Well, no sooner did I blog about the miserable time that McGraw Hill's Terry McGraw has been having that do we learn that Standard & Poor's President, Deven Sharma, will be leaving the credit-rating firm by the end of the year.
S&P claims that the move was under way long before it announced its downgrading on U.S. long term debt on August 5.
Lookk for an announcement before the opening of markets on August 23.
Of all the marketing courses I studied, my favorite was Consumer Behavior - understanding what makes people tick, and how that ticking leads them to buy some things, while not others.
Of the factors that shapes the psychology of buying (e.g. attitudes, motivators, culture, lifestyle) the one I find most intriguing is perception - how our senses interpret the world. As it turns out, there are two things about our perceptions that make a marketer’s job interesting.
First, people don’t perceive the same thing the same way. Trial lawyers know this as well as anyone. As do TV viewers who watch baseball umpires and Olympic figure skating judges make their calls.
Consider the food and beverage industry. Marketers new to the business quickly learn that what tastes sickeningly sweet to one person is “just right” to another. One of the reasons for the success of Coca-Cola is its lack of taste memory. The taste of other beverage products - and many foods - are “sticky”, i.e. it accumulates and stays with us. Not so with Coca-Cola - which is why people can drink a half a dozen Cokes every day and never grow tired of the product.
A simple illustration of how two people can perceive the same thing differently comes courtesy of the Necker cube and the Rubin vase. You’ve likely seen these illusions before. The mind interprets each of them in two distinct, yet perfectly valid, ways. (This video shows why the Necker cube illusion works.)
This partially explains why, no matter how good or well-differentiated a product is, there will always be competition for it. It is also why product ratings on Amazon with 5-star ratings can have a fair share of 1-star ratings. Universal brand acceptance is a lofty, but unattainable, goal for marketers.
Second, the conclusions we draw about events are shaped by our expectations of them. If this were not so, magicians would not be able to put illusion and misdirection to work in their acts. The “magic” comes from our brains perceiving the occurrence of events that we otherwise know to be impossible.
To understand what this means to marketers, let’s stay with our food and beverage example. Die-hard brand loyalists (e.g. those who drink Coca-Cola and nothing else) fail miserably when it comes to correctly identifying their beverage of choice in blind taste tests. Put another cola in a Coke-branded bottle, and most people will likewise fail to taste the deception. It says Coca-Cola on the bottle, so our brains convince us that is what we are drinking.
Here is a video of an especially convincing optical illusion that illustrates that things are not always what they seem. Our experience and expectations tell us one thing, but reality can be surprisingly different.
In his 1979 Pulitzer Prize-winning book, Gödel, Escher, Bach, Douglas Hofstadter devoted a considerable portion of the book to the work of artist M.S. Escher, an example of whose work below may be familiar.
Escher devoted much of his work to recursive art - illustrations in which the main objects refer back to themselves in ways that are impossibly contradictory to us. His art works because our brains tell us what to expect, yet the reality we experience does not match it. We are confused, puzzled, and intrigued - all at the same time.
That our brains work this way explains why cheap imitation counterfeit products can often fare well in the market (the - sadly - dark side of marketing) and why some products, no matter how technically good - or even superior - they might be, do a face-plant in the market. Consider the Betamax and HD DVD video formats - if you even remember them.
Though these are complex matters, the following illusions illustrate how easy it is for the mind to interpret reality differently. If you enjoy M.S. Excher's work, you'll like these.
Harold W. McGraw III, more commonly known as “Terry”, is Chairman, President and CEO of McGraw-Hill Companies, publisher and broadcaster. He is the founder’s great-grandson.
M-H is known widely for the tens of thousands of textbook titles it has published. With annual revenue of $6+ billion, M-H has some well-known brands under its mantle: The Ryerson Press, Random House, J.D. Power & Associates and, yes ... Standard & Poors.
