixed.

One of the things this NBA case study illustrates for us is the consequences of a monopoly. In North America, our sports systems are set up under a monopoly structure.  As the systems currently stand, there is no driving force to fix that structure. Monopolies can lead to economies of scale and scope, or, when regulated, they can result in a lack of desire to fix faulty performance, as seen in the Latin America energy monopolies. However, within the power of the monopoly, high prices can still be charged; and the output can be reduced to drive those high prices (i.e. the reason why NBA arenas have relatively small capacity). These problems can be removed in a perfect competitive setting or what Berri calls competitive balance.

There is more to the NBA problem, as well as other issues relating to monopolies. However, in regards to the Philadelphia 76ers, if I were a betting man, I would put big money on that team finishing in second to last place at the end of this season.