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Have A Happy Friday: Chevy has an app for SBS

Apple’s “Unfair” Supply Chain Advantage

One of the challenges all companies face, whether they be old smoke-stackers or new startups, is how and at what level to price their product(s). Beth’s blog yesterday outlined how JCP is going back to its roots, adopting a single pricing strategy without gaming customers.

Apple, especially in their iPad pricing, drives the tablet industry. Here’s what James Kendrick in “The double-edged sword facing competitors of the iPad” stated 2/1/12:

Apple’s current gross profit margin is 44.1 percent, a large part of that due to high iPad sales. There is no way any company can compete with that performance, especially with tablet pricing already a dicey proposition. It’s as if Apple is telling competitors it will price the iPad at a level that will guarantee them trouble, and still make 2-3 times the profit on each one sold. That’s what Android tablet makers face, and who knows for how long they’ll be willing to do so? In the same article, James states: “no one can match Apple’s position in the supply chain to get things built as cheaply.”

We’ve previously blogged about Apple’s supply chain strategy, especially involving Foxconn. The bottom line is without a significant breakthrough in price/performance, the majority of competitors are just pissing in Apple’s tablet strategy’s wind. Not a good place to be. So how do you compete in this market, if at all? Hank

You’ve probably seen the annoying commercials?

JC Penney starts a new pricing and promotional strategy today which is a complete turn-around from the way they’ve done business over the last 30 years.  From now on when you go into a JC Penney store, every item will be at its lowest price, all the time.  Gone are the weekly 50% off sales.  You won’t see coupons or Sunday circulars (good for the environment) anymore, either.   Penney’s compares their new model to that of upscale department store Nordstrom, when in fact it seems identical to discount giant Wal-Mart.   Either way JCP positions it, it isn’t unique.

Retail stores as late as the 80’s had only two big sales per year:   Winter Clearance in January and Summer Clearance in July.  The clearance “cleared out” the merchandise they couldn’t sell at regular price.  Then some retail executive came up with the great idea of running discounts all the time.  By marking-up their merchandise 200% and sporadically running a 50% off sale, they’d fool customers to flock to the store and buy up the sale merchandise, at what used to be the regular price.  It worked, and many retailers scrambled to follow the same pricing tactic.   For years customers fell for it, but they finally got wise to the game.

Now customers wait for everything to go on sale before they make a purchase from stores like JCP.  If Jockey underwear isn’t on sale at Penney’s this week, it will be next week, or it’ll be 50% off at Kohl’s, and JC Penney just missed a sale.   It took awhile, but retailers finally figured out that the customer wised up to their price gimmicks.  So, JCP is going back to the way it was, hoping that their customers, who have become fed-up trying to keep-up with the “what’s on sale this week” game, will start buying the things they want when they want them.  They won’t have to wait for it to go on sale or buy it from JC Penney’s competitor, because Penney’s will always have it at the lowest price.

Will the new/old pricing strategy work for JCP?  And if it does, will other stores follow?  Will the coupon craze (Groupon, Foursquare, Tjoo’s…) fade away, too, if retailers always price their merchandise at the lowest price?  I love change – it keeps us on our toes!   Beth Carroll

A concise 25-word definition of entrepreneurship

About 37 years ago, that’s many lifetimes in the world of technology, a Harvard Prof named Howard Stevenson defined entrepreneurship as :”Entrepreneurship is the pursuit of opportunity without regard to resources currently controlled.” You can read more about this at this link from Inc Magazine:

Lets break his definition down into its components:

• Pursuit-Doesn’t mean you ever catch and put the genie in the bottle
• Opportunity-Generally recognized by others who are also in pursuit
• Without regard-Damn the torpedoes, full speed ahead -> or naysayers drop dead!
• Resources-The Men, Material and Money required to start most businesses
• Currently Controlled-You don’t have men, materiel and money lined up – but you’re working on it

Kind of says it all, doesn’t it? Hank

Apple’s Foray Into Textbooks

At the Guggenheim Museum in New York City last week, Apple introduced interactive textbooks in the iBooks store and the iBooks Author textbook-building tool. To use the iBook product, distributed only via iTunes, you MUST use only Apple products such as the iPad, and author the books on their software iBooks Author. You must publish your iBook on iTunes for free (allows publishing elsewhere), or for a price which their EULA binds the author(s) to ONLY Apple control and distribution.

Some would say Apple’s foray into such publishing of “books” is “Disruptive.” Some would say it’s good business. Some would say their business model (Apple’s silo and closed systems) absolutely suck. From my perspective, I have mixed feelings. My wife and I own a iPad (first edition) and an Asus Transformer. The iPad sits unused on its charger, and the Transformer is used every night to read news, email etc. It is used on our sailboat for weather and navigation. It is used in our car as a large driving GPS. My point is there are several devices that are superior to the iPad in just about every way, including PRICE/Performance.

My second point is useability. One winter I spent countless hours authoring a wiki on entrepreneurship which I used to teach Maymester ENTR200. All the students liked it b/c it was free, but only 1/2 would chose it over a textbook for a host of reasons, albeit not all that valid. Hitting the K12 target market with the iBook concept has a chance of conditioning students and eventually a population away from thinking dead-tree is the only vehicle upon which to facilitate learning. You be the judge. See below for more input. Hank

PS: Installation of iBook Author requires 10.7 op system on your Mac. I have chosen not to go there b/c of reported problems with it so I haven’t checked out Author myself as yet. I doubt that the world will shift off its axis one way or the other once Author lands.