McGraw-Hill has had a tough go of things for a few years. It sold BusinessWeek, which has been racking up losses for years, to Bloomberg in 2009. It has also brought in an an outside company, Evercore Partners, to sell its large Education business.
Now, on the heels of the debt ceiling stand-off and Standard & Poor’s decision to lower the U.S. debt rating to AA+, we learn that the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) are investigating S&P’s rating practices. Specifically, federal bodies are examining S&P’s ratings practices as applied to mortgage-backed securities during the financial crisis.
What’s even more interesting is to learn that S&P is conducting its own internal investigation to determine if insiders leaked its intentions to drop the U.S. of its AAA rating.
Just how big a problem does this pose to Terry McGraw?
Terry McGraw will have his work cut out for him during the remainder of 2011, and well into 2012.
Came across two interesting stories this week about marketing. One is humorously ironic, while the other hits a sensitive public nerve regarding online privacy.
Abercrombie & Fitch
On Wednesday, Abercrombie & Fitch, the Ohio-based clothing retailer that operates 1,073 stores worldwide reported an increase in quarterly net sales of 23%, accompanied by an increase in profits of 64%. Who says the economy is in the doldrums?
Investors must have breathed a sigh of relief to learn this, however, as only days before A&F issued a press release stating that it had offered Michael “The Situation” Sorrentino, a character in MTV’s The Jersey Shore, compensation to stop wearing A&F products.
The press release stated:
"We are deeply concerned that Mr. Sorrentino's association with our brand could cause significant damage to our image. We understand that the show is for entertainment purposes, but believe this association is contrary to the aspirational nature of our brand, and may be distressing to many of our fans. We have therefore offered a substantial payment to Michael 'The Situation' Sorrentino and the producers of MTV's The Jersey Shore to have the character wear an alternate brand. We have also extended this offer to other members of the cast, and are urgently waiting a response."
In a world of big ticket celebrity endorsements, paid non-endorsement sets an interesting precedent. It’s one we likely have not have heard the last of once corner-case media figures begin to see it as a clever earning opportunity.
MSN, Hulu and Supercookies
Beginning a year ago, the Wall Street Journal began shining a very bright light on the myth of internet privacy. In six in-depth articles published in 2010, WSJ readers were left wondering if anything they did online was not being peered at intrusively by marketers.
This time, the WSJ focused on “Supercookies.” Though legal, supercookies re-create user profiles even after regular cookies have been deleted. Enlisting the aid of a Stanford doctoral student, the WSJ found that Microsoft’s MSN and Hulu.com both had their hands in the cookie jar (sorry, couldn’t resist).
Microsoft and Hulu both responded quickly to decry the use of the technique, and to take great pains to state that such use was not in keeping with their policies.
It turns out that New York’s Epic Media Group supplied the technology though it, like both Microsoft and Hulu, claimed surprise that its technology was being used in this manner, and had already removed it.
Though the online industry established the Digital Advertising Alliance to police itself in the wake of public concern, Washington legislators have been under pressure to enact tough legislation to protect online privacy. A faux pas like the discovery of supercookies does not bode well for private self-regulation.
From time to time, one of my sons has raised the notion of attending Law School. While it’s a laudable goal, I’ve rained on his parade by pointing out that law school is not the road to wealth and security that he and his friends regard it to be (if it ever was).
My argument was supported in this article that appeared in the New York Times last January. If that was not enough, along came a more scathing assessment written by Paul Campos, law professor and legal critic, in The New Republic.
I haven’t heard any more talk about attending law school.
Likewise, I haven’t heard any mention of pursuing an MBA as an alternative. That’s good. It may be due to his lack of interest in pursuing a business career. Or it might be a result of comments I’ve made about MBA students I’d met during the past 15 years.
I visited the campuses of the country’s top business schools, and also hosted a who traveled to Silicon Valley en masse in search of post-graduate riches. I’ve probably met with and interviewed 300 in all.
I met no more than a handful that I considered real stand-outs. Yet you wouldn’t have known it during the dot-com boom. The vast majority of graduating students I interviewed considered a $100K starting salary to be table stakes. (I even encountered a Harvard student (also a MSEE) who politely told me that he would not be entertaining offers under $200,000. I told him that I must not work for an enlightened company, told him he obviously wasn’t in need of any wish for good luck, and saved us both time.)
The dot-com bubble may have burst abruptly, but the salary expectations of MBAs took somewhat longer to attenuate.
That was then, and this is now.
As with graduate law students, some new MBA grads will hit the jackpot. But the majority will experience disillusionment. As this article about the today’s math in pursuing an MBA reveals, the cost may outweigh the benefit.
Warren Buffett’s Op-Ed piece in Sunday’s New York Times has caused quite a stir. His premise: U.S. tax law since 2000 has reduced taxes for the wealthy, while increasing the burden on the less fortunate, thereby setting up an inequality that will create difficulties for U.S. society.
Following hot on the heels of Washington’s debt ceiling standoff, Buffett’s contrarian view is embraced by Liberals while eschewed by Conservatives. It is a thorny issue indeed. Paying taxes is like visiting the dentist: I don’t know anyone who looks forward to either.
Yet, this is not a new theme for Buffett. He’s been talking publicly about the structural inadequacies of the U.S. tax system since at least 2007 - notably, in this interview with Tom Brokaw in 2008 (run time: 4 minutes, 41 seconds).
While the Brokaw interview has a folksy charm to it, Buffett provided considerably more detail to his arguments when he testified before the Senate Finance Committee on November 14, 2007 (RT 5:18 in length).
If you really want to understand Buffett’s views, here is a video shot on August 15, 2011 - the day following the NYT Op-Ed piece. Buffett is interviewed by Charlie Rose (RT 51:18). It’s a lengthy play, and Buffett makes his attitudes regarding the Tea Party clear. But, Buffett’s views are clear, and his opinions worth understanding.
Charlie Rose Interviews Warren Buffett http://www.charlierose.com/view/interview/11845
Those of you who follow this blog know that I am an unabashed fan of Warren Buffett. Yet, I’m about to exclude other views in forming my own opinion. To that end I offer up a critique of Buffett’s NYT Op-Ed piece written by Jeffrey Miron, undergrad studies director at Harvard and Senior Fellow at the Cato Institute.
The debate on taxation is not going to end this week. It’s just starting, and should reach full swing by the 2012 elections.
Tax the rich to fund government spending? Or allow the private market to allocate dollars better than elected officials? You decide.
Before the opening of markets on Monday, August 15, Google announced its pending deal to acquire Motorola Mobility for $12.5 billion.
Why would Google want to buy Motorola when they risk torching a perfectly good relationship with mobile device manufacturers Samsung and HTC?
The reasons provided by Larry Page on that morning’s conference call was both obvious and plausible but, as industry observers know, was crafted for public consumption. Google is not about to lay out its rationale in detail as doing so is tantamount to to giving its competitors a page from its strategy handbook.
To be sure, acquiring Motorola’s treasure trove of IP assets is one reason (especially in light of Google not being invited to the Nortel patent party last month). But I strongly doubt that losing out on the Nortel bid did anything but cement what Google was already planning with Motorola.
The acquisition has much more to do with ensuring that, to paraphrase hockey great Wayne Gretzky, Google can go where the technology is going to be. We’ve had a few hints in the past four years about just where the smart money is being placed:
The final hint - the one that really strikes home for me - is this 17-minute video of Eric Topol’s presentation at TedMed 2009. It may have seemed a little “out there” two years ago, but not today. Topol presents more than the future of Wireless Medicine. He provides a peek into our very near future. A future in which mobile devices, networks, and applications meld together to create innovations as fast as we can consume them
This is why Google had to buy a mobile device manufacturer. Watch Eric Topol’s presentation and judge for yourself.