Have A Happy Friday: The Toilet Story

President Obama & “Fairness” ????

There is a saying “All is fair in love and war.” According to web references, “It traces its origin back to John Lyly’s ‘Euphues’ (1578). The quote was “The rules of fair play do not apply in love and war. ” John Lyly was a Renaissance English poet and playwright.” The saying is further defined as ” behaviour that is unpleasant or not fair is acceptable during an argument or competition.” Thus based on concepts dating back to at least 1578, “fairness” depends and competition bends the concept toward being a moot point.

As entrepreneurs, you are in competition with everyone for everything, be it ideas, patents, skilled people, money, getting products to market acceptance, anything and everything is competition-based. As suggested in this past Tuesday’s blog on Apple’s use of Foxconn to manufacture most/many of its products for world-wide consumption, they do this not out of a sense of fairness, but competition and maximization of profit potential for their shareholders. Make no doubt about it: Apple’s manufacturing is NOT “FAIR” to American workers.

Let’s face it, we are in global competition with the rest of the world for everything, be it energy, doctrine, policy, or business-based. The rules in this competition are NOT BASED on a President Obana Doctrine of Fairness, but whatever it takes to win the competition.

Please don’t sit complacently by thinking “Yeah, right on Mr. President, lets be “fair” about taxes, health reform, income equality, and give everyone “a fair shot.” That’s not the way the world turns, and certainly not a basis on which entrepreneurs compete on a global basis. Rather, the name of the game is whatever it takes. Let’s be fair about fairness. Hank

The King Delivers

Every semester at least one of the student teams in my class proposes a business idea involving delivery; whether it’s restaurant food, groceries, laundry or alcohol, they believe it to be a good business model with profit potential.  As an instructor of entrepreneurship, I encourage them to be more creative and try to think of a good business idea that stretches beyond their college bubble reality.

Sure, delivery is needed by some consumers, those with limited ability to travel to the store or to a restaurant.  That consumer niche’ would probably prefer to have more home delivery options.  But is this really a necessary business model for the majority of consumers?

Recently, though, I’ve noticed signs in upscale restaurant windows newly offering a delivery service.  And, Burger King just announced that they are piloting a test delivery program in the DC area with the goal of bringing it nationwide.    So, now I’m beginning to re-think my stance on home delivery business models.  Apparently we’ve become accustomed to not having to go out of the house to participate in purchasing consumer goods and services.  Most products are available online and can be delivered to our door.   So, of course the next generation believes this convenience should apply to food, alcohol and laundry.   In addition to getting our pizza and Chinese food dropped on our doorstep, now the local Italian restaurant will bring us our dinner, too.  Most of these foods travel well, and can be reheated in the microwave or eaten cold the next morning (cold pizza is my favorite and my daughter likes cold Chinese noodles).   But, fries, burgers and shakes don’t usually taste very good unless eaten quickly after grabbing the bag through the drive up window.  Burger King says they have developed a new thermal packaging which ensures the Whopper and french fries are delivered hot and fresh.  You’ll have to pay a $2 delivery fee and probably tip the driver.  A minimum order is between $8 and $10.

If Burger King really has figured out a way to bring their food hot and fresh right to our door,  is this something we want?  Isn’t the reason we eat at McDonald’s and Burger King because it’s so fast and convenient?  If we had another choice, just as fast and convenient with better taste and  nutritional value, would we choose that over a burger and fries?   Time will tell if this delivery trend will prove to increase sales and be cost effective.    Domino’s, whose business is 70% delivery, wishes them luck saying  ”There is a reason that not all pizza places deliver: It isn’t easy.”  Beth Carroll

Obama to Steve Jobs: “What would it take to make iPhones in the United States?”

I don’t normally do this, but all students [and all readers of this blog] regardless of their major should read, digest and understand the implications of Apple’s manufacturing strategyas depicted in the following NYTimes article: http://www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html

Might give those 99% protesting the 1% while carrying all Apple gear pause for thought. The article presents a very concise picture of Apple’s global supply chain and implication(s) for US policymakers, workers, and educators. What is your take on Apple’s strategy?

You can read more about Foxconn here: And a video of Steve Jobs defending Apple’s use of Foxconn as its manufacturer of choice is below:

PS: Since I wrote this blog entry, the Dean of Krannert School of Management sent the link to all Krannert faculty as a suggested reading. Keep in mind, the “Stay Hungry, Stay Foolish” guy started this.   Hank

Feeding your caffeine addiction: AeroShot to the rescue

 David Edwards, a Harvard professor of biomedical engineering who also invented inhaled insulin, has a new product on the market – AeroShot. The AeroShot contains a puff of lime-flavored caffeine powder; one squeeze, and it dispenses about 40 mg of the drug in your mouth, like an asthma inhaler. (The Washington Times)

As you might imagine, David’s device has and is raising the ire of pundits in many corners, including Senator Chuck S. of NY. According to their FB page, they are seeding (making dependent???) college campuses with free samples. One of their FB fans states “I just baught AeroShot, and now I am a fan, got my friends into them. Working 10 hours a day in a office doing tax work…..Aero saved our days !!!” Others are pissing and moaning about shipping costs and their business model in general.

For entrepreneurs and those aspiring to be, is this really a viable concept on which to base a business? How would you change/improve their distribution system? Would you target a narrow market or follow a more shotgun approach? How would you counter the naysayers out there? Do you expect big brother (FDA, CPA or ???) to step in and rain on your parade? [Thanks to Beth Carroll for the heads up on this "different" product.] As a side-lite a video ad for their “product” is below.  Hank